GLOBALIZATION: Neoliberal Challenge, Radical Responses (IIRE (International Institute for Research and Education)) - Softcover

Went, Robert

Softcover

ISBN 10: 0745314228 ISBN 13: 9780745314228

Publisher: Pluto Press, 2000

Synopsis

In clear and concise terms, Robert Went demythologises globalization. He refutes the myth that globalization is an entirely new phenomenon and that it is an unavoidable process. While recognising that it poses serious strategic challenges to the Left, he argues that these challenges are not insurmountable and that there is hope for advocating real change.

Went puts globalization into its historical perspective. He shows that there is no option of returning to the postwar mode of expansion, but that the current trend must be altered. If not, he warns of greater social inequality, levelling of wages, worsening of working conditions, life-threatening ecological deterioration and a pervasive dictatorship of the market. To combat this rampant globalization, Went challenges the Left to rebuild its own movement and offer up a credible alternative.

From reviews of the Dutch and German edition

‘Every category of reader will find in Went an author who understands the art of writing very clearly and accessibly for a broad public’. Het Financiele Dagblad (Amsterdam), 14 March 1996 (The Dutch 'Financial Times')

‘This sober analysis of the globalization phenomenon is very accessible and smoothly written’. Financieel-Economische Tijd (Brussels), 20 April 1996

'(Went's) greatest merit is that he proves on the one hand that globalization is not storming ahead as fast as many would have us believe; and on the other hand he shows that great societal changes are taking place’. Onze Wereld (Amsterdam), June 1996 (one of the main Dutch Third World solidarity magazines).

About this title

About the Author

Robert Went is an economist, currently working as a researcher at the Faculty of Economics and Econometrics of the University of Amsterdam and for The Netherlands Court of Audit. He is the author of Globalization (Pluto Press, 2000).

Excerpt. © Reprinted by permission. All rights reserved.

Globalization

Neoliberal Challenge, Radical Responses

By Robert Went, Peter Drucker

Pluto Press

Copyright © 2000 Robert Went and IIRE
All rights reserved.

ISBN: 978-0-7453-1422-8

Contents

List of Figures and Tables, vi, 
IIRE Notebooks for Study and Research, viii, 
Foreword by Tony Smith, ix, 
Acknowledgements, xiii, 
List of Abbreviations, xiv, 
Introduction, 1, 
1. Globalization: What's New about It?, 7, 
2. Globalization: A Product of Technological Change?, 52, 
3. Long Waves of Capitalist Development, 64, 
4. Stagnation and Restructuring: Towards a New Expansion?, 85, 
5. Globalization Under Fire, 105, 
Notes, 128, 
Bibliography, 155, 
Index, 164, 

CHAPTER 1

Globalization: What's New about It?

Gone is the dream of the leisure society, along with that of full employment, that of a regular, secure job and that of a compassionate society. Is there an end to this? And where does barbarism begin?

Manfred Bienefeld

In corporate headquarters' corridors these days, they say that the only way to really insult an entrepreneur is by wishing him luck in creating a lot of jobs ... Modern entrepreneurs think globally. From this standpoint, the nagging unions who say that higher profits should mean more jobs in your own country sound provincial.

Jos Teunissen and Cees Veltman

In the literature on globalization one can schematically distingish three different opinions. For authors such as former US Secretary of Labour Robert Reich and the Japanese business guru Ohmae, globalization is a definite trend that is changing everything and against which national states or trade unions can do very little or even nothing. Partially in reaction, writers such as Ellen Meiksins Wood ('The concept of globalization as it is commonly used is the heaviest ideological albatross around the neck of the left today') and David Gordon strongly question the importance, newness and effects of globalization. Among other things, these authors stress that companies are not really 'footloose' – free to move whenever and wherever they choose around the world – or say that the world economy was at least as internationalised at the end of the nineteenth century as it is today. The 'g-word' has been given many different meanings, they say, and has become ideology.

Between these two extremes is a third position that can be summed up in the proposition that globalization is an exaggeration. Authors who subscribe to this position acknowledge that there are significant changes under way with important implications for the organisation and functioning of the world economy. But they explain at the same time that we are (still?) far from a truly globalised economy, that there are no linear developments and that many of the claims of globalization ideologues are untenable. This book can be situated within this current.

It is true that many ideologues, employers and politicians exaggerate the extent and effects of globalization. Many poor policy decisions are being justified with facile, inaccurate assertions about globalization, which is portrayed as a quasi-natural phenomenon to which we have no choice but to adapt ourselves. But neither fact should make us close our eyes to real, qualitative changes in the functioning and organisation of the world economy. Four aspects of globalization are of particular interest.

First, we are seeing an increase in the number of truly integrated global markets. For production, capital flows and trade, the world economy is increasingly one, and national markets are being replaced by global markets. Global markets are becoming the natural strategic horizon for major corporations, investors and speculators. It should not be forgotten that, not only in absolute figures but also as a relative share of the world population, more people are working today under capitalist relations than ever before in history. This is the result of changes that have come quickly. 'In little more than a decade most of the non-OECD world, comprising four-fifths of the world's population, has moved to privatize, liberalize and deregulate, and is moving to compete actively on world markets.'

Second, the weight of multinationals continues to grow. Globalised companies are emerging that try to plan and organise the conception, production and distribution of their products not only regionally, but also globally, with major consequences for these companies' structure. No multinational is really footloose; studies that show this are a useful antidote to the simplistic, fashionable claim by globalization ideologues that companies can move their activities instantly to other parts of the world. But there are limits to the insights afforded by this type of qualification:

[S]ome researchers have recently been able to show that the usual indices of multinationalisation (percentage of activity abroad, number of subsidiaries, etc.) of conglomerates do not show a break during the 1980s. This is the case for countries such as the US or UK, clearly less so for other countries (France for example). But in any event this misses the essential point: the qualitative mutations that occurred in the conglomerates' structure, their internal and external organisation, and the origin of their revenues. As early as the late 1980s J. Dunning was able to lay out clearly the characteristics of what he called 'the new type of multinational'.

Third, we are seeing an increase in problems of governance or regulation on a global level. This is a result of the fact that national states are becoming – making themselves – less effective, while the construction, reinforcement and legitimacy of supranational institutions, which are playing an increasing role, are lagging behind the development of the global economy. We are seeing a complicated, risky process of shifts in power and responsibilities among various levels of regulation, in which supranational 'unelected world governments' (the G7, IMF, WTO, BIS, OECD, etc.) and regional blocs (the EU, NAFTA, MERCOSUR, etc.) are getting to play a greater role while national states are still the most important entities.

Fourth and most obviously: if there is one thing that has globalised since the early 1980s, it is macroeconomic policies. Since the counterrevolution that took place in economics at the end of the 1970s, the monetarist and neoclassical paradigms have become unchallenged in official institutions and the political mainstream. Organisations like the IMF, the World Bank and WTO are applying variants of the same neoliberal prescriptions everywhere in the world. Austerity programmes in the OECD countries, shock therapy for the former bureaucratically planned economies and structural adjustment programmes for Third World countries all have the same characteristics – export-oriented growth, more market and less state social policy, free trade, deregulation, labour market flexibility, privatisation, priority to the holy war against inflation ('price stability') – while full employment is no longer a policy goal.

Looking at the facts in more detail makes clear just how extensive the changes under way are. Some of these changes do not in themselves have major effects, or are not historically unprecedented. But the combination and scope of these factors are new, and are changing the way in which the world economy functions.

Trade

Since the end of the Second World War, international trade has been growing steadily: from $60 billion in 1948, $110 billion in 1958, $240 billion in 1968, $900 billion in 1978, to more than $2 trillion in 1988. It has increased more quickly than either production or domestic trade. Taking account of inflation and taking 1963 as our base year (=100), by 1993 total world production rose to 223, while total export volume rose to 314. Since the late 1980s international trade has been growing twice as fast as the world's combined gross national products. At least a third of international trade takes place inside multinationals, which does not in itself detract from the fact.

This is not the first time that international trade has increased. Figure 1.1 shows that from 1870 to 1913 the world economy became steadily more open. The following years put an end to the trend, but from the late 1940s on, the world economy once more became steadily more open. Only in 1968 did it reach the level of 1913.

In discussions about whether globalization is really a new phenomenon, comparisons with the period 1870-1913 play an important role, since at that time too there was a considerable increase in international trade and a growing openness of the world economy. Based on data for trade flows (Table 1.1), some have concluded that the world economy today is hardly more open than it was in 1913.

But this argument has been criticised, on various grounds. One objection is that trade figures should be modified to take account of changes that have taken place over the years in the structure of economies. Today, for example, the service sector is much bigger than it was in 1913. Because services are largely nontradeable, one can assume that trade as a percentage of GDP has declined due to that fact alone. Trade figures also hide important changes in the nature of the goods being traded. In 1913 most traded goods were raw materials, while today most are (parts of) industrial products.

Moreover, trade figures do not show important qualitative changes. Because of the existence of regional blocs, many trade-replacing investments are being made. Japanese investments in the US and the EU fall into this category: Japanese multinationals sell 95 per cent of the products they produce in the US and the EU in those same markets.

In the end everyone seems to agree that world trade has reached an unprecedented level. The discussion is mainly about when the pre-First World War level was matched and overtaken. On balance, the conclusion seems justified that we are seeing today 'the widest-ranging trade liberalization the world has ever witnessed'.

International mergers and takeovers

There is a sharp increase in international mergers and takeovers and direct foreign investment – an annual increase four times greater than the annual growth rate of international trade. The liberalisation of capital movements accelerated considerably in the 1980s, and today hardly any country in the Western world sets limits to international capital flows. According to the BIS, the volume of transnational investment since 1980 has increased more than 20 times.

Foreign direct investments (FDI) have grown immensely. According to UNCTAD, 'during the past decade and a half, global integration seems to have proceeded faster through FDI than through trade'. By 1997 at least 143 countries and territories had adopted special laws to encourage foreign investment, and most countries have adapted their economies in some way or another in order to attract foreign investors. It is no wonder that FDI flows at the end of the 1990s are nearly twice what they were a decade earlier, and seven times as high as in 1980. World FDI stock – 'the capital base for TNC operations' according to UNCTAD – increased by 10 per cent in 1997 alone, to an estimated $3.5 trillion.

International ownership of assets has increased thanks particularly to lower transaction costs, liberalisation, deregulation and the key fact that far more assets are traded than in the past. In the years before the First World War relatively few assets were traded – there were only 300 different shares on the New York stock exchange in 1910, for example. Today, as a consequence of the growth of trade in derivatives, that number has grown immensely.

Financial globalization

While foreign direct investment has been increasing, it is still marginal compared with short-term movements of capital, which have grown explosively. Capital is flying all over the world and is extremely sensitive to exchange and interest rates. In 1971, just before the Bretton Woods system of stable exchange rates collapsed, over 90 per cent of exchange transactions in the world bore some relation to financing trade or future investment, while less than 10 per cent was speculative. Today these figures are reversed: over 90 per cent of all transactions are speculative.

Financial globalization and the corresponding increase in speculation have been spectacular. In 1990, for example, daily turnover on international currency exchanges amounted to $500 billion. By 1994 the turnover on these exchanges reached an average of $1200 billion a day, and by 1998 $1500 billion a day.

Twenty-four hours a day, trillions of dollars flow through the world's major foreign-exchange markets as bits of data traveling at split-second speed. No more than 10 percent of this staggering sum has anything to do with trade in goods and services. International traffic in money has become an end in itself, a highly profitable game. John Maynard Keynes, who had intimations of how technology might one day be harnessed in the service of nonrecreational gambling, predicted the rise of this 'casino economy' as he called it. Yet as banking activities have become more global and more speculative, the credit needs of billions of people and millions of small businesses are not met.

In the early 1970s the central banks in the rich industrialised countries had reserves eight times greater than the average daily turnover on currency markets. In 1995, with $640 billion in their vaults, they had only about half of the daily turnover. This means that central banks can do little, either independent or jointly, to counter coordinated attacks in the markets against particular currencies.

The financial markets are doubtless the most globalised markets. While it was still possible 20 years ago – or a few years more or less depending on the country – to speak of national financial markets, since then they have been increasingly integrated. Deregulation and financial innovations – in 1980 financial futures, swaps and options still hardly existed – have contributed to a great extent to these developments. Important as they are, the foreign exchange markets

are only one of the foundations of financial globalisation. They were the first pillar of it, but they are not the only pillar and today they are doubtless not the most important. From the point of view of how the capitalist system in its contemporary form functions, they are less important than the liberalised, deregulated bond markets on which Treasury bonds and other forms of public debt are traded, or than stock markets.

The market in financial derivatives – which in many countries until recently was simply considered gambling – has also mushroomed. Federal Reserve Chairman Alan Greenspan has called the extraordinary development and expansion of financial derivatives 'the most significant event in finance during the past decade'. Most of them are unregulated 'over-thecounter' (OTC) derivatives. In June 1998 the BIS estimated the aggregate value of OTC derivatives worldwide at $70 trillion; by March 1999 Greenspan said the figure had to be closer to $80 trillion.

OTC derivative trading involves enormous risks for the stability of the international financial system, as the near-collapse of the hedge fund Long-Term Capital Management made clear in 1998. Brokers oppose regulation of this trading because of the tremendous profits to be made from it, and central banks generally yield to the brokers' pressure. If big financial institutions threaten to go under in a panic, taxpayers will have to pay the bill. Institutions that are 'too big to fall' are always bailed out. Profits are privatised, losses are socialised.

These changes in the financial sector also have negative effects on productive sector investment and job growth. Among the major consequences of the 'financialisation' of the world economy are: short-term thinking on the financial markets; macroeconomic instability because of increasing financial volatility; and a policy bias towards protecting the value of financial assets rather than expanding output. The financial sector, controlled by banks and other financial institutions, functions today in large part independently of the real economy.

Technology

The extremely rapid development and spread of new technologies plays a major role in all this. Between 1975 and 1986 global production of technology multiplied six times, while international trade in high-tech products multiplied nine times. Economists have distinguished three different processes that are often lumped together in discussions as 'technoglobalization', pointing out that the degree of internationalisation varies widely among the three. Globalization is most advanced in the process of exploiting new inventions: in OECD countries in the 1980s applications of patent rights in countries other than the country where the patent was granted went up by an average of 6 per cent each year. International technological cooperation (through either technological cooperation among different companies or joint authorship of scientific papers) also rose by an average of 6 per cent each year in 1985-89 by comparison with the years 1980-84.

Genuinely international production of new technology grew far more slowly, by contrast. Multinationals remain far more dependent for their research and development activities on their national states' facilities and infrastructure than is often claimed. There is considerable evidence that 'national innovation networks' are still playing a dominant role in technological development and innovation.

(Continues...)

Excerpted from Globalization by Robert Went, Peter Drucker. Copyright © 2000 Robert Went and IIRE. Excerpted by permission of Pluto Press.
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Edition details

• Publisher: Pluto Press
• Publication date: 2000
• Language: English
• ISBN 10: 0745314228
• ISBN 13: 9780745314228
• Binding: Paperback
• Edition number: 1
• Number of pages: 184