Sunday, November 16, 2008

Book review: The Dialectics of Globalization: Economic and Political Conflict in a Transnational World

The Dialectics of Globalization: Economic and Political Conflict in a Transnational World by Jerry Harris

This book is basically Tom Friedman's The World is Flat - just without the idiocy. Harris' main thrust is that the traditional view of political economy, that views nations and their industries in competition with each other for global dominance, is no longer valid. Globalization has created an international economic elite, or "transnational capitalist class" (TCC), whose interests differ from those of the capitalist class - really classes - of history, which were divided by national boundaries. In the past, capitalists in Britain and France and other countries sought to "'establish the largest possible economic territory[,] to close this territory to foreign competition by a wall of protective tariffs, and consequently ... to reserve it as an area of exploitation for the national monopolistic combinations'" (in the words of Austrian economist Rudolf Hilferding).

But not anymore. "The new character of world trade ... [is] transnationalization. Between one-third and two-thirds of world trade is now conducted as intra-firm trade, a clear commercial expression of globalized production." De jure imperialism is dead, and now it makes little sense to speak of economic elites who work towards expanding their nation's territory, so they can profit within the safety of protectionist barriers to foreign competition. Today there is an transnational economic elite whose opportunities for profit cross national boundaries - as do their loyalties. The tendency of businessmen Jacques H├ębert wrote about in the 18th century is even more visible today: "Everywhere and at all times men of commerce have had neither heart nor soul; their cash-box is their God. ... They traffic in all things, even human flesh. ... Their country? Foutre! Business men have no country."

The problem with neoliberalism, the ideology championed and implemented by the TCC, is that it does not provide the bread and circuses for the poor saps at home. Back in the days of de jure imperialism, plundered wealth from abroad would pay for the bread and circuses that kept exploited classes at home from upsetting the power structure. As Cecil Rhodes wrote in 1895, "'I was in the East End of London yesterday and attended a meeting of the unemployed. I listened to the wild speeches, which were just a cry for 'bread, bread,' and on my way home I pondered over the scene and I became more than ever convinced of the importance of imperialism... in order to save the 40,000,000 inhabitants of the United Kingdom from a bloody civil war, we colonial statesmen must acquire new lands... The Empire, as I have always said is a bread and butter issue. If you want to avoid civil war, you must become imperialists.'" Today's capitalism does not allow for the 'wild speeches' of the unemployed to be quieted by bread paid for through the exploitation of 'new lands'. "Neoliberal globalization is a different kind of project. It is a class-based project without a broad-based national strategy. Instead of an expanding middle class and improving conditions for the working class we see a shrinking middle class and growing unrest. Public schools are underfunded and falling apart, health care is expensive and being privatized, wages have fallen or stagnated for 80 percent of the working population, job insecurity is growing, the prison population is expanding, and large sections of the minority community are cast into deepening poverty with welfare harder to get. Globalization is not a project that enriches the nation, rather it limits the social contract to a shrinking base of highly skilled workers mainly situated in information technology. A world surplus of cheap labor and open markets has undercut the need for broader social entitlements. The result is the elimination of economic nationalism as the basis for social inclusion in the modern nation/state."

Hence, the dissent that erupts even in the first world today.
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The transnational capitalist class (TCC) Harris writes about is not ideologically homogeneous (thank god); and his explanation of their differences is enlightening. In the U.S., it is easy to see how these differences play out. As Gore Vidal is fond of saying, the U.S. has a one party system; it features the property party with its two wings, Democratic and Republican. Harris would put it this way: there is one TCC, or globalist, party with two wings: Republicans correspond with the free-market conservative wing, and the Democrats correspond with the Third Way wing. Harris writes: "To better understand the politics of globalization we need to examine the tactical and strategic issues that generated divisions in the TCC. These started before Seattle and continue to plague the TCC as events change and develop. The globalist ruling bloc developed three main groups or factions: the free-market conservatives, the structuralists, and the regulationists. The debates at the summits of power in global society do not correspond to the familiar political categories of the pre-globalization era. The distinct positions of these factions have less to do with narrow economic-corporate interests than with strategic political issues of class rule. Foremost is the question of how best to structure the new global economy, achieve world order, and assure the long-term stability and reproduction of the system.
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In a nutshell, the free-market conservatives call for the complete freedom of capital based on an undiluted version of the Washington Consensus. The structuralists want a global superstructure that can provide stability to the volatile world financial system, adjusting the Washington Consensus without interfering with the global economy; and the regulationists call for a broader global regulatory apparatus and institutional power that could stabilize the financial system as well as mediate some of the sharpest social contradictions of global capitalism in the interests of securing political stability. Eventually both the regulationists and structuralists positions merged to created [sic] a post-Washington Consensus known as the Third Way. This important faction held some neo-Keynesian concerns about education, health and the social well being of society. But they never questioned the basic prerogatives of transnational capital or free market ideology. A more fully developed neo-Keynesian globalism emerged only after some of the sharpest critics of the Washington Consensus began to understand the shallow character of Third Way reforms. In addition, a powerful bloc of Southern globalists arose with what has been called the Beijing Consensus..."

"[Battles within the World Bank between Joseph Stiglitz and Lawrence Summers] over Third Way direction led to a separate policy orientation by a neo-Keynesian wing. Stephen Roach, the chief economist of Morgan Stanley Dean Whitter became a consistent critic of 'slash-and-burn' neoliberalism and predicted an inevitable worker backlash as a by-product 'of an era that has squeezed labour and yet rewarded shareholders beyond their wildest dreams.' Ricardo Hausman, chief economist of the Inter-American Development Bank warned that, 'Emerging markets are not merely investment opportunities[;] they are entire nations with families, firms, and political systems" and that a rebellion against market-oriented reforms was sure to develop. MIT economist Paul Krugman declared, 'Why did I become a radical? I didn't want to be. But we are in a trap.'
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Dani Rodrik ... writes, 'After more than two decades of application of neoliberal economic policies in the developing world, we are in a position to pass unequivocal judgment on their record. The picture is not pretty.' Rodrik criticizes the 'worsening income inequalities in most of the countries that have adopted the Washington Consensus,' higher poverty rates and the painful financial failures in a dozen countries. 'The few instances of success have taken place in countries that have marched to their own drummers...China, Viet-Nam, India...which have violated virtually all the rules in the neoliberal guidebook.'"

In summary, in the TCC there is a free-market conservative wing (whose ideological legitimacy is sure to be decimated by the financial crisis), and a Third Way wing split into neo-Keynesians like Stiglitz and structuralists like Summers.

So how is the transnational capitalist class doing at running the world economy? Well... it's not working out too well. But the blatantly obvious reasons for the troubles have not made it through many skulls, filled as they are with the fantasy world of neoclassical economics. Just as a witch doctor believes in angels and demons that influence and shape what happens in the world, neoclassical economists and their followers believe in invisible forces that underly the world economy, and like Alan Greenspan, are "shocked", shocked when they discover that the reality of these forces is actually quite a bit doubtful.

The situation is grim for global capitalism as currently constituted. Germany provides a good example of the problem all OECD countries face: a decline in economic growth and private sector investment. "Of course private investment has gone abroad, yet transnational capitalists continue to blame high wages and welfare for stagnation even as they worry about weakening consumer markets" - though today the Europeans and the Chinese seem to be beginning to recognize that this is not the problem. "The internal logic of transnational capitalism remains in force because of global competition. After all, why invest in Germany when low-age countries like Poland, China and Mexico are hungry for jobs? Their only answer is to destroy the economic model linked to the previous social structure of national accumulation. These changes are underlined by the expansion of the EU to Eastern Europe with their attractive low wage and tax structures. Even Austria has moved to cut their corporate tax rates and labor protection laws attracting high-profile defections from Germany. While workers continue to protest offshoring, Germany's six top economic institutes warned against political moves that would deprive businesses of tax advantages and 'reduce the productivity gains afforded by specialization within the international division of labour.' The global organization of labor expands low-wage manufacturing abroad creating greater unemployment and underconsumption at home resulting in a glut of overproduction on a world scale. In turn, this propels the demand for cheaper labor and longer hours to create a competitive labour market in Germany, and somehow all this is supposed to lead to a renewal of a vigorous consumer market."

In other words, the first world is being squeezed in a pincer action. Unless out of technical necessity, no one wants to build factories in a rich country where the cost of labor is high, so factories are built in poor countries where a larger profit can be made due to the differential in the cost of labor. But the cost of labor is also the strength of the market - one company's employee is all other companies' consumer. So the company that offshores production to poor countries still has to sell in the rich countries, and the cumulative effect of offshoring production is to reduce the ability of rich countries' markets to consume. Until recently, rich countries like the U.S. and Britain were consuming at full tilt thanks to the mercy of credit. But credit's hard to come by now, and its return is far on the horizon.

Harris also provides an antidote to the kind of know-nothing drivel Tom Friedman likes to spout about India, noting that India's much-trumpeted IT sector employs only one million out of 1.1 billion people. The majority of India's population hasn't met with the friendly side of globalization; farmers especially. "[R]eforming the agricultural sector to fit the global economy will cause widespread displacement of small farmers that dominate the countryside. India has subsidized local food production to insure supplies for their population, and about 58 percent of the national workforce is still on the land. Only 40 percent of India's farmland is irrigated with little mechanization and few large-scale farms, and the World Bank estimates that India accounts for 40 percent of the world's poor living on less than a dollar a day. Increasing agricultural productivity eventually means larger farms, more machines and diversification of crops to serve the international food market. Such reforms would throw millions off the land and into the cities. But the industrial sector and infrastructure simply don't have the ability to absorb such a massive structural shift. Unless the Congress Party and its left allies can devise a different strategy it is doubtful they will be able to avoid future political upheavals from the mass of poor peasants. Unlike China's radical rural revolution that swept away old feudal relations, India's countryside is still dominated by landlords who stand in the way of development. Mao's revolution actually cleared the path for modernization, a huge task still faced by India's rural population. In India there are 250 million peasants making less than $1 a day, the world's largest child labor force, and an armed Maoist insurgency that covers 25 percent of the national territory." Remember reading those facts in Tom Friedman's book? No? Don't worry, there's no problem with your memory.

But if global capitalism has been harsh on third world countries, it is starting to cast its chill on the first world as well - even in countries whose implementation of capitalism tended to be a lot easier on their people. "Europe, Japan, and the US have developed three models of Northern capitalism. But unlike the US, the European and Japanese models developed through historic compromise with non-capitalist forces. The social-democratic model in Europe was forced upon the capitalists by socialist political parties and a class conscious trade union movement. The resulting European welfare state was a temporary historic compromise forced on capitalism by its industrial age opposition. Japanese style capitalism developed out of the Asian statist form of agrarian society in which there was collective responsibilities within the social hierarchy. These patterns carried over to state-sponsored capitalism and translated into corporate commitments to job security and other social benefits. The historic compromise was with pre-capitalist social obligations.

In the US agrarian statism never existed and the socialist opposition was never as strong as in Europe. US capitalism was able to develop more rapidly with less social restraints towards a pure market culture. As globalization develops it allows the European and Japanese capitalist to jettison their historic compromises and move towards a more fundamental and pure form of capitalism. A capitalism freed from historic restraints and free to exhibit all of its natural tendencies towards naked materialism and competition at all levels of society. But these are not particularly American values, rather this is the culture of capitalism that is being universalized through globalization."

And this culture of capitalism has always been hard on the majority of people within the system: those on the bottom, or more accurately, those not on the top. It's just that in the past, the majority of those "not at the top" were in far off colonial possessions, whereas now more than ever, this category comprises a majority of people within first world countries. The culture of capitalism is not changing, it is just that its dark side is being experienced more and more in the first world. "After all, where was the social democratic nature of European capital in the Third World or Japanese social obligations in its Asian empire? Think of the British in India, French in Algeria, or Japanese in Korea. How rapidly the human face of capital disappeared revealing its truer spirit once it left its home shores. Now globalization frees European and Japanese capital to follow their natural impulses and logic at home. Does the character of Shell Oil in Nigeria somehow magically change when it operates in Britain? With globalization the specter of capitalism in the Third World can now haunt the developed countries."

This, along with the fact that nationalist economic polices are nearly impossible to implement in a transnationalized economy, is the silver lining in the cloud that is the global economy di merda. Nationalist trade wars make a lot less sense when corporations don't have much of a national identity. After all, what is the appropriate protectionist policy when the corporations listed in your country have the majority of their holdings and sales overseas? And although Einstein warned against underestimating the power of human stupidity, one would think that the ecological and economic ruin currently-constituted capitalism is wreaking upon the world would spur humanity to devise a better system. Unfortunately, for the time being, the world economy is run by the merchant class - not a class of scholars by any means. In the philosophy of Confucius, this makes our present world system an absolute, upside-down nightmare. Time will tell if we manage to wake up.

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