THE SHRINKING STATE?

Karl Carlile joseph at indigo.ie
Fri Apr 12 10:55:00 MDT 1996


Karl: Below is a copy of an interesting article. I must make it clear that I am
neither a member or supporter of the RCP, the publisher of Living Marxism.

*********************************************
A MAD, MAD, MAD, MAD WORLD ECONOMY?


Reproduced from Living Marxism issue 80, June 1995


The notion that the new global economy is beyond anybody's understanding
or control acts as an apology for the destructive effects of
international
capitalism, argues Phil Murphy




Globalisation is regarded as the dominant trend in the international
economy
today. It informs every new economics book, every politician's speech
and
every report published by the world's leading institutes. But what do
the
fashionable globalisation theories tell us about the real 'global
economy'
in the mid-1990s?

The globalisation thesis is an attempt to understand a real process; the
internationalisation of economic activity which is the most significant
economic trend of the past quarter century. Each country now operates as
part of an increasingly interconnected world economy. Flows of goods,
services
and capital, criss-crossing national borders, provide some of the
fastest-moving
indicators of economic life.

World trade has grown faster than world production, becoming
increasingly
important for the Group of Seven leading industrial nations-- the USA,
Japan,
Germany, France, Canada, Italy and Britain. This means that more and
more
of the goods and services produced in one country are sold in another.
World
trade is now worth about $4 trillion a year (a trillion is a million
million),
equivalent to around one sixth of world output.

The major economies are also increasingly exporting capital, to be
invested
elsewhere in the world. Since 1987 the world stock of foreign direct
investment
has expanded from $1 trillion to almost $2.5 trillion. This means that
more
and more companies are producing, as well as selling, outside their home
base--like the Japanese car or computer firms which build plants in
Britain
to supply the European market. The World Bank recently estimated that
world
sales of the foreign operations of such 'multinational' companies may
now
exceed the world's total exports (Global Economic Prospects and the
Developing
Countries, 1995). This foreign direct investment is supplemented by
the multi-billion dollar money flows of the international financial
system,
going into global bond, share and currency markets.

Globalisation theorists have described this process of the increasing
integration
of the world economy well enough. Their attempts to explain or analyse
these
trends, however, tend only to mystify what is happening and why. And
they
do so in such a way as to effectively become apologists for the existing
state of the world, providing an alibi for the problems and failures of
international capitalism.

For example, globalisation theorists all fetishise the role of techno-
logical
change, especially in transport, communications and information systems,
as the driving force behind international integration. As a result of
technical
developments, old geographical borders and other physical barriers to
international
transactions have certainly been eroded. But this begs the questions:
why
internationalise? What has been the pressure driving the advances in
global
communications' science? We all know that many technological
breakthroughs
sit in the inventor's laboratory or the patents' office unless there is
a demand for them.

The technical explanations offered by the globalisation theorists
divorce
today's international economic trends from the true driving force behind
them--the stagnation of the international capitalist system.

The trend towards internationalisation is driven by the requirements of
the leading industrial economies, all seeking to compensate for their
slump
at home by finding more profitable outlets around the world. By
reorganising
the world market, these dominant economic powers seek to offset poor
domestic
profitability through foreign trade and overseas investment. For them,
the
internationalisation of economic life is not a matter of choice, but a
necessity.
It is the contemporary form of the 'economics of imperialism', through
which
the advanced capitalist nations are seeking to survive at the expense of
the rest of the world--and, if necessary, at the expense of each other.


The 1980's take-off in foreign direct investment

The language of globalisation serves to obscure and apologise for this
process. The apparently neutral and inclusive term 'globalisation',
conjuring
up images of 'one world' in which money and goods flow outside of
national
interests, obfuscates the reality of capitalism today. Not least it
obscures
the uneven and divisive pattern of international economic development,
which
is reinforcing poverty in large parts of the world and bolstering
inequality
between the 'haves' and the 'have nots'. For every east Asian economic
'tiger'
that is integrated into the world market, many more African and Latin
American
nations are pushed further out to the margins.

One way in which the new theories work their apologetic message is that
the supposedly autonomous, technically driven force of globalisation
becomes
an excuse for the destructive effects of the capitalist system. Mass
unemployment
in the West is blamed, not on a system which puts private profit before
public need, but on the hidden hand of globalisation. The creation of a
new global labour market, in which capital can move in mysterious ways,
is held responsible for the loss of jobs in the West, and for the spread
of 'flexible', meaning more intensive, work practices.

An even more dangerous aspect of the globalisation thesis, however, is
the
way in which it reinforces the notion that the world is out of control
and
that nothing can be done about it. The global economy is presented as
simultaneously
more powerful, more dangerous and more uncontrollable. It is, we are
continually
told, a mad, mad, mad, mad world, in which trillions of dollars fly
around
a computerised financial system which nobody can comprehend, never mind
control.

For 20 years, globalisation theorists have emphasised the erosion of the
power of the nation state and the inability of governments to control
what
is happening at home or abroad. In the 1990s the ineffectiveness of
state
economic policy is most frequently blamed upon the massive growth of the
international financial markets:

'Trillions of dollars of portfolio money now coursing through the global
economy call the shots....In this new market, money moves faster than
ever,
raising the possibility that billions can flow in or out of an economy
in
seconds. So powerful has this force of money become that some observers
now see the hot-money set becoming a sort of shadow world government--
one
that is irretrievably eroding the concept of the sovereign powers of a
nation-state.'
(Business Week, 20 March 1995)

Note how a technical development--the way that enormous speculative
funds
can now be moved electronically across borders--is here presented as
driving
a volatile world market outside of state control. Since the state is the
primary instrument through which capitalist elites seek to manage their
affairs, the notion that global markets are now beyond the state's
influence
reflects a loss of faith in any human control of economic affairs. As
Paul
Kennedy wrote in his pessimistic fin de sicle text Preparing
for the Twenty-First Century: 'The real logic of the borderless
world is that nobody is in control.' (p55) In this sense, globalisation
has become something of a chaos theory of capitalist economics.

Globalisation has not always been viewed in such negative, nihilistic
terms.
Not so long ago, it was regarded as a positive process of widening
economic
development. The fact that the tone of the globalisation debate became
more
downbeat and fatalistic as the fortunes of world capitalism turned
downwards
confirms the theory's standing as an apology for the status quo.

After the Cold War ended in 1989, globalisation became an optimistic
metaphor
for the victory of the free market and the opening up of the world
economy.
America's leading business weekly, Business Week, enthused about
globalisation as 'one of the most significant business and economic
trends
of the late twentieth century' (14 May 1990). Five years on, the impact
of economic and political malaise has exposed the myth of the free
market
miracle, and encouraged a more sober assessment of globalisation. Today
the destructive elements of globalisation take centre stage in the
discussion.
This shift in the tone of the globalisation debate has been precipitated
by actual economic events--in particular the disarray on global
financial
markets.

The international money markets today symbolise the notion that a
process
of globalisation is creating a world in chaos and beyond control. In
recent
months a series of financial crises--the Mexican crash, the plunging
value
of the US dollar, the collapse of the British merchant bank Barings, new
turmoil in the Euro-currency markets--have rocked the world of the money
men. All of this financial turmoil has reinforced the identification of
globalisation with risk and chaos. Even Business Week has had to
revise its earlier euphoria. The Mexican financial crisis, it reported,
has given many second thoughts about the benefits of going global: 'By
exposing
the weak underpinnings of global development, the Mexican crisis has
given
everyone its [sic] first look at how risky the new world really is.'
(13 March 1995)

Such disorder epitomises what many theorists now think of as
globalisation:
a chaotic, fluid process in which time and space have been compressed.
For
example, foreign exchange dealing of around $1 trillion a day is now 50
times more than is required to service real international trade and
investment.
This seems to sum up a world that has gone mad.

Globalisation--in the form of world money flows--is now commonly
discussed
as an autonomous force beyond human influence, reaping havoc at
everyone's
expense. 'Dial C for chaos' was the Economist's summary headline
on this spring's currency market panic (11 March 1995). For David Smith,
in the Sunday Times, the 'whirlwind raging through the world's currency
markets is an international phenomenon in which individual countries are
both blameless and powerless' (12 March 1995). Morris Offit, head of a
New
York bank, said that as cash has flowed around the world, 'control of
monetary
and fiscal policy has devolved. Countries don't control their own
destiny.
If they don't discipline themselves, the world market will do it for
them'
(Business Week, 20 March 1995).

A Financial Times editorial counselled the April gathering of Group
of Seven finance ministers and central bankers to come clean, forget
about
issuing the usual bland, useless communiqu, and instead accept 'the
general
expectation that little would be achieved at their meeting since they
are
[not] in command of events' (22 April 1995). Meanwhile Hamish McRae has
even advised against attempting to see what was happening as rational:
'Rational
discussion is not relevant: what we are seeing is speculative excess and
at times like this all that matters is market mood.' (Independent,
March).

Things in the real world are rather different from the mystified,
uncertain
place occupied by the globalists. Capitalism is out of control, but
this is not because of the present scale or extent of international
activity.
It is because of the workings of the law of value--the basic device
which
guides economic activity in a market system.

Under the operation of the law of value, goods and many services are
produced
not for need, but for profitable sale on the market. The criterion of
profitability
ultimately determines if and where labour and resources are employed.
Capitalists
can create jobs and produce goods only if it is profitable enough for
them
to do so; and capital will be moved around the world, speculated in
currency
markets or invested in industries according to the same diktat of the
law
of value.

The operations of the world economic system are certainly irrational
from
the perspective of human need. But they can be well comprehended from
the
perspective of the underlying dynamics of a market economy. The recent
sharp
decline of the US dollar and rise of the Japanese yen and German mark is
a case in point. These changes are not the outcome of some mysterious,
irrational
market whim. They reveal how the law of value is forcing the paper
values
of different currencies into line with the real dynamism (or lack of it)
in the national economies concerned.

The long-term trend for the value of the dollar to decline relative to
the
yen and the mark has accelerated this year. In the first four months of
1995, the once-mighty US greenback had fallen more than 10 per cent
against
the mark and more than 20 per cent against the yen. Why? Ultimately,
because
the US economy has been less dynamic than those of Japan and Germany in
recent times. For example, between 1960 and 1990, productivity, as
measured
by gross domestic product per person, grew by an annual average of 2.6
per
cent in Germany, by a startling 5.3 per cent in Japan, but only 2.0 per
cent in the USA.

The consistency of slower productivity growth in the USA has created
several
interact-ing problems, from inflation to a burgeoning trade deficit,
which
work together to push the dollar down on international markets. In less
than 15 years, for example, the USA has gone from being the world's
leading
creditor nation to its biggest debtor, with its former position taken
over
by Japan, with Germany as number two. No wonder that the dollar is in
the
doldrums--not because of mysterious global chaos, but as a perfectly
comprehensible
consequence of competition between major capitalist nations in the world
marketplace.

This brings us to a key mistake of the globalisation thesis. The
creation
of a more interconnected world economy does not signal the end of the
capitalist
nation state. On the contrary, the trends described as globalisation are
really survival strategies adopted by the major capitalist nations.
Internationalising
its operations is the only way nationally based capital can deal with
the
slump. Coping with the national slump provides the rationale and dynamic
for inter-nationalisation.

It is paradoxical that the international aspectsof economic activity
often
come across as the most dynamic trends today. In fact they are
expressions
of capitalist stagnation. Britain is perhaps the best example of this.
As
the G7 nation with the weakest domestic economy, parochial old Britain
has
become probably the most 'globalised' economic player on Earth.

Every little bright spot in Britain's dismal economic outlook is to do
with
non-national operations. Britain's strongest companies generate most of
their profits abroad. For example, the pharmaceutical giant Glaxo
Wellcome
makes about 90 per cent of its sales and profits outside Britain. On the
other hand, Britain's few successful manufacturing export sectors,
notably
motor cars and colour televisions, rely on the competitiveness of
foreign-owned
plants such as Nissan, Samsung and Sony. Over a quarter of the very
British
Queen's Awards for export achievements this year went to foreign-owned
companies.

Britain's biggest export earner is financial services, responsible for
about
a fifth of national output and still based around the City of London.
Yet,
despite its reputation as a bastion of British values and traditions,
the
City is very un-British these days. It is the most international of the
world's main financial centres, both in ownership and operation. Most
private
City institutions are now foreign-owned. London is home to over 500
foreign
banks, concentrating on foreign exchange dealing and international share
trading.

Looking at Britain also throws some light on what's really behind the
increased
global significance of the export of commodities and capital.
Capitalists
fight for more overseas markets because they cannot generate enough
revenue
>from sales at home. Britain exports about one quarter of its annual
output--a
higher proportion than most G7 countries. This 'leadership' is not
because
of Britain's peculiar competitiveness. Quite the reverse; it trails the
rest in the productivity stakes. The relative weakness of their domestic
profit-making centres forces British capitalists to try to make up for
this
shortfall by selling more abroad.

The dynamic for capitalists investing and producing abroad, both in
other
advanced countries and in the rest of the world, also arises because
they
are unable to find profitable investment opportunities at home. Britain
vies with the much bigger nations of the Group of Three (US, Japan and
Germany)
for its spot as one of the top four capital exporters not because
British
capitalists are peculiarly unpatriotic or cosmopolitan, but because
investment
opportunities at home are so much more limited.

Japan replaces the USA as the world's largest creditor nation, with
Germany
not far behind. In sum, British capitalists earn half their profits
abroad not because they have forgotten the home arena, but because the
half
they make at home is all they can make there, and it is not adequate to
keep them going. The relative over-maturity and feebleness of the
British
economy accounts for its relative lead in the internationalisation
league
table.

As the 'globalisation' of Britain demonstrates, the rapid growth of
international
economic activity over recent decades is an indication and expression of
capitalist stagnation. It represents decay not dynamism. Since the
postwar
boom ended in the advanced capitalist countries at the start of the
1970s,
resources have shifted into non-domestic operations. World market
activity
is an attempt to compensate for the increased difficulty of making
sufficient
profits from activity in the national market.

Capitalism is certainly out of control. But the process is neither
incomprehensible
nor inevitable. The global forces which are usually portrayed as an
extra-human
power boil down to the attempt of capitalist elites to make enough
profit
to survive at the expense of the rest of the world. So long as they
remain
in charge, the benefits of an international world will always be
countered
by the perpetuation of inequality, backwardness, unevenness and poverty.

250 $bn

200 $bn

150 $bn

100 $bn

50 $bn

0 $bn

1982 1984 1986 1988 1990 1992

1983 1985 1987 1989 1991 1993

The operations of the world economic system are certainly irrational
from
the perspective of human need

The 1980's take-off in foreign direct investment

'Globalisation' has become a chaos theory of capitalist economics

Net asset position with the rest of the world

Germany

Japan

United States

800 $bn

700 $bn

600 $bn

500 $bn

400 $bn

300 $bn

200 $bn

100 $bn

0 $bn

-100 $bn

-200 $bn

-300 $bn

-400 $bn

-500 $bn

-600 $bn

1980 1982 1984 1986 1988 1990 1992

1981 1983 1985 1987 1989 1991 1993

Japan replaces the USA as the world's largest creditor nation, with
Germany
not far behind











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