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Issue 5 - Fall/Winter 1997
Economic Globalization: Capitalism in the Age of Electronics (page 2 of 2)

A Major Breakdown?

Many of the leading players in the global economy fear the system cannot continue indefinitely without a major breakdown.

Christopher Whelan, a conservative financial economist in Washington, predicts that, “We are headed for an implosion. If you keep lowering and lowering wages in advanced countries, who's going to buy all this stuff? You look around and all you can see is surplus labor and surplus goods. What we don't have is enough incomes. But the only way people find out there are too many factories is when they wake up one morning and their orders are falling. If this keeps up, we're going to face a lack of demand that's worse than the 1930s.” (Greider, p. 221.)

George Soros, a billionaire investor who is mentioned frequently on the front pages of the financial sections of the world's newspapers, foresees a general breakdown - the collapse of the global financial system and the trading system with it. He bluntly states: “I cannot see the global system surviving. ... In my opinion, we have entered a period of global disintegration only we are not yet aware of it.” (Soros on Soros: Staying Ahead of the Curve, quoted in Greider, p. 248.)

The Internationalization of Capital

The drive toward cheap production - cheap labor (whether it be at gunpoint, in prison, by children or slaves), lax environmental laws, low taxes - drives capital across the globe. With the internationalization of these markets in labor and commodities comes internationalized capital. Even with the end of the Bretton Woods agreement, capital faced national constraints on its movement around the globe. While new technologies made the rapid movement of capital technically possible, the freeing of capital from national controls came from the growing power of the multinational corporations (MNCs). The intense concentration of productive capacity in a handful of corporations has carried forward from imperialism and grown more intense. William Greider estimates that the 500 largest MNCs produce one-third of the world's manufacturing, three-fourths of all commodity trade, and four-fifths of the trade in technology and management services.

These capital flows are not just from the former imperial powers to the former colonies. Foreign direct investment increased almost fourfold in the 1980s, with the largest part being invested in the United States. “Hong Kong” capital is invested in the United States, “U.S.” capital is invested in Russia, “Russian” capital is invested in who-knows-where. (Some $150 to $300 billion has left Russia in the past five years, according to one Russian government official - The Nation, March 31, 1997). It is silly to speak of this capital belonging to any nation anymore. The new global regime creates an international class of investors with no tie to countries, only to stable havens where money can be parked and from which it can be moved rapidly.

Under imperialism, capital was “national” in the sense that it was deeply connected to a multinational state. There was U.S. capital and German capital and British capital. This fed the recurring territorial conflicts. Under the new globalization, capital is transnational, or even supranational.

Capital has been increasingly successful in freeing itself from national restraints - from restricted markets, tariffs, taxes, environmental restrictions, and organized labor. Freedom from national controls allows this capital to roam everywhere - freely and quickly - in the search for the highest rate of return. Some $1.2 trillion flows through New York currency markets each day.

As Greider notes:

“[T]hese transactions are carried out by a very small community - the world's largest 30 to 50 banks, and a handful of major brokerages. ... The new communications technology has created a small, elite community of international finance - perhaps no more than 200,000 traders around the world who all speak the same language and recognize a mutuality of interests despite their rivalries.” (Greider, p. 245-246.)

The Emergence of Speculative Capital

One of the key features of this free-flowing capital is the change in the ratio of productive capital to non-productive (or speculative) capital. Lenin noted that one of the key features of imperialism was the emerging dominance of finance capital. Finance capital is the merger of industrial capital and bank capital, under the control of the financiers. It represented the domination of the financiers over the industrial capitalists. Nevertheless, this capital was destined to go back into production. The financiers invest it in order to produce more profit from the exploitation of human labor.

Today, the use of capital for productive purposes is being replaced by capital invested for purely speculative purposes - that is, the hope that its value will somehow rise in relation to other speculative adventures: Tokyo real estate versus baseball cards; or New York stock futures versus rare paintings.

There are still significant amounts of finance capital seeking out profits. The World Bank estimates that between 1988 and 1995 some $422 billion was invested in new factories, supplies and equipment in select developing countries.

Many boats have been lifted by this tide. But the general, historical trend is such that for this capital to generate profits, it must plunge workers into slave (or near-slave) conditions. Thus, it cannot generate the purchasing power necessary to circulate commodities and hence sustain profits or the economy.

Since sufficient returns cannot be made from electronics-based production, increasing amounts of capital seek returns from speculative adventures. The attempt to maintain the circulation of goods through the extension of credit is itself a speculative exercise, a maneuver done in the hope that consumers or debtor countries will eventually be able to pay off their mounting debt.

Noam Chomsky cites estimates that in the early 1970s about 10 percent of the capital in international exchanges was for speculation and about 90 percent of it was related to the real economy, for investment in productive capacity and for trade. By the 1990s, those figures were reversed - 90 percent was for speculation and never destined to be invested in raw materials, or factories, or transportation systems, or for trade. Chomsky also quotes David Felix's study for the United Nations Conference on Trade and Development which cites estimates “that by 1994 the ratio was about 95 percent speculative to about five percent real economy-related.” (Class Warfare: Interviews, Noam Chomsky with David Barsamian, p. 106)

According to Grieder:

“As capital owners and financial markets accumulate greater girth and a dominating influence, their search for higher returns becomes increasingly purified in purpose - detached from social concerns and abstracted from the practical realities of commerce. In this atmosphere, investors develop rising expectations of what their invested savings ought to earn and the rising prices in financial markets gradually diverge from the underlying economic reality. Since returns on capital are rising faster than the productive output that must pay them, the process imposes greater and greater burdens on commerce and societies - debt obligations that cannot possibly be fulfilled by the future and, sooner or later, must be liquidated, written off or forgiven.” (Greider, p. 227.)

A report on global capital by McKinsey & Company, a global consulting firm, estimated that the total stock of financial assets from advanced nations expanded in value by six percent a year from 1980 to 1992, more than twice as fast as the underlying economies were growing. The report estimated that by the year 2000 the total financial stock will triple the figures for the economic output of these economies. [These figures were adjusted for inflation.] (The Global Capital Market: Supply, Demand, Pricing and Allocation, quoted in Greider, p. 232.)

The chief concern of this new speculative capital is a stable currency to protect the value of its money. It demands of governments a deflationary policy - preventing inflation by keeping pressure both on wages and government spending by use of the interest rate.

We have seen the results of this policy in the United States - the growth of long-term unemployment (much of it not showing up in the statistics), the stagnation of wages, the dismantling of social programs, and the sharply growing inequality in incomes. This new, speculative capital is able to set the rules for the world economy because governments have little or no control over the actions of the speculative capital which determine their economies.

New Polarities, New Possibilities

The process of globalization is driven by the dynamics of capitalism. Capitalism's survival rests on the extraction of profit on a constantly increasing scale through the extension of production. While electronics has enabled the unification of the world commodity market (including the labor market) and the financial market - by dramatically cheapening communications and transportation - it also introduces a radical new quality - electronic production. This new element attacks the very foundation of capitalism - the extraction of surplus value from workers - by introducing laborless production.

To maintain profits, capitalists seek out the cheapest production costs (regardless of whether production is done by robots or by human muscle, or whether it takes place in Detroit or in Jakarta). So, as electronics extends throughout the global economy, workers around the world are compelled to compete not only with each other but with their electronic counterparts - robots and automated machinery of increasingly diverse types.

For a number of reasons, employment under these circumstances can actually increase while electronics is at the same time destroying the value of labor power. With electronics driving down the value of labor power, and therefore wages, more members of the household are compelled to enter the job market, or to work past retirement age, or to take on multiple jobs in unsuccessful attempts to maintain a slipping standard of living. Others are being driven to the bottom of the job market by the end of welfare. This is temporarily providing a cheaper alternative to technology.

The capitalist does not care if production is done by the “gratuitous labor of machines” or by the “free” labor of slaves. The critical indicator of the impact of electronics on production is not “employment” statistics, but the polarization of wealth and poverty. With the destruction of the value of labor power and wages, wealth polarizes and the economic center disappears. In this process, capitalism is compelled to destroy whatever social base it may have maintained in the old imperialist center.

A New Proletariat

During the period of imperialism, the main arena of class struggle was the struggle between the peoples of the earth and the imperialist powers. Under globalization, a new proletariat is emerging in the imperialist center, to join ranks with a proletariat in the former colonies - propertyless, with little or no permanent tie to the capitalist system.

This process is, of course, tremendously uneven, with some Third World countries emerging as “tiger economies,” with the standard of living improving for many workers. But overall, the pattern of deepening polarization is becoming clearer.

A U.N. Human Development Report in 1996 noted that even though the world's economy surged during the past three decades, 1.6 billion people (one-quarter of the world's population) are actually worse off than they were 15 years ago. (Chicago Tribune, July 17, 1996.) Thirty-two countries representing a half billion people are buried under unsustainable debt burdens. Richard Barnett estimates that two-thirds of the world's population has neither the cash nor the credit to buy anything of note in the global marketplace. (Global Dreams: Imperial Corporations and the New World Order, Richard Barnett)

This vast majority of the world's population stands opposed to 358 billionaires whose income is equal to the total income of the poorest 45 percent of the world's population. (This statistic was quoted in The Nation, July 15-22, 1996).

While capitalism looks to the electronically united world market to sell its prodigious output, it is at the same time compelled to destroy the world market by driving down socially necessary labor time and, as a result, the value of labor power - and ultimately wages - to the wage of the robot.

The economic middle ground is destroyed, resulting in a handful of international capitalists on one side, and a vast majority of marginalized or destitute proletarians, incapable of purchasing the flood of goods, on the other. Such is the inescapable dilemma faced by capital in the age of globalization.

(c) 1997 by the League of Revolutionaries for a New America
 
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