Information Technology & The Transnational Ruling Class (page 1 of 2)

By Jerry Harris
Chicago Third Wave Study Group

Information technology (IT) has laid the foundation for global capitalism. This revolution in the means of production has created a new technological economic sector, evolved industrial manufacturing, and transformed financial markets. It is the electronic skeleton through which globalization works, connecting every performing part of the world economy. The power and reach of every transnational depends on products from IT companies, and IT corporate leaders have become a key sector within the global capitalist class. (1)

Information capitalism has built the structure of the new economy through two revolutionary methods in the production of information and knowledge. The convergence of telecommunications and computers has made possible a global command and control structure for transnationals, building a global assembly line for manufacturing. Secondly, the same information systems have established 24-hour global financial markets that function in real-time, leading to world capital integration. In addition, information technologies are thoroughly imbedded in the tools and productive processes of the traditional industrial sector, as well as consumer products, services, media and entertainment.

The most important part of the IT sector are those corporations which manufacture the products that are building the global structure of information processing and enable organizational changes in finance and industry. Those corporations that either produce these goods, or have most thoroughly integrated them into their productive processes tend to be the core of the new transnational power base. Therefore IT has built new structures and tools (such as the Internet, computer hardware and software); these tools in turn have caused old structures to adopt and change (such as services and industrial production); have made possible the creation of new products and economic activity (such as wireless phones and e-commerce); and have evolved the structure of non-physical commodities with high information content (such as finance and entertainment). (2)

Globalization has become the defining economic and political process of our present era. A new analysis of the capitalist class is necessary to better understand this developing world system and its contradictions. The attempt here is to trace the emergence of a new dominant capitalist sector, define its characteristics and analyze its economic impact.

Four Categories Of IT

IT breaks down into four basic categories. The first to develop were hardware corporations, many starting in the 1960s and 1970s. These companies produce things like chips, boards, boxes, servers, switches, and routers that build the basic architecture and infrastructure of the new systems. Some of the most important corporations are Intel, Cisco, Hewlett Packard, Sun Microsystems, Compaq and Dell.

The next wave of corporations began by writing software applications for everything from games to business systems; they also developed networks and operating systems. Corporate giants such as Intuit, Microsoft, Oracle and Novell dominate this category. Although their stock prices may go up and down, these corporations are firmly rooted in producing value and profits. For example, a copy of Microsoft Office 2000 retails for $349, but only cost about $20 to manufacture. With an overall profit rate of 39% on $20 billion in sales Microsoft is the envy of the corporate world. Those profits are the reality behind its stock price. (3)

Most recently Internet and dot-com companies have appeared. These companies have attracted a lot of attention and capital, helping to fuel speculation on technology stocks. Certainly this category will undergo consolidation, but such innovators as AOL, Amazon, E-Bay and Yahoo have developed widely used and expanding services. An important group of actors are also venture capitalists who have specialized in IT start-ups.

Fourth are the corporations offering Internet services, cable and broadband connections, satellite hook-ups, wireless communication and phone lines. Although emerging out of the industrial age the telecommunications industry is now technologically and financially linked to IT. Perhaps the best indication of this convergence was the 1997 Telecommunications Act that created a new regulatory structure that sanctioned and recognized the rapidly merging telecommunications, computer and cable industries. Among these corporations are both old and new names such as A.T.T., Global Crossings, National Fiber Network, Teledesic, Cable and Wireless, Alcatel, Deutsche Telekom and Nippon T&T.

Lastly, electronic corporations have a substantial investment in IT manufacturing. While these companies usually have their origins in the industrial era and a wide array of commodities, a significant number now produce a majority of their products in the above four IT categories. These include semi-conductors, fiber optics, software, wireless phones and numerous other products that serve the computer and telecommunications industry. Some of these transnationals are Motorola, Qualcom, Nokia, Lucent, Samsung, Royal Philips, and Toshiba.

IT And Global Corporations

In 1999 among the largest Fortune 500 transnationals, 37% were based in the U.S., 34% were from Europe, and 20% from Japan. Among third world countries South Korea lists 9 corporations, China 6, Brazil 3, Taiwan 2, and one each for India, Malaysia, Mexico, and India. Among these transnationals, the IT sector is the most profitable. The following chart groups together the largest global economic sectors judged by revenues and profits to show the relative weight of information technology. The chart shows sector, (under which are the industrial groups listed by Fortune), the number of transnationals in each sector, followed by revenues and profits. (4) Neither the Labor Department, Fortune nor other economic observers have established an overarching category to analyze IT’s expansive influence. The following two charts attempt to establish such a criteria.

Fortune’s 500 listing of the largest U.S. corporations gives a more finely tuned arrangement of industrial groups than its list of the Global 500. In the U.S. finance ranked number one in profits, while the IT sector was second in profits but number one in revenues. By examining IT’s strength globally and in the U.S., its’ clear this sector has emerged as a key power in world capitalism. (7)

Capital Investments In IT Stocks

There tends to be two economic sectors in the globalized economy best represented by the “new economy:” corporations listed on the Nasdaq and the “old economy” industries of the DOW. In Europe IT stocks are mainly listed on the Euro.NM, (New Markets), an alliance that brings together France’s Nouveau Marche, Germany’s Neuer Markt, Italy’s Nuovo Mercato, Euro.NM Belgium, and Euro.NM Amsterdam. This is not a perfect division between old and new industries and overlaps exist, but it does help to analyze sectors of growing distinction within capitalism. This is a different viewpoint than the division usually drawn between finance and manufacturing, and is not meant to displace or challenge the validity of that analysis. Rather the attempt here is to draw attention to the growing influence of digital/electronic technology as the key economic sector in the new era of information capitalism, and its distinct role in the development of a transnational capitalist class.

The IT revolution has had a huge impact on capital investments and stock markets fueling the great global speculative boom. The world’s three leading industrial groups in stock performance are semiconductors, wireless communications, and communication technologies. (9) In the U.S. venture capital investments for start-ups (most of which are in IT) was at $19.3 billion in 1998, grew to $50.72 billion in 1999, and hit $21 billion in the first quarter of 2000. (10) The market value of Nasdaq grew 1,900% in the decade of the 1990s. Its value of $5.85 trillion is a third of total U.S. stock market value, up from only 10% in 1990. (11) Overall, nine of the best ten performing stocks in the U.S. (3-99 to 3-00) were from the IT industry. (12) Canada has experienced a similar boom. Technology and communications stocks account for 51% of the total value of the Toronto Stock Exchange, compared to just 15% for all of Canada’s energy, mining and forest product companies. (13)

A similar investment boom hit Germany’s New Market, whose top ten listings had an average return of 592% (2-99 to 2-00). The top ten old economy corporations listed on the DAX recorded a return of 95% over the same period. Of these DAX performers if we eliminated the IT overlaps of Deutsche Telekom and SAP (which produces software), the remaining top eight companies averaged only 66%. Like the DOW, DAX still has a larger total capitalization than the New Market, $1.01 trillion euros compared to $224 billion for the New Market. But since 1997 DAX has grown by 84%, while the New Market has grown a remarkable 6,818%. (14)

Throughout Europe the impact of the new technology stocks are a spectacular success. Money is leaving the old industrial sector in a rush to high technology. On average Euro.NM stocks have gone up 516% over the past three years. The New Markets now list close to 500 companies, with the 180 new listings of 1999 attracting $8.5 billion in investment capital. (15) From March 1999 to March 2000 technology hardware stocks grew by 153.4%, telecom services by 47.1% and software/computer services by 54.2%. In comparison old line industrial stocks were down: transportation by –27.3%, auto –26.3%, construction –8.6% and oil and gas by –7.5%. (16) Of the seven best stock performers in Europe six were IT stocks. (17)

Nasdaq has now formed a joint venture with the London Stock Exchange and Deutsche Boerse to build an exchange for growth stocks that will eventually include the Italian, German and Spanish New Markets. This transnational merger will link the most important IT industries into one global market. Japan has also entered the field with the creation of Nasdaq Japan, under the leadership of former I.B.M. Japan executive Tatsuyuki Saeki. Overall, telecommunications, media and computer technology is one-third of Europe and Asia’s capitalization of equities. (18) Of the ten best performing stocks in Asia (not including Japan) seven were from the IT sector. (19) By 1999 foreign direct investments in Asia had past its pre-crisis mark, much of the new growth driven by technology and telecommunications.

Information technology is also expanding as a key to foreign direct investments, as well as foreign fund stock holdings around the world. In Japan technology stocks held by foreign funds rose from 4% in 1997 to 22.4% at the beginning of 2000. Figures for the Pacific and Asians markets show foreign held technology stocks up from 2.5% in 1995 to 16.5% in 2000. Growth in Europe was slower, but foreign held IT stocks rose from 2.8% to 10.4% in the same period. (20)

This tremendous growth in wealth throughout the world has added new clout to info-tech corporations as it puts them in a position to acquire other corporations. The best example was AOL’s buyout of Time Warner despite the fact that it’s revenue was only 20% of Time Warner’s and it’s workforce 85% smaller. After the merger Gerhard Cromme, chief executive of Germany’s biggest steel company Thyssen Krupp, sounded an alarm for the old industrial giants. As he warned: “This can happen to everybody – even those of us with big market capitalizations. Internet companies can buy up whatever they want in the world, and it’s something we have to think about.” (21)

The volatility of Nasdaq in the Spring of 2000 represented a shake-out of unsound and unprofitable companies typical in capitalist economic cycles of developing technologies. Early electrical technology went through similar shake-outs from 1880 to 1890, resulting in the consolidation of industrial monopolies General Electric and Westinghouse from a field of 21 mergers. (22) The new technology economy is now entering a period of greater centralization and consolidation reflecting competition in its monopoly stage. For example, between August 1999 and May 2000 Cisco acquired six companies spending a total of $17,399 billion. (23) This process will increase the relative influence and power of info-tech capitalists within the transnational class as major corporations consolidate and emerge as clear winners and leaders of the new economy.

IT Mergers

According to Fortune, “The boom in mergers and acquisitions (is) one of the defining trends of the past decade.” (24) In 1998 all-time records were set in the US with 12,500 deals totaling over $1.6 trillion. (25) Of these, $201 billion were for cross-border mergers, up from $23 billion in 1991. In turn, foreign investments in the US in 1999 totaled $240 billion in corporations and corporate bonds. (26) Globally two sectors were particularly effected, telecommunications and finance, both effected by deregulation under the World Trade Organization. Other important mergers occurred in high technology, media, and basic manufacturing. Globally the pace of mergers roared ahead in 1999 with 23,576 deals worth $2.3 trillion. (27)

One of the most significant changes in the pattern of mergers was their transnational character. As noted by Jeffery Applegate, chief investment strategist at Lehman Brothers; “M&A, which used to take place only within a nation-state, is increasingly intraregional and increasingly global.” (28) This differs from the merger wave in the early twentieth century that resulted in the control of domestic markets by a handful of corporations. The transnational merger trend today is directed at establishing production facilities in other industrialized nations and cross-border buyouts in what John Bellamy Foster calls the “greatest merger wave in capitalist history.” (29) This massive move to consolidation is driven by global competition as transnationals move to protect themselves and control production.

The struggle to dominate the IT field has set the stage for some of the biggest transnational mergers, particularly the battle for Internet and telecommunications corporations. In the U.S. AT&T acquired cable giant Telecommunications Inc. followed by MediaOne group. This gives AT&T control of more than a third of the nation’s cable network for television, high-speed Internet access and online telephone services. (30) Other recent deals include Ameritech’s acquisition by SBC, Qwest’s move to buy US West, and MCI WorldCOM’s planned takeover of Sprint. More >>