Is globalisation coming to an end?

Nice link here from www.interest.co.nz. I had heard of Canadian writer John Ralston Saul before but couldn’t recall his thoughts. He makes a nice metaphorical comparison to the financial sector as a collapsing souffle. “Trying to inject egg whites into a falling souffle doesn’t work”

This short two-part clip ties in closely with much of what I have come to believe about globalisation and wrote on last year in an essay below. A lot of it is hype couched as free trade but really there to facilitate the free movement of capital ie money around the globe from jurisdiction to jurisdiction to minimise/avoid tax and to pump and dump speculative bubbles. This is what the TPP is about not trade liberalisation. That’s just the sweetener for public consumption.

Below is an essay I did in 2011 arguing that the GFC marks the beginning of the end for globalisation

To what extent is globalisation a new or contemporary phenomenon?

This essay will argue that globalisation is a contemporary but waning phenomenon that is neither new or epochal but is rather a “historical conjuncture”[i] in the long and tortured path of capitalism. This argument closely follows Justin Rosenberg’s thesis that globalisation theory rose to become a Zeitgeist (mood associated with an era or “spirit of the times”) but one which was based on temporal coincidence and misinterpreted causality “reflecting, but not explaining, the experience” of the 1990’s[ii] and the temporary ascendency of multilateralism and neoliberal economics. This is not to deny the velocity at which changes happened or their scale; just that they can be seen as part of the continual expansion that Marx described in his analysis of capitalism. Indeed Marx also identified the regular bouts of crisis capitalism would endure and which have in the last decade seen a re-emergence of both unilateralism and the strong centralised state in the world’s premier capitalistic nation, the United States.

In addition there is room for William Robinson’s theories on transnational capital and a transnational capitalist class though this essay will not agree that they have been able to completely break free of nation state constraints and may even be on the wane as a result of the recent Global Financial Crisis. The deregulation of financial markets in the 1980’s and the huge increases in speculative capital flows around the globe certainly come closest to a system that could be described as transnational globalisation but even here they depend on the protection of the nation state and could be easily re-regulated if there was enough will.

There will also be space here for the arguments of John Gray and Jane Kelsey that a breakdown in global financial markets will result in a loss of authority for transnational institutions, the world will fragment into waring trading blocs and many states will experience regime change.

“Like other utopian experiments, the global free market will not be reformed. It will simply fall apart, leaving chaos in its wake.”[iii]

Globalisation was and still is in some quarters, a common term for the growth of transnational business, finance, communications (particularly the internet) and even popular culture in the last couple of decades. In its extreme form it is called hyperglobalism and anticipates the rapid and extensive loss of national sovereignty and the ascension of a global order based on transnational corporations and multilateral Non Governmental Organisations where capital can move at will around the globe in search of maximum profits. There has definitely been a massive rise in capital flows since most western countries deregulated their financial markets but several factors prevent it from being defined as hyperglobal.

– Many countries, particularly China, still regulate capital flows in and out of the country, although they are partially circumvented by inventive Chinese businesses and back door flows via Hong Kong and Singapore.

– Countries in the third world are not part of the deregulated global financial system and Direct Foreign Investment has to pass through corrupt governments and bureaucrats.

– Most countries still do not have easily traded floating currencies or open internationally accessible sharemarkets. Even in the biggest economies governments regularly intervene to prevent the sale of “strategic assets” and many of the biggest accumulators of global shares and bonds are sovereign investment and pension funds, something which negates the thesis of declining nation state power.

– In addition why would large corporations spend such large sums on lobbying and bribing governments if they were free to wheel and deal as they pleased? “That multinational corporations expend considerable resources influencing the policies of governments contributes to the view that the sovereign state is not redundant. In most parts of the world, state institutions are a strategically decisive territory on which competition between corporations is waged.”[iv] That is not to say that there are not regular attempts to further liberalise nation states foreign investment thresholds (as New Zealand has recently done with several of its trading partners) but the biggest deals are still subject to governmental oversight. The Australian government has vetoed the sale of mining assets and the United States the sale of ports to foreign sovereign funds in recent years.

In its less extreme form it sounds more convincing. As Rosenberg notes the filling of the vacuum left by the demise of the Soviet Union and the simultaneous rise of neoliberal economic prescriptions created a sense of enormous and rapid change that seemed truly global in its extent.

“Globalization, in fact, was truly a word that seemed to unite in a single image all the different vectors of this decade of change. Not for nothing did this hazy spatial metaphor now become the Zeitgeist of the 1990’s. For the torrent of events did seem to be converging in a common spatial register: expansion of social space through the opening up of closed societies; compression of geographical space through distance-transcending means of communication; merging of inter-societal space through deepening transnational interconnection; reconfiguration of geopolitical space through widespread diplomatic realignments; universalizing of legal space through assertions of international jurisdiction; mixing up and hybridizing of cultural space through large scale migration, even larger scale mass tourism and the cultivation of new markets for `world’ music, `world’ food, `world’ literature, `world’ cinema, etc….”[v]

It is easy to see why many academics, journalists and business people latched on to the concept of globalization. The large and rapid changes taking place were ripe for a “new paradigm” mindset and as such are often subject to excitement and hyperbole. Rosenberg points out however that

“in the longer historical view, the social and political change, geographically vast as it was, was clearly conjunctural, not epochal. No new form of society was emerging – rather, the organic tendencies of the old were now reasserting themselves, in a new situation, and on an historically unprecedented scale.”[vi]

Supporting this is the experience of many of the nations most affected by the changes. The break up of the Soviet Union resulted in a large but impoverished Russian Federation surrounded by smaller and equally impoverished nations. All were subjected to neoliberal economic prescriptions and all within a few years has been reduced to failed states of some description. Russian state assets were sold off to former members of the communist regime and their cronies and economic production collapsed. Conditions for many of the population became depression like. The free movement of capital in and out of Russia resulted in a massive debt crisis as speculative capital fled. Organised crime flourished. Although its economy has improved somewhat due to oil and mineral exports, it remains a very unequal society. Under Putin’s dominating influence, a country that has never known democracy is also becoming more economically centralised and politically authoritarian with heavy nationalistic overtones. Foreign companies do business in Russia at their own peril.

The Baltic states of Latvia, Estonia and Lithuania all had their initial speculative booms followed by busts. The resource rich `stans in central Asia all have authoritarian governments and are essentially closed to the outside world. Any form of globalization has passed them by.

China has had perhaps the largest changes and is held by many as a shining example of the benefits of globalization with hundreds of millions being lifted out of rural poverty and into an urban middle class. It has built a new capitalist economy based on being the world’s largest manufacturer, marrying relatively low wages with modern technology. Yet it is hardly a poster child for the globalization ideal. It has an authoritarian government that directs investment, a large bureaucracy, massive corruption, a non floating currency, restrictions on foreign investment and an arbitrary judicial system. Its rapid industrialisation has ruined its environment.China belongs to few of the global multilateral organisations and acts more like an old fashioned empire in its dealings with other nations. As New Zealand’s Fonterra recently found out, like Russia, you invest in China at your own peril. Many large global brands like Apple and Nike operate in China via sub contractor relationships rather than direct investment. Far from relaxing its grip on the economy or society, China’s central government is tightening its hold and looking to expand its international presence via “foreign aid” and a massive re-equipment of its military. Yes the Chinese economy has partially integrated into the global economy but it has been on China’s terms.

The other two biggest players are the United States and the European Economic Community (EEC). The EEC was established in 1993 with the Treaty of Maastricht. It has since expanded to encompass much of Europe with a common customs border and a common currency, the Euro. More than any other event, the formation of this vast trading bloc should be a model for globalisation. Instead it has found itself at loggerheads with the United States in particular and heavily subsidises and protects its producers, particularly agricultural producers, with tarrifs and quotas. The Global Financial Crisis is also exposing the flawed logic behind a common currency and the problems caused by large financial flows within the member states. A common currency has meant a common interest rate set by the European Central Bank. But the rate has been set too low, perhaps appropriate for France and Germany but too low for many of the other nations with smaller economies and shallower financial markets. Too much easy credit has thus flowed to these nations funding speculation particularly in property, and a deep recession has meant it can’t be paid back easily. Normally, the theory goes, a country would let the markets devalue its currency, this would make their exports more competitive and the economy would recover. With a common currency and interest rate this option is not open to the smaller and weaker nations. Combined with lax lending standards by French and German banks in search of short term profit, this means much of this debt can never be paid back. The big banks are insolvent and will likely have to be recapitalised by their respective taxpayers. There is also now the very real prospect that member states could be ejected from the union and that the euro could collapse – a failed experiment.

In the United States support for free trade and multilateralism reached its apogee under Clinton during the boom years of the 1990’s. That the economic “boom” was caused by deregulation and a huge increase in financial speculation rather than industrial production is rarely mentioned. The dot com bust was the most visible result. The United States has always been a fair weather sailor when it comes to free trade and the recession in 2000/20001 saw it “actively obstruct any multilateral arrangement which did not serve its national interests”[vii] and pursue a more unilateral economic and foreign policy. Far from letting transnational companies of any description operate freely around the globe, the United States government heavily supports US based corporations who lobby and provide electoral funding. Since 9/11 too it has been more ready to use the excuse of national security for blocking commercial deals and asset sales to foreign companies. For instance it recently forced the US Air Force to re -tender a contract for air tankers won by the European Airbus consortium. It did so after lobbying by Boeing.

William Robinson holds a different view to Rosenberg on capitalism and globalization. Although he agrees with Marx’s analysis of capitalism, he is adamant that there has been globalisation of transnational finance and the creation of a truly transnational capitalistic class who have “been able to break free of nation-state constraints to accumulation beyond the previous epoch.”[viii]

I am sympathetic to his belief that transnational capital, particularly that of investment banks and hedge funds and other entities of the shadow banking system are able to speculate with huge amounts of leveraged capital, creating consecutive bubbles in stocks, property, commodities and bonds, often making money by shorting the same products they have just sold to investors.

But again while this has been amplified by the new technology, computerised day and flash trading (80% of stock and currency transactions are only held for seconds or minutes) this still fits within the context of normal capitalist development and there are calls for renewed regulation as individual investors and even sovereign states face bankruptcy as a result of the latest financial crises. To date transnational capital, especially the big banks, have been able to fend off pressure for their re-regulation, but there is rising anger in the general population of their host countries that could well boil over as either the current financial crisis flares up again or another emerges. The global financial system is in an “extend and pretend” phase, praying that time will return things to pre crisis levels.

Unfortunately for them this is unlikely to be the case. Governments deperate for cash have started to turn their sights on tax havens, some banks have had to be nationalised as part of the bailout or bankruptcy process (Ireland and Iceland) and others, even the incredibly politically connected Goldman Sachs find themselves and their executives under closer scrutiny and investigation. There are also renewed calls for a Tobin or financial transactions tax that would make short term financial transactions unprofitable. Robinson’s Transnational Capitalist Class is still very powerful but they may very well have shot themselves in the foot with their own greed and hubris. In this context the latest financial crisis is no different from a previous crises like 1929, 1987 or 2000 caused by leveraged speculation in equities.

What then is the end game? John Gray is as scathing of hyperglobalisation as Rosenberg. He recognises the different scale and scope of the modern global capitalist economy but sees it in many respects as being weaker and more anarchic than previous versions. Yet at the same time like Robinson he recognisies the globalization of financial markets, the massive speculative capital flows and the power and size of many transnational companies as unprecedented. He believes “capitalism today is very different from the earlier phases of economic development on which Karl Marx and Max Weber modelled their accounts of capitalism – and also from the stable, managed capitalisms of the post-war era.” [ix] However he sees this as conferring on neither transnational capital or the nation state any advantage.

“Sovereign states today act in an environment so transformed by market forces – not even the largest transnational corporation or sovereign state – can master it….competitive advantage is inherently fleeting in the anarchic environment of disorganised global capitalism. In the late 20th century there is no shelter – for corporations or for governments – from the global gale of creative destruction.”[x]

I find Gray somewhat contradictory in his belief that globalisation is a new era different from other periods of capitalistic development. His belief that the world will lapse back to nation state competition and that neoliberal policies will collapse as they did after the laissez-faire period of the late 19th century surely renders his new era beliefs incorrect especially as he makes a powerful argument for the nation state.

“Sovereign states are not going to become obselete. They will remain decisive structures which multinational corporations compete to control. This pivotal role of sovereign states makes nonsense of the claims of hyperglobalists, business utopians and populists who maintain that multinationals have supplanted sovereign states as the real rulers of the world….The protective function of states is likely to expand, as citizens demand shelter from the anarchy of global capitalism…..Sovereign states have yet another function – seizing control of the natural resources that are necessary for economic growth. In Central and East Asia, the struggle for the control of oil is a source of diplomatic rivalries as much today as it was in the 19th century….In such a world competition among sovereign states will be more, not less, pervasive and intense.”[xi]

The popular definition of globalisation has at its heart the increasing interconnectedness of the global economy made possible by the revolution in communications, particularly the internet, and the parallel deregulation and expansion of financial markets. However this interconnectedness and integration into a global economy is patchy at best with many countries remaining outside or retreating from it. Also like Rosenberg I believe there is good reason to believe that modern globalisation is not an epochal change but a merely another period of capitalist development that was clearly identified by Marx including periods of massive acceleration and time-space compression, “rooted in its core relations, private property and wage labour, they would keep `reasserting themselves’ and on an ever greater scale.”[xii]

Although I therefore disagree with Robinson that globalisation is an epochal change because of the transcendency of transnational capital, the revolution in communications and the ease with which it has allowed outsourcing and just in time production environments has had profound effects on the global economy. But the massive increase in productivity and production it aided has not been matched by real wages for the middle class, and consumption can only be maintained by assuming increasing levels of debt. Robinson’s theories around hyper-accumulation tie in with this. For this reason I support Gray’s belief that the current financial globalisation and its bedfellow neoliberalism will likely collapse in much the same way they did in the early 20th century as their negative effects sow the seeds of their own destruction.

The end of the nation state is not nigh. A global free market run by transnational companies will not supplant the nation state because before this point could be reached the deleterious effects would be so profound the system would collapse in on itself. Indeed this process may already be well advanced as a series of escalating financial crises in the last 25 years have bought global economies to a major inflection point. The hope and hype around globalisation may have been just that.


[i] Rosenberg, J. Globalization Theory: A Post Mortem, International Politics, 2005, 42, p6

[ii] Rosenberg, J. Globalization Theory: A Post Mortem, International Politics, 2005, 42, p4

[iii] Gray, J. False Dawn: The delusions of global capitalism, Granta Books, 2002, foreword xxi

[iv] Gray, J. False Dawn: The delusions of global capitalism, Granta Books, 2002, p71

[v] Rosenberg, J. Globalization Theory: A Post Mortem, International Politics, 2005, 42, p51

[vi] Rosenberg, J. Globalization Theory: A Post Mortem, International Politics, 2005, 42, p52

[vii] Rosenberg, J. Globalization Theory: A Post Mortem, International Politics, 2005, 42, p60

[viii] Robinson, W. Global capitalism and 21st century fascism, Aljazeera.net,8 May 2011

[ix] Gray, J. False Dawn: The delusions of global capitalism, Granta Books, 2002, p71

[x] Gray, J. False Dawn: The delusions of global capitalism, Granta Books, 2002, p76

[xi] Gray, J. False Dawn: The delusions of global capitalism, Granta Books, 2002, p76-77

[xii] Rosenberg, J. Globalization Theory: A Post Mortem, International Politics, 2005, 42, p22

Bibliography

Castells, M. Materials for an exploratory theory of the network society, British Journal of Sociology, Vol 51, Jan/March 2002

Dirlik, A. Global Modernity? Modernity in an age of Global Capitalism, European Journal of Social Theory, 2003, 6(3)

Easton, B. Jane Kelsey at the Crossroads: Three Essays, 2002, http://www.eastonbh.ac.nz

Gray, J. False Dawn: The delusions of global capitalism, Granta Books, 2002

Held, D, McGrew, A, Goldblatt, D & Perraton, J. Global Transformations, Introduction,StanfordUniversity Press, 1999

Nederveen Pieterse, J. Globalisation or Empire?, Routledge, 2004, ch 3-4

Robinson, W. A Theory of Global Capitalism, Ch 1: Globalization as Epochal Change in World Capitalism, John Hopkins, 2004

Robinson, W. Global capitalism and 21st century fascism, Aljazeera.net,8 May 2011

Robinson, W. The Pitfalls of Realist Analysis of Global Capitalism: A Critique of Ellen Meiksins Wood’s Empire of Capital, Historical Materialism, 2007, 15

Rosenberg, J. Globalization Theory: A Post Mortem, International Politics, 2005, 42

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