Is the globalization drive over?

Image: Tuur Tisseghem


The collapse of globalization can turn into not just a battle between two blocs, but a complex mix of competing economic units.

In addition to inflation and war, what appeals to current economic thinking is the apparent failure of what economic theory mainstream likes to call “globalization”. What does she mean by that term? It refers to the free expansion of trade and the flow of capital across borders. In 2000, the IMF identified four basic aspects of globalization: trade and transactions, capital movements and investments, migration and movement of people, and dissemination of knowledge.

All of these components apparently expanded from the early 1980s onwards as part of the neoliberal reversal of previously pursued national macromanagement policies. Said Keynesians, they were adopted by governments in the environment of the world economic order of Bretton Woods (that is, under US hegemony). The new rule now was to break tariff barriers, quotas and other trade restrictions, thus allowing multinationals to negotiate “freely” and transfer their investments abroad, that is, to areas of cheap labor, with the aim of increasing the profitability. This would lead to global expansion and the harmonious development of the productive forces and growth of the world's resources – at least that was what was claimed then.

There was nothing new about this phenomenon. Since capitalism became the dominant mode of production in major economies, as early as the middle of the 1848th century, there have been periods of increased international trade and increased export of capital. In XNUMX, the authors of the Communist Manifesto noted the increase in the level of national interdependence brought about by capitalism and predicted the universal character of modern world society: “The bourgeoisie, through exploitation of the world market, has given a cosmopolitan character to production and consumption in all countries. Much to the chagrin of the reactionaries, it knocked the national ground on which it stood from under industry's feet. All old established national industries have been destroyed or are being destroyed daily…. In place of the former seclusion and local and national self-sufficiency, we have relationships in all directions, universal interdependence of nations.”

Indeed, it is possible to distinguish earlier periods of “globalization”. There was the period from 1850 to 1870 which saw trade and investment expand sharply in Europe and the US (after the civil war) under the auspices of British hegemony. The depression of the 1870s to 1890s saw the end of this wave. But another wave of global expansion took place in the 1890s until World War I, when new capitalist powers usurped British hegemony. No power then managed to establish such hegemony that this wave of globalization was interrupted by the world war. The disruption of globalization continued and continued from the Great Depression of the 1930s until World War II.

Then there was a new wave of global expansion under US hegemony, under the aegis of Bretton Woods. It lasted until the profitability crisis of the 1970s, when declines and retrenchments occurred. The mid-1980s through the 1990s saw the greatest expansion of cross-border trade and investment in the history of capitalism. American and European capitalisms spread their wings further, but China was able to enter global manufacturing and trade markets.

Indeed, according to the World Trade Organization, a key indicator of “globalization”, the ratio of world exports to world GDP, was virtually unchanged between 1870 and World War I; then fell by almost 40% in the interwar period; increased 50% from 1950-70; then stagnated until the 1990s, taking off until the Great Recession of 2009; after that, in the Long Depression of the 2010s, that indicator dropped by about 12%, a decline not seen since the 1970s.

The last wave of globalization began to wane just before the early 2000s, when global profitability began to decline, as shown in the figure below.

Penn World Table 10.0, author's calculations

In the 1990s, world trade grew by 6,2% a year, cross-border investment (FDI) increased by 15,3% a year, and global GDP rose by 3,8% a year. But in the long depression of the 2010s, trade grew by just 2,7% a year, slower than GDP by 3,1%, while FDI increased by just 0,8% a year. Well, this is what the figure in sequence shows.

Cross-border investment flows in physical productive assets also stopped growing in the 2010s, while global trade across “value chains” (i.e., through inward transfers from multinational corporations) has also stabilized.

Source: World Trade Organization

Of course, the critique of political economy could have predicted this outcome of globalization. David Ricardo's theory of comparative advantage has always been demonstrably false. Under capitalism, with unrestricted markets, the more efficient economies will take part in the trade of the less efficient ones. Thus, trade and capital imbalances do not tend to equilibrium over time. On the contrary, countries often run huge trade deficits and surpluses for long periods; experience recurrent currency crises; workers in one country lose their jobs due to competition from abroad; new, more competitive sectors do not usually replace the declining ones (see Carchedi, Gugliermo – Frontiers of Political Economy).

It is not comparative advantages or costs that drive commercial gains, but absolute costs (in other words, relative profitability). If Chinese labor costs are much lower than the labor costs of US companies, China will gain market share, even if the US has a so-called “comparative advantage” in design or innovation. What really decides the growth of an economy is the level of productivity and the cost of the labor force.

Contrary to the view of mainstream in Economics, capitalism cannot expand through harmonious and uniform development, extending to the whole world. On the contrary, capitalism is a system traversed by contradictions generated by the law of value and the profit motive. One of the contradictions of capitalism is the law of uneven development – ​​some competing national economies do better than others. And when the going gets tough, the stronger ones start eating the weaker ones. As Marx said in Added value theories: “the capitalists are like hostile brothers who divide among themselves the loot of the labor of the working people”. Sometimes these brothers show themselves to be fraternal and globalization expands as it did at the end of the XNUMXth century; other times they appear hostile and globalization slows down – as in the XNUMXst century.

For Marxist theory, globalization becomes in fact the current and dominant word to refer to imperialism. The XNUMXth century began with world capitalism increasingly divided between a dominant imperialist bloc and the rest. In the XNUMXst century, the dominance of imperialism remains. And if, now, imperialist economies start to fight for profitability and markets, then they start to not cooperate, laying the groundwork for division, conflict and war.

even the theory mainstream is now aware that free trade and the free movement of capital, which have accelerated globally over the last 30 years, have not led to wins for all – exactly contrary to what the theory of comparative advantage and free competition asserts. Globalization and free trade have not brought income increases for everyone. Under the free circulation of capital owned by transnationals, as well as under free trade without tariffs and restrictions, the most efficient big capitals triumphed at the expense of the weakest and most inefficient ones.

As a result, workers in the latter sectors were also affected. Instead of harmonious and egalitarian development, globalization has increased wealth and income inequality, both between and within nations. Transnational corporations moved their activities to areas where labor was cheaper, adopted new technologies that require less labor in the fight for profitability.

These results are due in part to the globalization brought about by multinational capital: factories and jobs have moved to what used to be called the Third World. But they are also partly due to neoliberal policies in advanced economies (ie, reduction of union power and labor rights; precarious work and lower wages; privatization and reduction of public services, pensions and social benefits). One cannot forget also the part due to regular and recurrent collapses or falls in capitalist production.

Behold, all this led to a loss of family income for a significant volume of workers in developed countries. Well, this loss will never be counteracted by means of a “recovery”, especially from 2009 onwards. The capitalist world was never flat, even in the end do century XX – and it certainly is pretty hilly right now. The great recession, the poor recovery during the long depression, the COVID pandemic and now the Russia-Ukraine conflict have all destroyed global supply chains, stymied global trade and halted capital movements.

During the 1990s and 2000s, mainstream economic theory (with few exceptions) aligned itself with the liberal theses of David Ricardo; thus, the unsullied merits of globalization were lauded. Despite current trends, some mainstream pundits still hold the view that globalization will return. See below what two of them said:

“It was inflation,” said the first, “that helped to create a new political environment in the mid-twentieth century and into the 1970s. As the economic and political costs of inflation became more obvious and more damaging, it seemed more attractive to look for ways to calm inflationary pressures. To be sure, the cure for inflationary disease – globalization and more effective government – ​​was temporarily uncomfortable. But it has led the world to seize technical and geographic opportunities previously ignored or overlooked. There is, in short, a post-conflict future to which we can look forward with some degree of hope.”

“My belief” – said the other – “may be taken as blind faith, yet the fact is that the last prayers for globalization have been said several times in recent years, but, on each occasion, it has risen from its deathbed. death looking, then, quite lively. Companies have been resourceful, leaning on technology to renew themselves. Even the most destructive governments have proved unable to undo it”.

Of course, world trade and cross-border investment is not going away; on the contrary, they will continue to grow (at least a little) despite pandemics, wars and collapsing supply chains. But this is hardly an argument for saying that the previous wave of globalization is not over.

The bottom line is that the profitability crisis and inflation of the 1970s was followed by the globalization wave of the 1980s and 1990s, and it could happen again. But this doesn't seem like a very likely scenario. The 2020s looks more like the period leading up to World War I; see that the rival economic powers (brother enemies) are now fighting each other to get a bigger share of the profits generated globally.

Writing in the late 1880s, Engels predicted, not the harmonious global expansion as German social democratic leader and theorist Karl Kautsky envisioned, but the rise of rivalry between competing economic powers, which would result in a new European war: “ the ravages of the Thirty Years' War (which took place in the seventeenth century) would be compressed into three to four years and stretched across the continent... with an irrecoverable relocation of our artificial system of trade, industry and credit, without a return to the global expansion of 1850 -70”.

Keynesians now seek to return to the days of Bretton Woods with its fixed exchange rates, government fiscal stimulus and gradually reduced tariffs. They claim that this would lead to a renaissance of “multilateralism” and global cooperation. Behold, a world order of peace and harmony could apparently be restored.

But this prognosis – mind you – is just a denial of history and the reality of the 2020s. Post-war multilateral organizations such as the IMF, World Bank and UN were all under the “guidance” of capitalism North American. But now US hegemony is no longer securely imposed; more significantly, the high profitability of the major post-1945 economies no longer exists. The brothers are now no longer fraternal with each other, but hostile. The current US attempt to maintain its hegemony is more like trying to lump cats together.

It is perfectly possible to argue that deglobalization decreases the efficiency of companies, decreases competition and that this is not good for capital. Without any foreseen reversal in the course of things to accelerate growth, a deglobalized world would be “much inferior” to the last 30 years in which an opening of world trade prevailed.

A recent study by the World Trade Organization, based on measuring the dynamic impact of trade loss and technology diffusion, found that “a potential split of the global trading system into two blocs – a US-centric bloc and a China-centric bloc – would reduce global welfare, by around 2040, compared to a baseline, by about 5%. Losses would be greatest (over 10%) in low-income regions that typically benefit from positive spillovers from advances in trade and technology.” Indeed, the collapse of globalization can turn not just into a battle between two blocs, but into a more complex mix of competing economic units.

In any case, globalization will only eventually return if and when capitalism gains a new lease of life based on increasing and sustained profitability. This seems unlikely to happen given the prospect of a new crisis in the coming years – and perhaps more war.

*Michael Roberts is an economist. Author, among other books, of The Great Recession: A Marxist View.

Translation: Eleutério FS Prado.

Originally posted on the blog The next recession.

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