Why is capital leaving the US?

Image: Christian Thöni
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By RICHARD D.WOLFF*

Capitalism advanced, abandoning its old centers and thus pushing its problems and its divisions into ever greater crises.

At first, American capitalism was centered in New England. After a while, the pursuit of profit led many capitalists to leave that area and move to New York and the mid-Atlantic states. Much of New England was left with abandoned factories and depressed towns – which is evident even today. Eventually, employers moved again, abandoning New York and the mid-Atlantic for the Midwest.

The same story was repeated as the center of capitalism shifted to the Far West, South and Southwest. Descriptive terms such as “rust belt”, “deindustrialization” and “manufacturing wasteland” were increasingly applied to spaces formerly inhabited by North American capitalism.

While capitalism's movements remained mostly within the US, the alarms raised by its abandoned victims remained regional, not yet becoming a national issue. In recent decades, however, many capitalists have moved production facilities and new investments out of the US to other countries, especially China. Controversies and continuing alarms now surround this capitalist exodus. Even the celebrated high-tech sectors, arguably the only remaining robust center of US capitalism, invested heavily elsewhere.

Since the 1970s, wages have been much lower abroad and markets have grown faster there as well. More and more American capitalists had to leave or risk losing their competitive edge over those capitalists (European and Japanese as well as the US) who had left earlier for China and were making incredibly better rates of profit. In addition to China, other Asian, South American and African countries also provided incentives from low wages and growing markets, which ended up attracting American capitalists, as well as others, to move their investments there.

The profits made by these movements of capital stimulated further movements. The rise in profits has sent US stock markets higher and has produced huge gains in income and wealth for some. This mainly benefited the already wealthy corporate shareholders and top corporate executives. They, in turn, promoted and financed the formulation of ideologies according to which the abandonment of US capitalism was actually a great gain for American society as a whole.

These assertions, categorized under the headings of “neoliberalism” and “globalization”, served perfectly to hide or obscure a key fact: higher profits primarily for the richest few was the main objective and result of the abandonment of the US by ever-greedy capital.

Neoliberalism was a new version of an old economic theory that justified the “free choices” of capitalists as the necessary means to achieve optimal efficiency for entire economies. According to the neoliberal view, governments should minimize any regulation or other interference in the profit-oriented decisions of capitalists.

Neoliberalism celebrated “globalization”, its preferred name for the choice of capitalists specifically to move production abroad. It was said that “free choice” allowed for “more efficient” production of goods and services, because capitalists could exploit globally sourced resources. The thrust that flowed from the exaltations of neoliberalism, the free choices of capitalists and globalization was that all citizens benefit when capitalism advances. With the exception of a few dissidents (including some trade unions), opportunistic politicians, mass media and self-interested academics have largely joined the intense cheering for the neoliberal globalization of capitalism.

The economic consequences of the profit-driven movement of capital out of its former centers (Western Europe, North America and Japan) have brought capitalism into its current crisis. First, real wages stagnated in the old centers. Employers who could export jobs (especially in manufacturing) did. Employers who couldn't (especially in service sectors) looked to automate them.

As job opportunities in the US have stopped rising, wages have also stopped growing. Since globalization and automation have boosted corporate profits and stock markets while wages have stagnated, the old centers of capitalism have exhibited extreme widening differences in income and wealth. Deepening social divisions followed and culminated in the crisis of capitalism now.

Second, unlike many other poor countries, China had the ideology and organization to ensure that investments made by capitalists served their own development plan; well, that was China's economic strategy. China required the sharing of the advanced technologies of the incoming capitalists (in exchange for these capitalists' access to low-wage Chinese labor and the rapid expansion of Chinese markets).

Capitalists entering Beijing markets were also obliged to facilitate partnerships between Chinese producers and distribution channels in their home countries. China's strategy of prioritizing exports meant that it needed to secure access to distribution systems (and therefore capitalist-controlled distribution networks) in its target markets. Mutually profitable partnerships have developed between China and some global distributors such as Walmart.

Beijing's "socialism with Chinese characteristics" included a powerful political party and a development-focused state. Together they supervised and controlled an economy that blended private capitalism with state capitalism. In this model, private employers and state employers direct masses of employees in their respective companies.

Both sets of patronage functions, however, are subject to the strategic interventions of a party and government determined to achieve its economic objectives. As a result of this definition and operation of “socialism” with Chinese characteristics, that country's economy has gained more (especially in GDP growth) from neoliberal globalization than Western Europe, North America and Japan. China grew fast enough to now compete with the old centers of capitalism.

The decline of the US within a changing world economy has contributed to the crisis of US capitalism. For the US empire that emerged from World War II, China and its BRICS allies now represent its first serious and sustained economic challenge. The official US reaction to these changes so far has been a mix of resentment, provocation and denial. There are no solutions for the crisis or successful adjustments to an altered reality.

Third, the war in Ukraine exposed the main effects of the geographic movements of capitalism and the accelerated economic decline of the US in relation to the economic rise of China. Thus, the US-led sanctions war against Russia failed to crush the ruble or collapse the Russian economy. This failure followed in large part because Russia gained crucial support from the alliances (Brics) already built around China. These alliances, enriched by investments by foreign and domestic capitalists, especially in China and India, provided alternative markets when sanctions closed Western markets to Russian exports.

Past income and wealth disparities in the US, compounded by the export and automation of high-paying jobs, undermined the economic foundation of this “broad middle class” that so many employees believed they were a part of. In recent decades, workers hoping to enjoy the “American dream” have found that rising costs of goods and services have put the dream out of reach. Their children, especially those forced to take out college loans, found themselves in a similar or worse situation.

Resistance of all kinds arose (union movements, strikes, left and right “populisms”) as the living conditions of the working class continued to deteriorate. To make matters worse, the mass media celebrated the stupefying wealth of those few who profited most from neoliberal globalization.

In the US, phenomena such as former President Donald Trump, independent Vermont Senator Bernie Sanders, white supremacy, unionization, strikes, outright anti-capitalism, “culture” wars, and often bizarre political extremisms reflect deepening social divisions. Many in the US feel betrayed after being abandoned by capitalism. Their different explanations for the betrayal exacerbate the nation's widespread sense of crisis.

The global displacement of capitalism has helped raise the total GDP of the BRICS countries (China + allies) well above the G7 (US + allies). For all countries in the Global South, your appeals for development assistance can now be directed to two possible respondents (China and the US), not just the West. When Chinese companies and entities invest in Africa, it is clear that their investments are structured to help both donors and recipients.

Whether the relationship between them is imperialist or not depends on the specifics of the relationship and the net earnings balance. These gains for the BRICS are likely to be substantial. Russia's adjustment to Ukraine-related sanctions against it not only led it to lean more on the BRICS, but also intensified economic interactions between BRICS members. Existing economic ties and joint projects between them grew. New ones are popping up fast. Unsurprisingly, other countries in the Global South have recently applied to join the BRICS.

Capitalism advanced, abandoning its old centers and thus pushing its problems and its divisions into greater and greater crises. As profits still flow back to the old centers, those who reap the profits there deceive citizens and themselves into thinking that all is well with global capitalism.

As these profits drastically exacerbate economic inequalities, social crises deepen. For example, the wave of labor militancy sweeping nearly every industry in the US reflects a growing anger and resentment against these inequalities. The hysterical scapegoating of various minorities made by demagogues and right-wing movements is another reflection of the worsening difficulties. Another is the growing realization that the problem, at its root, is the capitalist system. These are all components of the current crisis.

Even in the new dynamic centers of capitalism, socialist criticism, masked or not, again stirs people's minds. Is the organization of new work centers – maintaining the old capitalist model of employers versus employees in private and state companies – desirable or sustainable? Is it acceptable that a small group, employers, allow the majority of companies to decide in their own favor, exclusively and irresponsibly?

Richard D Wolff is an economist. He founded the Democracy at Work portal. Author, among other books, of Capitalism's Crisis Deepens (haymarket books).

Translation: Eleutério FS Prado.

Originally published on the website counter punch.


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