Globalization and Neoliberalism

by David M. Kotz Department of Economics and Political Economy Research Institute Thompson Hall niversity of Massachusetts !mherst" M! #$##% .&.!. Telephone '$%()')($*'+ ,a- '$%()')(*.*$ Email dm/otz0econs.umass.edu

!u1ust" *###

This paper 2as published in Rethinking Marxism" 3olume $*" 4umber *" &ummer *##*" pp. 5'( 6.. Research assistance 2as provided by Elizabeth Ramey and De1er Eryar. Research fundin1 2as provided by the Political Economy Research Institute of the niversity of Massachusetts at !mherst.

Globalization and Neoliberalism ,or some t2o decades neoliberalism has dominated economic policyma/in1 in the and the

$ &

K. 4eoliberalism has stron1 advocates in continental 7estern Europe and 8apan" but & efforts

substantial popular resistance there has limited its influence so far" despite continuin1

to impose neoliberal policies on them. In much of the Third 7orld" and in the transition countries 9e-cept for :hina;" the & has been successful in dictatin1 neoliberal policies" actin1 partly

throu1h the IM, and 7orld <an/ and partly throu1h direct pressure. 4eoliberalism is an updated version of the classical liberal economic thou1ht that 2as dominant in the & and K prior to the =reat Depression of the $.%#s. ,rom rou1hly the mid

$.%#s to the mid $.6#s a ne2 !interventionist0 approach replaced classical liberalism" and it became the accepted belief that capitalism re>uires si1nificant state re1ulation in order to be viable. In the $.6#s the ?ld Reli1ion of classical liberalism made a rapid comebac/" first in academic economics and then in the realm of public policy. 4eoliberalism is both a body of economic theory and a policy stance. 4eoliberal theory claims that a lar1ely unre1ulated capitalist system 9a !free mar/et economy0; not only embodies the ideal of free individual choice but also achieves optimum economic performance 2ith respect to efficiency" economic 1ro2th" technical pro1ress" and distributional @ustice. The state is assi1ned a very limited economic roleA definin1 property ri1hts" enforcin1 contracts" and re1ulatin1 the money supply. &tate intervention to correct mar/et failures is vie2ed 2ith suspicion" on the 1round that such intervention is li/ely to create more problems than it solves. The policy recommendations of neoliberalism are concerned mainly 2ith dismantlin1 2hat remains of the re1ulationist 2elfare state. These recommendations include dere1ulation of businessB privatization of public activities and assetsB elimination of" or cutbac/s in" social 2elfare pro1ramsB and reduction of ta-es on businesses and the investin1 class. In the international sphere" neoliberalism calls for free movement of 1oods" services" capital" and money 9but not people; across
$

Globalization and Neoliberalism

national boundaries. That is" corporations" ban/s" and individual investors should be free to move their property across national boundaries" and free to ac>uire property across national boundaries" althou1h free cross(border movement by individuals is not part of the neoliberal pro1ram. Ho2 can the re(emer1ence of a seemin1ly outdated and outmoded economic theory be e-plainedC !t first many pro1ressive economists vie2ed the $.6#s lurch to2ard liberalism as a temporary response to the economic instability of that decade. !s corporate interests decided that the Keynesian re1ulationist approach no lon1er 2or/ed to their advanta1e" they loo/ed for an alternative and found only the old liberal ideas" 2hich could at least serve as an ideolo1ical basis for cuttin1 those state pro1rams vie2ed as obstacles to profit(ma/in1. Ho2ever" neoliberalism has proved to be more than @ust a temporary response. It has outlasted the late $.6#sDearly $.+#s ri1ht(2in1 political victories in the administration in the K 9Thatcher; and & 9Rea1an;. nder a Democratic Party

& and a Eabor Party 1overnment in the

K in the $..#s" neoliberalism

solidified its position of dominance. This paper ar1ues that the resur1ence and tenacity of neoliberalism durin1 the past t2o decades cannot be e-plained" in an instrumental fashion" by any favorable effects of neoliberal policies on capitalist economic performance. ?n the contrary" 2e 2ill present a case that neoliberalism has been harmful for lon1(run capitalist economic performance" even @ud1in1 economic performance from the perspective of the interests of capital. It 2ill be ar1ued that the resur1ence and continuin1 dominance of neoliberalism can be e-plained" at least in part" by chan1es in the competitive structure of 2orld capitalism" 2hich have resulted in turn from the particular form of 1lobal economic inte1ration that has developed in recent decades. The chan1ed competitive structure of capitalism has altered the political posture of bi1 business 2ith re1ard to economic policy and the role of the state" turnin1 bi1 business from a supporter of state(re1ulated capitalism into an opponent of it.

Globalization and Neoliberalism The Problematic Character of Neoliberalism

4eoliberalism appears to be problematic as a dominant theory for contemporary capitalism. The stability and survival of the capitalist system depends on its ability to brin1 vi1orous capital accumulation" 2here the latter process is understood to include not @ust economic e-pansion but also technolo1ical pro1ress. 3i1orous capital accumulation permits risin1 profits to coe-ist 2ith risin1 livin1 standards for a substantial part of the population over the lon1(run.
*

Ho2ever" it does not appear that neoliberalism promotes vi1orous capital accumulation in contemporary capitalism. There are a number of reasons 2hy one 2ould not e-pect the neoliberal model to promote rapid accumulation. ,irst" it 1ives rise to a problem of insufficient a11re1ate demand over the lon1 run" stemmin1 from the po2erful tendency of the neoliberal re1ime to lo2er both real 2a1es and public spendin1. &econd" the neoliberal model creates instability on the macroeconomic level by renouncin1 state counter(cyclical spendin1 and ta-ation policies" by reducin1 the effectiveness of !automatic stabilizers0 throu1h shrin/in1 social 2elfare pro1rams" and by loosenin1 public re1ulation of the financial sector. This renders the system more vulnerable to ma@or financial crises and depressions. Third" the neoliberal model tends to intensify class conflict" 2hich can potentially discoura1e capitalist investment.
' %

The historical evidence confirms doubts about the ability of the neoliberal model to promote rapid capital accumulation. 7e 2ill loo/ at 1ro2th rates of 1ross domestic product 9=DP; and of labor productivity. The =DP 1ro2th rate provides at least a rou1h appro-imation of the rate of capital accumulation" 2hile the labor productivity 1ro2th rate tells us somethin1 about the e-tent to 2hich capitalism is developin1 the forces of production via risin1 ratios of means of production to direct labor" technolo1ical advance" and improved labor s/ills.
)

Table $ sho2s avera1e annual real =DP 1ro2th rates for si- leadin1 developed capitalist

Globalization and Neoliberalism

'

countries over t2o periods" $.)#(6% and $.6%(... The first period 2as the heyday of state( re1ulated

Globalization and Neoliberalism

capitalism" both 2ithin those si- countries and in the capitalist 2orld(system as a 2hole. The second period covers the era of 1ro2in1 neoliberal dominance. !ll si- countries had si1nificantly faster =DP 1ro2th in the earlier period than in the later one. 7hile 8apan and the ma@or 7estern European economies have been relatively depressed in the $..#s" the & is often portrayed as reboundin1 to 1reat prosperity over the past decade. & adherence to neoliberal policies finally paid off in the $..#s"

4eoliberals often claim that

2hile the more timid moves a2ay from state(interventionist policies in Europe and 8apan /ept them mired in sta1nation. Table * sho2s =DP and labor productivity 1ro2th rates for the economy for three subperiods durin1 $.'+(... :olumn $ of Table * sho2s that =DP 1ro2th 2as si1nificantly slo2er in $.6%(.# < a period of transition from state(re1ulated capitalism to the neoliberal model in the & < than in $.'+(6%. 7hile =DP 1ro2th improved sli1htly in $..#(.." it remained 2ell belo2 that of the era of state(re1ulated capitalism. &ome analysts cite the fact that =DP 1ro2th accelerated after $..)" avera1in1 '.$F per year durin1 $..)(.. 9 & <ureau of Economic !nalysis" *###;. Ho2ever" it is not meanin1ful to compare a short fra1ment of the $..#s business cycle e-pansion to the lon1( run performance of the economy durin1 $.'+(6%.
6 5

&

:olumn * of Table $ sho2s that the hi1h rate of labor productivity 1ro2th recorded in $.'+( 6% fell by more than half in $.6%(.#. 7hile there 2as si1nificant improvement in productivity 1ro2th in the $..#s" it remained 2ell belo2 the $.'+(6% rate" despite the rapid spread of 2hat should be productivity(enhancin1 communication and information(mana1ement technolo1ies durin1 the past decade. The evidence from =DP and labor productivity 1ro2th rates supports the claim that the neoliberal model is inferior to the state re1ulationist model for /ey dimensions of capitalist economic performance. There is ample evidence that the neoliberal model has shifted income and

Globalization and Neoliberalism 5 2ealth in the direction of the already 2ealthy. Ho2ever" the ability to shift income up2ard has limits

Globalization and Neoliberalism in an economy that is not 1ro2in1 rapidly. 4eoliberalism does not appear to be deliverin1 the 1oods in the 2ays that matter the most for capitalismGs lon1(run stability and survival. The Structure of Competition and Economic Policy

The processes throu1h 2hich the dominant economic ideolo1y and policies are selected in a capitalist system are comple- and many(sided. 4o 1eneral rule operates to assure that those economic policies 2hich 2ould be most favorable for capitalism are automatically adopted. History su11ests that one important determinant of the dominant economic ideolo1y and policy stance is the competitive structure of capitalism in a 1iven era. &pecifically" this paper ar1ues that periods of relatively unconstrained competition tend to produce the intellectual and public policy dominance of liberalism" 2hile periods of relatively constrained" oli1opolistic mar/et relations tend to promote interventionist ideas and policies. ! relation in the opposite direction also e-ists" one 2hich is often commented upon. That is" one can ar1ue that interventionist policies promote monopoly po2er in mar/ets" 2hile liberal policies promote 1reater competition. This latter relation is not bein1 denied here. Rather" it 2ill be ar1ued that there is a normally(overloo/ed direction of influence" havin1 si1nificant historical e-planatory po2er" 2hich runs from competitive structure to public policy. In the period 2hen capitalism first became 2ell established in the &" durin1 $+##($+5#"

the 1overnment played a relatively interventionist role. The federal 1overnment placed hi1h tariffs on competin1 manufactured 1oods from Europe" and federal" state" and local levels of 1overnment all actively financed" and in some cases built and operated" the ne2 canal and rail system that created a lar1e internal mar/et. There 2as no serious debate over the propriety of public financin1 of transportation improvements in that era (( the only debate 2as over 2hich re1ions 2ould 1et the /ey subsidized routes. ?nce capitalism had become 2ell established in the & after the :ivil 7ar" it entered a

Globalization and Neoliberalism

period of cutthroat competition and 2ild accumulation /no2n as the Robber <aron era. In this period a coherent anti(interventionist liberal position emer1ed and became politically dominant. Despite the enormous ine>ualities" the severe business cycle" and the outra1eous and often unla2ful behavior of the =oulds and Roc/efellers" the idea that 1overnment should not intervene in the economy held s2ay throu1h the end of the $. century. ,rom rou1hly $+.# to $.#% a hu1e mer1er 2ave transformed the competitive structure of & capitalism. ?ut of that mer1er 2ave emer1ed 1iant corporations possessin1 si1nificant monopoly po2er in the manufacturin1" minin1" transportation" and communication sectors. & industry
th

settled do2n to a more restrained form of oli1opolistic rivalry. !t the same time" many of the ne2 monopoly capitalists be1an to criticize the old Eaissez ,aire ideas and support a more interventionist role for the state. The combination of bi1 business support for state re1ulation of business" to1ether 2ith similar demands arisin1 from a popular anti(monopoly movement based amon1 small farmers and middle class professionals" ushered in 2hat is called the Pro1ressive Era" from $.##($5. The buildin1 of a re1ulationist state that 2as be1un in the Pro1ressive Era 2as completed durin1 the 4e2 Deal era a fe2 decades later" 2hen once a1ain both bi1 business leaders and a vi1orous popular movement 9this time based amon1 industrial 2or/ers; supported an interventionist state. <oth in the Pro1ressive Era and the 4e2 Deal" bi1 business and the popular movement differed about 2hat types of state intervention 2ere needed. <i1 business favored measures to increase the stability of the system and to improve conditions for profit(ma/in1" 2hile the popular movement sou1ht to use the state to restrain the po2er and privile1es of bi1 business and provide 1reater security for ordinary people. The outcome in both cases 2as a political compromise" one 2ei1hted to2ard the interests of bi1 business" reflectin1 the relative po2er of the latter in !merican capitalism. &mall business has remained adamantly opposed to the bi1" interventionist state" from the
+

Globalization and Neoliberalism

Pro1ressive Era throu1h the 4e2 Deal do2n to the present. This division bet2een bi1 and small business is chronicled for the Pro1ressive Era in 7einstein 9$.5+;. In the decades immediately follo2in1 7orld 7ar II one can observe this division in the diver1ent vie2s of the <usiness Roundtable" a bi1 business or1anization 2hich often supported interventionist pro1rams" and the & :hambers of :ommerce" the premier small business or1anization" 2hich he2ed to an anti( 1overnment stance. 7hat e-plains this political difference bet2een lar1e and small businessC 7hen lar1e corporations achieve si1nificant mar/et po2er and become freed from fear concernin1 their immediate survival" they tend to develop a lon1 time horizon and pay attention to the re>uirements for assurin1 1ro2in1 profits over time. They come to see the state as a potential ally. Havin1 hi1h and stable monopoly profits" they tend to vie2 the cost of 1overnment pro1rams as somethin1 they can afford" 1iven their potential benefits. <y contrast" the typical small business faces a daily battle for survival" 2hich prevents attention to lon1(run considerations and 2hich places a premium on avoidin1 the short(run costs of ta-ation and state re1ulation. This e-plains the radically different positions that bi1 business and small business held re1ardin1 the proper state role in the economy for the first t2o(thirds of the t2entieth century. This lon1(standin1 division bet2een bi1 business and small business appeared to vanish in the & startin1 in the $.6#s. Ear1e corporations and ban/s 2hich had formerly supported
.

foundations that advocated an active 1overnment role in the economy" such as the <roo/in1s Institution" became bi1 donors to neoliberal foundations such as the !merican Enterprise Institute and the Herita1e ,oundation. !s a result" such ri1ht(2in1 foundations" 2hich previously had to rely mainly on contributions from small business" became very 2ealthy and influential.
$#

It 2as bi1 businessGs desertion of the political coalition supportin1 state intervention and its shift to neoliberalism that rebuilt support for neoliberal theories and policies in the startin1 in &"

Globalization and Neoliberalism

the $.6#s. 7ith business no2 unified on economic policy" the shift 2as dramatic. <i1 1rants became available for economics research havin1 a neoliberal slant. The ma@or media shifted their spin on political developments" and the phrase !1overnment pro1rams0 no2 could not be printed e-cept 2ith the 2ord !bloated0 before it. This s2itch in the dominant economic model first sho2ed up in the mid $.6#s in academic economics" as the previously mar1inalized :hica1o &chool spread its influence far beyond the niversity of :hica1o. This 2as soon follo2ed by a radical shift in the public policy

arena. In $.6+( 6. the previously interventionist :arter !dministration be1an soundin1 the very neoliberal themes < dere1ulation of business" cutbac/s in social pro1rams" and 1eneral fiscal and monetary austerity < that 2ere to become the centerpiece of Rea1an !dministration policies in $.+$. 7hat caused the radical chan1e in the political posture of bi1 business re1ardin1 state intervention in the economyC This paper ar1ues that a ma@or part of the e-planation lies in the effects of the 1lobalization of the 2orld capitalist economy in the post(7orld 7ar II period. Globalization and Competition =lobalization is usually defined as an increase in the volume of cross(border economic interactions and resource flo2s" producin1 a >ualitative shift in the relations bet2een national economies and bet2een nation(states 9<a/er et. al." $..+" p. )B Kozul(7ri1ht and Ro2thorn" $..+" p. $;. Three /inds of economic interactions have increased substantially in past decadesA merchandise trade flo2s" forei1n direct investment" and cross(border financial investments. 7e 2ill briefly e-amine each" 2ith an eye on their effects on the competitive structure of contemporary capitalism. Table % sho2s the ratio of merchandise e-ports to 1ross domestic product for selected years from $+*# to $..*" for the 2orld and also for 7estern Europe" the &" and 8apan.

:apitalism brou1ht a five(fold rise in 2orld e-ports relative to output from $+*#(6#" follo2ed by another

Globalization and Neoliberalism

increase of nearly three(fourths by $.$%. !fter declinin1 in the inter2ar period" 2orld e-ports reached a ne2 pea/ of $$.*F of 2orld output in $.6%" risin1 further to $%.)F in $..*. The $..* fi1ure 2as over fifty per cent hi1her than the pre(7orld 7ar I pea/. Merchandise e-ports include physical 1oods only" 2hile =DP includes services" many of 2hich are not tradable" as 2ell as 1oods. In the t2entieth century the proportion of services in =DP has risen si1nificantly. Table ' sho2s an estimate of the ratio of 2orld merchandise e-ports to the 1ood(only portion of 2orld =DP. This ratio nearly tripled durin1 $.)#(.*" 2ith merchandise e-ports risin1 to nearly one(third of total 1oods output in the latter year. The $..* fi1ure 2as *.5 times as hi1h as that of $.$%. 7estern Europe" the &" and 8apan all e-perienced si1nificant increases in e-ports relative to =DP durin1 $.)#(.*" as Table % sho2s. !ll of them achieved ratios of e-ports to =DP far in e-cess of the $.$% level. 7hile e-ports 2ere only +.*F of the total =DP of the & in $..*"

e-ports amounted to **.#F of the non(service portion of =DP that year 9Economic Report of the President" $..." pp. %%+" ''';. Many analysts vie2 forei1n direct investment as the most important form of cross(border economic interchan1e. It is associated 2ith the movement of technolo1y and or1anizational methods" not @ust 1oods. Table ) sho2s t2o measures of forei1n direct investment. :olumn $ 1ives the outstandin1 stoc/ of forei1n direct investment in the 2orld as a percenta1e of 2orld output. This measure has more than doubled since $.6)" althou1h it is not much 1reater today than it 2as in $.$%. :olumn * sho2s the annual inflo2 of direct forei1n investment as a percenta1e of 1ross fi-ed capital formation. This measure increased rapidly durin1 $.6)(.). Ho2ever" it is still relatively lo2 in absolute terms" 2ith forei1n direct investment accountin1 for only ).* per cent of 1ross fi-ed capital formation in $..). 4ot all" or even most" international capital flo2s ta/e the form of direct investment.

,inancial

Globalization and Neoliberalism

$ #

Globalization and Neoliberalism

$#

flo2s 9such as cross(border purchases of securities and deposits in forei1n ban/ accounts; are normally lar1er. ?ne measure that ta/es account of financial as 2ell as direct investment is the total net movement of capital into or out of a country. That measure indicates the e-tent to 2hich capital from one country finances development in other countries. Table 5 sho2s the absolute value of current account surpluses or deficits as a percenta1e of =DP for $* ma@or capitalist countries. &ince net capital inflo2 or outflo2 is appro-imately e>ual to the current account deficit or surplus 9differin1 only due to errors and omissions;" this indicates the size of net cross( border capital flo2s. The ratio nearly doubled from $.6#(6' to $..#(.5" althou1h it remained 2ell belo2 the fi1ure for $.$#($'. :ross(border gross capital movements have 1ro2n much more rapidly than cross(border net capital movements. In recent times a very lar1e and rapidly 1ro2in1 volume of capital has moved bac/ and forth across national boundaries. Much of this capital flo2 is speculative in nature" reflectin1 1ro2in1 amounts of short(term capital that are moved around the 2orld in search of the best temporary return. 4o data on such flo2s are available for the early part of this century" but the data for recent decades are impressive. Durin1 $.+#(.) cross(border transactions in bonds and e>uities as a percenta1e of =DP rose from .F to $%5F for the &" from +F to
$$

$5+F for =ermany" and from +F to 55F for 8apan 9<a/er et. al." $..+" p. $#;. The total volume of forei1n e-chan1e transactions in the 2orld rose from about H$) billion per day in $.6% to H+# billion per day in $.+# and H$*5# billion per day in $..). Trade in 1oods and services accounted for $)F of forei1n e-chan1e transactions in $.6% but for less than *F of forei1n e-chan1e transactions in $..) 9<haduri" $..+" p. $)*;. 7hile cross(border flo2s of 1oods and capital are usually considered to be the best indicators of possible 1lobalization of capitalism" chan1es that have occurred over time 2ithin capitalist enterprises are also relevant. That is" the much(discussed rise of the transnational

Globalization and Neoliberalism

$$

corporation 9T4:; is relevant here" 2here a T4: is a corporation 2hich has a substantial proportion of its sales" assets" and employees outside its home country. T4:s e-isted in the pre( 7orld 7ar I era" primarily in the e-tractive sector. In the post(7orld 7ar II period many lar1e manufacturin1 corporations in the &" 7estern Europe" and 8apan became T4:s. The lar1est T4:s are very international measured by the location of their activities. ?ne study found that the $## lar1est T4:s in the 2orld 9ran/ed by assets; had '#.'F of their assets abroad" )#.#F of output abroad" and '6..F of employment abroad in $..5 9&utcliffe and =lyn" $..." p. $*);. 7hile this sho2s that the lar1est T4:s are si1nificantly international in their activities" all but a handful have retained a sin1le national base for top officials and ma@or stoc/holders. The top *## T4:s ran/ed by output 2ere estimated to produce only about $# per cent of 2orld =DP in $..) 9&utcliffe and =lyn" $..." p. $**;. <y the close of the t2entieth century" capitalism had become si1nificantly more 1lobalized than it had been fifty years a1o" and by some measures it is much more 1lobalized than it had been at the previous pea/ of this process in $.$%. The most important features of 1lobalization today are 1reatly increased international trade" increased flo2s of capital across national boundaries 9particularly speculative short(term capital;" and a ma@or role for lar1e T4:s in manufacturin1" e-tractive activities" and finance" operatin1 2orld2ide yet retainin1 in nearly all cases a clear base in a sin1le nation(state. 7hile the earlier 2ave of 1lobalization before 7orld 7ar I did produce a capitalism that 2as si1nificantly international" t2o features of that earlier international system differed from the current 1lobal capitalism in 2ays that are relevant here. ,irst" the pre(2orld 7ar I 1lobalization too/ place 2ithin a 2orld carved up into a fe2 1reat colonial empires" 2hich meant that much of the so(called !cross(border0 trade and investment of that earlier era actually occurred 2ithin a space controlled by a sin1le state. &econd" the hi1h level of 2orld trade reached before 7orld 7ar I occurred 2ithin a
$% $*

Globalization and Neoliberalism

$*

system based much more on specialization and division of labor. That is" manufactured 1oods 2ere e-ported by the advanced capitalist countries in e-chan1e for primary products" unli/e today 2hen most trade is in manufactured 1oods. In $.$% 5*.)F of 2orld trade 2as in primary products 9<airoch and Kozul(7ri1ht" $..+" p. ');. <y contrast" in $.6# 5#..F of 2orld e-ports 2ere manufactured 1oods" risin1 to 6'.6F in $..' 9<a/er et. al." $..+" p. 6;. &ome analysts ar1ue that 1lobalization has produced a 2orld of such economic interdependence that individual nation(states no lon1er have the po2er to re1ulate capital. Ho2ever" 2hile 1lobal interdependence does create difficulties for state re1ulation" this effect has been 1reatly e-a11erated. 4ation(states still retain a 1ood deal of potential po2er vis(a(vis capitalist firms" provided that the political 2ill is present to e-ercise such po2er. ,or e-ample" even such a small country as Malaysia proved able to successfully impose capital controls follo2in1 the !sian financial crisis of $..6" despite the opposition of the IM, and the &

1overnment. ! state that has the political 2ill to e-ercise some control over movements of 1oods and capital across its borders still retains si1nificant po2er to re1ulate business. The more important effect of 1lobalization has been on the political 2ill to underta/e state re1ulation" rather than on the technical feasibility of doin1 so. =lobalization has had this effect by chan1in1 the competitive structure of capitalism. It appears that 1lobalization in this period has made capitalism si1nificantly more competitive" in several 2ays. ,irst" the rapid 1ro2th of trade has chan1ed the situation faced by lar1e corporations. Ear1e corporations that had previously operated in relatively controlled oli1opolistic domestic mar/ets no2 face competition from other lar1e corporations based abroad" both in domestic and forei1n mar/ets. In the & the rate of import penetration of domestic

manufacturin1 mar/ets 2as only * per cent in $.)#B it rose to +F in $.6$ and $5F by $..%" an +(fold increase since $.)# 9&utcliffe and =lyn" $..." p. $$5;. &econd" the rapid increase in forei1n direct investment has in many cases placed T4:sG

Globalization and Neoliberalism

$%

production facilities in the home mar/ets of their forei1n rivals. =eneral Motors not only faces import competition from Toyota and Honda but has to compete 2ith &(produced Toyota and

Honda vehicles. Third" the increasin1ly inte1rated and open 2orld financial system has thro2n the ma@or ban/s and other financial institutions of the leadin1 capitalist nations increasin1ly into competition 2ith one another. =lobalization appears to be one factor that has transformed bi1 business from a supporter to an opponent of the interventionist state. It has done so partly by producin1 T4:s 2hose tie to the domestic mar/ets for 1oods and labor is limited. More importantly" 1lobalization tends to turn bi1 business into small business. The process of 1lobalization has increased the competitive pressure faced by lar1e corporations and ban/s" as competition has become a 2orld(2ide relationship. Even if those 2ho run lar1e corporations and financial institutions reco1nize the need for a stron1 nation( state in their home base" the ne2 competitive pressure they face shortens their time horizon. It pushes them to2ard support for any means to reduce their taburden and lift their re1ulatory constraints" to free them to compete more effectively 2ith their 1lobal rivals. 7hile a re1ulationist state may seem to be in the interests of bi1 business" in that it can more effectively promote capital accumulation in the lon1 run" in a hi1hly competitive environment bi1 business is dra2n a2ay from supportin1 a re1ulationist state. =lobalization has produced a 2orld capitalism that bears some resemblance to the Robber <aron Era in the &. =iant corporations battle one another in a system lac/in1 2ell defined rules. Mer1ers and ac>uisitions abound" includin1 some that cross national boundaries" but so far fe2 2orld industries have evolved the /ind of ti1ht oli1opolistic structure that 2ould lay the basis for a more controlled form of mar/et relations. Ei/e the late $. century
th $6

& Robber <arons" todayGs

lar1e corporations and ban/s above all 2ant freedom from political burdens and restraints as they confront one another in 2orld mar/ets.
$+

Globalization and Neoliberalism

$'

The above interpretation of the rise and persistence of neoliberalism attributes it" at least in part" to the chan1ed competitive structure of 2orld capitalism resultin1 from the process of 1lobalization. !s neoliberalism 1ained influence startin1 in the $.6#s" it became a force propellin1 the 1lobalization process further. ?ne reason for stressin1 the line of causation runnin1 from 1lobalization to neoliberalism is the time se>uence of the developments. The process of 1lobalization" 2hich had been reversed to some e-tent by political and economic events in the inter2ar period" resumed ri1ht after 7orld 7ar II" producin1 a si1nificantly more 1lobalized 2orld economy and erodin1 the monopoly po2er of lar1e corporations 2ell before neoliberalism be1an its second comin1 in the mid $.6#s. The rapid rise in merchandise e-ports be1an durin1 the <retton 7oods period" as Table % sho2ed. &o too did the 1ro2in1 role for T4:Gs. These t2o aspects of the current 1lobalization had their roots in the post2ar era of state(re1ulated capitalism. This su11ests that" to some e-tent" 1lobalization reflects a lon1(run tendency in the capital accumulation process rather than @ust bein1 a result of the risin1 influence of neoliberal policies. ?n the other hand" once neoliberalism became dominant" it accelerated the process of 1lobalization. This can be seen most clearly in the data on cross(border flo2s of both real and financial capital" 2hich be1an to 1ro2 rapidly only after the $.5#s. Other Factors Promoting Neoliberalism The chan1ed competitive structure of capitalism provides part of the e-planation for the rise from the ashes of classical liberalism and its persistence in the face of 2idespread evidence of its failure to deliver the 1oods. Ho2ever" three additional factors have played a role in promotin1 neoliberal dominance. These are the 2ea/enin1 of socialist movements in the industrialized capitalist countries" the demise of state socialism" and the lon1 period that has elapsed since the last ma@or capitalist economic crisis. There is space here for only some brief comments about these additional factors.

Globalization and Neoliberalism

$)

The socialist movements in the industrialized capitalist countries have declined in stren1th si1nificantly over the past fe2 decades. 7hile &ocial Democratic parties have come to office in several European countries recently" they no lon1er represent a threat of even si1nificant modification of capitalism" much less the specter of replacin1 capitalism 2ith an alternative socialist system. The re1ulationist state 2as al2ays partly a response to the fear of socialism" a point illustrated by the emer1ence of the first ma@or re1ulationist state of the era of mature capitalism in =ermany in the late $. century" in response to the 2orldGs first ma@or socialist movement. !s the threat comin1 from socialist movements in the industrialized capitalist countries has receded" so too has to incentive to retain the re1ulationist state. The e-istence of a po2erful bloc of :ommunist(run states 2ith an alternative !state socialist0 socioeconomic system tended to push capitalism to2ard a state re1ulationist form. It reinforced the fear amon1 capitalists that their o2n 2or/in1 classes mi1ht turn a1ainst capitalism. It also had an impact on relations amon1 the leadin1 capitalist states" promotin1 inter(state unity behind & leadership" 2hich facilitated the creation and operation of a 2orld(system of
th

state(re1ulated capitalism.
$.

The demise of state socialism durin1 $.+.(.$ removed one more factor that had

reinforced the re1ulationist state. The occurrence of a ma@or economic crisis tends to promote an interventionist state" since active state intervention is re>uired to overcome a ma@or crisis. The memory of a recent ma@or crisis tends to /eep up support for a re1ulationist state" 2hich is correctly seen as a stabilizin1 force tendin1 to head off ma@or crises. !s the =reat Depression of the $.%#s has receded into the distant past" the belief has ta/en hold that ma@or economic crises have been banished forever. This reduces the perceived need to retain the re1ulationist state. Concluding Comments If neoliberalism continues to rei1n as the dominant ideolo1y and policy stance" it can be

Globalization and Neoliberalism

$5

ar1ued that 2orld capitalism faces a future of sta1nation" instability" and even eventual social brea/do2n.
*#

Ho2ever" from the factors that have promoted neoliberalism one can see possible

sources of a move bac/ to2ard state(re1ulated capitalism at some point. ?ne possibility 2ould be the development of ti1ht oli1opoly and re1ulated competition on a 2orld scale. Perhaps the current mer1er 2ave mi1ht continue until" as happened at the be1innin1 of the *# century 2ithin the
th

& and in other industrialized capitalist economies"

oli1opoly replaced cutthroat competition" but this time on a 2orld scale. &uch a development mi1ht revive bi1 business support for an interventionist state. Ho2ever" this does not seem to be li/ely in the foreseeable future. The 2orld is a bi1 place" 2ith differin1 cultures" la2s" and business practices in different countries" 2hich serve as obstacles to overcomin1 the competitive tendency in mar/et relations. Transformin1 an industryGs structure so that t2o to four companies produce the bul/ of the output is not sufficient in itself to achieve stable monopoly po2er" if the rivals are unable to communicate effectively 2ith one another and find common 1round for cooperation. !lso" it 2ould be difficult for international monopolies to e-ercise effective re1ulation via national 1overnments" and a 1enuine 2orld capitalist state is not a possibility for the foreseeable future. If state socialism re(emer1ed in one or more ma@or countries" perhaps this mi1ht push the capitalist 2orld bac/ to2ard the re1ulationist state. Ho2ever" such a development does not seem li/ely. Even if Russia or /raine at some point does head in that direction" it 2ould be unli/ely to produce a serious rival socioeconomic system to that of 2orld capitalism. ! more li/ely source of a ne2 era of state interventionism mi1ht come from one of the remainin1 t2o factors considered above. The macro(instability of neoliberal 1lobal capitalism mi1ht produce a ma@or economic crisis at some point" one 2hich spins out of the control of the 2ea/ened re1ulatory authorities. This 2ould almost certainly revive the politics of the re1ulationist state. ,inally" the increasin1 e-ploitation and other social problems 1enerated by neoliberal

1lobal

Globalization and Neoliberalism

$6

Globalization and Neoliberalism

$6

capitalism mi1ht prod the socialist movement bac/ to life at some point. &hould socialist movements revive and be1in to seriously challen1e capitalism in one or more ma@or capitalist countries" state re1ulationism mi1ht return in response to it. &uch a development 2ould also revive the possibility of finally supercedin1 capitalism and replacin1 it 2ith a system based on human need rather than private profit.

Globalization and Neoliberalism Table 1 Gro!th "ates of "eal Gross #omestic Product for Selected Countries 9!nnual avera1e percenta1e rate of 1ro2th; Country ,rance =ermany Italy 8apan K &! 1$%&'() ).# 5.# ).5 ..* %.# '.# 1$()'$$ *.* *.$ *.% *.. *.# %.#

*$

&ourcesA ?E:D" *###B & <ureau of Economic !nalysis" *###B Maddison" $..)" p. +%. Table * Gro!th "ates of G#P and +abor Producti,ity for the -S. 9annual avera1e percenta1e rate of 1ro2th; /10 $ G#P Period $.'+(6% $.6%(.# $..#(.. %..5 *.+6 %.$* *.++ $.%% $..5 /*0 Output * per 1our

$. =DP is in chained $..5 dollars. *. ?utput per hour of all persons in the nonfarm business sector. &ourcesA & <ureau of Economic !nalysis" *###B & <ureau of Eabor &tatistics" *###.

Globalization and Neoliberalism Table ) 2erchandise E3ports as a Percentage of G#P 4ear 5orld6 5estern Europe 4.!. $#.# $5.% ..' *#.. *..6 -S. 7apan

**

$+*# $+6# $.$% $.)# $.6% $..*

$.# ).# +.6 6.# $$.* $%.)

*.# *.) %.6 %.# ).# +.*

4.!. #.* *.' *.% 6.. $*.'

4oteA =DP and e-ports are in $..# prices. I The !2orld0 data cover )5 countries" 2hich accounted for .% per cent of 2orld output and +6 per cent of 2orld population and e-ports in $..*. &ourceA Maddison" $..)" p. %+. Table 8 5orld 2erchandise E3ports as a Percentage of 5orld Non'Ser,ice G#P 5orld 2erchandise E3ports as a Percentage of 5orld Non'Ser,ice G#P $.* 5.* $*.* $$.# %$.%

4ear

$+*# $+6# $.$% $.)# $..* &ourceA Menshi/ov" $..6.

Globalization and Neoliberalism Table % Foreign #irect 9n,estment /10 5orld Stoc: of Foreign #irect 9n,estment as a Percentage of 5orld Output ..# '.' '.) $#.$ /*0 5orld Foreign #irect 9n,estment 9nflo!s as a Percentage of 5orld Gross Fi3ed Capital Formation 4.!. $.$ $.' ).*

*%

4ear

$.$% $.5# $.6) $..)

&ourceA <a/er et. al." $..+" p. .. Table ; Current .ccount Surplus or #eficit as a Percentage of G#P /5eighted a,erage for 1* countries0 $.$#($' $.)#()' $.6#(6' $..#(.5 %.+ $.+ $.' *.6

4oteA The absolute values of surpluses and deficits are avera1ed. The t2elve countries are ma@or participants in international investment from 7estern Europe" 4orth !merica" the ,ar East" and Eatin !merica. &ourceA <a/er et. al." $..+" p. $$.

Globalization and Neoliberalism "eferences <airoch" Paul and Kozul(7ri1ht" Richard 9$..+; !=lobalization MythsA &ome Historical Reflections on Inte1ration" Industrialization and =ro2th in the 7orld Economy"0 in Kozul(7ri1ht and Ro2thorn" $..+. <a/er" Dean" Epstein" =erald" and Pollin" Robert 9eds; 9$..+; Globalization and Progressive Economic Policy" :ambrid1eA :ambrid1e niversity Press.

*'

<aran" Paul" and &2eezy" Paul M. 9$.55; Monopoly Capital" 4e2 Jor/A Monthly Revie2 Press. <haduri" !mit 9$..+; !Implications of =lobalization for Macroeconomic Theory and Policy in Developin1 :ountries"0in <a/er et. al." $..+. Economic Report of the President 9$...; 7ashin1ton" D:A ?ffice. =albraith" 8ohn Kenneth 9$.56; The Ne !nd"strial #tate" <ostonA Hou1hton Mifflin. Kotz" David M. 9*###; !The &tate" =lobalization" and Phases of :apitalist Development"0 in R. !lbritton" M. Itoh" R. 7estra" and !. Kue1e 9eds.;" Phases of Capitalist $evelopment% Perspectives at the &ear '(((" 4e2 Jor/A MacMillanD&t. Martins" forthcomin1. Kotz" David M. 9$..+; !4eoliberalism and the Reproduction of :apitalism"0 unpublished conference paper 9available upon re>uest from the author;. Kozul(7ri1ht" Richard and Ro2thorn" Robert 9eds; 9$..+; Transnational Corporations and the Global Economy) 4e2 Jor/A &t. MartinsGs Press. Maddison" !n1us 9$..); Monitoring the *orld Economy +,'(-+..'" ParisA ?r1anization for Economic :ooperation and Development. Menshi/ov" &tanislav 9$..6; !Indicators and Trends of Economic =lobalization"0 npublished Paper. ?E:D 9*###; 7orld Economic ?utloo/B 2ebsite 222.oecd.or1. nited &tates =overnment Printin1

Globalization and Neoliberalism

*)

&utcliffe" <ob and =lyn" !ndre2 9$...; !&till nder2helmedA Indicators of =lobalization and Their Misinterpretation"0 Revie of Radical Political Economics %$" $A $$$($%*. & <ureau of Economic !nalysis 9*###; National !ncome and Prod"ct /cco"nts) as of !pril *6B 2ebsite 222.bea.doc.1ov. & <ureau of Eabor &tatistics 9*###; Ma0or #ector Prod"ctivity and Costs !ndex" &eries ID PR&+)##5#.%" as of May )B 2ebsite 222.bls.1ov 7einstein" 8ames 9$.5+; The Corporate !deal in the 1iberal #tate) +.((-+.+," <ostonA <eacon Press.

Globalization and Neoliberalism Notes $. &ome neoliberals 2ould even remove from the state the po2er to re1ulate the supply of money" by lin/in1 it to 1old reserves.

$+

*. T2o >ualifications are important. :apital accumulation permits" but does not 1uarantee" risin1 livin1 standards. !lso" the meanin1 of !risin1 livin1 standards0 under capitalism is an increase over time in the consumption of commodities" 2hich does not necessarily entail an improvement in individual or social 2elfare" particularly once a certain level of commodity consumption has been attained. %. The term !automatic stabilizers0 refers to 1overnment pro1rams 2hich pump increasin1 funds into the economy 2hen economic 1ro2th slo2s or stops" thus limitin1 the severity of economic do2nturns. E-amples include unemployment compensation and 2elfare payments. '. ! careful analysis 2ould be re>uired to ma/e a convincin1 case for each of the above claims" includin1 consideration of criti>ues of those claims and of the theoretical ar1uments in favor of neoliberalism. &uch an analysis is beyond the scope of this paper. ). Risin1 labor productivity can also reflect an increasin1 intensity of labor" althou1h there are limits to that process in the lon1 run. 5. The time periods in Table * 2ere selected to eliminate the distortin1 effects of the business cycle. The years $.'+" $.6%" and $..# 2ere all business cycle pea/ years. The year $... is the most recent year for 2hich data 2ere available. 6. ?ne can find four year subperiods durin1 $.'+(6% in 2hich 1ro2th far e-ceeded the rate durin1 $..)(... ,or e-ample" =DP 1re2 at ).+F per year durin1 $.5*(55 9 & <ureau of Economic !nalysis" *###;. +. &ee 7einstein 9$.5+; for a detailed analysis of this development. .. <aran and &2eezy 9$.55; and =albraith 9$.56; provide classical statements of this interpretation of the lar1e corporation. $#. Ironically" the !merican Enterprise Institute ori1inated as an arm of the & :hambers of :ommerce" the traditional main or1anization of small businesses in the &. In the $.6#s its former status as a relatively poor and stru11lin1 foundation chan1ed dramatically 2hen 1iant & ban/s and corporations be1an to pump funds into it. $$. ! country that e-perienced lar1e inflo2s and outflo2s of capital of e>ual ma1nitude durin1 a year 2ould re1ister zero net capital flo2. $*. &ome definitions re>uire si1nificant dispersion of activities over some minimum number of different countries. $%. &utcliffe and =lyn assert that !2e are not convinced that there LisM yet any0 T4: that is !so international in o2nership" production" and mana1ement that it no lon1er has a basic nation

Globalization and Neoliberalism state0 9&utcliffe and =lyn" $..." p. $*5;.

$.

$6. 8effrey =arten" the dean of the Jale &chool of Mana1ement" remar/ed that !merican corporate :E?s today !feel they are in a brutally competitive 2orld" and they thin/ they are in a race for their lives0 9The Ne &ork Times" $+ 8uly $..." &ec. '" p. ';. 4o serious analyst 2ould have described the mindset of & bi1 business in such terms in the $.)#s or $.5#s" 2hen lar1e corporations made lar1e profits almost every year" avoided price competition" and rarely suffered an annual loss. $+. This does not e-clude the use of state po2er to 1ain easy profits 2hen the opportunity arises" throu1h sale of 1oods and services to public entities or by obtainin1" cheaply or for free" public assets such as land" mineral ri1hts" loans" and subsidies < as 2as common in the Robber <aron Era. $.. ,or a more in(depth analysis of the impact of the demise of state socialism on the rise of neoliberalism" see Kotz 9*###;. *#. &ee Kotz 9$..+; for development of this point.