GLOBALISATION: A REDIVISION OF THE WORLD BY IMPERIALISM
Globalisation is the latest fashionable term used to describe the all
pervasive forces of a rampant capitalism. It suggests a new stage of
capitalism in which multinational companies and financial institutions,
attached to no particular nation state, move their capital around the world
in search of the highest returns, and in so doing create a truly global
market and global capital. In fact, as DAVID YAFFE argues in this article,
the degree of internationalisation of capital is only now approaching those
levels existing before 1914. And far from being new, we are seeing a
return to those unstable features of capitalism which characterised
imperialism before the first world war.
The strongest supporters of the globalisation standpoint are the neo-liberal
right. A recent convert to their free market orthodoxy - it is said in order
to save itself from the chop (The Guardian 20 May 1996) - has been the
United Nations Conference on Trade and Development (UNCTAD), an organisation
set up 32 years ago to provide reports on trade and development from the
perspective of developing countries. Its recent World Investment Report 1995
(WIR 1995) reads like an eulogy on globalisation.
‘Enabled by increasingly liberal policy frameworks, made possible by
technological advances, and driven by competition, globalisation more and
more shapes today’s world economy. Foreign direct investment (FDI) by
transnational corporations (TNCs) now plays a major role in linking many
national economies, building an integrated international production system
- the productive core of the globalizing world economy’ (WIR 1995 p
xix).
However its own report produces a wealth of statistical material which
shows a very different picture emerging.
Transnational or multinational?
Throughout its report UNCTAD uses the term transnational companies. In
fact transnational companies are relatively rare. Most companies are
nationally based, are controlled by national shareholders, and trade and
invest multinationally with the large majority of their sales and assets in
their home country.
A recent study of the world’s 100 largest companies taken from the
Fortune Global list showed that in 1993 only 18 companies maintained the
majority of assets abroad. The internationalisation of shares was even
more restricted. 2.1% of the board members of the top 500 US companies
were foreign nationals with only 5 of the top 30 US companies listed
having a foreigner on their boards. All the companies seemed to have
benefited from industrial and trade policies of their own countries and at
least 20 would not have survived if they had not been saved in some way
by their governments ( Financial Times 5 January 1996, The Economist 24
June 1995).
UNCTAD’s own index of transnationality based on shares of foreign
assets, foreign sales and foreign employment shows 40 of top 100
multinational companies in 1993 have more than half of their activities
abroad, with the average for the whole group at 41 per cent, falling to 34
per cent for US Multinationals, which comprise nearly one-third of the
total. Even these figures are misleading as Nestle, which tops the list with
92 per cent, limits non-Swiss voting rights to 3 per cent of the total. In
addition most research and development (R&D) takes place in the home
country. For US multinationals, the share of R&D performed by majority
owned foreign affiliates was only 12 per cent in 1992 (WIR 1995 pp xxvi
- xxx, and Wade p19).
Finally a recent study by Hirst and Thompson (H&T), based on company
data for 500 MNCs in 1987 and 5000 MNCs in 1992-3, assessed the
relative importance for MNCs of home and foreign sales and assets of
particular countries, mainly US, UK, Germany and Japan. They found
that between 70 and 75 per cent of MNC value added was produced in
the home nation. They conclude that international businesses remain
heavily ‘nationally embedded’ and continue to be MNCs rather than TNCs
(H&T pp 76 - 98). However, that international companies are nationally
based and trade and invest multinationally tells us little about the overall
strategic importance of the 25 - 30 per cent activity conducted abroad - a
point that we shall return to below.
An integrated production system?
Foreign direct investment is linking many national economies but, but far
from this leading to an ‘integrated production system’, it is reinforcing the
economic domination of the vast majority of the world by a small number
of imperialist countries. Multinational companies have become the
principle vehicle of imperialism’s drive to redivide the world according to
economic power.
Since 1983 FDI has grown five times faster than trade and ten times faster
than world output (The Economist 24 June 1995). This process is being
reinforced with recession and stagnation continuing to afflict the major
imperialist economies. From 1991 to 1993, worldwide FDI stocks grew
about twice as fast as worldwide exports and three times as fast as world
GDP. MNCs FDI in 1995 was estimated at $230bn, producing a
worldwide FDI stock of $2,600bn (1995) with worldwide sales of foreign
affiliates at $5,200bn (1992) and up to $7,000bn, if subcontracting,
franchising and licensing are taken into account.
Investment stocks and flows, inwards and outwards, are concentrated in
the imperialist countries and particularly in the competing power blocs,
the ‘Triad’ of the European Union, Japan and the United States and their
regional cluster of countries (see FRFI 111 p7). 70 per cent of the
outflows from the imperialist countries (60 - 65 per cent of total world
flows) comes from only five countries, France, Germany, Japan, UK and
US. Continual repositioning has taken place among them and in the recent
period the US has reasserted its lead accounting for one quarter of the
world’s stock and one-fifth of world flows (see Tables 1 and 2).
The relative change in the balance of economic power since the end of the
post-war boom is highlighted by US share of the world outward stock of
FDI falling from 52.0 per cent in 1971 to 25.6 per cent in 1994, while
Japan’s share rose from 2.7 per cent to 11.7 per cent. The European
Union is the dominant imperialist bloc and Britain, a rapidly declining
industrial power, still retains a formidable imperialist presence.
Table 1: Outflows of FDI from five major imperialist powers 1982-1994
1989 1992 1994 1982-1986 1987-1991
Country (outflows $ bn) (Share in world total)
France 20 31 23 5% 11%
Germany 18 16 21 10% 10%
Japan 44 17 18 13% 18%
UK 35 19 25 18% 14%
USA 26 39 46 19% 13%
Table 2 Shares in total FDI stock 1971 - 1994
Country 1971 1980 1990 1994
France 5.8% 4.6% 6.6% 7.7%
Germany 4.4% 8.4% 9.1% 8.6%
Japan 2.7% 3.8% 12.1% 11.7%
UK 14.5% 15.6% 13.8% 11.8%
USA 52.0% 42.8% 26.1% 25.6%
(Data from WIR 1995 and Multinational Corporations in World
Development United Nations NY 1973)
Over the last 10 years FDI outflows from Third World countries have
more than doubled growing from 5 per cent of world FDI outflows in
1980-84 to 10 per cent in 1990-94, reaching 15 per cent in 1994. However
this does not represent a significant step towards a more integrated system
since most of the capital flow comes from a small number of the so-called
newly industrialising countries (NICs), mainly in Asia, with Hong Kong
alone contributing 64 per cent of the total. Hong Kong outflows seriously
distort the overall figures. A lot of the other outward investment results
from companies in NICs forced by rising wages to move labour-intensive
FDI to lower wage countries in the same region. Of real significance is
the fact that only 6 per cent of FDI outward stock is accounted for by
Third World countries. It is a great deal lower than their share of exports
in world exports, and GDP in world GDP, at 23 per cent and 21 per
cent respectively.
The recession which hit most imperialist countries in 1990-92 and the
stagnant economic growth of the following years, while reducing overall
FDI outflows from the imperialist nations, saw a much greater share of
them go into the Third World, and, in particular, China. FDI inflows into
Third World countries increased from $35bn (17 per cent of the total) in
1990 to $84bn (37 per cent) in 1994, and is estimated to reach $90bn in
1995, nearly 40 per cent of total FDI outflows (Table 3).
The flows into the Third World were however very concentrated. 79 per
cent of FDI inflows into Third World countries in 1993 went to only ten
countries including China. With nearly $28bn, China was the second
largest recipient of FDI (after the United States) taking 37 per cent of the
total going to Third World countries. FDI outward stock was likewise
highly concentrated with 67 per cent of Third World stock in just ten
countries in 1993. Asia accounted for 70 per cent of total flows into Third
World countries in 1994. Latin America and the Caribbean received 24
per cent with two countries, Mexico and Venezuela, accounting for 71 per
cent of the region FDI inflows. On the other hand FDI into Africa has
declined from 11 per cent of Third World inflows in 1986-90 to 6 per cent
in 1991-93 and to 4 per cent in 1994. Finally privatisation was the main
reason for the $6.3bn flows into the ex-socialist countries of central and
eastern Europe in 1994, turning former domestic companies into foreign
affiliates of multinational companies.
Table 3: Inflows and Outflows of FDI 1982 - 1994
1990 1992 1994 1982-86 1987-91 1994
Country group ($ billion) (share in total)
Imperialist: Inflows 176 111 135 70% 82% 60%
Outflows 226 171 189 94% 94% 85%
Third World: Inflows 35 55 84 30% 18% 37%
Outflows 17 19 33 6% 6% 15%
(Discrepancies between outflows and inflows are due to data collection
problems)
Our argument can be further substantiated by looking at FDI in terms of
its distribution among the worlds population. The Triad countries
comprising 14 per cent of the world’s population attracted some 75 per
cent of FDI flows. If we add to this the population of the ten highest
recipients of FDI in the Third World, then 43 per cent of the world’s
population received 91.5 per cent of FDI between 1981-91. This includes
all of China with a population of 1.2bn. If we only include China’s
population in the coastal regions where most FDI is concentrated then only
28 per cent of the world’s population receive 91.5 per cent of FDI. On
this basis between 57 and 72 per cent of the world’s population receive
only 8.5 per cent of total world FDI (H&T p67-68). This is hardly a
picture of an integrated production system but one that is highly
concentrated and very unequal.
Highly concentrated and very unequal
‘...a fall in the rate of profit connected with accumulation necessarily calls
forth the competitive struggle. Compensation of a fall in the rate of profit
by a rise in the mass of profits applies only to the total social capital and
to the big, firmly placed capitalists.’ (K Marx)
UNCTAD’s support for countries opening up their economies to FDI
shows quite brazenly its neo-liberal sympathies:
‘In today’s increasingly open and competitive global economic
environment, the performance of countries - best measured in terms of per
capita income (as a proxy measure for welfare) and growth - depends
significantly on the links they establish with the world economy’.
Unusually, we are provided with a definition of a competitiveness as the
ability of firms ‘to survive and grow while obtaining their ultimate
objective of maximising profits’ (WIR pxxvii,p150) - which helps to
explain today’s increasingly unequal and monopolistic global environment.
Growing competition for profits creates an inexorable tendency towards
monopolisation as it is only the ‘big firmly placed’ companies which can
survive in a world where capital accumulation is stagnating. Growing
monopolisation of markets for goods, investment, technology and raw
materials, through mergers, acquisitions and FDI, are the result of
multinational companies relentless search for ever greater profits to
compensate for a general fall in the rate of profit. This creates a very
different ‘global environment’ than that promoted by the UNCTAD
report.
We have already showed how FDI by predominantly nationally based
multinational companies is concentrated within a number of competing
power blocs. It is also controlled by a small number of multinational
companies within those blocs. There are in the region of 40,000
multinational companies having some 250,000 foreign affiliates. However
the largest 100 multinational corporations (excluding those in banking and
finance) had an estimated $3.7 trillion worth of global assets with $1.3
trillion outside their respective home countries. This accounted for a third
of the combined FDI stock of their countries of origin. The world’s 500
largest industrial corporations employ 0.05 per cent of the world’s
population and control 25 per cent of the world’s economic output; and a
mere one per cent of all multinationals own half the global stock of FDI.
Two-thirds of world trade is controlled by multinational companies with
half of this trade, or $1.3 trillion exports, intra-firm trade between
multinational companies and their affiliates. In the case of US
multinationals, $4 out of $5 received for goods and services sold abroad
by US multinationals are actually earned from goods and services
produced by their foreign affiliates or sold to them.
The concentration for a certain range of products is even greater. In the
case of consumer durables the top five firms control nearly 70 per cent of
the world market in their industry. In automotive, airline, aerospace,
electrical components, electrical and electronics and steel industries, five
firms control more than 50 per cent of output. In oil, personal computer
and media industries the top five firms have more than 40 per cent of sales
(K p223). The total sales by foreign affiliates of 23 multinational
companies accounted for 80 per cent of the total world sales in electronics.
70 - 80 per cent of global R&D expenditure and 80 - 90 per cent of
technology payments are within MNC systems. Far from this presenting a
picture of an ‘open and competitive’ environment we have one that is
increasingly controlled and increasingly monopolistic.
The same principles which lead to the concentration of capital in the hands
of a few large corporation determine the extent and direction of FDI. The
forces of monopoly consolidate at a global level. Most FDI going into the
imperialist nations is ‘ownership-switching’ - for mergers, acquisitions and
privatisations as opposed to new establishment or ‘greenfield’ investment.
In the case of FDI going into the United States in 1993, 90 per cent in
value was for acquisitions of existing companies. For US outward FDI
the ratio of the number (data on values are not available) of new
establishments to acquisitions was 0.96 in other imperialist countries
compared to 1.8 in Third World countries.
In a classic piece of understatement UNCTAD informs us ‘FDI is not a
panacea to break from the vicious circle of underdevelopment’ in the
Third World. That is certainly true. For the strategic importance for
MNCs lies in its ability to generate adequate profits through the access it
provides to essential markets and productive resources throughout the
world.
MNCs FDI inflows to Third World countries accounted for only 7 per
cent of Third World domestic investment in 1993. As we have discussed
earlier, it is mainly is concentrated in only 10 countries. These countries
have an average GDP per capita of $6,610 and come into the top sector
of middle income countries. MNCs are looking for high, guaranteed
profits, relatively large domestic markets or easy access to such markets,
good social and industrial infrastructure, a skilled workforce at low cost,
political and economic stability, open economies and easy repatriation of
profits. Africa, for example, is now of limited importance, in spite of high
rates of return, because of widespread poverty and political and economic
instability. Not surprisingly, FDI in Africa is concentrated in countries
with important raw materials, particularly oil.
Official rates of return to US FDI in Third World countries in 1993 at
16.8 per cent were nearly twice the level in imperialist countries at 8.7 per
cent. The rate of return in the primary sector in Africa was a massive
28.8 per cent. Actual rates in Third World countries are probably even
higher once transfer pricing and other tax avoidance devices are taken into
account.
MNCs use Third World countries as a low cost, profitable location for
export-oriented industries. In the late 1980s and early 1990s the share of
foreign affiliates in exports were as high as 57 per cent in Malaysia (all
industries), 91 per cent in Singapore (non-oil manufacturing). In 1990, 44
per cent of total manufactured exports in Brazil and 58 per cent in
Mexico were by foreign affiliates of MNCs.
The trend is accelerating for many MNCs to move manufacturing and
services industries out of high labour cost countries to ever cheaper ones
in the Third World as competition for markets and demands on profits
from shareholders intensifies. Morgan Crucible, the UK speciality
materials group, is typical. It is shifting production to low wage
economies in Eastern Europe and Asia. Average labour costs are $1.50
an hour in eastern Europe compared to $26 an hour in Germany. At its
new Shanghai plant workers were paid $1 a day compared with $31 an
hour in Japan. It was doing this despite a 20 per cent increase in profits.
Similarly British Polythene industries (BPI), Europe’s largest polythene
film producer, reported an increase of pre-tax profits from £8.61m to
£11.5m. It closed its plant in the Midlands where workers were paid
£15,000 a year, to move to China where workers are paid $1,000 (£670) a
year. BPI chairman said that: ‘We had to go there or see our business
disappear’ (Financial Times 12 September 1995). Such trends will
reinforce and extend existing inequalities in all countries concerned.
UNCTAD ignores such realities when in promoting FDI, it highlights the
rapid increase of inflows into India as a result of its governments recent
neo-liberal economic policies. ‘By the turn of the century it is estimated
that India’s middle class will include over 9.4m households earning over
$9,000 per annum.’ This is in a country with a population of over 800m
people, the vast majority of whom live in dire poverty. Similarly Asia is
seen as an area with a growing and potentially high spending middle class.
If present day growth rates continue, ‘the middle class in Asia could top
700m by the year 2010, having $9 trillion spending power - 50 per cent
more than the size of the US economy today.’ This in an area where
180m urban dwellers and 690m rural people lack safe drinking water and
access to proper sanitation and overall 675m people live in absolute
poverty.
Finally, FDI inflows into the Third World have been used by imperialist
countries to export environmentally polluting industries and factories.
Japan, in what UNCTAD refers to as ‘house-cleaning’ its domestic
industrial structure, has financed and constructed a copper smelting plant
run by PASAR in the Philippines. Gas and water emissions from the plant
contain high concentrations of boron, arsenic, heavy metals, and sulphur
compounds that have contaminated water supplies, reduced fishing and
rice yields, damaged forests and increased the occurrence of respiratory
diseases among local residents (K p31). It is not just the low wages -
$1.64 an hour compared to an average $16.17 in the United States -
which make the Mexican maquiladora zones attractive to MNCs but also
their loose environmental regulations. Studies have shown evidence of
massive toxic dumping polluting rivers, groundwater and soils and causing
severe health problems among workers and deformities among babies born
to young women working in the zone. The workers are housed in
dwellings in shanty towns that stretch for miles with no sewer systems and
mostly without running water (K p131-2).
The spectre of 1914
The rapid internationalisation of capital since the mid-1970s has, to a
significant extent, brought the capitalist system closer to pre-first world
war conditions. The openness of capitalist economies today is no greater
than before 1914. The main players are the same but the balance of
economic power between them has changed. Merchandise trade (exports
plus imports) as a percentage of GDP is close to the levels of 1913 (Table
4). FDI stock has been estimated at 9 per cent of world output in 1913
compared to 8.5 per cent in 1991. But there are differences which in fact
add to the growing instability of the capitalist system.
Table 4: Ratio of exports plus imports to GDP at current market
prices (%)
Country 1913 1950 1973 1994
France 30.9 21.4 29.2 34.2
Germany 36.1 20.1 35.3 39.3
Japan 30.1 16.4 18.2 14.6
UK 47.2 37.1 37.6 41.8
US 11.2 6.9 10.8 17.8
(Taken from Financial Times 18 September 1995)
$1,230bn a day flows through the foreign exchange system as financial
institutions and multinational corporations hedge, gamble and speculate on
the movement of national currencies. The financial system has now an
unprecedented autonomy from real production and represents an ever-
present threat to economic stability as it rapidly redistributes ‘success and
failure’ throughout the system. Third World debt at a record $1,714bn in
1994, continues to grow despite massive debt repayments which bleed
those countries dry. Labour migration is far more restricted than in
before the first world war leaving whole populations imprisoned in
untenable social conditions. Inequalities between rich and poor countries
and between the rich and poor in all countries have reached unprecedented
levels and are still growing.
The fundamental shift in the international balance of economic power has
removed the dollar as the anchor of the capitalist system. Nothing exists to
replace it. Neither Japan nor an increasingly fractious European Union are
in a position to take over the United States global role. Inter-imperialist
rivalries are growing and trade wars are being constantly threatened. Far
from being a beacon of capitalist progress ‘globalisation’ is a sign of
economic decay and increasing instability in a world of obscene and
growing inequality.
WIR 95: World Investment Report 1995: Transnational Corporations
and Competitiveness, United Nations New York and Geneva 1995. Most
of the statistics are taken from this and earlier reports unless otherwise
indicated.
H&T: Paul Hirst and Grahame Thompson Globalisation in Question,
Polity Press 1996.
K: David C Korten When Corporations Rule the World, Earthscan
Publications Ltd, London 1995.
Wade: Globalization and its Limits: The Continuing Economic
Importance of Nations and Regions IDS Sussex University May 95.
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