15 Feb 2010

Sample Essay: The Globalisation of Capital

The globalisation of capital is about movement.  Capital is a moving entity, with a value system based, not solely in one country, but universally defined as attached to industry in more than one part of the world.  Capital has the ability to move, so that even though factories whose homeland endorses a company in another country, the capital can exist bilaterally.  Capital can also detach itself from one particular owner or activity; though it is mainly attached to a specific type of owner or activity first and foremost.  The globalization of capital exists in the secondary nature of money; that is, it’s inherent ability to become mobilized.  In this paper, an analysis of the globalization of capital will be examined from its traditional roots in Marxism to its more, or less, modified roots in modernism.  Capitalism is about ownership.  This paper will explore the source of ownership and the history that ownership has undergone to come to its current stage.  Also, a prediction of the future of the globalization of capital will be given, and its predetermined state defined by labor and by the country in which capital is attached.

In analyzing the current state of the globalization of capital the history of feudalism, and capitalism will be imparted.  Marx himself will be given a brief glance, as his theories focuse on “…capital’s inherent drive for self-expansion and technological innovation on the one hand and its tendency to exacerbate social inequality and instability on the other” (Hudis, 2001).  Globalisation itself will be dissected and its fundamental paradoxes and successes will be instrumentally examined and the idea of hegemony will be brought to light in the discussion of the WTO (World Trade Organization).

The capacity for monetary funds to overwhelmingly define a nation, let alone the world, is one which entails great power.  In society there exists the capacity for nation states to discover what to do with this power and how to best organize the funds by which it can be sustained.  This alone will aid in the discovery of what the globalization of capital is at its base, its roots, and its future.  The following paper will yield the idea that in labor and class relation between worker and capitalists there is the potential to exert the funds by which power is held, and capital can be the key to the pursuit of autonomy.

Marx

To discover what globalization of capital means, an overview of the man whose ideas flood the gateway of capitalism must be undertaken, and examined.  Though Marx himself wasn’t a capitalist, his writings on capitalism are still widely held in view today.  Capitalism is mainly and chiefly about an inherent impetus for technology and social innovation, as Hudis writes in his 2001 article, Marx in the Mirror of Gobalization, As Marx saw it, capitalism is not only about the production of material goods and services, but also about the production of value.  Labor, in Marx’s view, is the source of value.  And the magnitude of value, he argues, is determined by the amount of socially necessary labor time it takes to produce a given commodity.  Marx held that there is a continual contradiction between these two purposes:  producing for material wealth and producing for value.  As productivity rises, more goods are produced in the same unit of time, so the value of each commodity falls.  The increase in material wealth corresponds with a decline in the magnitude of value-that is, production costs fall and prices tend to fall as a result.

In different countries the labor market presents itself so frugally which in turn harbors other countries to suffer from the low cost of goods being imported (China is an example of this, but their situation will be discussed in length later on in the paper).

In the struggle of dominance and power, countries are prone to replace value with numbers, which causes a nationwide if not worldwide effect.  In America this is overtly true, as the market system prizes surplus product made cheaply rather than valued goods made with worth.  Marx’s statement about wealth collides with the ideas of value.  In the contradiction, in economy terms, wealth overshadows value to an extraordinary degree and what results sometimes is a struggle between trading countries in either the import of cheap goods or the export of high quality goods.  The decline in value in goods, in capitalism, is a risk.  The funds needed to support the production are in jeopardy when trying to maintain a high production output.  To counteract this problem, a capitalist will try to advance productivity, and since the greater the amount of export produced, the better the opportunity to receive a high dividend.  As Hudis writes,

The best way to increase productivity is to invest in labor-saving devices.  The resulting growth in productivity, however, reproduces the initial problem, since the increase in material wealth leads to a further decrease in the relative value of each commodity.  Capitalism is thus based on a kind of treadmill effect, in which the system is constantly driven toward technological innovation regardless of its human or environmental cost.  The restlessness and drive for innovation that characterize contemporary high-tech capitalism was long ago anticipated by Marx.

In Marx’s view, the unremitting improvement and productive increase ultimately proceeds with blatant discount of national borders.  The ingenious of capital was that it created a world market.   As Hudis writes of Marx’s ideas on capital, “National restrictions on the movement of capital would eventually have to be lifted, he argues, because capital must constantly find new markets to absorb its ever-growing productive output”.  This process then leads to the pinpointing and centralizing of capital, and a ‘relative immiseration’ of the mainstream population.  The essence of capital is to increase production by ‘labor-saving devices’ (which could mean through technology or machinery to cutting down the cost of workers through foreign market places).  Due to the fact that workers do not own capital but do own their own initiative and labor power, social wealth conglomerates in the hands of less and less people.  As Hudis states on this subject, “Many consider this confirmed by the growing inequities that follow from the globalization process, as indicated by the fact that 225 individuals now control more wealth than half of the world’s population”.  What testifies to this factoid is that labor saving techniques or dead labor induce in the population a level of comfort that their jobs are being done for them which leaves them more leisure time, which in turn aids in the economy because the workers use their money to insure that their leisure time isn’t thwarted.  This is true for most capitalist societies, and is especially prevalent in the United States.

In the interest to returning to the idea of globalization, Marx and Engels write,

“Modern industry has established the world market.  All old-established national industries have been destroyed.  They are dislodged by new industries whose products are consumed in every corner of the globe.  In place of the old wants, we find new wants, requiring for their satisfaction the products of distant lands and climes…All fixed, fast-frozen relations are swept away; all new-formed ones become antiquated before they can ossify.  All that is solid melts into air” (From the Communist Manifesto cited in Michael Elliott’s 2001 article, The Wrong Side of the Barricades).  In this statement, the idea of mom and pop shops, of locally owned businesses, have fallen, and the idea of world trade and major corporations capable of mass trade, have risen up, and typically stayed at the top of the economy game.

History/Analysis

The history of globalization can best be cited in Marx’s era.  Globalization served to unfetter the degree of human potential, and the despots of the time such as priests, and other rulers no longer held power.  It was in the vast wealth of technology that promised a surplus to all cultures of people, and that which saved them from the degrading rural life.  It was trade that refocused the idea of where power was held and which altered greatly the difference between states and countries, and that offered the gift of nationalism and liberty.  At least, that is how globalization started.  Now, globalization is a dichotomy in terminology and practice, it offers inferior men while also providing those men/workers with the chance to revolt against capitalism.  The Unites States itself, although considered a great leader in power, cannot be so considered when in fact its economic and political resources are spread out so widely through the world; in fact the modern world does not have one source of a definite power center.

So, in the history of the globalization of capital there is also a history of exploitation.  The intricacies of trade also have in their wake a wide spread geographical playing field.  It was first with the Chinese trade routes in the 15th century that the true physical concept of globalization was put in record books.  The Chinese however, dropt this globalization idea during the Ming dynasty and it was the Europeans who quickly took it upon themselves to become the harbingers of globalization.  (Wolf, 2003).   In the roots of globalization is the concept of technology and its advancement as key to altering the course of the world’s economy.  As has been aforementioned, the human workforce is rapidly becoming dispensable with the oncoming investment in machines to do the labor more quickly, and more cheaply.  This, throughout history, has lead to the decline of cost of product.  Transportation and communication have also become more than affordable, as Wolf states, “…natural barriers to trade and communication are far lower than they have ever been before.  The railway, the steamship, the refrigerator and the telegraph created the opportunities for the integration of the 19th and early 20th centuries”.  With a rapid transition, cost production quickly fell to popular affordability.

To return to capital, and the history therein, the idea of feudalism can be quickly glanced over.  Feudalism gives a harrowing example of labor in a business type relationship.  The ideas of labor that existed in that era are still to an extent alive today.  The transforming characteristics that are prevalent in labor is monetary compensation; and this definition holds true throughout the centuries, as John Holloway states.

Value, in the form of money, is the new liquidity of the class relation. It is the fact that social relations come to be mediated through money that makes it possible for the worker to shift from one master to another, in each case selling his or her labour power in return for a certain amount of money. It is the fact that the lord-turned-capitalist can convert his wealth into money that makes it possible for him to abandon one group of workers and move to another, and to participate in the global exploitation of labour.

Cheap labor allowed globalization to maintain a certain prestige of power because, the labor in turn allowed for cheaper transportation which in turn lead to a high demand of product across the globe.

In the globalization of capital, globalization will only become more widely accepted as the new economic mandate because the new device of the computer is permitting trade across borders quickly and with ease; the internet also has brought down the cost of communication to almost zero (Wolf, 2003).  Going back to the idea of exploitation that this section began its inquiry, it is with exploitation and the cheap labor force in either immigration or companies transferring to lower cost production countries that still enforces the negative side of the globalization of capital.  The world will not be less, civilized, cultivated or globalised.  The vastness of opportunity afforded by globalization despite its exploitation will continue to grow because demand is high enough.  In the interest of dominance, globalization continues, as Wolf states, …protection against imports of manufactures intensive in the use of low-wage labour was an obvious way to reward the industrial working class.  Protection could also be justified for militarily essential products, such as steel.  Policy-makers also wanted an economy capable of fighting long wars.  This led to government involvement in the development of the ‘national economy’- an abstract entity that belonged to the nation state, collectively, not to its people, individually.

The history of globalization entails the development of trade.  Ending laissez faire, immigration and free trade all resulted in universal suffrage, the mobilization of armies, and industry (in advanced countries).  Especially in industry is found the unmitigated growth of population, and technological advancement. In postindustrial countries, the retarding of the three aforementioned items paved the path for trade unions, labour market legal protection, and welfare states (Wolfe, 2003).

It is in the First World War that the liberal global system was tested.  In this war, the increase in power affected all post-industrial or industrial countries.  In war, the ability for nations to be innovative is unceasing; in the First World War the innovation was the first coordination of national economic development.   Of this subject, Wolf states, Lenin explicitly recognized the German war economy as ‘a complete material preparation for socialism’.  This new form of planned economy subsequently became the model for all the developmental states of the post-colonial developing countries.  The First World War also greatly increased the sense of obligation to the citizen-soldier.  Welfare states were bigger in the inter-war years than they had been before the war, just as they were bigger in the 1950’s than before the Second World War.

During war, the ability for a nation in becoming vested with capital is surprising.  During times of war, the economy is at a high, because jobs are needed and during the First and Second World Wars, the labor market turned to women as the men were fighting.  The rate of employment then was also in great surplus as most men were employed through the war and those left were employed in industry for developing and catering to wartime needs.  Industry during war then was in great demand for the export of war machines and war related equipment was in high demand in same-sided countries.  War, then, extended the need for the globalization of capital.  This effort however did not go unmitigated.

With the surplus of jobs, of capital and of globalization of capital there comes great responsibility.  The war afforded jobs, and wealth, but all that increase in revenue could not go without restrictions.  In this regard capital had to surrender to certain specification, as Wolf states,

By the 1930s the combination of collectivist ideas, protectionist interests, universal suffrage, war, monetary disorder and economic depression had destroyed the assumptions, beliefs, policies and practices that had underpinned the liberal world economic order.  The final blow was a breakdown in international political relations, as the great powers created economic systems that reinforced their own power and shielded them from the power of their rivals.  Multilateralism was replaced by bilateralism, non-discrimination by discrimination, free trade by comprehensive protection, freedom for capital flows by exchange controls and free movement of labour by rigorous restrictions.  National socialism fascism, militarism and communism were seen as the waves of the future, loathed by some and love by others.

The restoration of the world after the wars depended greatly on the advancement and capabilities of a country to illicit trade.  The globalization of capital became very strong in the proceeding years of the war.  Globlisation of capital aided in stabilization of economy; this happened through labour employment, trade agreements and control over immigration.

The focus of the world after the wars was directed towards trade and currency conversion.  In the later half of the 20th century, particularly the 1970s through the 1990s, there was crises.  The crises came in the form of a fixed exchange rate and domestic stabilization (Wolf, 2003).  In 1971 it is noted that the Bretton Woods system of exchange was abandoned which led to monetary expansion due to inflation (oil).  This then led to the floating exchange rate and inflation control.  Though capital can be seen as lost in the exchange rate, it also affords necessity in determining the appropriate amount of exchange for goods or labour, despite qualms to the negative effect.  In defining the new exchange rate and the discussion and sentiment other countries had towards such a rate, Wolf states,

Countries that could not tolerate floating rates, notably in Europe, decided that there was a need for a new exchange rate arrangement based on the principle of Europe-wide stabilization.  Thus was born, also in the early 1970s, the process that led three decades later to currency union.  Developing countries meanwhile clung as long as they could to their exchange rate pegs, almost all of them against the dollar.  When combined with excessive borrowing by governments and incompetent liberalization of controls on capital flow, the result was to be a series of shattering exchange rate and financial crises in the 1980s and 1990s.

Exchange rate then is detrimental to the concept of the globalization of capital.  Capital is dependent upon the rate by which it is given, and this rate was in need of a leveling ground after the wars.  So that one country wouldn’t have monetary dominance over another country, the exchange rate was put into force.  Trade then, became not so dependent upon unmitigated exchanges, but became more about increase in product output.

Developing Countries and the Exchange Rate

When the Chinese sailed across their trade routes, the idea of money wasn’t necessarily involved in profit, but rather the exchange of goods was more in lieu of their desired gain.  After the wars, across the globe, the devastation of war was felt on the defeated side, as well as the side that invested their money, and labor in war machines, and now that the war had come to an end, their investments were made nil, and debt settled into the countries woes.  On this topic Wolf states,

The move to floating rates and domestic monetary stabilization made it easier to contemplate the abolition of exchange controls.  But this move, which was to become universal among the advanced countries by the early 1990s, was also consistent with the advance of information technology and the general move towards reliance on market forces.  For the high unemployment, high inflation and lower growth of the 1970s did more than destroy faith in naïve Keynesianism, it also created increased interest in market solutions.  With Ronald Reagan and Margaret Thatcher in power in the US and UK, respectively, there began what amounted to a market counter-revolution in the advanced economics.

The liberalization of exchange controls helped to enable the devastated, war-ravaged countries and to regain their economic power.  The history of the globalization of capital carries with it the analysis of inflation, exchange rates and liberalized exchange controls.  There cannot be a modern view of the globalization of capital without its history put into focus.  Today, the trade in goods and other services is more integrated than in its preceding history.  World trade today has doubled, and barriers (both naturally and man-made) have collapsed.

The gross domestic product (GDP) has even more today, than in its history, been increasingly preceded by services (Wolf, 2003).  This is thanks to war mainly, and the continual cheapness of all labor.  The trouble with services is that it is often times very difficult to trade.  The decrease in goods however is still predominately seen across the globe thanks to the steady increase in productivity.   Trade then thrives in areas where goods are the cheapest and the exchange rate follows suit.  The globalization of capital is relevant to the free labor movement and the cheapness of labor because of the mobility of people, especially in countries where immigration is not so restrictive, as Wolf states, “A German bus driver is paid thirteen times as much as a Kenyan one, for example, in terms of purchasing power.  These controls have locked a large part of humanity into failed states and economies, with inevitably adverse consequences for their incomes and so for global inequality.  The emergence of a global market for skilled people may be making this even worse since the wages of the unskilled depend heavily on the presence of the skilled”.  It seems that the globalization of capital would defect the ideas of impoverished countries, but with trying to find the cheapest labor to produce the most product, such ideas are still prevalent around the world.

Mobility & Capital Today

The idea of the globalization of capital is one that is mobile.  Trade agreements, communication technologies and cheap labor (often times overseas) all enable capital to be a mobile entity.  The foreign exchange rate market for example has a turnover rate of over a hundred trillion dollars a year (Wolf, 2003).  This is thanks to mobility.  Investments, stocks, portfolios, and bonds are all based globally due to the technological advancement of the Internet.  International relations need to be harmonious in order for capital to maintain its mobility.  Wolf gives a dissection of the fundamental changes in international relations in regards to trade, capital and globalization,

First, there is a single undisputed hegemon, the US, and little chance of a war among great powers in the near future, except perhaps between the US and China.  But China is not, at present, powerful enough to be a genuine rival of the US.  Second, all the great powers have abandoned the atavistic notion that prosperity derives from territorial gains and plunder rather than internal economic development and peaceful exchange.  Indeed, the striking feature of today’s war against terrorism is that all the world’s great powers are on the same side.  Third, all the great powers share a commitment to market-led economic development and international economic and political integration.  Fourth, the global institutions and the habit of close co-operation reinforce the commitment to cooperation.

Trade then, and by extension the globalization of capital becomes one in which the gains for the country outweigh the future threat of war.  The stability in a world market comes from the continual agreement between countries to maintain stable ties with one another: cooperating in exchange rates and product output does this.  By combining the wealth of each nation through the exchange rate and then allowing either the country, the business or the individual their own rights to trade, there begins to exist hegemony throughout each person, institution and state.  This in turn allows for peace, and in the idea of the globalization of capital, each trading organization has the opportunity to come into their own wealth with regards to the free trading laws.

Now, there is found the disappearance of the nation-state and the appearance of individual economy, to some degree.  The World Trade Organization allows the individual their own rights in trade and interest in capital.  Globalisation is dependent upon financial structure, and the development of global credit; it is also becoming the new grounds by which oligopolies are becoming wealthy (that is multinational corporations who stand to gain the most in the globalization of capital because they produce more product for less money).  In the globalization of product as well, a new power base has emerged in banks, and the new freedom of capital has lead to poverty in un-industrialized nations (Rikowski, 2001).

Conclusion

In conclusion Rikowski states,

…economic factors such as the deregulation of labour and financial markets, the ‘communications revolution’ through the Internet, the growth of e-commerce, knowledge as a leading factor of production, and many other economic developments are brought in. The speed, intensity and volume of economic transactions increase, and the markets never sleep. The point is that in this form of analysis these technological and economic trends, together with the rise of transnational institutions regulating world trade, finance, competition and investment, are seen to be undermining the political integrity of the nation-state. Since the integration of the old Eastern Bloc countries and China into the world economy, global capitalism has become a reality.

Therefore, the globalization of capital is dependent upon the trade formations between countries, which in turn enable other countries to increase their revenue through trade.  Capital, though mobile, depends on a home base to ensure its own exchange rate and labour costs.  World finances aren’t dependent upon governmental control mainly but instead the WTO sets regulations and by these regulations hegemony in monetary regards is being the forerunner of national relations.

The globalization of capital is the ability of companies to gain revenue in a foreign market place.  By this, the nation-state is losing power and the power is transferring hands from government to trade unions and even down to the individual who trades on eBay.  The Internet is the driving force of globalised capital, and cheap communication, trade, and technology.  More and more, trade is becoming less and less expensive.  Turning any type of activity or products of value into a commodity demands labor (cheap labor) and the idea of a high yield profit from a high yield investment is the center definition of globalization (Rikowski).  In the end, the globalization of capital will serve to unite the world in monetary terms.  The globalization of capital gives the free trading world the opportunity to become self-made, and gives countries the opportunity to become wealthy after devastation (either by war or natural affects).

Work Cited

Elliot, Micheal.  The Wrong Side of the Barricades. Time Canada.  Vol. 158, Issue 3, p19.         September, 2001.

Holloway, John.  Capital Moves. Capital and Class, No. 57.  pp.137-144, Autumn, 1995.

Hudis, Peter.  Marx in the Mirror of Globalisation. CYREV: A Journal of Cybernetics   Revolution, Sustainable Socialism, and Radical Democracy.  Issue 7, Spring 2001.

Rikowski, Glenn.  Transfiguration:  Globalisation, the World Trade Organization and

The National Faces of the GATS. < www.libr.org/isc/articles/14-Glenn_Rikowski.html>

Wolf, Martin.  Is Globalisation in Danger? World Economy.  Vol. 26, Issue 4, p.393-411, April,          2003.

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