First published in Fight Racism! Fight Imperialism! No. 137

The politics and economics of globalisation

by David Yaffe

Globalisation is an ideological term. It encompasses the frenetic international expansion of capital – an expansion which has had devastating consequences for the majority of humanity. The debate around it, however, has tended to obscure rather than clarify our understanding of the forces at work. In his second article on this subject DAVID YAFFE looks at the politics and economics of globalisation.[1]

Among those whose primary concern is for a more competitive and efficiently functioning national capitalist economy, there are diametrically opposite positions concerning the reality of globalisation. The neo-liberal right strongly approves of globalisation and the limited effectiveness of national government intervention. 'A more globalised economy is in many ways a more efficient one' forcing governments to be more careful in handling their economies (The Economist 23 December 1995–5 January 1996). The removal of market constraints – free trade and deregulated labour and capital markets – is seen as the only way to increased growth, balanced trade and lower unemployment. At the other pole, with the old social democratic Keynesian strategy no longer viable, former social democrats, concerned to retain some progressive role for a reforming capitalist government, have argued that much talk about globalisation is exaggerated. The notion that there is `one global, borderless, stateless market' is a myth. 'This global economy needs superintending and policing. Governments can and should co-ordinate their policies to manage it' (Will Hutton The Guardian 17 June 1995).

This polarisation is mirrored on the socialist left. On the one side, we are told that there has been an epochal shift in capitalism in which new technology has substantially (irreversibly?) increased the power of capital over labour, fragmenting and even destroying working class organisations, and creating global market forces beyond national government control. Not to recognise these developments 'freezes us in modes and forms of struggle which are effete and ineffectual' (A Sivanandan). On the other side, globalisation is seen as 'an ideological mystification' which 'serves as an excuse for the most complete defeatism and for the abandonment of any kind of anti-capitalist project.' And that, while not denying the impact of new technologies and the destructive effects of deregulation, mass unemployment and growing poverty, we need to look elsewhere for an explanation of the long-term structural crisis of capitalism than in simplistic formulas about 'globalisation' (Ellen Meiksins Wood).[2]

Globalisation and national governments

The policies of national governments in capitalist countries are mainly determined by two important dynamics: the first is the state of the national process of capital accumulation and its relative international strength; the second is the balance of class forces both nationally and internationally. It is of little surprise that the concept of `globalisation' is being discussed; (1) during a period of stagnating national capital accumulation as excess capital is aggressively exported or deployed speculatively on the stock markets of the world to stave off a profits collapse and (2) following a dramatic shift in the balance of class forces nationally and internationally in favour of capital after the successful counterattack against labour in the 1980s, an attack which highlighted the weakness of working class and socialist forces world-wide.

Tony Blair, the new British Labour Prime Minister, was simply giving expression to these realities when he told a conference of Rupert Murdoch's News Corporation in 1995:

`What is called globalisation is changing the nature of the nation state as power becomes more diffuse and borders more porous. Technological change is reducing the power and capacity of government to control its domestic economy free from external influence' (Financial Times 20 March 1996).

In effect he is reassuring the dominant sections of British capital with a very strong international presence, that, with domestic capital accumulation stagnating, he will not stand in the way of British capital even if this is at the expense of millions of people in Britain confronting drastic cuts in state welfare and growing impoverishment. On no other basis, given the balance of class forces, could he lead a capitalist government in present day Britain.

The neo-liberal Financial Times journalist Martin Wolf reaches similar conclusions about the limited role of national governments in a global economy but plays down the impact of `globalisation':

`When people write off the end of national economic sovereignty, it is an historically brief era that they lament. It ended not so much under the assault of an external force, the global market, but of an internal one, perceived failure. Governments were bad at much of what they were doing...Globalisation reinforced the limits already imposed by domestic constraints' (Financial Times 18 September 1995).

Wolf's attack on the economic role of government again gives ideological expression to the changed needs of capital in today's circumstances. His explanation differs from Blair - they speak to a different constituency - but inevitably they reach the same class standpoint.

The `historically brief era' of state intervention in the capitalist economy after 1945 was the product of unique historical circumstances. First, inter-imperialist rivalry between the major capitalist powers since the beginning of the century had ended, temporarily, with the dominance of US imperialism over the capitalist world economy. This allowed the US economy, facing limited competition, to develop at the expense of other national capitals. Through Marshall Aid and export of capital, the US laid the basis for increasing control of world markets for US capital and a faster rate of capital accumulation at high rates of profit. Britain, with its access to the markets and resources of the British Empire and with little competition from its European rivals, followed in its wake. Second, a change in the balance of class forces in favour of the working class had occurred internationally after the devastation of depression, fascism and two world wars, a change reinforced by the standing of the Soviet Union and the spread of socialist revolutions and independence movements after the war.

The restoration of capital accumulation after the war was achieved, therefore, at a political cost to capital. The balance of class forces necessitated this. But it was a cost that, initially in the victorious nations and, later, in the rebuilt European economies, capital could afford. State intervention in the capitalist economy, state welfare and military spending, in these unique circumstances, underpinned the most rapid accumulation of capital ever. But the fundamental contradictions within the capital accumulation process remained. When the rate of profit began to fall and inter-imperialist rivalries re-emerged at beginning of the 1970s, capital accumulation began to stagnate in most capitalist countries. The rising consumption institutionalised in state welfare became a barrier to the further accumulation of capital as high inflation accompanied stagnation in the major capitalist nations. State spending and state welfare had to be cut back. In Britain the first steps were taken by a Labour government a few years before Thatcher came into power. Capital went on the offensive and succeeded in changing the balance of class forces nationally and internationally but the problems within the capital accumulation process remained. State intervention was neither responsible for the post war boom nor the cause of the later stagnation. It was the particular circumstances of the capital accumulation process nationally and internationally which underlay both. Keynesianism and neo-liberalism are no more than ideological reflections of the changing requirements of capital in the two periods.

The growing stagnation in the capital accumulation process and the re-emergence of inter-imperialist rivalries were the result of an overaccumulation of capital - insufficient surplus value to secure both the normal profitable expansion of productive capital and to finance the growing state sector together with a rapidly expanding unproductive private sector. The huge increase in the export of capital, the growing monopolisation of capital through mergers, acquisitions and privatisations, the unprecedented autonomy of the financial system from real production alongside the cuts in state welfare, downsizing and outsourcing, mass unemployment and rapidly growing inequality, in short, globalisation, was capital's response.

Globalisation, therefore only reinforces the limits imposed by domestic constraints on national government intervention because both result from a stagnating capital accumulation. This is the context in which we can examine the differing class positions on globalisation.

Globalisation and class interest

Martin Wolf quite brazenly represents the dominant ruling class interests. As a spokesperson for large capital, he is an unashamed apologist for neo-liberalism. In a recent glowing tribute to globalisation, dismissing all evidence to the contrary, he maintains it has been a force for prosperity in much of the world. `Globalisation is the great economic event of our era. It defines what governments can - and should do... Technology makes globalisation feasible. Liberalisation is responsible for it happening.' He celebrates its success. From 1970 to 1997 the number of countries removing exchange controls on goods and services increased from 35 to 137. A year ago, more constrained, in an article `The global economy myth' (Financial Times 13 February 1996)[3], he argued that much of the talk about globalisation was exaggerated and governments on their own or together could do a great deal. Today he has no such reservations. In his latest article `Global opportunities' he tells us that governments have learned the lessons of experience and have chosen or been forced to open their economies. Running with the tide, he now argues that, on balance, globalisation has gone further than ever before (Financial Times 6 May 1997).

New Labour stands for the same ruling class interests. In the run up to the General Election Blair was forever stressing how Labour would accommodate multinational business. Immediately after the election he appointed Sir David Simon, chairman of British Petroleum, as a Minister of Trade and European Competitiveness. BP is accused of collaborating with military death squads in Columbia. Simon will be made a life peer. Almost the first act of the new government was to hand over control of interest rate policy to that bastion of neo-liberalism, the Bank of England. Nevertheless Blair cannot, as Wolf is able to do, conflate the `can' and `should' of government policy in relation to a global economy. For Blair is reliant to some degree on the middle class constituency which elected him to power. He will have to reassure the middle classes, as real economic developments threaten their security, that he will do what he can within the constraints imposed by the global economy (`external influence'). He is acceptable to the ruling class because, unlike the discredited and divided Tories, Labour is in a better position, as economic conditions deteriorate, to prevent an alliance against capitalism developing between the poor working class and sections of the middle classes threatened with proletarianisation.

Hutton, generally regarded as ideologue for the New Labour Party, deals with the question of globalisation from a different class standpoint. He articulates the fear of the middle classes at what might occur if the New Right (neo-liberal) agenda succeeds. `If there are no real economic and political choices... the way is open for the return of totalitarian parties of the right and left.' He fears the consequences of social breakdown. Hence his concern to play down the impact of globalisation, arguing that governments can co-ordinate their policies to manage it, to prevent the extreme consequences of an unrestrained market and to create a less degenerate capitalism.

The relative prosperity in Britain during the post-war boom gave rise to new privileged sections of the working class - a new middle class. This layer of predominantly educated, salaried, white collar workers grew with the expansion of the state and services sector and, in the more recent period, with the information technology revolution. Sustaining its privileges is the key to social stability in all the major capitalist nations and playing to its prejudices is the necessary condition for political parties to be elected to power. As long as there were sufficient profits from production at home and trade and investment abroad, both to give an adequate return to capital, and to finance state welfare and the growing unproductive private sector, then the social democratic consensus of the post war years could be maintained. It was possible to guarantee the relatively privileged conditions of higher paid workers and the middle classes while sustaining adequate living standards for the mass of the working class.

In the new conditions of capital stagnation and growing inter-imperialist rivalries in the middle of the 1970s, this consensus began to break down. The 1974-79 Labour government set monetary targets and cut state spending. The low-paid state sector workers fought back and the `winter of discontent', 1978/9, drove the higher paid skilled workers and the middle classes into the arms of the Tory Party. Thatcher embraced this new constituency and, as Hutton says, `the liberal professions, affluent council house tenants, homeowners, all benefited from her tax cuts, credit boom and privatisation programme.' The price was growing inequality as state welfare was cut and millions of working class people were driven into poverty to pay for Thatcher's programme. The privileges of the middle classes could only be preserved at the expense of ever increasing numbers of impoverished working class people. In spite of the revenues from North Sea Oil, productive investment stagnated in Britain, and record amounts of capital were invested abroad. Britain was rapidly becoming a rentier state.

With the failure of Thatcher's economic policies at the end of the 1980s and with poverty and inequality rapidly accelerating, inroads began to be made into the standard of living of sections of the middle classes. It is the potentially explosive consequences of this development that drives Hutton. He offers his alternative to `globalisation', to an unrestrained and deregulated capitalism. First, he says, we must alter the way the British financial system works - essentially from seeking high, liquid, short-term gains, irrespective of location, to giving a long-term commitment to regenerating the productive base of the British economy - a process which, he says, requires a political revolution to take power away from the entrenched `conservative hegemony'. Britain has to be transformed into a high investment, high growth economy. Second, a coalition supporting social welfare has to be rebuilt. For this to happen the middle classes must opt in, rather than opt out into the privatised provision of the neo-liberal agenda. The middle classes, he argues, can be given `a vested interest in the entire system' by `incorporating inequality into the public domain'. A core system for the mass of the working class with the middle classes able to buy in the extra quality services they require - in short `nationalising inequality' within the state system.

However, if the degeneration of capitalism into a parasitic and rentier form is now a necessary trend emerging in all the mature capitalist nations, Hutton's response to globalisation - what I have called the political economy of the new middle class - is both idealist and reactionary.[4]

We can now understand the significance of Sivanandan's standpoint. Living in a country where knowledge, culture and politics are dominated by the concerns and prejudices of middle class people; in which the poor and oppressed working class are outside the political process and ignored by the official labour movement; and where social relations seem frozen, repetitive and unchanging, it could appear that an epochal shift has occurred in capitalism and that the socialist project, at least as it is traditionally understood, has to be buried. We note Sivanandan's warning not to underestimate the dangers posed by the so-called `culture of postmodernism', in a society where `"knowledge workers" who run the Information Society, who are in the engine room of power, have become collaborators in power'. But we respond as materialists. History has not ended. And globalisation, if it is anything, is a sign of the crisis of capitalism, of increasing instability, of rapidly changing circumstances in a world of obscene and growing inequality. Social relations are not fixed. The conditions which spawned a new middle class and turned it into a bedrock of social stability in the imperialist nations after the war have ended. Today it is those privileged conditions which are being threatened. Hutton, at least, recognises this - hence his terrible fear of a return to the extremes of class conflict that ominated the 1930s. Sivanandan is far too preoccupied with the ideological posturing of a small elite of academics and opinion formers caught up with globalisation and beneficiaries of it.

Ellen Meiksins Wood develops a number of crucial points in her reply to Sivanandan. Firstly, more giant corporations with a global reach, and more international organisations serving the interests of capital, in no way imply a unified international capitalist class. The `global' market ensures the `internationalisation of competition' - a contradictory process. On the one hand it does mean new forms of capitalist integration and co-operation across national boundaries but on the other hand, it also means active competition between national and regional capitalists. `So the "global" economy if anything may mean less and not more capitalist unity.' The overall consequence of `globalisation' far from integrating capital is at least as likely to produce disintegration.

Secondly, the proposition that there is an inverse relation between the internationalisation of the economy and the power of the state fails to acknowledge that `globalisation' presupposes the state. `The nation-state is the main conduit through which national (or indeed multinational) capital is inserted into the global market.' Transnational capital may be more effective than the old-style military imperialism in penetrating every corner of the world but it accomplishes this, in the main, through the medium of local capital and local states. It may well, ultimately, rely on the military power of the last remaining `super-power' to sustain the sovereignty of the market. Further, it depends on such local political jurisdictions to maintain the conditions of economic stability and labour discipline which are the conditions for profitable investment. And finally, new kinds of inter-imperialist rivalry will emerge in which the nation state is still the principal agent.

From this she advances her most important political point: the nation state is still the terrain of (class) struggle. `If the state is the channel through which capital moves in the "globalised" economy, then it is equally the means by which an anti-capitalist force could sever capital's lifeline.'

These arguments go a great deal of the way to undermining Sivanandan's position. But there is something lacking. It is perhaps best highlighted in the undue weight Wood gives to the ideological impact of the concept of globalisation as it is commonly understood. `It is the heaviest albatross around the neck of the left today'. `In the current conception of globalisation, left joins right in accepting that "There Is No Alternative" - not just to capitalism, but... to a more or less (the right goes for more, the left somewhat less) ruthlessly "flexible" capitalism.' She goes on to say that if their conception of globalisation were an accurate reflection of what was happening in the world today her ideological objections wouldn't count for much and we would have to accept that the socialist project is dead.

This is all very true but something more is surely needed. Ideas only become a material force when taken up by the masses. The ideological struggle is of political importance when it falls on fertile ground. In periods when the poor and impoverished working class are outside the political process, the politics of the left, in the main, reflect their class position in capitalist society - as part of the privileged working class or educated white collar and professional workers who form the backbone of the new middle class. The recomposition of the working class as a fighting force against capitalism has to be the product of developments within capitalism itself, it will not be the result of ideological combat alone. This process is already taking place as capitalist governments deregulate labour, attack state welfare, undermine the democratic right to protest and workers' rights to organise, attempt to divide the working class through racism and sexism, and destroy the environment. The ideological struggle has to be combined with the political organisation and defence of those sections of the working class under attack and fighting back. We need to show how developments within capitalism are making this possible. That is why a great deal more is required from the analysis of the latest stage of capitalism to finally lay to rest the ghost of globalisation.


The reality of globalisation

It is important not to underestimate the significance of globalisation. It might well be an 'ideological mystification' in the hands of a Martin Wolf or some intellectuals and academics on the political left, but its impact on the economic and political lives of the vast majority of humanity is of great political consequence. To say, as I have argued in my earlier article on globalisation, that 'far from it being new it is a return to those unstable features of capitalism which characterised imperialism before the First World War' is not to dismiss its importance but, on the contrary, to highlight it. It is beginning to create the very conditions which produced those dramatic shocks to the international capitalist economy and which led to the revolutionary developments in the first decades of the twentieth century. So what then are the crucial components of globalisation which suggest these developments?Multinational companies (MNCs)are the principle vehicle of imperialism's drive to redivide the world according to economic power. In 1995 Foreign Direct Investment (FDI) outflows increased by a massive 38 per cent to $317bn, with a record $100bn going to Third World countries. That investment is concentrated in three competing power blocs, the 'Triad' of the European Union, Japan and the United States and their regional cluster of countries. 76 per cent of the investment in Third World countries (1993-5) went to only 10 countries.

Five imperialist countries, United States, UK, Germany, Japan and France were responsible for almost two-thirds of the total outflows in 1995. The United States ($96bn), UK ($38bn) and Germany ($35bn) all exported record amounts.[5]

Most MNCs are nationally based, controlled by national shareholders, and trade and invest multinationally with a large majority of sales and assets in their home country. A recent study showed 70 - 75 per cent value added by multinational companies was produced in the home country. They are highly concentrated. Only 100 MNCs, 0.3 per cent of the total, all from imperialist countries, own one-third ($1.4 trillion) of the total FDI investment stock. The process of concentration continues internationally through mergers and acquisitions. Cross border mergers and acquisitions doubled between 1988 and 1995 to $225bn.

Globalisation is devastating the lives of millions of people. Even the World Bank admits that in the case of the ex-Soviet bloc 'transition has relegated an entire generation to economic idleness.' Output in Russia fell by 40 per cent between 1990 -1995 and between 16 and 30 per cent in the other countries. Growth has been falling over the last 15 years in about 100 countries, with almost a third of the world's people, dramatically reducing the incomes of 1.6bn people. The declines are unprecedented, exceeding in duration and sometimes in depth the Great Depression of the 1930s. One billion people, 30 per cent of the world's workforce, are either jobless or unemployed. Even in the imperialist countries 100m people live below the poverty line, 30m are unemployed and more than 5m are homeless.[6]

The world is becoming more unstable. $1,230bn a day flows through the foreign exchange markets. Third World Debt, at a record $1,940bn, continues to increase despite massive debt repayment. A formidable $55 trillion is gambled on the world's derivatives market. All the major banks are large players. Barclays, for example, has liabilities of £922bn, more than 80 times its capital base. A crash in the stockmarket will leave them facing huge losses. Growth in world trade halved last year because of a sharp deterioration in the performance of the so-called Asian 'tigers'. The conflict in Zaire has started a new scramble for Africa as inter-imperialist rivalry intensifies. Finally, inequality between rich and poor countries and between rich and poor in all countries has reached unprecedented levels and is still growing.

These are not the conditions of an unchanging world. They are one's where the socialist message can once again take root. Throughout the world, from workers in Korea to guerrillas in Mexico, from public sector workers in France to landless peasants in Brazil, people are fighting for change. In Britain new alliances are being built with environmental campaigners taking to the streets to defend dockers in Liverpool. Globalisation is a long-term structural crisis of capitalism.

It is laying the ground for turning what Ellen Meiksins Wood calls 'various fragments of opposition' to capitalism into conscious class struggle.


  1. See 'Globalisation: a redivision of the world by imperialism' in Fight Racism! Fight Imperialism! 131 June/July 1996. 
  2. These positions appear in `Capitalism, globalisation, and epochal shifts: an exchange' in Monthly Review Vol 48 No 9 pp19-32. That diametrically opposed positions on the significance of globalisation are held by writers throughout the political spectrum from `right' to `left' only adds to the confusion. 
  3. This was a favourable review of a book by Paul Hirst and Grahame Thompson Globalisation in Question Polity Press 1996. Material from this book is used in my earlier article on globalisation. They hold a similar position to that of Hutton above, arguing that `nation states, and forms of international regulation created and sustained by nation states, still have a fundamental role in providing governance of the economy (p185).' 
  4. Quotes from Hutton are from his book The State We're In Jonathan Cape 1995.
    For my review of this book see `The political economy of the new middle class' in Fight Racism! Fight Imperialism! 124 April/May 1995.
  5. See World Investment Report (WIR) UN 1996 for information. Other figures are taken from my earlier article or earlier WIR reports.
  6. Figures from The World Development Report OUP 1996 and The Human Development Report OUP 1996.