Karl Marx Foretold Globalization

♠ Posted by Emmanuel in , at 6/20/2007 02:09:00 AM
Above is a chart depicting the ratio of income of those in the 90th percentile to those in the 10th percentile for a sample of OECD countries. As you can see, it's become more lopsided except for Ireland and Spain over a period of ten years. The new OECD report which contains this chart raises alarm bells over this strong trend of income polarization. [UPDATE: NPR has audio commentary on this report.] Some of its suggestions may surprise you, such as stronger social protections in the age of the "competition state":
Rather than seeing globalisation as a threat, OECD governments should focus on improving labour regulations and social protection systems to help people adapt to changing job markets.

That is the message from the 2007 edition of the OECD’s annual Employment Outlook. It reviews the possibility that offshoring may have reduced the bargaining power of workers, especially low-skilled ones. Whether real or threatened, the prospect of offshoring may be increasing the vulnerability of jobs and wages in developed countries.

Wage inequality is also rising. In 18 of the 20 OECD countries where data exist, the gap between top earners and those at the bottom has risen since the early 1990s. Ireland and Spain are the only exceptions to this trend (see graph).

The OECD report makes a number of recommendations on policies governments should put in place to create more and better jobs.

In countries where social security contributions are high, such as Belgium, France and Sweden, the OECD suggests moving to broader sources of financing public social protection. Social contributions are largely based on wages and act as a tax on labour, limiting job creation. Given the falling share of wages in national income, it is key to reduce the role of social contributions and increase that of broader tax bases, such as income taxes and/or VAT, to fund social protection.

Globalisation requires mobility to ensure that workers are not trapped in jobs with no future. The report praises the so-called “flexicurity” approach adopted in Austria and Denmark to address this. In Austria, for example, workers have individual savings accounts, instead of traditional severance pay schemes, that move with them as they move jobs. If they lose their job, they can choose to withdraw funds from the account or save the entitlements built up towards a future pension.

Job losers should be compensated through social protection systems which are employment-friendly, the report notes. This can be done by providing adequate benefits hand-in-hand with “activation” policies which increase re-employment opportunities. Experience of Nordic countries and Australia shows that such policies, if well-designed, improve the job prospects of laid-off workers, thereby easing their fears about globalisation.

We've been down this road before. We've even taken a Marxist route to problematizing rising income inequality in the developed world. Today, let us consider yet another proposition beyond the tendency for capitalism to polarize society into haves (capital holders) and have nots (labor). Globalization is mentioned in Marx's works. Simply put, increasing exploitation in the developed world --as is arguably happening now with labor being squeezed--eventually results in labor becoming so marginalized that new markets for capitalism's fruits need to be found. Hence, the natural tendency is for capitalism to seek new "patsies" after it has already chewed up and spat out those in the developed world, if you adopt a Marxist perspective. That, in a nutshell, is the Marxist version of globalization. Now, a good case can be made that Marx saw globalization coming well in advance. Prominent Marxist Jacques Attali has this to say:
What is very modern also in his [Marx's] view is that he considered that capitalism would end only when it was a global force, when the whole of the working class was part of it, when nations disappeared, when technology was able to transform the life of a country. He mentioned China and India as potential partners of capitalism, and said, for instance, that protectionism is a mistake, that free trade is a condition for progress.

For Marx, capitalism has to be worldwide before we think about socialism. Socialism for him is beyond capitalism and not instead of capitalism. He has much say on globalisation, what is happening to movement of companies, delocalisation and everything that is linked to the way we live today. In a sense, the Soviet Union was destroying or interrupting the validity of Marx’s thinking and the fall of the Berlin Wall is giving back a raison d’etre to his work, because Marx was thinking of the world globally and the Soviet system was a nightmare that he did not forecast.
Marx biographer Francis Wheen believes Marx "had globalization sussed 150 years ago." Despite writings about "The End of History" and other comic stylings, the Marxist revival continues apace as globalization confirms a lot of what Marx suggested would come:
A penniless asylum seeker in London was vilified across two pages of the Daily Mail last week. No surprises there, perhaps - except that the villain in question has been dead since 1883. 'Marx the Monster' was the Mail's furious reaction to the news that thousands of [BBC] Radio 4 listeners had chosen Karl Marx as their favourite thinker. 'His genocidal disciples include Stalin, Mao, Pol Pot - and even Mugabe. So why has Karl Marx just been voted the greatest philosopher ever?'

The puzzlement is understandable. Fifteen years ago, after the collapse of communism in Eastern Europe, there appeared to be a general assumption that Marx was now an ex-parrot. He had kicked the bucket, shuffled off his mortal coil and been buried forever under the rubble of the Berlin Wall. No one need think about him - still less read him - ever again.

'What we are witnessing,' Francis Fukuyama proclaimed at the end of the Cold War, 'is not just the ... passing of a particular period of postwar history, but the end of history as such: that is, the end point of mankind's ideological evolution.'

But history soon returned with a vengeance. By August 1998, economic meltdown in Russia, currency collapses in Asia and market panic around the world prompted the Financial Times to wonder if we had moved 'from the triumph of global capitalism to its crisis in barely a decade'. The article was headlined 'Das Kapital Revisited'.

Even those who gained most from the system began to question its viability. The billionaire speculator George Soros now warns that the herd instinct of capital-owners such as himself must be controlled before they trample everyone else underfoot. 'Marx and Engels gave a very good analysis of the capitalist system 150 years ago, better in some ways, I must say, than the equilibrium theory of classical economics,' he writes. 'The main reason why their dire predictions did not come true was because of countervailing political interventions in democratic countries [i.e., the welfare state which the OECD now seems keen on reviving--at least in part]. Unfortunately we are once again in danger of drawing the wrong conclusions from the lessons of history. This time the danger comes not from communism but from market fundamentalism.'

In October 1997 the business correspondent of the New Yorker, John Cassidy, reported a conversation with an investment banker. 'The longer I spend on Wall Street, the more convinced I am that Marx was right,' the financier said. 'I am absolutely convinced that Marx's approach is the best way to look at capitalism.' His curiosity aroused, Cassidy read Marx for the first time. He found 'riveting passages about globalisation, inequality, political corruption, monopolisation, technical progress, the decline of high culture, and the enervating nature of modern existence - issues that economists are now confronting anew, sometimes without realising that they are walking in Marx's footsteps'...

Like Molière's bourgeois gentleman who discovered to his amazement that for more than 40 years he had been speaking prose without knowing it, much of the Western bourgeoisie absorbed Marx's ideas without ever noticing. It was a belated reading of Marx in the 1990s that inspired the financial journalist James Buchan to write his brilliant study Frozen Desire: An Inquiry into the Meaning of Money (1997).

'Everybody I know now believes that their attitudes are to an extent a creation of their material circumstances,' he wrote, 'and that changes in the ways things are produced profoundly affect the affairs of humanity even outside the workshop or factory. It is largely through Marx, rather than political economy, that those notions have come down to us.'

Even the Economist journalists John Micklethwait and Adrian Wooldridge, eager cheerleaders for turbo-capitalism [I just love that put-down :-0], acknowledge the debt. 'As a prophet of socialism Marx may be kaput,' they wrote in A Future Perfect: The Challenge and Hidden Promise of Globalisation (2000), 'but as a prophet of the "universal interdependence of nations" as he called globalisation, he can still seem startlingly relevant.' Their greatest fear was that 'the more successful globalisation becomes the more it seems to whip up its own backlash' - or, as Marx himself said, that modern industry produces its own gravediggers.

The bourgeoisie has not died. But nor has Marx: his errors or unfulfilled prophecies about capitalism are eclipsed and transcended by the piercing accuracy with which he revealed the nature of the beast. 'Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones,' he wrote in The Communist Manifesto.

Until quite recently most people in this country seemed to stay in the same job or institution throughout their working lives - but who does so now? As Marx put it: 'All that is solid melts into air.'

In his other great masterpiece, Das Kapital, he showed how all that is truly human becomes congealed into inanimate objects - commodities - which then acquire tremendous power and vigour, tyrannising the people who produce them.

The result of this week's BBC poll suggests that Marx's portrayal of the forces that govern our lives - and of the instability, alienation and exploitation they produce - still resonates, and can still bring the world into focus. Far from being buried under the rubble of the Berlin Wall, he may only now be emerging in his true significance. For all the anguished, uncomprehending howls from the right-wing press, Karl Marx could yet become the most influential thinker of the 21st century.

As I've mentioned, I'm less into ideological quarrels as I am interested in explanations. And, it seems Marx has a pretty good one to offer on inequality and globalization. Andrew Glyn, another left-leaning scholar, sees in Marx's ideas the shape of today's globalization. Shifting our attention to the developing world, let it never be said that Marx was a small thinker:
A piece of conventional wisdom about the world dear to economists is that the share of national income going to workers stays pretty stable. Karl Marx disagreed; he argued that labour-saving capital investment would limit demand for labour, while also bankrupting small-scale producers, in agriculture for example. They would swell the labour supply, creating a permanent "reserve army of labour" that would prevent real wages growing as fast as labour productivity. Workers would thus spend an increasing proportion of working time producing profits for capitalists - a falling share for labour or a rising rate of exploitation, in Marx's terminology...

The Communist Manifesto proclaimed the inevitable spread of capitalism across the globe. This process was halted and even reversed during much of the 20th century by the isolation of the Soviet Union, eastern Europe and China from the world economy and the very slow pace of economic development in poor countries such as India. However, the extraordinary transformation of China's and India's economies promises to bring Marx and Engels' prediction to completion. What might be the implications for workers in rich countries?

At first glance, the eruption of China into the world economy seems to be just the latest example of Asian countries catching up with the leading industrial powers. China's export growth has been spectacular, but so was that of Japan and Korea in earlier decades.

What makes China (and India) fundamentally different, however, are their vast labour reserves. Total employment in China is estimated at around 750 million, or about one and a half times that of all the rich economies, and nearly 10 times the combined employment of Japan and Korea. About one half of China's employment is still in agriculture; together with tens of millions of urban underemployed, they constitute a reserve army of labour of quite unprecedented magnitude.

The effect of this reserve army has been to hold down wages. After nearly 25 years of rapid economic growth, wages in China's manufacturing sector are still only 3% of the US level; after similar periods of rapid expansion in Japan and Korea, wages were some 10 times as high.

Much attention has naturally been devoted to the effects on industrialised countries of the flood of imports. But there is another, more ominous, possibility. What if there was a major drain of capital spending, from the rich countries to China and the rest of the south?

Investment in developing countries by multinational companies has been growing, but it is still only 3-4% of their investment at home each year. Could the trickle turn into a flood? Television pictures of the machinery at the Longbridge car plant being packed up for shipment to China may be an extreme case. However, with such low wage costs in China and growing numbers of skilled workers, why should northern producers continue investing to maintain their capital stock in the north, let alone extend it? If investment peters out, where would northern workers find jobs? When Longbridge closed, a government minister was ill-advised to suggest that the car workers could seek jobs at Tesco. Hardly a comforting response.

It is not too far-fetched to imagine a long period of investment stagnation in the industrialised countries, with "emerging markets" being so much more profitable. This could bring intense pressure on jobs and working conditions in Britain and elsewhere. Even sectors where relocation was not possible, like retailing or education, would be flooded with job seekers. The bargaining chips would be in the hands of capital to a degree not seen since the industrial revolution. Fluctuations in labour's share being confined to the range of 65-75% could disappear too, with Marx's rising rate of exploitation re-emerging, a century and a half after he first predicted it.

Could the economy become ever more dependent on the luxury consumption of the wealthy, who receive a disproportionate share of the higher profits? Alternatively, would taxation of profits be increased to expand government services such as health and education? With recent trends in favour of the wealthy intensifying, the fundamental issue of who gets what could no longer be confined to hesitant debates about minor changes in the share of taxation in national income, or adjustments to the top rate of income tax.