International Socialist Review Issue 11, Spring 2000
BRIEFING: The Shape of World Capitalism
by Ahmed Shawki and Paul D'Amato
WHEN SUPPORTERS of the free market talk about the marvels of free trade and globalization, its worth keeping in mind a number of facts about the structure of the world economy today.
World trade has increased substantially over the last quarter century. World exports are now $7 trillion or 21 percent of world gross domestic product (GDP), compared to 17 percent of a much smaller world GDP in the 1970s. Foreign direct investment (FDI), at more than $600 billion, is more than seven times greater in real terms than in the 1970s. Currency and foreign exchange markets conducted daily transactions worth $1.5 trillion in 1998up from $10 to $20 million in the 1970s. Finally, international bank lending increased from $265 billion in 1975 to $4.2 trillion in 1994.1
The great bulk of world trade and investment is concentrated in the most economically advanced countries, and is carried out by government-backed consortiums and a small band of giant transnational corporations (TNCs). These TNCs in turn depend on the policiesand, if need be, the guns and armiesof their home countries to protect and promote their interests.
Globalizationdefined as the expansion of world trade, investment and production over the last two decadescertainly hasnt led to an expansion of everybodys wealth. Also, in key respects, globalization has reinforced the unequal and uneven character of world economic development, both between regions and countries and within countriesthat is, between social classes.
To quote an April 1999 press briefing announcing the most recent World Bank World Development Indicators, Despite the significant gains in development, the gap between rich and poor is widening. And with many countries, income distributions are worsening, increasing the social pain of economic failure.
A brief review of the facts, using United Nations (UN) and World Bank sources, shows this clearly:
The top fifth of countries in terms of income account for 86 percent of world GDP and 82 percent of world export markets, and receive 68 percent of FDI. The poorest fifth account for only 1 percent in all of these categories.
Two-thirds of world trade takes place between the richest countriesEurope, North America and Japan. A large portion of this trade40 percent according to a 1992 World Bank reportis intrafirm trade between subsidiaries of the same corporations operating in different countries.
The latest World Investment Report, prepared by the UN Conference on Trade and Development (UNCTAD) late last year, has thrown further light on the quantitative and qualitative changes in the world economy resulting from the globalization of production over the past decade and a half. According to the report,
An international production system is rapidly emerging with FDI by transnationals at its core. The system embraces some 60,000 TNCs with over 500,000 foreign affiliates that account for an estimated 25 percent of global output. Sales of these foreign affiliates alone amounted to $11 trillion (well ahead of world exports at $7 trillion) in 1998.
The worlds largest 100 TNCs, measured in terms of foreign assets, hold a dominant position in the new international production system. They now account for $4 trillion in total sales and hold a stock of total assets in excess of $4.2 trillion. General Electric is the worlds largest TNC, closely followed by the Ford Motor Company and the Royal Dutch Shell Group.
The report showed that FDI in 1998 rose by almost 40 percent to $644 billion, with a new record expected this year. The main factor behind the expansion is cross-border mergers and acquisitions that reached $411 billion in 1998up 74 percent after a 45 percent rise in 1997.
Some TNCs have assets that are larger than countrieseven several countries combined. General Motors, with total sales in 1997 of $164 billion, had assets larger than the GDP of Thailand or Norway, and twice that of the Philippines. These industry giants control world markets. In 1998, the top 10 pesticide companies in the world controlled 85 percent of a $31 billion global market; the top 10 telecommunications corporations controlled 86 percent of a $262 billion market. Three TNCs control 85 to 90 percent of world wheat, corn, coffee, cotton and tobacco exports; 90 percent of forest-production exports; and 90 to 95 percent of iron-ore exports.2 This is not free competition but the control of world markets by a handful of oligopolies that sometimes agree and sometimes compete using government intervention, subsidies and free-trade agreements to increase their profits.
More than 80 percent of FDI that did take place in developing economies went to just 20 countries, and mainly to one countryChina. Only three coastal provinces and Hong Kong received the overwhelming bulk of this investment. That isnt to say there hasnt been a large increase of FDI into Latin America, for example. Over the last decade, FDI to Latin America has increased by 600 percent. But the majority of it68 to 75 percenthas been used to buy up assets of privatized public enterprises and financially troubled private enterprise.3
World economic expansion has been so uneven that for 59 countriesmainly in sub-Saharan AfricaGNP per capita has actually declined in the last 15 years. According to one World Bank spokesperson, The issue in most of these countries is that wages and incomes particularly of workers in, you might call it, the lower-income areas of income have fallen precipitously, somewhere between 15, 25, and 30 percent. These countries are highly integrated into the world economy, however. Sub-Saharan Africa, for example, has a higher export-to-GDP ratio (29 percent in the 1990s) than Latin America (15 percent).4
Sub-Saharan Africa, with some 650 million people (over 20 percent of the worlds population) has just 3 percent of its trade and only 1 percent of its GDP. Income per headaveraging 460 dollars in 1994has steadily fallenÖand is now less than a fiftieth of what it is in the Organization for Economic Cooperation and Development (OECD) countries.5 Ten Sub-Saharan countries have seen life expectancies decrease over the past two decades. In many of these, more than 10 percent of the adult population has HIV or AIDS.
The former Soviet Union has also experienced steep economic decline. There, the numbers of people living in poverty increased from 14 million in 1989 to 147 million by the middle of the decadea ten-fold increase.
Assets of the top three billionaires exceed the combined GNP of all of the least-developed countrieswith their combined population of 600 million people.
Inequality within countries has also increased substantially even in the OECD countries. Recent studies show inequality increasing in almost all OECD countries, with the most extreme manifestation in the UK, Sweden and the U.S. In the United States, to use just one indicator, the gap between the incomes of CEOs and average factory workers increased from 42 to 1 in 1980 to 419 to 1 in 1998.
Much of world trade is conducted not freely across the globe, but within trading blocs in which the participants get more favorable trading arrangements than those outside it. The European Union (EU) and the North American Free Trade Agreement (NAFTA) are the most important of these. The EU, for example, systematically imposes tariffs on as many as half of the goods coming in from Eastern Europe.
The relentless pressure of global competition has led one government after another, whether conservative or reformist, to begin adopting measures to reduce public spendingor, more accurately, to reduce the social safety net and spending on education, health and social services. It is a clear indication of the systems priorities that spending on arms has been increasing in virtually every country in the world just as these cuts are being made.
In practically every country, neoliberal policies, touted as necessary to compete on the world market and benefiting only a minority at the top, have been used as an excuse for an employers offensive against social gains made through class struggle. Structural adjustment programs, pushed by the IMF in order to pry open world markets on behalf of the U.S., have forced indebted governments to slash social programs drastically in order to generate funds to pay back foreign creditors and investors.
The grim picture, then, is not one of global growth lifting people out of poverty, but of lopsided growth grinding much of the worlds population downand enormous wealth gained by a few at the expense of workers the world over.
1 United Nations, Human Development Report 1999: Globalization with a Human Face (London: Oxford University Press, 1999), p 25.
2 Robert K. Schaeffer, Understanding Globalization (Lanham, Maryland: Rowman & Littlefield, 1997), p. 206.
3 James Petras and Henry Veltmeyer, Latin America at the End of the Millennium, Monthly Review, Vol. 51, No. 3, July/August 1999: p.38.
4 Petras and Veltmeyer, p. 31.
5 John S. Saul and Colin Leys, Sub-Saharan Africa in Global Capitalism, Monthy Review, Vol. 51, No. 3, July/August 1999: p. 3.