COPING WITH GLOBALIZATION – II
Mritiunjoy Mohanty
In ‘Coping with Globalization’ in the March 2007 issue of INSAF Bulletin, Daya Varma and Vinod Mubayi argue that globalization is not the most important threat facing India. Whereas in general I agree with that position, there are a few issues on which I think the argument can be a little more nuanced. I hope this contribution takes that debate forward and clarifies issues that Daya and Vinod, in their inimitable polemical style, raise.
Definition and meaning: Any definition of Globalization would need to include the three following characteristics: first, “increasing international integration of economic activity”; second, reasonably unrestricted flow of capital; and finally, and in part because of unrestricted flow of capital (but only in part), the diminishing ability of the state to control capital, economic activity and as a result, perhaps most crucially, economic outcomes. The key phrase is the diminishing ability of the state to control.
It is important to bear in mind that the inability of the state to control capital and or influence economic outcomes is not absolute but a function of how transnational profit earning capability of MNCs is and where in the economic cycle the economy is located. For example, even though Microsoft is many times the size (in term of market capitalization) of Arcelor Mittal (which has now substantial interests in the USA), the relative control of the US government over Microsoft is way greater than that over Arcelor Mittal. Similarly even as Korea’s chaebols globalized and slowly slipped out of state control in part due to access to international capital markets, the Asian crisis of 1997 restored some of that control. To put it differently, capital and the state have a symbiotic relationship and certainly capital, particularly in times of recession and depression, cannot exist without the state, but mobility gives capital a somewhat greater bargaining power vis-à-vis the state.
Oddly enough, in democratic polities, what constrains capital’s bargaining power is what the electorate expects their governments/states to deliver. For example, sustained high levels of unemployment are socially unacceptable or for a more recent example, the emerging consensus of the need to tax and regulate capital (and consumers) to halt and reverse global warming.
I would also agree that despite the fact that the handmaidens of globalizing capital, institutions such as the World Trade Organization (WTO), International Monetary Fund (IMF) and World Bank (WB) and their subsidiaries, have not been able to completely dictate their terms, globalization is not on the retreat. Being handmaidens, none of these institutions are determinants of the world economic order; rather they are its vehicles and if they fail, something else would replace them. If the IMF and the WTO seem a little less effective today than they were yesterday, it is not so much because of the retreat of globalization (defined as increasing integration of economic activity and the mobility of capital) but because they have not as yet adjusted to the shifting economic gravity of the world economy and the consequent rise of new powers such as Brazil, China, India, Russia and South Africa. And some part of their rise (and only some part) is also associated with globalization.
Modern Capitalism, Globalization and Poverty: Three defining features of the present day capitalism are the immense role of intellectual property (as a source of capital); the growing importance of speculative capital (as in capital that derives its profits largely from arbitrage); and finally modular production structures. New corporate giants have emerged without a previous history of operative capitalist enterprise. Microsoft and Intel are not offshoots of General Motors and Infosys is not the descendent of Tatas and Birlas. [I see Ambanis as old capital where connections with the state are used to alter the playing field in terms of inter-capitalist rivalry.]
The intellectual property content of modern day globalized capitalism favors some countries but not others and affects the population within a country more unevenly than it did in the past. It is not just R&D in intellectual property capitalism that requires a highly educated (with college and research degrees) but its general workforce as well needs to be highly educated (having finished at least undergraduate degrees, preferably in engineering. A combination of a large pool of English-speaking, engineering and science graduates (itself a function at least in part of earlier public investment in technical education) and IT revolution (that allowed real time supervision of offshore suppliers and vendors situated in India by the clients in N. America and Europe) allowed countries like India to tap into the global market not just as consumers but also as producers. To begin with, at the bottom end of the feed chain but nonetheless as producers. A similar story is true of financial services expansion but this time with MBAs and economics graduates. However it is only a small proportion has the workforce that has a college education. For the bulk of the labor force without such qualifications, there are too few jobs being chased by too many claimants, and as a consequence holding down the wage level.
Consequently, this intellectual property content, and the asymmetrical way it affects both countries and populations within countries, leads to an increase in disparity between rich and poor countries on the one hand and between middle and upper-middle class of consumers and the marginalized population within a country, on the other. For the same reason, some countries such as India and China (though China’s integration has been on the back of manufacturing prowess achieved as a result of domestic scale and low unit labor costs) can take advantage of globalization while others such as African countries cannot. The modern form of capitalism generates well-paid jobs for technocrats and in turn increases the number of consuming middle class. The most obvious change of this type is the emergence of nearly 200 million consumers (out of a total population of more than one billion) in India. Since poverty cannot be alleviated by the trickling down of wealth, a situation is created where abundance uneasily coexists with deprivation. As well, relative ease in the flow of goods, services and capital takes a toll of small entrepreneurs, who are abundant in India.
Modular production structures, where the production value chain is split into five/six modular processes and each module located in a different country depending either upon geography or unit labor costs, give capital more clout vis-à-vis the state and lower the value of FDI to host countries. By it very definition these production structures are multi-national, so registered headquarters may give little indication where control lies nor is there dependence on any particular state for production. Similarly host countries for FDI receive fewer positive spillover effects because of fewer backward and forward linkages.
Poverty has existed since the beginning but colonialism clearly marked it with three distinct features. These are: (1) the genocide of the Native American population and resettlement, affording white settlers an unparalleled land-man ratio which in combination of black slaves powered the rise of the USA. It is useful to recall that Spanish and Portuguese colonialism used the same means to similar ends in Latin America (2) the use of relatively developed economies such as India as intermediary in the colonial expansion and exploitation; and (3) the use of the African people as slave labor both within and outside Africa, mass murder, forced Christianization of the continent and unrestricted loot of their natural wealth. It is a result of this process of colonial expansion that Indian communities in Latin America remain even today among the poorest people in the world and poverty is rampant among most Native American populations in North America. But colonialism affected countries of the South and East Asia such as India and China very differently as compared with Africa and the Americas.
Therefore, except in Africa, continuing poverty of the South cannot be entirely attributed to globalization, which is said to have ushered in the 1980s. Though it has to be said that finding solutions to poverty is that much more difficult, given the limited ability of governments to affect economic outcomes, a consequence, as we have already noted, of mobility of capital. In Africa poverty is at least a direct consequence of the onerous burden of debt servicing and the dumping of susbsidised agricultural products by USA and the EU on global markets, affecting both her domestic and export agriculture.
India – gloablization and capitalism: The advent of what is called globalization in India is not imposed by some invisible outside force but rather a consequence of its own post-independent economic policy and the growth of a rural and industrial bourgeoisie aided by Nehru-Mahalanobis model of economic development followed by the nationalization of the banks by Indira Gandhi. While the former gave rise to a reasonable industrial base with direct state intervention, the latter created conditions for rural capitalism. Further expansion of the economic base by allowing a greater role of the market and private enterprises both internal and external was initiated by Rajiv Gandhi and his finance Minister Dr. Manmohan Singh (the present Prime Minister) in the 1980’s and is not caused by globalization. Though it has to be said, the balance-of-payments crisis of the early 1990s allowed the industrial bourgeoisie of the country, using the handmaidens of global capital, the opportunity to force through its own agenda deregulation and liberalization and eventually globalization. The industrial bourgeoisie also used that conjuncture to marginalize the rural bourgeoisie by using financial liberalization to shift credit flows away from rural India, explaining at least in part the agrarian crisis of growth and accumulation that current characterizes rural India.
No doubt some of the provisions in the WTO adversely affected India and even China. The Uruguay trade agreement was very unfair to the developing countries in that they gave more market access than they received. At the same time, it did also allow India and China some access to foreign markets than before. The WTO-imposed provisions in India are said to be the cause of agricultural crisis. But the crisis in agriculture, which leads to large number of suicides, at least so far, is not caused by inflow of subsidized products but rather by hasty venture in capitalist farming at a point of time when prices are low and rural credit was squeezed because of financial liberalization. Therefore the agrarian crisis is much more the result of an intra-bourgeoisie struggle (with the upper middle class switching its allegiance from the rural to industrial (or more accurately non-rural) bourgeoisie) rather than the result of globalization. Similarly the fight against poverty has to build on effective local coalitions against domestic capital. Therefore I do not think we are as yet asking the right questions.
While it is true that capital has more leeway today vis-à-vis both labor, peasantry and the state, it is not true that it influence cannot be checked and its growth contained. Perhaps the most dangerous effect of globalization is this view of all conquering capital and the way it has blunted or even negated the fight against capitalism as an economic order. They key problem then becomes what set of policies offer a coherent alternate economic vision and what coalition of forces, given the current conjuncture, can deliver those policies. These two issues have not been articulated together by any relevant political formation. To that end it leaves capital less challenged, more successful and another world a somewhat inchoate dream. (The author is a Professor at the Indian Institute of Management, Kolkata)