Some Questions (and Answers) about Globalization, Crisis, and Capitalism

Dr. Efraim Davidi
Translated by: Naveh Frumer

The economic crisis that erupted over five years ago in summer 2007 in the United States has since expanded to additional continents, transforming globalization itself. It is now evidently clear that the crisis, which began at the heart of capitalism, is affecting its periphery as well. At the same time, not all peripheries have entered this circle. Are we witnessing a change in global power-relations from a unipolar to a multipolar world—a change that is the direct result of a deepening globalization, which began with the collapse of theSoviet Unionin the early 1990s? Is the “North Atlantic axis” of capitalist power losing its central place in favor of a new “Southern axis”, includingChina,India,South Africa, andBrazil?

In this article we shall try to answer the questions what is globalization and how it relates to us. We shall do this against the background of the cracks that emerged in global capitalism since the outbreak of the current economic crisis. If there is one central point that clearly emerges from an analysis of the social and political system that has formed since then, it is that the crisis carries with it severe spatial, economic, social, political, and even environmental consequences, which might prove to be a turning point in globalization.

First Question: Global Crisis and Capitalism

Does capitalism have a global dimension? Already in 1848, Karl Marx and Friedrich Engels wrote the following in the well-known Communist Manifesto:

“Modern industry has established the world market, for which the discovery ofAmericapaved the way. This market has given an immense development to commerce, to navigation, to communication by land. This development has, in its turn, reacted on the extension of industry; and in proportion as industry, commerce, navigation, railways extended, in the same proportion the bourgeoisie developed, increased its capital, and pushed into the background every class handed down from the Middle Ages. […] The discovery ofAmerica, the rounding of theCape, opened up fresh ground for the rising bourgeoisie. The East-Indian and Chinese markets, the colonization of America, trade with the colonies, the increase in the means of exchange and in commodities generally, gave to commerce, to navigation, to industry, an impulse never before known, and thereby, to the revolutionary element in the tottering feudal society, a rapid development. […] The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere.”

This analysis—written over than 160 years ago, and despite the many scholarly limitations of that time—already seems to provide a fairly accurate prognosis of what we nowadays call “globalization.”

Second Question: Globalization and Crisis

The age of globalization, which began with the collapse of theSoviet Unionin the 1990s was supposed to guarantee the spread of the global capitalist system towards new horizons and endless spaces. In this globalized world, everything becomes merchandise. In fact, if one follows the criteria set by the World Trade Organization, even health, welfare, education, housing, and water are now part of the global market. What is globalization? Here is the definition taught in the Israeli school system:

“A phenomena which includes a combination of economies, cultures, and political movements around the world. International firms manufacture products in different places around the world, so as to obtain the highest added value, while making optimal use of raw materials, wages, research and development centers, and geographical proximity. These goods or products are marketed worldwide for fairly similar prices and through the same marketing scheme.”

So far, the official definition of the education system. Yet contrary to this view, according to which the aim of globalization is “to obtain the highest added value,” its true aim is an increase in capital accumulation. The following is an excerpt from an interview published in the Israeli economic newspaper Calcalist (27.11.2012):

“Globalization, which the West tried to nurture in recent decades, and which has been the main pillar supporting the growth of world economy, is gradually developing side effects. According to Virginie Maisonneuve, head of international and global stock investments at Schroders, social changes, political problems, demographic transformations, global warming, and the media itself are all bringing about rifts in the global village. In a conference organized by Schroders, one of the world’s oldest and biggest investment firms, managing assets estimated at 324 billion dollars, Maisonneuve explained that the economic crisis was only the trigger for such rifts. ‘In order to increase their efficiency and come up with additional sources for growth, international corporations expanded their geographic foothold to emerging markets. This led to a situation in which, today, half the income of those firms comprising the world’s leading stock indexes comes from sales in emerging markets. Take the iPhone for example. Components developed by firms and by a workforce outside theUSare responsible for 94% of that device. The Apple brand is, in fact, the only American part in it.'”

The investment manager went on to say:

“The competitive nature of the costs offered by developing nations gave them much power, leading to a situation in which Western employees are on the one hand consumers, and on the other hand providers of goods and services coming from international markets. It is estimated that by 2050 emerging markets will have six consumers for every single Western consumer, leading to changes in global consumption and a rise in the trade deficit of the developed states. Already in early 2012, the growth rate of developing markets out of the global GDP will top the growth rate of developed states, and by 2050 theUSwill most likely be the only developed state among the world’s top five economies.”

She goes on to argue that one of the direct results of globalization is an increase in class inequalities:

“Over the years, inequality has constantly increased. In theUS, for example, the top percentile is responsible for one quarter of total household income. In comparison, in the early 1980s, the same percentile was only responsible for one eighth the accumulated income. There is a danger that more and more poor people will find it hard to achieve higher education, and will be forced to face unemployment. This problem is not new, but it is the main reason behind the waves of protest that incited the ‘Arab Spring’ and other social protests.”

Well-known economist and NYU professor Nouriel Roubini writes (Calcalist, 28.08.2011):

“Karl Marx was partially wrote when he argued globalization and financial intervention that went out of control would lead capitalism on a course of self-destruction. Firms are cutting down employment because there is not enough demand for products. And yet, job cuts reduce employee incomes, increase inequalities, and reduce demand.”

And what did Marx have to say about all this (as early as 1848)?

“It is enough to mention the commercial crises that by their periodical return put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity—the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce. The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered, and so soon as they overcome these fetters, they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property. The conditions of bourgeois society are too narrow to comprise the wealth created by them. And how does the bourgeoisie get over these crises? On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.”

Third Question: Crisis and Periphery

As of today, the capitalist crisis that began five years ago is affecting the core states of globalization. Is this crisis destined to gradually spread across the world, similarly to that of the 1930s? It appears that some of the more peripheral states are dealing with this development differently, by tightening economic relations between them, and shifting the burden of industrial production to meet interior market consumption.

A statement published by the Chinese News Agency a few weeks ago (20.11.2012) reads:

“Following a decade of considerations, the free trade area ofChina,Japan, andSouth Koreaappears to be forming, contrary to the position of theUnited States. Foreign secretaries of the three states met during the South Asia Summit held inPhnom Penh,Cambodia, to launch talks regarding the free trade area. Seeing as the three countries constitute an indispensible part ofEast Asia’s economy and world trade in general, the idea of a free trade area between them receives much international attention. In 2011, the three economies combined amounted to no less than 14 trillion dollars, about a fifth of world economy, and their combined GDP constitutes about 70% of Asian GDP. Experts believe a China-Japan-Korea free trade area would greatly contribute to East Asia’s economic integration into the global market, and could even compete with theUSand the Trans-Pacific Economic Partnership, which came up with a free trade agreement in 2005, and which includes theUSand several Pacific countries. Experts argue the three states’ economies are well-suited for cooperation. Over the past seven decades,Chinadeveloped numerous investment and trade relations withJapanandSouth Korea, and over time took the place of the latter two in production capacity, gradually becoming a world production center. Experts believeChinais now competing againstJapanandSouth Koreain the car, iron, steel, and petrochemical industries. However, each state stands at a different step on the industrial ladder:Chinaat the bottom,Koreain the middle one, andJapanat the top. The potential for cooperation and mutual investment between the three states is particularly fertile, especially in terms of finding new energy sources and reducing carbon dependency. A Chinese economic expert stated that the opening of the free trade area would also promote the internationalization of the Yuan, turning it into a viable currency in global trade. The expert noted the process has to begin from the edges, and that while the Yuan’s share of Asiatic trade is fairly large, the establishment of the China-Japan-South Korea trade area would further promote its regional standing, thereby making its increased global presence easier.”

In other words, the need to connect a state like Japan, which, while part of the capitalist core, is witnessing a two-decade long bust, with China and South Korea, two growing semi-peripheral states, poses a real challenge to the core axis of North Atlantic capitalism that is currently under crisis (Western Europe and the United States). Other semi-peripheral states have begun tightening their economic and political relations as part of the BRICS partnership:Brazil,Russia,India,China, andSouth Africa. Here we have a South-South axis with the addition ofRussia. This axis, in turn, is joined by two economic-political Latin American initiatives, ALBA and Mercosur (Portuguese: Mercosul)—South America’s common market—as well as the political initiative of CELAC (Community of Latin American andCaribbeanStates). ALBA consists ofVenezuela,Nicaragua,Bolivia,Cuba, andEcuador; Mercosur began withArgentina,Brazil,Uruguay, andParaguay, with the later addition ofVenezuelaand recentlyBolivia.Ecuador,Chile, andPerujoined the common market as associate members (also the status ofBoliviauntil recently), and are now considering becoming full members. For the first time in half a century CELAC also includes Cuba, though neither the US or Canada—contrary to the Organization of American States, founded by the US after the Second World War, which did not use to include Cuba.

Certain countries missing from these South-South associations are the peripheral African countries (with the exception ofSouth Africa) and the countries of the Middle East, who are dependent upon theUSand the Euro-bloc, and hence more prone to the rolling effects of the economic crisis. Is this also what the future holds? According to a November 2012 report by the OECD (Organization for Economic Co-operation and Development) titled ” Looking to 2060: Long-term growth prospects for the world”,Chinais destined to take the place of theUSas the world’s largest economy within the next four years. The report also states that by 2030China’s share of the global GDP will soar by over 50% from the current figure of 17% to 28%, whereas theUnited States’ share will drop from 23% to 18%. The Euro-bloc too is expected to shrink from its current 17% share of the global GDP to 12% in 2030—assuming it survives the severe economic crisis of the present.

While the global GDP is expected to rise by an annual rate of 3% over the next 50 years, this figure will exhibit great variance across countries and regions. By 2025, the combined GDP of China and India will be greater than the combined GDP of France, Germany, Italy, Japan, Britain, the US and Canada. Top OECD economist Åsa Johansson remarked that in the future we are expected to see a significant change in the global balance of economic power. India and China’s economies together are expected to be larger than all OECD-member economies combined (46% versus 43%); by 2060 the Euro-bloc will shrink by half its relative size to 9% of the global economy; the United States will continue its downward motion in a more moderate fashion, going from 16% today to 10%.

Fourth Question:Israeland Globalization

Recent years saw an accelerated rise in foodstuff prices of large Israeli food companies, the majority of which are under the partial or full ownership of multinational corporations. Part of the attempt by these corporations to compensate for declining profit rates following the global economic crisis includes raising product prices in the Israeli market. This was the case of the popular cottage cheese by dairy manufacturer Tnuva, which is owned by the British firm Apax.

Apax is a private, global equity firm with holdings of 72 billion Euros. Its investments include technology and communication, retail and consumer products, health and finance. In 2005 it acquired Israel’s privatized phone company, Bezeq, sold two years ago to investment Shaul Alovich for 7 billion Shekels. In 2008 it completed a deal for acquiring the dairy manufacturer Tnuva and in 2010 it acquired Israel’s major investment firm Psagot. This offers a small sample ofIsrael’s integration into global capitalism. Apax gradually increased the price of cottage cheese, which proved to be a goose laying golden eggs. However, Israeli consumers proved to be short on either patience or income (or both). This gave rise to the “cottage ban” of early 2011, which in turn led to a mass wave of social protests. The question is, will such bans and protests indeed lead to a fundamental change in the Israeli government’s neoliberal policy, which deepens its involvement in a crisis-ridden globalization.

Tel-AvivJaffa, January 2013

Dr. Efraim Davidi The Social Economic Academy,Ben-GurionUniversity, and TelAvivUniversity