Paolo Giussani (Milano, Italy) ˛

 

Empirical Evidence for Trends
towards Globalization

The Discovery of Hot Air

Introduction

Beginning from a quite recent, albeit wholly undetermined date, the world economy at large entered a new qualitative phase of its history, marked by the predominance of the international market over national markets. This is the basic refrain that everybody is nowadays sentenced to listen to dozens of times per day. This proposition, like any good piece of rhetoric, is all but clear-cut. Several different interpretations are possible, and, hence, different types of empirical examinations. The relative growth of the world market for goods and services is one thing; the internationalization of capital accumulation is another matter; and a third, very different field is provided by international short-term speculative transactions.

 Extreme confusion similarly prevails about the dynamics of internationalization. Globalization enthusiasts never make clear whether they use this horrible neologism to indicate a given critical threshold - one that the world economy has already crossed? - a tendency which is at work, a stabilized state already reached by the planet, a rate of growth in the international dependency of all economic relations more rapid than in the past... or whatever.

 

International Trade (IT)

The first and most general measure of the degree of internationalization in the commodity production of goods and services is the ratio of international trade to Gross World Product (GWP). Whereas it is obvious that this measure is higher today than at the end of World War II, the trend towards further growth in the international dependency of production is decidedly lower. Graph 1 shows that within the interval 1950-1970, the average yearly growth in the share of world export as a proportion of GWP was about 2%, while in the subsequent period, 1970-2000, it nearly halved to 1.2% - exhibiting a good deal of correlation with the long run trend in GWP as well as the GP of the OECD area.

Graph 1. World Export as % of GWP. 1870-2000.

 

Source: UN, Handbook of International Trade, 1994 ; A. Maddison, 1985 ; WTO, 2001

 

 As regards the OECD area (representing slightly less than 80% of GWP), Graph 2 demonstrates that internationalization tendencies during the postwar period were almost entirely concentrated within the subperiod 1967-1980, and most pronounced during 1967-1975, when the average level of about 8% of exports to GWP ratio jumped rapidly up to about 14% (1975-1993). The subperiods 1950-1967 and 1975-2000 thus appear as phases of relative stagnation or slow growth in export growth relative to world market.[1]

Graph 2. OCDE area: Export  as % of OECD GP. 1950-2000.[2] [3]

Source: UN, Handbook of International Trade, 1994; Unctad, World Trade Statistics, 2001
 

Things get more complex, however, if we set up an abstraction of relative growth in intra-European trade - i.e. if we consider trade among members of the EC as national trade, which thing should anyway be made for the Euro area after the introduction of the Euro currency that has rendered domestic trade within tha intra-Euro area. The consequence in that case is that indicators of international trade dependency even started to shrink starting in the mid-seventies with a weak recovery in the second half of the 90s, as shown in Graph 3.

 

Graph 3. International Trade (Export) as % of GDP excluding Intra-UE trade. 1960-2000

Source: UN, Handbook of International Trade, 1994; WTO, International Trade Statistics, 2001

 

 The relation between growth in IT and growth in gross product is clearly expounded below, in Table 1, where we have the percentage rate of growth in the real volume of exports for various world areas over a series of subperiods beginning in 1950.

Table 1. Average yearly rate of growth (%) of real exports. 1950-2000

%

1950-93

1950-60

1960-70

1970-80

1970-75

1975-80

1980-90

 

World

11.2

6.4

9.2

20.4

26.1

18

6.1

 

OECD

11.4

7

10

19

23.6

17.6

7.6

 

DevCoun

11

3.6

6.7

25.8

35.9

20

3.2

 

East Euro

9.8

11.9

8.4

18

21.8

14.7

2.4

 

%

1980-85

1985-90

1989

1990

1991

1992

1993

 

World

-0.7

12.3

7.4

13.3

1

5.8

-0.4

 

OECD

0

13.6

7.1

15.2

2

5.9

-3.7

 

DevCoun

-3.6

12.2

13.3

13.9

5.7

7.9

8.3

 

East Euro

2.6

0.6

-10.8

-10.8

-37

-12.9

8.5

 

%

1995-00

1994

1995

1996

1997

1998

1999

2000

World

8.40

10.1

9.8

6.2

10.2

4.8

5.4

12.3

OECD

7.33

9.2

8.5

5.2

8.7

4.1

5.0

10.6

DevCoun

8.79

12.1

11.4

6.1

10.5

1.2

6.5

13.7

East Euro

7.96

7.5

14.1

10.1

11.5

5.1

-4.8

12.2

Sources: UN, Handbook of International Trade, 1994; WTO, International Trade Statistics, 2001

 

 It is fun to note that as far as trade is concerned, some countries belonging to the OECD group are less internationalized today than they were before the First World War. For these countries, the massive growth in international trade since the end of the Second World War has barely been able to fill the immense gap produced with the collapse of international economic relations during the commercial wars of the twenties, the Great Depression of the thirties, and the Second World War. Tables 2 and 3 demonstrate precisely that if one takes a long-term view, considering the whole of history of contemporary capitalism, the tendency towards a rising level of internationalization in trade is nothing recent, being as old as capitalism itself. It has been disrupted only once since the middle of the nineteenth century, in the period comprising the two world wars and the Great Depression.

 

Table 2.  External Trade Dependency. Selected Countries and Years. 1913-1999

        

%

1913

1950

1973

1990

1999

France

15.5

10.7

14.6

17.8

18.5

Germany

18.1

10.1

17.7

23.7

23.5

Japan

15.1

8.2

9.1

8.4

9.2

Nether.

50.0

35.5

37.4

43.5

44.8

UK

23.6

18.6

18.8

21.6

22.5

USA

5.6

3.5

5.4

8.0

8.9

Sources: A. Maddison (1995), OECD (2000)

 

Table 3 shows the relation between changes in GWP growth and in IT over six consecutive periods of relative expansion and stagnation, beginning with the middle of the 19th century.

 

Table 3.  Average yearly % rate of change of GWP (A) and International Trade (B).

%

1853-72

1872-99

1899-1913

1913-50

1950-73

1973-90

1990-94

1994-01

A

3.7

3.3

3.6

1.9

5.3

2.3

1.61

2.51

B

4.3

3.1

4.1

0.5

9.4

3.4

4.9

7.42

 

B / A

1.16

0.94

1.14

0.26

1.77

1.48

3.04

2.48

Source: A. Maddison (1995), UN Handbook of International Trade (1995) and WTO, International Trade Statistics (2001).

 

 The fastest growth in both GWP and IT occurred during the so-called "golden age of capitalist development" (1950-73), which appears as a rather outstanding performance (the expansion in world market was 2.8 times higher than during the 1973-90 period). By contrast, the relatively fast growth in world trade share of GWP over the last 25 years was mainly the result of a relatively stagnating GWP, and not that of an accelerating IT. IT currently appears to be growing rapidly only because the GWP is exhibiting rates of growth which are relatively low over the era made up of the last 150 years, of course excluding the greatly disturbed and unique interval 1913-1950.[4]

Nonetheless, the acceleration of IT in the most recent period seems to be quite a serious matter. It is mainly explainable through two interrelated phenomena, the very high growth of imports in the US economy greatly financed by debt and not by accumulation of profits and/or expenditure of wages and the shift of some segments and types of manufacturing production to third world sites which has taken place in the same period.

 The globalization stereotype proves just as useless when we turn to the issue of trade tariffs and international agreements such as GATT. The idea that recent times have witnessed a massive and rapid collapse in a rigid tariff system which was "distorting" IT is revealed as ridiculous. If the tendency towards a steady increase in IT regulation through protection was a hallmark of the epoch between the wars, an opposite tendency set in immediately after 1945, with the dismantling of about 80% of all tariffs through GATT within less than 15 years (see Graph 4). 

 

 

 

 

Graph 4. Tariff Reduction after each GATT Round (1945=100).

    

Source: J. Baghwati (1988).

 

 Compared to the situation at the end of the war, in the last twenty years the OECD capitalism has been facing less than 5% of the whole body of trade tariffs. The OECD nations are nonetheless engaged in quite a heated struggle around this rather trivial relative amount - not because of an allegedly very recent sudden sea change of the removal of high tariff levels, but because of a higher degree than ever of competition both internationally and domestically, entirely independent of any kind or level of tariff or regulation.

 Equally weak of factual basis is the idea that the "Western area" (OECD) has lost or is losing terrain in the competitive IT struggle to the benefit of a section of the underdeveloped part of the world. Table 4 offers us a geographic breakdown of world export for the entire postwar period.

Table 4. Shares (%) of World Export. 1950-2000.

 

1950

1960

1970

1980

1985

1990

1995

2000

World

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

OECD

60.66

65.88

71.51

63.55

66.13

72.04

68.50

66.70

Europe

32.91

39.27

43.27

39.67

38.72

45.75

42.35

39.50

N.America

21.03

19.55

18.78

14.54

15.82

15.03

15.87

17.10

Japan

1.41

3.31

6.42

6.73

9.43

8.57

8.21

7.82

DCs

32.97

23.93

18.86

29.02

25.24

23.64

31.50

33.30

EastEuro

6.37

10.19

9.63

7.43

8.63

4.90

3.72

4.32

 

Source: UN, Handbook of International Trade, 1994; WTO, International Trade Statistics, 2001


 It is apparent that the OECD countries have been able to raise their IT share until the early 70s and to substantially preserve it afterwards, while movements in IT shares have become more and more erratic since the seventies. The developing countries (DCs) have lost about one-thirs of their IT share over the period 1950-90 and recovered it in the latest decade. Despite the somewhat dramatic performance of some newly-industrialized countries (NICs), the DCs have succeeded in keeping up with the expansion of IT solely because of the collapse of export capacity in the Eastern European region (from 10.2% in 1960 down to 4.32% in 2000). This circumstance gives rise to the suspicion that most of the DC exports, apart from primary goods, consist of light manufactures, as might be shown through a sectoral analysis.

 

 

Table 5. DC Export Shares (%) by Types of Goods and Provenance. 1970-1992.

Shares (%) by Provenance (World = 100)    

 

72

18

11

39

20

6

1980

69

20

14

32

25

4

1992

61

23

11

24

31

2

2000

63

26

9

22

30

3

1970

74

23

6

42

15

10

1980

59

17

7

34

25

14

1992

62

15

13

30

30

5

2000

63

16

13

29

30

5

 

 

 

 

 

 

 

1970

62

8

18

35

22

13

1980

57

8

19

29

29

7

1992

54

10

16

26

36

2

2000

61

12

17

27

37

2

1970

85

17

19

47

7

5

1980

78

15

20

42

15

6

1992

63

10

20

31

27

2

2000

68

12

22

31

26

2

1970

74

13

13

44

21

0

1980

75

21

17

34

22

1

1992

67

22

19

25

28

1

2000

72

25

20

24

27

2

1970

59

27

5

23

33

8

1980

56

23

6

24

37

5

1992

58

25

7

22

33

1

2000

63

28

7

21

32

2

 

OECD

 

 

 

DCs

EastEu

 

 

 

USA

Japan

Europe

 

 

All types

1970

71.6

18.4

10.6

39.2

19.9

6.0

 

1980

69.3

20.2

13.8

32.2

25.1

3.6

 

1992

60.5

22.6

10.8

23.9

31.1

1.6

 

2000

63.0

26.0

9.0

22.0

30.0

3.0

Food

1970

73.8

23.4

5.5

42.4

15.3

9.5

 

1980

58.9

16.5

6.5

33.5

24.5

13.7

 

1992

61.6

15.3

12.9

30.2

29.6

4.9

 

2000

63.0

16.0

13.0

29.0

30.0

5.0

Agric.

1970

62.4

7.5

17.6

34.7

22.0

12.5

 

1980

57.3

7.6

18.6

29.2

29.3

7.3

 

1992

53.9

10.3

15.9

25.7

36.3

1.7

 

2000

61.0

12.0

17.0

27.0

37.0

2.0

Mining

1970

85.2

17.4

18.9

47.3

6.7

4.5

 

1980

77.5

14.6

20.1

41.6

14.8

6.0

 

1992

63.3

10.4

20.3

30.7

26.6

2.2

 

2000

68.0

12.0

22.0

31.0

26.0

2.0

Fuels

1970

74.3

12.6

12.8

44.2

20.7

0.4

 

1980

75.4

21.2

17.0

34.3

22.3

1.1

 

1992

67.1

22.2

18.6

24.6

28.3

1.2

 

2000

72.0

25.0

20.0

24.0

27.0

2.0

Manufact

1970

59.4

27.0

4.5

23.3

32.5

8.0

 

1980

56.3

23.1

5.6

23.5

36.5

4.6

 

1992

57.9

25.2

6.8

22.0

32.6

1.1

 

2000

63.0

28.0

7.0

21.0

32.0

2.0

Shares (%) by Type

 

 

World

OECD

 

 

 

DCs

EastEu

 

 

 

 

USA

Japan

Europe

 

 

Food

1970

26.30

27.10

33.90

13.60

28.40

20.20

42.10

 

1980

11.30

9.60

9.40

5.30

11.70

11.00

43.10

 

1992

11.00

11.10

7.60

13.00

13.90

10.40

34.70

 

2000

8.40

8.20

6.40

11.00

10.00

9.10

27.80

Agric.

1970

9.90

8.60

4.20

16.50

8.70

10.90

20.60

 

1980

3.60

3.00

1.30

4.90

3.30

4.20

7.40

 

1992

2.80

2.50

1.30

4.10

3.00

3.30

3.00

 

2000

1.90

1.50

1.10

2.50

2.10

1.70

2.10

Mining

1970

12.60

15.00

12.00

22.50

15.20

4.30

9.50

 

1980

4.30

4.80

3.00

6.30

5.50

2.50

7.20

 

1992

3.60

3.80

1.60

6.70

4.60

3.10

5.10

 

2000

2.80

2.90

1.20

6.20

4.20

2.70

4.50

Fuels

1970

32.40

33.60

21.80

39.40

36.50

33.70

2.40

 

1980

61.30

66.70

64.50

75.40

65.10

54.40

18.00

 

1992

22.50

25.00

22.20

38.40

23.20

20.60

17.30

 

2000

23.80

25.90

23.50

41.40

27.60

23.30

23.50

Manufact.

1970

18.50

15.40

27.70

7.80

11.00

30.30

25.00

 

1980

18.50

15.10

21.10

7.60

13.50

26.90

23.90

 

1992

59.00

56.40

65.90

36.90

54.40

61.90

39.70

 

2000

63.10

61.50

67.80

38.90

56.10

63.20

42.10

 

     Source: UN, Handbook of International Trade, 1994.

 

 Table 5 shows an impressive rise in the export of manufactured goods by DCs over the last fifteen years (from 18.5% of DC total exports in 1980 to 2.0% in 2000), which has nonetheless left their share in world trade (more or less 1/3) unaltered - having been paralleled by the growth of manufactured export in world IT over the same period. Really noteworthy is the decline in the Eastern European share of manufacturing (from 8% to 2%) which has somewhat opened up the way for DCs. 

 These data teach us something. After having easily determined the tendency to decline in the rate of growth in real export and in relative export (the Export to GWP ratio), one can associate it with the weakening of the correlation between tendencies in the exports of the major world areas at the beginning of the eighties, after a long period of harmony dating back to the end of the war; and also to an increasing volatility in the rates of IT growth, a phenomenon which, in economic life, is often connected to some form of long-term decline. It is precisely this coupling of long-term decline and higher short-term volatility which has set up the field for the triumph of the rhetorical notion of globalization and the contemporary comic revival of seventeenth-century mercantilist doctrines, according to which profits only come from IT or - in a somewhat emasculated version - extraprofits can only be gained in IT.[5]

The growth in IT is no mystery at all, and one can hardly imagine the necessity of a special theory to explain it.[6] Exactly as with the expansion of intranational trade, IT is based on development in the division of labor, which in turn is made possible by sectoral productivity advantages.[7] [8] The following, Graph 5, which only has illustrative purposes, shows the correlation between the average annual percent-rate of change in the export share of goods, and the rate of change in GDP per head (a kind of proxy for labor productivity) for a group of 16 advanced capitalist nations over the period 1870-1990 (split into 12 ten-year periods).

Graph 5. Correlation between average yearly rates of change in GDP per head and average yearly rates of change in export shares. 16 OECD countries. 1870-1990.

 

Source: A. Maddison (1995); UN, Handbook of International Trade (1994); OECD (2001)

 Over the last 120 years, we always get a positive correlation except in three decades, namely the ones from 1910-1940, covering the two world wars and the depression of the thirties, while the decades of the golden age (1950-1970) lie in the positive quadrant well above the straight trendline of a linear change in correlation. During times of normal accumulation and growth, the relatively faster increases in productivity do cause a relatively greater growth of export. That is the other side of a more developed division of social labor on a world scale.[9]

 

Transnational Corporations

“A bunch of two or three hundred multinational firms accounts for about one-third of world production: it is awful!” Et voilá, one of the most usual complaints of the standard "radical-chic" leftist of the new anti-global tendency. Instead of seeing in this type of phenomenon a wide potential for labor socialization on a world scale, they only feel a terrible threat to their quiet life, compelling them to think of the planetarian society as being wholly ruled by a small set of multinational executives endowed with absolute multinational power.

 The recognition of the rise of Multinational Corporations (MNCs) gives much impulse to the idea that world economy has at some recent point entered a qualitatively new historical phase, marked by the predominance of a global market over national realities. This is nonetheless a non sequitur, and for two basic reasons: The rise of the MNCs is much less recent than normally thought, and they have always had a very strong national bias, both of which can be ascertained only through empirical study. As is the case with virtually everything else, the roaring epoch of MNC growth was the postwar golden age; whereas the last twenty years have witnessed quite a substantial slowing down in the increase of the degree of capital concentration, despite the big upsurge of the eighties.

 According to the fashionable theory, national states and governments have been displaced by a new system of fully internationalized firms, forming a supranational block within the OECD area - basically in the US, Europe and Japan.[10] These companies are thought not to have a national basis, as though they sold their output uniformly in all countries of the block.

 To examine the evidence for this thesis: Most of the trade of these MNCs indeed occurs among them as intertrade. Nearly 95% of MNCs are located within the OECD area, and slightly less than 75% of them within the 14 richest countries. In 1994 the MNCs that held stocks of foreign accumulated capital - more or less 2.2 trillion U.S. dollars - realized total sales of about 5.6 trillion dollars, which is about 20% higher than total world trade. More than 80% of US external trade is being carried on by MNCs, and nearly 70% of European foreign trade. Everybody knows quite well that the MNCs on average exhibit a very high degree of capital concentration - otherwise they presumably would not be multinational capitals - where the 500 biggest companies (less than 1.5% of the total number of MNCs) hold around one third of total assets. 

 Anybody would be strongly impressed, if not scared, by stories like this one. Unfortunately, all this is frankly irrelevant to the present debate over "globalization"; the point is whether the MNC system has undergone a sudden increase in relation to OECD or the world economy in recent times, such as to give rise to a new structure and physiology of world capitalism. This has not happened. The impression of the existence of a supranational system of interlinked giant companies is old and banal and at the same time misleading, because of the intrinsic mystic power that certain words possesses.[11] It is self-evident that the relative growth of capitals of transnational or multinational type does imply interconnection, both intra- and interfirm; yet, the growth of MNCs does not itself necessarily entail uniform internationalization of sales and assets. A geographical breakdown of assets and sales for all MNCs indeed provides a very different view: of a system of MNCs still having a very strong national bias.

 

Table 6. Geographic Breakdown (%) of MNC Sales and Assets. 1993.

 

Sales

 

 

 

 

Assets

 

 

 

 

Sectors

Home

USA

Europe

Japan

Others

Home

USA

Europe

Japan

Others

USA

 

 

 

 

 

 

 

 

 

 

Primary

 

48

7.5

0.8

43.7

 

55

7.5

0.7

36.8

Industry

 

64

17

1

18

 

70

11

1.4

17.6

Services

 

75

6

1

18

 

74

6.1

0.8

19.1

Japan

 

 

 

 

 

 

 

 

 

 

Primary

 

1.3

1.6

86

11.1

 

0

0

50

50

Industry

 

1.6

3.1

75

20.3

 

0

0

97

3

Services

 

7.1

5.3

77

10.6

 

4

0

92

4

Germany

 

 

 

 

 

 

 

 

 

 

Primary

73

3.2

8.2

0.5

15.1

 

 

 

 

 

Industry

48

7.6

27

0.7

16.7

 

 

 

 

 

Services

65

7.5

13.4

0.6

13.5

 

 

 

 

 

France

 

 

 

 

 

 

 

 

 

 

Primary

68

3.3

8.6

0.8

19.3

 

na

na

na

na

Industry

45

8.5

31

1

33.5

54

31

5.5

0.7

8.8

Services

69

2.6

13.7

0.7

14

50

34

1.2

0.8

14

UK

 

 

 

 

 

 

 

 

 

 

Primary

62

15

7.8

0.8

14.4

40

6

24

0.6

29.4

Industry

36

17

26.5

0.8

19.7

39

18.5

17

0.7

24.6

Services

61

14

15

1

9

61

5

7.6

0.7

25.2

    

Source: P. Hirst - G. Thompson (1996)

 

 Table 6 shows us that on average, more than 50% of MNC sales are concentrated within domestic markets - while domestically held assets account for about 70% of total assets. Taking the European Union as a national unity, domestic sales for EuroMNCs would exceed 75% of total sales, and domestic assets would be larger than 85% of the total. This very simple picture contrasts with the notion of an interlinked "Triad" economy, which to be meaningful would require a relatively uniform international distribution of sales and capitals.

 

Foreign Direct Investment (FDI)

The phenomenon of FDI flows in recent times has been emphasized by current literature to an such an extent that it almost seems as though FDI is the main form of capital accumulation in today’s economy, or even the only one left.[12] Reality is radically different. The absolute and relative (FDI/GDP) volume of FDI has exhibited a rising tendency since the end of the war, yet it has always made up a very small share of total investments.[13] The rapid rise in absolute and relative FDI over the second part of the eighties was due to rather clear factors, which had very little to do with an alleged intrinsic tendency towards globalization.

 

 

 

 

Graph 6. FDI to GDP Ratio (%). 1980-1999.

    

Source: OECD International Direct Investment Statistics Yearbook (1995); UNCTAD, FDI Report (2000).

 

 Graph 6 shows both the still low relative level of FDI, and an acceleration in the rising trend in FDI/GDP ratio for the whole of the OECD countries around the middle of the eighties,  reabsorbed during the first part of the nineties, and in the second part of the 90s. This two upsurges correlates rather well to the huge wave of mergers, mainly involving MNCs, which took place in the same years, mostly on a speculative basis, and came to an end with the recession of 1990-91 and with the ongoing decline of the speculative boom and the stagnation of 2001. Obviously, merger transactions, basically among MNCs, must show up in accounts as a sudden increase in the relation between FDI and GDP. Only US accounts are so detailed as to allow a verification of this hypothetical relation. Table 7 indeed enables us to see the overwhelming importance of mergers in FDI in the second part of the eighties, while for the second half of the 90s explicit data are not yet available but anecdotical evidence.

 

Table 7. FDI inflow into the US for purchase of already existing companies (A) and for creation of new companies (B). Billions of Current US$. 1980-1993.

    

 

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

A

9.0

18.2

6.6

4.8

11.8

20.1

31.5

33.9

64.9

59.7

55.3

17.8

10.6

23.1

B

3.2

5.1

4.3

3.2

3.4

3.0

7.7

6.4

7.8

11.5

10.6

7.7

4.7

3.1

A/B

2.81

3.57

1.53

1.50

3.47

6.70

4.09

5.30

8.32

5.19

5.22

2.31

2.26

7.45

Source: E.M. Graham  - P.R. Krugman (1995).

 

 The notion of globalization of investments is of course not neutral, for it invariably implies a transfer of capital in the direction of the low wage areas of world economy, as if the relative level of wages were the main regulator of capital movements. Table 8, below, can provide a contribution to the critique of this sort of principle.[14]

Table 8. OECD nations. Shares (%) of FDI outflows toward OECD and nonOECD countries. 1970-2000

COUNTRY/GROUP

1970

1980

1985

1990

1995

1997

1998

1999

2000

World

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

Developed countries

99.84

96.77

91.01

93.14

86.09

85.16

94.40

94.03

90.99

Developing countries

0.16

3.19

8.99

6.85

13.79

14.11

5.30

5.76

8.66

Eastern Europe

 

0.04

0.00

0.02

0.13

0.73

0.30

0.21

0.35

Least developed countries

 

0.05

0.41

0.00

0.00

0.23

0.05

0.02

0.01

Source: UNCTAD, World Investment Report (2001)

 

 Despite the popular belief that OECD capitalists are transferring their accumulation into the underdeveloped - and hence low wage - areas, the imbalance between inflows and outflows of FDI to and from the OECD area, tantamount to a matter of secular belief, has actually weakened over the last fifteen years. While the average relation between cumulative FDI outflows and inflows was about 1.5 in the decade 1971-80, it decreased to 1.2 in the subsequent period - for the main part owing to a considerable increase in direct investments into OECD nations from Japan, the UK, and other secondary economic powers, only partially counterbalanced by a decrease of FDI from the US.[15] Along with the illustrative geographic breakdown (Table 9) of FDI for Germany and Japan, Table 8 is useful as a first step in discrediting the widespread notion that capital accumulation follows wages - a dynamic hypothesis also contradicted by the existence of a positive correlation between the increase in the FDI/GDP ratio and the slight improvement of the rate of accumulation within the OECD countries during the so-called 1983-1990 boom, as well as a positive correlation between the fall in the FDI/GDP ratio and the parallel decrease of the accumulation rate in the following period.[16]

 

 

 

 

Table 9. Geographic Breakdown (%) of FDI from Germany and Japan. Year 1990.[17]

Germany 1990 : FDI / GDP = 1.60 % ; FDI = 37379 millions of DM

Japan 1990 :  FDI / GDP = 1.68 % ; FDI = 56912 millions of US$

 

Germany

 

%

 

Japan

 

%

OECD

 

 

96.05

OECD

 

 

79.65

 

Europe

 

75.63

 

Europe

 

24.9

 

 

Belgium

13.8

 

 

Belgium

0.8

 

 

France

5.7

 

 

France

1.9

 

 

Italy

4.1

 

 

Italy

0.3

 

 

Eire

10.5

 

 

Eire

irr

 

 

Nether.

9.8

 

 

Nether.

4.2

 

 

Spain

5.2

 

 

Spain

0.5

 

 

UK

16.0

 

 

UK

11.9

 

N.America

 

18.0

 

 

Germany

2.2

 

 

USA

13.6

 

N.America

 

47.8

 

OtherOECD

 

2.4

 

 

USA

45.9

 

 

Japan

1.8

 

Other OECD

 

7.0

nonOECD

 

 

3.95

 

 

Australia

6.45

 

Est Europe

 

0.8

nonOECD

 

 

20.35

 

 

ex-URSS

0.088

 

Est Europa

 

irr

 

 

Other

0.712

 

 

ex-URSS

 

 

Asia

 

1.1

 

 

Other

 

 

 

NICs

1.0

 

Asia

 

12.4

 

 

Other

0.1

 

 

NIC

9.2

 

 

 

 

 

 

H.Kong

3.1

 

 

 

 

 

 

Other

3.2

Source: OECD International Direct Investment Statistics Yearbook, 1995.

 

 A sectoral analysis of FDI outflows from the three main OECD areas also yields interesting information. As far as Japan is concerned, the peak year was 1990, with an increment of about 57 billion US dollars compared to 1984. Of this increment, 73.5% is attributable to services, 23.5% to industry, and only 3% to the primary sector. Disaggregating services, one can see that the spheres of Credit, Insurance, Finance and Real estate (CIFR) jointly realized nearly 64% of the cumulative increment in FDI outflows from Japan during the boom period. The rest was more or less equally distributed over commerce, production of electronic equipment, and production of means of transport. The remaining sectors only got crumbs.

 The pattern of FDI outflow from the UK in the same period is slightly different. Cumulative FDI magnitude (about 88 billion pounds sterling) went into industry for 48%, services for 37%, and the primary sector for 15%. In contrast to Japan, British FDI had a relatively uniform composition, with traditional industries, for example food and chemicals, showing a bigger share, although CIFR accounts for the 80% of all FDI in services and industry exhibit a clear upward trend in the nineties (see Table 10).

 The US followed a timetable that was rather different from the rest of OECD, but the sectoral pattern was rather similar to Japan’s. After a big fall in 1988 and stagnation in 1990-91, FDI outflow has resumed growth in relation to GDP, reaching 1.1% in 1993. Of total FDI from the US in the period 1984-1993 (less than 300 billion US dollars), 1.5% was devoted to the primary sector, 42% to industry, and 56.5% to services (which are responsible for about 64% of total increase in FDI over the same period). Within the service sector, CIFR accounted for around 73% of cumulative total of FDI: while in 1983 CIFR was covering only 27.7% of the yearly outflow of US FDI, in 1993 this value had risen to 45.2%. For the remaining of the decade tha path followed has been quite akin.

Table 10. FDI Outflows in CIFR as Percent Shares of Total FDI Outflows. 1985-1999.

 

 

France

Germany

UK

Japan

USA

1985

38.2

8.4

27.2

49.1

52.8

1990

48.2

36.7

29

53.5

15

1995

56.3

47.2

67.4

46.3

47.2

1999

63

51

70.2

50.4

52.6

 

Source: OECD International Direct Investment Statistics Yearbook, 2000.

 

 Table 10 shows that the export of capital, excluding the merger wave of the eighties, was driven by sectors more or less directly tied to finance and short-term speculation, in a way very similar to domestic accumulation.[18] In virtually all cases, FDI and CIFR are very sensitive to the course of economic growth. They display a rising trend, but with large fluctuations - also owing to the low relative magnitudes involved.

 

International Finance

Capital exports and global trade are the main ideological arguments employed in justifying and propping up the steady degradation in the conditions of sale and use of labor-power for workers in the West. Nonetheless, thanks to the media effect, it is the daily transnational movement of short-term capital, above all in speculation on exchange rates, which more than anything else has struck the popular imagination. This is somewhat ironic, for in the mushrooming globalization literature, almost entirely concentrated on trade and foreign investment, one can hardly find reference to finance, which is by far the most globalized economic sphere. This is basically because of the radical worldwide deregulation implemented by governments in the eighties which has anyway simply responded to strong pressure stemming from the everday economic life of capitalism beginning in the second half of the 70s. (the very origin ..)[19]

 It is certain that the simultaneous action of deregulation and of a technology of instantaneous transfer capacity have created a very favorable environment for impressive growth in financial transactions from the beginning of the eighties onwards. However, the rise in speculation cannot be explained primarily as a politically determined (i.e. exogenous) change. On the contrary, the end of the postwar boom of accumulation and growth set up a powerful combination of declining profitability in industry and traditional services, low real interest rates, and low asset prices (the "Tobin's q," which measures the ratio of the nominal value of financial assets to the value of physical capital, was well below one in the second half of the seventies). These were the most effective endogenous factors in triggering the massive shift towards speculative use of liquidity. - which expressed itself in a strong push to legislative deregulation, as well as to expansion and creation of new forms of credit money. The last was even more decisive than deregulation itself.[20] On these grounds, it is impossible to see the shift towards finance as a purely or even as a mostly international phenomenon. It is absolutely true that in principle, money capital today is instantaneously transferable everywhere without obstructions, but this does not prevent the daily national movements of money capital from being much larger in quantity than the anyway huge international transactions.

 

Table 11. Trends in Portfolio Transactions. Average Yearly Flows of Cross Border Transacuion in % of GDP. 1975-1999.

 

 

1975-79

1980-89

1990-94

1996

1998

1999

 

USA

5.9

43.2

94.1

129.0

166.3

125.8

 

Japan

2.8

73.0

108.7

156.2

222.8

178.9

 

Europe

4.6

6.2

27.7

82.1

148.1

168.7

Source: BIS Annual Report, 2000.

Table 11 presents sufficient evidence to dismiss the standard theory of financial intermediation - according to which finance is rationally necessary in the efficient allocation of productive investment. If we take the whole of postwar history, we can instead easily derive the conclusion that the correlation between growth of transactions in bonds, stocks and exchange markets, and growth of accumulation in productive sectors is, if anything, evidently negative. From Tables 12 and 13, it is quite apparent that the growth of finance has been as much international as national, and has followed a path not very different from that of FDI, with an acceleration in the rising trend of the international to national transactions ratio in the nineties.[21] But this has not yet challenged the superiority of domestic investment due to the functioning of the US financial market which accounts of more the two thirds of total world market.[22]

 

 

 

Table 12. Portfolio Net Investments - 1999

 

Domestic

Interna-tional

Intl/ Domestic

US$

1030.2

268.1

0.26

Yen

-32.1

0.0

0.0

Euro

259.0

625.2

2.41

     Source: BIS Annual Report, 2000.

 

Table 13. Portfolio Allocation (%) of Pension Fund Assets. 1992

 

International

National

Intl/Nat

 

Bonds

Equit.

Bonds

Equities

Cash

Property

 

UK

1

19.9

9.2

53

8.5

8.4

0.264223

USA

0

5.2

40.9

44

5

4.9

0.054852

Japan

6.7

7.5

44

23.5

17

1.3

0.165501

Germ.

1.4

0.8

68

8.7

8.5

12.6

0.022495

Source: see A.K. Jain (1994).

 

As far as finance is concerned, the globalizing rhetoric clearly misses the point. There has been a general shift towards short-term investment, while apparently only its international dimension is perceived. Thus the real consequence, another crucial feature of contemporary economic physiology, is no longer grasped: increased financial fragility, quite apart from the geographic shape of financial movements.

 

Conclusion

 The notion of "globalization" is a good example of how a long-term slowdown in growth is frequently misinterpreted as a new qualitative phase in the history of modern capitalism. The emergence of "globalization" is actually the process of birth of an ideological slogan, whose fertile ground is provided by the increase in the intensity of competition over the last 25 years. This in turn is generated by a long-term decline in accumulation and growth: more or less as the increase in the inner temperature and pressure of, say, a gas, is produced by the reduction in the volume available to molecular displacement. As with any ideological notion, "globalization" is useless, and even detrimental to objective empirical analysis (in the Galilean sense) of contemporary dynamics. But it is also a very useful propaganda tool in helping to push down the living conditions of wage workers and stimulating improvements of capital profitability via a forced rise in the rate of exploitation.

 As far as IT is concerned, globalization offers as a historical novelty something - world market - that is actually a logical outcome of the past "golden age" of rapid accumulation. As for FDI, as well as in dealing with powerful MNCs, the "globalizers" simply seem not to know how to use global statistics.19 Last but not least, in finance, the global ideology prevents us from fully appreciating the weight and possible effects of the huge rise in national and international short-term movements of money.

 

Notes



˛ 106642.534@compuserve.com respectively



[1] The relatively good performance of intra-Euro trade following the mid-seventies is likely related to the European Monetary System. In principle, a system of flexible changes is not the best environment for the development of IT. Although with a good deal of trouble, to a certain extent the EMS has tried to mimic the working of the fixed rate system prevailing until 1973 - under which IT surpassed all previous historical records.

[2] The estimate of the IT/GDP ratio raises several questions. Firstly, it can be performed using constant or current prices. Constant prices are source of big false impressions since they distort the actual flows of moneys which must accompany trade in relation to the differentials of productivity rates of changes between export and nonexport sectors. Secondly, whereas GDP is net of intermediate inputs, export and import are not, what implies that imports have an export content and the other way around too. To avoid misleading results, before calculating the IT/GDP ratio the two magnitudes involved should be homogenised, but this in quite rarely done. On this see Hirst and Thompson (1999) pp.62-65

[3] The estimate of the IT/GDP ratio raises several questions. Firstly, it can be performed using constant or current prices. Constant prices are source of big false impressions since they distort the actual flows of moneys which must accompany trade in relation to the differentials of productivity rates of changes between export and nonexport sectors. Secondly, whereas GDP is net of intermediate inputs, export and import are not, what implies that imports have an export content and the other way around too. To avoid misleading results, before calculating the IT/GDP ratio the two magnitudes involved should be homogenised, but this in quite rarely done. On this see Hirst and Thompson (1999) pp.62-65.

[4] In reality, the period 1913-1950 is rather uneven. The collapse of IT was almost entirely concentrated in the subperiod 1930-1945. Between 1920 and 1928, IT grew at an average yearly rate of about 3.7%, while GWP was increasing at 3.4% per year. The dramatic collapse of IT during the thirties and the war was caused both by the depression and the absolute disruption in the system of international payments. This quite openly contrasts with the course of the first Great Depression (1873-1896), when GWP and IT varied more or less at the same speed, and with the current stagnation dating back to the early seventies, where IT, although decreasing in rate of change by about 2/3, grew slightly more than GWP

[5] Here we have a very instructive example of how an ideological notion can be created. Increased overall competition is posited as an entity ("globalization") which requires a change away from a smoother and easier past. This entity has to be a qualitative one (positing increased competition as a function of decline in accumulation and growth is quantitative, hence not as suitable for ideological conversion). All participants in the competition war - wage laborers above all - have to submit. The function of bringing people’s minds under the subordination of the new entity falls to the intellectuals, i.e. all those working in the "extended media sphere" of the social division of labor. They don’t create the "ideas" - intellectuals are able to create exactly nothing - but simply rework spontaneously born notions with the aim of assuring the perpetuation of the socioeconomic order.

[6]  4. A useful empirical survey on the relation between IT and growth is in R. Maurer (1994).

[7] Taking a long-term perspective, it is not difficult to show that growth in productivity is strictly associated with growth in fixed capital formation. It is obvious that when we link fixed capital growth, productivity, and division of labor with respect to IT, we are abstracting from the political factors, and accidents that can rather easily disrupt the system of international connections.

[8] The case of transfers of light manyfacturing to backward regions linked to what is nowadays called “lean production” and downsizing is somewhat different. This organizational practice, whose stimulus is engedered not ony bu competiotn but also by the necessity of rapidly inflate the cash flow to be speculatively employed is possible only because the fixed capital/labour ratio of the whole of the production process is not homogenous bur rather split into segments with very different capital/labour ratios. The sections having a relatively low ratio can more easily be transferred to other places to exploit the local chepaness of labour even through obsolete and backward technologies. This process obviously puts preessure on the workers still working on the productions left at home. We are still awaiting for a rational explationation of what seems an endlless process of leaning and downsizing of western industrial capital. See K.Moody (1999).

[9] In a very interesting analysis of the automobile industry, (Williams, Haslam, Johal, Williams, 1994) - where a clever critique of many tenets of another big contemporary pillar of rhetoric, post-Fordism, is developed - it is argued that the crucial competitive factor is the “reduction in the labor content of output.” Since labor is remunerated with wage, this principle very often gets confused with a different one: “the crucial competitive advantage is the reduction of wage per unit output.” It is straightforward that this kind of  principle would completely mystify the IT performance of countries like, say, Germany and the Netherlands. It is rather easy to show, even mathematically by means of linear or differential production models, that price competition, i.e. competition through reduction of selling prices per unit of use value, is the same thing as increase in labor productivity, quite independently of the wage level and the wage share in value added. A steady decrease in the labor content of output, that is to say a steady increase in productivity, is perfectly compatible with a rising labor share in national income - however only when the overall conditions of accumulation and growth are exploitable by the workers’ economic class struggle, as happened during the postwar boom.

[10] The view that international investments have come to dominate over national accumulation is held in Chesnais (1995). Unfortunately, the empirical material supplied in support of this view is very erratic, and always expressed in absolute and not relative terms. Often relying on simple anecdotes, the emphasis on MNCs is not quantitatively shaped. As in all other "globalizing" studies, there is no effort to identify the qualitative change that world capitalism should have undergone - if globalization is a reasonable and verifiable hypothesis.

[11] One of the most influential studies supporting the idea of MNC globalization is in J. Dunning (1993). Despite spending plenty of pages for this notion in his generally very interesting book, Dunning is not able to show how, when, and through what indices big business has undergone the globalizing mutation during the last twenty or thirty years. In reality, the flourishing of analyses and works on MNCs is rather a matter of the past, having basically taken place in the sixties and the seventies. Let us recall, for instance, the pioneering works of Stephen Hymar (1971) and Raymond Vernon (1971). According to the theory of "Interlinked Triad Supranational Economy" (ITSE), the MNCs of ITSE are effectively a separate supranational power able to successfully challenge and circumvent all national political powers. The sales and assets distributions show that an ITSE simply does not exist. Virtually no MNC is nationless, all MNCs make use of a given state power. Despite the great deal of interlinking, with a big share of MNC IT as intraMNC trade, assets and sales are still very much nationally based (assets assuredly more than sales).

[12] The view that international investments have come to dominate over national accumulation is held in Chesnais (1995). Unfortunately, the empirical material supplied in support of this view is very erratic, and always expressed in absolute and not relative terms. Often relying on simple anecdotes, the emphasis on MNCs is not quantitatively shaped. As in all other "globalizing" studies, there is no effort to identify the qualitative change that world capitalism should have undergone - if globalization is a reasonable and verifiable hypothesis.

[13] According to some historians, FDI in relation to GDP for some European countries - above all the UK - was on average much higher in the period 1880-1913 than today. These same authors also remark that the capitalism of that age was well able to offer more or less the same type of international financial services which are now available. To come closer to our own time, in the period 1948-1966 - a time when the term "globalization" was mostly unimaginable -  the outflow of FDI from the US into the rest of the world grew at an average yearly rate of 7.2%, more or less 175% of the yearly rate of the US GDP growth over the same period.

[14] FDI inflow into the US, from an average level of about 0.27% of GDP in 1974-1978, rose to 0.4% in 1980 and 0.8% in 1982, then fell to 0.3% in 1984. The boom that began in 1986 reached its peak in 1989 (1.3%), and was followed by a rapid decrease: 0.9% in 1990, 0.5% in 1991, 0.35% in 1993. The maximal inflow of 1989 and 1990 had the following provenance: 36% Japan, 24% UK, 28% Rest of Europe, 12% Rest of the World. By the same token, the decline in FDI into the US after 1989 depended entirely on the drying up of the three main sources: Japan, UK and Europe (see E.M. Graham and P.R. Krugman, 1995).

[15] One of the factors that can help explain the remarkable increase in Japanese FDI towards the OECD - mostly into the US - from 1985 onwards is the rise of the Yen in relation to the US dollar and other currencies, which, ceteris paribus, has cheapened the unit cost of capital and thus rendered all kinds of investment abroad more profitable.

[16] The (low) wage theory of capital flows is also contradicted by the movements of capital within the OECD and nonOECD areas. Capitals do not flow according to the geographical wage hierarchy; otherwise the distribution and trends of external accumulation would be inexplicable. In Europe we should see the bulk of investments going to Greece and Portugal; in the developing world one should observe a massive transfer of resources towards Africa. We see exactly the opposite, and a kind of universal polarization seems rather to be one of the glaring features of contemporary faltering growth on a worldwide scale.

[17] The year 1990 has been selected as it was the peak year in FDI/GDP ratio for both countries in the postwar period.

[18] It must be remarked that during the sixties and seventies, the average share of OECD FDI in CIFR was lower than 15%. In capital export, as well as in domestic investment, the rise of financial activities started in the late seventies/early eighties, before the FDI boom in the second half of the eighties.

[19] The very origin of the speculative boom is to be found in the foreign exchange sphere following the collapse of the Bretton Woods system of fixed rates; but its hayday has naturally been in the arena of the trade of shares of stocks.  The sharp change in the global nominal value of stocks of the last twenty years has been clearly impulsed by the movement of mergers and fusions of the 80s, which has then interacted with the rising tendency of stock prices to create a speculative type of growth in late 80s and in the 90s. In turn, this process has set in motion further easing in credit deregulation, which has  further strongly contributed to the financial boom, and has, above all, prompted the very fast creation of the incredibily huge world derivatives market, which certainly is one of the distinctive hallmarks of the the recent phase of capital accumulation.

[20] On the rise of speculative investments and the changing financial market, see the interesting analysis in M. Wolfson (1994). As far as the role of interest rates is concerned, when the speculative wave began at the end of the seventies, real rates of interest were at the lowest levels in the entire postwar period. In some years the effective value after subtracting inflation from nominal rates was actually negative. Low real rates of interest (RRI) are most effective for speculative liquidity since they signal the possibility of credit expansion. An upward trend in RRI started by end of the seventies, and continued throughout the eighties. Nevertheless, many people falsely think that the aim of speculation is to gain on a higher interest rate. Short-term transactions are instead mostly concerned with the daily change of  prices of assets such as land, bonds, equity, etc. and not with the rate of interest. Since so many speculators do borrow money from banks in order to invest on the financial markets, they should normally be scared by the prospects of increases in RRI. One of the likely causes of the 1987 October stock market crash  was the fear of a sudden relatively high jump in interest rates around the world.

[21] For example, US net purchase of foreign bonds and stocks increased from an average nominal total annual value of about 10 billion US dollars, in the period 1980-1986, to $22 billion in 1989 and $52 billion in 1992, and has declined since.

[22] It has to be pointed out that, notwithstanding the mounting daily stream of tribute to the new orthodoxy, all available studies based on the use of detailed and comprehensive statistics invariably reach opposite conclusions; among the best ones, see P. Hirst and G. Thompson (1996), D. Gordon (1988, 1994), and R.J. Barry Jones (1995).