From Socialist Review, No. 197, May 1996, pp. 20–21.
Copyright © Socialist Review.
Copied with thanks from the Socialist Review Archive at http://www.lpi.org.uk.
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An new book – Gloabalzation in Question, by Paul Hirst and Grahame Thompson – sets out to challenge the widely accepted idea that multinational companies are free tp roam the globe in search of low wages and higher profits. Chris Harman agrees with the evidence but comes to different conclusions |
‘Globalisation’ is one of the great buzzwords of the 1990s. It is used by the Tory right to justify deregulation and wage cutting, and by New Labour to justify abandoning policies on welfare, pensions, taxation and ‘Keynesian’ state intervention in the economy to ward off slumps. Governments today, it is said, are powerless against the ability of capital to flee from economies with high wages or high levels of tax on profits. There can be no question, it is implied, of jumping out of the way of this accelerating juggernaut. The best that can be done is to appease its drivers.
This new book has caused a certain stir in the economics pages of the posh papers because it sets out to challenge what it describes as ‘a myth’. It presents figures for the sales and investments of multinational companies which show that they are still anchored to particular national economies as they reach out from them to fish for profits elsewhere. They cannot simply pack up their factories and shift them overseas overnight. Far from ranging freely round the world, they concentrate their investments in a handful of advanced and newly industrialising economies, where quick access to major markets and the presence of large numbers of skilled workers compensate for the wage costs which are much higher than in the Third World.
The picture Hirst and Thompson draw is not new. Many of the points they make were covered several years ago in Stopford and Strange’s Rival Firms, Rival States – an important book not mentioned by Hirst and Thompson – and in an article I wrote in International Socialism, The State and Capital Today. But sometimes it’s necessary to shout again and again that the king is not as well clothed as most people think.
There has certainly been a massive growth in international trade and direct overseas investment. International trade has grown about 80 percent faster than output since 1960; direct investment grew about the same speed as trade until ten years ago, but then began growing at twice its speed in the late 1980s. But this growth has not been evenly distributed across the globe. In fact, it has been overwhelmingly concentrated within the existing advanced economies. Three quarters of total world overseas investment was concentrated in North America, Western Europe or Japan in the early 1990s. The ten most important developing countries accounted for a mere 16.5 percent (so much for the story that firms are moving all their money to Singapore or Taiwan), while the rest of the world receives only 8.5 percent. As Hirst and Thompson put it, ‘nearly two thirds of the world is virtually written off the map’ as far as direct investment is concerned.
The multinational corporations that undertake the great bulk of this investment are not free floating entities with no roots in national economies. Nearly all of them depend on one ‘home’ market for their main sales: for American multinationals, 64 percent of manufacturing sales and 75 percent of service sales are to the home market; for Japanese multinationals, 75 percent of manufacturing and 77 percent of services; for Britain, 36 percent of manufacturing and 61 percent of services. Assets are similarly concentrated: for US multinationals 70 percent of manufacturing and 74 percent of services assets are in the US itself; for Japanese multinationals, 97 percent of manufacturing and 92 percent of services assets are in Japan; for British multinationals, 39 percent of manufacturing and 61 percent of services assets are in Britain. As Hirst and Thompson explain: ‘The extreme concentration of assets in the home country for Japan and the US is apparent ... The Multinational Corporations still rely upon their “home base” as the centre of all their economic activities, despite all the speculation about globalisation.’ The picture is slightly less clear cut in the case of the European multinationals, because many have begun investing in neighbouring European countries, but if the European Union is treated as a ‘home region’, degrees of concentration comparable to those in the US and Japan are found. British multinationals are an exception in that over 20 percent of their assets are in the US, a similar figure to that for continental Europe. Both figures are, however, much higher than for assets located in the whole of the rest of the world combined.
The multinationals’ sales and assets in the rest of the world are also concentrated in particular ‘clusters’ of countries. Hirst and Thompson explain this uneven distribution of multinationals’ sales and assets in terms of their continued dependence on the national states in which they are based. Such a base, far from being a burden to the particular multinational, can be a great advantage. It can look to ‘its’ state to ensure protection of its interests – at home and abroad. So:
‘US firms have a very real benefit in remaining distinctly American that stems from the power and functions of the national state: for example, that the dollar remains the medium of international trade, that the standard setting bodies like the FAA and FDA are world leaders and work closely with US industry, that the US courts are major means of defence of commercial and property rights throughout the world, that the federal government is a massive subsidiser of R&D and also a strong protector of the interests of US firms abroad.’
Theorists of ‘globalisation’ who think that multinationals are losing their national bases really have no idea of where the interests of the multinationals lie and how they use political as well as purely market means to achieve their economic goals. Any such multinational clearly finds it helpful to operate in a foreign state which is, to a greater or lesser extent, beholden to its home state.
Unfortunately, when Hirst and Thompson move on from their factual description of the structure of multinationals’ trade and investment to other matters, they go seriously adrift.
This is partly a question of analysis. Hirst has abandoned any real attempt to understand the world theoretically for woolly empiricism and a utopian brand of political liberalism. So the book provides figures showing that levels of foreign trade and foreign investment were higher in 1914 than today, so as to imply there is nothing new and distinctive to the situation of the world economy today. The economy can therefore be controlled by the concerted effort of existing governments.
Certainly there was already a world economy, complete with a high level of international trade and investment, before 1914. There was also a world financial system, based on gold, which allowed a flow of funds across frontiers easily as free as that today. ‘Globalisation’ in that sense already existed – indeed, 66 years before 1914 Marx and Engels had provided a brilliant account of capitalism’s global reach in the Communist Manifesto. But there was an important difference between the pre-1914 world economy and today. Financial institutions and some industrial firms were reaching out far beyond national frontiers, and in some cases integrating raw material extraction, production and sales on an international basis. But the actual processes of production were still usually on a small enough scale to be confined within national boundaries. By contrast, today, there is a much greater international division of labour in manufacturing, with only the largest economies (the US and Japan) able to produce the full range of essential products within their own borders. At the same time, production is concentrated in far fewer plants than ever before.
The internationalisation of production and innovation is furthest advanced in the most technologically advanced industries: petrochemicals, electronics and computer hardware, aerospace, pharmaceuticals, computer software. The point has been reached where nationally based firms cannot survive in these areas unless they link up, or at least form ‘alliances’, with firms in other countries. This makes it much more costly today for even the giant firms to retreat within national or regional borders, as they did after 1914 with the collapse of the world into war, slump and then further war. They could respond then by turning to various forms of state capitalism. The cost today of trying to do so would be enormous – indeed, it was precisely the cost of trying to sustain national state economies with only restricted international links that led to the collapse of the old ‘Communist’ economies.
The fault of the theorists of ‘globalisation’ is that they believe multinationals will simply abandon their links with national states. Hirst and Thompson ignore the contradictions from the opposite direction. Because they downplay the internationalisation of production, they believe governments can bring order to the economy through a slight adjustment to the traditional techniques. All that is required, they argue, is for these governments to extend their present ‘economic summits’ into systematic cooperation. If only the ‘G3’ (the US, Japan and ‘Europe’) would lay down rules for the money markets and direct investment, the resulting ‘governance’ would begin to bring the system to order. Then other national governments, and within them provincial and urban authorities, would be able to ‘orchestrate consensus’. All this is a pipe dream. The economic summits show no signs of being able to regulate the world economy, still less to turn it in a rational direction. They are horse trading sessions in which the rival governments push the interests of the rival firms connected to them. They take concerted action when their interests happen to coincide (for instance, when it comes to opening up some other country to their joint exploitation), or when the most powerful of them (the US) succeeds in browbeating the others into accepting its hegemony (dressed up as ‘a new world order’). More often than not, however, it is not concerted action that results, but a failure to agree – ‘the new world disorder’. To call for greater ‘governance’ by these bodies means more power to them to subjugate the rest of the world to the interests of the most powerful capitalists, and, within that, for even greater dominance of American capitalism. The talk of ‘Europe’ as an ‘economic’ power is also in the realm of fantasy. Europe is not one entity, but a squabbling coalition of rival states, whose capitalists confront one another as well as those of the US and Japan. At times this confrontation means alliances to carve up markets, but at other times leads to acrimonious disputes.
There are powerful interests pressing for a more integrated European capitalism, and with it the beginnings of a cohesive European state. But these interests are not looking to a peaceful, harmonious and humane world presided over by the sort of ‘governance’ that would make the lives of ordinary people better. Rather, they are intent on establishing a Europe in which the untrammelled dominance of capital is protected by the Maastricht criteria and a central bank immune to any sort of elected control.
At one point Hirst and Thompson inadvertently recognise how little their schemes for ‘governance’ would achieve:
‘Such governance cannot alter the extreme inequalities between some nations and the rest ... Unfortunately, that is not really the problem raised by the concept of globalisation. The issue is not whether the world is governable towards ambitious goals like promoting social justice, equality between countries and greater democratic control for the bulk of the world’s people, but whether it is governable at all.’
A better world is not on offer, according to our liberal minded authors. The only choice is between barbarism and worse barbarism. Fortunately, the figures showing the continued dependence of the multinationals on their national bases can point to a quite different conclusion. Capital may be able to shrug off attempts by government to control it using the limited techniques of ‘Keynesianism’ and social democratic economic intervention. But it can be challenged successfully by those prepared to take much more radical action – the sort of action open only to those who base themselves on the mass mobilisation of its workers.
Precisely because production is more integrated across national frontiers than ever before, quite small groups of workers can be strategically placed to cause enormous damage to the most powerful of multinationals, as last month’s strike by 3,500 General Motors workers in the US showed. Action by the working class of a whole country would hurt capital in wide parts of the world on a scale inconceivable in the past. Where the chains of capital are forged, they can still be broken.
Globalisation in Question, by Paul Hirst & Grahame Thompson (Polity Press £12.99)
Last updated on 9 November 2019