The system based on 20 percent of the world exploiting the remaining 80 percent is no longer viable.
Goldman Sachs Ad. Harvard Business Review. January/February 2011
Audio version read by George Atherton – Right-click to download
Kazuo Mizuno, former chief economist for Mitsubishi Morgan Stanley Securities, has created a graph in which the vertical axis shows the world’s real GDP per capita and the horizontal axis shows the long history of humankind, illustrating – in one graph – the changes that have taken place in the past one million years. From this, Mizuno has managed to tease out a thrilling argument.
The modern period began in the 1600s, with the age of exploration in full swing. The principle on which society was based during this period was capitalism, a system in which a handful of people in the first world – less than 20 percent of the global population – bought cheap resources from the people in the third world constituting over 80 percent of the global population, in turn selling products at high prices.
The system worked well for 400 years, which was why developed countries flourished until the 1970s. However, Mizuno argues, with the emerging self-assertiveness of oil-rich countries and falling profit rates among major corporations, capitalism entered a stage of stagnation after peaking in 1974.
Leading the world in this new stage of capitalism were the US and Japan. When real investment hit a wall, they had nowhere to turn but bubbles. Japan dove straight into a real estate bubble in the 1980s, with the US following suit in the 1990s in the realm of finance. The bursting of both bubbles brings our economic history to the present day.
As a result of the globalization of the world economy, the system based on 20 percent of the world exploiting the remaining 80 percent is no longer viable. Mizuno says in his book, “Hitobito wa naze gurobaru keizai no honshitsu o miayamaru noka.” (Why do people misread the global economy?) It is obvious that Japan, which has heretofore been at the head of the global pack, should be the very nation to move on to the next stage first.
Over the next few years, Mizuno says, Japan will provide a “preview” of what is to come in the rest of the world, as we move into a new phase of capitalism.
This article is based on a column by Yoko Kato in Japan’s daily Mainichi newspaper. She is a professor of Japanese history at the University of Tokyo.
The Enigma of Globalization: A Journey to a New Stage of Capitalism
by Federico Guerrero
by Robert Went. London and New York: Routledge. 2002. Cloth, ISBN: 0415296781, $90.00. 216 pages.
In this new book on a key topic of our time, Robert Went theorizes globalization as a new stage of capitalism, presenting a compelling case in favor of this hypothesis.
Let me start with some of the key ideas that Went advances in his study.
First, globalization, the author argues, is not wholly technologically determined. Instead, it represents, at least in part, a series of political decisions restructuring the role of government, the relations between labor and capital, and the creation of new international organizations with far-reaching authority.
Second, Went puts globalization into its historical perspective and makes clear what the substantial differences between the current process and the process the world economy experimented with in the period before War World I are.
Third, as strong as the underlying social, political, and economic forces behind globalization may be, the author argues, globalization is not an irreversible process.
Fourth, globalization has not so far reduced inequality of income and wealth across countries.
According to how events have been unfolding in recent times, even most mainstream economists would indeed agree with the previous ideas without major qualifications.
Before a move is made to discuss more controversial issues in detail, a quick overview of the study may be useful.
The study is organized in six different chapters.
Chapter 1 presents a brief overview of economists' views of globalization, sketches the partial consensus reached so far, and poses some of the important questions pending answers.
Chapter 2 is one of the high points of the study. It presents an illuminating discussion of the (classical) theoretical underpinnings for the case in favor of free trade, as well as of the important critiques that have been raised of the (classical) theory of international trade. This single chapter makes the whole book worth reading.
Chapter 3 starts by reviewing some prominent economists' ideas on the combined role of free trade and free capital mobility--including the views of the founding fathers of the Bretton Woods financial institutions--and then moves to discuss classical theories of imperialism. This is another high point in the study.
Chapters 4 and 5 are the ones containing the analytical methodologies to be used in the concluding and most important chapter (chapter 6), where capitalism is finally analyzed through the lenses of the different approaches summarized in the two preceding chapters. Specifically, chapter 4 presents Karl Marx's three circuits of capital (commodity capital, money capital, and production capital), and in chapter 5 a theory of stages of accumulation is sketched, with elements borrowed from Kondratiev cycles, long-wave theory, regulation theory, and the social structures of accumulation approach.
The validity of those approaches remains, of course, debatable, and it would clearly be easy to criticize the author for his choice of paradigms, but the important thing to keep in mind is that they will serve him well, given the central goal he has in mind: to be able to analyze the different stages in capitalism's evolution and, in particular, to be able to compare the current stage with the stage characterizing the period after World War II.
Therefore, despite my disagreeing with the author's choices of methodological framework, that point will not be emphasized here. Instead, a key insight of the study will be discussed in some detail.
The idea that globalization is a new stage of capitalism may not be a highly controversial one, but how the author reaches the key conclusion that this new stage of capitalism has raised the profit rate without generating a new global boom in economic growth comparable to the one observed in the period after World War II-a core conclusion of the study--is more debatable.
First, the author emphasizes the need to reduce labor costs by means of weakening the bargaining power of labor unions as one of the main political responses to the oil shocks of the 1970s, which had in turn reduced the profit rate by increasing the costs of production. However, the author fails to discuss that for the developed world this politically driven effect occurred in the face of a trend that implied a diminishing share of manufacturing (still observable in the case of the U.S. economy) and a simultaneous increasing share of services in GDP, a trend that was mainly a consequence of the growth process of the post-war years itself! (As people's incomes grow, they move to consume commodities with higher income elasticities, as it is the case with many services. Notice that this effect holds true in spite of the worsening income distribution that took place within many of the economies of the developed world). Indeed, an analysis along purely Marxian lines would likely give preeminence to the effect stemming from the economic structure, not to the one occurring through the political game.
Second, settling the question about the presumed (lack of) existence of a world economic boom generated by this new stage of capitalism called globalization is more problematic than the analysis shown by the author suggests.
Take the case of the technological leader economy to simplify the problem (thus implicitly settling the distributional issue in favor of the hypothesis of increased cross-country inequality after globalization started, since the bulk of evidence available clearly points in that direction), and compare economic performance in the United States during the "golden years" of the post-World War II period with economic growth during the most recent "take-off," the one that started in the mid 1990s (is that boom still alive?).
In the period 1950-1973, the rate of growth of GDP in the United States averaged 4.2 percent per year. What was the rate of growth in the period 1995-1999 (the prosperity of the Clinton years, the time when the most recent growth boom in the United States manifested more clearly)? Four percent.
At the same time, the rates of growth of labor productivity were 2.7 percent and 2.5 percent in the two periods, respectively. Do these differences look economically significant? The answer is probably no, not even after adjusting for the power of compounding over a period of a couple of decades. Likewise, it is doubtful that these rates of growth can be statistically distinguished from each other. Moreover, it is not clear why the post-war period 1946-1950 (a period of negative growth) has to be excluded at the time of performing the comparison between the two stages.
In either agreement or disagreement with some of the author's views, readers will find this study a very interesting one. Robert Went's book is both a thought-provoking piece in heterodox economics and a valuable contribution in the current debate about the merits and downsides of globalization.
University of Nevada, Reno
Bibliography for: "The Enigma of Globalization: A Journey to a New Stage of Capitalism"
Federico Guerrero "The Enigma of Globalization: A Journey to a New Stage of Capitalism". Journal of Economic Issues. FindArticles.com. 20 Feb, 2011. http://findarticles.com/p/articles/mi_qa5437/is_1_38/ai_n29074686/
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