Globalization and China: Neoliberal Capitalism's Last "Fix" (June 29, 2009)
Rather than being the new leader of the global economy, China is the bag-holder in global Capitalism's last 'fix": exploitation passed off as globalization.
What's going to pull the global economy out of deep recession? The current story requires only one word: China. China's massive domestic stimulus is going to spark a sustained domestic demand for Chinese-made goods, lessening China's dependency on exports. Further good news: China's domestic growth will spur demand for commodities and grains, driving prices much higher.
Before we accept this account, perhaps we should step back and look at the larger context of globalization, in which China is only one part. From at least one perspective, the opening of China was simply part of neoliberal Capitalism's last "fix" of a structurally failing system.
From this point of view, China's productive output (largely foreign-owned and controlled, mind you) enabled vast profits to be reaped by global capital even as it opened new markets for advanced economies like Japan and Germany which had literally run out of new markets to exploit for machinery, toolmaking equipment, etc.
More cynically, China offered a low-cost was to evade the West's stringent environmental regulations.
From this point of view, China is not the world-beating leader of the global economy: it is the bag-holder: the last big market ruthlessly exploited and the one which will now be left behind as global capital exists, leaving China to deal with the social rubble and dire ecological consequences of rapid, unconstrained industrialization.
This is a contrarian view--did you expect anything else?--but read on for a longer-term perspective on "the China Miracle." (I know this is heavy lifting, but stick with me for at least a few more paragraphs--CHS.)
One more point to consider before we begin: the history of global trade stretches back thousands of years because it was mutually profitable to both ends of the trade. Globalization proports to be a continuation of such mutually beneficial exchange, but this is only a simulacrum: the reality is that much of globalization is not mutually beneficial exchange of goods but exploitation on the industrial grab-and-run or Plantation models.
In essence, globalization was neoliberal Capitalism's attempt to save itself from the endgame of advanced capitalism foreseen by Marx: overcapacity which leads to a collapse in profits and thus a decline in capital and the overall economy.
Marx's insight was straightforward: the dynamic of capitalism is for production to rise to meet demand--and then keep rising. As demand is sated, capacity continues to grow because Capital is like a shark--it must move forward or it dies, and it moves toward what was immensely profitable in the recent past.
This is how we get overbuilding of office and retail space: as demand (and profits) soar, then everyone with capital rushes in to enjoy the profit spree. But ironically, this massive rush to the most profitable return guarantees overbuilding and overcapacity.
As Marx noted, supply soon overshoots demand and sales plummet, wiping out profits. The end result is a move to monopoly capital, in which a handful of the strongest players squeeze out or buy out all the weaker players who fold as the retrun on capital goes negative (losses). The last players standing then consolidate and shutter most of the capacity, setting up a monopoply which then lowers supply below demand to maintain outsized profits.
All the workers laid off as capacity is shuttered no longer have income so they stop spending, which lowers demand even further. This cycle of boom and bust was inherent to Capitalism and Marx expected them to steadily become ever more extreme.
But capitalism "solved" this cycle of overcapacity and crashing demand/income/profits by turning to new overseas markets. Those with a military-backed Empire (for instance, Great Britain) could simply force new markets for domestic goods into existence overseas: by requiring consumers in India to buy cloth manufactured in England, for instance.
In other cases, advanced capitalist states opened new markets by forcing less developed economies to "offer" their low-cost manufactured goods, which quickly took market share from the more informally produced local goods.
The heyday of colonialism was driven by a simple "virtuous cycle" (virtuous for the advanced economy, not for the subjegated colony) in which the colony was forced to ship its raw materials to the colonial power at low cost while at the same time it was forced to pay a premium for the advanced economy's output/surplus goods.
Since the colonial power's domestic workforce benefitted immensely from this "global trade" (low commodity prices thanks to the exploited colonies and plentiful jobs to make the goods forced onto the colonies) then the Colonial Power's Elites received great political suport for the their one-sided "globalization" policies.
Apologists are quick to point out the supposedly stupendous benefits of this globalization for the "natives": high-quality advanced goods and paying work in an economy with little formal employment. Yet the reality is not so happy-happy: only economies with locally owned productive capacity such as Japan and Korea become wealthy economies. Those former colonies where foreign capital dominates the productive capacity and commodity extraction are in essence still exploited colonies.
Government ownership is also no panacea. When less-developed economies' primary assets (including commodities like oil) are owned and operated by the government, then the nation actually becomes poorer, not wealthier, due to the perverse dynamic of the State (government) and capital.
As profits roll in, the State, unlike private capital, defers investment in favor of political patronage and the spoils of "leadership." The incentives to politicians and the State's technocrat managers is thus to eat their seed corn whenever possible, where private capital understands that surplus capital must be invested or deployed in search of high returns lest it dwindle to zero as all profits are extracted and spent.
This mechanism is called the paradox of plenty in which resource-rich nations such as Venzuela and Argentina grow progressively more impoverished under State control of the nation's assets.
A corollary of this mechanism is the impoverishment of oil-exporting nations who find redistributing the wealth created by fossil fuels much easier than creating a productive labor force and infrastructure. Thus as the income from oil gyrates (and as oil inevitably enters the depletion phase) then the nation has no cultural or economic Plan B to generate national income and wealth.
With these mechanisms in mind, we can see that the advanced economies have attempted to save Capitalism by colonizing China for production and their own domestic populations for forced consumption.
Of the many misconceptions about China's spectacular economic growth, perhaps none is more misleading than the assumption that the capital and surplus profits being made in China will stay in China. Despite the much-touted public ownership of joint-venture companies, much of the profitable production in China is owned by non-PRC (People's Republic of China) companies based in Taiwan, Japan, Korea and the West.
From a more clear-eyed perspective, China has been colonized by advanced economies to lower the cost of production and to establish a dumping ground for environmentally unsound production which their domestic citizenry will no longer tolerate. As with all colonies, the profits are extracted and sent elsewhere while apologists are hired to tout the glories of employment for China's teeming millions.
Until, of course, Marx's overcapacity cycle kicks in. Now that China's stupendous production capacity exceeds the potential demand of the entire world, including its own mostly impoverished domestic populace, then capital is fleeing China in its usual pursuit of higher returns, leaving behind tens of millions of unemployed workers and a toxic landscape.
The Chinese State is now attempting to counter this cycle by spending its own capital on stimulus, but State spending is not a replacement for capital or organic demand. Even worse, the Chinese State saddled its own banks with hundreds of billions of dollars in uncollectible debt in a vain attempt to prop up thousands of State-owned enterprises which racked up gigantic losses even during the boom.
The Chinese State attempted to staunch this open wound by closing thousands of its factories but the uncollectible debts remain, buried by accounting tricks within the books of its four major banks and government finance ministries.
The bloom is off the rose now that the overcapacity in China is no longer profitable to global capital and in essence the Chinese State is left holding the bag: stupendous losses in its own financial system, horrendously costly environmental damage and an industrial infrastructure which is losing value as capital shifts elsewhere.
Meanwhile, advanced Capitalism expanded due to two key innovations: the colonization of its own domestic consumers and the exponential increase in speculative debt instruments.
The essence of colonization is the forcing opening of new markets for surplus production. Frustrated by the poverty of 80% of the Chinese and Indian populaces--people with almost no surplus income cannot consume much in the way of surplus production--global capitalism turned to its own domestic populaces.
By lowering the cost of money to near-zero and generating a gigantic asset bubble in the one asset every middle class consumer already owned--a house--then global capital in essence colonized its own domestic populaces by opening a heretofore limited market for surplus production: a consumerist blow-off of unprecedented scope fueled by limitless credit and a rising asset base (real estate) inflated by the same limitless credit, all extended by a State propelled by the need for the sort of domestic economic growth which maintains political support for the State's leadership elites.
Now that game has expired as the advanced-economy consumers finally reached the limits of their ability to service their rapidly expanding debts. Even the U.S. government's massive meddling and the printing/borrowing of trillions of dollars is not re-inflating the real estate bubble, and thus there is no collateral left to support the limitless credit global capital now requires for growth.
Advanced Capitalism is thus facing a crisis of unprecedented scale and scope: the globalization/colonization "escape" from overcapacity has come to a dead end. While some eternally hopeful capitalists look to the former colonies of Africa as the growth engine for global capitalism, a quick look at the capacity of China and Asia to produce goods quickly reveals that hope as baseless: if we add up the remaining production in the West and developed East Asia with China's monumental new capacity, we find that the global capacity outstrips all potential demand.
The world could easily ship 20 million new autos a year to Africa, but unfortunately for the advanced capitalist nations, there isn't enough income in Africa to support 100 million autos and the vast infrastructre they require. The same can be said of the billion impoverished residents of China and India. Global capital would be delighted to sell them all its surplus production but for the sad fact they have no money or collateral on which to base consumer borrowing.
Now that the global real estate bubble has burst, global capital is facing a real dilemma: it has colonized and exploited virtually every populace available, and there is no one left to exploit. Their lackeys in the governments have eliminated moral hazard (that is, go ahead and speculate wildly, we'll save you all regardless of risk or the size of your losses) and expanded credit exponentially, but never-ending exponential growth is simply not possible.
And so now with the destruction of the bogus real estate bubble and speculative "wealth," global capital has screeched to a halt at the edge of an abyss it has avoided for a hundred years: finally, there is no place left to sell overproduction, and the domestic populaces it depends on for political support are restive as they sense the ground beneath their "prosperity" has fallen away.
Thus global capital is desperately demanding the State print/borrow trillions of dollars in a futile effort to either inflate new bubbles and thus create new markets. The reinflation will fail, even as they push governments into insolvency and fail to save neoliberal capitalism.
Globalization also has a host of other pernicious features.
1. Concentration of resources and political power. Global capital, armed with virtually unlimited access to capital via the capital markets and various exotic instruments such as derivatives, can always outbid local owners/capitalists for resources. Once the forest, oil field, etc. is owned (or joint-ventured with local crony capitalists or Oligarch families) then it is promptly stripped/exploited/depleted.
2. No accountability for enviromental damage. Any environmental damage that results is of no consequence because the local political Elite can be bought for relatively modest sums. There is no profit in cleaning up the site and so to do so would be "irrational" in a rational-market metric.
Perhaps this distance from the environmental consequences of resource/wealth extraction is globalization's most pernicious feature. Mine owners never live near the tailings, and the coal plant's owners never live downwind of the sooty plume, either.
The more distant the owner, the less accountable they are for local consequences.
In today's Internet-savvy world, global capital places some modest value on corporate image, and thus some sort of simulacrum of environmental concern is made and then hyped via company propaganda. In a handful of cases, wise stewardships is not just a propaganda talking point; but the circumstances behind these exceptions are not easily codified.
3. Redistribution of income to capital from labor or local ownership is "necessary" to encourage "investment." Even in Empire States like the U.S., foreign capital is given numerous tax loopholes and other redirections of income to capital. This is always explained as necessary to encourage "investment."
But this greater income did not appear out of thin air; it was redistributed from labor and local owners via tax loopholes and credits. But since global capital is driven to seek the highest returns possible, the income exracted from Locale A is rarely reinvested in Locale A. This justification for the income redistribution--to encourage "investment"--is thus a cover for resource/profit extraction.
In the U.S., global companies like General Motors have received taxpayer bailouts in the tens of billions, supposedly to keep their production and workforce in the U.S., when the demand of global capital for higher returns forces the company to expand in Brazil at the expense of domestic U.S. jobs.
In one sense, the company has no choice. It must deploy its remaining capital at the highest return or simply close down. In the Chinese model the State owns the factories and continues to operate them at a loss. But as China's own state-owned enterprises show, permanent losses are simply not sustainable, even for the government.
4. As middle class jobs are cut, demand falls, exacerbating overcapacity. Global capital shifts away from high cost production (except where that opportunity is limited by the State), replacing middle class employment in advanced economies with lower-cost labor in less-developed economies.
Ironically, this lowers demand for the global companies' goods even as their overseas capacity expands. The net result is that financial speculation becomes an increasingly attractive use for capital. Thus selling consumers credit with which to buy cars becomes more profitable than selling them cars. Additional profit is reaped by bundling these consumer loans into packages--securitization--and selling the newly minted securities to credulous imvestors around the world.
Thus speculative leveraged credit and securitization can vastly increase profits even as production falls.
5. As its own income falls, the middle class follows the lead of global capital by increasingly relying on credit-based speculation rather than production for income. No one is more anxious to pursue speculative gains than someone whose income from labor is declining. Thus homeowners or prospective homeowners were delighted to follow global capital's forays into credit-based real estate speculation.
Unfortunately, speculation is no substitute in the long run for producing actual goods and services, and once the exponential blow-off was reached and the bubble popped, global capital simply sold off (or got bailed out) and moved on, while the middle class speculators were left with staggering losses in real wealth or capital traps (assets declining in value which could not be sold).
6. Due to its global nature, capital is no longer accountable for the consequences of its choices. Here's how it works: global capital gets huge tax credits (incentives that are basically nothing more than redistribtion of income from labor and local entreprenuers to global capital) for "investing" in the local economy. It them mines the local labor and/or resources of profits until overcapacity or depletion strikes. Then it shutters the factory or mine and move its machinery elsewhere, leaving the local economy a shambles. Next it hypes the need for "investment" elsewhere, moving production to wherever offers the highest tax benefits, the least environmental restrictions and the lowest labor costs. Final step: repeat.
From the point of view of global capital, this is "obviously" the only model which "works." Local residents, workers and small-scale enterprise owners will disagree once their locale has been stripmined of profits and wealth.
In sum: globalization is a key driver in the end of paying work and the impoverishment of local labor, resources and enterprise via the redistribution of profits and income to global capital.
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