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Globalization and Capitalism

Article  in  Journal of Economic Issues · December 2008

DOI: 10.1080/00213624.2008.11507207

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 Globalization and Capitalism
Richard Westra*

This is an extended review article of the following books:

On Capitalism, edited by Victor Nee and Richard Swedberg. Stanford, CA: Stanford
University Press. 2007. Paperback: ISBN 978-0-8047-5665-5, $24.95. 368 pages.

Inequality, Growth, and Poverty in and Era of Liberalization and Globalization, edited
by Giovanni Andrea Cornia. Oxford: Oxford University Press. 2005. Paperback: ISBN
978-0-19-928410-8, $55.00. 460 pages.

The New Golden Age: The Coming Revolution against Political Corruption and
Economic Chaos, by Ravi Batra. Basingstoke: Palgrave, 2007. Hardback: ISBN 13: 978-
1-4039-7579-5. $27.95. 256 pages.

Debate over globalization divides into three broad camps: “hyper-gobalizers” on

both Right and Left sides of the political spectrum view it as the telos of capitalist

commodification, world wide market integration, and economic convergence;

globalization “skeptics” see instead a world of increasing economic asymmetries,

marginalization, and very visible political hands beneath its economic outcomes; and

“transformationalists” view globalization as open-ended shifting geo-spatial contours of

political and economic life. Placing the books under review here in the above context,

Nee and Swedberg’s On Capitalism (hereafter OC), dealing with the fundamental nature

of capitalism for the study of globalization, falls into the first camp. Cornia’s collection,

Inequality, Growth and Poverty (hereafter IGP), assessing the implications of global

poverty and inequality for capitalist development, lends support to the skeptical thesis.

Batra, The New Golden Age (hereafter NGA), examining globalization in the United

*
Richard Westra is Assistant Professor of Political Economy in the Division of International and Area
Studies, Pukyong National University, Pusan, South Korea, westrarj@aim.com.
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States (U.S.) context en route to predicting political transformations necessary for a

progressive human future, may be pegged as both skeptic and transformationalist.

OC is a collection of papers drawn from a conference celebrating the 100th

anniversary of Max Weber’s The Protestant Ethic and the Spirit of Capitalism. The key

animating point of OC is that the field of globalization studies “needs to be better

connected to the core insights of…economic sociology”, particularly as these relate to the

institutional foundations of capitalist dynamism (pp. 6-7). Weber’s approach to sociology

is heavily influenced by the marginalist revolution in economics. If the rooting of

marginalism is the trans-historical rational benefit-maximizing individual acting in the

context of perfect markets, for Weber, sociology studies individual action in cultural

contexts which, in capitalist society, involves the bounding of individual action by the

“formal rationality” of the market. To make the case for what it views as the dynamism

of capitalism OC draws upon the work of Karl Polanyi on historical varieties of economic

organization. What invigorates capitalism as a particular mode of economy is not only the

fact that distribution of goods occurs through market exchange, but that the goal of

economic activity is profit as well as consumption; this creating a “feedback loop” to

production underpinning capitalist dynamism. Weber had reasoned that reinvestment of

profits followed from the Protestant penchant for saving and hard work. OC notes that

this does not explain capitalist dynamism today. The stated mission of OC, therefore, is

to extend current sociological investigations into globalization’s triumphant spreading of

capitalist dynamism from concentration upon institutions, as in “varieties of capitalism”

debate, for example, to questions of evolving “cultural mores” in the societies impacted

by globalization. In this regard OC treats myriad issues ranging from the “Tocquevillian
 3

spirit” of U.S. capitalism through the purported “politicized” capitalism of present China

to broader questions of individual and collective action in the era of globalization. The

overarching tenor of OC is captured in this quote from the lead chapter of Russell Hardin:

Globalization itself is substantially enhanced and aided by

capitalism…Globalization does not impose anything on us, but it offers us
many things, including new employments and new
consumptions…Capitalism is in some ways similar to science. Its
successes are virtually self-evident and hard to forego once they are
available (pp. 29, 38).

IGP is a collection of chapters produced under the auspices of the United Nations

University World Institute for Development Economics Research (UNU/WIDER). The

central focus of IGP is the effect on inequality, poverty and human well-being within

countries of the two signal Washington Consensus policies of the 1980s and 1990s,

liberalization of trade and capital movements. In the heady ideological climate of the

formative implementation of Washington Consensus policies, such often preceded by

waves of domestic deregulation and privatization, widening inequalities were either

ignored or blithely accepted as the basis for capital accumulation or as an incentive for

increased individual work effort and social mobility. In commencing to remedy this state

of affairs IGP first documents and analyzes transformations in within-country inequality

over the Washington Consensus decades through comparison with changes across the

preceding two decades of the so-called golden age of capitalism. Second, IGP

investigates possible causes of the within-country changes it tabulates.

Excepting Latin America and part of sub-Saharan Africa IGP contributions make

clear the 1950s, 1960s and much of the 1970s constitute an era in which across the

centrally planned, developing and developed economies of the world income inequalities

were reduced. Within advanced industrial Organization for Economic Cooperation and
 4

Development (OECD) states, IGP argues, this diminution of inequality was not a

“statistical artifact” but derived from “a new model of economic development” adopted

by these states which “emphasized cooperation both at the national level between

government, employees, and business as well as at the international level (between nation

states)”. And to the extent a positive feedback loop for high rates of investment and

productivity growth existed in this golden age it was predicated upon that cooperative

economic environment (p.156). Commencing in the mid- to late-1970s, IGP demonstrates

that amongst OECD states, tendencies toward greater equality are halted, particularly in

the U.S. and United Kingdom which first adopted the new neoliberal economic model

that is subsequently internationalized in the Washington Consensus. Rising inequality

then spreads across OECD states in several “waves”. IGP importantly notes, however,

that much of the increase in income inequality within the OECD is generated by

“earnings” inequality, though the latter is ameliorated in those states in which labor

maintains strong organizational capacities and bargaining power (pp. 25-9). Outside the

OECD IGP points to varying patterns of increasing inequality: rising across the board in

Latin America and the former Soviet Bloc; urban-rural and regional divides

characterizing rising inequality in China; burgeoning intra-urban inequality in

East/Southeast Asia following the regional crisis; and intra-urban, intra-rural, urban-rural

divides marking rises in inequalities in sub-Saharan Africa (pp. 30-8).

Two of the four substantive sections of IGP contain assessments of traditional

explanations of within-country inequalities and case studies respectively. In the other two

sections IGP investigates the causal links between Washington Consensus policies and

rising inequalities. These yield a wealth of empirical insight into the modus operandi of
 5

globalization notable among which are the following points: First, what is dubbed the

Transatlantic Consensus model (TCM) attributes rising inequality in advanced capitalist

states to liberalized trade with developing countries which precipitates within the former

“a shift of demand away from unskilled towards skilled workers” (p. 159). However,

TCM is discounted on the basis of evidence displaying that the greatest increase in

earnings inequality exists in the non-traded sector of the advanced countries. As put in

IGP, “To suggest that increased earnings inequality for lawyers, doctors, accountants,

cooks, waiters, and so on is all due to skill-biased technical change…is not plausible” (p.

152-3). Second, IGP challenges recent versions of so-called factor-price equalization

theory which predict liberalization of trade will lead to convergence in per capita incomes

among developed and developing countries. IGP concludes that the evidence “is not very

kind” to these theories (p. 158). Third, IGP questions the Washington Consensus view

that capital account liberalization brings benefits comparable with those purportedly

deriving from free trade. Global financial volatility proceeding in the wake of increased

capital mobility has instead led to distributional outcomes the diametrical opposite of that

touted by Consensus supporters.

NGA picks up where Batra’s bestseller Greenspan’s Fraud left off with a searing

indictment of economic conditions in the U.S. which, as he puts it, “now resembles a

banana republic, with its poverty ranks swelling by a million every year” (p. 1). Batra is

extremely prescient in his analysis of the rudiments of the current housing crisis – the

treating of a home “like an ATM”, the “prop” constituted by this historically novel use of

housing to fuel a consumption boom for continuing U.S. economic growth, the

unprecedented exposure of foreign investors in the U.S. mortgage market (pp. 21-5). In
 6

an excellent chapter NGA succinctly traces the emergence of the U.S. “business empire”

from the U.S. contribution to post-second world war reconstruction of Western Europe

and Japan to the globalizing of U.S. corporate power, the maintenance of the dollar as the

world’s “key” currency and the spread of U.S. fast food and “materialistic” culture. NGA

critique of globalization as an essentially political project parallels that of IGP in contrast

to the hyper-globalization perspective advanced above in OC of globalization as an

“abstract” process of expanding capitalist markets.

In NGA Batra returns to another issue treated in his earlier bestseller, that of

“lying economists”. Batra asks: “Why don’t elite economists ever want to reduce payroll,

gasoline and sales taxes...Why is their theory silent about the beneficial effects of cuts for

low income people? The reason is simple…well-paid economists working for the affluent

see no…benefits from such reductions” (p.105). Batra ridicules economists’ claims that

outsourcing which increases corporate profits leads to investment in U.S. jobs. He

belabors the fact that higher profits result in exploding executive salaries and bonuses,

not jobs. And U.S. industry is so hollowed out that star economists like presidential

advisor Gregory Mankiw now argue “that hamburger production should be counted as a

manufacturing activity” (p.107). NGA is at its best in critiquing the “garbled” theoretical

underpinnings of supply-side economics tax cuts and interest rate manipulations – that of

the so-called work/leisure trade off. If rising interest rates really encouraged people to

work harder and save more why, Batra queries, is the average saving rate a “whopping

0”? And while billionaires can certainly contemplate leisure rather than work, with no

savings the average worker can hardly make such a choice even if their taxes were raised.
 7

And would they even contemplate that if tax money was used for quality health care and

education (pp. 116-20)?

NGA is at its worst, however, when Batra turns to questions of social change for a

progressive future. First, the claim that there exists a subterranean “law of social cycle”

determining historical transformations across the millenniums is as socially

disempowering as Stalinist interpretations of Karl Marx’s historical materialism and far

less plausible than the latter in its less dogmatic renditions as an “approach” to history.

Second, Batra’s work, along with skeptics and tranformationalists in the academic

globalization debate, is fuzzy when it comes to the question of what kind of economy

human material reproduction will be predicated upon in a progressive future. If there is

one area of agreement in the economic writing of Polanyi and Marx it is that history

reveals the existence of several modes of economic organization through which human

material life has been viably reproduced. Each mode of economy operates according to

specific principles that can be interfered with only to a certain extent. And viable modes

of economy cannot be conjured up ex nilhilo. The case of golden age OECD social

democracy overrun by neoliberalism certainly confirms a reaching of limits in

capitalistically organized economies of distributional interference in markets. It is

therefore not clear how the sort of “new golden age” envisioned by Batra with the

components of “strong” social democracy he sets out could be managed on a capitalist

basis even if the “voters revolution” he predicts occurs (pp. 210ff.). This of course does

not mean that “there is no alternative” to globalization as OC suggests above. For as

empirical evidence produced in IGP and NGA displays it is questionable whether human

economic existence can even be viably reproduced under current neoliberal trends. The
 8

solution to our economic malaise arguably necessitates creative thinking about combining

principles of economy in ways that have redistributive, economic scale and

environmental foci. Unfortunately no social constituency exists for such extensive social

transformation and unlike Batra I certainly do not see one arising in the U.S any time

soon.

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