[This book review article was published in the Journal of Social, Political, and Economic Studies, Winter 1997, pp. 497-503.]

Reflections on Global Capitalism

Dwight D. Murphey

Wichita State University, Kansas

 

One World, Ready or Not: The Manic Logic of Global Capitalism

By William Greider

Simon & Schuster, 1997

Next to Jeremy Rifkin's The End of Work, William Greider's One World, Ready or Not is perhaps the most substantive book on the market today about the changes that are taking place in the world's economy. The details he provides are electrifying. His theoretical analysis is less satisfying, but even here there are points of definite value; and the policy suggestion he makes at the end of his discussion is potentially of great importance.  

In what follows, we will note, first, some of the many developments about which Greider provides such fascinating detail. Then, second, we will examine his analysis to see what is valuable in it and what, in this reviewer's opinion, is not.

 

Detail About On-Rushing Events in the Global Economy

Increasing presence of low-cost Third-World labor, both skilled and unskilled, in competition with higher-cost labor in the western economies.

Greider tells of “poor people who dwell in marginal backwaters doing industrial work of the most advanced order ...making complex things of world-class quality.” With the improvements in transportation and electronic communications, this labor is fast coming into direct competition with workers in the United States and Europe, since for most practical purposes oceans no longer separate them. Greider speaks of graduate engineers in India who earn less than one-sixth of what American engineers are paid. In China, an engineer makes $60 a month, leading Greider to speak of “the potential catastrophe for high-wage industrial workers in the advanced nations.”

 

The competitive pressure globally for lowest-cost production.

The rapidly increasing global competition is creating “dramatic opportunities both to reduce costs and to increase output.” This “creates pervasive downward pressure on prices,” putting profit margins in jeopardy unless ever-lower costs are achieved. Each enterprise seeks a “continuous suppression of costs, including labor costs.” Businesses continually restructure to become “fast, lean, flexible.”

 

“Peasant-pressure” on the world labor supply.

“At the bottom of the global wage ladder is a seemingly inexhaustible supply of new recruits: peasants leaving the bleak circumstances of rural subsistence. . .”An example: “One hundred million rural migrants [are] said to be roaming China's countryside in search of jobs.”

 

The secular tendency toward world-wide wage equilibrium.

As the world's workers are thrown into competition with each other, the pressure is for wages to fall in the advanced economies such as the United States and to be bid up elsewhere (although, we might add, the almost infinite pool of workers at varying skill1evels in the Third World dilutes this pressure for wages to rise there, so that what is in the offing is rather a fall of advanced-economy wages to an equilibrium that is not much higher than the billions of people in the Third World already earn). This is a process that plays itself out in one workplace after another, such as when “Caterpillar demanded drastic wage reductions at [its] Midwestern factories” and when employees, feeling insecure in their jobs, become reticent about seeking higher wages.

 

The displacement of workers.

Greider tells how between 1971 and 1991 the world's 500 largest multinational companies increased their sales sevenfold - while not increasing their employment at all. In the automobile industry, the number of hours of labor that is needed to manufacture a car has fallen drastically since 1979. The result?U.S. auto employment shrank by 180,000 jobs, most in assembly work.”

 

The displacement of firms and industries.

Whole industries are packing their bags to leave Europe and the United States, seeking the lowest-cost environment. Greider tells how in ship-building “traditional ship-building countries contin[ue] to lose jobs and market share,” while the industry is booming in Brazil, China and Taiwan. Volvo has established a tour bus assembly line in China; Bausch & Lomb produces contact lenses in India; Colgate- Palmolive makes toothbrushes in Colombia.

 

The accelerating growth of the world capital market.

“Finance capital... has accelerated its movements around the world at an astonishing pace.” This includes international bank loans, bond financing, stockholdings, and currency exchange. As economic theory would predict, capital flows to the highest return. An official at Tudor Investment Fund is quoted as saying, “If the return on capital is 30 to 40 percent in China and 7 percent in the United States, guess where the capital is going.”

 

Increasing importance of multinational corporations.

Even Sony is ceasing to be distinctively Japanese as it sets up factories and employs workers “from Southeast Asia to Mexico.” We think of Boeing as American, but a Boeing 777 is put together through the combined efforts of production facilities in twelve different countries; and Boeing is rapidly shifting much of its production to countries other than the United States, such as to China and Japan. The corporations are composed of employees from many nations, and the management comes to think in terms of the world rather than of any single country.

 

Self-protective responses by firms and industries.

Everywhere one sees the forming-up of alliances, mergers, cartels, and administered prices as firms and industries seek urgently to keep abreast of competitors’ ever-lower costs. Greider tells us the reason for downsizing: to lower “the break-even point in their capacity utilization... so they [will] make a profit even in bad times.”

 

Undercutting  national sovereignty.

"What is forming now is an economic system of interdependence designed to ignore the prerogatives of nations.” The past few years have seen a decontrol of the movement of capital in and out of a respective country. Capital flows are of such size as to dwarf central bank reserves. Tax havens attract capital, and countries vie with each other to offer the most generous incentives by way of low taxes, inducements and less regulation.

 

The polarization of wealth.

Of the immense wealth that is being created, most is not going in wages to the great mass of people, but is going instead to the owners of capital, including the bondholders who own the rapidly- increasing world debt.

 

The problem of purchasing-power in relation to supply.

The result of all this is that supply is outstripping demand, a fact that has so-far been obscured by the United States' willingness to incur vast trade deficits, sopping up the excess production. Greider warns, however, that the United States' serving as “a buyer of last resort” cannot go on forever. In the meantime, debt goes up and governments are starved for needed revenues. The worldwide demand for the goods and services that are possible is contingent upon getting earnings to large numbers of people. This, however, is stymied by the stagnation of earnings going to most people and the increased flow to the owners of capital. The long-held truism that wages are tied to productivity has been broken, with productivity going up and wages stagnating. 

 

Greider's Analysis: a Critique

Greider is certainly right when he points to the polarization of income and wealth and then to the problem of the disparity between the amount of goods and services that are coming available and the purchasing power that people (don't) have to purchase them. If recent economic prosperity obscures these elements, it should be kept in mind that the world is only a small fraction of the way into the technical changes that are on the immediate horizon. Many of the changes are already here, with simply the implementation remaining only part-finished. As they grow in number and implementation, they will continue the trends Greider traces so well.

He falls short in some areas, however. While he talks about “overproduction”, he doesn't seem fully cognizant, as Rifkin is, of the exponential increase in productivity that is coming through computerization, robotics, biotechnology, and other scientific advances. To the contrary, there are times he speaks of stagnating growth. There are reasons that economic commentators speak of growth as being slow in the advanced economies, but that is more than likely a chimera caused by inadequate statistics (which have not been able to keep abreast of the new types of quality improvement in many things); or, in any event, slowness of growth can hardly be thought the long-term trend.

Greider sees displacement of workers, firms and industries from the cost-cutting discipline imposed by worldwide competition, but he doesn't seem fully cognizant of its implications. Computerization, robotics, biotech - these things hardly intrude into his discussion. Their displacing potential is enormous compared to anything the world has seen so far.

His analysis is based, instead, on the standard pillars of Marxist economic analysis that have been around for a century. These tell us that capitalism, by the very nature of the “contradictions” (a favorite Marxist word that Greider likes to use) that inhere within it, suffers from a chronic overproduction and underconsumption based on a lack of purchasing power. He, and his predecessors in intellectual title, could just as well (as they did) have written this same critique forty, sixty, eighty or a hundred years ago. It is a critique that simply has not been sound; the market economy has gone from success to success and enriched hundreds of millions of people beyond anything any prior age thought possible. Indeed, it has been perverse for Marxists to insist on capitalism's failures when it has proved the world's greatest success story.

It is ironic, then, that events are turning this on its ear. The global economy in the Information Age is actually creating the polarization and purchasing-power-gap that Marxism has so long postulated erroneously. Thus, Greider proves essentially to be right, with his fault lying primarily (and ironically) in understating the problem (despite the splendid detail with which he describes the problems as he sees them).

And so it is that a Marxist economic analysis and a pro-market, classical-liberal analysis come head-to-head, and must grapple with the same problems. Most market theorists will, predictably, continue to deny that there are problems; and in their yearning for ideological consistency they will embrace a wrong-headed position just as reflexively as Greider, in his own ideological consistency, has, by dint of timing, been led into embracing a correct one.

It is as important now for a supporter of a market economy to address the issues of polarization-of-income and purchasing-power-disparity as it has seemed all along for a Marxist to do so.

How to do this? Greider may have a pretty decent answer, based on the thinking of Louis Kelso. Kelso, writing in the mid- twentieth century, wanted government to pay the way for everyone to become a co-owner of every conceivable type of asset – sidewalks, streets, etc. - and to receive a dividend as payment for his ownership. This was redistributive socialism dressed up to look like broadly shared capitalism, as this reviewer pointed out in an article in this journal in the spring issue of 1990. At the time Kelso proposed it forty years ago, it was the most transparent ideological fraud. Today, however, conditions have changed so much that a specific aspect of Kelso's thinking is not out of place. Much of the market dilemma would be erased if the public at large were able to become owners of shares in, say, an index fund that in turn would own diversified stock market holdings. (There is no reason to own part of a sidewalk, which isn't an income-producing asset; it is far more to the point to own part of a mutual fund that owns shares in the vast worldwide economy.)

Classical liberals and libertarians will oppose any redistribution by government to produce this widespread mutual fund ownership. They may today accept a system of deferred taxation while people build up their own savings that will provide a fund either for health care or old age or general support. It seems that they would have no particular ground for objection to a form of distribution that violates nobody's property rights and that doesn't depend upon taxing some to give to others. Greider points out, in the course of his discussion of Kelso's ideas, that “every year, as it enlarges the nation's money supply to meet the needs of commerce in an expanding economy, the Federal Reserve creates $30 billion to $40 billion in new money... This money is now distributed through the private banking system, lent out by commercial banks to people and businesses at market interest rates. . .” If, instead, the Federal Reserve bought $30 to $40 billion in shares in an index mutual fund, that would also get the new money into the productive economy for new investment, research, enterprises and the like, while at the same time providing something that would be distributed to citizens to make them part-owners of the economy. After a few years, the annual increase would add up to far more than a pittance. The mutual fund holdings would provide people a flow of earnings, making them less dependent on work for income in an increasingly “workerless” economy, and providing “purchasing power” to provide a market for the goods and services the economy would produce. So far as business enterprise is concerned, nothing would change from the current pursuit of earnings for stockholders.

A happy thing about this proposal is that such a mechanism would have little potential for the aggrandizement of governmental power that libertarians and classical liberals rightly fear so much. Instead of considering it “socialist” because it gives rise to “something for nothing,” it would be wise to look upon it as simply part of the institutional framework that will be desirable (actually, quite necessary) for the smooth existence of a market economy, and of a free society predicated on one, in the future.