Zombie Capitalism Global Crisis and the Relevance of Marx

Japan's biggest export market, while it was in turn the second biggest exporter to the US (just behind Canada and just ahead of Mexico).61 Its role in importing components from elsewhere in East and South East Asia and raw material from Latin America and Africa made it central to all their economies. And, most importantly, the huge receipts from its trade-much of it with the US-were deposited in the US. Along with the similar surpluses made by Japan and the oil states, it provided the lending which enabled US consumers and the US government to keep borrowing until the "credit crunch" of the summer of 2007. Effectively it lent money to the US (and to a lesser extent to certain European states like Britain) to buy goods it itself made. This added to the appearance of stability of the world system.

Yet those who believed Chinese growth could pull the world system forward if something went wrong in the US and Europe not only forgot that the unbridled markets unleashed in China could not lead to stable as opposed to wildly fluctuating growth. They also failed to take into account the relatively small weight China still had in the world system. In terms of current exchange rates, GDP in 2006 was \$2,600 billion-just behind Germany, just ahead of the UK and less than a fifth of that of either the US or the European Union. "Purchasing Power Parity" estimates (based on the buying power of incomes in the domestic currency, the yuan) seemed much higher, at about 50 percent of US or EU GNP according a revised World Bank estimate in 2007.62 The exchange rate figures considerably underestimate the level of resources available for consumption by China's population (since domestic prices of basic foodstuffs like rice and basic services like urban transport fares cost a quarter or less of those in the West). But, it is the exchange rate measurement that is important in determining the degree to which a country can import and so provide a locomotive to pull the rest of the world economy forwards. And it was a grave mistake to believe that China, accounting for 4 or 5 percent of global buying power, could somehow compensate for the effect of a major economic crisis in much of the rest of the world system.

The Chinese economy was not yet big enough for it to be an alternative motor for the world system as a whole. But it was big enough for its rapid growth to add to the instability of the global system, as was shown by the way it added to escalating global inflation in the years up to the summer of 2008.

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India, the NICs and the BRICS

It became commonplace to bracket India with China as the "emerging giants" by the mid-2000s. They had more or less equal populations (around 1,300 million), both were nuclear powers and both sufered deep rural poverty. But India's real importance in the world economy was much less than China's. It was about a third of the size in exchange rate terms (considerably smaller in fact than Britain or France) and 60 percent smaller in PPP terms; its growth rates were only a little above 60 percent of that of China in the late 1 990s, rising briefly to just less than 90 percent in the mid-2000s; its share of total world exports in 2003 was only 0. 7 percent, putting it in 3 1 st position. 63

There were some parallels with the Chinese pattern: an early attempt at state-directed industrialisation (the period of so-called "Neruvian socialism" ) was followed by a few years of stagnation in the mid and late 1970s; and then the introduction of reforms aimed at a much more market based model of accumulation. But there were significant diferences. Lacking the crude power of the Chinese state, India's state and private capitalists were not nearly as successful in subduing other classes (on the one side the old landowning class, on the other the workers and peasants) and so achieved less in the period of state-led primitive accumulation when the Indian growth rate was probably three quarters of China's. They were therefore less able to benefit from a turn to the world market-exporting less and remaining much less attractive to foreign capital than their Chinese competitors. "Reforms" pushed up the rate of accumulation, with investment reaching 25 to 30 percent of GNP. But this could only be sustained on the basis of a growing portion of output accruing to the capitalist class and the upper middle class, at the expense of the workers, peasants and the poor.

As a 2007 report for the IMF showed:

In the 1990s, the top of the population enjoyed a substantially larger share of the gains from economic growth compared to the previous decade. This had significant effects on income inequality, which grew within states, across states, and between rural and urban areas. 64

An analysis of income tax data suggests up to 40 percent of growth ended up in the hands of the top 1 percent of the population.65

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Apologists for capitalism tend to assume rising growth must automatically lead to falling poverty and quote various official statistics showing a decline in the proportion of people living in absolute poverty by 10 percent in the 1990s. But in the same decade there was a fall in food consumption per head in the rural areas, where two thirds of Indians live. Abhijit Sen, re-analysing the official figures, concluded that the total number living in poverty probably grew in the 1990s, that the proportion below the poverty line only fell very slightly, and this was a "lost decade" in terms of fighting poverty.66 The number below the poverty line in 2002 was 35 percent of the Indian population, some 364 million people. But even this underestimated the degree of suffering. Half of all Indian children are clinically undernourished and almost 40 percent of all Indian adults sufer chronic energy deficiency.67 Even in the supposedly prosperous states of Gujarat, Karnataka, Kerala, Maharashtra and Tamil Nadu, "more than 70 percent of the rural population consumed less than 2,200 calories per day". 68

India's insertion into the world system means that industrial investment, like that in China, has been overwhelmingly capitalintensive, with the capital output rising substantially in the 1990s. Employment growth was stuck at about 1 percent a year; 0.87 percent in the "organised" (ie formal) manufacturing sector,69 even if growth was a little faster in the "unorganised" informal sector where average firm size is less than two people.70 Most of the people flooding from the countryside to the cities have ended up trying to make a livelihood in the service sector, doing unskilled labour at very low levels of productivity in return for the 50 rupees ( \$ 1 ) a day needed to just about keep a family alive-sweeping and cleaning, working as domestic servants, washing clothes, pushing barrows, peddling cycle rickshaws, hawking goods, portering, waitering, guarding. The much publicised call centres employed only 400,000 people or 0.008 percent of the country's workforce in 2006.71

India's growth, like China's, means that by the mid-2000s it represented a much bigger portion of world capitalism than 50 or even 20 years earlier, and this had important implications for the system as a whole. But it was still quite small by the standards of the US or even Japan, Germany and China. This could change if the rates of growth of the mid-2000s were sustained for another two decades: in dollar terms the Indian economy would end up being bigger than the UK. But the most modern centres of industrial society in Mumbai, Hyderabad or Bangalore would still be separated by stretches of rural poverty bigger than most European countries. And long before that the whole process of rapid growth could be thrown off balance both by internal factors and by the impact of instability internationally.

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We have seen what happened to the "tigers" in the late 1990s, and before that to the Brazilian "miracle" of the 1960s and 1970s. There was therefore a lot of amnesia involved when people lumped together a very disparate collection of countries, Brazil, Russia, India, China and South Africa (the "BRICS"), and claimed that somehow together they represented an alternative driver for the world system. In fact, renewed economic growth in Brazil, Russia and South Africa depended typically on an upsurge of raw material and agricultural prices in a boom which was bound to come to an end eventually-and when it did so it would hit them seriously.

The great minds that extolled the system paid no greater attention to these contradictions in their rosy picture of Asia than they did to the underlying problems in Europe and North America. Japan had problems, they usually recognised, but this was because of the lack of wisdom displayed by a government which had never really absorbed the lessons about how a free market should operate. As late as the autumn of 2007 financial journalists, government ministers and the stars of academic economics were all agreed that capitalism had found a new long-term stability-and even some Marxists spoke of a "new long upturn". They were soon to look as foolish as those who forecast endless peace in the early summer of 1 914.

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CHAPTER TEN

Global Capital in the New Age

Bursting through borders

The decades of the great delusion were decades in which capital burst out of national confines in trade, investment and production. By 2007 international trade flows were 30 times greater than in 1950, while output was only eight times greater.1 Foreign direct investment shot up: flows of it rising from \$37 billion in 1 982 to \$ 1 ,200 billion in 2006;2 the cumulative stock of FDI rose from 4 percent of world gross domestic product in 1 950 (less than half the 1 9 1 3 figure) to 36 percent in 2007.3 The direct organisation of production across national boundaries also took off in a way that had been very rare in the past and the multinational corporation became the generally accepted stereotype of the big capitalist enterprise.4

The movement of finance across national borders, which had fallen sharply since the crisis of the 1930s, now grew explosively, with governments dropping exchange controls as part of the more general process of deregulation. By the mid-1980s the trend was for "bankers to map out new strategies which, for most of them", amounted "to establishing sizeable presences in the major financial centres, London, New York and Tokyo, and some secondary ones as well" .5 There was a proliferation of banking mergers. The old-established Hong Kong and Shanghai Banking Corporation took over one of the "big five" British banks, relocated its headquarters to London and moved on to buy banks in a dozen countries. The two big Spanish banks, the Bank of Bilbao and Vizcaya, and the Bank of Santander, bought up a very large proportion of the banking systems of many Latin American countries, until they alone owned almost one third of the assets of the 20 biggest banks,6 and then branched out into other types of business, "investment banking, insurance and in particular participation in pension fund management", acquiring "minority shares in some non-financial enterprises, basically in sectors where other Spanish investors are very active (telecommunications and energy) ".7

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There was a parallel process of concentration of industrial activities across national borders. The huge firms that had emerged in the old industrial countries in the previous period, often under the tutelage of the state, were now able to dominate not only their national market but also carve out huge chunks of the world market. Their competitors could only survive if they looked to an international mobilisation of resources, that is, if they too became multinational, not only when it came to trade but also when it came to production. The most successful firms in many key industries became those with international development, production and marketing strategies, based upon buying up, merging with or establishing strategic alliances with firms in other countries.

In motors, the Japanese car firms established production facilities in the US, turning out more vehicles than the third biggest American firm, Chrysler; the nationalised French firm Renault began a series of acquisitions in the US, beginning with the small fourth US car firm American Motors; Volvo took over General Motors' heavy truck production in the US; Ford and Volkswagen merged their car production in Brazil; Nissan built an assembly plant in North East England to produce hundreds of thousands of cars a year, while Honda bought a 20 percent stake in Rover. In tyres, the French firm Michelin made itself the world's biggest producer by taking over Uniroyal-Goodrich in the US in 1 988. The pattern continued into the 1990s and the early 2000s. Mercedes Benz took over Chrysler (before selling it again in 2007); Renault formed an "alliance" with Nissan (buying 44.5 percent of it, while Nissan bought 15 percent of Renault) with a joint chief executive; General Motors bought Saab, took 20 percent stakes in Suzuki, Subaru and Fiat, and acquired 42 percent of Daewoo; the Indian group Tata took over the Anglo-Dutch steel firm Corns (formed by a previous takeover of the privatised British Steel); half of China's soaring exports were produced by corporations at least partly owned by Western multinationals; Chinese firm AVIC 1 was supplying the rudder for Boeing's 787 Dreamliner and making bids for six auctioned off Airbus plants in Europe; Russia's Aeroflot put in a bid for Alitalia. These are just a random sample of the wave of international takeovers and collaboration agreements that were reported by the Financial Times every day.

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If the typical capitalist firm of the 1940s, 1 950s or 1 960s was one which played a dominant role in one national economy, at the beginning of the 21st century it was one that operated in a score or more countries-not merely selling outside its home country but producing there as well. The biggest deployed far more economic resources than many states. "29 of the world's 100 largest economic entities are transnational corporations" ,8 reported UNCTAD. The process of national firms branching out into the rest of the world was not confined to the advanced industrial countries. It afected the Third World and Newly Industrialising Countries where the statification of industry had previously tended to go even further than in the West, as we saw in Chapter Seven. It intensified with the restructuring of industry that took place in each crisis of these years as firms rationalised production, shut plants and merged with others.

Myths and realities

This whole process was baptised "globalisation" by the 1990s. It was bracketed together with neoliberalism as representing a whole new phase of capitalism-for enthusiasts a phase very different to any previously. They held not only that the world should be organised according to the free flows of capital, without any intervention by governments, but that this had already come about.

We lived, it was said, in the age of multinational (or sometimes transnational) capital, of firms moving production at will to wherever it could be done most cheaply. It was, some influential voices insisted, a world of "weightless" production,9 where computer software and the internet were much more important than "old fashioned metal-bashing" industries, and where the absolute mobility of capital had completely detached it from any dependence on states. This was an integral part of the new economic paradigm supposedly unleashing a new dynamism in the aftermath of the failures of Keynesianism, state direction and Soviet style "socialism". "Nationalities of companies" were "becoming increasingly irrelevant', declared the British Tory minister Kenneth Clark.10 This was the age of "the stateless corporation", declared Business Week.11

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Many people who rejected the politics of mainstream globalisation theory nevertheless accepted many of its assumptions. So Viviane Forrester wrote of "the brand new world dominated by cybernetics, automation and revolutionary technologies" with "no real links with 'the world of work"';12 Naomi Klein described "a system of footloose factories employing footloose workers";13 and John Holloway told of capital being able "to move from one side of the world to the other within seconds" . 14

The vision of a global system in which states no longer played a central part had as its corollary the argument that the wars that had plagued most of the 20th century were a thing of the past. The world was entering a "new world order", proclaimed George Bush senior after the collapse of the Eastern bloc and US victory in the first war against lraq.15 Francis Fukuyama gave such talk an academic gloss with his announcement of "an end to history".

Even thinkers long associated with the left came to the conclusion that capital in the new period no longer needed the state, and therefore had turned its back on war. Nigel Harris wrote of "the weakening of the drive to war", since "as capital and states become slightly dissociated, the pressures to world war are slightly weakened". 16 Lash and Urry went even further and did not include any mention of military expenditure in their account of the "postmodern" world of "disorganised capitalism".17

Lacking from all these varied assertions about globalisation was any real grasp of how the relations between states and capitals were really developing. For capitals were no more willing, or able, to break their relationships with states than they had been at the time of the First World War. Such relationships may have become more complex, but they retained their overwhelming importance.

This should have been most obvious in the case of productive capital. It simply could not be as mobile as globalisation theory contended. Factories and machinery, mines, docks, offices and so on still took years to build up, just as they had in the earlier period of capitalism, and could not be simply picked up and carted away. Sometimes a firm can move machinery and equipment. But this is usually an arduous process and, before it can be operated elsewhere, the firm has to recruit or train a sufficiently skilled workforce. In the interim, not only does the investment in the old buildings have to be written of, but there is no return on the investment in the machinery either. And, few productive processes are ever completely self-contained. They are rooted, as we saw in

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Chapter Four, in production complexes, dependent on inputs from outside and links to distribution networks. If a firm sets up a car plant, it has to ensure there are secure sources of nuts and bolts, steel of the right quality, a labour force with the right level of training, reliable electricity and water supplies, a trustworthy financial system, friendly bankers, and a road and rail network capable of shifting its finished products. It has to persuade other people, other firms or governments to provide these things, and the process of assembling them can take months or even years of bargaining, involving trial and error as well as forward planning. For this reason, when restructuring firms usually prefer the road of "gradualism"-moving piecemeal from old plant to new, keeping intact old supply and distribution networks, minimising the dislocation to the "complex" around them. So it took Ford nearly two years to implement its decision in 2000 to close down its assembly plant in Dagenham and move production elsewhere in Europe. When Cadbury Schweppes announced the "rationalisation" of its global operation including closures in June 2007, it said it expected it to take three years to implement.

Even with money capital there is no pure mobility. As Suzanne de Brunhof noted:

Even though huge financial flows of mobile capital are daily circulating round the globe, a global single market of capital does not exist. There is no single world rate of interest and there are no single world prices for produced goods . . . Financial assets are denominated in different currencies which are not "perfect substitutes". ¹⁸

Professor Dick Bryan made a similar point:

International finance provides a clear illustration of the centrality of nationality within global accumulation. The combination of satellite and computer technology has provided . . . all the technical preconditions for the neoclassical "perfect market" of financial flows to equalise rates of return, transcending national boundaries. Yet . . . finance maintains national characteristics. It does not move systematically so as to equalise savings and investment . . . A global financial system comprised of nationally-designated currencies signals that globalisation cannot be devoid of a national dimension.19

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