Capitalism-and-Its-Critics-A-History-From-the

The embrace of global capitalism also extended to Latin America. In Brazil in 1995, a center-left government led by Fernando Henrique Cardoso, a former Marxist sociology professor, took office. Back in the late 1960s, Cardoso had coauthored a book, Dependency and Development in Latin America, which had become an important text in the dependency movement. Now he championed market-led growth. His government sold off publicly owned industries, cut tariffs, tried to attract foreign investments, and introduced a monthly cash grant for poor families. Like his British counterpart Tony Blair, Cardoso insisted that market-friendly policies and moderate redistribution represented the future of progressive politics. “We must continue to be, in this sense, socialists, concerned about the social,” he said in 1997. “But this cannot be done in the old fashioned way, as if it were possible, by an act of political will, to push a button and make things happen.”3

As center-left politicians tried to come to terms with globalization, multinational corporations were leaping on the double opportunity it presented to them: new markets and cheap labor. From Shanghai to Mumbai to Moscow, foreign companies and bankers rushed in to explore investment opportunities. A century and a half after the publication of The Communist Manifesto, the representatives of international capital really were nestling everywhere and remaking the world in their likeness. The process of global integration appeared to be unstoppable. Between 1985 and 1995, the overall volume of international trade nearly doubled,4 and the daily value of foreign exchange transactions rose more than eightfold.5 The

financial markets were the beating heart of global capitalism, and they operated virtually around the clock. The trading day started in Asia. When the markets closed in Hong Kong and Singapore, traders at international banks handed off their positions to their colleagues in London and Frankfurt, who in turn passed the buck to New York and Chicago, before the action flipped back across the Pacific. Globalization, an overused term, wasn’t fully adequate to describe these developments. Capitalism wasn’t merely expanding across the globe. It was deepening, shape-shifting, transforming itself into a ubiquitous hypercapitalism.

There was much more to this transformation than the implosion of the Soviet Union and the discrediting of state socialism. Indeed, those developments were arguably as much a reflection of the broader phenomenon as a cause of it. The underlying causes were political and technological. After the inflation and profits crisis that convulsed Western capitalism in the 1970s, many big businesses and conservative political parties were eager to break out of managed capitalism. In countries like China and India, policymakers were having similar thoughts about state-led economic development. Free market economists like Hayek and Friedman provided a policy map for the metamorphosis, but it was a series of technological developments that made it practically feasible. One key development was shipping containerization, which had massively reduced the cost of transporting raw materials, finished products, and industrial components around the world. A second vital factor was the rise of information technology, particularly telecommunications technology, which enabled the rapid transfer of business information, such as component orders, production plans, and internal corporate messages. By the mid-1990s, most multinational companies were leasing international communications networks. All these things made it easier for companies to unbundle their supply chains and spread them out around the world: distance was shrinking.

Considered separately, the neoliberal pivot in the West, the embrace of market forces by underdeveloped countries, and the rise of information technology and global supply chains all had huge ramifications. (The opening up of China and India alone potentially expanded the global capitalist workforce by more than a billion people.) Taken together, these three developments amounted to a new industrial revolution, and in

Kondratiev’s terms, they created the basis for a new long wave of global economic development. Initially, many economists struggled to grasp the full implications of this transformation, partly because they tended to interpret it from within their own silos. Trade economists, thinking in terms that David Ricardo would have recognized, emphasized the economic gains generated by the expansion of global commerce and a more finely developed global division of labor. Labor economists focused on wage stagnation in the United States and other industrialized countries, but they tended to blame “skill-biased technical change” rather than globalization. Macroeconomists welcomed an era of price stability, which they attributed to Western governments handing over the task of inflation-fighting to independent central banks.

These explanations weren’t so much wrong as incomplete. Changing patterns of trade and production generated unprecedented income gains in China and India, as well as lower prices for consumers in Western countries. In many developing nations, they also produced sweatshops and working conditions redolent of early nineteenth-century Britain. Skillbiased technical progress was a genuine phenomenon, but so was corporate offshoring, which undermined workers’ bargaining power and held down wages. Inflation-targeting central banks weren’t operating in a vacuum. It was much easier for them to hit their inflation targets when anti-union legislation and the threat of automation and offshoring had left workers in such a weak position.

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As the world market that Marx and Engels had prophesied was becoming a reality and workers’ wages in some developed countries were diverting from productivity growth in a manner similar to what had happened in Britain during the first industrial revolution, it perhaps shouldn’t have been surprising that some of the earliest commentary to grasp the magnitude of globalization came from the far left, where a global perspective had long been part of the analytical toolkit. One theorist who was associated with both the center-periphery dependency model and the “world systems theory” that the American sociologist Immanuel Wallerstein developed in the 1970s was Samir Amin, a Franco-Egyptian economist who, from 1970 to 1980, had been the director of the UN’s African Institute for Development and Planning (IDEP), which is headquartered in Dakar, Senegal. A revolutionary communist since high school, Amin interpreted globalization in terms of Marx’s concept of surplus value, which he extended to the global level. “A new contradiction now characterizes world capitalism,” he wrote in his 1997 book, Capitalism in the Age of Globalization. “On the one hand, the centres of gravity of the economic forces commanding accumulation have shifted outside the frontiers of individual states; on the other hand, there is no political, social, ideological and cultural framework at world level that can give coherence to the overall management of the system.”6 Ostensibly, the multilateral institutions created at Bretton Woods—the IMF and the World Bank—and the World Trade Organization, which was created in 1995, managed globalization in the interests of everybody. In reality, Amin said, these institutions were “merely the instruments of capital’s management of the market.”7 In lumping together all international institutions, Amin was arguably oversimplifying things and overlooking the World Bank’s efforts to reduce poverty in poor countries. But in pointing out the lack of an effective governing framework for globalization, he identified a problem that would become increasingly hard to ignore even for its defenders.

He was born in Cairo in 1931, nine years after Egypt gained its independence from Britain, to an educated family with Coptic Christian and French heritage. Both his parents were doctors, and his father managed the government health system in Port Said, a city at the northern end of the Suez Canal. In 1947 Amin sailed to France, where he enrolled at the elite Lycée Henry IV in Paris. After finishing high school, he enrolled at the Paris Institute of Political Studies, widely known as Sciences Po, where he was an active member of the French Communist Party’s student section. “We used to spend a lot of time in the Sciences Po entrance hall, discussing everything under the sun, organizing petitions, trying to get students to come on demonstrations,” he recalled in a 2006 memoir.8 After getting a law degree, Amin switched to economics for graduate work and studied Marx, but also Smith, Ricardo, Keynes, and a lot of history. “What this also meant, however,” he recounted, “was that I wasted little time on mainstream economic literature, the compulsory reading of which nowadays has an effect that I would almost describe as mind-numbing.”9

His doctoral thesis, “The Structural Effects of the International Integration of Precapitalist Economies,”10 was essentially an early exposition of dependency theory: it described how the peripheral role allotted to poor countries stunted their development. (A “break with the world market is the primary condition for development,” he wrote in a subsequent book that elaborated upon his thesis. “Any development strategy that accepts the framework of integration into this market must fail.”)11 After completing his doctorate, Amin spent a few years back in Egypt, moved to Mali, and then to Senegal, where he had been offered a fellowship at IDEP, which the United Nations had recently created to support the economic development efforts of newly independent African countries.

During the 1970s, these efforts focused on an initiative to create a New International Economic Order (NIEO), which in retrospect looks like a bold, though doomed, attempt to create an alternative model of globalization that empowered the Global South.12 The movement’s aspirations were summarized in a May 1974 resolution of the UN General Assembly, which called for sovereign equality of all states, including absolute sovereignty over their natural resources; regulation and supervision of multinational corporations; preferential treatment for developing countries in the international trading system; and expanded development assistance from rich countries.13 At a conference in Algiers, seventy-seven nonaligned nations issued an “action plan” to make the NIEO a reality and raise their share of global GDP from under 10 percent to a quarter.14

Amin had mixed feelings about the NIEO. In a 1982 article, he said its economic demands constituted “a coherent programme” given “the contradictory nature of the accumulation of capital on a world scale.”15 From the beginning of the NIEO project, however, he believed that it didn’t represent a decisive enough break with international capitalism, and he was convinced that politically it was a nonstarter because Western countries would reject it wholesale. “The fact is that the themes of the new order involve the aspiration to control natural resources and to strengthen national states, which imperialism does not accept,” he wrote in a 1977 article.16 This skepticism about the prospects for the NIEO proved well-founded. The nonaligned nations were divided on its ultimate goals, conservatives in the

Global North attacked it, and by the end of the 1970s, it was effectively a dead letter.

The failure confirmed Amin in his belief that the gaining of independence by former colonies hadn’t marked the end of imperialism but merely its reconstitution in new forms. In some parts of the world, particularly apartheid South Africa, a racial capitalism had been created, in which large parts of the native Black population had been turned into proletarians who were “obliged to sell their labour power in the European mine, factory, or plantation,” he argued.17 Throughout the developing world, he said, the core capitalist countries retained a series of monopolies over technology, finance capital, media and communications, natural resources, and weapons of mass destruction. “These five monopolies, taken as whole, define the framework within which the law of globalized value operates,” he wrote in Capitalism in the Age of Globalization. “What results is a new hierarchy, more unequal than ever before, in the distribution of income on a world scale, subordinating the industries of the peripheries and reducing them to the role of subcontracting.”18

Amin’s commitment to international socialist revolution led him to take some very extreme positions. In his 2006 memoir, he said he stayed faithful to the positions of the Chinese Communist Party until after 1980, that is until well after the truth about the Cultural Revolution had been revealed.19 In 1981 he published an article in which he said the genocidal Khmer Rouge regime in Cambodia had led a “popular, anti-imperialist revolution, opening up the road to socialism.”20 Amin loathed global capitalism and believed the system was plagued by contradictions. However, he was under no illusion that it was about to collapse. “Capitalism and crisis are not incompatible: far from it, because the logic of capital necessarily generates crisis,” he wrote in Capitalism in the Age of Globalization. “Left to itself, capitalism can manage the crisis but cannot resolve it.”21 He portrayed globalization as a way for multinational corporations to access cheap labor, and for capitalism, at large, to manage the contradiction that John Hobson and Rosa Luxemburg had identified: the tendency for capitalist production to outrun demand, generating an ever-pressing need for new markets and new outlets for surplus capital.

Amin regarded Luxemburg’s argument that capitalism expands by destroying noncapitalist societies as fundamental. Although industrialization was proceeding rapidly in parts of the developing world, he insisted that the West’s monopolies over things like technology and finance would perpetuate the North-South divide. However, he was forced to acknowledge that the Asian Economic Miracle—which by the 1990s encompassed former colonies like Indonesia, Malaysia, Singapore, and South Korea—was hard to reconcile with traditional dependency theory. The East Asian countries, beginning with Japan, had not “followed the policy prescriptions of liberalism,” he wrote. “They have, in fact, done the opposite.”22 That was only partially correct. The Asian Tiger model featured extensive government interventionism and support for new manufacturing industries. But the entire development strategy was also based on export-led growth, which hinged on integrating these industries successfully into the capitalist world market—the option Amin had earlier dismissed as nonviable. In his 1997 book, he didn’t dispute the obvious success of this strategy, but he questioned its long-term sustainability in a world where the rise of China in particular represented a potential threat to US hegemony. “It goes almost without saying that the future development of China threatens all global equilibria,” he wrote. “And that is why the United States will feel threatened by her development. In my opinion the United States and China will be the major antagonists in any future global conflict.”23

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In Western corridors of power, it was rare to hear any notes of caution expressed during the years after the Berlin Wall came down. The ruling narrative was that capitalism, market forces, and liberal democracy had triumphed forever. The American political scientist Francis Fukuyama, who was then the deputy director of policy planning staff at the State Department, encapsulated this moment in his famous essay suggesting that the end of the Cold War marked “the end of history as such: that is, the endpoint of mankind’s ideological evolution.”24 As Ivy League economists jetted off to Moscow and other eastern European capitals to dispense policy advice on how to create a market economy, it was easy for them to view the collapse of state socialism and the rise of globalization as a new dawn for humanity.

One of the first US-based economists to query this consensus was Dani Rodrik, who taught at Harvard’s Kennedy School of Government. In 1997 Rodrik published a short book, Has Globalization Gone Too Far?, that emphasized the rising social costs of “hyperglobalization.” Pointing to labor strikes in France and Korea, political battles over pension cuts in Germany, and Pat Buchanan’s protectionist run for the US presidency in 1996, Rodrik wrote: “The international integration of markets for goods, services, and capital is pressuring societies to alter their traditional practices, and in return broad segments of these societies are putting up a fight.”25 Rodrik also highlighted the offshoring of jobs from Western countries, including the United States, to places like China and Thailand, where wages were lower and labor regulations were weak or nonexistent: “The fact that ‘workers’ can be more easily substituted for each other across national boundaries undermines what many conceive to be a post-war social bargain between workers and employers, under which the former would receive a steady increase in wages and benefits in return for labor peace.”26

Rodrik was born into a prosperous family in Istanbul in 1957. His father ran a business that manufactured ballpoint pens. After attending an elite private school, he moved to the United States to attend Harvard, where he majored in government. During the early 1980s, he did a PhD in economics at Princeton, specializing in international trade, a field dominated, then as now, by supporters of free trade. Rodrik was skeptical of what he learned in the classroom. “I knew from my own experience that without a certain amount of trade protection in Turkey, a lot of the middle class, or the upper-middle class to which I belonged, wouldn’t have existed,” he recounted in a 2019 interview. “That was, in many ways, the beginning of my unorthodox views on economic development.”27 After finishing his doctorate in 1985, Rodrik moved back to Harvard, where he worked on a range of issues, including the impact of trade liberalization on developing economies.

It was the era of “the Washington Consensus,” a phrase originally coined in 1989 by John Williamson, a senior fellow at the Institute for International Economics in Washington, to describe a set of pro-market policies that the IMF and other international institutions prescribed for highly indebted countries in Latin America and elsewhere.28 By the mid-1990s, the term was used to apply to a broader policy framework that the

IMF and the US government urged on all developing countries, including the transition countries in eastern Europe. These policies included cutting government spending and balancing the budget; reducing marginal tax rates; eliminating tariffs and other barriers to trade; privatizing publicly owned companies; encouraging foreign companies to make direct investments; and liberalizing flows of financial capital. In some respects, the Washington Consensus policy regimen resembled the free market “shock treatment” that Milton Friedman had urged on General Pinochet during the mid-1970s. Its stated goal was to stabilize troubled economies and create a basis for sustainable market-driven growth. Critics claimed it led to deeper slumps, more hardship, and more financial instability.

Rodrik believed that the free market fundamentalism embodied in the Washington Consensus ignored the vital role that government directives and financial support had played in the rapid development of Japan, South Korea, and other East Asian economies. He also questioned the conviction among American economists that international trade had played little role in creating the wage stagnation that had emerged in the United States during the early 1970s and persisted for more than twenty years. In a 1995 article, the economist Paul Krugman, who was then at MIT, pointed out that economists’ skepticism about the impact of trade on wages rested largely on the fact that the volume of international trade, “despite its growth … is still quite small compared with the economies of advanced nations. Imports of manufactured goods from developing countries were only about 2 percent of the combined GDP of the OECD countries, Krugman pointed out.29 Rodrik argued that the volume of trade didn’t necessarily tell the full story.

Referring to the work of the British economist Adrian Wood, the author of a 1994 book on trade, employment, and inequality, Rodrik noted that the constant threat of low-wage competition from abroad could prompt American manufacturers to introduce labor-saving technology. If this phenomenon was widespread, Wood had pointed out, the “skill-biased technical change” that many economists identified as the cause of wage stagnation could actually be a product of globalization.30 Rodrik also cited research showing how firms’ ability to move production offshore had weakened the bargaining power of their workers and made it easier for them to demand wage cuts.31 He also explained how globalization was undermining the tax base in many countries. As capital became more mobile, it was becoming harder for governments to tax their corporations and rich citizens effectively. Multinationals could shift their operations, or at least their accounting profits, to low-tax countries like Ireland and Singapore. Wealthy individuals could hide assets abroad.

Rodrik pointed out that this undermining of the tax base was occurring at the same time that intensified international competition was undermining job security and creating a need for bigger social safety nets. Challenging the common perception that trade and openness were associated with laissez-faire and small government, he pointed out that it was “in the most open countries, such as Sweden, Denmark, and Netherlands, that spending on income transfers has expanded the most.”32 But now even the Scandinavian countries were facing competitive pressures to rein in their welfare states. If these trends continued, Rodrik said, support for open markets was likely to diminish “to the point where a generalized resurgence of protectionism becomes a serious possibility.”33 To survive in a democratic age, any economic system must maintain a basic level of political legitimacy. Citing Karl Polanyi’s The Great Transformation, Rodrik argued that this represented a particular challenge for a globalized system, because “the international market is the only market that is not regulated by an overarching political authority. Consequently, transactions undertaken in the international marketplace carry the least inherent legitimacy.”34 If globalization were to lose its legitimacy entirely, nobody, not even the wealthiest citizens who were its biggest winners, would be spared the consequences, Rodrik warned. “Social disintegration is not a spectator sport,” he wrote. “Ultimately, the deepening of social fissures can harm all.”35

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The Clinton administration was a big supporter of globalization. In December 1993, Bill Clinton signed into law the North American Free Trade Agreement (NAFTA), which eliminated virtually all tariffs between the United States, Canada, and Mexico. “NAFTA means jobs: American jobs, and good-paying American jobs,” Clinton said at a signing ceremony.36 Subsequently, his administration helped push through a major agreement on global trade, the so-called Uruguay Round, which was completed in 1994. This accord created the World Trade Organization, headquartered in Geneva, which was tasked with promoting and umpiring global trade. It also eliminated restrictions on trade in services and created new intellectual property protections for major multinational corporations. The completion of the Uruguay Round was widely hailed as the most important expansion of world trade since the General Agreement on Tariffs and Trade in 1947.