Reports from the Economic Front

a blog by Marty Hart-Landsberg

Capitalist Globalization: Running Out Of Steam?

The 2016 edition of the Trade and Development Report (TDR 2016), an annual publication of the United Nations Conference on Trade and Development, is an important study of the changing nature of capitalist globalization and its failure to promote third world development.

The post-1980 period was marked by an explosion of transnational corporate activity, with investment increasingly taking place in the third world, especially Asia.  The resulting investment created a system of cross border production networks in which workers in third world countries produced and assembled parts and components of increasingly advanced manufactures under transnational capital direction for sale in developed country markets.

Mainstream economists supported this process, arguing that it would promote rapid industrialization and upgrading of third world economies and the eventual convergence of third world and advanced capitalist living standards.  However, the TDR 2016 makes the case that the globalization process appears to have run its course and that mainstream predictions were not realized.

Capitalist globalization under pressure

The TDR 2016 shows that the post-2008 slowdown in developed capitalist country growth has led to a significant downturn in third world exports and economic activity.  The following charts show that while international trade has long grown faster than global output, the ratio grew dramatically bigger over the first decade of the 2000s.  This was in large part the result of the expansion of cross border production networks.  This explosion of trade also brought ever expanding trade imbalances.

trade-trends

But, as the above charts also show, globalization dynamics appear to have lost momentum.  According to the TDR 2016:

International trade slowed down further in 2015. This poor performance was primarily due to the lackluster development of merchandise trade, which increased by only around 1.5 per cent in real terms. After the roller-coaster episode of 2009–2011, in the aftermath of the global financial and economic crisis, the growth of international merchandise trade was more or less in line with global output growth for about three years. In 2015, merchandise trade grew at a rate below that of global output, a situation that may worsen in 2016, as the first quarter of the year showed a further deceleration vis-à-vis 2015.

This loss of momentum has hit the third world, which has become ever more export-dependent, especially hard. As the following table shows, the growth rate of third world exports has dramatically slowed, and is now below that of the developed capitalist countries.  East Asian export growth actually turned negative in 2015.

table-1

This slowdown in trade has been accompanied by growing capital outflows from the third world, again especially Asia, as shown in the following chart.

capital-flows

The combination of developed country stagnation and dramatically slowing international trade has begun to stress the logistical infrastructure that has underpinned capitalist globalization dynamics.  This is well illustrated by Sergio Bologna’s description of the consequences of Hanjin’s bankruptcy:

The world’s seventh largest shipping company, the Korean company Hanjin, went bankrupt. Overburdened by $4.5-billion in debt, it has not been able to convince the banks to continue their support.

As a matter of fact, it did not convince the government of South Korea, because the main financier of Hanjin is the Korean Development Bank, a public institution, which is also struggling with the critical situation of the other major shipping company, Hyundai Merchant Marine (HMM), and the two Korean shipyards, STX Offshore & Shipbuilding and Daewoo. It may sound like a mundane administrative issue, but imagine what it means to have a fleet of about 90 ships, loaded with freight containers valued at $14-billion, roaming the seas because if they touch a port their loads are likely to be seized at the request of creditors.

In fact, the Daily Edition of the Lloyd’s List dated September 13th . . . reported that 13 vessels had been detained. Other ships are being held in different ports, waiting for judiciary sentences. Others are at anchor and maybe had to refuel. Not to mention the 1,200-1,300 crew members who are not able to find suppliers willing to sell them a can of tuna or a bottle of water. In a Canadian port, the crew had to be assisted by the mission Stella Maris.

The intertwining of the ramifications of this problem is impressive. Hanjin must face legal proceedings at courts in 43 countries. For starters: Most of the ships are not owned by Hanjin, and those it owns, to a large extent, are not worth much. Sixty per cent of the fleet is leased, and Hanjin has not been paying the leases for a long time. This threatens to bankrupt old-name companies like Hamburg’s Peter Dohle, the Greek Danaos, and the Canadian Seaspan; there are about 15 companies who leased their ships to Hanjin, but in terms of loading capacity, the first four add up to more than 50 per cent.

Then there are the ports and other infrastructure service providers. The ports are owed fees for services (towing, mooring); the terminals, for load/unload operations to Hanjin ships on credit; the Suez Canal has not been paid the passage tolls and today won’t let the Hanjin ships through; in addition, the onboard suppliers, recruiting agencies of the crews, the ship management firms. The list does not end here, it has just begun. Because the bulk of creditors are thousands of companies, freight forwarders and logistics operators who have entrusted their merchandise to Hanjin, around 400,000 containers (the total capacity of the Hanjin fleet is estimated at 600,000 TEUs), goods that are stuck on board.

Why did this happen? Why did it have to happen? . . .

Because for years, the shipping companies have been transporting goods at a loss. They have put too many ships into service and they continued to order increasingly larger ships at shipyards. The ships competed fiercely for the orders and built the ships at bargain prices, although they are technological jewels. With the increase in freight capacity, freight rates plummeted, volumes grew but the income per unit of freight transported decreased. Then, China slowed exports, creating the perfect storm. . . .

And now? How many of the 10 to 15 most important companies still active on the market are zombie carriers?

The false promise of capitalist globalization

Critically, the globalization process has been aided by labor repression.  The transnational corporate drive for market share encouraged state policies designed to hold down labor costs.  And the resulting decline in wage demand reinforced the pursuit of exports as the “natural” engine of growth.  As TDR 2016 explains:

those countries that did exhibit increases in their global share of manufacturing exports did not show similar increases in wage shares of national income relative to the global average. . . . This suggests that increased access to global markets has typically been associated with a relative deterioration of national wage income compared with the world level.

The following chart illustrates the global ramifications of the globalization process for worker earnings.wage-share

As for convergence, the TDR 2016 compared the performance of third world economies relative to that of the United States using several different criteria.  The chart below looks at the ratio of per capita GDP of select countries and country groups relative to that of the United States.  We see that Latin America and the Caribbean and Sub-Saharan Africa have actually lost ground since the 1980s.  This is especially striking since the US growth rate also slowed over the same period.  Only in Asia do we see some catch-up, and outside the so-called first-tier NIEs and China the gains have been small.

comparisons-with-us

In fact, as the TDR 2016 explains: “The chances of moving from lower to middle and from middle- to higher income groups during the recent period of globalization show no signs of improving and have, if anything, weakened.”

This conclusion is buttressed by the following table which shows “estimate chances of catching up over the periods 1950–1980 and 1981–2010.”  The United States is the target economy in both periods with countries “divided into three relative income groups: low (between 0 and 15 per cent of the hegemon’s income), middle (between 15 and 50 per cent) and high (above 50). The table reports transition probabilities for the two sub-periods and the three income levels.”

catch-up

The TDR 2016 drew two main conclusions from these calculations:

First, convergence from the low- and the middle-income groups has become less likely over the last 30 years (1981–2010) relative to the previous period (1950–1980). As reported in the table, the probability of moving from middle- to the high-income status decreased from 18 per cent recorded between 1950 and 1980 to 8 per cent for the following 30 years. Analogously, the probability of catching up from the low- to the middle-income group was reduced approximately by the same factor, from 15 per cent to 7 per cent.

Second, and perhaps more strikingly, the probability of falling behind has significantly increased during the last 30 years. Between 1950 and 1980 the chances of falling into a relatively lower income group amounted to 12 per cent for middle-income economies and only 6 per cent for high-income countries.  These numbers climbed to 21 per cent and 19 per cent respectively in the subsequent period.

Uncertain times lie ahead

In short, globalization dynamics have restructured national economies in ways that have enriched an ever smaller group of transnational corporations.  At the same time, they have set back national development efforts with few exceptions and generated serious contradictions that are largely responsible for the stagnation and downward pressures on working and living conditions experienced by the majority of workers in both advanced capitalist countries and the third world.

While globalization dynamics have lost momentum the economic restructuring it achieved remains in place.  And to this point, dominant political forces appear to believe that they can manage whatever economic challenges may appear and thus remain committed to existing international institutions and patterns of economic activity.  Whether they are correct in their belief remains to be seen.  As does the response of working people, especially in core countries, to their ever more precarious conditions of employment and living.

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