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Globalization and Neoliberalism

by David M. Kotz

Department of Economics and Political EconomyResearch Institute

Thompson Hallniversity of Massachusetts!mherst" M! #$##%

.&.!.

Telephone '$%()')($*'+,a- '$%()')(**$Email d m /otz0econs.u m ass.edu

!u1ust" *###

This paper 2as published inRethinking Marxism" 3olume $*" 4umber *" &ummer *##*" pp. 5'(6. Research assistance 2as provided by Elizabeth Ramey and De1er Eryar. Research fundin12as provided by the Political Economy Research Institute of the niversity of Massachusetts at!mherst.

mailto:dmkotz@econs.umass.edumailto:dmkotz@econs.umass.edu

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Globalization and Neoliberalism $

,or some t2o decades neoliberalism has dominated economic policyma/in1 in the &

and the K. 4eoliberalism has stron1 advocates in continental 7estern Europe and 8apan" but

substantial popular resistance there has limited its influence so far" despite continuin1 & efforts

to impose neoliberal policies on them. In much of the Third 7orld" and in the transition countries

9e-cept for :hina;" the & has been successful in dictatin1 neoliberal policies" actin1 partly

throu1h the IM, and 7orld

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Globalization and Neoliberalism *

national boundaries. That is" corporations" ban/s" and individual investors should be free to move

their property across national boundaries" and free to ac>uire property across national boundaries"

althou1h free cross(border movement by individuals is not part of the neoliberal pro1ram.

Ho2 can the re(emer1ence of a seemin1ly outdated and outmoded economic theory be

e-plainedC !t first many pro1ressive economists vie2ed the $6#s lurch to2ard liberalism as a

temporary response to the economic instability of that decade. !s corporate interests decided that

the Keynesian re1ulationist approach no lon1er 2or/ed to their advanta1e" they loo/ed for an

alternative and found only the old liberal ideas" 2hich could at least serve as an ideolo1ical basis

for cuttin1 those state pro1rams vie2ed as obstacles to profit(ma/in1. Ho2ever" neoliberalism

has proved to be more than @ust a temporary response. It has outlasted the late $6#searly $+#s

ri1ht(2in1 political victories in the K 9Thatcher; and & 9Rea1an;. nder a Democratic Party

administration in the & and a abor Party 1overnment in the K in the $#s" neoliberalism

solidified its position of dominance.

This paper ar1ues that the resur1ence and tenacity of neoliberalism durin1 the past t2o

decades cannot be e-plained" in an instrumental fashion" by any favorable effects of neoliberal

policies on capitalist economic performance. ?n the contrary" 2e 2ill present a case that

neoliberalism has been harmful for lon1(run capitalist economic performance" even @ud1in1

economic performance from the perspective of the interests of capital. It 2ill be ar1ued that the

resur1ence and continuin1 dominance of neoliberalism can be e-plained" at least in part" by

chan1es in the competitive structure of 2orld capitalism" 2hich have resulted in turn from the

particular form of 1lobal economic inte1ration that has developed in recent decades. The chan1ed

competitive structure of capitalism has altered the political posture of bi1 business 2ith re1ard to

economic policy and the role of the state" turnin1 bi1 business from a supporter of state(re1ulated

capitalism into an opponent of it.

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Globalization and Neoliberalism %

The Problematic Character of Neoliberalism

4eoliberalism appears to be problematic as a dominant theory for contemporary

capitalism. The stability and survival of the capitalist system depends on its ability to brin1

vi1orous capital accumulation" 2here the latter process is understood to include not @ust economic

e-pansion but also technolo1ical pro1ress. 3i1orous capital accumulation permits risin1 profits to

coe-ist 2ith risin1 livin1 standards for a substantial part of the population over the lon1(run.*

Ho2ever" it does not appear that neoliberalism promotes vi1orous capital accumulation in

contemporary capitalism.

There are a number of reasons 2hy one 2ould not e-pect the neoliberal model to promote

rapid accumulation. ,irst" it 1ives rise to a problem of insufficient a11re1ate demand over the

lon1 run" stemmin1 from the po2erful tendency of the neoliberal re1ime to lo2er both real

2a1es and public spendin1. &econd" the neoliberal model creates instability on the

macroeconomic level by renouncin1 state counter(cyclical spendin1 and ta-ation policies" by

reducin1 the effectiveness of

!automatic stabilizers0 throu1h shrin/in1 social 2elfare pro1rams"% and by loosenin1 public

re1ulation of the financial sector. This renders the system more vulnerable to ma@or financial

crises and depressions. Third" the neoliberal model tends to intensify class conflict" 2hich can

potentially discoura1e capitalist investment.'

The historical evidence confirms doubts about the ability of the neoliberal model topromote

rapid capital accumulation. 7e 2ill loo/ at 1ro2th rates of 1ross domestic product 9=DP; and of

labor productivity. The =DP 1ro2th rate provides at least a rou1h appro-imation of the rate of

capital accumulation" 2hile the labor productivity 1ro2th rate tells us somethin1 about the e-tent

to 2hich capitalism is developin1 the forces of production via risin1 ratios of means of

production to direct labor" technolo1ical advance" and improved labor s/ills.)

Table $ sho2s avera1e annual real =DP 1ro2th rates for si- leadin1 developed capitalist

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Globalization and Neoliberalism 52ealth in the direction of the already 2ealthy. Ho2ever" the ability to shift income up2ard has

limits

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Globalization and Neoliberalism )

in an economy that is not 1ro2in1 rapidly. 4eoliberalism does not appear to be deliverin1 the

1oods in the 2ays that matter the most for capitalismGs lon1(run stability and survival.

The Structure of Competition and Economic Policy

The processes throu1h 2hich the dominant economic ideolo1y and policies are selected in

a capitalist system are comple- and many(sided. 4o 1eneral rule operates to assure that those

economic policies 2hich 2ould be most favorable for capitalism are automatically adopted.

History su11ests that one important determinant of the dominant economic ideolo1y and policy

stance is the competitive structure of capitalism in a 1iven era. &pecifically" this paper ar1ues that

periods of relatively unconstrained competition tend to produce the intellectual and public policy

dominance of liberalism" 2hile periods of relatively constrained" oli1opolistic mar/et relations

tend to promote interventionist ideas and policies.

! relation in the opposite direction also e-ists" one 2hich is often commented upon. That

is" one can ar1ue that interventionist policies promote monopoly po2er in mar/ets" 2hile liberal

policies promote 1reater competition. This latter relation is not bein1 denied here. Rather" it 2ill

be ar1ued that there is a normally(overloo/ed direction of influence" havin1 si1nificant historical

e-planatory po2er" 2hich runs from competitive structure to public policy.

In the period 2hen capitalism first became 2ell established in the &" durin1 $+##($+5#"

the 1overnment played a relatively interventionist role. The federal 1overnment placed hi1h

tariffs on competin1 manufactured 1oods from Europe" and federal" state" and local levels of

1overnment all actively financed" and in some cases built and operated" the ne2 canal and rail

system that created a lar1e internal mar/et. There 2as no serious debate over the propriety of

public financin1 of transportation improvements in that era (( the only debate 2as over 2hich

re1ions 2ould 1et the /ey subsidized routes.

?nce capitalism had become 2ell established in the & after the :ivil 7ar" it entered a

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Globalization and Neoliberalism 5

period of cutthroat competition and 2ild accumulation /no2n as the Robber ualities" the severe business cycle" and the outra1eous and often

unla2ful behavior of the =oulds and Roc/efellers" the idea that 1overnment should not intervene

in the economy held s2ay throu1h the end of the $th

century.

,rom rou1hly $+# to $#% a hu1e mer1er 2ave transformed the competitive structure of&

capitalism. ?ut of that mer1er 2ave emer1ed 1iant corporations possessin1 si1nificant monopoly

po2er in the manufacturin1" minin1" transportation" and communication sectors. & industry

settled do2n to a more restrained form of oli1opolistic rivalry. !t the same time" many of the

ne2 monopoly capitalists be1an to criticize the old aissez ,aire ideas and support a more

interventionist role for the state.+

The combination of bi1 business support for state re1ulation of

business" to1ether 2ith similar demands arisin1 from a popular anti(monopoly movement based

amon1 small farmers and middle class professionals" ushered in 2hat is called the Pro1ressive

Era" from $##($5. The buildin1 of a re1ulationist state that 2as be1un in the Pro1ressive Era 2as

completed durin1 the 4e2 Deal era a fe2 decades later" 2hen once a1ain both bi1 business

leaders and a vi1orous popular movement 9this time based amon1 industrial 2or/ers; supported

an interventionist state.

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Globalization and Neoliberalism 6

Pro1ressive Era throu1h the 4e2 Deal do2n to the present. This division bet2een bi1 and small

business is chronicled for the Pro1ressive Era in 7einstein 9$5+;. In the decades immediately

follo2in1 7orld 7ar II one can observe this division in the diver1ent vie2s of the

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Globalization and Neoliberalism +

the $6#s. 7ith business no2 unified on economic policy" the shift 2as dramatic.

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Globalization and Neoliberalism

increase of nearly three(fourths by $$%. !fter declinin1 in the inter2ar period" 2orld e-ports

reached a ne2 pea/ of $$.*F of 2orld output in $6%" risin1 further to $%.)F in $*. The $*

fi1ure 2as over fifty per cent hi1her than the pre(7orld 7ar I pea/.

Merchandise e-ports include physical 1oods only" 2hile =DP includes services" many of

2hich are not tradable" as 2ell as 1oods. In the t2entieth century the proportion of services in

=DP has risen si1nificantly. Table ' sho2s an estimate of the ratio of 2orld merchandise e-ports

to the 1ood(only portion of 2orld =DP. This ratio nearly tripled durin1 $)#(*" 2ith

merchandise e-ports risin1 to nearly one(third of total 1oods output in the latter year. The $*

fi1ure 2as *.5 times as hi1h as that of $$%.

7estern Europe" the &" and 8apan all e-perienced si1nificant increases in e-ports relative

to =DP durin1 $)#(*" as Table % sho2s. !ll of them achieved ratios of e-ports to =DP far in

e-cess of the $$% level. 7hile e-ports 2ere only +.*F of the total =DP of the & in $*"

e-ports amounted to **.#F of the non(service portion of =DP that year 9Economic Report of the

President"

$" pp. %%+" ''';.

Many analysts vie2 forei1n direct investment as the most important form of cross(border

economic interchan1e. It is associated 2ith the movement of technolo1y and or1anizational

methods" not @ust 1oods. Table ) sho2s t2o measures of forei1n direct investment. :olumn $

1ives the outstandin1 stoc/ of forei1n direct investment in the 2orld as a percenta1e of 2orld

output. This measure has more than doubled since $6)" althou1h it is not much 1reater today

than it 2as in

$$%. :olumn * sho2s the annual inflo2 of direct forei1n investment as a percenta1e of 1ross

fi-ed capital formation. This measure increased rapidly durin1 $6)(). Ho2ever" it is still

relatively lo2 in absolute terms" 2ith forei1n direct investment accountin1 for only ).* per cent

of 1ross fi-ed capital formation in $).

4ot all" or even most" international capital flo2s ta/e the form of direct investment.

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Globalization and Neoliberalism $,inancial

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Globalization and Neoliberalism $#

flo2s 9such as cross(border purchases of securities and deposits in forei1n ban/ accounts; are

normally lar1er. ?ne measure that ta/es account of financial as 2ell as direct investment is the

total net movement of capital into or out of a country. That measure indicates the e-tent to 2hich

capital from one country finances development in other countries. Table 5 sho2s the absolute

value of current account surpluses or deficits as a percenta1e of =DP for $* ma@or capitalist

countries. &ince net capital inflo2 or outflo2 is appro-imately e>ual to the current account

deficit or surplus 9differin1 only due to errors and omissions;" this indicates the size of net cross(

border capital flo2s. The ratio nearly doubled from $6#(6' to $#(5" althou1h it remained

2ell belo2 the fi1ure for

$$#($'.

:ross(bordergross capital movements have 1ro2n much more rapidly than cross(border

net capital movements.$$

In recent times a very lar1e and rapidly 1ro2in1 volume of capital has

moved bac/ and forth across national boundaries. Much of this capital flo2 is speculative in

nature" reflectin1 1ro2in1 amounts of short(term capital that are moved around the 2orld in

search of the best temporary return. 4o data on such flo2s are available for the early part of this

century" but the data for recent decades are impressive. Durin1 $+#() cross(border transactions

in bonds and e>uities as a percenta1e of =DP rose from F to $%5F for the &" from +F to

$5+F for =ermany" and from +F to 55F for 8apan 9

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Globalization and Neoliberalism $$

corporation 9T4:; is relevant here" 2here a T4: is a corporation 2hich has a substantial

proportion of its sales" assets" and employees outside its home country.$*

T4:s e-isted in the pre(

7orld 7ar I era" primarily in the e-tractive sector. In the post(7orld 7ar II period many lar1e

manufacturin1 corporations in the &" 7estern Europe" and 8apan became T4:s.

The lar1est T4:s are very international measured by the location of their activities. ?ne

study found that the $## lar1est T4:s in the 2orld 9ran/ed by assets; had '#.'F of their assets

abroad" )#.#F of output abroad" and '6.F of employment abroad in $5 9&utcliffe and =lyn"

$" p. $*);. 7hile this sho2s that the lar1est T4:s are si1nificantly international in their

activities" all but a handful have retained a sin1le national base for top officials and ma@or

stoc/holders.$%

The top *## T4:s ran/ed by output 2ere estimated to produce only about $# per

cent of 2orld =DP in $) 9&utcliffe and =lyn" $" p. $**;.

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Globalization and Neoliberalism $*

system based much more on specialization and division of labor. That is" manufactured 1oods

2ere e-ported by the advanced capitalist countries in e-chan1e for primary products" unli/e

today 2hen most trade is in manufactured 1oods. In $$% 5*.)F of 2orld trade 2as in primary

products 9

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Globalization and Neoliberalism $%

production facilities in the home mar/ets of their forei1n rivals. =eneral Motors not only faces

import competition from Toyota and Honda but has to compete 2ith &(produced Toyota and

Honda vehicles. Third" the increasin1ly inte1rated and open 2orld financial system has thro2n

the ma@or ban/s and other financial institutions of the leadin1 capitalist nations increasin1ly into

competition 2ith one another.

=lobalization appears to be one factor that has transformed bi1 business from a supporter

to an opponent of the interventionist state. It has done so partly by producin1 T4:s 2hose tie to

the domestic mar/ets for 1oods and labor is limited. More importantly" 1lobalization tends to turn

bi1 business into small business. The process of 1lobalization has increased the competitive

pressure faced by lar1e corporations and ban/s" as competition has become a 2orld(2ide

relationship.$6

Even if those 2ho run lar1e corporations and financial institutions reco1nize the

need for a stron1 nation( state in their home base" the ne2 competitive pressure they face

shortens their time horizon. It pushes them to2ard support for any means to reduce their ta-

burden and lift their re1ulatory constraints" to free them to compete more effectively 2ith their

1lobal rivals. 7hile a re1ulationist

state may seem to be in the interests of bi1 business" in that it can more effectively promote

capital accumulation in the lon1 run" in a hi1hly competitive environment bi1 business is dra2n

a2ay from supportin1 a re1ulationist state.

=lobalization has produced a 2orld capitalism that bears some resemblance to the Robber

uisitions abound" includin1 some that cross national boundaries" but so far fe2

2orld industries have evolved the /ind of ti1ht oli1opolistic structure that 2ould lay the basis for

a more controlled form of mar/et relations. i/e the late $th

century & Robber

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Globalization and Neoliberalism $'

The above interpretation of the rise and persistence of neoliberalism attributes it" at least

in part" to the chan1ed competitive structure of 2orld capitalism resultin1 from the process of

1lobalization. !s neoliberalism 1ained influence startin1 in the $6#s" it became a force

propellin1 the 1lobalization process further. ?ne reason for stressin1 the line of causation runnin1

from 1lobalization to neoliberalism is the time se>uence of the developments. The process of

1lobalization" 2hich had been reversed to some e-tent by political and economic events in the

inter2ar period" resumed ri1ht after 7orld 7ar II" producin1 a si1nificantly more 1lobalized

2orld economy and erodin1 the monopoly po2er of lar1e corporations 2ell before neoliberalism

be1an its second comin1 in the mid $6#s. The rapid rise in merchandise e-ports be1an durin1

the

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Globalization and Neoliberalism $)

The socialist movements in the industrialized capitalist countries have declined in

stren1th si1nificantly over the past fe2 decades. 7hile &ocial Democratic parties have come to

office in several European countries recently" they no lon1er represent a threat of even si1nificant

modification of capitalism" much less the specter of replacin1 capitalism 2ith an alternative

socialist system. The re1ulationist state 2as al2ays partly a response to the fear of socialism" a

point illustrated by the emer1ence of the first ma@or re1ulationist state of the era of mature

capitalism in

=ermany in the late $th

century" in response to the 2orldGs first ma@or socialist movement. !s the

threat comin1 from socialist movements in the industrialized capitalist countries has receded" so

too has to incentive to retain the re1ulationist state.

The e-istence of a po2erful bloc of :ommunist(run states 2ith an alternative !state

socialist0 socioeconomic system tended to push capitalism to2ard a state re1ulationist form. It

reinforced the fear amon1 capitalists that their o2n 2or/in1 classes mi1ht turn a1ainst capitalism.

It also had an impact on relations amon1 the leadin1 capitalist states" promotin1 inter(state unity

behind & leadership" 2hich facilitated the creation and operation of a 2orld(system of

state(re1ulated

capitalism.$

The demise of state socialism durin1 $+($ removed one more factor that had

reinforced the re1ulationist state.

The occurrence of a ma@or economic crisis tends to promote an interventionist state" since

active state intervention is re>uired to overcome a ma@or crisis. The memory of a recent ma@or

crisis tends to /eep up support for a re1ulationist state" 2hich is correctly seen as a stabilizin1

force tendin1 to head off ma@or crises. !s the =reat Depression of the $%#s has receded into the

distant past" the belief has ta/en hold that ma@or economic crises have been banished forever.

This reduces the perceived need to retain the re1ulationist state.

Concluding Comments

If neoliberalism continues to rei1n as the dominant ideolo1y and policy stance" it can be

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Globalization and Neoliberalism $5

ar1ued that 2orld capitalism faces a future of sta1nation" instability" and even eventual social

brea/do2n.*#

Ho2ever" from the factors that have promoted neoliberalism one can see possible

sources of a move bac/ to2ard state(re1ulated capitalism at some point.

?ne possibility 2ould be the development of ti1ht oli1opoly and re1ulated competition on

a 2orld scale. Perhaps the current mer1er 2ave mi1ht continue until" as happened at the

be1innin1 of the *#th

century 2ithin the & and in other industrialized capitalist economies"

oli1opoly replaced cutthroat competition" but this time on a 2orld scale. &uch a development

mi1ht revive bi1 business support for an interventionist state. Ho2ever" this does not seem to be

li/ely in the foreseeable future. The 2orld is a bi1 place" 2ith differin1 cultures" la2s" and

business practices in different countries" 2hich serve as obstacles to overcomin1 the competitive

tendency in mar/et relations. Transformin1 an industryGs structure so that t2o to four companies

produce the bul/ of the output is not sufficient in itself to achieve stable monopoly po2er" if the

rivals are unable to communicate

effectively 2ith one another and find common 1round for cooperation. !lso" it 2ould be difficult

for international monopolies to e-ercise effective re1ulation via national 1overnments" and a

1enuine 2orld capitalist state is not a possibility for the foreseeable future.

If state socialism re(emer1ed in one or more ma@or countries" perhaps this mi1ht push the

capitalist 2orld bac/ to2ard the re1ulationist state. Ho2ever" such a development does not seem

li/ely. Even if Russia or /raine at some point does head in that direction" it 2ould be unli/ely to

produce a serious rival socioeconomic system to that of 2orld capitalism.

! more li/ely source of a ne2 era of state interventionism mi1ht come from one of the

remainin1 t2o factors considered above. The macro(instability of neoliberal 1lobal capitalism

mi1ht produce a ma@or economic crisis at some point" one 2hich spins out of the control of the

2ea/ened re1ulatory authorities. This 2ould almost certainly revive the politics of the

re1ulationist state.

,inally" the increasin1 e-ploitation and other social problems 1enerated by neoliberal

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Globalization and Neoliberalism $61lobal

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Globalization and Neoliberalism $6

capitalism mi1ht prod the socialist movement bac/ to life at some point. &hould socialist

movements revive and be1in to seriously challen1e capitalism in one or more ma@or capitalist

countries" state re1ulationism mi1ht return in response to it. &uch a development 2ould also

revive the possibility of finally supercedin1 capitalism and replacin1 it 2ith a system based on

human need rather than private profit.

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Globalization and Neoliberalism *$

Table 1 Gro!th "ates of "eal Gross #omestic Product for Selected Countries

9!nnual avera1e percenta1e rate of 1ro2th;

Country 1$%&'() 1$()'$$

,rance ).# *.*

=ermany 5.# *.$

Italy ).5 *.%

8apan .* *.

K %.# *.#

&! '.# %.#

&ourcesA ?E:D" *###B &

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Globalization and Neoliberalism **

Table ) 2erchandise E3ports as a Percentage of G#P

4ear 5orld6 5estern

Europe

-S. 7apan

$+*# $.# 4.!. *.# 4.!.

$+6# ).# $#.# *.) #.*

$$% +.6 $5.% %.6 *.'

$)# 6.# .' %.# *.%

$6% $$.* *#. ).# 6.

$* $%.) *.6 +.* $*.'

4oteA =DP and e-ports are in $# prices.

The !2orld0data cover )5 countries" 2hich accounted for % per cent of 2orld output and +6per cent of 2orld population and e-ports in $*.

&ourceA Maddison" $)" p. %+.

Table 8 5orld 2erchandise E3ports as a Percentage of 5orld Non'Ser,ice G#P

4ear

5orld 2erchandise

E3ports as a Percentage of

5orld Non'Ser,ice G#P

$+*# $.*

$+6# 5.*

$$% $*.*

$)# $$.#

$* %$.%

&ourceA Menshi/ov" $6.

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Globalization and Neoliberalism *%

Table % Foreign #irect 9n,estment

4ear

/10

5orld Stoc: of

Foreign #irect

9n,estment as aPercentage of

5orld Output

/*0

5orld Foreign #irect

9n,estment 9nflo!s as a

Percentage of 5orldGross Fi3ed Capital

Formation

$$% .# 4.!.

$5# '.' $.$

$6) '.) $.'

$) $#.$ ).*

&ourceA

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Globalization and Neoliberalism *'

"eferences

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Globalization and Neoliberalism *)

&utcliffe"

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Globalization and Neoliberalism $

state09&utcliffe and =lyn" $" p. $*5;.

$6. 8effrey =arten" the dean of the Jale &chool of Mana1ement" remar/ed that !mericancorporate :E?s today !feel they are in a brutally competitive 2orld" and they thin/ they are in arace for their lives09The Ne &ork Times" $+ 8uly $" &ec. '" p. ';. 4o serious analyst 2ould

have described the mindset of & bi1 business in such terms in the $)#s or $5#s" 2hen lar1ecorporations made lar1e profits almost every year" avoided price competition" and rarely sufferedan annual loss.

$+. This does not e-clude the use of state po2er to 1ain easy profits 2hen the opportunity arises"throu1h sale of 1oods and services to public entities or by obtainin1" cheaply or for free" publicassets such as land" mineral ri1hts" loans" and subsidies < as 2as common in the Robber