By Francis Lee for the Saker Blog
Globalization – i.e., neo-liberalism writ large – is essentially a negative phenomenon destroying the sovereignty and cohesion of nation states and thereby depriving markets of the social and political guidance without which they cannot function effectively…The result will be a socially divisive, politically destructive, ethically abhorrent and even economically inefficient structure.(1)
JOINED AT THE HIP
Transnational Corporations (TNCs) can be compared to a tree: they have extensive branches everywhere, but their roots are firmly based at National HQ. Of late this has become a disputed view. One of the contemporary clichés in the current discussion of global political economy is the rather dubious concept of the end of the nation state and the subsequent breaking of the shackles which had hitherto tied TNCs to specific geographical and legal locations. It has been argued that these organizations have moved beyond the control of nation states who can no longer exercise effective jurisdiction over their activities.
This ‘state-denial’ thesis has been articulated by the influential hyper-globalist faction ensconced in the financial press, academic economics departments and political parties. In a ‘borderless’ world the state apparently no longer matters; economic power has shifted from sovereign states to global markets. In the words of the German political and social theorist, Wolfgang Streeck, ‘Markets were once fitted into states; now states are fitted into markets.’(2)This change has involved a global transmutation which reputedly has been brought about by the invention of revolutionary technologies in transport and communications. Such is the thesis put forward by the spokespersons of globalization.
True to say that in general terms all states have to choose a global strategy; they have to look at the full range of choices, then they have to decide what is in their best interests. In the current era of global competition, trade liberalization via the market remains the riskiest choice of all. It demands that trade barriers of all kinds be dismantled – the EU model being the archetype. With this policy governments have to let international competitive pressures restructure industries without recourse to state aids or other protectionist methods. This requires states to open their borders regardless of the costs and consequences in industries and vulnerable workers. Russia in the 1990s was a textbook example of what would happen if a state opened its economy too early, namely, a massive economic contraction. In the official textbooks among the neo-classical scribblers in academe and the media, markets are seen to be self-organizing social and economic space responding to universal demand and supply signals.
For countries which accept this view of the world economy, state power to make policy independent of a country’s major trading partner is being progressively eroded as countries find themselves trapped in a seamless web of interdependency. Larger markets do not come without a cost. This much is axiomatic.
Since the 2008 crisis, however, and now the 2020 blowout the state-denialist view has been more difficult if not actually impossible to sustain. It was after all the allegedly redundant state (or states) which pulled capitalism’s chestnuts out of the fire with the bail-out of insolvent American banks in 2008. As the story goes, during the meeting between Obama and the Wall Street elite at the height of the 2008 crisis the President apparently remarked that it was only himself who stood between the assembled financial movers and shakers of Wall Street and ‘the pitchforks’. The US government also ponied up some US$50 billion to bail out distressed auto manufacturers General Motors and Ford who were based in ‘Motor City’ (Detroit). Detroit itself was also bankrupt but the Federal government was unable to find an additional US$13 billion to bail out the city itself. Maybe – just a thought – because the population of Motor City was largely African-American.
However, the received wisdom emanating from the neoliberal elite has been challenged with a more critical assessment coming from heterodox economic theorists.
‘’Contrary to the globalist supposition and as a matter of fact, the (sovereign) state always has, and continues to be the mobilizing force in shaping and guiding national economic development, including globalization itself. Given that an increased capability to overcome geographical distance made possible by technological innovations in transport and communication technologies is of little use if there are political barriers to such movements. Thus, policies of liberalization, deregulation and privatisation were necessary to overcome non-technical barriers to the free flow of labour, capital, and commodities. Therefore, the enabling force of globalization was the state. In fact, the bigger and more powerful states have used globalization as a means of increasing their own power and interests.
States actively construct globalization and use it as soft geo-politics and to acquire greater power over, and autonomy from, their national economies and societies respectively … E.g. … The US and G7s other dominant members design and establish the international trade agreements, organizations, and legislation that support and govern trans-border investments, production networks, and market penetration constitutive of contemporary globalization. Advanced capitalist states, particularly, use these political instruments to shape international economic decision making and policy making in their interests.’’ (3)
In addition, nation-states protect, subsidize, manipulate currencies, impose quotas, sanctions, give tax breaks and exemptions to export industries, R&D, and grant patents, use procurement policies and intellectual property rights to their indigenous corporations to both protect their home markets and help them penetrate overseas markets. This is laughingly described as ‘free trade’. States and corporations are not antipodes they are twins, and arguably the state is the senior partner in this arrangement.
For example, in 1934 the Roosevelt administration passed the Glass-Steagall Act. This involved a forced separation of investment banking from commercial banking which stopped banks speculating with depositors’ monies. In 1999, however, Bill Clinton signed the Financial Services Modernization Act, commonly known as Gramm-Leach-Bliley, repealing the key components of Glass-Steagall whose articles became largely toothless. This was what Wall Street had been angling for and which gave an additional push to the eventual debacle in 2008.
The state giveth, and the state taketh away.
Thus, the notion that powerful trends of internationalization and interdependence have ended national sovereignty is vastly overstated. States remain in charge of the essential part of their national sovereignty: monetary policy, (except in the Eurozone of course) law-making, macroeconomic policy, finance and taxation, environment, education, labour markets, industrial relations, pensions, health and welfare, social policy, science and technology and so forth. Arguably no supra-national entity has yet been designed to replace what has been an effective system of national government. Unimpeded global flows of capital in search of lucrative investment opportunities, are hardly conducive for countries wishing to plan and stabilize their future free from the vagaries of uncontrolled markets
Power to shape/control the global system is concentrated in the hands of states and/or the newly emergent TNCs. Of course, there is not going to be a simple description of this development as the relationship between these two pillars of modern imperialism is both fractious and permanently mutating. The received wisdom, as put forward by the various spokespersons for globalization, ranging from the Bank of International Settlements (BIS) OECD, WTO, World Bank and IMF, and through the globalist house journals of the global Transnational Uberklasse – The Financial Times, The Economist and Wall Street Journal – is predictable enough. Namely that the state is always in a subservient position vis-à-vis the dominant TNCs.
This perhaps would qualify as a procrustean effort to make the facts fit the theory. Contrary to the image of the all-powerful TNC demanding fealty and obedience from prostrate states, the relationship is somewhat more symmetrical; corporations and states are always to a certain degree joined at the hip.
They are both competitive and competing, both supportive and conflictual. They operate in a fully dialectical relationship, locked into unified but contradictory roles and positions, neither one nor the other partner completely able to dominate.
NO PLACE LIKE HOME
Additionally, the widespread notion that a TNC can simply up sticks and move lock, stock, and barrel to a more compatible venue if its home base no longer suits its purposes, is fanciful in the extreme. All TNCs have home bases, national HQs. Here is where global strategy is determined; here is where top-end R&D is carried out; here is where design and marketing strategies take place; here is where the domestic market is situated and where long-term domestic suppliers are located; here is where overseas operations are conceived planned and carried through; here is where AGMs of the Corporations takes place with published accounts circulated to all shareholders; here is where the local workforce, at all levels, is recruited; here is where the political bureaucracy and the above mentioned institutions are situated and amenable to lobbying. Picking an obvious example, the US defence industries, Raytheon, Lockheed-Martin, Northrop-Grumman, General Dynamics, Boeing, are all based domestically and are not, even if they could, going to jump ship anytime soon.
It is unquestionably true that TNCs and states often have divergent goals: TNCs’ primary function is to maximise profits and enhance shareholder value, whereas the economic role of the state should be to maximise the economic welfare of its society. But although this conflictual relationship exists, states and TNCs need and lean on each other in a variety of ways. States might wish that TNCs are bound by allegiance to national borders – and in many ways they are (see above) – but total allegiance is not an option in a liberal capitalist economy. Indeed, it would be true to say that some states regard TNC (activities) as being complementary to their foreign policy. Here economic issues merge with geopolitical imperatives. For example, American political leaders have believed that the national interest has also been served by the foreign expansion of US corporations in manufacturing and services. Foreign Direct Investment (FDI) has been considered a major instrument through which the US could maintain its relative position in world markets – as is of course the US$ acting as the world’s reserve currency – with the overseas expansion of TNCs being regarded as a means to maintain America’s dominant world position. As it was succinctly stated. ’What’s good for General Motors is Good for America’.
THE EU: SUPRANATIONAL OR NATIONAL STATES.
Which brings me to the EU. The state-declinist thesis seems to have gained a considerable traction in Europe among the orthodox left. No less a personage than Yanis Varoufakis – the initiator of DiEM2025 (Democracy in Europe) – has been reading the last rites of state democracy and sovereignty in Europe. Apparently, the model of politics based on the nation state is ‘finished’. The sovereignty of national parliaments has been dissolved. Today, national electoral mandates are impossible to fulfil. Hence, reform of the European institutions (specifically the Euro Parliament), is the only remaining option.
Essentially this is the latest version of the TINA ‘argument’, (there is no alternative), pioneered by Mrs Thatcher and rolled out with monotonous regularity ever since by every cornered establishment politician, both left and right. As has been noted elsewhere. ‘’Tell the population that the nation-state is ‘finished,’ that it is unable to guarantee full employment (or to work towards it) and you free yourself of the responsibility of even trying.’’ The same goes for austerity or anything else. If the nation state is ‘kaput’ it is futile to oppose it.’’(4)
Globalization, however, is far from being the all-powerful and all- encompassing Leviathan postulated by the declinists. ’There are major cultural and linguistic differences that preclude a full mobilisation of resources across national borders. There is ‘home bias in investment portfolios. There is a high correlation between national investment rates and national saving rates. Capital flows between rich and poor nations fall considerably short of what theoretical models predict. There are still severe restrictions to the international mobility of labour. The truth is that we do not live in a completely globalised world, far from it. Ergo, nation-states can pursue their own fiscal and monetary policies.
Ex-leader of the British Labour Party, Jeremy Corbyn’s (quite moderate) policy proposals, during the 2017 and 2019 UK elections, namely, peoples’ QE, renationalisation of the Railways, taking into public ownership the energy and water industries together with the Royal Mail were not beyond the scope of the UK qua sovereign and democratic state. Additionally, these policies found considerable support among the UK’s population at large. (5) Unfortunately Corbyn’s programme was derailed by pro-EU elements in the Parliamentary Labour Party, the MSM and a vicious and mendacious ‘antisemitic’ smear campaign aimed at Corbyn. But this doesn’t alter the fact that a sovereign country can issue its own currency and formulate its own fiscal and monetary policy that can override the EU neo-liberal package of free movement of labour, capital, and commodities. This in addition to blocking the drive to deregulate labour markets (euphemistically, ‘flexibilization’). The sovereign state is perfectly capable of a policy for growth rather than for continued austerity which has become the hallmark of the EU area. But to carry out such growth policies would require an exit from the EU. There’s the rub. Social-democratic policies are incompatible to the EU’s liberal orientation, which is a structurally, neo-liberal capitalist institution.
The euro has in fact simply been designed to ensure that Germany runs a permanent trade surplus whilst the southern periphery runs continuing trade deficits – a simple accounting identity. Eventually something will have to give. It is also noticeable that Germany seems to be harbouring increasingly regional hegemonic ambitions regarding the rest of Europe. It seems to be positioning itself as the EUs anti-Russian key front-line probably with US backing. Euro state Socialism or even tepid social democracy can never truly thrive within such a hostile and increasingly militarised political environment. But that’s another explosive can of worms.
The position of the globalist left as outlined in the DiEM2025 manifesto, however, seems like a back-to-front attempt to by-pass national institutions and to attempt through a supra-national democracy to make fundamental reforms, through a democratised and strengthened EU. But even Varoufakis regards this as being ‘utopian.’ But he continues, it is ‘a lot more realistic than trying to maintain the system as it is’ or ‘trying to leave.’ (6)
More realistic, really? But this begs the obvious question of why such an entity is going to be any different from the present dispensation; will be any less neo-liberal and undemocratic if it is given greater powers and is integrated further? It seems to make more sense to work from the national to the supra-national level than the other way around – particularly given that most states in the EU are governed by centre right coalitions with social-democrats in tow (but acting like centre right liberals). Moreover, the transfer of local democracy – which we are told is now obsolete – to supranational democracy contributes to a weakening of popular control. This leapfrogging of national democracy to supranational democracy perforce requires a supranational electorate. This is problematic however since for the great majority of ordinary European citizens linguistic barriers and cultural differences impair the opportunity for political participation at a supra-national level. And so the dialogue, such as it is, goes on – ad nauseam.
This should not be considered a mere academic nit-picking issue for Socratic Senior Common Room dialogue. It is the key geopolitical issue of the day, as to whether sovereign nation states can determine their own future and political structures and policies, against the globalist project to turn the world into a borderless playground for international finance, corporate hegemony and the corollary of extinguishing democracy.
IDEOLOGICAL INTEGRATION OF STATES INTO NEOLIBERAL MARKET THEORY
But perhaps a more disturbing feature of the state/economy relationship has been the ongoing and gradual privatisation of the state itself. The role of the state has traditionally been a provider of public goods – education, healthcare, culture, parks, libraries, museums, transport infrastructure, including water, energy, forests and national parks, defence, law and order and judiciary, telecommunications, egalitarian social policies and so forth. The role of the market qua economy is to produce private goods and services for sale on a market. There has always been a tension between ‘the commons’- i.e., that which is public and open for everyone to use – and ‘commodification’ which turns things into commodities for private ownership and money-making. To use Marxist terminology, the commons has use-value, not an exchange-value (a market price) simply because it is not – and by definition cannot be – a commodity that can be bought, sold, or commercialised. The elevation of use-value over exchange-value is integral to the commons.
Throughout history, powerful interests have sought to privatise, close, and commodify the commons whether land, other spaces, amenities, or even intellectual ideas – to contrive scarcity and create income-earning assets. To the extent to which the succeeding enclosure and privatisation drives up rental income and proliferate its sources, increasing private riches while eroding public wealth. Such asset-stripping, rent-seeking behaviour by private companies intent on rent-extraction is not only tolerated by public authorities but actually encouraged.
Other examples of this have been the government/private sector liaison whereby private companies are now employed by the government to perform the role which was once the prerogative of governments. These government/private financial arrangements were called Private Financial Initiatives PFIs or Public Private Partnerships PPPs and were operationalised in both the UK and Australia. These predatory organizations were simply looking for public authority institutions to milk. Their incompetence – and outright looting – was legendary. The privatisation of British Rail, for example, led to increased accidents, higher costs, monopolistic rents (in terms of ticket prices), overcrowded trains, and failure to meet the timetable criteria.
In Australia, a report by the New South Wales Auditor General in 2002 warned of the considerable risks associated with the outsourcing of information technology and of the need to ensure that agencies are clear why they should do so. The previously inconceivable opportunities for the security of private information, collected and held by governments to be compromised, opening the way for identity fraud and held by governments was dramatically exposed in November 2007, when the British Department of Revenue and Customs was unable to account for two compact disks which had been sent through the mail at the National Audit Office. These disks contained highly detailed personal information concerning the 25 million citizens who received child benefits, information which included their addresses and bank account numbers, along with details of their children.
This was not an unusual occurrence it was simply another example – among many – of the ongoing rip-off of the public taxpayer by rent-seeking marauders. The market is always right, always works best, and always delivers the goods, or so it is ordained. Such is the categorical imperative of neoliberalism.
Coming full circle, the point of arrival involves a recognition that the relationship between (usually capitalist) states and markets has been a permanent and alternating process which started with the industrial revolutions in western Europe and North America. On the one side there are the permanent state bureaucracies and organizations which function as the basis for the production of public goods, and the national interest as they define it. This is complemented by the free-wheeling, cosmopolitan, financial and corporate interests whose outlook and policies are global as well as national and whose objectives are both practical and ideological. Practical in the sense that their motives are commercial and predicated on the imperative of growth and development not necessarily restricted to their national base. Ideological in terms of their neo-liberal Weltanschauung.
It was the great American social and political theorist C. Wright Mills who postulated the existence of what he called, The Power Elite as early as 1956. The American elite groups were composed of most importantly The Corporate Rich, The Warlords and The Political Directorate which together with various lower ranking sub-elite groups controlled the United States. State and Economy have to an extent always coexisted, their positions and influence moving back and forth, but in recent years (circa 1980) there has been – to put it mildly – a marked tendency of power and influence to tilt away from the state and toward the corporate/commercial configurations. Whether this trend will continue is an open question; but it would not be amiss to assert that nothing goes on forever.
(1)Manfred Bienefeld – Is a Strong National Economy a Utopian Goal at the end of the 20th Century? – States Against Markets – pp. 434,435
(2) Wolfgang Streeck – ‘Buying Time’ – The Democratic Crisis Of Democratic Capitalism. ‘
(3) M. Gritsch – (2005: 2-3) (Nye 2002) Quoted in – The State Really Does Matter, Global Shift 2012 – p.223
(4) Picciotto, S. 1991 The Internationalisation of the State – Capital and Class 43.43-63 – quoted in Global Shift 2012– Peter Dicken)
(5) Although it should be said that the 2019 – the Brexit election – was very much watered down to the policies of the electoral manifesto of 2017.
(6) The Independent. UK Newspaper
(7) In Government We Trust – Market Failure and the Delusions of Privatisation. pp.90