It’s a glorious morning. The sky is azure blue and the sun is
streaming through the window in the heart of London on this late
September weekend. It’s an ‘Indian’ summer’s day – to use that
very imperialist definition of the weather.
All is well – at least that is how the Financial Times reviews the
state of the UK in its editorial. Entitled “New Britain faces the
world with confidence”, the editorial starts with a confident
assertion: “Though it has its problems, Britain is in good shape… the
overall sense is one of progress and success”.
And the primary reason, according to the FT, is globalisation.
“It was globalisation, the vast expansion of world trade and migration
during the 19th century, that brought Britain’s greatest era of
success… future governments must do as this government has done and let
globalisation happen.”
This Panglossian view of Britain and the world comes from the mouth of
the leading forum of British capitalism, of course. Also, it is
probably no coincidence that the editorial was written as New Labour
holds its annual conference (possibly the last as ‘New Labour’).
Former FT economic leader writer and correspondent, Ed Balls, now an MP
and Chief Secretary to the Treasury, Gordon Brown’s right-hand man and
likely future successor to Gordon as Chancellor of the Exchequer, may
well have his writing hand in this piece. Britain’s so-called
economic success is the key selling point for Gordon in his quest to
hold the Ring of power in Britain.
Dr Pangloss extends his influence across the big pond too.
America’s stock markets are nearly back to their all-time highs
achieved in the heady hi-tech boom days of 2000. An investor in
American shares back in March 2000, however, would still have made no
money at all. Okay, says ‘the markets’ things have been bad, but
they are looking up. Corporate profits in the US, Europe and
Japan have also hit peaks. Indeed, corporate profitability, that
is profits relative to investment, is now nearly back to the level of
1997, the profit peak of the great stock market and economic boom of
1982-00.
It’s nearly back, but not quite. And here we can detect just a
sign that all is not perfect in the most perfect of capitalist
worlds. We could survey the world capitalist scene after 20 years
of ‘globalisation’ in a more realistic way.
First, globalisation has brought us terrorism and the War against
Terror. That does not seem to be going to well. The US and
its imperialist allies are locked into a never-ending occupation in
Iraq with daily heaps of bodies (of course, it’s mainly ordinary Iraqi
people). The ‘freedom forces’ are penned up in their bunkers in
the Green Zone of Baghdad, hardly venturing out. Thus, the
militias of the various religious sectarian groups continue their
murder and mayhem. Above all, Iraq slowly slips out of the
control of US imperialism.
Across the border, Iran mullahs preach defiance, while Hezbollah in
Lebanon claims victory over the strongest army of the Middle East and
the key henchman of imperialist rule in the region, Israel.
And in Afghanistan, the religious fundamentalists of the Taliban successfully
sting and cuff British armed forces in the harsh hinterland – when will
British imperialism realise that they cannot tame Afghanistan, a
cemetery for British soldiers for nearly two hundred years.
The FT tells us that all is well because this period in like the
‘globalisation’ free trade era of the 19th century that brought British
capitalism its greatest success. Here the FT stretches
history. British capitalism led the world economically from the
time of the Industrial Revolution at the end of 18th century to say
about 1870. From then on, in the period of ‘globalisation’, other
capitalist powers, like the US, Germany, France, began to compete for
spheres of influence and gain around the world. Free trade was no
longer a boon to the UK alone. Indeed, this period is much closer
to the struggle for markets that we saw at the end of 19th century that
Britain lost and eventually led to a world war in 1914 and again in
1945, before the US became the hegemonic power.
Now in 2006, it is the US that is struggling to maintain its dominance:
it loses market share in exports; it is running up huge debts with the
rest of world; it is finding it difficult to get other capitalist
powers to support its interests in the Middle East and Latin America
and it is losing any influence at all in Africa. Its influence in
Asia through Japan is now threatened by a colossus, potentially bigger
than itself, China. Far from globalisation heralding peace and
prosperity in the world, it suggests increased rivalry and
conflict.
British capitalism continues to rest its hopes (as the FT argues) on
the US remaining top dog and remaining prosperous. Over the next
20 years, it is a gamble that will deliver, not “progress and success”,
but collateral damage not seen since the 1930s.
After all, let’s be clear about some key facts on globalisation before
we accept the FT’s praise for it. Has it brought
prosperity? Well, at the level of production, it has been a
relative failure. Branco Milanovic is the lead economist at the
World Bank. He has recently published a book, called World’s
Apart: measuring international and global inequality. Milanovic
opens by saying that “the average world growth rate in output per head
has declined in the last 20 years”. So under globalisation, and
even taking into account that the advanced capitalist countries have
suffered only ‘mild’ economic recessions in 1990 and 2001; and even
taking into account, China’s staggeringly fast growth in the last ten
years, the world average growth rate was lower 1979-00 compared to
1960-78. Indeed, over the last 20 years or so, every year one
country out of three has seen its GDP per capita decline – such is the
instability of globalised capitalism.
And of course, these figures are averages. What Milanovic shows
in his book is that inequalities between rich and poor countries and
between rich and poor within each country and between rich and poor
globally have increased under ‘globalisation’ He finds that there
“has been a steady and sharp increase in inter-country inequality”,
after being broadly constant prior to the launch of
globalisation.
Even more startling is the inequality within the world’s population
wherever they live. According to Milanovic, “77% of the world’s
population live below the rich world’s poverty line. There are 79
countries that are poorer Brazil and they constitute 70% of the world’s
population. By his calculations, there are only 6.7% of the
world’s population that can be considered middle-class. He
reckons that about 17% of the world’s population can be considered
rich. Even in the rich countries of the world, there are 92m
people who can be considered poor by world standards. In the poor
countries, the poor constitute 93% or 4bn people!
Economists measure the inequality of income by what is called the Gini
coefficient. I won’t explain how that works here, but suffice it
to say that the higher the Gini coefficient between 0 and 100, the
greater the inequality. According to Milanovic, inequality has
increased from the start of industrial capitalism back in the early
19th century at 12 to reach 35 by the end of the 19th century (that
three times more unequal), to 65 by the early 1950s (five times more
unequal) and to remain at this high level since then, despite China and
India’s fast growth in recent times.
So globalisation under capitalism has been no great boon for more than 80% of the world’s people.
While the world’s stock markets bathe in the glorious September
sunshine of huge company profits, bringing massive bonuses for the top
executives and Wall Street and City of London financial traders, the
rest of us feel a lot less sanguine about the world. The US is
about to hold elections for its congress. Despite apparently
everything being rosy, Bush continues to score lows in the opinion
polls and the Republicans could be defeated in the elections despite
gerrymandering and a lack of enthusiasm for the opposition
Democrats. It’s the same in the UK. Tony Blair polls at
record lows and New Labour is behind the Tories in the polls.
But leaving aside both leaders’ appalling foreign policy, is it so
surprising when we realise that the so-called fruits of globalisation
have not permeated down to most ordinary families in the US or
Britain. In the US, the share of wages in national output is the
lowest ever, while corporate profits hit the highest share since the
Golden Age of the 1960s and this at a time when economic growth does
not match the growth of the 1960s.
The ‘overall sense of progress and success’ that the FT refers to from
globalisation seems absent from the data in the ‘land of opportunity’,
America. According the US Census Bureau, in 2004, the top 20% of
US households took over 50% of all income earned while the bottom 20%
got only 3%. In 1980, at the start of globalisation, the top 20%
took 43% and the bottom 20% just 4.2%. The top 1% is even better
off. They took 11.2% of all income in 2004 compared to 6% in
1980. They have nearly doubled their share under
globalisation. It was always very unequal, but it’s even worse
now.
If we look at wealth owned by households in the US and not just income
earned in a year, the situation is even more shocking. According
to the Federal Reserve Bank’s latest consumer finances survey, the
wealthiest 1% of Americans own 33.4% of all net wealth after deducting
mortgages and other debt. That’s up from 30.1% back in the lat e
1980s before globalisation took hold. The bottom 50% of Americans
owns just a staggering low 2.5% of all household wealth!
And it is going to get worse not better. Real wages are falling
in the US. The median average hourly wage after inflation has
fallen 2% in the last two years. For young people joining the
labour market, they are finding that entry-level real wages are 4%
lower than in 2001. Those with young families have seen their
income fall 6% in the last five years.
The FT notes the problem of inequality in its editorial and admits that
inequality in Britain has not altered under New Labour since
1997. It also notes growing inequality between the regions and
the problems of providing enough infrastructure and resources to house
growing numbers of immigrants, whose labour has enabled British
capitalism to keep its head above water by taking low wages and working
long hours and not using social services. But it sweeps all these
problems aside in a blaze of sunny confidence.
We’ve argued in this column on several occasions that Britain’s
capitalist survival has increasingly been built on becoming a rentier
economy, relying on providing financial and ‘professional’ services to
other capitalist nations who are producing surplus-value.
Britain, as far as capitalism is concerned, has become a huge
Switzerland, banking the world’s profits, for a fee. The City of
London is a huge aircraft carrier parked in the Thames, where world
money flows in and out, with little touching the sides, except fro
those working on the carrier and living in London and the
south-east. The rest of Britain is a just a dark shadow to these
people.
But if 60m people must depend on the success of the world’s stock and
bond markets and above all on the continued success of the US economy,
then they ought to view the next five years with trepidation. The
housing bust is well under way across the pond and it promises to be
the worst ever. Usually housing markets, when they blow out, tend
to take 3-4 years before they reach a bottom. That puts the
trough at around 2009-10, just at the time we could expect the next
economic recession in the US, if history is any guide.
