Commentary on Political Economy

Sunday 24 July 2016

The Meaning of Globalisation

Perhaps the greatest theoretician of liberalism, Benjamin Constant, failed to perceive that “liberal democracy” is an antithetical expression – in other words, he failed to see that liberalism and democracy are incompatible – because he confused “democracy” with the ability of “citizens” to move their property across national boundaries and thereby counter any deviation by national governments into policies contrary to their economic interests. But of course, democracy and self-interest based on property ownership are necessarily conflicting interests. (Further elucidations of this important thesis are in N. Bobbio, Liberalismo e Democrazia.)

Constant failed to see that, far from being an equilibrating or countervailing power in the maintenance of democratic regimes, the mobility of property – in fact, the mobility of capital – constitutes one of the most destabilizing threats to national governments and indeed to nation-states and their citizenry, and to society itself. This ability of capital to divorce or separate itself from the real industrial process of production and its ability as 'finance capital' to move freely and seamlessly across 'national boundaries' poses the entire problem of the role of nation-states in the circulation and concentration of capital.

Capitalist society is founded upon the essential separation between the moment of 'investment' of social resources that are privately owned (means of production and objectified labour to be paid as wages), the ensuing pro-duction ('bringing forth') of goods and services through the intervention of human living labour, and finally the realization (or 'verification') of the profitability of this production through the sale of goods and services in the 'marketplace'. This separation is the source of “investment risk”. And this separation gives rise also to the possibility of 'speculation' or 'gambling' because the monetary value of investment assets and of the goods and services produced through them may or may not be realized in the process of sale. As Keynes put it, “money is a bridge between the present and the future”; but “there’s many a slip twixt the cup and the lip” – by which he meant that capitalist investment is always risky because there can be no guarantee of a “return on capital” or indeed of a “return of capital”, again because of the ‘separation’ , a gap or ‘slip’ between the ‘cup’ of investment and the ‘lip’ of the successful sale - that is, between what we have just described as the processes of valorization and realization. Thus we can say with George Soros that finance capital has the ability "to create imaginary value out of thin air". But only for short periods of time, while the delusion that capital has a “natural rate of growth” (something invented by morons like the Norwegian economist Knut Wicksell) lasts. Once the ‘speculative' moment of capital or 'finance capital' becomes far removed institutionally from the real 'pro-ductive' moment of 'industrial capital', the resulting 'financial pyramid' eventually collapses under its own weight. This is the “Minsky moment” or, if you prefer, the Wile E. Coyote moment. As Warren Buffett put it, that is the moment "when the tide recedes and we find out who has been swimming naked"!! This is really what was at the heart of the recent global financial crisis (GFC).

The essential requirement for capital to be able to move “freely” across national boundaries, from one corner of the globe to another, is that it be in the form of 'liquidity' as finance capital, as money. What stands in the way of this freedom are three major obstacles: first, the real resources involved in the process of pro-duction, which include industrial plant, offices and so on; second, and most important for human societies, human living labour or 'workers'; and third, the nation-states. This question brings into play the role of nation-states in the circulation of capital and with this also the overwhelmingly important analysis of the political economy of capitalist 'speculation' or 'investment' as the case may be. It is exceedingly obvious, and we have argued this below, that the real effective cause of the current ‘crisis’ was internal to capitalist social relations. The fact that it was not due to ‘external’ or exogenous causes raises the broader question of what remedies are available to deal with the causes and with the consequences of the crisis.

We have seen that finance capital, in response to social antagonism and its wish to avoid it, needs and uses its own ‘liquidity’ and ‘mobility’ as well as its ‘fungibility’ (that is, its ability as money or monetary equivalent to take any physical shape or form that social wealth can take) – that it uses these ‘properties’ to force upon ‘nation-states’ conditions that it deems to be favourable to its accumulation (both through ‘speculative’ or ‘industrial’ investments). Nation-states and societies ravaged by these ‘capital flows’ seek to protect themselves through a variety of strategies. There are capital controls and financial market regulations. One other strategy is for different ‘nation-states’ to seek ‘to co-ordinate’ economic policies. Of course, some members of the European Community decided to embark on a European Monetary Union with a common currency precisely for this reason, that is, to avoid the devastating effects of capital flows across national boundaries. What is loosely called ‘globalisation’ must be seen as the effective result of the mobility of capital across national boundaries. It is not the phenomenon itself that is new: Karl Marx referred to it as “the world market” as a tendency of capitalist industry. What is new, rather, is simply the scale of the phenomenon and its systemically devastating effects on social institutions such as the nation-state.

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