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Globalization Of Capitalism
By Dr. Andargachew Tiruneh
Addis Tribune
April 28, 2000
It has been suggested in the previous section that the characteristic feature of the globalized economy is the market economy. However, some have maintained that it is not so much market economy but capitalism that characterises our time. For example, David Coten, graduate of the Harvard School of Business and a man of many years of experience in developmental affairs, makes the following distinctions between market economy and capitalism.
In "The Wealth of Nations" written more than 200 years ago, Adam Smith describes a market economy as people organizing themselves to make their livelihoods. Its focus is on the production and exchange of things with real value by local enterprises run by people who have a stake in them, their owners. Its purpose is for all its participants. Its fairness and efficiency depend on rules and on ethical culture. It uses competition only to stimulate efficiency and innovation, not to drive its competitors out of the market. It embraces the principle that assets should be locally owned and that the full cost of any good or service should be borne by its users. Market economies are by their very nature friendly towards communities and eco-systems.
The word "capitalism" was first coined in the mid-1900 in connection with multinationals like the East India Company which were exploiting the colonies in the interest of the English ruling classes. This predates Marx who probably never used the term but perhaps was influenced by its definition. Latter-day leftists from the East as well as the West have, on the other hand, spoken of the rise of monopoly capitalism and its inevitable mergers, crisis and ultimate doom.
Capitalism's 18th century definition refers to an economic and social regime in which the ownerships and benefits of productive assets were appropriated by the few to the exclusion of the many. Its driving force is using money to make money by any means available to those who already have a great deal. It is not concerned with the efficient allocation of resources to meet the needs of ordinary people; otherwise, we would not have had the inequality and deprivation we now have. Its preferred organizational form is the publicly traded limited liability corporation which institutionalizes absentee ownership and makes it possible to from public accountability. Capitalism's ideal is a borderless global economy in which money and goods can be moved freely in search of short-term maximum profits without regard to the consequence for people, communities and nature.
The operation of the present capitalist system illustrates how it is dedicated to making money to the exclusion of all other interests. Individual savings are aggregated into funds( shares of financial and other corporations) each managed by a professional money manager. The responsibility of the fund managers is trading the financial assets under their administration in the global financial market and maximizing financial returns for their clients. They are rewarded exclusively on the short-term performance of the finance they manage.
Fund managers act as owners of the corporations, the shares of which they hold. Thus, they direct the managers of the corporations to take a similarly narrow view of their responsibilities, namely, the maximization of profit. They make it clear to them that a fair profit is not enough; annual returns must be constantly increased at rates sufficient to produce the 20 to 40 per cent annual increase in share price the markets have come to expect. The corporate manger who succeeds is well rewarded; the average annual compensation of a head of a US corporation is now 10.7 million dollars a year. Those who fail are invited to resign or ejected by large shareholders.
The point to note is that the corporations do not allow anything to get in the way of maximizing profit and they are in our time powerful enough to ensure that nothing does. Often, they engage in the destruction of the environment when they exploit mineral deposits and fishery resources and when they aggressively market toxic chemicals and dump hazardous waste. They destroy the lives of people by maintaining substandard working conditions and leaving workers permanently handicapped due to failed eyesight, destroy social life when they break up unions, beat down wages and treat workers as expendable commodities. They destroy institutions when they undermine the function of governments by pressurizing them to weaken health and labour standards as well as by extracting resources by way of public subsides, bail outs and tax exemptions. In other words, capitalism is at the root of the new global risks we examined previously.
One way capitalism differs from the market economy is in the way it stifles competition by creating ever increasing mergers and the concentration of wealth and power into fewer and fewer hands. In the US, the total value of corporate mergers and acquisitions has been increasing at a rate of nearly 50 per cent a year since 1992. We see a similar pattern being played out in Europe and elsewhere in the world. This is what the trade agreements such as the Multilateral Agreement on Investment are all about; they mean to open the doors of all states to foreign investment.
Despite the contrary position of economists, capitalism is not necessarily efficient. One certified public accountant and professor at Washington DC University developed an inventory and came up with estimates of the cost the corporations impose on US society each year through such things as defective products, unsafe working conditions and environmental discharges. That estimate was 2.6 trillion US dollars a year. This is 5 times the corporate profit and constituted 37 per cent of US GDP in the relevant year (1994). This is not a case of efficient production but the usurpation of the taxpayers' money.
A market can work efficiently only within a framework of rules that maintain the condition necessary for efficient market function. There must be rules and incentives to limit the growth and power of individual firms; to encourage local ownership of enterprises; and to require firms to internalize their costs. Instead, what we have are the rules provided for in global and regional conventions such as the GATT and its successor the World Trade Organization, the North American Free Trade Agreement and the Multilateral Agreement on Investment which is for the moment stalled. Framed as they were by corporate interests in the first place, these conventions prevent governments from requiring the corporations and financial institutions to actually play by market rules. Let us see examples of decisions by the internationals trade institutions created by the conventions.
The US has been told it cannot prevent the fishing of tuna with methods that endanger dolphins or turtles. On its part, the US has successfully claimed that Europe cannot restrict the import of genetically engineered products and beef imports injected with growth hormones. In fact, it has won even the right not to label these products. Moreover, the US has won its argument with Europe concerning the latter's importation of banana grown by small co-operatives in the Caribbean in preference to bananas grown by US multinationals in huge plantations in central America. Canada is told it cannot bar a gasoline additive dangerous to people and nature unless it compensates the US corporation for claimed loss of profits. The pattern in each of these instances is to subordinate the interests of people to the interests of money.
The central point of this discussion is that capitalism is based on the desire to make money i.e., on greed. This raises the question of where capitalism based as it is on the fundamental human nature of greed, is capable of being changed. A relevant point is that human nature is not limited to greed but extends to good will, love, generosity and the like. Moreover, the general view appears to be that there is nothing inevitable about capitalism; that is, in fact, planned in the board-rooms of corporations; and that it can be changed if there is sufficient will to do so . The green movement,for instance, argues that such a will cannot coem from big business and governments and calls upon the people to exercise their democratic rights and impose change from below.
If the expansionism of capitalism is arrested in one way or another, it is likely to engulf Ethiopia in due course. For the moment, however, the impact of capitalism on the country is one of the least in the world.
There are very few national capitalists and share companies in Ethiopia. What is more, the capital of these individuals and companies is absolutely minimal and accounts for very little even of the business sector. Moreover, national capital plays very little role, if at all, in overseas investment.
When we speak of capitalism and its rise to prominence at the time of globalizations we are talking about big western corporations and their control of the world's markets and production. They do sell a good amount in the Ethiopian market including such items as fertilizers, harmaco logical products, soft drinks, tractors, cars, airplanes and an assortment of machinery. On the other hand, their investment in productive activities and in the extraction of minerals is minimal. Despite Ethiopia's liberal foreign investment policies at the time of Haile- Selassie and the present government, the inflow of capital has remained stagnant. Thus, globalization of capitalism has left Ethiopia on its peripheries .
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