10/18/2014

Russia versus China. Similarities and differences

Spanish
 
Andrew Wedeman (Double paradox. Rapid Growth and Rising Corruption): “Corruption and growth thrived together: Corruption worsened as growth prospered… It was pretty clear that whereas corruption in Japan and South Korea was «structural~ and institutionalized, in China it was anarchic and predatory. Corruption in China more closely resembled cor¬ruption in Zaire than it did corruption in Japan. I thus came up with the notion of the "double paradox": the core issue was not whether one could have corrup¬tion and growth, which we could explain by examining the political economy of the developmental states in Japan and South Korea, but how it was possible to sustain rapid growth given high levels of predatory corruption in which officials seem to be engaged in looting the economy.”… “In post-Maoist, reformist China corruption actually facilitated innovation and entrepreneurship (elements of human capital that were impermissible and indeed prosecutable during Mao’s Cultural Revolution of the 1960s), the expected result might well be higher growth


A badly told history




Was all about a transition of the socialism to Capitalism or a transition from a type of Capitalism to another type of Capitalism?

When we consider a change in terms of “Transition” it is fundamental to clarify the nature of both extreme of the equation: Transition since what point of departure to what point of arrival?

According to the usual stereotype, the exposition of these equation tries to be simple and expeditious: In both cases, as much in Russia as in China, the departure situation was a “Socialist-Communist system of central planning” and the end of the Transition a “market capitalist system”. Nevertheless there are too many suspiciously absent unknowns and parameters in this transit.

If we made the simple exercise to introduce the most significant parameters and to incorporate certain marginalized unknowns, the new resulting equation will be more explanatory and fited to the facts.

Two different equations to interpret events of enormous importance for the present and the future of the humanity.

Which was the departure situation in Russia?


At the end of 1ªGM, a revolutionary socialist revolution of workers, soldiers and farmers took place when they tried to shake themselves simultaneously of the feudal yoke and the capitalist yoke. The revolution finished being choked and repressed by a Bolshevik party who had a plan to remove the country’s delay and to turn it into a capitalist power able to compete with the imperialistic ones of the time.

The plan was to burn stages by means of a revolutionary alternative mechanism of capitalist economic development able to establish a particular kind of development roadmap outside the reach of the imperialistic countries.

The mechanism consisted in leveraging the economic development, putting into play on one hand the Marxist analytical arsenal to accelerate the development of the productive forces, and on the other, the ideological revolutionary Socialist rhetorical arsenal (transmuted conveniently into terrorism) to stimulate the working-class productivity.

The goal was not to compete "with" the capitalist system. They never tried to create an alternative socialist system to Capitalism but to catch up the developed Capitalism by means of the dictatorship of the new “Soviet” bourgeoisie, the state centralization, the economic planning and the ideological indoctrination to tame, subjugate and explode the working class.

Which was the departure situation in China?


In the Chinese case 2ªGM offered an opportunity to the Chinese people to shake off the feudal regime, but mainly, unlike Russia, to get rid of an imperialistic domination that had divided the country like a pie.

In China the socialist revolutionary movement was much more prolonged and much more extensive (the Jiangxi 1930-33 Soviet, the long march 1933-35,…) that in the Soviet case. The fast subjugation of the peasantry and the Russian working opposition by means of terror and the Stalinist Gulag did not had its equivalent one in China.

As in Russia, “a communist” bourgeoisie began to take form in the PCC after the definitive defeat of Chiang Kai Chek in 1949. But the spread of the farmer rebellion and the depth that the Chinese revolutionary movement had reached represented a serious obstacle for their definitive scaling to power. Whereas in Russia where the opposition was totally neutralized the last years of the 1920s (and eliminated definitively with the purges of the 1930s), in China a revolutionary socialist opposition (ambiguous and often contradictory) would resist until the death of Mao in 1976.

What was the economic situation in the starting line?


At first Russian situation was much better than China’s. Russia was a much more developed and urbanized country than China. The Russian PNB per capita was $3,783 (the Chinese PNB per capita was $285). Industrial employment represented 39% (Chinese 13.5%). The illiteracy (2%) had almost disappeared in Russia (Chinese 44%). 91% of the Russian population had secondary education (Chinese 63%) and 50% were college students (Chinese 2%).

Nevertheless China did not undergo serious macroeconomic imbalances (low inflation, budgetary balance, balanced foreign trade balance, little external debt) in the beginning of its Transition in 1978, the countries of the Soviet Block suffered of a remarkable uncontrol in its macromagnitudes when they were arranged to initiate hers at the end of 1980s.

Unlike the USSR and its satellites, the state central plan in China controlled little more than half of the industrial production. A considerable part of production was decentralized into the hands of the local administrations. In addition the relative number of small and medium companies was proportionally much greater than in the USSR. Mao Tse Dong had managed a certain enterprise decentralization in favour of provinces and cities during the Great Jump Ahead (1957-58) and the Cultural Revolution (1966-76). China, in addition, could count on an extensive emigrated bourgeoisie (overseas Chinese where 55 million with middle trillion dollars in assets) prepared to invest in the country as soon as the conditions would permit it.

Which were the reasons for the Transition in Russia?


The wearing and backward development mechanism with respect aggressive Global Capitalism. After Stalin’s death of and the denunciation of the totalitarian terrorism of the deceased, “the Soviet” bourgeoisie began to lose points in its fight against the working class. Exploitation rate diminished and the working class obtained remarkable improvements in its situation (Soviet well-being state). Productivity decreased and Russia began to lose positions in the capitalist race.

In front of this situation of increasing capitalist deterioration, “the Soviet” bourgeoisie chose to introduce market mechanisms to subject the working class, to increase its productivity and to boost the exploitation rate level.

In 1987, when Perestroika began, “the Soviet” bourgeoisie had been almost 70 years in power. Three generations in power meant a high degree of confidence in itself for “controlling” the transition.

The objective of the Perestroika was to modernize “Soviet” capital to make it competitive on global scale. With the reforms the “Soviet” bourgeoisie expected to reach an situation similar to the globalized capitalist bourgeoisie.

Which were the reasons for the Transition in China?


In 1978, when Deng Xiaoping initiated the way to the reforms, “the communist” bourgeoisie had been able only two years ago to consolidate itself in power after the strong blow of the Cultural Revolution.

In the case of Chinese “the communist” bourgeoisie, the immediate objective of the transition was to assure its positions and privileges recently threatened by the opposition left.

Which was the cause of the gradualism in China reforms?


Fear after Cultural Revolution had sharpened the sense of calculation of the timid and scary Chinese “communist” bourgeoisie. Hence the “gradualism”, the experimentation and sectorialisation of the reforms in spite of the critic advice and recommendations (shock treatments) of the impatient economists and neoliberal agencies. The threat of the left opposition continued being considerable and it was precise to be able to create increasing bases of support between the population.

Deng introduced reforms with extreme caution. He did match the beginning of the reforms with encreases in the prices of the obligatory deliveries of the farmers and elevations of wages of the public companies employees.

The first reforms took place in the farmer sector. The decollectivisation represented the starting gun of the “capitalist modernization” of the country. The reform obeyed to a double strategy: to divide farmers and workers on the one hand and to smooth the footpath for the justification of the reintroduction of the bourgeois values and ideology.

Which was the cause of the lack of gradualism in the Soviet Union?


When Mikhail Gorbachev arrived at the position of General Secretary of the party in March of 1985 he perfectly knew the initiated reforms in China. Contrary to the conventional narrative, its plan of pro-market reforms for the Soviet Union (Perestroika) was, like in the case of China, a gradualist one. Initially it proposed to yield individual lots of earth to the farmers families, to establish special zones of free commerce, to promote small businesses in cooperative regime and of establishing joint ventures with foreign companies.

Nevertheless, soon after beginning the Perestroika, spontaneous mobilizations of great amplitude, demanding more rights, more well-being and more democracy, exploded everywhere..

Before so disjunctive, and in agreement with most of the imperialistic strategists, “the Soviet” bureaucracy parked gradualism in favor of “shock therapy”, that is to say, a infernal succession of reforms that, since it has investigated by Naomi Klein, has the evident advantage for the capital to stun in such a way its victims that they are unable to react at all.

The increasing macroeconomic imbalances accumulated during the past few years, the self-confidence of the old Soviet bourgeoisie in their supposed capacity for “controlling” the transition process, and, by all means, high doses of greed and scorn for their fellow citizens, facilitated the change of strategy. Perestroika and Glasnost were buried. The Big Bang desired by transnational monopolist Capitalism became reality.

In a few years, the great multinational corporations looked themselves already taking possession of the enormous resources of the Euro Asiatic territory, and taking control of a new 200 million consumers market.

Which was the degree of spontaneity in both cases?



According to some western sources (Hoover Institution), “the PCC simply reacted (and wisely was not against) in front the spontaneous initiatives of reform that emanated mainly from the rural population”.

Whereas the Chinese transition would have been generated from a procapitalist spontaneous mobilization of the Chinese peaple (bottom up), hence its “success”, the Russian transition, on the contrary, would have been the result of reforms organized by the Soviet bureaucracy (top down); hence its ”failure”.

The myth of a supposed “spontaneous” descolectivización on the part of the farmer masses at the beginning of 1980s, that the PCC leaders would have finally sanctioned as a fait accompli, myth cultivated by some western means of disinformation and never denied officially by the Chinese bureaucracy, was called into question according to the own documentation of the PCC that has confirmed the existence of strong resistance of all types and at all the levels opposed to the descolectivización organized and directed by the high spheres of the party (top down). Therefore in China there were never spontaneous pro-capitalists mobilizations.

In the old USSR, on the contrary, during the transition, the spontaneity (bureaucratic anti-Capitalism) of the popular masses played a key role (bottom up) in the fast change of strategy conducted by “the Soviet” bureaucracy in favor of the shock treatments and the rapid burial of Perestroika and Glasnots.

What were the imperialist objectives across the equation?


The other side of the equation was not, as would be a simplistic approach, an idealized capitalism, a benefactor, efficient, liberal and democratic capitalism, but an aggressive, a-democratic and unscrupulous globalized monopolist one who was ready to seize an unexpected windfall, an opportunity of primitive accumulation to dismember and eat its unsuspecting prey.

In the Soviet case the coveted target (the entire Soviet Bloc) was a virgin market of about 200 million, a highly skilled work force to exploit, and above all, an immense amount of natural resources that had previously been out of the reach of the great monopolist TNCs.

But for the transnational monopoly capital the conquest of China was a key strategic value. In a time when new technologies and financialization extremely facilitated offshoring and outsourcing, a huge abundance of work force capable of being subjected to high rates of flexi-exploitation by a collaborative CPC and a vast territory to degrade and pollute without measure or compassion, with de collaborative help of the corrupt CPC, where the final cards needed for total globalization. Having consolidated their positions, the goal of the Chinese domestic market would fall like ripe fruit.

What were the "recommendations" proposed by the imperialists?


Initially, from its various forums, the imperialists proposed identical shock therapy for both countries.

However, when started to become evident the unexpected wild results of shock therapy in the USSR and some of its former satellites (The Chinese per capita GDP increased at a rate of 8% per annum between 1978 and 2000 while the Russian GDP fell by 64% between 1990 and 2000), and as a result of the chaos caused, the coveted possession and control of the immense natural resources of the area had ended up in the hands of a mafia-nationalist oligarchy slightly inclined to give them up to the transnational monopoly capitalism, the most prestigious analysts began to recognize that often greed breaks the sack.

Chinese gradualist option, however, resulted in the end, the best option for the interests of transnational monopoly capital. Land reform certainly did nothing to improve productivity, but increasing rural poverty transformed the Chinese countryside in an almost inexhaustible supply of labor classless and flexible workforce (about 100 million illegal immigrants in their own country), that in addition be able of very high levels of exploitation, burst massively into the Chinese labor market allowing to dismantle the possible resistance of the rest of Chinese workers.

Unlike the Soviet Union and its former satellites in China markets where liberalized prior to mass privatization. This would allow public companies to adapt to new conditions without suddenly cut off the umbilical cord of public aid. The aim, in principle, would be to give them time to become the new champions of the new Chinese monopoly capitalism.

However, the prudent gradualism did not prevent the progressive loss of control by the Chinese bourgeoisie. Gradually, the interests of large transnational groups were imposed in almost all sectors. China's entry into the WTO meant the final victory of global monopoly capital. History had reserved the CPC and the rest of the "Communist" Chinese capitalism the lackluster task, initiated by the pre-revolutionary comprador bourgeoisie, to undersell China, in full, to foreign imperialism.

Epilogue of the "spontaneous" land de-collectivization: planned expulsion of 300 million peasants from their land


Once the capitalist reforms in the industrial sector secured, small family farms created in the early 1980s are now, according to the Chinese leaders, "unproductive" and will have to be dismantled to concentrate again to become efficient for powerful Chinese and international agribusiness (globalized agricultural collectivization)

Although numerous, farmers no longer have the support of urban workers (rural migrant workers have contributed to dynamite their wages and working conditions). The bureaucracy and monopoly capital, if no one prevents, are planning to expel from their land as many as 300 million peasants "redundant".

In 2008, the CPC Central Committee urged farmers to trade their rights over their land to favor the formation of more efficient scale large farms. In October 2013, the Research and Development Center, the largest government think-tank of the nation, proposed for the 18 central committee of the party (November), allowing farmers to sell, lease or transfer their land. He also proposed that the government should establish a unified land market across the country. The Stock Exchange of Beijing reacted with sharp increases in agricultural business with such prospects. Spontaneity, again, would shine by their absence.


In conclusion


Bruce P. Jackson (Hoover.org): “The Post-Soviet Russia is a primitive form of mercantile capitalism and Putin is the architect of the system of state-oligarchic capitalism unique to Russia.”


In Russia, a type of capitalism transited to another type of capitalism. The actual result was not what was expected by monopoly capital and therefore was a "failure." The "Soviet" bourgeoisie ended converted into a nationalist oligarchic mafia bourgeoisie that has so far prevented the control of natural resources in the area by the large transnational monopoly groups.

In China reforms where initiated to strengthen and consolidate the positions of the bureaucracy threatened by the socialist opposition. However, the transition has finished giving up China to major transnational monopoly groups (and therefore has been a "success" story), making the "communist” Chinese bourgeoisie into a replica of the comprador bourgeoisie previous to the revolution.



More information: The Political Economy of Decollectivization in China
Minqi Li: The Rise of the Working Class and the Future of the Chinese Revolution
Fred Engst: Rise Of China

10/08/2014

First Globalization versus Second Globalization

Spanish


Even some of the staunchest supporters of globalization wonder if the process could reach a peak and then collapse as happened with the First Globalization.

Peter Thiel (Competition Is for Losers): "The opposite of perfect competition is monopoly. Whereas a competitive firm must sell at the market price, a monopoly owns its market, so it can set its own prices. Since it has no competition, it produces at the quantity and price combination that maximizes its profits....Actually, capitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition, all profits get competed away...Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits... Monopolists lie to protect themselves. They know that bragging about their great monopoly invites being audited, scrutinized and attacked. Since they very much want their monopoly profits to continue unmolested, they tend to do whatever they can to conceal their monopoly—usually by exaggerating the power of their (nonexistent) competition."

The first globalization 1873 - 1914

If we understand globalization as a set of changes in the international economy that tend to produce a single global market for goods and services, labor and capital,
hundred years ago, the advanced countries of Western Europe and America were engaged in a process of globalization in many ways similar to that the world experienced from the late twentieth century.

The First Globalization period spans about 40 years. From the early 1870s until the 1st World War, trade, capital mobility, and migration of people across borders reached levels that the world would not see until the mid-1980s.

The successful placement of the first transatlantic cable (1866) marked the first time a message could travel much faster than a person. The transcontinental railroad in the United States and the Suez Canal where opened three years later, which greatly facilitated transportation between Europe and Asia and between Asia and the east coast of the United States. Steamboat significantly reduced travel time and its variability compared with sailboats, so that the journey from Britain to New York was reduced from five to seven weeks in the 1830s to a reliable two weeks in the 1870s.

From 1870 onwards there was a growing decline in tariff protection, which began with the Anglo-French agreement. Improving transport and falling costs catalyzed an unprecedented increase in international trade and a vast movement of people from low-wage economies to economies with higher wages.

The railroad, the steamboat and the discovery of industrial freezing allowed putting in culture the millions of hectares in the New World and Australia seized from the natives. The production of raw materials required abundant manpower and between 55 and 60 million Europeans migrate in search of new opportunities. Argentina, Australia, New Zealand and of course the United States became part of the richest countries in the world thanks to the export of raw materials.

Increasing volumes of portfolio investment and direct investment came from the developed countries to the New World and to developing countries on the periphery of Europe and Asia. In some years Britain exported 9% of its GDP, and the percentages were not lower for other European countries. Throughout the period 1887-1913 the net exports of French capital were equal to approximately 3.5% of its national income. During this period about half of all British savings was channeled to overseas. European capitalists offshore their production plants in Latin America, Russia, Poland, Turkey and other countries. German big companies specialized in the chemical industry and electricity, Swedish in engineering and machinery, British in branded consumer goods, oil and minerals,… Capital was becoming increasingly cosmopolitan.

Financial Globalization

Before 1870, the multinational banks remained largely an exclusively British phenomenon. The expansion of trade and the lack of trusted correspondents institutions gave British merchants strong financial incentives for establishing new banks abroad, especially in economically underdeveloped peripheral areas.

The international economy previous to 1914 was characterized by an unprecedented degree of financial and trade openness. The international expansion of banking was an obvious sign of economic globalization. Large banks of the industrialized Europe (international banking was indeed an almost exclusively European phenomenon, as regulatory constraints and the absence of a central bank of the United States prevented their banks to play a significant role until the turn of the century) took advantage of advances in communication technology and trade to meet the growing demand for capital from foreign sovereign and private borrowers and internationalized its operations to facilitate the expansion of its large multinational groups.

The banking internationalization was reinforced by macroeconomic stability guaranteed by the gold standard. Since the early 1870s, the establishment of fully specialized banks in international business was complemented by the rapid increase in the internationalization of large deposits banks mainly from Britain, Germany and France. The emergence of foreign currency trade favored the expansion of global interbank networks based on correspondent relationships and the emergence of financial international innovations in the management of international liquidity, such as overdrafts, telegraphic transfers and treasury bills trading.

The critical factor in banking globalization was the decision of banks to operate from direct investment abroad (either in new facilities or through acquisitions) in order to locate part of their activities in foreign countries, rather than serve its customers (both foreign and domestic) from the parent or through correspondents. In 1917, at the time of the revolution, 44% of Russian banks were owned by foreigners.

As in the case of the recent financial crisis, investors were not only wealthy speculators but millions of small and medium savers were captured by the global financial business. Banks deposits placed foreign securities (Argentina, Paraguay, Turkey, Russia, ...) to their depositors without explaining the risks they incurred. The banks made large profits from succulent fees and handling margins between interest rates of trading loans and the rates paid to their depositors.

A major financial crisis occurred in London and around the world in the summer of 1914 as a precedent of the crack of 1929. Austria’s presentation of an ultimatum to Serbia on Thursday 23 July triggered a scramble for cash. Continental stock exchanges were deluged with selling orders and banks besieged by depositors. They closed their doors. Governments mobilised for war and imposed drastic controls to safeguard their banking system and national finances. The week beginning Monday 27 July saw the breakdown of the City’s foreign exchange and discount markets, and culminated in the closure of the London Stock Exchange on Friday 31 July. It stayed shut for five months. Long queues of people trying to exchange Bank notes for gold sovereigns formed at the doors for the Bank of England. It looked like a run on the Banks was underway. But on Tuesday 4 August, Britain went to war. Massive infusions of liquidity by the central bank and a “general moratorium” on contracted payments that allowed banks to refuse to pay out deposits managed to stop the crisis.

First Generation Multinational Companies

From the mid-nineteenth century monopolies or oligopolies appeared in some economic sectors. Economist R. Hilferding thoroughly studied the monopolistic organization of German production. A handful of corporations interlocked with banks, controlled the processes of formation and administration of prices throughout the German area. Once consolidated their monopoly positions in Germany they expanded into conquering world markets and foreign sources of raw materials. They became multinationals. The same thing was happening in France, G.B., Holland, Belgium, USA and Japan.

Revolutionary advances in communications and transportation facilitated that ideas, knowledge, technology and capital could circulate now as never before in history. The first multinational corporations made their appearance supported by financial and banking internationalization. European stock exchanges started trading a growing volume of foreign shares and securities. Besides finance, sectors prone to the formation of large multinationals corporations were the railroad, chemical, extractive, communications and especially the new electricity sector.

Large economies of scale and huge investments needed for the development of railroads, telephone and telegraph systems, generation and transmission of electrical energy, etc. were instrumental in the formation of large multinational corporations.

In an environment where exchange controls were nonexistent, companies were free to seek for funds worldwide, and this often led to discrepancies between the nationalities of its location registration, its shareholders and its directors. Foreign companies regularly where seeking funds in London, the market for the world's largest stock exchange. Canadian companies invested heavily in public services in Latin America since the 1890s as was the case of the Brazilian Traction Light and Power Co. Ltd.with investments in power generation, water supply, gas and telephony in southeastern Brazil.

A paradigmatic development sector of the First Globalization was electrification development. USA and Germany were the locations of big companies manufacturing electrical equipment (turbines, generators, transformers, ...). To export its ever growing production demand was needed elsewhere. This required building large hydroelectric complexes involving huge investments. Given its dwindling estate budgets and weak financial systems, most countries were powerless to undertake works and infrastructure of this magnitude. Industrial and financial multinationals flocked together to fill the void forming specialized multinational financial companies to raise funds for the construction of such infrastructures, witch demanded permanent supplies from the large industrial firms associated with these holdings and financial trusts.

In the late nineteenth century, German Siemens and AEG invested in public services utilities in Southern Europe and Latin America (to get customers for their productions) through financial holding companies. The big German banks were the main investors, but Swiss, French, Belgian and Italian capital took part in the operations so that the holding was registered in Switzerland or Belgium. This type of capital-intensive businesses may well be better regarded as undertakings of mixed nationality.

In Spain, industrialists and financiers were fully aware of the advantages that would report to get hydropower from the Pyrenees to the main Catalan manufacturing centers, dependent on imported coal. But neither the state nor the Spanish banking looked had the necessary finance to undertake the huge works that ultimately would be carried out by multinational companies operating under multinational financial holdings.

For example, when a financial group in Toronto created the Barcelona Traction, Light and Power Company Ltd. in Spain in 1911, the distribution of the obligations of the investor holding was divided a third for Belgium and France, a third for Britain and another third for Canada.

These were companies that were born in large countries with huge markets that allowed them to grow and strengthen by exploiting economies of scale, companies that had covered (and often exhausted) the national territory and sought to expand its business outside its borders.

Sofina, headquartered in Brussels, one of the major global leaders in electric utilities, structured as a big holding with hundreds of affiliated companies and cross-investments, planed a Europe united by its controlled electric power companies’ transmission lines. Sofina and the german AEG (with crossed participations) had dreams of a monopolists united Europe, a European customs union interconnected by an electrical grid that crossed national borders. Their plans where made public on December 2, 1930 in Barcelona.
In fact, not until the spring of 1931 where the Europeans conscious of the world wide economic disaster subsequent to the 1929’s financial crack.



A significant advantage of foreign direct investment of these multinationals was the ease with which they could bypass laws and regulations (not yet redesigned given the novelty of the phenomenon), bribing public managers and circumvent the treasury of the receiving countries obtaining better returns abroad than in their own country.

In Catalonia, the firm Electric Light and Power Company Ltd., disguised their purchases and acquisitions as simple affiliates (some without even having been constituted as such). The parent company established with them private contracts of leasing (a practice the Spanish economist Ceballos Teresi severely denounced ), figure which was exempt of taxes levied on acquisitions, mergers and constitutions of new companies.

Globalization and the Welfare State

Karl Radeck 1916 : "The top layer of the German working class, because of the rapid development of German industry, has earned relatively high wages, to whom state or union insurance systems have offered relatively secure life, who, so to speak, take part of bourgeois culture, who says for 15 years, through the mouth of the revisionists and their leaders, that in case of conflict they has more to lose but their chains. "

Unlike the current race to the bottom in public services, labor reforms, tax regression and environmental destruction, the years of the First Globalization were, by contrast, the starters of the Welfare State. During this time appeared the first laws and institutions of social protection, labor inspection, 6-day week, the 10-hour day, aid to families, pensions, taxes on income, taxes on foreign investment, etc. In 1884 Bismarck introduced the law of industrial injury insurance and in 1898 was passed a similar law in France. In Spain, the conservative government of Antonio Maura (1907-1909), led to an incipient advancement in labor protection (law of Sunday rest, strike law, law on working conditions of women and children ...) which had its highest expression in the creation a National Insurance Institute, antecedent of the current Social Insurance System.

These new laws were hotly debated issues in parliament. In these debates, those opposed to such measures argued (as at present) that the introduction of such reforms would weaken the competitiveness of the economy, and taxes on capital could not be collected because capital offshore to areas of more benign taxation. However advanced and progressive laws were passed one after another in most European states. On the other hand, the capitalist ability of "delocalizing" was much lower than at present and although the threats were true, rarely had just materialized.

In reality, the building of the foundations of the Welfare State was the formulation of a non-declarative covenant between the leaders of the national working class and the "national" big monopolists. The first with an eye on the country's welfare, and the second taking the country and their blood at the service of the defense or conquest of most quotas in the global markets. The internationalist solidarity speech of the labor movement continue immaculate until early the outbreak of WW1. In a few days the proletarian internationalism and pacifism would be thrown overboard. On July 31, 1934 the Socialist International launched its call to the struggle against war. On August 1, the German government declared war on Russia and declared a state of emergency. On August 2 the German Social Democratic Party executive met to discuss the approval of war credits, and on August 4, won approval by a large majority
First Globalization and imperialist wars

Norman Angell: ”War belongs to a stage of development out of which we have passed; that the commerce and industry of a people no longer depend upon the expansion of its political frontiers; that a nation's political and economic frontiers do not now necessarily coincide; that military power is socially and economically futile, and can have no relation to the prosperity of the people exercising it; that it is impossible for one nation to seize by force the wealth or trade of another—to enrich itself by subjugating, or imposing its will by force on another; that, in short, war, even when victorious, can no longer achieve those aims for which peoples strive.”

Since the eighteenth century proponents of the invisible hand had been postulating that free trade would lead to peace because of linking the destinies of nations through economic interdependence.

A high degree of economic interdependence between countries reduces the probability of war between them? Norman Angell and the French socialist Jean Jaurès (killed just the day before the German declaration of war) stated that, unlike past wars in which the winner expected to get out with loot and territory, in case of war between two advanced countries, given the high level of economic interdependence between them, even the "winner" would end up worse than before the war after the victory (a lose-lose game) They postulated that modern economies are built on money and credit, which requires trust and benign operating conditions, and all that would be destroyed or damaged under conditions of modern warfare. Only a blatant irrationality could lead to armed conflict.

The French socialist Jean Jaurès believed in addition that the internationalization of the economy has created a situation in which democratic institutions and the pressure of the movements of the working class would be sufficient to prevent any involution against peace.

The consequences of WW1 seemed to agree with this thesis since the victorious UK or France were worse than before the war with huge human casualties and the loss of large investments abroad (France lost two thirds of its total investments and loans abroad)

After the war, Keynes warned that global economic integration creates tensions that can not be solved by ordinary politics within a single state. As a result, it may endanger international peace.

Lenin postulated in his book Imperialism, the Highest Stage of Capitalism, that the economic internationalization implied a hidden fight between large national monopolies with international interests able to drag their countries and parliaments to war in order to improve their positions in the scene of global competition.

Confirming the Lenin thesis, the revolving door between senior positions in the public administration and the board of directors of large industrial and financial firms was rife. In many cases there was no door. Maurice Rouvier, who served as Minister of Finance, Minister of Foreign Affairs and Prime Minister (1905-1906) of France, remained part of the board of Banque du comerce française et de l'indutrie . In fact, there was not conflict between citizens aspirations but clashes between large corporate firms aspirations in which citizens were used as cannon fodder in exchange for control of raw materials and markets.

Thus, despite the economic interdependence that First Globalization brought, large multinational firms participate as active agents in World War hoping to capitalize on its war supplies, expanding its market share at the expense of their enemies and doing business from the spoils of their vanquished competitors.

Multinationals in the First Globalization were not yet “global” monopoly agents and, despite the existence of relationships, agreements and deals between them, the competition was fierce and unceremoniously about the means used, including budget support of their parent states to launch war and conflagration.

Actually, the sycophants of the current capitalism are back again on N. Angell's arguments to show the enormous benefits of globalization. WW1 would have been an accident that had nothing to do with the interests of large corporations at the time. Russia, the initial cause of the conflict by declaring war on Austria-Hungary, represented in reality the last gasp of the old regime, and the chain of events that led to the First World War had nothing to do with globalization but quite the contrary.

Globalization and income distribution

Thomas Piketty, mostly known by his recent book “Capital in the 21st Century” is a researcher of income concentration. In his book “Les hauts revenus en France au XXe siecle: Inegalités et redistribution (2001)” he documented, using fiscal sources, the rise in the share of the top income groups in France until World War I, the fall between 1918 and 1945 and their rise again in the late 1970s. In his studies of income distribution in USA he elaborated a graphs of the income shares of US top decile, top 1% and top 0.1%, showing that at the turn of the 21st century the rich’s income shares approached the extremely high values from the roaring twenties. In the book “Capital in the 21st Century” Piketty assert that this is a process that characterizes all advanced capitalist economies.

According to Piketty, the ratio “private wealth/national income” has been rising in the advanced countries from around 1870 until the First World War as the outcome of a continued high return on capital acting upon a steadily accumulating capital in an environment that was institutionally favourable to capitalists rather than to workers. With high returns on capital, “coupon-clipping rentiers” and the “working rich” lost incentive in production.

Piketty argues that physical destruction of capital during the two World Wars, high taxation of inheritance and high income taxes to sustain war effort, high inflation (that helped debtors vs. creditors), and more labor-friendly political atmosphere after World War II, reversed the trend. The functional distribution shifted in favour of labor, and the personal income distribution became more equal. Developed economies expanded the fastest in their histories. It was capitalism’s Golden Age. But with the Thatcher-Reagan revolutions in the late 1970s, the Golden Age receded, and capitalism reverted to the form it had in the late 19th century.


Thomas Piketty do not contemplate the possibility of a second deglobalization. Piketty’s simple policy recommendation is global taxation of capital. He recognizes that the application of such a tax by individual countries can lead to the outflow of capital. Thus, the need of international collaboration that is unlikely to be supported by the countries that currently benefit the most from the opacity of financial transactions and offer tax havens to the rich. In Peketty’s perspective there is no room for class struggle and so there is no clear alternative to de 2n Globalization.

Thomas Piketty no where contemplate the rising socialist opposition to capitalism before, during, between and after the two World Wars. Capital domestication and economic nationalism where a defensive reaction to socialist advance against the first capitalist globalization and the possible nationalist or socialist outcomes of the 2n Globalization would be determined, as ever before, by class struggle.


 Multinationals Second Generation: Global Companies

Sam Palmisano: " The multinational corporation at the end of the twenty-th century has few things in common with the international companies from a century ago, which, in turn, were very different from large commercial companies from the XVIII-th century.”

Return to current globalization is the result of political, economic and technological shocks that synchronized and reinforced each other in the early 80s and led to a substantial restructuring of the manufacturing process. The financialization of capitalism as a result of overproduction, the victory of Thatcherism and Reganomics, the gradual opening of China (1979) and the lightning opening of the former Soviet Bloc (1989), together with the development of ICT and the Internet (3rd industrial revolution) have flattened the way for the intrinsic tendency of the capitalist system: globalization.

In the 2nd Globalization multinational corporations have changed, they have entirely escaped its national chrysalis and are actually global creatures.

1. During the First Globalization the monopolized sectors where those who needed large economies of scale and huge investments (railroads, chemical, telephone and telegraph systems, generation and transmission of electrical energy, etc.), monopoly was big and visible. Conversely, in the second round of globalization, any sector has escaped the clutches of monopolies messaging, pizzas, drinks, fast food, book sales, department stores, clothing, shoes, fruit, publishing, sports equipment, etc. Monopolization is absorbing anything that moves in the economic environment.

2. During the first round of the Second Globalization monopoly TNCs tended to offshore its plants but actually transnational corporations do outsource most of its operations, internally and externally. They disintegrate their production process (industrial structure modulation) and outsource it to one or more independent suppliers, maintaining effective control over the whole process of production and distribution. In this case, the advantages in terms of "responsibility" and cost are obvious and corporations can ignore labor and environmental misdeeds of their subcontractors.

Unlike offshoring, outsourcing eliminates "foreign direct investment" and eliminates capital flows in the form of "repatriation of profits" (which should be declared). The profits (monopoly rents) are caught manipulating the prices of inputs and outputs, ie, the "added value" on the value chain, in favor of the parent corporation. Profits, "appear" mostly on certain links in the chain, conveniently located in tax havens (absent in the First Globalization). The company "emerges" profits at will primarily for reasons of public relations.

3. It is intended to hide the reality that the current structures of global value are increasingly asymmetric: the headquarters of large corporations capture the most "value" (monopoly rents) while the rest of the value chain (outsourced), facing the multinational monopsony buyer power, is forced to compete suicidally to access the crumbs left by the matrix. Besides these actual global corporations who appropriate the whole pie there are only outsourced and always on the verge of bankruptcy corporate zombies.



4. At present, many large "industrial" corporations do not produce any thing, they have become fab-less companies, retaining at most some service segments such as design, marketing, distribution and financial management. As many of these services can also be outsourced, there are many companies that practically do nothing: neither produce nor repair, neither design or investigate (fabless/labless), absolutely hollow monopoly global firms that deviate most their enormous profits into the sphere of leverage and financial engineering, the field of mergers and acquisitions, feeding the boilers of financialization. In the last decades we have witnessed a real complete subjugation of economy to the financial sphere that controls and feeds the monopolization of all sectors.

5. Monopolies do not like light and never have liked it. Outsourcing has the great advantage that monopoly is less visible than before. Large chunks of industry and services seem outside monopolisation, with any big brand name seeming to have any relation with its activity. A more appropriate definition of actual TNC would be that of the economist Peter Dicken defining the multinational corporation as "a firm that has the power to coordinate and control business operations in more than one country, even if it does not own them." . Monopolies became invisible and so resistance against them decreases.

6. So in the 2nd Globalization multinational corporations have changed, have entirely escaped its national chrysalis and are entirely global creatures. There is no substantial need of states, their budgets and their young workers/soldiers to settle their competitive differences. It is far better to ally them selves (TTIP, TAFTA) to dismantle and destroy all social work (including in its parent headquarters) that exceeds the administrative minimum necessary for their business that to pay taxes to support state formations that are rather obsolete hindrance than useful levers to pull himself to monopoly global positions.

The current states must comply with a corset, the basic absolute minimum that stateless global monopolies deem necessary just for operate their business. The vaunted "International Community" actually represents an increasingly deteriorated herd guided by large global monopoly firms to keep everywhere the globalized capitalist order that suits their interests.

Why collapsed the first globalization?

The unbridled greed and unscrupulous capitalism of the First Globalization caused WW1 and its unpredictable consequences. Modern war and subsequent reconstruction demanded a bloated budgets and a drastic intervention in the economy. The additional tax burden would not fall entirely over the working class shoulders just coming out of the trenches and whose revolutionary aspirations seemed to be realized in Russia and threatened to materialize in other parts of the world.

The foreign assets of multinationals defeated side were expropriated and most loans were declared illegitimate. Countries at war investigated who was the real owner of the registered companies in their countries, and who actually controlled companies whose names sounded respectable local. One of the largest companies in oil distribution in Britain - the British Petroleum Company - turned out to be largely controlled by the German Deutsche Bank so she was sequestered and sold to Anglo-Persian Oil Company in which the British Government had taken 51% of the shares in 1914. But for some of the victors, as postulated Jaurès and Angell, war was a disaster. Britain had been until then the major global creditor. In 1914 the UK monopolized 45% of all direct foreign investment. With the abandonment of the gold standard ceased to be the mainstay of international finance. Its strategic position in the world economy, already threatened by the USA and Germany before the war, and could not recover after the war, a role that would be assigned USA. Banking and French manufacturers saw their considerable capital invested in Russia volatilized.

During the war years a new nationalism arose everywhere, with increasing state intervention. Public budgets swelled, taxes increased and impacted multinational businesses. Many profitable businesses hitherto in private hands began to be considered susceptible to state intervention as strategic sectors (communications, electricity, rail, etc.). The war brought restrictions on trade and international capital movements and GB was forced to suspend the gold standard with the consequent destabilization of international finance.

The revolution in Russia and the danger of its international expansion slowed the dangerous greed of capital. When the war began the Tsarist sequestered the German investments in its territory. With the revolution most of the foreign investments in the country were expropriated (90% of the Russian electricity sector was in foreign hands).

The war itself involved a substantial redistribution of wealth by the great destruction of property and the rise in wages. In addition, the collapse of the Russian, German, Austro-Hungarian and Ottoman empires created a host of new political boundaries with profound implications for multinational financial and industrial businesses.

Even after conflict, with the dominant role of USA as a substitute of Britain and Germany at the global level, there was a certain revival of the First Globalization, but the crash of 1929 and the subsequent Great Depression finally ended with the creature.

Capitalism Domestication and Economic Nationalism

Thus First Globalization proved reversible. Capitalism, on the defensive, was “domesticated”, was re-nationalized. Economic Nationalism replaced the laissez faire. After war high state budgets do not waned. Tax progressivity was maintained and the social gains were consolidated. Real wages increased. Nationalizations and municipalizations became widespread. The tax burden fell on the slippery subsidiaries of multinationals. Credit was strictly regulated. Protectionism, controls on speculation and movement of capital, the problems of sterling and the gold standard, etc., dismantled one by one the basic cornerstones of the First Globalization.

Unlike today's Globalization, the First Globalization was only a suitable field for large industrial firms and large financial conglomerates. The reaction against the First Globalization brought together all sectors remaining marginalized and resentful against the benefits and privileges of globalized capitalism.

In Spain, economic nationalism began to emerge a few years prior to WW1 with the long government of Antonio Maura (1907-1909) who advocated state intervention in the economy. Foreign capital in Spain dominated the exploitation of mineral resources, the rail network and well into the twentieth century, the major utilities (water, electricity, gas, phone, etc.). Since 1917 initiatives multiplied for economic nationalism. In June 1917 a National Economy Congress was held with very clear guidance in that direction, a law and a Protection of National Industry regulation was enacted and the Protection Committee of the National Production was enhanced.

The prosperity of the Spanish economy during the years of WW1, induced by the export boom that made possible the country's neutrality, gave wings to those who believed in the possibility of a growing "national economy." Emilio Riu (1871-1928) founded the Revista Nacional de Economía in 1916 (a publication with a high objective rigor throughout his trajectory till 1936) with a clear goal of defending the economic nationalism. Its purpose was to stir the patriotism of capitalists, politicians and businessmen, in order to contribute to the building of a strong and robust "national economy" to emancipate Spain from the tutelage of other economies. Finished the War, the intense and profound industrial and financial crisis of the twenties strengthen the nationalist and protectionist orientations of the economy with specific tariff measures (Cambó tariff of 1922) and the promotion and protection of domestic industry (1921 laws on mining concessions; 1924 laws on the protection of domestic industry). State economic interventionism advanced with management laws concerning key sectors of the "national economy", such as banking and railways. With the dictatorship of Primo de Rivera the protectionist, nationalist and interventionist model consolidated.

Is reversible the 2nd Globalization?

If the technical innovations of the second half of the nineteenth century facilitated only and exclusively the global activity of large monopolistic firms, recent innovations have enabled widespread globalization in which anyone can participate. Both General Motors as a games apps four employees micro-company can be active members of the current globalization. It is an all-embracing globalization encompassing and including everything.


But at the same time it is presented as a world full of opportunities for all, in fact it is more exclusive and excluding than the world's First Globalization. During the First Globalization, there were large monopoly firms that enjoyed enormous advantages. But these firms not covered everything, they were a minority that dominated certain sectors more or less exclusively, but most areas were still free of big firms or monopolies. You could still live and work outside globalization.

At present nothing is beyond the control and abuse of global monopoly. Any industrial or financial services sector is subject to a few global firms that control the entire market. It is difficult to imagine a sector that has not yet fallen into the nets of a monopoly. The immense majority of business outside monopolies, small or big, SMEs or micro- enterprises, are simple subcontractors subordinated to global monopolies. Financialization contributes the rapid formation of global monopolies in new sectors within months if not days. The only future that awaits a TNC company is to become a monopoly or be absorbed by a monopoly. It is the famous game of the new business startups.

If first generation TNC were able to evade certain taxes, current transnational monopoly firms can evade almost all. The current globalization would be meaningless without the existence of tax havens. In fact, paying taxes has become part of the public relations department of the companies. Apple not only likes herself with smart names for their new products but shamelessly brag about its cunning tricks to evade taxes baptizing it as "Double Irish with a Dutch Sandwich " (Apple, Facebook, Google, Microsoft, Oracle Corp and Pfizer Inc., use this type of subsidiaries, two of which are located in Ireland and listed as the "bread" of the sandwich, one is located in the Netherlands - the "cheese"- while the subsidiary in Bermuda and Cayman Islands is receiving the profits)

If social polarization reached heights of scandal during the First Globalization, today these levels have been exceeded several times and they keep increasing exponentially.

In the Second Globalization taxes fall almost exclusively on the working class whose wages are reduced every day by the flexi labor reforms. Stagnation has been avoided thanks to massive household indebtedness grace of financial deregulation, unbridled speculation and public bailouts of speculators.

The system is in crisis for many years. Massive overproduction generates that capital leave production for finance, speculation and bubbles, which can give the bright illusion that the system is not collapsing ... for a while. With the crash of 2008 all this is over. The current more prosaically phase post financial crisis, is an obscure stagnation standby with no light at all at the end of the tunnel.

Is it possible to return to a world of tariffs and quotas? Is it possible to block the emergence of regional trade and investment? Is it possible to return to economic nationalism? When the First Globalization slowed, when barriers were erected against multinationals, when an anti-trust legislation in the United States was established, transnational monopolies controlled only a few sectors of the economy. The non-monopoly sectors formed the basis of economic nationalism that confronted globalization. At present there are not alternative niches outside the monopoly control to raise any credible alternative within the system. Therefore, the collapse of the 2nd Globalization will be a collapse without replacement within the system and will represent the global collapse of the capitalist system.

References



i] Rudolf Hilferding, El Capital Financiero, Tecnos, Madrid, 1973 (Chapter 13, 14)
[ii] https://es.wikipedia.org/wiki/S%C3%A3o_Paulo_Tramway,_Light_and_Power_Company
[iii] William J. Hausman, Meter Hertner and Mira Wilkins: Global Electrification. Multinational Enterprise and International Finance in the History of Light and Power, 1870-2007. Cambridge University Press 2008
[iv] Geoffrey G. Jones: Nationality and Multinationals in Historical Perspectiva. 2005 http://www.hbs.edu/faculty/Publication%20Files/06-052.pdf
[v] Ceballos Teresí: Los negocios de los tranvías de Barcelona. Madrid 1915. http://books.google.es/books/about/Los_negocios_de_los_tranvias_de_Barcelon.html?id=wz7WQwAACAAJ&redir_esc=y
[vi] Quoted by Pierre Broué: Revolution en Allemagne. Paris 1971 p21
[vii] Pierre Broué: Revolution en Allemagne. Paris 1971 p55
[viii] Norman Angell : The Great Illusion. Synopsis. G.P. Putnam's Sons.  New York and London. 1911
[ix] Norman Angell : The Great Illusion. G.P. Putnam's Sons.  New York and London. November 1909
[x] David Singh Grewal: What Keynes warned about globalization. http://www.india-seminar.com/2009/601/601_david_singh_grewali.htm
[xi] https://fr.wikipedia.org/wiki/Maurice_Rouvier
[xii] http://scholar.harvard.edu/files/cooper/files/wwi.rev_.pdf
[xiii] Sam Palmisano: The Globally Integrated Enterprise. Foreign Affairs 2006. Quoted by Serghei MĂRGULESCU and Elena MĂRGULESCU in SWITCHING FROM THE GLOBALIZATION OF MARKETS TO THE GLOBALIZATION OF PRODUCTION AND SERVICES IN A SEMIGLOBALIZED WORLD. http://lexetscientia.univnt.ro/download/302_lesij_es_XVI_2_2009_art_023.pdf
[xiv] http://crisiscapitalista.blogspot.com.es/2013/02/monopolios-multinacionales.html
[xv] Dicken, P. Global Shift. London. (5th edn). 2007 Sage. p 106
[xvi] http://www.techdesignforums.com/practice/technique/first-fabless-now-labless/
[xvii] T.L.Friedman: The World is flat. A Brief History of the Twenty-first Century. USA 2005  pp. 420-421.
[xviii] https://es.wikipedia.org/wiki/Gobierno_largo_de_Antonio_Maura
[xix] http://es.wikipedia.org/wiki/Emili_Riu_i_Periquet
[xx] José Miguel Fernández Pérez: La Revista Nacional de Economía y el nacionalismo económico. in Economía y economistas españoles. Vol. 6. Galaxia Gutemberg 1999
[xi] https://en.wikipedia.org/wiki/Double_Irish_arrangement