Questioning Henwood on Globalization

Richard Du Boff 
and Edward Herman

For some reason Doug Henwood feels called upon to play down globalization. Others on the left, some associated with MONTHLY REVIEW, have done the same, warning that any acceptance of the globalization thesis will discourage leftists and breed "defeatism." Henwood expresses no such fears; but his treatment of globalization, his stress on the benefits of trade and "cosmopolitanism," and his concern that globalization has been "greeted as an evil in itself" are based on arguments that are incomplete and unconvincing.

One of Henwood's problems is an apparent unwillingness to recognize that globalization today is bringing about integration at the level of production itself, through trade, investment, mergers and acquisitions, and intercorporate alliances, rather than integration of markets by trade alone.

Take Henwood's treatment of "trade penetration in general," based on "exports as a share of GDP." He states that by that standard Britain, Japan, and Mexico are no more globalized today than in 1913, although he grants that "exports are just one indicator." Even by that indicator, however, the source of his own data (Angus Maddison) shows that for the world as a whole the export percentage of GDP was significantly higher in 1992 (13.5%) than in 1913 (8.7%). A more recent study (by Michael Kitson and Jonathan Michie) compares average annual growth rates of world exports and world output, with the world economy becoming more "open" when trade grew faster than output. By this measure, the "openness indicator" for 1913 was reached in 1968 and has since been left far behind.

Henwood's constricted view of trade carries over into the service sector, where he notes, correctly, that most of us work in services that are "largely exempt from international competition." As a snapshot frozen in time, yes; as analysis of a process, no. Powered by new technologies, trade in services is actually growing more rapidly than trade in merchandise. It covers finance, telecommunications, transportation, and a range of business services and now accounts for around 30 percent of world trade, up from 17 percent in 1980 (percentages that are understated for several reasons, among them the less reliable statistical coverage than for merchandise trade). The result is that larger numbers of skilled and semiskilled workers in high-income countries are no longer "exempt." A global "back office" data entry industry is developing in the Caribbean, with labor costs running 25 to 40% those in North America and Western Europe for services requiring a low level of computer literacy. Higher levels of occupational skill can be tapped as well: for computer software programming, a $100,000 a year circuit board designer in California will cost less than a third as much in India, and similar subcontracting is spreading to other areas, and other industries (film and television among them). Henwood needs to think more seriously about the direct and indirect effects of globalization on worldwide labor supplies, the "20-25%" econometric impact on real wages notwithstanding. As he himself has pointed out elsewhere, the economists' chief explanation for real wage stagnation at the bottom of the income scale--computer-led "technological upgrading of skills"--is a myth.

Economic globalization is centered in the production process itself. Again, Henwood picks out a single tree in the forest--intrafirm trade in component parts narrowly defined--to claim that a global "assembly line" is an "overblown" image. True, but increasing global production and marketing capacities of corporate capital are not. In simple trade terms, the proportion of world trade in the form of intrafirm trade has grown from 20% in the early 1970s to somewhere between 30 to 40% in the 1990s. In U.S. corporations, intrafirm exports both finished and unfinished have increased markedly as a share of total corporate exports over the past 20 years: they now make up about 45% of the total. But U.S. data also indicate that the fastest growing trade of all is taking place among foreign-based affiliates of parent corporations. And all such intrafirm trade figures exclude the increasingly important "outsourcing contracts in China" and elsewhere.

Across the globe multinational corporations now number around 60,000, and their 500,000 foreign affiliates by themselves had sales (of goods and services) of $11 trillion in 1998, now exceeding global exports (as they have ever since these data were first gathered in 1984) by $4 trillion. The stock of foreign direct investment, the prime mover of international production, is now estimated at $4.1 trillion, equivalent to 12% of world output compared to 9% in 1913; foreign direct investment flows have grown from 2% of world output in the early 1980s to 6% at present. And these figures do not reflect a very rapidly growing network of nonequity arrangements among firms, like strategic partnerships and joint technology and R&D ventures, which are not captured by usual measures of international production and serve as leading elements of market power in a number of key industries (telecommunications, electronics and computers, biotechnology, instrumentation, automobiles). While most production and distribution is still carried on within national boundaries, self-contained and localized production networks are quickly becoming less important in the operations and strategies of corporate capital--the Fortune 500 in the United States and their foreign counterparts, which are both competitors and strategic allies depending on situations prevailing in one industry or another.

The steady enlargement and integration of global money and capital markets too, where private holdings now tower over the reserves of central banks, constrain national economic policies. Henwood agrees but stresses the fact that financial markets were also free before 1913. In that earlier era, however, there were no welfare states to be subverted by the mobility of money, so that even a return to freer markets is a matter of serious concern.

Henwood's treatment of the role of the state is curious. "States have been acting for centuries . . . in the interests of capital," he says. He's right of course, but he uses this as a club against an argument that no serious student of globalization would make--that the state "is withering away under a new regime of stateless multinational[s]." The point is that, once again, the state is helping to create new institutions for new modes of accumulation. In the late 19th century, the state helped create and refine the legal entity known as the corporation, and its creation of joint-stock companies goes even further back in time. Now, nation states are working to create international institutions to further the globalization process. So effectively is the state serving the interests of multinational capital that it enters into international agreements like WTO and NAFTA that actually diminish its own abilities to serve ordinary citizens.

Henwood then asks: "And when did internationalization become something feared and hated in itself?" Again he sets up a straw person. Many who think globalization is a menace are "cosmopolitan" and don't object to trade and other exchanges in themselves. They hardly deny the potential benefits of international trade--cheaper imports, a wider range of consumer choice, new technologies, the spur of foreign competition. But we live in an age of trade shaped and dominated by multinational capital, not by small, competitive producers with little control over prices, costs, techniques of production, and market shares. Henwood admits that "export-oriented development has offered very little in the way of real economic and social development for the poor countries who've been offered no other outlet." Then he asks, "But does that mean trade itself is bad?" No Doug, but your question is bad. You just conceded that export-oriented development has hurt poor countries: why don't you acknowledge that this is part of the globalization process? And wouldn't you agree that the unprecedented growth in world trade since the 1960s has been associated with steeply rising inequalities of income and wealth, both internationally and within nations?

"Why," Henwood also asks, "do so many people treat globalization itself as the enemy rather than capitalist and imperialist expansion?" But why can't you see, Doug, that capitalist and imperialist expansion now takes the form of globalization, a form that feeds back to crush democracy at home? You are embarrassed that Nader echoes Pat Buchanan in describing NAFTA and GATT as a threat to U.S. sovereignty; and you say that "Washington has been abusing Mexican sovereignty for over a century--which is why it's a good idea to stop saying globalization when you mean imperialism." But you miss the point: globalization is a major contemporary form of imperialism, and Nader is right that it reduces U.S. sovereignty while beating up on Mexico as well, a point that he certainly would have made without any prompting from Buchanan.