We Conceive Capitalism As a Mode of Production As Well As a Social Order

The Role of Transnational Corporations in Production and Trade. Giuliano Martiniello
In the light of present trends in global integration, is still possible for LDC goverments to harness TNCs investments to national strategies of industrial development?

To address the question we need first of all to historicize the development of the capitalist world economy in order to avoid reductionism or to present it as an isolated picture, a snapshot, about the interactions between trade and production patterns in the contemporary world economy without understandings the interactions and correlations between the different actors that fill the economic and political space and the nature or the logic of the functioning of the world capitalist economy. The object of my analysis is to synthesize how the global system of capitalism shapes and influences the nature as well as the behaviour of states, classes, firms and individuals.

1)Theoretically.

We conceive capitalism as a mode of production as well as a social order:

A mode of production refers to the main social forces (classes especially) which organize and control the generation of economic surplus in a set of societies. In the capitalist way of production the capitalists, i.e. the owners of the means of production, seek to raise their profits at the expense of wages of workers which dispose only of their labour force to survive.

Which are thus the determinants of the capitalist development, which are its exigencies, opportunities?

Expansion and accumulation of capital, the accumulation for the sake of accumulation, are driving forces behind the capitalist development. They are the objective base of the movement of capital and the spur for the capitalist to unlimited appropriation of abstract wealth and to act as conscious representative of this movement.

Different modes of expansion and accumulation presuppose policies and mechanisms through which economic and social conditions of pre-capitalist formations or non capitalist formations are transformed and at the same time also the capitalist formations are shaped. (Frobel, Heinrichs, Freye, The Tendency towards a new international division of labour).

This operation is called “dull compulsion of economic relations” (Marx. The Capital).

Under this conditions the expansion of capital has the task to constitute pre-conditions for further accumulation and expansion.

So it appears that the determining force behind the capitalist development is expansion and accumulation of capital and not an alleged absolute tendency towards the extension and deepening of the wage/capital relationship or of the productive forces.(Wallerstein, The rise and demise of modern world system).

This interpretation is, in our opinion, more historically adapt to describe the real expansion of the capitalist development.

Capitalist development is the spatial/temporal unfolding of these combinations of expansion and accumulation on a world scale which under given conditions maximize profits for the respective capitals. This means that capital accumulation and expansion is trans-national from its outset.

What may appear as national reproduction of capital (which is in its beginning, of course linked to the territory and to the state legal and giudicial regulations should be understood in analytical terms as reproduction under conditions which make capital expansion and accumulation, at this particular time, most profitable in particular place.

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2) Historically.

The modern world economy had its origin in the “long sixteenth century” (Wallerstein, The Modern World System) in the age of plunder and trade.

What seems here relevant for our analysis is the intertwined nature of the modern state and the modern world market. This was also the period of the transition from Feudalism to Capitalism in Western Europe. This transition was based mainly on the separation of the peasants from their means of subsistence (the land) so that they were forced to sell their labour in order to get their subsistence and this in turn created the “freeing” of the potential workers from the constraints of the feudal organization of relations of production ( Brenner, The Origins of capitalist development: a critique of neo-Smithian Marxism). In this sense the advance of capitalism not only in Europe must be conceived as a process which engenders accumulation by dispossession.

This period was marked by what has been termed the Merchant Capitalism, in which global and local markets came to be more and more in relation, the power of merchant capitalist was hand in hand with the concentration of political authority in territorial nation states which increasing repressed their social forces with the legitimate coercive use of the force and gave to their merchant class military and judicial protection.

One of the examples that can make us understand the evolution of the trade patterns is the relation between the VOC ( Dutch East India Company) and the Dutch quasi-state of the United Provinces.

The Company based its wealth on its ability to exert military power to create and protect privileged areas of navigation and influence on the behalf of the Dutch State, with the mandate to create colonies for raw materials, trade commodities of every kind ( slaves, ivory, gold, spices, etc.) and expand markets. The logic behind the working of the merchant capital was linked to the principle of “buying cheap and selling dear”, the circuit of commodity capital was thus the first to be internationalised during the age of Dutch hegemony, which was able to channel the increasing amounts of money in profitable investments so that Amsterdam became the centre of the international finance.(Braudel, Civiltà Materiale, Economia e Capitalismo)

Dialectic between commodity capital, money capital and the power of Dutch state. The trade was seen as an instrument to increase the financial position of the state in virtue of its capacity to tax the profits that the merchant class realizes and enhances its military and repressive power. In this sense the relation between economics and politics is extremely dialectic not a one-way relation.

This relation is important to understand the qualitative change behind the demission of Dutch hegemony and its substitution by the Britain as the leading state for that epoch.

As the Dutch hegemony was based essentially on trade and finance, Britain hegemony rise most of all as a result of the industrial revolution and the capability of its state to create pre-conditions for its expansion in search for new markets and raw materials.

“ The need of a constantly expanding market...chases the bourgeoisie over the whole surface of the globe... All old established national industries are dislodged by new industries that no longer work up indigenous raw material, but raw material from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfactionthe products of distant lands and climates...The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all...nations into civilisation. It compels all nations, on pain of extinction, to adopt the bourgeoisie mode of production; it compel them to introduce what it calls civilisation in their midst , i.e. to become bourgeois themselves.

In one word, it creates a world after its own image. (Marx, K. and Engels, F.(1971) The Communist Manifesto)

The British hegemony carved out a new dialectic between territorialism and capitalism. It was based mainly on the creation of an immense colonial empire from India to South Africa thanks to its military superiority, free-trade between the borders of its empire, a strong bias to invest abroad mainly in “resource seeking investments” so a new political institution the colonial state was created to guarantee the process of accumulation generated by this expanded capital and a financial regime based on the pound which gave London the supremacy of the world production and finance.

Share-holder driven growth imperative and increasingly difficulties of the shareholder of enhancing

domestic firms push them to go out. Speculative capitalism in Southern Africa – (Arrighi, Saul, Essays on the Political economy of Africa) where Western firms invested in the boom of Gold acquiring monopoly positions in the market and production of gold while their share in the Exchange Stock in London increased. – firms as Multipliers of the nominal value of the financial assets.

This does not mean, of course that inter-capitalist competition was erased, rather it was this competition to restrict the margins of profits that pushed all European nation states to pursue imperialist practice manifested as an example by the Scramble for Africa.

Indeed there was not a mere substitution from a model of accumulation based on merchant capital to a model based on the industrial capital. Rather it was the combination of both.

In addition as historical analysis showed that the growth, in quantitative and qualitative terms, of trade and production followed the cyclical patterns of capitalist accumulation called “systemic cycles of accumulation” ( Arrighi, The Long 20th century). These showed how period of growth (a-phase of a cycle) and crises (b-phase) alternated from the beginning of the modern capitalist system.

The period between the two wars was a period of economic nationalism, because of the breakdown of the British hegemony, and the dismantling of the world market before regulated by the gold standard and by the leading role of the pound. As Hobsbawm put it “ the European Empires turned back into the igloo of nation states” (Il Trionfo della Borghesia 1845-1870).

Post War Global Capitalism.

As we have seen the internationalization thus was not a new phenomenon – as the colonial empire spread throughout the globe in search of Raw materials and Market for their manufacturers.

Indeed after the second war the system experiences a quantitative and qualitative change in the patterns of expansion and accumulation of capital both in trade and production.

- Politics.

A qualitative increase in the internationalization of capital was followed by the universalization of the nation-state; and the creation of international organizations (FMI, WB, ONU); trade regime under the political umbrella of GATT. All these institutions intended to reconstitute a world market and its rules under the US hegemony through politics of harmonization between rates of exchange, trade barriers, standardization of production.

- Technology:

Decomposition of the production process in simple task suitable to be carried out by unskilled labour (to mobilize a virtual unlimited reserve army); Technical innovation in sectors basic to transport and communication, complex engineering technique, communications network, computer processing data.

From mechanically integrated product to a computer-controlled product and systems of production.

- Finance:

Financial expansion and centralization euro-dollar and petro-dollar market as well as the role of the American banks in creating a trans-national banking system. In addition the fluctuations of capitals around the world increased after the demonetarization of the gold and the abandon of the gold-standard.

- TNCs emergence as an actor shaping the trans-national patterns of trade and production and the process of international division of the labour. (Hymer, The Multinational Corporation and the Law of Uneven Development).

- Globalization of the Production.

Global production sharing has been taken in different sector machinery and equipment, consumer electronics, transportation, textiles, apparel, toys and service as in finance.( Gereffi, Global production system and Third World development).

Data as indicators of the new pattern of global production.

- World production has been increasing at a rate of 6% each year, trade production at a rate of 8%.

- Unctad (annual trade report 1982) the contribution to the GDP of Third World countries of the manufacturing sector increased from 12% to 20%.

- Newly industrialized countries (NiCs) 35% of the total GDP of the developing countries.

- Taiwan, Singapore,Hong Kong,South-Korea, Brasile, Mexico, Argentina , Filippine.

( 1/3 of the exports from these countries belongs to TNCs.(OECD).

- Corporations in third world 1985 were 55 (11% of the total), in 2002 32 6%. (12 China-11 South Korea).

- Increase in the trade of intermediate goods mainly between MNCS and because of subcontracting and disintegration of the production. MNCS 33% of the world trade ( Le Monde Diplomatique on Globalization 2004)

- Machinery and Equipment represent the 50% of the global trade manufacturing Trade for parts and components more than trade for finished products in this sector. It increased between the 1978 e 2001. China and Asian NICs role in the production of this goods and increased share imports.

To answer the question if TNCs investment can be harnessed towards national genuine development, we have to understand more clearly the articulation of the different phases of the commodity chain within the global processes of production, the reasons for the delocalization, the nature of patterns of investments and the role of the actors in the game.

1) Industrial and commercial capital promoted globalization towards integrated networks of productions: producer-driven commodity chain and buyer-driven commodity chain.

The peculiar attention in the commodity chain make us understand the control and the ownership of each segment of the production.

While global production sharing has apparently helped the developing countries expand export-oriented manufacturing activity its value-added had not increased in the years. (Jenkins, Industrialization and Global Economy). This because global corporations outsource low-value added activities, retaining control over activity with an high value added in the core areas ( “Core Competency”). These areas are highly oligopolistic because of the high technological and skill requirements. The lead firm typically control the global commodity chain. It can outsource production but will centralize R&D and the finished product within the firm. (Gereffi)

Production-driven, (Economies of scale) – automobile, aircraft, computers.

2) The reasons for the delocalization are to be found on one hand on specific advantages of the international form - know how, power in the share of market, computer processing – on the other hand a combination of technological, political, financial and economic reasons - less taxes and more political control of labour, less political risk, access to the market of capitals, infrastructure, entrepreneurial spirit and environment - redefines the spatial organization of production processes. relation between state and capital and between capital and labour., ( Milieu – Marshallian District (Dunning, Search for an eclectic paradigm).Large corporations located in headquarters in western countries (example of the South African relocation of the great corporations De Beers and AngloAmerican to the stock exchange in London after the end of apartheid). (Bond, Unsustainable South Africa – Development Environment and Social Protest)

Internalization- Externalization. Generally the firm tends to defend rents bound to the protection of “knowledge based assets” – , only if the benefits of the outsourcing exceed the growth of the rents the firm decide to outsource.

Externalize means that the return on external outsourcing must be higher than in the internal vertically operations and integrated process.

3) The nature of FDI -

Horizontal FDI and Vertical FDI –

1) market of the foreign countries necessary in virtue of the will to locate the production in the location (market seeking) e tariff hopping - Size of GDP as the first determinant.; 2) Vertical FDI for lowering the costs, efficiency seeking (low labour costs, lower taxes on profits and on dividends, low standard about labour and environment. See also Third World Developmental project and relative tariffs and tendence of TNCs to hop these barriers.

Dominion of the horizontal FDI shows how the productivity is reaching limits on global scale, a Crises of Overproduction (Brenner, The Boom and The Bubble). And why investments go away from Africa.

FDI and repatriation, dividends, technological rents. Flows of capitals out-flowing higher than capital inflowing. In addition after the Debt crises in 1982, the FDI have constituted the 86% of the capital private flows invested in the developing countries, so they have tended to substitute private debts and governments grants as determinant in the inflow of foreign capital..

Indeed there are limit to the spatial dislocation, even though technology has reduced the cost that must be paid because of the distance factor, - Cluster or Agglomeration – Economies of scale, preferential trade agreements, low transport costs.

The ownership of the firms based in EPZs is different but it involves often a participations of local capital as well as the role of the state for legal, giudicial, and labour , fiscal, and trade arrangements. Southern Africa Coordinating Trade Unions Council asserts enormous violations of labour standards within the Southen Africa EPZs.

So states are in competition globally to attract FDI and to create Export Platforms, that are like enclaves, islands in the ocean of the world competitiveness.

- Oligopoly continues to be the dominant structure of the market in manufacturing, agriculture and mines, remains then character and tendency to the centralization (Nolan2002).

- Unprecedented concentration of business power in.

- In addition most of the spatial dispersion is occurring in the low value added niches market (Milberg, The changing global structure of trade linked to global production system).

In conclusion what seems clear is that a process of stratification within the periphery is working s (Arrighi, The stratification of the world –economy), in addition recent research on the polarization of the world economy show that the gap between western countries and the periphery is increasing.

In opposition to the idea that the problem is just a matter of capability of the state to absorb know-how and channel technology from abroad within a national project of growth ( Narula, Lall, on FDI) is in our opinion partial.

It misconceives on one hand the nature of the historical incorporation of some area within a hierarchical international division of labour, so it assumes that all the state have this capability of “learning to learn”. But the state is not a rational and unified actor, it is the product of the history so there are weak and strong states that act differently according to their power.