CAPITALISM TODAY

V.R. KARUMANCHI

Social formation dominated by capital extends over a long historical epoch which involves multiple factors economic, political, social and cultural. I confine in this article to economics specially the economic structure changes in economic structure from 18" century classical economics to present neo-liberalism, Classical economics represented a liberal thought, market economy guided by invisible hand no interference by government in the economy, and supply always creates its own demand. The unit of capital was a small firm facing competition form other firms. In between these two epochs, there have been changes in economic structure leading to concentration and centralization and the development of monopoly capitalism and the coming of corporations. During this long period the economic structure changed from pure competitive market with number of firms to monopoly firm joint ventures and corporations. To understand the present global order it is important not to lose from sight that capitalism is not a national system not is it a collection of discrete capitalist countries some underdeveloped, some developing. It is a system in which all these are linked together. This system has an over all structure, its parts are interrelated in definite ways.

In the present stage of capitalism corporation is the unit of capital. It is a further development on joint ventures. Share holders buy stocks of the corporation. But the corporation owns the real assets and the participants own only shares in the corporation, pieces of paper embodying specified legal rights (to vote for directors, receive dividends when declared, acquire a pro-rata share of assets in case the corporation is liquidated etc). The difference between owning real assets and owning a bundle of legal rights may at first sight seem unimportant but this is not the case. It is in fact the root of the division of the economy in to productive and financial sectors.

Neo-liberal globalization constitutes a new epoch in the ongoing evolution of world capitalist system — marked by a number of fundamental shifts in the capitalist system. These shifts include 1) the transition from national circuits of accumulation in an integrated international market to global economy or global circuits of accumulation, 2).the rise of truly transnational capital and the integration of every country into a new global production and finance system,  3) the appearance of a new transnational capitalist class. The enormous inequality and domination in global society.

After II world war-the economies of US and other developed countries developed with full employment. This economic growth in U.S and other developed countries ended and the capitalist system plunged into stagnation. Under monopoly capitalism as it has developed in the advanced capitalist countries during the 20" century there is a strong persistent and growing tendency for more surplus value to be produced than can find profitable investment outlets. The surplus capital was diverted to financial markets and that was used for speculative investments and a kind of casino market developed. This financialization of the capital accumulation process has been the main force lifting economic growth since 1970s. Neo-liberal globalization has been a finance led process since 1980s. Deregulation of the financial industry together with the introduction of computer and information technology made possible the creation of a globally integrated financial system. Transnational finance capital is the most mobile fraction of capital and became the hegemonic fraction on a world scale in the late twentieth century. The revolution in finance over the past few decades included all sorts of financial innovations derivatives, including swaps, futures markets hedge funds, institutional investment funds mortgage based securities, collateralized debt obligation, ponzi schemes and many more.

The innovations make possible a global casino or transnational financial circuits based on speculation and the ongoing expansion of fictitious capital. Securitization made pensions, debt tradable and there fore a source of speculation and accumulation. These innovations allowed global speculations to appropriate values through new circuits irrespective of space and material production.

Since 1970s the emergence of globally mobile transnational capital increasingly divorced from specific countries has facilitated the globalization of production. This involves the fragmentation. and decentralization of complex production process and world wide dispersal of the different segments and phases in these processes. The new technology and organizational innovations has been facilitating this process. This is distinct from the previous process when each country had distinct national economy linked externally to one another through trade and finance. At the same time an integrated global financial system had replaced the national-bank dominated financial system of the earlier period. There are still local and national capitalists and there will be for a long time to come. But they face ongoing pressures to “delocalize and link to transnational capital”.

Some of the indicators of the transnationalization of capital that penetrate the national capitals are “ the sharp rise in foreign direct investment, the spread of TNC affiliates, the phenomenal increase in cross border mergers and acquisitions the increasing transnational interlocking of boards of directorates, the increasingly transnational ownership of capital shares, vast global out sourcing and subcontracting networks. The spread of stock markets from the principal centers of the world economy to many capital cities around the world combined with twenty four hour trading facilitates an ever greater global trading and hence transnational ownership of shares. The new financial innovations have also made it easier for capital ownership to transnationalize. Between 1980 and 2008 in the globalization decades companies from the advanced capitalist core increased their outward stock of FDI from $503 billions to  across the globe.

This process of outward — inward capital flows between countries M &As has been taking place in low and middle income countries also. Still the  powerful nation behind the’ U.S and China. According “Global Governance 2025 report” issued jointly by the U.S National intelligence council and the European  Union’s institute for Security Studies, the E.U. is considered a region

The report also predicted that while the clout of India, China and Brazil would rise further by 2025 that of the U.S and the E.U., Japan and Russia would decline. Many countries in the south are industrially developing. For the new industrialized countries china's 8-10 percent annual growth rates have probably been the principal stimulus of growth in the world economy over the last two decades. In the case of Japan for instance a decade long stagnation was broken in 2003 bya recovery fueled by exports to satisfy China’s thirst for capital and technology intensive goods; exports shot up by a record of 44 percent or $ 60 billion. Indeed China became the main destination for Asia’s exports accounting for 31 percent while Japan’s share dropped from 20 percent to 10 percent. China’s demand contributed for the recovery of East Asian countries following 1987 financial crises. In country by country profiles china is now the over helming driver of export growth in Taiwan and the Philippines and the majority buyer of products from Japan, South Korea, Malaysia and Australia. China also has been increasing investments in African countries.

1940-50’s of the twentieth century marks a turning point in the history of capitalism. Decolonization of many countries was the major event of the century. Some of those countries were put on the developmental path and some countries defected from the capitalist system. These defections were mostly from developing countries. This is the over all context with in which the question “Wither U.S Capitalism” can be usefully discussed. The United States of American hegemony has been in decline. It has become a “Credit-Card Imperialism” depending on foreign countries’ capital flows to close its economy’s deficits. It has become both economically and militarily weak as is evident from its war in Iraq. Its recovery from the present financial crises is very weak with the unemployment still at above 9.5 percent. It was stated in their report by WEO (World Economy Outlook) and GFSR (Global Financial Stability Report) that most advanced economies still faced “Large adjustments that their recoveries were advancing at a sluggish pace and that high unemployment still posed major social challenges. However in contrast the many emerging developing economies were again witnessing strong growth.” Over the last two weeks there have been working class protests in European countries against repressive economic measures.

The present crisis is a structural crisis. A structural crisis opens up the possibility for a systemic crisis. But whether it actually snowballs into systemic crisis in this case, if it gives way either to capitalism being superseded or a break down of global civilization is not predetermined and depends entirely on the response of social and political forces to the crisis and on historical contingencies that are not easy to forecast. This is an historic moment of extreme uncertainty in which collective response to the crisis from distinct social and class forces are in great flux.

It is entirely premature to predict or describe a new model of global capitalism as social forces will continue to be in conflict for a long time to come. More over such a project must contend with the fundamental contradiction of a globalizing economy with in a nation state based system of political authority and legal enforcement. “We now have global financial markets, global corporations, global financial flows”, stated British Prime Minister Gordon Brown speaking at a late 2008 emergency summit of the G-20 Countries “But what we do not have is anything other than national and regional regulation and supervision we need a global way of supervising out financial system. We need very large and very radical and political institutional changes.”