Which Global Village

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reference information

• pages 9 - 17
• author: Elmar Altvater
• title: The local and the Global in Financial Crises
• Which "Global Village"? Societies, Cultures, and Political-Economic Systems in a Euro-Atlantic Perspective
• edited by Valeria Gennaro Lerda - 2002

front jacket blurb

• The word "village" has the evocative power of ancient shared social values based on solidarity, equality, and common expectations for the betterment of life.
• The book's title is borrowed from McLuhan's apt metaphor, but questions its underlying assumptions.
• The contributors recast some of the basic elements of the complex phenomenon of the so-called "globalization."
• Trade laws, industrial relations, economic and political systems are analyzed in a critical perspective.
• Moreover, environment and sustainable development, languages' rights, education, mobility and migrations are discussed in view of contemporary changes that societies are undergoing throughout the world.
• The vulnerability of societies caught up in new networks of interdependence due to reduced distances also are put to the fore, in the context of the new accelerated circulation of information, ideas, goods, and human beings.
• Provacative reading for scholars interested in a multinational, Euro-Atlanticist perspective on globalization.

deregulated capitalism

• page 10-11
• starting with the Mexican financial crisis (1994) and culminating with the Asian financial crisis (1997)
• inequality is increasing and more pronounced than ever before
• political deregulation as a reason why inequality has increased
• political deregulation is the dismantling of conrol over financial processes
• financial deregulation, enthusiastically cheered by financial institutions and agencies during the past two decades, triggered financial innovations - new financial instruments that helped to inflate credit stocks by means of so called financial derivatives.
• as a consequence, financial flows are increasingly removed from real (productive) economic processes; they are (as Marx showed) "fictitious capital"
• One indicator of the fictitious property of modern financial capital can be provided by the relationship of daily currency turnover on international currency markets to currency needed for the circulation of world trade and the finance of foreign direct investment (FDI)
• Whereas in the mid 1990's the daily currency turnover reached mora than $1.4 trillion, world trade circulation plus FDI needed less than $100 billion per day
• More than 95 percent of currency exchange (mostly in a few world currencies, such as U.S. dollars, yen, deutsche marks, French francs and frm 1999 onward the euro) has no direct relationship with real economic transactions, but rather concerns financial speculation.

• In the early 1970s, about 90% of capital in international exchanges was for investment and trade, 10% for speculation.
• By 1990, those figures had reversed, and a 1993 estimate is that only 5% is related to "real economic transactions"

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• Whereas in the mid 1990's the daily currency turnover reached mora than $1.4 trillion,
• world trade circulation plus FDI needed less than $100 billion per day
• More than 95 percent of currency exchange has no direct relationship with real economic transactions, but rather concerns financial speculation

Interest Rates

• Due to globalization, national monetary authorities have lost its sovereignty on the formation of interest rates
• A premise crucial to Keynesian theory and monetary and fiscal policy of the nation-state.
• today rates are calculated based on performance of global financial markets
• Arbitage between different marketplaces on the one hand equalized interest rate differentials, but on the other hand always produces (small) differences (calculated in "basic point") tht trigger a new round of speculation

abstraction

• Those who possess monetary wealth (e.g., shares of firms or funds) by the same token also are claim holders
• there must be mechanisms of servicing the claims -
• * in the last instance out of the surplus produced in the real world by labor in production - anywhere in the globalized world.
• The international financial system works as a powerful device of channeling surplus to financial claim holders.
• It therefore works as a global mechanism of redistribution of surplus profit for the interest-seeking classes,
• i.e., from the so called patria financiera (financial fatherland) of Argentina to the off-shore banking centres and to the big stock markets.
• No wonder inequality is growing in the contemporary world.
• there are so many links in the chain between monetary claims and debt service and surplus transfer in real terms that under normal conditions they are beyond the grasp of ordinary people.
• they only become visible and recognizable in times of crisis

New York Times Example

• the human implications
• the people who helped cause the Asian financial crisis
• the people who were affected by the Asian financial crisis
• Globalization therefore means that individual decisions at one end of the world have consequences in many physically distant parts of the "One World"
• the system of fictitious capital serves as a vehicle of connecting remote societies and people living there
• the working od the financial system, due to its fictitious character, seems to be a virtual undertaking without any influence on production and reproduction, that is, on the living conditions of people

Nicholas Kristof article

zero sum game

• these post modern explanations of fictitious and real production and of a disconnected financial system are completely inadequate for grapsking the contradictions and crisis trends of global finance and understanding the inter-relationship of individual experiences

productivity

• globalization is subject to acceleration in time; new technologies play an imortant part in stimulating this trend.
• acceleration fo flows of matter (aand energy) are another aspect of an increase of productivity, and this is the most important economic measure of increasing local competitiveness of the place in competition in the global space.
• Acceleratio of productivity (the "mission" of capitalism, as Marx and Engels wrote in the Communist Manifesto) is destroying natural, social, and traditional time rhythms
• the ecological expression of this trend is a reduction of the variety of species and thus has a dangerous impact on the evolution of life on earth
• The social expression, however, is exclusion of all those who fail to keep up with the accelerated time regimen: less productive sectors that are losing their competitiveness

private capitals

• the Keynesian (and Marxian) idea of private (industrial) capitalists as debtors, who serve the debt by producing a surplus value, does not hold in modern times of global financial speculation
• Because monetary wealth is private and monetary debt is not private, the state or other official institutions are increasingly socializing debt service for private monetary claims.
• this is why hte oddicial debt in nearly all countries increased remarkably over the past twenty years and why in Europe it is so difficult to meet the Maastricht criteria.
• the redistribtuive process of real walth (surplus value) between creditors and debtors is organized by official institutions, not by the market.
• This is one reason why the ideology of the "free market" does not hold; it contradicts the experiences of people around the world

The Scots

• The global extension of financial claims therefore is a much more efficient and elegant device of real value transfer (i.e., of exploitation) than the plundering activities under colonial rule since the sixteenth century
• Adam Smith in his famous Wealth of Nations (1776) identified the market as the neutral mechanism that is creating and reproducing society without reliance on social contracts.
• This was the idea John Locke and the other participants int he "Scottish Enlightenment" school
• The market and its results are "Just"; the procedures give equal chances to all market agents.
• Adam Smith, of course, had ordinary commodity markets in his mind, not financial markets.
• Even David Ricardo, who built heavily on Adam Smith and the idea of a deepening of the division of labor in order to facilitate specialization, increase productivity and therefore increase material wealth, was against international capital transfers (i.e. financial globalization)
• However, the "neutral market" is a financial market, and this market is not neutral at all.
• Aristotle described money as device of splitting societies into those who hold claims and those who have to service them
• There is a mechanism of lobal pillaging at work in this social relationship that under normal conditions prevents those with wealth to become debtors to in turn possess wealth
• the unilateral indebtedness is responsible for huge value transfers in the world, which are responsible for the contradiction between growing riches in one part and growing poverty, even misery, in many other parts of the world.

Offshoring

• Financial globalization is creating a geography of its own.
• first, financial offshore centers in the Carribean or in Europe are more important than big countries with regard to the application of short-term capital and direct investment.
• German holders of monetary wealth in the Cayman Islands have more assets than the inhabitants of the whole African continent, including South Africa and Egypt.
• But the Cayman Islands, like other offshore centres, function only as a hub for global monetary flow.
• And they facilitate the transfer of monied capital from one place to another in the global space
• these hubs are important factors in global interplace competition and in arbitrage activities.
• the huge monetary wealth follows interest differentials exchange rate expectations and risk considerations,
• that is, signals produced by official international institutions, private rating agencies and leading market participants.
• Capital is transfered to "emerging markets" - so long as it is oopportune - and capital is opportunistically withdrawn in the case that rating agencies uncover higher risks not covered by interest rate differentials
• This is the mechanism by which capital massively left Mexico in 1994, the Asian "tiger economies" in 1997 and Russia and Latin America in 1998.
• Most parts of the world have become regions "out of bounds" for capital.
• But in the apparently secure industrialized world, the valuation of capital is much lower than in less secure parts of the world.
• Low interest rates make stock market quotations increase, but in connection with deflationary tendencies od product prices, they demonstrate lower profitability of real capital
• a situation characterized by these trends is extremely unstable and can provoke the breakdown of single firms, which suddenly find themselves deeply involvd in debt.
• consequently, the world really is globalized
• the financial crises in Latin America, East and Southeast Asia, and Russia and Eastern European countries are the local expressions of a global financial crisis.
• the Impact is also felt in Western Europe and North America.

the Global Financial System Matters

• Holders of monetary wealth, rather than traditional productive capitalists, determine the process of global accumulation
• the (real) profit rate (rate of return on capital) is less important than (monetary) interest rates for decisions on the application of capital.
• this is an expression of "disembedding," of the dissolution of the financial world from real economic processes.
• But disembedding and de-linking are not going so far as to completely autonomize the financial sphere.
• The sad experience of people in those countries hit by the recent financial crisis are telling; the global financial system matters.
• In Indonesia the government speaks of at least 30 million people under the poverty line.
• Although the empirical figures are differen, the trend in South Korea or Russia and other counrties is the same.

conclusion

• Globalization has demonstrated how destructive financial dependency on the world credit market can be and how negative the consequences of dismantling the regulative control capcity of the nation-state are.
• Therefore, there is a strong trend in the world to form supranational trading blocks.

perscriptions

• these reformers are clearly contrary to the type of economic expansion now underway, based on low salaries and sonsumer indebtedness.
• Their objective is "the formation of a work force capable of implementing the technology of flexible mass production"
• technology, thus, should not be a weapon in the hands of employers used to dominate their employees, taking away from them the possibility of developing capabilities (lazonick 1990: 320-33)
• None of the reformers think that planning - to be distinguished from state property - is in itself incompatible with capitalism or has been absent from its development.
• in this sense, new government agencies to coordinate and evaluatre industry and commerce as well as a special bank for industrial development are considered essential to support "firms of strategic importance."
• The yearning for "real" capitalists who are something more than mere speculators is of course an appeal to a capitalism of a previous epoch

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