The Great Depression of 1929, more than any of America’s depressions before it, showed that although capitalism is the world’s greatest engine of economic progress with no better alternative, it does contain a great flaw that periodically destabilizes the capitalist economy. As each business cycle progresses, wealth and commercial power concentrates in the hands of a few, limiting competition and consumer demand to the extent that the economy and the money supply collapses through nested debt defaults. When this occurs, the overhanging debt and undervalued assets cause a commercial vacuum that is hard to correct.
After, the Great Depression, America instituted controls intended to limit the flaw of capitalism, attempting to limit the concentration of market power in oligarchies and the concentration of wealth in the capitalists, hoping to create a more sustainable balance in the economy. Over time, America’s politicians were lobbied successfully to remove these limiting regulations so that once again concentration was permitted to flourish. However, different from every other concentration cycle, this time concentration was able to effectively cross international borders through globalization.
Having accumulated a concentration of wealth and commercial power needed to seed expansion into globalization, during the last thirty years American businesses have run headlong into the greatest transfer of wealth and capital across international borders ever known. With globalization, America’s nation state has lost much of her ability to regulate what have become multinational corporations for the good of her people.
The result of this loss of power is that similarly to how capitalism’s flaw allows a periodic transfer of wealth from a nation’s workers to its capitalists, indebting the working class until it no longer can support an increase in the economy while servicing its debt, ultimately resulting in the collapse of the nation state’s money volume into 60 to 80 year cyclic depressions, globalization’s flaw will also ultimately prove similar but on a world wide scale. The expansion of the multinational corporation will allow a periodic transfer of the entire world’s wealth from nation states to corporate states ending in a disproportion of wealth that ultimately will cause a worldwide monetary and fiscal collapse.
Prior to the rise of globalization, corporations existed within the laws, regulations, and taxation of single nation-states. They depended on the customer base of single nations and the stability of their nation’s business environment. They also depended on their host country’s mercantilism and military strengths for their relative worldwide trading power. With a prevalence of dependence on their nation states, they negotiated with their stakeholders from a position of relative weakness.
After the Great Depression through the 1970s, corporations contended with the growth of collective bargaining, socialism, environmental regulations, and antitrust interference in their oligarchic profit strategies. With such a lopsided negotiating power structure, corporations were relegated to lobbying behind the scenes for needed legislative and regulatory support as a means to balance their unequal negotiation positions.
Throughout this period, America’s focus on defeating communism through overwhelming military strength had two unintended effects. First, America’s burgeoning military allowed American businesses to expand unopposed into world markets through the bully pulpit of the U.S. military. Second, with the winning of the cold war, the emergence of Eastern markets, and the opening of China creating such immense business opportunity for American businesses, they could now use their legislative relationships they had developed in earlier years to support their participation in the modern gold rush.
American businesses sprinted to these new profit fields in an effort to gain a stake before foreign competitors. To do so, they needed availability of low cost loans and a commitment to open access of American consumer markets. To gain open access to American markets, businesses needed the support of politicians to sell the argument that open trade was a net benefit to the American consumer and that it was essential to America’s success. Winning this public argument then provided cover for politicians, who were beholden to the multinationals and associated banks for campaign funds, to vote for opening America’s markets to foreign manufacturing facilities. This was the beginning of America’s job emigration. We let the job killing Mongols over the wall.
With (a) the debate about open trade behind them, (b) China eager to accept their hard assets and intellectual capital into her country, and (c) banks having maneuvered financial deregulation to extract American capital from consumers, American multinational businesses were now free to expand their direct foreign investments exponentially. As they did, their corporate structures became ever more multinational and their negotiation position with nation-states strengthened considerably.
China, for one, represented negotiations with corporations as between equals. Initial negotiations were win-win and entrepreneurial because expanding corporations and emerging nations wanted separate assets which they valued differently from each other. Corporations wanted and received low cost inputs to production, low cost educated labor, minimal environmental costs, and loose business regulations. China gained access to hard assets, America’s consumer market, trade deficits, American corporate processes and intellectual capital.
Intellectual capital was most important to China so that she could leap frog American know how by creating entire cities to manufacture single products, and providing America’s intellectual capital and business knowhow to the city so that geographically concentrated Americanized core skills could develop. Yet for American multinationals, they valued China’s market potential much more than their own intellectual capital which they believed china could otherwise reverse engineer. They also discounted China’s ability to compete, and felt they could mitigate giving China their secrets by keeping research in America and innovating more rapidly than China.
Once established across multiple countries, multinational corporations now had strengths they never had before. While nation states were able to impose the same wage restrictions, regulations, and taxation as before, multinationals now had mobility to transfer labor, production, distribution, and profits across national borders. Corporations no longer negotiated labor rules and wages from weakness but could now set world wage rates. Through the likes of tiered corporate structures, offshore subsidiaries, multinational accounting, and transfer pricing, corporations could now dictate effective world tax rates. And through multinational diversification, corporations were no longer constrained in size by the whims of any one country’s antitrust laws but were now free to grow unrestrained.
Through globalization, nation states lost the majority of negotiation power they once had. They could no longer command the supply side. Labor could migrate to the nations with lowest overall cost of production and distribution including taxation. Nation states were also forced into political decisions regarding protection of domestic producers that could not compete with foreign costs. And the politicians that would have to enact laws to make domestic goods more attractive could not risk offending their benefactors, the foreign direct investment owners of foreign factories. Nation states could no longer command the demand side either. Their citizens, having tasted the benefits of low cost consumer goods, would not sit idly while prices were increased through substantial tariffs.
With such strengthened negotiating power, multinational corporations ascended to new ranks in the world economy as virtual corporate states, similar in power to nation states yet without the incumbent obligations to citizens’ social welfare. Having loosened the limiting bonds of national antitrust laws, Multinationals could now increase their size without bounds and, as a result, grew to have “economies” that rose above those of most nation states.
The world has yet to fully understand the power of the corporate states, but emerging nation states are embracing multinationals’ newfound power as a means to gain arbitrage power from industrial states. In doing so, they feed and strengthen corporate state power sending the world toward unsustainable wealth concentration. Industrial states have not reacted by collectively attempting to regain a foothold to create regional political regulations but instead are slowly acquiescing to a concentration of corporate state power as all have been left impotent at the direction of their elected officials.
Yet concern for multinational corporation concentration of power is rising amongst western industrial states as all are affected by the corporate state induced economic crisis. Cries for isolationalism, protectionism, and proactive job creation legislation have surfaced once again amongst labor unions and domestic businesses as unemployment has risen, yet their cries come too late for America, having already lost 40,000 factories, 8 million jobs, and trillions of dollars of intellectual capital, core skills, and future development that will never be as a result of these transfers.
The premise of free trade has proven a fallacy. Yet now that globalization is upon us, no country has the power to reverse it. Without collective action to globally regulate multinational corporations, individual industrial nation states will eventually attempt to thrust kamikaze assaults on the power, finance, and asset transfers that have already reduced the future of industrial countries in favor of emerging ones and emerging countries will abandon old world colonialism in favor of new world corporate subjugation. And we will all live through the first experiment of global concentration of wealth and power that promises eventual world collapse. If national capitalism collapse takes 60 years, how long does globalism collapse take?