All is well - at least that is how the Financial Times reviews the state of the UK in a September editorial. Entitled "New Britain faces the world with confidence", the editorial starts with a confident assertion: "Though it has its problems, Britain is in good shape... the overall sense is one of progress and success".
And the primary reason, according to the FT, is globalisation. "It was globalisation, the vast expansion of world trade and migration during the 19th century, that brought Britain's greatest era of success... future governments must do as this government has done and let globalisation happen."
This Panglossian view of Britain and the world comes from the mouth of the leading forum of British capitalism, of course. Also, it is probably no coincidence that the editorial was written as New Labour holds its annual conference (possibly the last as 'New Labour'). Former FT economic leader writer and correspondent, Ed Balls, now an MP and Chief Secretary to the Treasury, Gordon Brown's right-hand man and likely future successor to Gordon as Chancellor of the Exchequer, may well have his writing hand in this piece. Britain's so-called economic success is the key selling point for Gordon in his quest to hold the Ring of power in Britain.
Dr Pangloss extends his influence across the big pond too. America's stock markets are nearly back to their all-time highs achieved in the heady hi-tech boom days of 2000. An investor in American shares back in March 2000, however, would still have made no money at all. Okay, say 'the markets' things have been bad, but they are looking up. Corporate profits in the US, Europe and Japan have also hit peaks. Indeed, corporate profitability, that is profits relative to investment, is now nearly back to the level of 1997, the profit peak of the great stock market and economic boom of 1982-2000.
It's nearly back, but not quite. And here we can detect just a sign that all is not perfect in the most perfect of capitalist worlds. We could survey the world capitalist scene after 20 years of 'globalisation' in a more realistic way.
First, globalisation has brought us terrorism and the "War against Terror". That does not seem to be going too well. The US and its imperialist allies are locked into a never-ending occupation in Iraq with daily heaps of bodies (of course, it's mainly ordinary Iraqi people). The 'freedom forces' are penned up in their bunkers in the Green Zone of Baghdad, hardly venturing out. Thus, the militias of the various religious sectarian groups continue their murder and mayhem. Above all, Iraq slowly slips out of the control of US imperialism.
Globalisation and Free Trade
Across the border, Iran's mullahs preach defiance, while Hezbollah in Lebanon claims victory over the strongest army of the Middle East and the key henchman of imperialist rule in the region, Israel. And in Afghanistan, the religious fundamentalists of the Taliban successfully sting and cuff British armed forces in the harsh hinterland - when will British imperialism realise that they cannot tame Afghanistan, a cemetery for British soldiers for nearly two hundred years?
The FT tells us that all is well because this period is like the 'globalisation' free trade era of the 19th century that brought British capitalism its greatest success. Here the FT stretches history. British capitalism led the world economically from the time of the Industrial Revolution at the end of 18th century to say about 1870. From then on, in the period of 'globalisation', other capitalist powers, like the US, Germany, France, began to compete for spheres of influence and gain around the world. Free trade was no longer a boon to the UK alone. Indeed, this period is much closer to the struggle for markets that we saw at the end of 19th century that Britain lost and eventually led to a world war in 1914 and again in 1945, before the US became the hegemonic power.
Now in 2006, it is the US that is struggling to maintain its dominance: it loses market share in exports; it is running up huge debts with the rest of world; it is finding it difficult to get other capitalist powers to support its interests in the Middle East and Latin America and it is losing any influence at all in Africa. Its influence in Asia through Japan is now threatened by a colossus, potentially bigger than itself, China. Far from globalisation heralding peace and prosperity in the world, it suggests increased rivalry and conflict.
British capitalism continues to rest its hopes (as the FT argues) on the US remaining top dog and remaining prosperous. Over the next 20 years, it is a gamble that will deliver, not "progress and success", but collateral damage not seen since the 1930s.
After all, let's be clear about some key facts on globalisation before we accept the FT's praise for it. Has it brought prosperity? Well, at the level of production, it has been a relative failure. Branco Milanovic is the leading economist at the World Bank. He has recently published a book called World's Apart: measuring international and global inequality. Milanovic opens by saying that "the average world growth rate in output per head has declined in the last 20 years". So under globalisation, and even taking into account that the advanced capitalist countries have suffered only 'mild' economic recessions in 1990 and 2001; and even taking into account, China's staggeringly fast growth in the last ten years, the world average growth rate was lower 1979-2000 compared to 1960-78. Indeed, over the last 20 years or so, every year one country out of three has seen its GDP per capita decline - such is the instability of globalised capitalism.
And of course, these figures are averages. What Milanovic shows in his book is that inequalities between rich and poor countries and between rich and poor within each country and between rich and poor globally have increased under 'globalisation'. He finds that there "has been a steady and sharp increase in inter-country inequality", after being broadly constant prior to the launch of globalisation.
Even more startling is the inequality within the world's population wherever they live. According to Milanovic, "77% of the world's population live below the rich world's poverty line. There are 79 countries that are poorer than Brazil and they constitute 70% of the world's population. By his calculations, there is only 6.7% of the world's population that can be considered middle-class. He reckons that about 17% of the world's population can be considered rich. Even in the rich countries of the world, there are 92million people who can be considered poor by world standards. In the poor countries, the poor constitute 93% or 4billion people!
Economists measure the inequality of income by what is called the Gini coefficient. I won't explain how that works here, but suffice it to say that the higher the Gini coefficient between 0 and 100, the greater the inequality. According to Milanovic, inequality has increased from the start of industrial capitalism back in the early 19th century at 12 to reach 35 by the end of the 19th century (that is three times more unequal), to 65 by the early 1950s (five times more unequal) and to remain at this high level since then, despite China and India's fast growth in recent times.
So globalisation under capitalism has been no great boon for more than 80% of the world's people.
While the world's stock markets bathe in the glorious September sunshine of huge company profits, bringing massive bonuses for the top executives and Wall Street and City of London financial traders, the rest of us feel a lot less sanguine about the world. The US is about to hold elections for its congress. Despite apparently everything being rosy, Bush continues to score lows in the opinion polls and the Republicans could be defeated in the elections despite gerrymandering and a lack of enthusiasm for the opposition Democrats. It's the same in the UK. Tony Blair polls at record lows and New Labour is behind the Tories in the polls.
But leaving aside both leaders' appalling foreign policy, is it so surprising when we realise that the so-called fruits of globalisation have not permeated down to most ordinary families in the US or Britain. In the US, the share of wages in national output is the lowest ever, while corporate profits hit the highest share since the Golden Age of the 1960s and this at a time when economic growth does not match the growth of the 1960s.
Absence of ‘Progress and Success'
The 'overall sense of progress and success' that the FT refers to from globalisation seems absent from the data in the 'land of opportunity', America. According the US Census Bureau, in 2004, the top 20% of US households took over 50% of all income earned while the bottom 20% got only 3%. In 1980, at the start of globalisation, the top 20% took 43% and the bottom 20% just 4.2%. The top 1% is even better off. They took 11.2% of all income in 2004 compared to 6% in 1980. They have nearly doubled their share under globalisation. It was always very unequal, but it's even worse now.
If we look at wealth owned by households in the US and not just income earned in a year, the situation is even more shocking. According to the Federal Reserve Bank's latest consumer finances survey, the wealthiest 1% of Americans own 33.4% of all net wealth after deducting mortgages and other debt. That's up from 30.1% back in the late 1980s before globalisation took hold. The bottom 50% of Americans owns just a staggering low 2.5% of all household wealth!
And it is going to get worse not better. Real wages are falling in the US. The median average hourly wage after inflation has fallen 2% in the last two years. For young people joining the labour market, they are finding that entry-level real wages are 4% lower than in 2001. Those with young families have seen their income fall 6% in the last five years.
The FT notes the problem of inequality in its editorial and admits that inequality in Britain has not altered under New Labour since 1997. It also notes growing inequality between the regions and the problems of providing enough infrastructure and resources to house growing numbers of immigrants, whose labour has enabled British capitalism to keep its head above water by taking low wages and working long hours and not using social services. But it sweeps all these problems aside in a blaze of sunny confidence.
We've argued in this column on several occasions that Britain's capitalist survival has increasingly been built on becoming a rentier economy, relying on providing financial and 'professional' services to other capitalist nations who are producing surplus-value. Britain, as far as capitalism is concerned, has become a huge Switzerland, banking the world's profits, for a fee. The City of London is a huge aircraft carrier parked in the Thames, where world money flows in and out, with little touching the sides, except for those working on the carrier and living in London and the south-east. The rest of Britain is just a dark shadow to these people.
But if 60million people must depend on the success of the world's stock and bond markets and above all on the continued success of the US economy, then they ought to view the next five years with trepidation. The housing bust is well under way across the pond and it promises to be the worst ever. Usually housing markets, when they blow out, tend to take 3-4 years before they reach a bottom. That puts the trough at around 2009-10, just at the time we could expect the next economic recession in the US, if history is any guide.
* Dr Pangloss, that character in Voltaire's novel Candide, who believed that the world we live in is the best of all possible worlds, even when faced with incredible tragedy.