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2006-08-02,12:04 PM

Monopoly Capital and the New Globalization

by John Bellamy Foster

We live at a time when capitalism has become more extreme, and is more than ever presenting itself as a force of nature, which demands such extremes. Globalization—the spread of the self-regulating market to every niche and cranny of the globe—is portrayed by its mainly establishment proponents as a process that is unfolding from everywhere at once with no center and no discernible power structure. As the New York Times claimed in its July 7, 2001 issue, repeating now fashionable notions, today’s global reality is one of “a fluid, infinitely expanding and highly organized system that encompasses the world’s entire population,” but which lacks any privileged positions or “place of power.”*

Even the revolutionary figure of Karl Marx has been enlisted in support of this view of inexorable global destiny, which seemingly determines everything, but which has no manifest agent of change. Thus the World Bank quoted from The Communist Manifesto by Marx and Engels on the opening page of its 1996 World Development Report, arguing that the transition from planned to market economies and the entire thrust of neoliberal globalization was an inescapable, elemental process, lacking any visible hand behind it:

Constant revolutionizing of production, uninterrupted disturbance of social conditions, everlasting uncertainty and agitation…All fixed, fast frozen relations, with their train of ancient and venerable prejudices, and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air…
Gone—spirited away by ellipses in the World Bank quotation from the Manifesto—were Marx and Engels’ allusions in the same passage to “the bourgeois epoch” and their subsequent reference to how “the need for a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe.”

It is no doubt largely in response to this atmosphere of inevitability, in which globalization is divorced from all agency, that the movement against the neoliberal global project has chosen to exaggerate the role of the visible instruments of globalization at the expense of any serious consideration of historical capitalism. Radical dissenters frequently single out the WTO, the IMF, the World Bank and multinational corporations—and even specific corporations like McDonalds—for criticism, while deemphasizing the system, and its seemingly inexorable forces.

These two distorted viewpoints, one generally in support of globalization, the other generally opposed, are mutually reinforcing in their unreality. Those who wish to intervene in these processes are thus left with no real material basis on which to ground their actions. Both perspectives have in common an emphasis on the decline of nation state sovereignty. Adam Smith described capitalism in the late eighteenth century as a system that eliminated all need for a sovereign power in the economic realm, replacing the visible hand of the absolutist or mercantilist state with the invisible hand of the market. “The Sovereign,” he wrote, “is completely discharged from a duty” with respect to the market (Book 4, section 9). Now we are told that this invisible hand has been globalized to such an extent that the sovereign power of nation states over their territorial domains themselves has been vastly diminished. For New York Times foreign affairs columnist Thomas Friedman, author of The Lexus and the Olive Tree, globalization is a new technological-economic system based in the microchip and ruled by an “electronic herd” of financial investors and multinational corporations, free from any nation state or power structure, and beholden to none.

Those seeking to dispel such views might reply that capitalism with all of its contradictions remains. But most current conceptions of capitalism are too lacking in historical specificity and concreteness, and too wrapped up in the notion of unfettered competition, to be useful in countering this dominant ideology. Indeed, the very idea of capitalism is being shorn of all determinate elements. The notion of global free market hegemony without the nation state and without discernible centers of power (only highly visible instruments of the market) means a concept of capitalism that has become virtually synonymous with globalization. There is, it is proclaimed, no alternative because there is nothing outside the system, and no center within the system.

The ideological fog that pervades all aspects of the globalization debate is bound to dissipate eventually, as it becomes clear that the contradictions of capitalism, which have never been surmounted, are present in more universal and more destructive form than ever before. For those seeking to penetrate this fog at present and to understand the constellation of forces in the world today what is needed above all is a concrete and historically specific conception of capitalism that will allow us to see through such issues as globalization. Within Marxism such an analysis was provided in the twentieth century by the theory of monopoly capitalism.

The Origins of Monopoly Capital Theory

The term “monopoly capitalism” has been widely used within Marxian economics to refer to the stage of capitalism dominated by large corporations. This stage of capitalist development originated in the last quarter of the nineteenth century and reached maturity about the time of the Second World War. Marx’s Capital, like the work of the other classical political economists, had assumed that the market system was characterized by conditions of free competition, in which capitalist enterprises were small, mainly family-run firms. Classical political economy never included such absolute fantasies as “perfect” or “pure” competition, which were to be imported into economics in its later neoclassical stage. Nevertheless, it assumed in its bedrock theory of free competition that price competition was fierce, and that no individual capitalist or firm had the power to control a significant portion of the market.*

In the case of Marx, as distinct from the other classical political economists, however, capitalism was a historical system, and thus dynamic in character, passing through various stages. Although Marx himself did not present a theory of monopoly capitalism, he did point to the concentration and centralization of capital as a fundamental tendency of accumulation under capitalism. The whole development of the credit system and the stock market was for Marx “a new and terrible weapon in the battle of competition and is finally transformed into an enormous social mechanism for the centralization of capitals” (Volume 1, chapter 2, section 2). In preparing Volumes 2 and 3 of Marx’s Capital for publication two decades later, Engels emphasized the fact that free competition had reached “the end of its road” (Volume 3, chapter 27). Marx and Engels, however, were prone to see these developments as signs of new conditions of socialization of production that would help usher in a new mode of production—not as indications of a new stage of capitalism.

It remained for later thinkers, therefore, to analyze what these developments meant for capitalism’s laws of motion. The first to do so was the heterodox U.S. economist Thorstein Veblen, who in The Theory of Business Enterprise (1904) and subsequent works, charted the economic implications of the rise of big business, and the transformations in credit, corporate finance and the forms of salesmanship that went along with this. But Veblen’s influence on economics did not extend beyond the United States. Within the Marxist tradition, then centered in Germany, the first important theorist of monopoly capitalism was the Austrian economist Rudolf Hilferding in his Finance Capital: The Latest Phase of Capitalism (1910); soon followed by Lenin in his Imperialism: The Highest Stage of Capitalism (1916).

Hilferding pointed to the tendency of concentration and centralization of capital to generate a greater and greater consolidation of capital, pointing eventually to one big cartel—an overly simplistic view that failed to perceive some of the countervailing influences at work. He saw these changes as mainly quantitative in character, and though his work was full of important insights, he did not explore the question of qualitative alterations in the laws of motion of capitalism. Hilferding’s perspective did, however, inspire Lenin to connect imperialism with the monopoly stage of capitalism, and to perceive the growth of giant capital therefore as integrally related to both the expansion of capital on the world stage, and the struggle between nation states for shares of the world market. But Lenin, like Hilferding before him, did not pursue the question of how capitalism’s basic laws of motion might be modified in the monopoly stage. The concept of monopoly capitalism was to remain axiomatic for Soviet economists in the 1920s and 1930s, during which some important new departures were begun. But by the late 1930s it had been reduced to a mere dogma within the rigid orthodoxy that prevailed under Stalinism.

In the 1930s in the West, meanwhile, mainstream academic economists finally began to deal with monopoly, particularly in the work of Joan Robinson, Edward Chamberlain and the young Paul Sweezy. Yet the theory of “imperfect competition” that was to emerge from these analyses had a formal character that was usually divorced from real his torical processes. Nor was it intended as more than a minor qualification to the theory of perfect competition, which continued to be considered the general rule, and prevailed over economics as a whole. By the 1930s Marxian economics could be said to have three strands: (1) the theory of capital accumulation and crisis; (2) the beginnings of a theory of monopoly capitalism (based on Marx’s concept of the concentration and centralization of capital); and (3) the theory of imperialism. The second and third strands—growing monopolization and imperialism—had been linked to each other by Lenin. But, paradoxically, there was no theoretical analysis that linked the second strand to the first—that is, no connection was drawn between growing concentration and centralization of capital and the forms of accumulation and crisis. The debate on economic crisis in Marxian theory, which in the early twentieth century centered on Marx’s famous reproduction schemes in in Capital, Volume 2, took place in a context that was completely separate from the analysis of the growth of monopoly.

Historical developments, however, were pointing to such a connection. Since the turn of the century in the United States there had been a groundswell of popular agitation against the giant monopolies and trusts. The great merger wave at the beginning of the twentieth century was widely viewed as representing a qualitatively new reality. It has been estimated that between a quarter and a third of all U.S. capital assets underwent consolidation in mergers between 1898 and 1902 alone. The mammoth merger of the period, the formation of U.S. Steel in 1901 under the financial guidance of the investment banking house of Morgan, fused 165 separate companies. The result was a monopolistic corporation controlling about 60 percent of the total U.S. steel industry. In 1936, Arthur R. Burns wrote his classic study, The Decline of Competition: A Study of the Evolution of American Industry. And in the context of the Great Depression of the 1930s it was frequently contended within heterodox economic circles, especially among those influenced by Veblen, that the stagnation was worsened by the growth of giant corporations with a large degree of monopoly power. One of the objects of the Temporary National Economic Committee established by the Roosevelt administration during the Great Depression was to investigate this question (though the results that they came up with in the end were quite meager).

Yet, despite all of this, John Maynard Keynes’ General Theory of Employment, Interest and Money (1936), which transformed macroeconomics in response to the depression, remained rooted in the age-old assumptions of atomistic competition.

The first economist to connect the theory of crisis to the theory of monopoly was the Polish economist Michal Kalecki, who drew his inspiration from Marx and Rosa Luxemburg. Kalecki’s work in the early 1930s in Polish had developed, according to Joan Robinson and others in the circle of younger economists around Keynes, the main elements of the “Keynesian” revolution, in anticipation of Keynes himself. Kalecki moved to England in the mid-1930s where he helped further the transformation in economic analysis associated with Keynes. There he developed his concept of the “degree of monopoly,” which stood for the extent to which a firm was able to impose a price mark-up on prime production costs (workers’ wages and raw materials). In this way, Kalecki was able to link monopoly power to the distribution of national income, and to the sources of economic crisis and stagnation. Kalecki also explored the more general historical conditions affecting investment. In the closing paragraphs of his Theory of Economic Dynamics (1965) he concluded: “Long-run development is not inherent in the capitalist economy. Thus specific ‘developmental factors’ are required to sustain a long-run upward movement.”

This analysis was carried forward by Josef Steindl, a young Austrian economist who had worked closely with Kalecki in England. According to Steindl’s Maturity and Stagnation in American Capitalism (1952), giant corporations tended to promote widening profit margins, but were constantly threatened by a shortage of effective demand, due to the uneven distribution of income and resulting weakness of wage-based consumption.* New investment could conceivably pick up the slack. Yet such investment resulted in new productive capacity, that is, an enlargement of the potential supply of goods. “The tragedy of investment,” Kalecki wrote, “is that it is useful.”* Giant firms, able to control to a considerable extent their levels of price, output, and investment, would not invest if large portions of their existing productive capacity were already standing idle. Confronted with a downward shift in final demand, monopolistic or oligopolistic firms would not lower prices (as in the perfectly competitive system assumed in most economic analysis) but would instead rely almost exclusively on cutbacks in output, capacity utilization and new investment. In this way they would maintain, to whatever extent possible, existing prices and prevailing profit margins. The giant firm under monopoly capitalism was thus prone to wider profit margins (or higher rates of exploitation) and larger amounts of excess capacity than was the case for a freely competitive system, thereby generating a strong tendency toward economic stagnation.*

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* The New York Times was encapsulating the views of Michael Hardt and Antonio Negri in their fashionable, postmodernist work, Empire (Cambridge, Mass.: Harvard University Press, 2000).

* Much of the discussion in this and the following paragraphs draws on Paul M. Sweezy, “Monopoly Capitalism,” New palgrave Dictionary of Economics, vol. 3 (New York: The Stockton Press, 1987), pp. 541-544.

* All books by Steindl, Sweezy, Baran, Magdoff, Braverman and Mészáros mentioned in this essay are published by Monthly Review Press in New York.

* Michal Kalecki, Essays in the Theory of Economic Fluctuations (London: Allen and Unwin, 1939), p. 149.

* The monopoly capitalist economy does not consist simply of giant firms, of course. Within manufacturing, for example, there are hundreds of thousands of firms, which together employ a substantial share of the work force. These smaller firms are often attached to the giants, some supplying parts, others occupying various other niches. Such firms tend to bear the brunt of an economic downturn. Conversely, during an expansion they tend to grow more rapidly than the dominant, monopolistic firms.

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