Capitalism and globalization

Will capitalism conquer the world? May be yes, but, per se, this is not a desirable outcome, because some diversity in economic systems is always beneficial for humankind.

What is more relevant is to assess whether the globalization of capitalism will be a positive or negative force in the current world. In this regard the balance between positive and negative impacts is clearly positive. I shall explain why below, but first let me explain why anti-capitalism movements are often also anti-globalization.

The detractors of globalization have three main lines of attack, namely that: globalization kills local and national cultures, that multinationals exploit non-unionized labor and lax regulations in poor countries and destroys national sovereignty and decision centers. Anti-capitalist advocates attribute to capitalism whatever they think is wrong in society. For instance, feminists blame capitalism for the unfair treatment of women, animal rights groups blame it for animal maltreatment, environmentalists say it is responsible for the destruction of nature and “climate change”, civil rights groups charge capitalism with promoting racism, peace activists attribute war and conflict to capitalist greed, moralists claim that commercialization and consumerism are responsible the loss of religious and social values, consumer-advocacy groups accuse capitalism of putting profits before people.

As explained in previous chapters none of these charges withstands the most simple scrutiny, let alone the counter-evidence provided recently by the turn to capitalism of former socialist and communists systems in China and other less developed countries.

First, and foremost, the globalization of capitalism accelerates the eradication of extreme poverty on a global scale, with the consequent positive effects on health, education and consumption. But, as is normal, accelerating economic growth also has its side effects, namely in terms of environment and demography. Likewise, it will accelerate the rise in the capital/labor ratio and the consequent impact on their relative share of income, which needs to be tackled through an increased capital ownership by workers either directly or through pension funds.

Nevertheless, the major impact of globalization will be through changes in political systems and regulations. Globalization unleashes forces that simultaneously strengthen and weaken the case for regulation. For example, greater freedom of movement for goods, labor and capital weakens the role of national governments. But the fear of sudden mass movements with disruptive consequences on infrastructure and employment calls for global regulation. Thus, using a parallel with monetary theory, the question whether the world is an optimal jurisdictional area for all the fundamental principles of capitalism is critical.

Without detailing all the issues let me just illustrate with a few. For instance, can we conceive of a global corporation reporting and paying taxes to single world entity? Or, can we anticipate an international court to judge violations of the rule of law? Would it rule under a system of common or civil law? Most of these question remit to the fundamental problem of how to structure different levels of government from a local to a global level and the respective enforcement apparatus, within a democratic system.

Although a body of generally-accepted international law is being developing slowly, it will probably take some centuries before a comprehensive system makes its mark. In the end, the fastest route may still be a progressive economic and political integration at the regional level like in the European Union.

In conclusion, although capitalism and globalization are both desirable and reinforce each other, any non-synchronized acceleration in one of them may backfire into a joint relapse.

Globalization and winner-takes-all

The globalization of markets and capitalism has increased the opportunities for businesses with a winner-takes-all model. Such business are characterized by high cost of entry once a dominant player has acquired the bulk of the market. Their rise is explained by the benefits of one-stop-shop found in many services.

For instance, in social media users value the opportunity of having all their friends in the same platform (e.g. Facebook). Typically the providers of such services compete by offering a loss-making free service until they manage to establish a quasi-monopoly. Once they have achieved that, they can monetize their dominant position through advertising or by other means. This is not a natural monopoly nor is it protected by any entry barriers other than capital resources.

This strategy is only possible because of the existence of venture capital funding willing to bet on the various contenders for the market, but once one has been established as dominant it is no longer profitable to try to dislodge him.

Similar cases occur when, due to locational or brand recognition advantages, some businesses rely on the captivity of the final consumer to transfer to their suppliers any demand adjustment costs. These situations occur in industries as disparate as publishing and groceries. For instance, during economic crisis supermarket chains force their suppliers to cut prices or offer discounts to sustain consumer demand.

A somewhat similar situation, but less stringent, occurs in the so-called 20/80 sectors where 20% of the producers have 80% of the market and vice versa. Here, removing the entrenched incumbents is difficult because the market may overvalue them and the entry costs are too high. It usually takes a long period and some new technology to achieve that.

These conditions are more common in global businesses ranging from soft drinks to computers. For instance, Microsoft dominance of operating systems was only challenged by the arrival of the smartphones and tablets.

With the globalization of capitalism these conditions become more common but once the globalization process has been completed their number will subside.

Therefore, overall, globalization and winner-takes-all business models are not lethal capitalism and must be seen simply as a temporary nuisance to market capitalism.

Palestinians – With Friends Like These Who Needs Enemies?

The old say that a nation gets the leaders they deserve should not be applied lightly to the Palestinians or any other nation. Truly, in recent history, they have been ruled by a series of terrorist and corrupt leaders. But in a non-democratic society people cannot truly choose their leaders, just like in a gang controlled slam its poor residents cannot be blamed for their criminal rulers.

However the saddest fact about the Palestinians, a poor migrant people, is the way they have literally been used as cannon fodder in the many Middle East conflicts.

The most well known was the Israeli-Arab conflict, because one third of the estimated 10 million Palestinians live in the West Bank and the Gaza Strip areas of Israel. The other third live in Jordan (where they account for half of the population) and in Israel proper. The final third are dispersed throughout the world with large numbers in conflict-prone Syria and Lebanon.

For many years the oil-producing Arab countries used the Palestinians' plight for a nation state to stir up the fear of disruptions in oil supplies and raise the price of oil. There is even a bad taste joke saying that the Arabs will fight for the Palestinians to the last Palestinian.

Then the theocratic rulers of Iran, in their drive the rebuild an ancient Caliphate or Persian Empire, decided to take over their cause. They did so by sponsoring the Hezbollah and Hamas terrorist camps in Syria, Lebanon and Gaza.

Fortunately for the Palestinians, the oil suppliers are now more spread all over the world and the alternative energy industries in the oil-importing countries are the main lobbyists to keep the prices higher. Likewise the Al Qaeda and Iran-sponsored terrorists are now largely discredited even among Arabs.

However, while the embryonic Arab Spring Revolution brought a new hope for a democratic era in the region, a dangerous new “savior” for the Palestinians appeared in the scene.

We refer to the Turkish Prime Minister Recep Erdogan, the maverick leader of the Islamist AK party that now rules Turkey. Seizing the current political vacuum in Egypt, Erdogan is moving swiftly to assert himself in the Arab world by taking a hostile stance against Israel. This can only be bad news for the poor Palestinians. They cannot become once more cannon fodder in another bid to restore an ancient empire, this time the Ottoman.

In a globalised and free world, people will no longer accept new empires, especially religion-driven, whether by Christians or Muslims. So all attempts by any of the largest Islamic nations (Indonesians, Turks, Persians, Saudis or Egyptians) or sects (e.g. Al-Qaeda) to enlarge their area of influence by reclaiming ancient caliphates or empires is doomed to fail and can only harm the Palestinians.