Instability of Global Economy

Doug Henwood, contributing editor of The Nation attacks some left wing and environmentalist critics of the perceived processes of globalisation. He points out that the instability of the global economy was more evident in the nineteenth century than today. Furthermore, if exports as a percentage of GDP is taken as an indicator of globalisation, Henwood argues that Britain was only a little more globalised in 1992 than in 1913, the US was in a similar position and Mexico was more globalised in 1913 than in 1992 (Henwood, D. Left Business Observer, Jan 1996). This argument is further corroborated by Robert Went's figures of exports and imports as a percentage of Gross Domestic Product (GPD). They show that the arithmetic average of imports and exports as a percentage of GDP for France, Germany, UK, The Netherlands, USA and Japan has actually fallen between 1913 and 1994 from 42.6% to 39.5%. Indeed, Japan's trade as a percentage of GDP went from 30.1% in 1913 to 14.6% in 1994 . However, trade figures are contentious. Went does point out the fact that the figures do not take account of the service sector which has grown immensely but is not included in trade figures, but when they are taken into account, as Irwin's correction of the trade figures for the US show, the "export of tradables… (from the US) has increased more strongly than figures would indicate" (Went, R. Globalization: Myths, Reality and Ideology, Internet).

There is a great deal of evidence that the production process is taking place globally, whereby companies base different sections of the production process in different countries. There has been a great expansion of 'transnational' companies (TNCs), the Conference Board of New York's report on the world's top 100 economic units shows that the number of huge transnational companies on this list has grown from 39 in 1980 to 47 in 1990 (Horsman and Marshall, 1994, p.201). David Held states that "twenty thousand multinationals now account for a quarter of world output and they account for 70% of world trade" (Held, D. Marxism Today, Nov. 1998). However, figures used by Hirst and Thompson show that the growth of transnational companies doesn't necessarily represent a qualitative growth in globalisation. Indeed the vast majority of TNCs are not 'trans' national as their sales and assets remain in the parent country eg. the percentage of US multinational companies (MNCs) to the US was 93% in 1987 and 79% in 1993. Similarly, the distribution of assets in parent country stands at 81% and 77% respectively . Furthermore, data from the US Bureau of Economic Analysis, an agency of the Department of Commerce, shows that the trade that takes place within multinational companies might be anything but globalising. Intrafirm trade in US multinationals accounted for more that one third of all US exports of goods and over two fifths of US imports of goods .

As Henwood shows, using data from the US Commerce Department data, 'global' intra-firm trade accounts for only 10% of US trade and has seen no significant increase since 1982 . The collapse of Bretton Woods in the 1970s led to the removal of national capital controls and deregulation of the financial sector in the 1980s. Cross border assets held by banks tripled from 1983 to 1993. But, at the same time, figures published in the Financial Times show that capital mobility was substantially lower between 1990 and 1996 than between 1870 and 1930 (Financial Times Sept 21st 1998). Renato Riggiero points out that world trade flows have increased fourteen fold since 1950 compared to a five fold increase in world production. The ratio of trade to output is now 22% compared to only 7% in the 1950s. Also that developing countries account for a quarter of world trade as opposed to only one fifth in the early 1980s (Renato Riggiero, address to the Norwegian Institute of International Affairs, March 1998). However, admittedly international trade has grown fast - twice as fast as GNP during the 1980s but FDI grew twice as fast as trade and hasn't included the majority of developing countries. Although between the 1980s and 1995 FDI to OECD countries fell from 95% of FDI outflows and 85% of FDI inflows, to 84% and 65% respectively, this was largely due to the increases in China and East Asia rather than representing a global increase.

Figures from the World Trade Organisation show that FDI has indeed increased in developing countries, but this effected only some developed countries: "indeed, ten developing countries received nearly 80% of the FDI going to developing countries". Massive growth in foreign investment rates are nothing new. Between 1875 and 1914, British domestic capital increased by 80% whereas British investment abroad grew by three times that amount. There are a number of theorists that claim that the process of globalisation of economics and culture is facilitated by the growth and improvement in technology. Some claim that aspects of globalisation are dependent on technology. Paul Kennedy asserts that "without the vast increase in the power of computers, computer software, satellites, fiber-optic cables and high speed electronic transfers, global markets could not act as one" . The transformation of transport and communications in recent decades has been astonishing. The speed and size of transport have both drastically increased and the reduction in cost has allowed more people to travel to more places more often than ever before. This process has meant that time and space have both been reduced on earth and more people meet more people of other nationalities and cultures than ever before with, necessarily, more interaction and cultural familiarity.