3.3: Theories and Concepts - Global Capitalism and Neoliberalism

Learning Objectives

By the end of this section, you will be able to:

• Recognize key components of global capitalism
• Identify central principles of neoliberalism

   

Global Capitalism   

Global capitalism is an economic, political, and sociocultural system which is deeply immersive and intertwined with virtually every aspect of contemporary life. It has transformed our physical world and is the cause of tremendous human productivity as well as suffering. In defining global capitalism, one starting point is thinking about it as a complete system for organizing human behavior. It is not just a prescription for economic relations, such as between sellers, buyers, and investors, but rather an ecosystem in which there are complex relationships between humans and their environment.

One important observation about capitalism is its rapid geographical spread. It is a truly global system, one that “has spread from covering some 20 percent of the world population in the 1970s to some 90 percent in the 1990s,” (Hamelink, 1999, p. 1). Considering the progression of capitalism in the decades since the 1990s, there are very few isolated pockets of humankind that are untouched by this ecosystem.

To be more precise in thinking about capitalism as an ecosystem, one helpful concept is to think of it as a “world-economy”. We can define a world-economy as “a large geographic zone within which there is a division of labor and hence significant internal exchange of basic or essential goods as well as flows of capital and labor,” (Wallerstein, 2004). In global capitalism today, the geographic zone is the entire world – and near space as well, once we count commercial satellite systems.

In unpacking the ecology of global capitalism, it is helpful to focus on seven key components:

First, it is grounded in a market-based economy. This is a system in which buyers and sellers meet in marketplaces, real or virtual, and exchange goods and services. That exchange may be voluntary or coerced. Prices for goods and services rise and fall in response to demand and supply. A market-based economy contrasts with command economies, such as those of the Soviet Bloc noted previously, in which markets are eliminated and all supply, demand, and prices are dictated by government planners. (The Soviet Union was a prime example of a command economy.)

Second, capitalism is characterized by a division of labor. This means that separate tasks in the production of a good are carried out by different people. This implies that individuals in this production chain can specialize in their role in the larger process. Specialization implies greater efficiency and also investments in expertise.

Third, as the moniker “capitalism” might imply, capital is a critical ingredient in this ecosystem. Capital denotes those assets which are used to generate money, or more meaningfully, wealth. Capital can take the form of machines for harvesting wheat or technologies such as the bioengineering that might make certain wheat varieties pest resistant. Or it can take the form of the finance that a farmer needs in order to plant their crop. Without capital it is difficult to generate value – and therefore profit.

Fourth, private ownership is a pillar of capitalism. This means that individuals or firms own key economic inputs such as land and the capital needed to transform that land into something that will generate wealth. There can be private ownership of other inputs such as equipment or factory buildings. Importantly, capitalism is compatible and has co-existed with slavery, or the treatment of people as private property.

Fifth, capitalism relies on the circulation and accumulation of money. Money is a medium which enables us to store value. It also offers a common measure of value so exchange can happen over greater and greater distances and include more and more parties. Just like trade and communication are facilitated when everyone uses standard measures of time (something as basic as seconds, minutes, hours), so money also facilitates trade and communication.

Sixth, capitalism creates commodities. A commodity is anything that can be bought and sold in a market. Land, for example, is a commodity in capitalism. Most other commodities are produced through the combination of labor, capital, and raw materials. Some have noted that capitalism results in the “commodification of everything”.

Seventh, and what ties together all of this, is the profit motivation underlying all capitalistic behavior. Perhaps even prior to this is an acquisitive impulse that some might argue is innate to human nature. Wherever you may stand on this debate about human nature, capitalism incentivizes individuals to get as much as they can of whatever they believe has value. This often translates in practice to accumulating as much money as possible, without end.

Figure \PageIndex3\PageIndex1: Global capitalism includes centers for financial exchange and capital accumulation such as stock markets (BY NC-ND 2.0; Ahmad Nawawi via Flickr)

What follows from this is that capitalism has an expansionary imperative built into it. The key figure of the entrepreneur is someone who takes risks and establishes new enterprises, explores new markets, and breaks new frontiers. It is on the frontier that the most exciting work of capitalism is taking place, for example the creation of new commodities and new markets – all to generate profit.

There exist different forms of capitalism, some of which have risen and fallen over time, others which continue to shape the present-day world. With the exploration of new frontiers, new forms of capitalism have emerged. Beginning in the Fifteenth Century, plantation capitalism was predicated on the enslavement of colonized or conquered peoples, whose labor was appropriated to cultivate the land. The resulting products, such as processed sugar or cotton fiber, were then traded globally and converted into commodities purchased in markets worldwide. Organizational innovations such as the creation of joint-stock and international trading companies created more wealth and concentrated it geographically in colonizing powers. The industrial capitalism that emerged during the Nineteenth Century – and overlapped with plantation capitalism – relied on further innovations such as factory life, modern limited liability corporations, and technological innovations in mechanization and mass production. In the Twenty-first Century, surveillance capitalism is characterized by the collection and commodification of individual behavior on the internet (and internet of things), with the goal of shaping future behavior such as consumption decisions (Zuboff, 2019).

Powerful critics of global capitalism have drawn attention to the perpetuation of racial capitalism. The history of capitalism is rooted in race-based slavery as an institution, both as ideology and practice (Robinson, 2021 [1983]). The enslavement of people, and resulting creation of a hierarchy of races, also challenges the artificial boundary that is drawn between capital and labor as economic inputs. Enslaved people of color were not only the productive labor on which the gears of capitalism turned, but they were also a source of capital for this system. Those that were enslaved were the collateral for much of the debt that enslavers took on in order for their plantations to function. In the present, racial capitalism is evident in a broad range of capitalist economic activities, from fights over the land and natural resource rights of indigenous people to the disproportionate number of people of color who labor for cents on the hour in privately-owned prisons (Jenkins & Leroy, 2021).

Neoliberalism

Global capitalism is compatible with a second major ideology, neoliberalism, which eventually encompassed the world in the 1990s and characterizes present-day economic life. This world of pervasive neoliberalism is sometimes referred to as the New Liberal Order. Neoliberalism draws from classical liberal ideas but extends them globally and supports them with a suite of international institutions and domestic policies. Classical liberalism begins with several key assertions. First is the centrality of the individual. Second is the desire for, and naturally given right of, individuals to be free. This is captured by classical liberal thinkers such as John Locke, who wrote that humans exist in “a State of perfect Freedom to order their Actions … as they think fit … without asking leave, or depending on the Will of any other Man,” (as quoted in Courtland et al., 2022, 1960[1689], p. 287). There were and remain deep contradictions between the beliefs and writings of liberal thinkers, as these ideas sprang from the pens of many enslavers, imperialists, colonizers, and individuals who did not believe in equal rights for many people, including women and people of color. Keeping this in mind, a third tenet of liberalism is a defense of the individual right to private property.

Neoliberalism emerged in the early Twentieth Century and drew from the classical liberal emphasis on individual freedom, but it articulated a more aggressive template for state authority. Neoliberals called for specific delineation in the relationship between political authority and economic activity: “[Neoliberalism comprises]… political economic practices that propose that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade. … The role of the state is to create and preserve an institutional framework appropriate to such practices. The state has to guarantee, for example, the quality and integrity of money. It must also set up those military, defense, police, and legal structures and functions required to secure private property rights and to guarantee, by force if need be, the proper functioning of markets. Furthermore, if markets do not exist (in areas such as land, water, education, health care, social security, or environmental pollution) then they must be created, by state action if necessary,” (Harvey, 2005, p. 2).

These ideas in practice translated to three major policy directions: deregulation, liberalization, and privatization, which has been referred to as the D-L-P formula (Steger and Roy, 2021). All three relate to economic reforms in favor of strengthening access to markets and withdrawing the state from economic life. Deregulation implies the dismantling of rules and legislation that governs private market actors, from corporations to small businesses and entrepreneurs. Privatization is the conversion of public services to private ownership, often through the sale of public utilities and state-owned enterprises. Liberalization involves the elimination of price controls in domestic markets and opening up the domestic market to international competition.

Neoliberal politicians gained high office in powerful countries in the 1980s, notably U.S. President Ronald Reagan (in office 1980-1988) and UK Prime Minister Margaret Thatcher (in office 1979-1990). Policies enacted during their administrations have reverberated into the present, from support of neoliberal politicians in other countries to deregulation and privatization of many public services in their own countries. The deregulation of transportation industries in the United States, such as air and rail transport, resulted in greater market competition and lower prices, but detractors point to the weakening of labor protections and downward pressure on wages.

Many of the IGOs supporting economic globalization, such as the World Trade Organization, International Monetary Fund, and World Bank, promote neoliberal policies on an international scale. In the name of encouraging economic freedom and redirecting state power toward market-based economic exchange, these organizations support policies such as the reduction of trade barriers, privatization of state-owned firms and public services, and deregulation. Countries in financial distress which receive IMF loans are often advised to balance government budgets through reductions in public spending. This can mean the elimination of subsidies for basic goods such as gas or unemployment for public servants, which has the perverse effect of harming the individuals that neoliberalism in theory strives to support.

Figure 3.3.2: Cochabamba, located in central Bolivia, is nestled in a valley in the Andes. The World Bank recommended privatization of its water supply, which community protesters opposed (CC BY-SA 4.0; JH PLATA Filmmaker via Wikipedia)

 

In one example of neoliberal policies gone awry, the World Bank recommended the privatization of water in the city of Cochabamba, Bolivia, and its environs. City officials complied. When the city’s water system was auctioned in 1999, the sole bidder was a global consortium, Aguas del Tunari, which represented various British, U.S., Spanish, and Bolivian firms. The sale was followed by price hikes that were felt most keenly by the poor, who organized a grassroots movement opposing the consortium. Protests broke out in 2000. The government responded with force, resulting in hundreds of arrests and the death of a teenage protester. Eventually the consortium withdrew and a settlement was finally reached, but Cochabamba’s 2000 Water War highlights the simmering conflicts over neoliberal policies.