Mexican Capitalism Today, Part 2

The Power of Mexico’s Capitalists

Dan La Botz, Guest Blogger

Dan La Botz is co-editor of New Politics and editor of Mexican Labor News and Analysis. This is the second part of a two-part series. The first part is available here.

Mexico’s capitalist class is wealthy, well organized, and politically powerful. Mexican businesspeople have for many decades been organized in the Employers Confederation of the Mexican Republic (COPARMEX) which brings together “more than 36,000 member companies across the country are responsible for 30% of GDP and 4.8 million formal jobs.” COPARMEX, and other business organizations, such as the National Chamber of the Manufacturing Industry (CANACINTRA), have worked for years, principally through the PAN but also with the PRI to develop policies, write legislation, and to lobby for their political agenda.

The Mexican capitalists brought neoliberal government to power in two stages: First, the victory within the PRI of the so-called “Technocrats” over the “Dinosaurs” (that is, the neoliberals over the economic nationalists) in the 1980s and 1990s. Second, the electoral victory of the PAN. The two PAN administrations—under Vicente Fox (2000-2006) and Felipe Calderón (2006-2012)—demonstrated that the party was incapable of governing Mexico. Fox’s administration failed to deliver on its promises to the business class, while Calderón initiated the disastrous war on drugs with the tens of thousands of dead and forcibly disappeared as well as widespread police and army human rights violations.

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Understanding Contemporary Capitalism, Part 2

Neoliberal Capitalism, Financialized Capitalism, or Globalized Capitalism?

David Kotz, Guest Blogger

David Kotz is a professor of economics at the University of Massachusetts-Amherst and the author of The Rise and Fall of Neoliberal Capitalism (Harvard University Press, 2015). This is the second installment of a two-part series based on his book. Part 1 is available here.

While it is widely agreed that capitalist economies underwent significant change after around 1980, there are different interpretations of the new form of capitalism that emerged. There is no agreement about the best organizing concept for post-1980 capitalism. Some view it as financialized capitalism, some as globalized capitalism, and some as neoliberal capitalism. These different conceptions of contemporary capitalism have implications for our understanding of the problems it has produced, including the financial and economic crisis that emerged from it in 2008. Focusing on the U.S. economy, I presented a case in part 1 that “neoliberal capitalism” is the best overall concept for understanding the form of capitalism that arose around 1980. Here, I deal more specifically with the shortcomings of alternative interpretations – focused on the concepts of “financialization” and “globalization,” respectively.

Why Not “Financialization”?

Some economists view “financialization” as the best overall concept for understanding contemporary capitalism. Financialization can best be understood, however, as an outgrowth of neoliberal capitalism. The rise in financial profit, which gave the financial sector a place of growing importance in the economy, came quite late in the neoliberal era. As figure 2 shows, only after 1989 did financial profit begin a long and steep climb, interrupted by a fall in the mid 1990s, and then a sharp rise to a remarkable 40% of total profit in the early 2000s. It was only in the 2000s that financialization fully blossomed. At that time, commentators noted, Wall Street was beginning to draw a large percentage of elite college graduates.

The “financialization” of the U.S. economy in recent decades, important though it is, was itself driven by neoliberal restructuring. The neoliberal institutional structure, including financial deregulation, enabled financial institutions to appropriate a growing share of profits. Furthermore, financialization cannot account for many of the most important economic developments in contemporary capitalism. It cannot explain the dramatic shift in capital-labor relations from acceptance of compromise by the capitalists to a striving by capitalists to fully dominate labor.. It cannot explain the sharp rise in inequality. And it cannot explain the deepening globalization of capitalism.

Why Not “Globalization”?

Like financialization, “globalization” has been presented by some analysts as the best framework for understanding the contemporary form of capitalism. Capitalism has, indeed, become significantly more integrated on a world scale in recent decades, including the emergence of global value chains and a truly global production process in some sectors.

The degree of globalization of capitalism has gone through ups and downs in history. Capitalism became increasingly globalized in the decades prior to World War I. Then the cataclysm of two world wars and the Great Depression reversed the trend, and capitalism became less globally integrated over that period.  After World War II, the process of globalization resumed, gradually at first. Around the late 1960s, globalization accelerated somewhat measured by world exports relative to world GDP, as figure 3 shows. After 1986 the trend became more sharply upward. Thus, in contrast to financialization, which emerged later than neoliberalism, the globalization process in this era began before neoliberalism emerged, although globalization accelerated in the neoliberal era, particularly after 1990.

However, many of the most important features of capitalism since 1980 cannot be understood or explained based on globalization any more than they can be on the basis of financialization. Globalization cannot fully explain the rapidly rising inequality in the contemporary era, which has been quite extreme in the United States yet milder even in some other countries, such as Germany, that are more integrated into the global economy. Globalization cannot explain the financialization process and the rise of a speculatively-oriented financial sector, nor can it explain the series of large asset bubbles. Like financialization, globalization has been an important feature of neoliberal capitalism, but it is not its defining feature.

Neoliberalism as the Key Concept

Both financialization and globalization are fundamental tendencies in capitalism. Financial institutions have an ever-present tendency to move into speculative and risky activities to gain the high profits of such pursuits. Even more so, globalization is a tendency present from the rise of capitalism, since the capital accumulation drive always spurs expansion across national boundaries. Then why do these phenomena characterize one era of capitalism more than another?

Both of these tendencies can be obstructed for long periods of time, or released, depending on the prevailing institutional form of capitalism. Financialization was held in check from the mid 1930s to 1980 by financial regulation, and globalization was hindered from World War I until the 1960s by the world wars, the Great Depression, and then the state regulation of trade and international investment allowed under the post-World War II Bretton Woods monetary system. The neoliberal restructuring starting in the late 1970s can explain all of the key economic developments in contemporary capitalism, with the processes of financialization and globalization—released by neoliberal capitalism—forming a part of the account.

These differences in analysis are  important, since they represent different views of the basic characteristics of the current era of capitalism and different diagnoses of the origins of the current crisis. Proposals to overcome the current crisis that focus only on reigning in financialization or reconfiguring globalization would be insufficient unless part of a restructuring that replaces neoliberalism with something new.

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Commemorating Chile’s Unidad Popular

Alejandro Reuss

Today, many Chileans—and many sympathizers from around the world—will commemorate and mourn the anniversary of the 1973 military coup. The coup ended the three years of the Unidad Popular (the socialist-led “People’s Unity” government, or UP) and forty years of civilian rule and electoral government in Chile. The day of the coup ended with La Moneda, the presidential palace, a burned and bullet-riddled ruin, and with the country’s freely elected socialist president, Salvador Allende, dead from a self-inflicted gunshot wound. The military dictatorship that came to power on Sept. 11, 1973, would become notorious worldwide for the kidnapping, rape, torture, and murder of political opponents. Its apologists would, meanwhile, turn a blind eye to its atrocities, and laud the results of its neoliberal economic policies as an “economic miracle.”

It has certainly been important and necessary to dredge up this painful history. The military dictatorship, as Patricia Constable and Arturo Valenzuela put it in their 1991 book A Nation of Enemies: Chile Under Pinochet, had “made spies of the unscrupulous, sycophants of the ambitious, and conformists of the majority.” The experience of dictatorship left many traumatized by violence, many more cowed into submission—not only by the fear that they themselves might be tortured or “disappeared” if they spoke up, but by the idea that dreaming of a new society was a form of hubris, which would only lead to disaster. Despite eruptions of protest during the period of the dictatorship, especially in the early and mid 1980s, Chileans have really only gradually overcome this trauma and regained the ability to protest without triggering fears of another coup. Confronting this history, breaking the silence about the past, naming the guilty parties, demanding justice—all played a role in making protest possible again.

There are other things, however, to commemorate about Chile in the early 1970s, most especially the promise of a democratic socialism that was truly democratic and truly socialist—something fundamentally different from both the reformed capitalism of western European social democracy and the bureaucratic dictatorships of the Soviet bloc. The UP in Chile, the May 1968 protests in Paris, and the Prague Spring of 1968 all, in their way, rekindled hope for a new brand of humanistic and liberatory socialism. In remembering the demise of the UP (not just the government, but that era of Chilean history), we ought not to forget its positive legacies.

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Understanding Contemporary Capitalism, Part 1

David Kotz, Guest Blogger

David Kotz is a professor of economics at the University of Massachusetts-Amherst and the author of The Rise and Fall of Neoliberal Capitalism (Harvard University Press, 2015). This is the first installment of a two-part series based on his book.

Part 1: What is Neoliberal Capitalism?

“Neoliberalism,” or more accurately neoliberal capitalism, is a form of capitalism in which market relations and market forces operate relatively freely and play the predominant role in the economy. That is, neoliberalism is not just a set of ideas, or an ideology, as it is typically interpreted by those analysts who doubt the relevance or importance of this concept for explaining contemporary capitalism. Under neoliberalism, non-market institutions – such as the state, trade unions, and corporate bureaucracies – play a limited role. By contrast, in “regulated capitalism” such as prevailed in the post-World War II decades – in the United States and other industrial capitalist economies – states, trade unions, and corporate bureaucracies played a major role in regulating economic activity, confining market forces to a lesser role.

A few clarifications are in order. First, capitalism cannot function without a state. After all, private property is a creation of the state, and market exchange requires contract law and associated enforcement that can only be provided by a state. However, in neoliberal capitalism the state economic role tends to be largely confined to protection of private property and enforcement of contracts. In regulated capitalism the state’s economic role expands significantly beyond those core functions of the capitalist state.

Second, the dominant role of market relations and market forces in neoliberal capitalism is embodied in a set of institutions and reinforced by particular dominant ideas. The transition from regulated capitalism to neoliberal capitalism starting in the 1970s was marked by major changes in economic and political institutions. This will be explored below.

Third, the institutions of neoliberal capitalism, while promoting an expanded role in the economy for market relations and market forces, simultaneously transform the form of the main class relations of capitalism. Most importantly, the capital-labor relation assumes the form of relatively full capitalist domination of labor. This contrasts with the capital-labor compromise that characterized the regulated capitalism of the post-World War II decades. Neoliberalism also brought change in the relation between financial and non-financial capital, as will be considered below.

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From “Development” to “Poverty Alleviation”: What Have We Lost?

Jayati Ghosh

There was a time when economists were inevitably concerned with development. Early economists of the 16th and 17th centuries to those of the mid 20th century were all essentially concerned with understanding the processes of economic growth and structural change: how and why they occurred, what forms they took, what prevented or constrained them, and to what extent they actually led to greater material prosperity and more general human progress. And it was this broader set of “macro” questions which in turn defined both their focus and their approach to more specific issues relating to the functioning of capitalist economies.

It is true that the marginalist revolution of the late 19th century led economists away from these larger evolutionary questions towards particularist investigations into the current, sans history. Nevertheless it might be fair to say that trying to understand the processes of growth and development have remained the basic motivating forces for the study of economics. To that extent, it would be misleading to treat it even as a branch of the subject, since the questions raised touch at the core of the discipline itself.

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The Slow Burn

The Washington Consensus and Long-Term Austerity in Latin America

Raul Zelada Aprili and Gerald Friedman, Guest Bloggers

This article originally appeared in the July/August issue of Dollars & Sense.

For over thirty years after World War II, Latin American governments promoted economic growth and development through policies that favored domestic industrialization. Capital controls (restrictions on international capital mobility) and trade protections helped promote “import substitution”—producing goods domestically that previously had been imported—rather than exports. Most Latin American countries—including those, like Chile and Brazil, where democratically elected leftist governments were overthrown in the 1960s and 1970s—reversed course to adopt “neoliberal” economic policies. Rather than stimulating growth through import substitution, the new policies sought to promote export-led growth by exploiting the region’s main “comparative advantage,” low-wage labor. Labeled the “Washington Consensus” by British economist John Williamson, these policies failed to promote economic growth, but did dramatically widen the gap between rich and poor. In recent years, the return of democratic governance has led most Latin American countries to abandon the failed neoliberal experiment, bringing renewed growth and narrowing inequality.

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In Defence of Merdeka (Independence)

Martin Khor

Independence has been achieved, yet has to be constantly defended, continuously renewed and expanded as the process of de-colonisation is on-going and new threats arise.

This week marks the beginning of our 58th year of Independence [in Malaysia]. Much has been done to entrench sovereignty and independence on our land. But much more needs to be done.

Colonialism did a comprehensive uprooting of traditional systems and replanted them with new ways, methods and systems to produce a chaotic and confusing amalgam of people, social patterns and economic modes. We are still shaking off the vestiges of that colonialism, whose shadows still fall large. We are still in the process of building independent policies, structures and systems. This is so in post-colonial developing countries in general. As the leaders of the Group of 77 and China stated in their summit held in Bolivia recently, the process of de-colonisation is incomplete and on-going, even decades af­ter the winning of Independence.

That is a good reminder. In particular, the structures and levers of the global economy are still under the domination of the rich developed countries. The former colonial masters may have let go of formal control of the colonies but they made sure to set up a system in which they could continue to control the important components of world finance, trade and economy.

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The Logic of Neoliberal Anti-Populism

C.P. Chandrasekhar

Advocates of neoliberalism not only dress themselves as market fundamentalists but also present themselves as anti-populist. They don’t dither when it comes to condemning any sign of the government using tax revenues to provide transfers or subsidies to the poor or undertake expenditures that are expressly meant to favour the poor, in the form of livelihood protection, poverty alleviation or free and universal provision of basic health and educational facilities. The justification for this is two-fold: that expenditure to support growth must be favoured over spending to directly improve welfare; and, that fiscal prudence must be privileged over all else when deciding the use of the exchequer’s resources. So if spending has to be tailored to correspond to revenues, expenditure on “populist” measures must be limited or abjured.

There is a twist in the arithmetic underlying such reasoning. It assumes that the difference between tax and non-tax revenues, on the one hand, and total expenditures, on the other, can be reduced only by reducing expenditures and not by increasing revenues. That is obviously not true. Comparisons of the share of GDP appropriated as taxes by the Centre alone or by the Centre and states in India with the corresponding figures in similarly placed or even poorer economies points to the substantial untapped revenue potential in the country. While this has been occasionally recognised in the budget speeches of Indian finance ministers, few are willing to impose significantly higher taxes on those with much-higher-than-average incomes or those appropriating a disproportionate share of the surpluses over necessary consumption in the system.

The unwillingness or “inability” of the State to tax the rich reveals that it is not a neutral agency standing above all classes. It is partisan and represents the interests of a few.

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Human Rights, the Global Economy, and the Arab World, Part 4

Ali Kadri

This is the fourth of a five-part series by regular Triple Crisis contributor Ali Kadri, Senior Research Fellow at the Middle East Institute, National University of Singapore, and author of Arab Development Denied: Dynamics of Accumulation by Wars of Encroachment (Anthem Press).

The series is based on an interview he granted to the Center for the Study of Human Rights at the London School of Economics (LSE). The full interview is available here.

Is “Arab socialism” viable? And if so, is it desirable?

One must critically analyse “Arab socialism” within its historical context. In times of immediate post-independence autonomy (the 1960s to the late 1970s), state dirigisme, high public investment rates, and more egalitarian redistribution characterised all Arab states. A particular set of Arab states followed the path of “Arab socialism”—they nationalised industry and finance and implemented agrarian reform as in Egypt, Iraq, Algeria, Libya, and Syria—which resulted in significant welfare gains. However, half-hearted Arab socialist egalitarian processes, initiated from the top down, excluded the working class from participating actively in defending their gains, deepened labour-process regimentation, suppressed autonomous labour representation, and exacted differential gains accrued to the state bourgeoisie via wage system exploitation.

On the opposite side of Arab socialism, in the monarchic Arab states—the Gulf, Morocco and Jordan—regime stability was ordained by the extension of U.S.-tailored security arrangements and the not-so-hidden fact that the monarchs practically owned national resources and managed redistribution solely for the purpose of stabilisation in relation to the U.S.’s anti-Soviet positioning. In Arab socialist states, which sided with the USSR, a colonially-weakened national bourgeoisie that was short on financing and cornered into commercial practices, could not deliver in terms of development. Moreover, its tainted reputation as a colonial subsidiary had not provided it with the necessary ideological support to govern. Single-party Arab socialist regimes rose to power and supplanted the rise of bourgeois democratic governments. The Arab socialist state, through populist appeal and the capacity to generate its own finance, acted as a surrogate industrial bourgeoisie in handling capital’s production and appropriation measures. The state rose as the principal owner of the means of production and appropriator/distributor of the social product. The private sector shrank but still absorbed a significant chunk of the labour force in artisanal and petty farming undertakings. State ownership existed side-by-side with a constrained private sector. In hindsight, it was inevitable that private sector expansion would recommence when the state bourgeois class required more economic space to grow and the political climate ripened for ‘free market’ policies and openness—as happened since the early 1980s, or more conclusively, in the early 1990s as the Soviet Union fell.

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Human Rights, the Global Economy, and the Arab World, Part 2

Ali Kadri

This is the second part of a five-part series by regular Triple Crisis contributor Ali Kadri, Senior Research Fellow at the Middle East Institute, National University of Singapore, and author of Arab Development Denied: Dynamics of Accumulation by Wars of Encroachment (Anthem Press).

The series is based on an interview he granted to the Center for the Study of Human Rights at the London School of Economics (LSE). The full interview is available here.

Part 2: How would you define neoliberalism? What effect has it had on the Arab world?

The neoliberal policy package depends primarily on the creation of an enabling environment for the private sector, freeing the goods and capital markets and implementing “good governance.” The story goes: If price distortions are removed, capital-gains taxes that inhibit the wealthy from investing are removed, labour laws that make the market “rigid” (enabling labour stability on the job instead of being precarious) are removed, and financial regulations that impede the flows of capital are removed—at some immense pain to the working class in the short term—then after a period of welfare retrenchment, the market spurs into action delivering much needed capital stock, rising productivity, and rising wages in the long term. One ought to note in passing that despite the dismal record of this “trickle-down” story, it remains central to mainstream policies. When these conditions prevail, the neoliberal “theory” says, development prevails. However, this is not much of a theory.

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