Capitalist Imperialism: Mainstream Economics Edition

Three recently released economics papers come amusingly close to validating typical Marxist arguments about the dynamics of global capitalism and its imperialist nature. 

It appears that Tyler Cowen isn’t the only person who is getting anxious about the future of economic growth in developing countries.  Kevin Grier of Cherokee Gothic brings up three papers that also share a similar pessimism, some dating back to the middle of last decade.

Howitt and Mayer-Foulkes 2004 specifically analyze the historic divergence and convergence of economic growth from the standpoint of technology and innovation.  Bajona and Kehoe 2010 take a look at how a certain macroeconomic model responds to free-trade scenarios.  And Grier and Maynard 2013 examine the empirical growth rates of three categories of countries (categorized by wealth).

All three are very interesting, but for now I’m just going to focus on the latter two, as they connect very well to one another.  And in particular, I am going to examine how well the conclusions of these two papers integrate into Marxist theories of imperialism, and general leftist critiques of free-trade (spoiler: they do so surprisingly well!).

Theoretical Divergence in a World of Free Trade

I’ll start with Bajona and Kehoe 2010, the most abstract of the three.  The purpose of the paper is as stated:

In this paper we ask: Do the convergence results obtained in closed economy growth models change when we introduce trade?

And their reported finding:

We find that introducing trade into the growth model radically changes the convergence results: In many environments where income levels converge over time if the countries are closed, for example, they diverge if the countries are open.  This is because favorable changes in the terms of trade for poor countries reduce their incentives to accumulate capital.

Now, before my fellow leftists start jumping for joy, the limitations of this paper have to be understood.  The paper was not a general comparison of actual free-trade growth versus protectionist growth, but a comparison of two theoretical extremes: completely closed economies versus completely open economies.  The dynamics of convergence between these two extremes were not analyzed; hence, there is little this paper says about optimal levels of protectionism.

But while I could be wrong, I do think that an implied conclusion is that in a world where countries’ political economy does approach the theoretical open model, divergence occurs between the richer and poorer countries.  If only we had some empirical data with which to test the implicit conclusions of Bajona and Kehoe 2010…

Empirical Divergence in a World of Free Trade

…ah, but we do!  Grier and Maynard 2013 actually looks at empirical data concerning growth rates since the mid-20th century.  The methodology groups countries based on their level of wealth, and the relative level of wealth to one another.  From 1950-1970, the distribution was such that there were two main groups (rich and poor), while from 1980-2008, the distribution was such that there were three main groups (rich, middle, and poor).

In general, the 50s and 60s are seen as a time of widespread development, with many countries jumping from the poor group to the rich group.  However, during the 1970s, a general shift in the world economy occurs, and the two groups turn into three, with the richest group steadily increasing its wealth at a faster rate than the other two groups in the 1980-2008 period.  A table can be seen below that compiles some of the data given in the paper with respect to these metrics.  Arguably the most important metric to note is the weight of each group, and how it changes over the years.  From 1950 to 1970, the number of countries in the rich group versus the poor group almost inverts, signifying the high rates of development during this time period.  But from 1980-2008, the weights remain relatively unchanged, aside from a noticeable drop of countries who fall from the rich group to the middle group.

1950 [$] 1970 [$] %Change 1950 [%] 1970 [%]
Poor

1181

1193

0.010161

66

44.5

Rich

5586

6740

0.206588

34

55.5

1980 [$] 2008 [$] %Change 1980 [%] 2008 [%]
Poor

862

1109

0.286543

32

31

Middle

3997

6203

0.551914

42

48

Rich

13570

22807

0.680693

26

21

The study doesn’t go much into the possible causes of this shift in the world economy’s growth trends.  One possible explanation is put forth concerning changes in capital flow regulations in response to the 1973 oil shock.  Another concerns the collapse of the Bretton Woods system, and its affect on financialization and capital flow.

All of these have explanatory power, I’m sure, but I was most drawn to the last explanation: namely, the rapid increase in trade as a proportion of world GDP over the 1970s, which went from 27% in 1972 to 40% in 1981.  The 1980-2008 period also had similar rates of trade increase, reaching a high of nearly 60% in 2008.

Thus, it seems that we now have empirical data to back up the implicit theoretical conclusions of Bajona and Kehoe 2010: that free trade between rich and poor countries leaves the poor countries at a disadvantage.

Of course, it should be clarified that an increase in trade does not necessarily mean that its free trade; after all, the high-growth economies of the 1950s and 60s (namely, the Four Asian Tigers and Japan) were heavily controlled by powerful state institutions, protectionist regulations, and massive amounts of subsidies.  However, I think there is general consensus that the growth in international trade during the 1980s was, in fact, facilitated by actual free-trade systems, and a knocking-down of trade barriers and other non-neoliberal institutions.

 After all, this was a time of structural adjustment polices.  Debt crisis in developing countries (argued as a result of interest rate spikes from US policies concerning the international monetary system)  lead to the forced abandonment of domestic-focused policies, and the political primacy of the IMF and the World Bank across Latin America, the Middle East, and Africa–and the subsequent dismantling of trade barriers in an effort to promote free-trade and neoliberal notions of the role of governance and markets.  This, in turn, opened up these poorer nations to the unequal trade terms of the global markets–and thus, resulted in the stagnation of convergent economic growth that Grier and Maynard 2013 find.

Imperialism in a World of Free Trade

The centrality of international institutions like the IMF to the world economy’s functioning illustrates the need to recognize that the dynamics between the wealthy Western states and the poorer developing countries aren’t just governed by economic relations, but also by political relations.  This is why the Marxist notion of imperialism is very useful for understanding global political economy.  It brings to the table an analysis of the political and social relations that underpin purely economic dynamics that dominate the focus of modern economic schools.  As Samir Amin observes:

The very term imperialism has been placed under prohibition, having been judged to be “unscientific.”  Considerable contortions are required to replace it with a more “objective” term like “international capital” or “transnational capital.”  As if the world were fashioned purely by economic laws, expressions of the technical demands of the reproduction of capital.  As if the state and politics, diplomacy and armies had disappeared from the scene!  Imperialism is precisely the amalgamation of the requirements and laws for the reproduction of capital; the social, national and international alliances that underlie them; and the political strategies employed by these alliances.  (Amin 1989: 141)

Amin’s analysis of the modern world-economy is one dominated by forms of imperialism by the wealthy nations.  As described in Samir Amin at 80: An Introduction and Tribute, Amin characterizes the modern world as a

…system of unequal exchange, in which the difference in the wages between labor forces in different nations is greater than the difference between their productivities.  This creates a system of “imperial rents” accruing to the global corporations in the center—referred to less directly in mainstream economic circles as the “global labor arbitrage.”  (An analogous process affects natural resources, drawn from the global South.) All of this points to the superexploitation of labor in the periphery, which receives in wages less than the value of labor power—a situation made possible also by the existence of a massive global reserve army located primarily in the periphery.  The fact that labor is rewarded differently in the center and the periphery, and that this is related to the globalization of monopoly capital, constitutes the essence of the imperialist world system today.

This system can also be characterized by the disparities in the prices of the products produced in the core (First World/Global North) and the periphery (Third World/Global South)–and thus, closer to the methods of analysis in Bajona and Kehoe 2010 and Grier and Maynard 2013.  Dependency theory–a popular school of political economy back in the 50s and 60s, which founded the basis of modern Marxist theories of imperialism–argued that the world-economy was mostly characterized by a flow of resources from the periphery to the core.  And since periphery products are so much lower in value relative to core products, this results in an increasingly unequal trade relation between the two regions.  This theory is also in line with the observations in the Singer-Prebisch thesis, which found that there is a general tendency for the terms of trade between primary and manufactured goods to decline.  And similar arguments and methods of analysis are used by the Marxian world-systems theory.

Of course–as mentioned before–imperialism is as political as it is economic (something obvious when referring to the older definitions of imperialism, that view it as “empire-building”).  Core nations (usually the United States) often use military force (covert and overt) and other forms of political manipulation in order to maintain disparate political and economic relations between themselves and the periphery.  This political dimension becomes readily apparent whenever a population seeks to overturn the dominant socio-economic structures of their country.  Take, for instance, the 1954 Guatemalan coup d’etat.  A CIA-backed paramilitary force, in response to efforts by President Guzman to redistribute land owned by the United Fruit Company, deposed the president and instituted a military regime.  Imperialism can also take the form of supporting regimes which quell labor organization (and the rise in prices that usually accompanies increased labor power): the political and economic backing of the House of Saud was, in part, to ensure Western access to local oil reserves, and to ensure that the cost of labor remained cheap.  After a General Strike in 1956, oil executives of the multinational Saudi Arabian Oil Company (ARAMCO) and regime officials worked hand-in-hand to track down, arrest, and deport the strike leaders (which had the effect of stifling any serious working-class organization for the decades to come).

As such, the unequal trade relations previously discussed by both Amin and the cited economic papers are not just the result of apolitical economic processes, but deeply rooted in political manipulation and interference.  It is, and always has been, in the interests of the political and economic elites of the First World to maintain as unequal a trade relation as possible between the North and the South.

In the post-Keynesian world economy, imperialism became codified much more into “objective” economic relations and the international institutions that regulate these “objective” relations–namely, the IMF and the World Bank.  As documented in popular leftist books like The Shock Doctrine, the debt crisis of the Third World–a result of the Volcker Shock, which skyrocketed interest rates and collapsed the ability of Third World governments to service their debt–provided an excellent opportunity to force neoliberal policy prescriptions down the throats of tricontinental societies, and to sell off assets and resources multinationals at fire-sale prices.  And, of course, the long-term effect of the imposition of free-trade would also be to stagnate growth, as unequal trade relations and the flood of cheap products from the core countries stifled development in the affected countries.  Indeed, the nations who have been hailed as the leaders of the developing world–the BRICS–are precisely those nations that rejected the logic of neoliberal development, and maintained systemic restrictions on foreign investment and trade liberalization(policies that echo those of the Asian Tiger economies of the postwar era).

Conclusion

Economic investigations like that carried out in Bajona and Kehoe 2010 and Grier and Maynard 2013 offer some very interesting insights into the nature of today’s global neoliberal world-system.  And surprisingly enough (or perhaps not, if we accept the premise that econometrics is value-free), their conclusions give a lot of credence to interpreting and analyzing the world from the standpoint that free-trade is, as the college Marxist hippies always claimed, imperialist.  The nature of global capitalism means that trade relations between rich and poor countries are unequal, and thus a break with neoliberalism is needed if convergence between the different populations of the world is ever to be achieved.

Addendum: While writing this piece, I realized that (contrary to how the writing comes across) I actually know much less about imperialism and its political economy that I would like.  Luckily, a quick search through r/communism got me a 300 page PDF, titled Marxist Theories of Imperialism: A Critical Survey.  It gives a massive historical overview of the critique of imperialism, and touches on everybody from Marx to Lenin to Wallerstein.  Its well written, and if you’re interested in the topic, I highly recommend you skim through it, at least.

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One Response to Capitalist Imperialism: Mainstream Economics Edition

  1. Pingback: Capitalist Imperialism: Mainstream Economics Edition–The conclusions of two recent papers in econometric analysis come amusingly close to validating Marxist theories of imperialism. « Economics Info

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