After Globalization

Crisis and Disintegration

Robert K. Schaeffer

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000433036
• Edition: 1
• Topic: Scienze sociali
• Subtopic: Classi sociali e disparità economica

In the 1980s, U.S. officials adopted tax and monetary policies that channeled huge new resources into Wall Street, which fueled a stock market boom. To increase profits and payouts to investors as stock prices soared, corporate managers consolidated businesses, outsourced manufacturing to low-wage countries, and adopted new technologies to increase productivity. Government officials then facilitated mergers and negotiated free trade agreements to speed the process of globalization. Wall Street became an engine of capital accumulation and a force for global change.
These developments resulted in massive job losses and stagnant wages for most Americans. Meanwhile, tax cuts and the stock market boom created vast new wealth for the rich, and the top 10 percent seized 50 percent of all income in the United States. The result was growing economic inequality.During the decades that followed, globalization triggered regional economic crises, toppled governments, transformed societies, galvanized economic development in China, and created new forms of wealth and inequality around the world. Then in 2008, a financial crisis rooted in Wall Street triggered the Great Recession, wrecked the legitimacy of globalization as a development strategy, and unleashed populist or "restrictionist" social movements and political parties that challenged globalization and attacked its economic and political foundations.This book examines the origins of globalization in the 1980s, the developments that triggered the Great Recession, and the political and economic forces that contributed to the disintegration of globalization as a force for change in the modern world. After Globalization explains what happened—and what comes next.

Chapter 1Declining U.S. Hegemony and the Battle Against Inflation

DOI: 10.4324/9781003198321-1

During the 1970s, U.S. officials confronted a series of political and economic crises that threatened to undermine U.S. hegemony. At the end of the decade, U.S. officials adopted separate, uncoordinated tax, trade, and monetary policies to forestall decline. These measures inadvertently channeled huge new public resources into private hands, foreign and domestic, who then invested heavily in U.S. financial institutions and markets, collectively known as “Wall Street.” The surging foreign and domestic demand for stocks drove up prices, and the Dow Jones Industrial Average soared from 777 to 2,722 between 1982 and 1987. But stock-price inflation put enormous pressure on corporate managers to increase profits and payouts to shareholders, and investors visited their wrath on managers who failed to keep up with the Dow Joneses. So managers merged with other firms, outsourced production, and increased productivity to cut costs, increase profits and payouts, and raise stock prices for demanding shareholders. These strategies were advanced and assisted by Republican and Democratic administrations who abandoned antitrust laws to facilitate mergers, negotiated free-trade agreements to speed outsourcing, and financed technological innovation to increase productivity. These developments made Wall Street an engine of capital accumulation and a force for global social change, a process that became known as “globalization.”

Although globalization was treated by some academics as the product of neoliberal, market-driven change, they were mistaken. Government policies play a crucial and ongoing role in Wall Street’s emergence as an engine of global change. U.S. officials jumpstarted, fueled, and repaired this motor of capital accumulation. Whenever it sputtered or stalled, as it did in 1987, 2000, and 2008, government officials deployed monetary and tax policies to repair and refuel the market, put their shoulders to the wheel, and push the market out of the ditch and back onto the road to recovery. Other countries around the world were forced or persuaded by U.S. policies and market forces to adopt this new model of development or risk being excluded from access to capital, consumer markets, trade, and technology.

Globalization transformed economic and political relations around the world, though the changes wrought by globalization were most dramatic in China. In 1980, China was an impoverished country, still reeling from Mao Zedong’s disastrous campaigns to build “socialism.” His successor, Deng Ziaoping, was determined to change this, though the odds of doing so alone were long and the prospects dim. But U.S. officials partnered with China to outsource manufacturing, provide access to U.S. investment and consumer markets, and integrate China into the capitalist world economy. The Chinese regime took advantage of these opportunities, made a great leap forward, and fast became the world’s second largest economy. China’s growth eventually threatened U.S. hegemony and contributed to developments that wrecked globalization as a collaborative enterprise 40 years later.

The Erosion of U.S. Hegemony

During the 1970s, a series of economic and political crises undermined U.S. hegemony, which was first consolidated during World War Two.¹ The long U.S. war in Vietnam ended in defeat, withdrawal, and the capture of Saigon by North Vietnamese forces, who then forcibly reunited the country under communist rule in 1975. The war had divided Americans and demoralized U.S. troops, who military officials reported were “in a state of approaching collapse” and had reached “the lowest level of military morale in the history of the country.”² Military defeat was joined by political crisis. President Richard Nixon was forced to resign for misconduct during the Watergate burglary and cover-up.³

Military defeat and political crisis were compounded by economic crisis. During the 1973 Yom Kippur War in the Middle East, members of the Organization for Petroleum Exporting Countries (OPEC) cut back oil production and reduced world oil supplies by 25 percent. Falling supplies drove up prices and within a few months, oil prices rose from $2.90 to $11.65 a barrel.⁴ Higher oil prices contributed to rising inflation and public disquiet the United States. Truckers blocked highways, motorists waited for hours in mile-long lines to purchase gas, and fist fights erupted. In his 1975 State of the Union address, President Gerald Ford admitted, “I must say to you that the State of the Union is not good.”⁵

In 1979, revolutionaries in Iran deposed the Shah, a key U.S. ally, assaulted the U.S. embassy, and took Americans hostage. The revolution triggered a war with Iraq, drove oil prices up from $12 to $31 a barrel, and accelerated inflation in the United States. In 1979, the Soviet Union invaded Afghanistan to support a newly established communist regime and ignited a civil war.⁶

During the 1970s, U.S. military forces and U.S. allies in Vietnam and Iran had been defeated. Communist forces had advanced in Vietnam. Cambodia, and Afghanistan, and anti-American revolutionary forces had triumphed in Iran. These setbacks resulted in the tangible erosion of U.S. power around the world. Moreover, the Arab-Israeli and Iran-Iraq wars and OPEC oil embargo damaged U.S. political and economic interests at home and abroad.

In economic terms, three critical crises erupted in the 1970s: trade deficits, budget deficits, and inflation. In 1971, the United States posted a $2.3 billion trade deficit, the first since 1893. Although modest, the trade deficit signaled that U.S. competitors in Western Europe and Japan had advanced and that the U.S. ability to dominate markets around the world had declined. Robert Brenner argues that “Germany and Japan had not just caught up with but forged ahead of the United States, leading in one key industry after another—textiles, steel, autos, machine tools, consumer electronics.”⁷ This was particularly evident in the crucial steel and auto industries.⁸

In 1950, Benjamin Fairless, the head of U.S. Steel, boasted that the U.S. steel industry was “bigger than that of all other nations on earth, put together.”⁹ But the Europeans and Japanese quickly rebuilt their industries after the war, assisted by the U.S. government and money from the Marshall Plan.¹⁰ They built new steel mills using modern technology that produced low-cost, high-quality steel. They soon recaptured domestic markets and then captured markets in the United States. The U.S. government allowed foreign imports because they wanted to keep steel prices low for U.S. manufacturers of autos and appliances.¹¹ Meanwhile, U.S. steel producers failed to modernize antiquated factories or introduce new technologies that would lower labor costs, which had risen as a result of successful strikes by steel unions. “Between 1967 and 1977, averages wages in the U.S. economy rose 97 percent—steel worker’s wages rose 142 percent,” while Japanese production costs were 15–20 percent below those in the United States.¹² By 1970, the U.S. share of world steel production had plummeted to 20 percent. And it kept falling. Raw steel production fell by half between 1973 and 1982, the work force “was simultaneously halved to fewer than 200,000,” and mill towns across the Midwest collapsed, a process described as “deindustrialization.”¹³ Today, the United States is “the only industrial nation that is not self-sufficient in steel.”¹⁴

The U.S. auto industry also declined, as consumers turned to cheap, reliable, high-mileage imports—first Volkswagens from Germany, and then models from Japan—particularly once oil prices rose after 1973. Americans bought 4 million Japanese cars in 1970 and 12 million in 1980, capturing 23 percent of the U.S. auto market and driving Chrysler to the verge of bankruptcy.¹⁵

President Nixon worried that the 1971 trade deficit was a harbinger of things to come, so he abandoned the global system of fixed exchange rates that the U.S. officials had established at Bretton Woods, the wartime economic summit that set the economic rules for the postwar world, devalued the dollar, and ended its connection to gold. Despite these dramatic measures, U.S. trade deficits grew from $2.3 billion in 1971 to $25.5 billion in 1980, and to $122 billion in 1985.¹⁶ Princeton economist Robert Gilpin observed, “The United States had achieved the impossible: it had a trade deficit with almost every one of its trading partners. Not since 1864 had the U.S. trade balance been so negative.”¹⁷

U.S. budget deficits also grew rapidly during the 70s, from $3 billion in 1970 to $74 billion in 1980. Republican and Democratic administrations were reluctant to raise taxes to pay for the war in Vietnam, which contributed to deficits in the first half of the 1970s, or pay for the rising costs of social security in the second half of the decade. The Nixon administration and a Democratic Congress had increased social security benefits through annual cost-of-living adjustments (COLAs). Soaring inflation triggered by the OPEC oil embargo and Iranian revolution pushed up the cost of benefits, but the Ford and Carter administrations did not also increase payroll taxes to keep pace, and this led to growing budget deficits.

Of the three economic problems, inflation was the most troubling. After World War Two, governments in the United States and elsewhere expanded defense, public works, and social service programs to stimulate their economies and prevent a return to the Depression. These policies, described as “Keynesian” after the British economist John Maynard Keynes, produced modest rates of inflation, about 2 percent annually in the United States during the 1950s and early 60s. When the United States escalated the war in Vietnam, it sharply increased military s...