The Nation in the Global Era: Conflict and Transformation

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The Nation in the Global Era: Conﬂict and Transformation

The Nation in the Global Era: Conﬂict and Transformation

Edited by

Jerry Harris

LEIDEN • BOSTON 2009

Originally published as Volume 8:2-3 (2009) of Brill’s journal Perspectives on Global Development and Technology. This book is printed on acid-free paper. Library of Congress Cataloging-in-Publication Data The nation in the global era : conﬂict and transformation / edited by Jerry Harris. p. cm . Includes index. ISBN 978-90-04-17690-4 (hardback : alk. paper) 1. International economic relations. 2. Nation-state and globalization. I. Harris, Jerry, 1948–II. Title. HF1359.N376 2009 337—dc22 2009012630

ISBN 978 90 04 17690 4 Copyright  by Koninklijke Brill NV, Leiden, The Netherlands. Koninklijke Brill NV incorporates the imprints Brill, Hotei Publishing, IDC Publishers, Martinus Nijhoﬀ Publishers and VSP. All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission from the publisher. Authorization to photocopy items for internal or personal use is granted by Koninklijke Brill NV provided that the appropriate fees are paid directly to The Copyright Clearance Center, 222 Rosewood Drive, Suite 910, Danvers, MA 01923, USA. Fees are subject to change. printed in the netherlands

Contents List of Contributors .....................................................................

1

Introduction .................................................................................

5

SECTION I THE TRANSNATIONAL CLASS STRUCTURE AND THE STATE Globalization Today: At the Borders of Class and State Theory ..... William K. Tabb

11

Statist Globalization in China, Russia and the Gulf States ............ Jerry Harris

29

Australia Has a Transnational Capitalist Class? ............................. Georgina Murray

54

El Salvador and the Central American Free Trade Agreement: Consolidation of a Transnational Capitalist Class ...................... Cori Madrid The Migration-Development Model Can Serve Two Masters: The Transnational Capitalist Class and National Development ............................................................................ Rubin Patterson Toward a Theory of Global Proletarian Fractions .......................... Jason Struna

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101 120

SECTION II THE POLITICAL ECONOMY OF GLOBALIZATION Towards a Reformulation of Core/Periphery Relationship: A Critical Reappraisal of the Trimodality of the Capitalist World-Economy in the Early 21st Century .............................. Kwangkun Lee

153

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contents

The Political Economy of US Wars of Choice: Are They Really Oil Wars? ................................................................................. Ismael Hossein-zadeh

185

Hilferding’s Finance Capital versus Wal-Mart World: Disaggregating the Dollar’s Hegemony ..................................... Gregory P. Nowell

205

Neoliberal Agenda in Bolivia and its Aftermath ............................ Magda von der Heydt-Coca European Markets as Challenges or Opportunities for Mexican SMEs’ Internationalization: A Critical Analysis of Globalization ............................................................................ Lorena Ruiz Garcia Intellectual Property Rights: The West, India, and China ............. John W. Sutherlin Conﬂicts of Interest: Plasticity of Peace Tourism and the 21st Century Nation ................................................................ Veda E. Ward

237

262 289

304

SECTION III NATIONAL IDENTITY AND DEVELOPMENT Globalization and Separatism: The Inﬂuence of Internal and External Interdependence on the Strategies of Separatism ......... Ryan D. Griﬃths and Ivan Savić

319

Demystifying the Nation Globe Conundrum: A Preliminary Sketch ................................................................ JoAnn Chirico

345

This Part of The Globe Is Not Flat: The Paradox of the Turkish Relationship with Northern Iraq and the Dilemma of Kurdish Politics across Borders ............................. Kumru Toktamis Turkey’s Imperial Legacy: Understanding Contemporary Turkey through Its Ottoman Past ......................................................... Joshua W. Walker

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384

contents

vii

Cyrillization of Republika Srpska ................................................. Somdeep Sen

399

A brief comparison: Mexican and Peruvian National Identities ..... Isaías R. Rivera

421

SECTION IV THE ENVIRONMENTAL IMPACT China’s Role in the Challenge for Global Sustainable Development ............................................................................ Patrick Loy Is Sustainable Capitalism an Oxymoron? ...................................... David Schweickart

437 449

List of Contributors William K. Tabb has been Professor Emeritus of Economics at Queens College and of Economics, Political Science, and Sociology at the Graduate Center, City University of New York. His books include Economic Governance in the Age of Globalization (Columbia University Press, 2004), The Amoral Elephant: Globalization and the Struggle for Social Justice in the Twenty-First Century (Monthly Review, 2001), Reconstructing Political Economy: The Great Divide in Economic Thought (Rutledge, 1999), and The Postwar Japanese System: Cultural Economy and Economic Transformation (Oxford University Press, 1995). Jerry Harris is a professor of History at DeVry University, Chicago. He is national secretary of the Global Studies Association of North America and author of The Dialectics of Globalization: Political and Economic Struggle in a Transnational World. This essay previously appeared in Science & Society, January 2008. Dr. Georgina Murray holds a PhD from the University of Auckland and is author of the recent book Capitalist Networks and Social Power in Australia and New Zealand; she teaches political economy at Griﬃth University, Brisbane, Australia. Jason Struna received his M.A. from the University of Colorado, Denver in 2008. He works with undocumented students in the Young Migrant Scholars/ Universities Without Walls programs in Denver. To pay the bills, he engages in a transnational production chain in the food service industry. Kwangkun Lee is a PhD candidate of sociology at Binghamton University (State University of New York). His dissertation deals with the interface between global capitalism and national labor regime in South Korea. Ismael Hossein-zadeh, author of the recently published The Political Economy of US Militarism (Palgrave-Macmillan 2007), teaches economics at Drake University, Des Moines, Iowa.

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list of contributors

Magda von der Heydt-Coca is Bolivian. She studied in Argentina and Germany and obtained her Ph.D. from the University of Marburg, Germany and has taught at University of Zurich, Loyola College of Maryland, and the Elliot School of International Aﬀairs at George Washington University, DC. She is currently Senior Lecturer at Johns Hopkins University and is the author of Die bolivianische Revolution von 1952 Köln: Pahl-Rugenstein, 1982 and articles focused on social movements and the integration of Bolivia in the world economy. John W. Sutherlin, PhD is the Co-Director of the Social Science Research Laboratory (www.ulm.edu/ssrl) at the University of Louisiana at Monroe. He is a professor of political science. Ryan D. Griﬃths is a Ph.D. candidate at Columbia University. He has published several articles on secession and political uniﬁcation. Ivan Savić is a Ph.D. Candidate in the Department of Political Science, Columbia University, New York. His research interests include: the dynamics of dealing with international crises, the functioning of the international monetary system, and the interplay of international economic and security policy. JoAnn Chirico is a Senior Lecturer in Sociology at Pennsylvania State University, University College. She recently authored a theory and research manual titled, Observable Eﬀects: Meaning in the Global Age for Sage/Pine Forge Press for use in introductory sociology courses. Kumru Toktamis, PhD is a sociologist and social historian who teaches at Pratt Institute and Brooklyn College, CUNY. Her research on the shifting discourses and competing constructions of identity in time and space, focuses on Turkish nationhood and Kurdish mobilizations. Joshua W. Walker is a PhD candidate at Princeton University, formerly worked on the Turkey Desk at the State Department. He is a founding member of the Young Professionals in Foreign Policy and a former guest fellow at the Council on Foreign Relations. Patrick Loy is a computer scientist at The Johns Hopkins University, specializing in complex systems analysis and design. His essay, “Charting a Course to a New Global Economy,” was recently published in the journal, Nature, Society and Thought. In June of this year he returned from his second visit to

list of contributors

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China where he addressed the World Association of Political Economy on global economic issues. David Schweickart is Professor of Philosophy at Loyola University Chicago. He holds Ph.D’s in mathematics and philosophy. He is the author of three books and coauthor of one, his latest being After Capitalism (2002; Chinese translation 2005; revised edition forthcoming). He is the author of numerous articles in social and political philosophy, some of which have been translated into Chinese, Spanish, French and Catalan. He has given presentations in the United States, Canada, Mexico, Cuba, El Salvador, Spain, France, Italy, the Czech Republic, the Philippines, Venezuela and China. Lorena Ruiz Garcia is completing a Doctorate at SPRU, University of Sussex, UK. Her thesis deals with the internationalization of Mexican SMEs, paying particular attention to the impact of globalization. Gregory P. Nowell teaches international political economy at the State University of New York at Albany. His major topics of interest include the international oil industry, Keynesian economic theory, and international economic crises. Rubin Patterson is a professor of Sociology and director or the Africana Studies Program at the University of Toledo. He is a student of our newly emerging global society. He researches and writes frequently on migration and diaspora issues as they relate to development in the South, as well as on the environment and society. His most recent article, “Preparing Sub-Saharan Africa for a Pioneering Role in Eco-Industrial Development,” was published at the end of 2008 in the Journal of Industrial Ecology. Somdeep Sen is an MA Candidate at the Department of International Relations and European Studies at Central European University. He received his Bachelor’s degree from St. Lawrence University, majoring in Government (Hon), with minors in History and Global Studies. His current research interests include Political Islam, Security Studies, Critical Terrorism Studies and Contemporary Political Violence. Isaias Rivera is professor of Philosophy and Social Sciences at Tecnologico de Monterrey Campus Chihuahua. He is ABD in the Cultural and Educational Policy Studies program at Loyola University Chicago. He has worked as University Professor and given academic presentations in The United States, Mexico, Peru and Israel.

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list of contributors

Veda Ward is a Professor of Recreation and Tourism Management at California State University, Northridge. Her professional expertise and interests span urban planning, gender/culture and aging. She has published numerous papers, several book and monograph chapters and presented at local, state, national and international conferences. Veda has served as a trustee for the National Recreation and Park Association, on two park and recreation advisory boards, the Los Angeles River Ad Hoc Advisory Committee and was recently appointed to the Los Angeles County Commission on Women. Cori Madrid is a PhD candidate in the Department of Political Science at the Graduate Center, City University of New York. Her dissertation addresses the political preconditions and implications of oﬃcial dollarization in Latin America.

Introduction Jerry Harris Editor

The Global Studies Association of North America (GSA) was established in 2001, alongside its sister organization in the United Kingdom. Each year the GSA brings together scholars and activists from the United States, Canada, and Mexico to discuss and debate the many diverse aspects of globalization. As a multidisciplinary association, we promote the rich contributions of all disciplines that touch upon the economic, political, social, and cultural integration of our world (http://net4dem.org/mayglobal). In 2008, our conference was held in New York City at Pace University, under the theme “The Nation in the Global Era: Conﬂict and Transition.” Chapters in this book are contributions from the NYC conference and mainly address the complex and changing role of the nation-state as it confronts globalization. Some of the major topics explored are the relationship between class and state under the impact of globalization; how states and nations in the South are aﬀected by globalization; and the development of national identity within the context of global relationships. Section I, “Transnational Class Structure and the State,” explores an important new ﬁeld of study: the composition of the capitalist class and working class within the global economy. The lead essay by William Tabb challenges the conception of a transnational capitalist class (TCC), presenting a historic view of the development of the world capitalist system and class formation within the nation state. Tabb confronts the arguments of TCC theorists William Robinson and Jerry Harris, maintaining the importance of the nationstate even as he recognizes the expansion of the transnational economy. Next is an exploration by Jerry Harris of the rapidly developing power of what he terms “statist globalization” in China, Russia, and the Gulf States. Harris shows that control of the state economy is an avenue for the development of a state-based TCC as distinguished from the free market methods found in the United States and Europe. The next chapter, by Georgina Murray, “Australia Has a Transnational Capitalist Class?” is a detailed examination of national

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and transnational capital as well as the social and political links among Australia’s capitalist class. This chapter is followed by a study of El Salvador by Cori Madrid. As with Murray, Madrid’s essay is driven by a detailed examination of a speciﬁc national economic structure, relating her research to an analysis of the local TCC contingent. The last two chapters in this section turn their attention to questions of transnational labor. In his essay, titled “The Migration-Development Model Can Serve Two Masters: The Transnational Capitalist Class and National Development,” Rubin Patterson addresses migration and its relationship to national economic development. Patterson frames his investigation by examining both world-systems and TCC theory as applied to labor migration from India, South Korea, China, and Taiwan. While showing that migrationdevelopment strategy can advance national development, he argues that it “can also reinforce the entrenched dominance of the transnational capitalist class throughout the world.” Lastly, Jason Struna oﬀers a highly original analysis of the global working class. Struna marks out spatial relationships between transnational capital and labor based on workers’ physical mobility relative to nation-states. His method is to identify labor strata by whether or not workers move to the point of production or remain territorially ﬁxed to production sites; and if products move across borders to workers or remain nationally ﬁxed. Section II on the “Political Economy of Globalization” begins with Kwangkun Lee’s overview of world-system theory. Lee makes a critical assessment of Immanuel Wallerstein’s division of the world into core, semi-periphery and periphery countries, suggesting that neoliberalism has eliminated the semiperiphery from the capitalist world economy. The next several chapters are examinations of speciﬁc countries and their relationship to patterns of global accumulation. In the chapter by Ismael Hossein-zadeh, he makes the controversial argument that the US occupation of Iraq was not motivated by the oil economy, but rather by the needs of the military/industrial complex. Greg Nowell further investigates the political economy of the United States in his detailed study of Wal-Mart. Nowell uses Rudolf Hilferding’s classic work, Finance Capital, as a historic analysis of imperialism in contrast to Wal-Mart’s business model, which the author presents as a representative of contemporary capitalism. The last four chapters in this section turn our attention to the role of the South in the global economy. Magda von der Heydt-Coca takes us into Bolivia’s indigenous rebellion against neoliberalism, its devastation of the economy and the election of indigenous leader Evo Morales as president. The next chapter by Lorena Ruiz Garcia explores economic developments in Mexico. But instead of looking at large transnational corporations, Ruiz prefers to study small and mid-size enterprises and their ability to operate in the global

introduction

7

economy, particularly in their relationship with Europe. John W. Sutherlin turns our attention eastward in his discussion of intellectual property rights and their economic impact on the development of India and China. Sutherlin not only covers intellectual property laws in the West but the perspective of the South over issues such as bio-piracy. Lastly, Veda Ward examines the contradictory role of peace tourism and both the positive and negative eﬀects when well-meaning and socially active tourists from rich countries travel to the South to promote stability and peace. The third section, “National Identity and Development,” delves into the intersections of ethnic and national identity and how culture, history, and global relations help determine a community’s perception of itself and its place in the world. Ryan Griﬃths and Ivan Savic begin the discussion with an examination of the diﬀerent economic constraints and opportunities globalization imposes on separatist movements. Arguing that the level of interdependence to external and internal social and economic forces determine how autonomy develops, the authors investigate separatist movements in Scotland, Quebec, Biafra , and Tamil Edlam. Next, JoAnn Chirico uses a wealth of research data and polling to understand individuals’ relationship to their nation-state and their connectedness to global communities. The question that intrigues Chirico is “How globalization, nationalism, and the state can be, not simply mutually contingent, but mutually reinforcing.” The historical development of Turkish national identity and Turkey’s relationship to the Kurdish minority are the subjects of the following two chapters. Kumru Toktamis ﬁrst explores the economic interactions that tie Turkey to Kurdish northern Iraq. The author argues that the relationship challenges political and cultural borders and will either undermine Kurdish nationalism or be used to establish an independent Kurdish state. Joshua Walker chooses to look into Ottoman history to understand Turkey’s current global project. Walker contends that the Ottoman legacy as an imperial state deﬁnes its national self- perception, aﬀecting Turkey’s contemporary role in the world. Somdeep Sen turns our focus to the former Yugoslavia and the role of language in national identity. Sen is particularly interested in the use of Cyrillic script in the Serbian language as a basis for maintaining a separate identity inside multinational Bosnia. The last chapter in this section is by Isaías R. Rivera, who is also interested in national identity formation. Rivera leads us into an examination of Mexico and Peru and the mix of indigenous, European, and national identity formation. The last section contains two chapters on the pressing question of environmental sustainability. Patrick Loy leads oﬀ with an essay titled “China’s Role in the Challenge for Global Sustainable Development.” Loy’s overall assessment of China’s role is positive, and he argues that China “is well-positioned

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to take the lead in initiating a model for economic and social development that could help guide the world to a sustainable future.” David Schweickart also takes on the question of environmental sustainability, but poses it for the entire capitalist system of production. He centers his analysis on a review of Joseph Kovel, Paul Hawken, Amory Lovins and Hunter Lovins, who have distinctly diﬀerent positions on the question. Schweickart takes a bit from each, arguing for an ecologically sustainable market socialism. The chapters in this book combine the study of globalization as an integrated world system with the speciﬁcs of how individual nations and groups are inserted into the larger economic, social, cultural, and political patterns. This is essential methodology, as it seeks out those forces that create a common world system, yet understands the multiple levels and variances under which that system develops. It is in the examination of the particulars that the full richness of globalization studies emerges. Here we combine theoretical analysis, building a structure of understanding through which speciﬁc agencies unfold. In this diverse publication, virtually every region of world is touched upon, including Mexico, Peru, Bolivia, El Salvador, China, India, Taiwan, South Korea, Sri Lanka, Australia, Russia, Bosnia, Scotland, Turkey, Iraq, the Gulf States, the United States., Canada, and Nigeria. We hope these multiple textures will provide a worthwhile and enlightening read. The Global Studies Association would like to acknowledge the following people for their help in preparing this book: Margeretta Swigert-Gachery, Paul Kennedy, Georgina Murray, Greg Nowell, Veronica Seizys, Jeb Sprague, and Eve Stoddard.

Section I The Transnational Class Structure and the State

Globalization Today: At the Borders of Class and State Theory* William K. Tabb Professor Emeritus of Economics at Queens College and of Economics, Political Science, and Sociology at the Graduate Center, City University of New York

Abstract Much of the literature to date is a simple rejection or blanket acceptance of strong versions of the transnational capitalist class and transnational capitalist state. A more nuanced middle ground suggests the problematic uses of these concepts stems from failure to distinguish the multiple ways Marx employed the term class. A better positioning allows for the relevance of a transnational class/state framing going back centuries in an understanding of capitalism as a world system, and application of these terms in the current conjuncture. Clarity is gained by moving beyond a dichotomy contrasting national and transnational capitalist class concepts, instead understanding the central questions as the way states and capitalist fractions position themselves within the globalized political economy. Keywords transnational capitalist class, transnational capitalist state, social structure of accumulation, neoliberalism, Keynesian, IMF

On the debates on the trajectory of capitalism, diﬀerences arise over continuity versus change: what is qualitatively diﬀerent and what is quantitatively developmental. Discussions of a transnational capitalist class (TCC) and a transnational capitalist state (TCS) fall in this category. What is widely called globalization has stimulated a literature arguing for the creation of a single TCC, which acts through a TCS, both of which have come into existence recently or are emergent developments. Debates have tended to totally accept or reject the TCC/TCS framing. This chapter explores the middle ground, the ways in which such a paradigm in some of the forms in which it has been proposed is and is not appropriate for understanding the contemporary global * This chapter appeared in Science & Society, Jan. 2008. A much earlier version of this essay was presented at the American Sociological Association session “The Global Crisis of Capitalism: Economic and Ecological,” 14 August 2007, New York Hilton. I am grateful for comments made there and by anonymous reviewers for that journal.

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political economy conjuncture. It raises and discusses a number of questions. The most basic is the extent to which analyses of the current period of globalization should privilege the discourse of TCC/TCS formation; a second is the claim of newness and historical uniqueness of a TCC; a third is the extent to which, contra TCS thinking, the state, and speciﬁc nation-states not only remain important but are of growing rather than diminishing signiﬁcance in the contemporary conjuncture. Rather than arguing for or against the usage of TCC and TCS terminology tout court, this chapter stresses the over-ambitious claims being made for these constructs while at the same time suggesting that the concept of a transnational capitalist class may well be useful if understood relationally as a class fraction. Explaining this position requires a brief exploration of the way(s) Marx used concepts of class. As to the TCS, there is reason to be critical of this construction and an alternative will be oﬀered. The next section situates these issues historically, looking at capitalism as a world system. It is followed by a discussion of the many ways Marx himself used the term “class.” The penultimate section of the chapter deals with the concept of a TCS and the interrelation and tension between class and state theory in understanding aspects of the contemporary period. In the conclusion, attention turns to issues of agency and activism as they relate to the TCC/TCSd ebate.

Capitalism as World System It is likely that almost all Marxists would accept the founders’ view in The Manifesto that capitalism has always been a transnational system and “The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, and establish connections everywhere. . . . In place of the old local and national seclusion and self-suﬃciency we have intercourse in every direction, universal interdependence of nations.” The case can be made that a transnational capitalist class existed well before those famous words were written, that a TCC is as old as capitalism itself. We are told, for example, and I would not disagree, that Hugo Grotius, the father of modern international law (and employee of the Dutch East India Company), was a member of the TCC, “if anyone was” (Alston 2007:223). As to the TCS, there are those who long ago suggested its existence. For example, Robert Seeley in his 1883 book, The Expansion of England, envisioned a truly Great Britain that would constitute a global state (Pagden 2006) in much the same way some theorists would speak of the United States today. These examples taken at random could surely be

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multiplied. Both the idea of a transnational capitalist class and of a transnational capitalist state is centuries old and is reﬂected in the understanding of capitalism as a world system. Philip McMichael (1987) frames the issue usefully when he writes: “[M]ercantilism, colonialism, and the movement toward ‘free-trade imperialism’ of the nineteenth century all accompanied the maturation of the state as a national-territorial, but world-historical, entity” (p. 204). Also, according to McMichael, territorial space was “a vehicle of politics historically deﬁned and redeﬁned more by the claims made on states by merchant, industrialists, proletarians, and eventually colonial subjects for certain (nationalist) political protections and entitlements within a global market, than by some underlying national economic logic.” In a similar vein, Hannes Lacher (2003), rejecting a radical disjuncture through which a TCS comes into existence, argues that “the sovereign state was never truly a container of society, and modern social relations always included crucial global dimensions” (p. 523). One would want to place this continuing dialectic of national and global processes and institutions at the heart of any discussion of a TCC or TNS. Such a framing allows a more useful employment of these terms, which recognizes at one and the same time the immanence and potentiality of a TCC and a TCS in the contemporary period along with the continuity of such phenomena. Those who suggest a TCC and TCS have emerged in the last decades both elide the long-term reality that capitalism as a world system has always had individuals and institutions with global perspective and interconnections. Research on class at the level of the world system in our time needs to be framed within a broad political economy of capitalism as an evolving system open to agency and requiring close examination of how the organization of production impacts social relations and the role of the state in the historically speciﬁc context of the contemporary social structure of global neoliberalism. It is with regard to both the continued importance of class at the level of the historical world system and an over-determining role given to the categories of a TCC and a TCS in understanding the speciﬁcities of the present in history that one would want to critique some of the stronger claims made in this literature. The conclusion reached here is that there is an interpenetration of national capitals and greater interaction and cooperation among leaders of the capitalist class based in diﬀerent states, that these interactions reﬂect the reorganization of thinking about the world economy from a predominantly international economy characteristic of competition for colonies and foreign markets for exports and as sources of raw materials (always present through the history of capitalism) to the dominance of considering the world economy in terms of

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globalization in which the home country is one market among others and proﬁt maximization globally organized but that state power over various aspects of its territorial integrity are not willingly surrendered. They are negotiated within the conﬁnes of relative strength and alliance formations. There is as well a disjuncture between the postwar social structure of accumulation (SSA) of national Keynesianism and the current global neoliberal SSA (Tabb 2008b), which raises the issue of the extent to which current developments reﬂect secular and cyclical trends. For example, the contrast between the post World War II national Keynesian social structure of accumulation and the current one of global neoliberalism (McDonough, Reich, and Kotz 2008) needs to be seen both in terms of an evolving global capitalism and the historic pattern of alternating liberal (as in free market) and regulationist social structures of accumulation, which is a long-standing pattern (Kotz 2003; Polanyi 1957) as well as the last period of globalization in the decades before the First World War and the Great Depression (James 2001). Does this institutional shift, along with the force of capital’s neoliberalism project justify discussion in terms of a dominant TCC in today’s global political economy? Has there been a rupture with the past that calls for foregrounding a TCC/TCS perspective? Each of these conjunctural elements is useful, and it is hardly useful to say that only one way of seeing globalization (or class or the state) is correct in all usages. Central to TCC thinking is the view that a transnational state is an active presence acting through a US hegemonic state formation. Looking at the world today, Robinson (2001) writes, “When the US state promotes and imposes neoliberal ism, it is promoting not ‘its’ interests but the interests of transnational capitalists tied to new globalized (as opposed to national) circuits of accumulation that characterize the global economy” (p. 229). The issue in contestation is the extent to which for particular purposes the diﬀerent nationally based capitalists can be thought of as a uniﬁed class. There is little disagreement that within states there has been a growing hegemony of the most transnationalized fractions of capital, and so that should not be the dividing line between partisans of a TCC outlook and others (but see Robinson 2001-2002). There are few, if any, who see an ongoing contest, for hegemony within states, between those who promote global arena interests and those who focus exclusively on national circuits of accumulation. Rather, the debate is over the role of national states in favoring “their” capitalists (the foremost powerful fractions with a global outlook) versus decision-making premised on the interests of a transnational capital class. There are, of course, policy areas in which capitalists of leading economies and sometimes those of lesser ones can agree on what is to be done in the common interest. The issues at stake involve the extent and kind of protections of

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ﬁrms, market sectors, and political actors from being undermined by too much liberalization and what sort of market openings elsewhere these same interests want others to make. It is at this level that the debate often gets stuck. Some see the contestation among capitals based in diﬀerent nation-states as a phenomenon of intra-capitalist class rivalries while to others it is between separate nation state-based capitalist classes. If we accept that capitalism has been a world system for hundreds of years, then the issue is whether something has occurred or is occurring so that contemporary globalization is or has produced a transnational capitalist class in a sense that such a class has not existed before. To argue that this is the case requires dealing with, on the one hand, why we should not think such a class has long existed (as discussed earlier) and on the other hand, whether there is evidence of a new integrated capitalist class at the level of a uniﬁed global political economy and the coming into existence of a transnational capitalist state. To anticipate a response depends largely on what we mean by a transnational class and a transnationalst ate. In this contemporary period, as globalization continues to shrink David Harvey’s time-space continuum and numerous governance fora exist for communication among policymakers and epistemic communities of experts. Such meetings discuss and often come to consensus on desirable policies at the global level, which have led to considerable norm integration. Where there are collective action problems—for example, pandemics and international criminal activities—it is sensible that nations work together to confront them. There is sense in developing common standards, and this can be seen through the lens of the growing “stateness” of global governance, as soft laws become norms and can be enshrined in international agreements. The EU adopts auto safety regulations and other countries such as India, Japan and China adopt them. This means that their producers can sell to these countries without seeking approval from authorities or remodeling to meet local standards. If US competitors do not adopt such standards, they are at a competitive disadvantage. The EU’s GSM standard for cell phones adopted in 1987 and spread now to most of the world (if not the United States) hurts American companies. The United States, which in the past has dictated standards, ﬁnds that the EU now leads, and US companies must follow. Are these conﬂicts within a transnational capitalist class or a competitive maneuvering of competing blocs of capital? The latter seems a more useful perspective since regime creation and norm establishment are not new. In longer-term perspective, neither competition among nationally based capitals with global interests nor institutionalization of mutual accommodations is familiar. Just as nations come to agreements on international mail and

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maritime conventions to make communication and transportation operate more smoothly in the nineteenth century, new conventions in a host of areas, including trade, investment, and ﬁnance, regimes in the twentieth century include new global state economic governance institutions such as the International Monetary Fund and the World Trade Organization (Tabb 2004a). Should the growth of the international regimes be seen as signaling the existence of a dominant single transnational capitalist state at the level of the world system? Such a conclusion would seem premature and, in important ways, misleading. What is occurring is a continuation of struggle among nation-based interests (with global outlooks) over regime rules, which will constrain market behavior and allowable nation-state level regulation. A more multi-centric world means a still powerful US hegemony is likely to be challenged on a number of fronts even as one can expect a continued growth and reformation of global state governance in the twenty-ﬁrst century. There is surely evidence of the growing integration of national capitals. But does this mean a transnational state exists or its imminent arrival must be considered as the central feature of the contemporary conjuncture? In the more immediate period over which politics is theorized, what we are more likely to see is the growth of conﬂict between and among states that are declining in relative power and those whose economies are growing more rapidly and whose political weight in the world is increasing. For questions of the present moment, the TCC formulation suggests at best a possible preﬁgurative class reality and does not always help sort through the contradictions in the contemporary conjuncture because it moves the discussion to a level that is too abstract. This brings us to the central issue of what we mean by class.

Class as a Category In most popular treatments there is focus on one of two ways Marx himself used the construct “class.” In some places, as is surely well known, he was concerned with the two great classes of a social formation: slaves and slave owners, serfs and lords, workers and capitalists. At other times, he used the terms to mean class fractions or, as he and Engels wrote, the “complicated arrangement of society into various orders, a manifold gradation of social rank,” in the words of the Communist Manifesto. These ranks become anachronistic as societies evolve. Capitalism is a dynamic system and so societies are in a constant state of change. The consciousness of individuals and the groupings to which they are a part, the way they think about their problems, and who their enemies and friends are change. Some classes cease to exist or

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become less important in the totality of a society or are restructured as the capitalism in which they exist undergoes new developments. New classes come into being. The deﬁnition of a class fraction in a particular mode of production in a given historical conjuncture depends on the question being asked, and so the purpose of the social map is being drawn and employed. When in his political writings Marx deals with current events, he examines the general beliefs of the diﬀerent ranks of society, divisions within the great epochal class categories. Marx made distinctions among small landowners and hereditary lords, petty bourgeois shopkeepers, captains of industry, a class of ﬁnanciers, and so on. He analyzed the interests of each and how their material conditions inﬂuenced their world view and political actions. In The Eighteenth Brumaire of Louis Bonaparte, Marx produced the classic analysis of political struggle in which he correlated the interests of such class fractions and political movements contesting for power, an analysis in which contingency, personality, and opportunism ﬁgure. In that canonical work, he delineates the groups opposing the Paris proletariat in 1848: “the aristocracy of ﬁnance, the industrial bourgeoisie, the middle class, the petty bourgeoisie, the army, the lumpen proletariat organized as the Mobile Guard, the intellectual lights, the clergy, and the rural population” and discusses their role. He also notes in passing that “in the United States of North America where . . . classes, indeed, already exist, they have not yet become ﬁxed but continually change and interchange their elements in a constant state of ﬂux . . . .” The construct of a TCC stands somewhat between these two usages but as some employ it, closer to the former, asserting the centrality of a transnational capitalist class and presumably a transnational working class. Judging from the disregard to other myriad class fractions in the current conjuncture in the writings of some TCC theorists, there has been inadequate eﬀort to specify class fractions relevant to a discussion of politics and class (fraction) interests of the sort so evident in Marx’s political writings. Marx uses the term class in other ways as well, ways that are often incompatible, placing some groups in one class category at one place and a diﬀerent one later in the same work. For example, the intelligentsia is not only described as a class, but Marx speaks elsewhere of the “ideological classes.” Often class is used as a synonym for group or layer of society. As one scholar concludes, Marx cannot escape the accusation of “having a litter of standards for class membership and of changing them without prior warning” (Ollman 1978:37). In his writing, the same word can take on diﬀerent meanings in diﬀerent contexts; meaning shifts because the relational context changes. From such an internal relationship framing, terms are not deﬁned once and for all. Categories are interpenetrating and do not represent separate realities. The same

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group can be placed in diﬀerent taxonomies, depending on the question being asked, the level of social reality being explored. When one tries to give priority to a TCC analysis at the level of the world political economy, it becomes clear that an emergent capitalist class “has not yet become ﬁxed” in the sense of the quotation from Marx above, and eﬀorts to give it a concreteness it lacks have been problematic. Ollman (1978), who has done much to explicate this dialectical aspect central to Marx’s method and mode of thought, writes: “Marx conﬂates a number of social ties (relations between groups based on various standards) which are generally treated separately. He views them as interacting parts of an organic whole, the society in question . . .” (p. 40). This dynamism of capitalism, the coming into being of class fractions, and changes in the relative importance of older categories (which do not themselves describe static entities) claim attention of those who want to understand how class works in our day. The task is to develop a class vocabulary and taxonomy similar to that which he adopted in examining particular social formations in speciﬁc historical conjunctures. TCC theorists could do just this and, if properly done and adequately nuanced and positioned, this is not an unfruitful project. But this task should not be done without a more complex state theory rooted in an empirical investigation of changing state power relations in this new era of globalization. It would seem that this is the stance Harris (2005b) takes when he describes Chinese communists as having transformed their socialist ideology into “a new national project that deﬁnes modernization in globalist terms” (p. 9). He presents the Chinese as unabashedly trying to grow their own industries; but, for Harris, ﬁnally this is “helping to create the basis for the Chinese to integrate into the transnational capitalist class” (Harris 2005b:16). However, to elide the nationalist element and the relative autonomy of the state in the case of China, a stronger terminology is in order, given the continued dominance of the Party, which seems to privilege class and capital logic over state theory. Similar comments could be made with regard to his treatment of India and Brazil, where it would seem to me the TCC frame of the presentation rests uncomfortably with valuable detailed analysis of the concrete elements of the national conjunctural tensions (Harris 2005a). Growing rivalry resulting from the rise of states of the semi-periphery—led by the BRIC countries (Brazil, Russia, India and China), which seek leadership of the global South and alliances such as the IBSA Dialogue Forum (India, Brasil and South Africa) and the Shanghai Cooperation Organization1—has important signiﬁcance. Such states, political and economic alli1

Members of the CSO include China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and

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ances, regional groupings, and other counters to US hegemony, are numerous and intended to increase leverage against the global hegemony. They are hardly fraternal divisions within some transnational capitalist class but instances of traditionally understood rivalries based on national interests. In a work in progress, which its author was kind enough to share, Jerry Harris (2007) takes on the cases of China, Russia, and the Gulf States in support of a TCC/TCS framing. From my perspective, the ﬁrst two are strong examples of the dominance of national governments which oﬀer incentives and constrain both foreign and domestic capitalists within their borders. In the case of Russia, the Putin regime sanctioned oligarchies who might be considered part of the TCC. Putin’s “nationalization” of the empires of Boris Berezovsky and Vladimir Gusinsky and their exile demonstrates the reassertion of state power over these purported members of a TCC. In the case of China, the tight control of the Communist Party and the jailing and death sentences meted out to government oﬃcials and industrialists for anti-social activities likewise demonstrate not enforcement by some TCS or one faction of the TCC against another, but national state authority being exercised. Gulf States are characterized by rulers who dominate the economy and act as its capitalists, using among other vehicles sovereign wealth funds to diversify and ensure future income beyond oil by buying into Western ﬁrms, especially in the ﬁnancial sector, which allows learning and competency building. Unlike in the 1970s when Henry Kissinger could force proceeds from oil surpluses to be deposited in US banks, they are now used to build ownership claims on corporate entities in the West, a change that demonstrates the weakening of US hegemony and an assertiveness of these new centers of accumulation. Such actions would seem sound national interest-based policies. At the same time there is growing interpenetration of capitals. Places like Dubai and Abu Dhabi, once curiosities created sovereignties built atop vast oil reserves by Anglo-American interests, are now sites of pilgrimage for leaders of US capitalism, especially ﬁnance capital. In 2007, such rainmakers as Lloyd Blankfein, CEO of Goldman Sachs; John Mack, CEO of Morgan Stanley; and Jeﬀrey Immelt, CEO of General Electric had audiences with Dubai’s ruler, the emir Mohammed bin Rashid Al Maktoum to pitch mega-buck deals to that wealthy potentate. “Sheik Mo,” as he is called on Wall Street, is a shrewd operator whose staﬀ includes graduates of the best business schools and whose sovereign wealth fund is a major global player. Those who Uzbekistan to facilitate “cooperation in political aﬀairs, economy and trade, scientiﬁc-technical, cultural and educational spheres as well as energy . . .” It is moving to become a counter to U.S. hegemonic ambitions to control resources in their parts of the world. Iran has been an observer, as have India, Pakistan, and Mongolia (Tabb 2006a).

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run them are in fact very much like the people who visit, soliciting their participation. The relationship is quite diﬀerent from those between the British consuls and London bankers who came to the region in the nineteenth century and local rulers at the time. Today the shared interests, comprehension of the issues, and commonalities of outlook suggest a transnational capitalist class in formation. The question is the extent to which this class categorization can be made to explain phenomena, outcomes, and economic developments diﬀerently from international dealings in the past, which were not theorized as dealing with a single TCC. The Gulf States are interested in knowledge transfer, local job creation, and good returns on their investments. We are still left with competing national interests and the jockeying of positions by fractions of capital with diﬀerent material interests and ideological leanings. For most questions, it is the salience of these state-based divisions that are primary, not belonging to a TCC. From a TCC/TCS perspective, Harris (2007) sees Russian, Chinese, and Gulf States foreign investments as being made by local transnational capitalists and the tension between the Chinese or the Russians, and the United States as deﬁning competitive divisions within a transnational capitalist class, a TCC that is integrated and self-conscious even if the national soil of the capitalist factions remains important. By this logic, what about the interimperialist rivalries at the last turn of the century? Were these conﬂicts internal to a TCC? Certainly at the time of the last scramble for Africa over a century ago, it becomes diﬃcult to see what these theorists claim is new in the present conjuncture since the power of national identity remain so powerful. What about the American Revolutionary War? Weren’t New England merchants and the London merchants part of a TCC? How one chooses to deﬁne class is a matter of preference given in a particular conjuncture and dependent on the question upon which one would want to focus, a choice of conceptual framework which others may not be willing to accept. Perhaps, too, it is a matter of following Marx’s confusing example of using class diﬀerently to mean alterative things without specifying why this is done and when the context shifts.

A Transnational State? The discussion of a transnational capitalist state is less developed. This is, perhaps, because even to those who believe it is useful to speak of a TCS as existing or coming into existence, the failures of those fractions of the capitalist class they identify as a TCC who is seen as pushing for the formation of a TCS have not done very well lately in their eﬀorts to do so. At negotiation gather-

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ings of the International Monetary Fund and the International Trade Organization, recalcitrant fractions of capital, which to such theorists are part of this TCC, are identiﬁed primarily by their nationalist orientations in the sense that their interests would be injured by such a TCS development under US hegemony. An alternative framing can be oﬀered, presenting these organizations as global state governance institutions to convey that they are not about forming a world government. They carry the characteristics of “stateness,” and whatever may be the case a century or so from now (Arrighi 2001) they do not, within any reasonable time horizon of policy entrepreneurs, suggest current preference for a TCS (Tabb 2004a). But here too it depends on what is meant by the terms we use. When we examine deﬁnitions of a TCS oﬀered by particular advocates of this framing, we see what can be considered softer and harder formulations. For example, Robinson (2005) oﬀers a deﬁnition of a transnational capitalist state that seems close to the understanding of global state governance institutions when he writes of the TCS as “a loose network comprised of supranational political and economic institutions together with national state apparatuses that have been penetrated and transformed by transnational forces” (p. 317). Just as classes come into being and undergo changes out of lived experience in the historical time of capitalist development, so states in the extent and modes of conﬂict (and cooperation) are not stable categories in any once and for all deﬁnition. In arguing the importance of global state economic governance institutions, the stress on the diﬀerence between government and governance, between the state and qualities of stateness possessed by international institutions such as the International Monetary Fund and the World Trade Organization, it is possible to develop more subtle and relevant understanding of a crucial moment in contemporary neoliberal globalization. In this regard, the issue is whether the disagreements and contestation over policy direction, which have brought the negotiations in the WTO to a standstill and have been reﬂected in the broad sense of delegitimate status of the IMF, reﬂect conﬂict within a transnational capitalist class or contradictions within the state system and underlying tensions among the interests of capitalist classes of diﬀerent state formations. The evidence is substantial that the United States guards its domination of the IMF (and other global governance institutions). This is important in a consideration of the thesis that a TCS has emerged for two reasons. The ﬁrst is that these Bretton Woods organizations were set up before a TCC and TCS were alleged to have come on the scene and are widely recognized to have been created by the emerging global hegemon of the United States in cooperation with the declining hegemon no longer so for Great Britain. As Tony Porter

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(2007) writes, “Since the Second World War, United States economic and political hegemony has been of crucial importance to the IMF. The IMF’s success rested not just on its own programs but also on the ways in which it worked in a mutually reinforcing way with the international power of the US state” (p. 8). It has catered to the interests of that hegemonic state. Second, these institutions continue to be dominated by Washington. United States priorities are being questioned but this is not by some TCC demanding a TCS, but by nationalist leaders in China, Russia, India, and elsewhere outside of the traditional core of the world system. With regard to state theory, understanding changes in the role of the state of the semi-periphery in a north-south world system needs to be reconsidered. There are not many politicians in China, India, Brazil, or South Africa who are ready to put national priorities second to the greater good of a TCC—even if all of these countries are very much integrated into the global economy. Not only is there still old-style protection of the domestic economy with a goal of greater long-term national growth, but state-led development is hardly oﬀ the agenda of many countries with the capacity to pursue such an approach even if its forms continue to evolve to ﬁt both changing constrains and opportunities. Sovereignty will not be easily given to a TCS any time soon. Those nations strong enough to resist foreign demands will continue to protect their own, also their state sovereignty. The debate over capital logic versus state theory is in a sense a replay of the Kautsky-Lenin debates but to recognize as well that, while at the last turn of the century, inter-imperialist rivalry trumped the logic of ultra-imperialism with disastrous consequences; today under diﬀerent circumstances, a far more benign form of competition is evident in the rise of China and other new inﬂuentials such as India and Brazil (Hurrell 2006), which are governments that favor their capitalists and act as nationalist protectors of the domestic economic space in areas where issues of sovereignty are prominent. Consider the case of China. The US and Chinese economies are deeply intertwined. The US is China’s largest market. The Chinese are America’s biggest creditor. The reality is that close to 60 percent of China’s exports are by foreign transnationals, especially US transnational corporations. China’s growth success and the huge US current account deﬁcit and the prospective value of its dollar are tied so tightly that nationalistic state interests cannot be understood independent of these impressive economic realities. But does that somehow mean that its elites are part of a single TCC? China greets foreign investment but takes considerable caution to retain control of what its Communist Party sees as important sectors, such as energy, education, and communication, and picks and chooses among those wanting to do business and negotiates hard in its market-Leninist way. The loss of central control, as China

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believed, could potentially destabilize its social and political order. Yu (2007) sees a continuity through the diﬀerent reforms China has undertaken. “Unlike some Western political leaders who downplay state sovereignty in the global age,” Yu writes, “Chinese leaders make sovereignty the basis upon which all political and economic activities take place, including economic globalization” (p. 57). He translates the essence of its long-standing dominant doctrine: “China and Western countries are opposed to each other in fundamental interests, and therefore China must only introduce and use Western sciences and techniques as tools, while strictly maintaining its own political system and traditional values. This doctrine strongly resists accepting or accommodating Western political, social, economic or cultural systems and values, and has had essentially the same meaning all along . . .” (p. 57). It may be that Chinese leaders are fooling themselves, that the inroads made by capitalism cannot be contained and political change and loss of both party and national control will follow (Hart-Landsberg and Burkett 2005), but this is a diﬀerent question from whether the Chinese leaders are part of a TCC. It is possible that there may only be one way to be part of the global economy and that its capitalist elite is already part of a TCC, that, as Robinson (2001) has argued, real power in the global system is shifting to a transnational space that is not subject to national control. If that is the case, the Chinese leaders or Hugo Chavez in Venezuela and others are not consequential impediments to TCC rule. Such a conclusion could be drawn from privileging a TCC/TCS framework. It would also ignore the countries of Latin America and elsewhere that after decades of a socially devastating neoliberal ism the working class is electing socialist and popular movement leaders. Much of the hostile reaction to TCC/TCS writing has been from those who have complained of an inevitably closed teleology in which class struggle becomes hopeless in the face of a structuralist determinism. This is surely not the intention of leading contributors to the TCC/TCS literature. However, the extensive critiques that have been made along these lines suggest the need for a more nuanced position, perhaps one that makes clear the immanence of TCC formation as a tendency without the implication of dominance by this emergent class. Some suggestions along this line do exist in the TCC literature, but more needs to be done to discuss the politics of class agency and state power; otherwise TCC theory excludes the importance of political struggle by social movements and state actors. The complex patterns of national interests and globalization of the political economy are not reducible to control by a TCC and to call these conﬂicts tensions within a TCC seems strained. There is no reason not to expect a complex pattern involving both interpenetration of capitals with signiﬁcant cross-investment and sharp national rivalries

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in a more multi-polar world. I would argue there is a useful analytic continuity in how such developments are to be understood, not the sort of disjuncture TCC/TCS theorists suggest, even as the same time national economies are interdependent (as almost all have been in one form or another throughout the history of capitalism as a world system). Conﬂict among states, as central drivers of political economy struggles, are seen in a host of areas. It is important as well to underline the extent to which the United States acts in the interests of its own state power and its capitalist class. Here, too, there is disagreement with the TCC/TCS approach. For example, the United States, acting to maintain the centrality of the dollar through the IMF and using other strategies, is questioned by some advocates of the TCC/TCS perspective, who have denied that currency conﬂict is an important manifestation of competition among states. Robinson and Harris (2000) jump from the observation that transnational banks and investment ﬁrms and central banks hold vast foreign currency reserves and use diverse currencies in their worldwide transactions to the conclusion that “Under such circumstances it would be diﬃcult to argue that world political dynamics are shaped by struggle for dollar, yen, or some other currency’s hegemony. . . .” On the contrary, much US foreign policy can be explained by its insistence on retaining what Charles DeGaulle has called its “exorbitant privilege,” the power to run huge current account deﬁcits and the proﬁtable seigniorage, which comes from the dollar remaining the dominant global currency. The policies of the Federal Reserve are hardly innocent of such concerns and currency policy is a major dynamic of world politics, as ﬁnancialization has become a central moment in the accumulation process (Tabb 2007). The launching of the euro cannot be understood without taking into account the desire of Europeans to escape the costs of dollar hegemony and to join their national markets to better compete. Such conﬂicts, rather than TCC unity or TCS control, are the dominant realities of the dynamics of the global political economy. To some extent, the same argument can be made with regard to other high proﬁle global issues, such as the rapid depletion of non-renewable resources where the Chinese oil companies in Africa are not there representing some TCC, but rather national interests. I would expect there might be widespread agreement that if Iraq’s major export were dates and ﬁgs, it is unlikely the country would have been shocked and awed and continue to suﬀer as it does. It is of course possible to see Bush-Cheney acting not in the interests of a muscular unilateralism, but rather as Robinson does on behalf of the TCC (for his defense of this position with regard to contractor proﬁts in Iraq reﬂecting the US acting on behalf of a TCC (see Robinson, 2007; for a contrary view, see Tabb 2006a). Here Robinson (2005) maintains a strong formulation, sug-

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gesting that there is little evidence that US state policies in recent years have advanced the interests of “US” capital over other “national” capitals. Robinson has been forthright in his criticisms of the opposing position held by Peter Gowan, John Foster, Robert Brenner and others, and suggests that the “American capitalist class” is a “vacuous phrase” (Robinson 2005:322). Robinson’s position can be compared to that of Jerry Harris (2005), who, while also writing of a TCC, describes the Bush Administration’s “Unilateral and hegemonic project,” with reference to the war in Iraq and the militaryindustrial complex, as “the most protected and state-sponsored industrial grouping in the United States” (p. 322), in contrast to ﬁnance and information technology. Harris comments on the importance of patriotic culture and ideology of the military, which provides a rich environment for nationalist politics. These stresses suggest the use of a TCC construction in class fraction terms, as does his discussion of labor (Harris 2005:339). In my view, these foci are not in conﬂict with the view that Washington is driven—as numerous oﬃcial documents have proclaimed and policymakers of both major political parties have accepted—by the goal of preventing the rise of potential competitors and the drive toward an American empire (Johnson 2003). This does not mean the inevitability of war between and among imperialist states as in the logic of early twentieth century Russian communist theorists is inevitable or likely. It is to say that military power is an important dimension of national power, and military hegemonists carrying the big hammer are inclined to see all problems as nails. This has import to international politics and the fate of nations and prevents competition from being merely economic competition. Force and the threat of force in pursuit of national interest are real. Other core capitalists may be happy that the US polices make the world safer for trade and investment, even if they think Washington sometimes acts foolishly. Does this mean the United States acts in the interest of capital in general? Yes it does. Does this mean Washington acts in the interests of its corporations and capitalists above others? Yes it does (Tabb 2008a).

Concluding Thoughts From the myriad complications of social reality, the frame(s) one chooses, the constructions one privileges, and the historic logics one foregrounds among the many oﬀered, depend in part on what Schumpeter called one’s preanalytic vision—the way one sees the world before any particular investigation begins. Integral to such a vision is one’s political stance and the questions one is drawn to answer. All of these elements go into the choice of the range of temporal,

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spatial, relational theoretical framings that one explores. Given one’s outlook, he or she is drawn to address diﬀerent puzzles and ask diﬀerent questions. One’s politics matters and is reﬂected in the weight given to structure versus agency and the way one proposes that these interact. What diﬀerence does it make if one sees conﬂict among capitalists of the world rooted in nation-state conditions which structure their response to economic globalization forces or chooses to see a single transnational capitalist class? The points of diﬀerence stressed in this chapter have political import when we turn to what is to be done in the face of global capital’s achievements of recent decades. Fred Block (2001), in his critique of TCC/TCS, writing about globalization, suggests a number of questions: “[H]ow strong are these pressures of economic globalization and how eﬀective can protest and resistance within states be in resisting the neoliberal global tide? Can we really assume that all nations are converging toward a common neoliberal future? Why have some nations moved less far in the neoliberal direction than others? What kinds of alternatives to the current neoliberal direction are possible at this historical moment? Can transnational social movements construct a viable alternative to neoliberalism and what would be an eﬀective strategy for achieving that end?” (p. 216). If these are the questions one has in mind, then a closer consideration of class fractions and how they identify and pursue their interests and build coalitions is in order. The state legitimates the logic of capital, and this must be challenged at the level of each social formation. The danger is that in making the leap to what seems to critics as a structurally deterministic teleology, TCC/TCS thinking does not serve if there is the question of what is to be done now concretely in the places working people live and do politics. To understand why the workers of the world have such a hard time uniting, it is important to take on the power of nationalism and the cross-class beneﬁts (real and illusionary) that national power is understood to provide. The global justice movement’s mantra of thinking globally and acting locally is a recognition of this imperative. Many of those who have advocated a TCC/ TCS perspective no doubt agree. The question is how to better put TCC/TCS thinking in its place as a moment in a far larger mosaic and to give place to agency and activism without surrendering to a loss of structural clarity.

References Alston, Philip. 2007. “Remarks on Professor B.S. Chimmi’s ‘A Just World Under Law: A View From the South’.” American University International Law Review 22. Arrighi, Giovanni. 2001-2002. “Global Capitalism and the Persistence of the North-South Divide.” Science & Society 65:4, 469-476. Block, Fred. 2001. “Using Social Theory to Leap over Historical Contingencies: A Comment on Robinson.” Theory and Society 30:215-221.

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Foster, John Bellamy. 2006. Naked Imperialism: The US Pursuit of Global Dominance. New York: Monthly Review Press. Gordon, D. M., R. Edwards, and M. Reich. 1982. Segmented Work, Divided Workers: The Historical Transformation of Labor in the United States. New York: Cambridge University Press. Harris, Jerry. 2005a. “Emerging Third World powers: China, India and Brasil.” Race & Class 46:3, 7-27. ——. 2005b. “To Be Or Not To Be: The Nation-Centric World Order Under Globalization.” Science and Society 69:3, 329-340. ——. 2007. “China, Russia and the Gulf States; Statist Globalization in Developing Countries.” Unpublished manuscript. Hart-Landsberg, Martin and Paul Burkett. 2005. China and Socialism: Market Reforms and Class Struggle. New York: Monthly Review Press. James, Harold. 2001. The End of Globalization: Lessons from the Great Depression. Cambridge: Harvard University Press. Johnson, Chalmers. 2003. The Sorrows of Empire: Militarism, Secrecy and the End of the Republic. New York: Henry Holt. Kotz, David M. 2003. “Neoliberalism and the Social Structure of Accumulation Theory of Long-Run Capital Accumulation.” Review of Radical Political Economics 29(3): 263-270. Lacher, Hannes. 2002. “Putting the State in Its Place: The Critique of State-Centrism and Its Limits.” Review of International Studies 29:4 521-41. McDonough, Terrence, Michael Reich and David Kotz, eds. Contemporary Capitalism and Its Crises: Social Structure of Accumulation Theory for the 21st Century. New York: Cambridge University Press. McMichael, Philip. 1987. “State Formation and the Construction of the World Market.” Political Power and Social Theory: A Research Annual 6: 187-237. Ollman, Bertell. 1978. “Marx’s Use of ‘Class’.” Social and Sexual Revolution: Essays on Marx and Reich. Montreal: Black Rose Books. Pagden, Anthony. 2006. “The Empire’s New Clothes: From Empire to Federation, Yesterday and Today.” Common Knowledge 12:1 Winter 36-46. Polanyi, Karl. 1944. The Great Transformation: the political and economic origins of our time. Boston: Beacon Press, 1957. Porter, Tony. 2007. “Beyond the International Monetary Fund: The Broader Institutional Arrangements in Global Financial Governance,” Centre for International Governance Innovation. Working Paper (19, February). Robinson, William I. 2001. “Responses to McMichael, Block, and Goldfrank.” Theory and Society 30: 223-236. ——. 2001-2002. “Global Capitalism and Nation-State-Centric Thinking—What We Don’t See When We Do See Nation-States: Response to Critics.” Science & Society 65:4 500-508. ——. 2005. “Global Capitalism: The New Transnationalism and the Folly of Conventional Thinking.” Science and Society 69:3, 316-328. ——. 2007. “Beyond the Theory of Imperialism: Global; Capitalism and the Transnational State.” Societies Without Borders 2:1 5-26. Robinson, William I. and Jerry Harris. 2000. “Towards a Global Ruling Class? Globalization and the Transnational Capitalist Class.” Science & Society 64:1 Spring 11-54. Symposium Responding to William Robinson’s ‘Social theory and globalization’.” 2001. Theory and Society 30:2. Symposium responding to William I. Robinson. 2001-2002. Science & Society Winter 65:4. Tabb, William K. 2004a. Economic Governance in the Age of Globalization. New York: Columbia University Press. ——. 2004b. “The Two Wings of the Eagle.” In Pox Americana: Exploring the American Empire, edited by John Bellamy Foster and Robert W. McChesney. New York: Monthly Review Press.

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——. 2006a. “Fumbling the Great Game in Eurasia: The British and US Spreading ‘Freedom’ Through Invasion, Occupation, and Regime Change.” Z Magazine November 19:11. ——. 2006b. “Mr. Bush and Neoliberalism.” In The Neoliberal Revolution: Forging the Market State, edited by Richard Robison. Houndsmills, U.K.: Palgrave Macmillan. ——. 2007b. “The Centrality of Finance.” Journal of World-Systems Research 12:3, December. ——. 2008. “Transnationalization, Class and the State.” In Politics of Globalization, edited by Samir Gupta. Sage. ——. 2009 “Financialization in the Contemporary Social Structure of Accumulation.” In Social Structures of Accumulation: Theory and Analysis, edited by Terrence McDonough, Michael Reich, and David Kotz. New York: Cambridge University Press). Unpublished manuscript. Yu, Keping. 2007. “From Sino-West to Globalization: A Perspective from China.” In National Perspectives on Globalization, edited by Paul Bowles, Henry Veltmeyer, Scarlett Cornelissen, Noela Invernizzi, and Kwong-leung. Houndsmith.

Statist Globalization in China, Russia and the Gulf States Jerry Harris Professor of History, DeVry University, Chicago, Illinois

Abstract Over the last few years a number of developing countries have emerged as global economic powers. This resulted from a rise in oil and commodity prices, foreign direct investments and a global shift in production. Much of this growth has been guided by governments and under the control of state corporations leading to the phenomenon of statist globalization. Most observers see the emergence of developing countries in the context of nation-centric power struggles. But statist globalizers are part of the transnational capitalist class integrated at levels of production and ﬁnance. the result is a deepening of globalization, not a return to nation-centric competition. Keywords transnational capitalist class, transnational corporations, FDI, sovereign wealth funds, Gazprom, national oil companies

State-owned corporations and ﬁnancial institutions have gained major inﬂuence in the global economy. The inﬂux of capital through cross-border investments, a rapid growth in commodity and energy prices, trade surplus and global production have propelled a dramatic growth in government-controlled assets and wealth. This is particularly true in China, Russia and the Arab Gulf states. The emergence of transnational state capitalism marks a new stage in the development of globalization, one unforeseen by Western globalizing elites. Their vision saw private markets sweeping away statist regimes just as the neoliberal revolution had undermined the Keynesian state in the West. Indeed, global capitalism has come to developing countries and former socialist states, but within the context and character of their own history, giving birth to statist globalization and a new breed of transnational capitalists. This competition comes as a shock for many and has sparked protectionist rhetoric. The Transnational Capitalist Class (TCC) (Harris, Robinson, Sklair) of the developing countries are not the obedient junior partners of the previous imperialist era; rather they are emerging as independent players and rebalancing global power.

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Although statist globalization has caused debates and divisions, most transnational capitalists are eager for their new partners to join the world economy. As Richard Gnodde (2007), CEO of Goldman Sachs argues, “This emergence of new ﬂows and new actors from new models of capitalism reﬂects a natural diversity of social and economic practices that is in no way incompatible with the process of globalization . . .” (p. 11).

The State and Third World Globalization The strength of the statist TCC came into focus during the economic problems of 2007. When the US was hit by the housing crisis and falling dollar, China, India and Russia continued to grow. Many argued a “decoupling” from the US economy had occurred, pointing out that one-half of global growth came from the above three countries. With credit drying up in the West, cash poured into emerging market equities that jumped from $1.6bn in 2006 to over $24.3bn in 2007. Total ﬁnancial ﬂows reached $782bn, up from $568bn the year before. Meanwhile cross-border merger and acquisitions from Brazil, Russia, India and China climbed to over $70bn with 70 percent directed to the Americas and Western Europe (Larsen 2007:3). These ﬁgures show that integration is far too deep for decoupling; rather a rebalancing is occurring that underlines the emerging inﬂuence of the statist TCC. Edwin Truman (2007) of the Peterson Institute points out how globalization has weakened the dominance of Western nations while creating an “imbalance” of inﬂuence for the developing world. As he states, “[globalization] has had the eﬀect of loosening the ‘home bias’ in individual, institutional, and governmental investment portfolios. The reduction of home bias has facilitated the ﬁnancing of global imbalances [while] at the same time contributed to more balanced global asset portfolios” (p. 2). In other words, the ﬂood of foreign investment produces an excess of cash in developing nations while at the same time creating denationalized portfolios for the TCC. This process of global integration is presenting problems for Western capitalism by producing historically high concentrations of cash in the developing world. Oil revenues and trade surpluses also increase capital holdings. Seeking greater returns, states are investing money into Sovereign Wealth Funds (SWFs) now estimated to hold $2.8 trillion dollars. These constitute the largest funds available for governments to invest abroad and could grow to $17.5 trillion over the next decade, according to Morgan Stanley. SWFs have already outgrown hedge funds, which hold about $2 trillion and private equity funds that hold about $1 trillion. In 2007 SWFs invested $54.3bn covering 59 global deals. There are 26 developing countries that have active SWFs; Table 1 lists the top ten.

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Table 1 Largest Sovereign Wealth Funds Country

SWF Assets ($ Billions)

United Arab Emirates

875

Singapore

430

Saudi Arabia

300

China

300

Kuwait

200

Libya

43

Algeria

40

Qatar

38

Russia

32

Brunei

30

Source: Morgan Stanley Estimates

As Western banks staggered under losses from the subprime mortgage crisis, SWFs poured more than $37bn into ﬁnancial stocks in what the Financial Times called “a match made in heaven between sovereign funds . . . and the increasingly capital-constrained ﬁnancial systems” (FT 2007:19). Overall, an estimated $67bn in state funds has been invested in banks, securities houses and asset management ﬁrms. These include well-known corporations such as Barclays, Blackstone, Carlyle, Citigroup, Deutsche Bank, HSBC, Merrill Lynch, Morgan Stanley, UBS, the London Stock Exchange and NASDAQ (Larsen 2007b:19). But SWF activity has caused widespread concern among Western politicians, particularly China’s new $300bn fund. China’s foreign reserves are growing by one million dollars every minute, and the need to invest this inﬂow is self-evident. Beijing’s main investment has been low-yield US bonds, but their SWF is looking for global opportunities. As Lou Jiwei, head of the China Investment Corp stated, “In the future, there will be no limits for us to invest in all over the world” (McGregor 2007). SWFs are just one aspect of statist investment activity. Countries also maintain large international investments through government-owned banks and state corporations that hold substantial global assets. State-owned Chinese transnationals already control 60 percent of the countries’ cross-border investments, with similar numbers for India, Thailand, Indonesia, S. Korea and

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Malaysia. These ﬁgures underline the statist nature of the Third World TCC. In comparison, the US government’s share of US international assets is only 2.3 percent (Truman 2007:2). Many fears over state investments are motivated by ideology. No surprise to hear from Patrick Buchanan (2007), who says, “The problems these SWFs portend are enormous. Since the Reagan-Thatcher era, privatization of publicly owned assets has been the trend in the free world . . . SWFs reverse that trend”. For Buchanan and other ideological warriors the battle line is drawn between state and market-based capitalism. For others, like Hillary Clinton, economic nationalism is a popular position and helps retain legitimacy among an increasingly alienated population. Speaking to the growing protectionist rhetoric, Michael Gordon (2007) of Fidelity International writes: Perhaps a deeper fear underpins some of the dark mutterings about SWFs. Their wealth is a reminder to our politicians that the west is no longer the force it once was in the world. And just maybe, business leaders are ahead of the politicians in welcoming this infusion of new money into the global ﬁnancial system (p. 11).

Others fear that SWFs could act as a destabilizing force in the stocks and bond market if countries have, as Stephen Jen of Morgan Stanley put it, “some dark geopolitical strategy in their investments” (Weisman 2007:3). States no doubt have political objectives, and neoliberals argue markets must be free of such inﬂuence, concerned only with maximizing eﬃciency and proﬁts. But such objections are laden with ideological assumptions. After all, the West has been subjecting developing countries to their own neoliberal political and ﬁnancial agenda for years. These usually come in the form of IMF structural adjustment programs or speculative runs on capital. Neoliberal attacks on state services and privatization are simply presented as economic rationality by globalizing capitalists; a rationality that led to the 1997 Asian ﬁnancial crash and many other failures. The fear expressed by sections of Western capitalists, cloaked as defense of free markets, is in reality a defense of their own privileges and ideology. Market fundamentalists are simply unwilling to concede any neoliberal ground to state capitalism in what they term “crossborder nationalization.” Not all members of the TCC are market fundamentalists. Other factions such as structuralists and neo-Keynesians are more accommodating.1 For 1 For an examination of the diﬀerent TCC factions, see William Robinson and Jerry Harris, “Towards a Global Ruling Class: Globalization and the Transnational Capitalist Class.” Science & Society, Spring 2000, Vol. 64, No. 1.

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example, US Treasury Secretary Henry Paulson stated, “I’d like nothing more than to get more of that money.” His deputy secretary, Robert Kimmitt, commenting on the possible dangers of SWFs observed; “When I was in China and Russia, I was struck by the degree to which, although I was talking to government oﬃcials, it was like talking to asset managers” (Weisman 2007:3). Paulson and Kimmitt, both from Goldman Sachs, recognize the transnational character of capital. For them, the infusion of SWFs means more liquidity and investments for the entire TCC. The national origins of the money have less importance than the best practices shared by global ﬁnancial managers. In fact, cross-border ﬁnancial ﬂows have been an essential element in globalization and act as a major path for TCC integration. As the editors of the Financial Times put it: The liberation of ﬁnance is one of the most signiﬁcant transformations brought about by today’s era of globalization. The scale of cross-border ﬂows, the extent of ﬁnancial innovation and the size of the fortunes made in ﬁnancial activities are among the most noteworthy feature of our age. (FT 2007b:10)

Coming to a common regulatory understanding is the real issue for the TCC; after all, SWFs have been around for a long time. Kuwait established a fund in 1960, Singapore in 1974, the UAE in 1976 and Norway in 1990. It’s the emergence of China and Russia that worries the West. As Truman points out, “A government is a diﬀerent type of animal in the investing world. We call them sovereign wealth funds, but once you’re operating outside your own borders, you’re not sovereign in the same sense” (Weisman 2007:3). What Truman points to is the common global space occupied by the TCC and the necessity of shared rules for competition. Solving this tension between sovereignty and global governance is the key problem. The proposed solution is to establish internationally-agreed standards to guide governments in their cross-border investments. The main aspects include clearly-stated policy objectives, guidelines for corporate governance, management based on global best practices and transparency with quarterly reports and disclosures of investments. Other proposals would exclude investments from strategic companies like defense. All this is to be accomplished with the helping hand of the IMF and World Bank. Clearly the eﬀort is to bring the statist TCC under global rule while adjusting the regulatory superstructure to accommodate their investments. As Truman notes, the problem is “how sovereign wealth funds are integrated into the global ﬁnancial system” (Truman 2007:2). Or as the Financial Times observes, “With common sense, these new players can be accommodated within the tent of contemporary capitalism” (FT 2007c:10).

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Oil and Gas Wealth Feeding the foreign reserve funds of developing nations has been the explosion of oil and gas prices. More than any other sector, oil and gas resources represent statist economic and political power. Although everything from telecommunications to health services underwent privatization, oil resources were retained under state ownership throughout most of the world. Where they had been privatized there has been a wave of renationalization exempliﬁed by Russia, Venezuela,B oliviaa ndE cuador. Among the largest 150 non-public corporations, 12 of the top 13 are stateowned oil and gas companies. In Table 2 they are listed by market capitalization as of December 2005. Not shown is Japan Post, which listed at eight. Table 2 Largest State-Owned Oil Corporations Company

Country

Value ($ billions)

Saudi Aramco

Saudi Arabia

781

Pemex

Mexico

415

Petroleos Venz.

Venezuela

388

Kuwait Petro. Corp.

Kuwait

378

Petronas

Malaysia

232

Sonatrach

Algeria

224

Nat. Iranian Oil Company

Iran

220

Pertamina

Indonesia

140

Nigerian Nat. Petro. Corp.

Nigeria

120

Adnoc

UAE

103

INOC

Iraq

102

Libya Nat. Oil Company

Libya

99

Source: McKinsey

The above corporations control three-quarters of the world’s oil reserves and hold sizeable foreign assets. Their revenues are state owned, with a percent invested into SWFs. Table 3 refers to the United Nations, which ranks the top 100 non-ﬁnancial transnationals from the developing world by foreign-held assets. Among these are six state-owned oil and gas companies. Figures are from 2004 (UNCTD 2006).

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Table 3 Global Ranking Among Third World TNCs Foreign Foreign Foreign Foreign Global Corporation Country Workers Aﬃliates Sales Assets Rank by ($ billions) ($ billions) Foreign Assets 2

Petronas

9

Malaysia

22,647

10,567

4,016

167

Petro. Venz. Venezuela

8,868

25,551

5157

30

12

Petrobras

Brazil

6,968

11,082

6,196

23

24

CNPC

China

4,060

5,218

22,000

4

26

Oil and Natural Gas Corp.

India

4,018

1,263

4,296

2

35

China Resources Enterprise

Hong Kong

3,335

3,613

81,480

6

Source: UNCTD

Writing for the Financial Times on energy, Carola Hoyos (2007) argues that Today the true power brokers are a group of state-owned oil companies that span the globe from China to Venezuela, rather than the Gettys, Rockefellers, Nobels and Rothchilds of yesteryear. The new ‘Seven Sisters’ are Saudi Aramco, Russia’s Gazprom, CNPC of China, NIOC of Iran, Venezuela’s PDVSA, Brazil’s Petrobran and Petronas of Malaysia. Together they control almost one-third of the world’s oil and gas production and more than one-third of its total oil and gas reserves.

Of course, rising oil prices also produced the largest proﬁts in history for privately-owned oil majors. In 2004 the top ﬁve earners from oil sales were BP, Shell, ExxonMobil, Chevron and Total, with $1.122 trillion in proﬁts. This was followed by the 13 top National Oil Companies (NOCs) with $401bn (Shah 2004). Furthermore, although developing countries are becoming technologically sophisticated, they still rely on Western engineering expertise. But Western corporations now have less control over oil reserves. Whereas in the 1970s Western oil controlled 85 percent of the world’s reserves, today national companies control 80 percent. Figures for the world’s oil reserves show the top 13 NOCs with 872 billion barrels while the top ﬁve private companies have just 46 billion (Shah 2004). This situation creates a merger of interests between transnational capitalists from both statist and private sectors that takes place

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over an array of joint ventures. It’s not simply statist versus private transnational capitalists (although that is one aspect of competition), but the integration of economic interests creating competitive blocs of transnational corporations seeking to achieve advantage in a variety of ﬁelds and territorial regions. For the Middle East, ﬂooded with oil money, there has been an explosion of investment banks, private equity funds and venture capital. But unlike the 1970s and 1990s when governments relied on Western banks to handle their wealth, Arab transnational capitalists are now guiding their own funds. That means petrodollars are being recycled though such ﬁrms as Dubai’s Istithmar and the Abu Dhabi Investment rather than New York and London. The Institute of International Finance calculates that Gulf investors have put $1.8 trillion into international assets, with acquisitions doubling from 2006 to 2007. As one banker noted, “In the past, they would just give the money and put it in the US. Now they want to do their own deals” (Khalaf 2006:4). In September 2007 Dubai’s state-run stock exchange, Borse Dubai, took a 20 percent stake in NASDAQ, becoming its largest investor. Dubai also holds 28 percent of the London Stock Exchange, and now has operations spanning the US, Europe and the Middle East. Competing to be a lead ﬁnancial center, Qatar bought 20 percent of the London Stock Exchange and 10 of the Nordic exchange OMX. The drive to combine stock markets responds to the ﬁnancial needs of the TCC, who want to trade shares anywhere, invest across asset classes and do it faster. One of the most active Middle East funds is the Abu Dhabi National Energy Company from the United Arab Emirates (UAE). It has an assets base of $20bn spread over a ﬁeld of global investments. Recent acquisitions include oil and gas companies in Canada, BP’s oil and gas production in the Netherlands, oil assets in the North Sea and a US power group. Another UAE fund, the Abu Dhabi Investment Authority, took 7.5 percent of Carlyle and a 5 percent stake worth $7.5bn in Citigroup. Other investments cover the US hedge funds Och-Ziﬀ and Apollo Management; Alliance Medical and HSBC (UK); Almatis and Mauser-Werke (Germany); the Industrial Development Bank and Sony (Japan); and EADS (EU). Board members include former chief executives from BMW, Sony and GlaxoSmithKline (Arnold 2007:1). Abu Dhabi now earns more from interests on its global investments than oil export revenues and employs 1,300 expatriate professionals from Wall Street. Other UAE state investment arms acquired holdings in the US, UK, Germany, Denmark, Austria, Hungary and India worth $18bn just from June 2005 to June 2006. In the same period, Kuwait carried out acquisitions in the Sudan, the Netherlands and Germany, totaling over $47.6bn; Bahrain investment banks made deals of over $2.5bn covering the US, France and Norway; and

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Saudi Arabia’s private equity ﬁrm made investments worth $4.36bn in Tanzania, Canada and Thailand (UNCTD 2006:290). Additionally, Saudi Prince Alwaleed bin Talal is the single biggest shareholder in Citigroup, and the Saudi Arabian Monetary Authority reports some $200 billion in international holdings. For Gulf State capitalists, integration into the global economy is the road to greater accumulation. These countries are little more than city-states and don’t exist as modern nations. Their strategy is to build cities such as Doha and Abu Dhabi into transnational crossroads, promoting construction booms that cater to globalists’ needs and cultural desires. Their labor force is based on global immigration and denied fundamental rights, as are their women. Democratic citizenship doesn’t exist for the majority of their population and so they lack an essential element for modern national identity. The UAE has a population of 4.5 million, but 85 percent are non-citizens mostly from South Asia. Qatar has a population of one million, 800,000 of whom are non-citizens. The TCC of small Arab countries are totally integrated in global ﬂows of labor, ﬁnance, education and trade. Given these characteristics, it’s diﬃcult to ascribe nationalist motivations to their transnational investments. There exist strategies to expand the proﬁts and power of their corporate empires, (which include investments from the world’s TCC), but that is transnational rather than national competition.

China, Energy and Transnational Capital China has three major state-owned energy companies. The China National Petroleum Corporation (CNPC) is the world’s ﬁfth largest oil-producing company formed as a ministry-level enterprise in 1988. Dominant in the reﬁning sector is China Petroleum and Chemical Corporation (Sinopec), and working with international oil corporations is China National Oﬀshore Oil Corporation (CNOOC). Taken together, the three corporations are active in every area of the world and at times competitive against each other, as when Sinopec and PetroChina made bids for pipelines in Sudan. CNPC has investments in 22 countries, Sinopec in 18 and CNOCC in nine. All three companies are provided generous state-backed loans by China’s Development Bank. But CNPC, with proﬁts of $24bn in 2006 and no dividends paid to the state, can aﬀord to bankroll its own foreign investments. Its $4.2bn acquisition of Petrokazakhstan was China’s largest foreign takeover. As stated by Askar Balzhanov, chief executive of Kazakhstan’s state oil, “China is an aggressive investor oﬀering the best terms for oil assets. It is impossible for Kazakhstan to refuse them” (Gorst 2007:6).

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By 2007, PetroChina, an 88 percent owned subsidiary of CNPC, overtook ExxonMobil as the world’s largest corporation by market capitalization and for a short while became the world’s ﬁrst trillion-dollar company. With its value inﬂated by speculation on the Shanghai stock market, PetroChina’s largest investor, Warren Buﬀett, proﬁted $3.5bn from a $500 million investment. Given the cry from Western politicians, one would think China is sucking dry global oil resources. About 21 percent of China’s oil production is produced abroad, but most of that is sold on the international market. In a study done for the Center for Strategic and International Studies and the Peterson Institute for International Economics, Daniel Rosen and Trevor Houser (2007) write: The newly constructed oil pipeline from Kazakhstan to China brought in only 50,000 bpd of the 260,000 CNPC produced. None of the production in Canada, Syria, Venezuela, and Azerbaijan showed up on China’s shores, and only a fraction of the production from Ecuador, Algeria and Colombia did. . . . This is a critical point. No one is concerned when Shell signs an equity agreement somewhere in the world that the Netherlands is taking oil oﬀ the market and making everyone else less energy secure. That’s because we assume that Shell will sell its production to whoever is willing to pay the highest price. To date, Chinese oil companies appear to be doing the same and thus prioritizing proﬁts over political considerations. (p. 33)

Rosen and Houser’s study is important because it shows Chinese oil majors act as typical transnationals and use ties to Beijing to acquire competitive advantages against each other. As they note, “When proﬁt-seeking is at odds with political guidance from Beijing, the oil companies seek to inﬂuence the policymaking process in their own interest.” (Rosen and Houser 2007:21) These observations are similar to those of Charles Bettelheim (1976) in his classic work on the Soviet Union, in which he argued that competition existed between state-owned corporations over resources and power. His argument, that state capitalism was therefore the dominant form of ownership and determined class relations in the USSR, must now be considered in its application to China and the formation of the TCC. Contemporary competition is not simply an internal aﬀair between rival Chinese interests or between nation/ states, but includes all the complex ties to transnational capital that has spread throughout the economy. Export production, outsourcing to local companies, inward and outward investments and joint ventures all act to bind Chinese capitalism to transnational accumulation, integrating both private and state economic actors with the TCC. Arthur Kroeber at Dragonomics argues that state-owned corporations “are all distinctive and somewhat autonomous ﬁefdoms that set their own agendas . . . it’s the companies themselves that decide what

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deals to go after” (Dyer and Tucker 2007). Adding to the transnational character of state corporations is their ability to raise huge funds via global stock markets. Additionally, their proﬁts of $140bn in 2007, a 223 percent jump from 2002, provide further independence from national planners. As observed by the Financial Times: Rather than planning oﬃcials, individual companies are the driving force behind most of the recent investments. Large deals still need to be approved by the State Council . . . but the companies have their own speciﬁc motivations and strategies. (Dyer and Tucker 2007:13)

Further linking Chinese and transnational capital is the country’s function as a key hub in global manufacturing. What is often identiﬁed as the Chinese economy is virtually impossible to separate from transnational production. About 60 percent of China’s exports are generated by foreign-owned or jointventure corporations. By 2002, there were 34,466 foreign-owned aﬃliates operating with assets over $380bn, and Foreign Direct Investment (FDI) had reached $318 billion by 2005 (UNCTD 2006:305, 327-328). Moreover, many of China’s smaller national companies exist solely as well-oiled cogs in the global chain of production subcontracting to TNCs. Here competition also extends to city and provincial governments, each with diﬀerent networks of state oﬃcials and businessmen vying for political power, resources and FDI. Diﬀerences in wage and tax structures are so great that investors have come to think of China as a “multi-country sourcing area” (Mitchell 2007:7). On the other hand, the Chinese government has protected large areas of the economy from foreign investment and capital speculation and given support to national champions such as Chery Auto, Huawei and Lenovo. Additionally, the Shanghai stock market is largely oﬀ limits to foreign investors who hold less than one percent of the market capitalization on all stocks. Because China’s economy was built by state socialism, it’s natural for the Communist Party to still exert hegemony through government-directed economics. Most sources of power, networks of inﬂuence and access to ﬁnancial and material resources originate in the state. Furthermore, since China’s modern state was largely founded through anti-imperialist struggles, their rejection of Western policy dictates is not surprising. Therefore, China’s reorientation has largely been under its own hand with state-directed global integration the deﬁning character of the Chinese TCC. Because ﬁnance capital has been the principal driving force behind globalization, the mixing of state and private capital is key in examining how the TCC integrates. Here we see that a major road for Chinese transnational

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capitalism is raising funds on world stock markets and through global ﬁnancial investments. China has listed over 100 companies on the London Stock Exchange, 70 in New York, and has led the world in raising capital for IPOs in 2007. Beside their SWF, commercial banks and securities companies are active in global bonds and equities, with investments expected to soon reach $50bn. Other ﬁnancial liberalization adjustments in 2007 included lifting limits on overseas investments from insurance companies and launching the Qualiﬁed Domestic Institutional Investor funds that will channel $90bn into global stocks. As a result of raising funds through international stock oﬀerings, by October 2007 China held ﬁve of the world’s 14 largest corporations by market capitalization as seen in Table 4. Table 4 Largest TNCs by Capitalization Corporation

Capitalization ($ billions)

Country Headquarters

1

PetroChina

1300

2

ExxonMobil

488

US

China

3

General Electric

413

US

4

ChinaM obile

393

China

5

ICBC

364

China

6

Microsoft

347

US

7

Altira

341

US

8

Gazprom

295

Russia

9

Sinopec

273

China

10

Royal Dutch Shell

294

UK/Dutch

11

AT&T

274

US

12

China Life Insurance

241

China

13

BP

240

UK

14

HSBC

232

UK

Source: Thomson Datastream

Chinese state banks have growing ambitions for foreign acquisitions and are also an excellent marker for transnational ﬁnancial integration. Transnational banks became minority holders in major institutions during the ﬁnancial

statist globalization in china, russia and the gulf states

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reform period of 2003-06. Goldman Sachs took stakes in Industrial and Commercial Bank of China (ICBC), Merrill Lynch invested in Bank of China, and Bank of America acquired shares in China Construction Bank. All these investors are making big proﬁts as Chinese banks go on global spending sprees. As the Financial Times wrote: Chinese banks now have impressive deposit bases, skyrocketing stock prices, and are on the hunt for oﬀ-shore acquisitions that can give them expertise and instant access to international markets amid ﬁerce domestic competition. (Tucker and Anderlini 2007:19)

Reviewing recent activity, we see China Construction Bank acquired Bank of America’s Hong Kong arm, and Ping An Insurance (16.8 percent owned by HSBC) became the leading shareholder in Fortis for $2.7bn. China Development Bank, whose assets are larger than those of the World Bank and Asian Development Bank combined, has made $281bn in foreign loans, invested 3bn into Barclays and entered into partnership with Nigeria’s United Bank for Africa. ICBC, the world’s largest bank by market capitalization, acquired banks in Macau and Indonesia, but its most important deal was $5.56bn for 20 percent of Standard Bank, the largest in Africa. This was the biggest foreign acquisition by a Chinese bank and the biggest FDI in South Africa. The bank mergers in Africa will make billions available for investments free of Western donors and the World Bank. Most of China’s banking capital was raised on the Hong Kong stock market through IPOs that broke records for foreign investments. The mixing of foreign institutional and private investors in government-owned banks, and in turn Chinese acquisition of foreign assets, is an important path for TCC integration. It results in common entanglements in transnational investments through which the Western and statist TCC share proﬁts and losses based on the competitive edge of Chinese state banks. One deal that caught everyone’s attention was a $3bn investment in Blackstone from China’s SWF. Blackstone’s co-founder Peter Peterson is also chairman of the Council on Foreign Relations, perhaps the most important foreign policy center in the US and a globalist/realist think tank. His ﬁrm is one of the world’s largest private equity funds and many considered the deal China’s oﬃcial arrival in mainstream ﬁnancial markets. Following Blackstone, Morgan Stanley also accepted a $5bn investment from China’s SWF. As Western ﬁnancial institutions have equity in Chinese banks, China’s statist globalizers have equity in the West. Such ﬁnancial interpenetration is key to the organic construction of the TCC. Considering trade and production, new markets are essential for the emerging Chinese TCC. This means expanding ties to Africa and Latin America. Through the African Development Bank, China has pledged $20bn for trade

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and construction projects providing cheap loans for infrastructure work throughout the continent. Most work is done by government companies like China Road and Bridge Construction, which has 29 African projects. Mining investments include manganese in South Africa, uranium in Niger and cobalt in the Congo. Furthermore, railroad lines are being built in Nigeria and Angola, dams in Sudan, and airports and roads in several other countries. From just $10 million in the 1980s, mutual trade reached $55bn in 2006, and Xinhua News Agency estimated that 750,000 Chinese are living and working in Africa alongside 900 Chinese ﬁrms (French 2007). In Latin America, Mexico receives 25.6 percent of China’s FDI, followed by Brazil, Peru, Venezuela and Panama. China’s largest regional trading partner is Brazil. In 2004 President Hu Jintao signed 39 commercial deals throughout Latin America, promising $100bn in investments, and import/export trade reached $70bn by 2006. China also bought oil and pipeline assets in Ecuador for $1.42bn, and with India, took a 50 percent stake in Omimex de Colombia. China’s state oil companies have additional exploration and operation rights in Cuba, Peru and Venezuela (Li 2007:23-27). In terms of China’s outward expansion, of the top 100 non-ﬁnancial corporations in the developing world, China and Hong Kong account for 34, with 600 owned foreign aﬃliates. These 34 corporations had foreign assets of $161bn, foreign sales of $83bn and employed 848,672 foreign workers as of 2004 (UNCTD 2006:283-84). China’s outward investments has been criticized in the West for pushing aside the World Bank and IMF, making loans that have little minimum standards of transparency, ignoring open-bid contracts and signing long-term deals that allow countries to repay debt in oil or minerals. All this is simply China’s competitive advantage. Additionally, since the US blocked China’s acquisition of Unocal, they have sought out politically criticized investments exempliﬁed by their oil relationships with Sudan and Iran. Given the long history of Third World exploitation and support of authoritarian regimes by the West, their complaints sound more than a little hollow. Even the New York Times was forced to observe, “To China’s new African allies, this [relationship] is a breath of fresh air . . . free of the overtones of exploitation and paternalism that critics worldwide say have governed much of the West’s postcolonial relationship with Africa” (French 2007). Although growing South-South commercial relationships promote the interests of Third World transnational capitalists, it’s important to note this trade often includes TNCs that hold large investments from Western sources. Therefore this vigorous economic expansion shouldn’t be analyzed as national economic activity, but in the general interests of the TCC. Moreover, foreign resources captured by state corporations feed factories in China run by trans-

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nationals. Therefore, even as oil corporations compete in Africa, TNCs use Chinese energy to manufacture exports, employing cheap local labor. Furthermore, by developing state corporations to world standards, China attracts investments through which the statist TCC achieves transnational ﬁnancial integration. In eﬀect, the national economic strategy of China and other Third World nations is structured around global integration. Commenting on this, Ding Xueliang of the Carnegie Endowment for International Peace noted, “[President] Hu . . . is a practical person. China today is so completely integrated into the outside world—and the outside world is capitalist. If he wants to develop his country, he has to make his way in a global capitalist system. Hu has no other choice” (McGregor 2007b:1-2).

Russian Nationalism? Russia had a highly centralized political system under the Tsar, a pattern that continued with Joseph Stalin and the Soviet state. The chaos of the Yeltsin years was a historic aberration brought on by the collapse of socialism, opening the door for gangster capitalism and the looting of state property. By the late nineties about one-third of Russia’s population lived in poverty, on less than $32 dollars a month. As the state was dismantled, what remained was a political ruling class allied to the Russian maﬁa in what is described as the “criminalization of the state”2 (Molchanov 2004). These elites had no national agenda but to steal wealth and send it out of Russia. In this sense they were part of the underbelly of globalization, joining international networks of crime. Putin’s nationalism must be seen in the context of a disintegrating state. The level of corruption and instability meant Russia could not become a fullyintegrated member of the global capitalist order. To make Russia safe for foreign investment and have its outbound capital trusted, stable economic rule needed to be established. Although Russia’s political agenda is often criticized for being overly nationalist, in reality its policies need a multipolar world to have inﬂuence. Russia can no longer compete as the second superpower, and the US has steadily encroached on its interests. This includes military bases and energy deals in the Caspian, political involvement in former Soviet states and missile sites in Eastern Europe. Russia’s independent foreign policy helps to undermine US hegemony while making a multipolar world system a viable alternative. This serves both Russian and globalist political interest. Nevertheless, in important ways, the Putin government is a mirror reﬂection of White House nationalism. The Bush presidency is based politically and 2

Between 1992 and 1995 there were 46 assassinations of important bankers and businessmen.

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economically in the military/industrial complex with important ties to the energy sector (Harris 2006). Putin’s reliance on the security apparatus is also key, ﬁlling positions with old friends from the KGB and making the oil and gas industry the economic base of state power. The siloviki, which includes security, police and military members, occupy the top echelons of power. Under President Gorbachev only 4.8 percent of elite positions were siloviki; under Putin it’s 58 percent. These include Putin’s closest advisors and chairs of the state oil ﬁrm Rosneft, state defense ﬁrm Rosboronexport and the national airline Aeroﬂot. (Ostrovsky 2004:13) Other important industries in which the state took major holdings included gas, shipbuilding, nuclear, auto, and metal production, with a new circle of statist capitalist in control. On the ﬁnancial side, state banks Sberbank and Vneshtorgbank (VTB) dominate the ﬁeld with Sberbank, maintaining 50 percent of all deposits and VTB holding $58 billion in assets. The security faction of the state represents its most nationalist sector, but in Russia the national project of rebuilding power is merged with their insertion into the world economy. Russian nationalism essentially seeks space in the global order, a nationalism redeﬁned by the transnational context. As Gideon Rachman, the political editor for the Financial Times, has observed, “The deep connections between politics and business in modern Russia mean that the country’s most powerful people often have a direct personal stake in the continued prosperity of western Europe. They have business relationships to maintain, investments to protect, houses in the south of France, children at school in Britain . . . people with international business interests tend not be nationalists. They cannot aﬀord to be” (Rachman 2008:11). When Putin ﬁrst came into oﬃce his ruling coalition consisted of economic neoliberals, oligarchs from the Yeltsin period and the siloviki. The neoliberals lost inﬂuence when Putin strengthened the state’s control over key industries. This meant bringing the oligarchs into line which Putin accomplished with a few well-aimed blows. Boris Berezovsky, whose interests spanned the media, oil, and auto industries, was one of the ﬁrst to fall. Berezovsky, who favored the Anglo-American model of neoliberalism, ﬂed to England ahead of fraud charges. Vladimir Gusinsky, an oligarch with media and banking interests, escaped embezzlement charges by also leaving Russia. The best-known case put Mikhail Khodorkovsky in a Siberian prison for evading $28bn in taxes, with his oil empire Yukos sold oﬀ to Gazprom and Rosneft. By the end of the Yukos aﬀair, the state had increased its share of oil output from 28 to 50 percent. To consolidate the oligarchs further, Putin met with 21 leading businessmen in July 2000. The agreement was to pay taxes, obey the law, stay out of politics and keep their wealth. In 2004 the World Bank reported that 23 oligarchs still

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controlled a third of all sales in Russia, and among Fortune’s 100 richest individuals were 14 Russians with an aggregate wealth equal to 26 percent of the country’s GDP (Wolf 2007:11). The Yukos case played a key role in taming the oligarchy. Khodorkovsky had acquired Yukos, a company worth $33 billion, for a closed bid of $300 million. Commenting on the break-up of Yukos, Lilia Shevtsova of the Carnegie Endowment for International Peace said, “The slow murder of Yukos has been a watershed, Russia has made a U-turn and ‘a new species’ of bureaucratic capitalist has replaced the Yeltsin oligarchs” (Belton 2007:7). The big winner was state-controlled Rosneft that emerged as Russia’s largest oil producer, worth $90bn. It spent just $2bn for Yukos assets. While the Western press deplored attacks on Yukos, Western banks rushed in to supply Rosneft with $22bn in loans. Financial backing came from ABN Amro, Barclays, BNP Paribas, Citigroup, Goldman Sachs, JP Morgan and Morgan Stanley. Some academics, such as Wharton professor of legal studies, Phil Nichols, gave a less panicked assessment of the Khodorkovsky case than the press. As Nichols stated, “He stole billions from the country and consistently broke the rules. There’s every reason for him to be prosecuted” (Wharton 2007). Although the West was uncomfortable with Putin’s bureaucratic capitalism, state control brought stability and curbed the illegal practices of the oligarchs. The state was the only instrument available to leash the Yeltsin-era robber barons that were draining the economy and sending billions abroad. Given the social, political and economic disarray a heavy dose of nationalism was a natural response by various sectors of Russian society and a necessary ideological tool to reassert legitimacy for the ruling class. Russian capitalists got the message and in a letter of support to Putin from Lukoil, Rosneft, Transneft and TNK-BP, they stated, “the management and regulation of economic processes in the market economy is a natural and necessary obligation of the state” (Ostrovsky 2004b:11). Russia, with its strategic industries protected, was now open for global business. Proﬁts from energy resources propelled Russia back onto the world stage and this is the most important industry to examine. Gazprom has the largest gas reserves in the world, and while state owned, it’s a vehicle that binds Russian state capitalists to the TCC. Signiﬁcantly Gazprom’s chairman, Dmitry Medvedev, is Russia’s new president. In part, Gazprom’s ties to transnational capital rest on its monopoly over pipelines into Western and Eastern Europe. But its many joint ventures with Europe’s energy corporations are key. In developing Shtokman, one of the world’s largest gas ﬁelds, Total from France and StatoilHydro of Norway were chosen as Gazprom partners for the $20bn project. Total also has investments in two Russian oil ﬁelds, and Gazprom

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is the number two gas supplier to France. As French president Nicolas Sarkozy has stated, “French investors are ready to buy into large Russian companies, such as Gazprom. France’s policy is transparency and reciprocity. It’s quite normal that our Russian friends should want to enter the capital of a certain number of French companies and that the opposite should be true as well” (Buckley 2007a:6). German business and political elites see their relationship with Russia as strategic. As pointed out by Alexander Rahr from the German Council on Foreign Relations, “Germany’s alliance with Russia was not just conceived as a commercial deal, but as a way to integrate Russia into Europe” (Landler 2006). Eon, Germany’s biggest energy group, is the largest foreign shareholder in Gazprom. Additionally, Eon along with the chemical giant BASF, joined with Gazprom in building a $6.6bn Baltic Sea pipeline. The Germans hold 20 percent of the joint venture known as Nord Stream, with former chancellor Gerhard Schroder as chairman and Matthias Warnig of Dresdner Bank its chief executive. Eon is also considering power link-ups with Gazprom in the UK, Germany, Hungary and Italy. Eon and BASF share a 25 percent stake in Gazprom’s Yuzhno-Russkoye ﬁeld, while BASF shares joint ownership of its distribution company Wingas with Gazprom. Germany relies on Russia for 35 percent of its oil, 50 percent of its gas, and its exports to Russia reached $32bn in 2006. On the ﬁnancial front, all major German commercial banks are active in Russia, with Deutsche Bank having the strongest market position. Italy’s energy companies Eni and Enel also have deepening ties with Russia’s state capitalists. Gazprom supplies energy to Eni and they share projects in both Russia and Africa. In the ﬁnal auction of Yukos, Eni and Enel gained access to Russia’s vast resources, paying $5.83bn that included a 20 percent stake in Gazpromneft, Gazprom’s oil arm. Italy’s engagement in the dismantling of Yukos reveals just how anxious the TCC are to enter Russia. Enel also became the ﬁrst foreign company to join Russia’s power sector, paying $1.5bn for shares in OGK-5 and a 49 percent stake in the largest independent electricity distributor, Rusenergysbyt. One of Russia’s biggest moves to assert resource control led to Gazprom taking majority ownership of Sakhalin-2. This was the largest foreign investment project in Russia, with Shell having a 55 percent stake alongside Japan’s Mitsui with 25 percent and Mitsubishi with 20 percent. After hard negotiations Shell admitted to delays, soaring costs and environmental damage and had its holdings reduced to 27.5 percent; Mitsui was knocked down to 15 and Mitsubishi to ten. Gazprom also pressured BP to give up its large stake in the huge gas ﬁeld at Kovykta. Many business scholars were sympathetic to the state’s renegotiations. James Millar from George Washington University points

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out that the original contracts were made when oil prices were at $20 a barrel; as prices rose, “the government looks at it and says, ‘We got screwed.’ It’s common to renegotiate deals like this when prices go up” (Wharton 2007b). Although there has been much sound and fury over changes with oil majors and energy price increases for Belarus and the Ukraine, no one is really surprised. In fact, both BP and Shell continued to invest with Rosneft, and Shell has new deals with the Russian republic of Tatarstan. Moreover, the joint venture of TNK-BP is Russia’s third largest oil producer, runs Sakhalin-1 and provides 20 percent of BP’s worldwide production. UK ﬁrms have more invested in Russia than any other country has. Although there is a strong current of nationalism among Russian political and intellectual elite, both statist and private transnational capitalists continue their global integration. In the US and EU, politicians also decry Russian nationalism while corporations proceed with business. In 2007 over 6,000 delegates attended the St. Petersburg economic forum, including over 100 chief executives from leading TNCs such as BP, Shell, Nestle, Deutsche Bank, Chevron, Siemens and Coca-Cola. Putin greeted the delegates, stating Russia was “open for foreign investments,” and $13bn in deals were signed. The following September a government investment forum at Sochi was attended by 10,000 delegates, and $22bn in business deals were sealed. In a co-authored statement by Michael Klein, chair of Citi Markets & Banking and Andrei Kostin, president of VTB, they wrote, “Western business[es] . . . are focusing on the tremendous opportunity the country represents even as Western policymakers emphasize Russia’s perceived backsliding on Western values. Therefore, we recommend a new dialogue be opened, placing a greater emphasis on engagement through economic and commercial opportunities” (Klein and Kostin 2007). The proposal led to a formal group that was backed by the chief executives of 18 major US and Russian TNCs, including Alcoa, Chevron, Citi, Conoco Phillips, Dow Chemical, Ernst and Young, Procter & Gamble, VTB, Lukoil, Rosneft and Severstal. Enthusiasm for cross-border activity is clearly evident in the Russian stock market, which rose 500 percent between 2001-06, hitting a trillion dollars. Some 40 percent of this market was from the two state-owned giants Gazprom and Rosneft. This is a telling indication of the nature of TCC relationships and competition. Even as the state took control of gas and oil resources from major TNCs, other transnational investors were pouring money into the very corporations that carried out the takeovers, proﬁting alongside the statist TCC. As Jim Wood-Smith, head of research at Williams de Broe observed, “Anyone fortunate enough to have been invested there over the past ﬁve years should bank fantastic proﬁts” (Chung and Brown-Humes 2007:20). Such

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proﬁtable activity has found a resounding vote of conﬁdence from transnational capitalists active in Russia. More than 75 percent of foreign executives report that the operating environment is as good as or better than in China, India or Brazil, and 90 percent are planning expansions. Nevertheless, a few foreign capitalists have run into trouble such as Bill Browder, grandson of the late Communist Party leader Earl Browder. Browder heads Hermitage Capital, the single largest portfolio fund dedicated to Russia, with $3.5bn, but his shareholder activism evidently disturbed Putin. Browder is now forced to operate from London, but is still able to report “my investors have made 25 times their money” (Wharton 2007b). For the Russian TCC, merger and acquisitions have grown at home and abroad. In 2005 the biggest deal was Gazprom’s $13bn takeover of Sibneft oil. That year state corporations carried out 46 percent of all mergers and acquisitions with 23 percent of all deals in 2006, further indication of the importance of the statist TCC. Big ventures in 2006 included Rosneft joining with China’s Sinopec in a $13.7bn buyout of Udmurtneft oil and the private merger of Rusal, Sual and Switzerland’s Glencore to create the world’s largest aluminum producer (Buckley 2007:6). Important foreign deals included Russia’s largest steel producer Evraz buying Oregon Steel for $2.4bn, VTB’s $1.3bn deal for ﬁve percent of the French aerospace group EADS, and Lukoil’s acquisitions of Canada’s Nelson Resources. Russia is now the third largest foreign investor among developing countries, with $140bn in outbound capital by the end of 2004 and another $36.8bn invested in 2006. For transnational investment banks, all this activity meant huge revenues from loans and advisor fees. Deutsche Bank, Citigroup, Dresdner Kleinwort, JPMorgan and ABN Amro were the top ﬁve deal-makers in 2006. Russian TNCs have ﬁnanced much of this expansion by raising capital on the London Stock Exchange. As with China, this is an important channel for the merger of TCC ﬁnancial and corporate interests. In 2006 Russian companies raised $17.6bn in IPOs with $30bn expected in 2007. Among the most important IPOs were state companies Rosneft and VTB. VTB booked $8.2 billion and appointed James Wolfensohn, former head of the World Bank, as board adviser. Rosneft moved onto the transnational stage, conducting one of the largest IPOs in history and raising $10.7bn. Strategic investors British Petroleum, Petronas and CNPC bought $2.5 billion in shares while Russian oligarchs Roman Abramovich, Vladimir Lisin and Oleg Deripaska each invested $1 billion. As Joerg Rudloﬀ, chairman of Barclays and board member of Rosneft, noted, Russia was “on the track of international economic integration” (Wagstyl 2007:5). While two-thirds of Rosneft’s oil exports go to Europe, they are also building a reﬁnery with CNPC and supplying 70 percent of all Russian oil to China. Rosneft is a good example of TCC integra-

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tion, bringing together Russian private and state capitalists alongside European and Asian private and state capitalists as well. New industrial activity is also part of the Russian story with large-scale infrastructure projects being set in place. Over the next ten years one trillion dollars is to be invested rebuilding roads, airports and railways with 80 percent of the capital to come from foreign and private investors. At the Sochi conference Putin asked private investors to play a leading role in the large-scale modernization project. Already bidding are companies from Austria, France, Germany and the US. Building infrastructure is an attempt to reestablish a developed economy and move beyond petro-state status. Greenﬁeld FDI projects are an indication of TCC involvement with 1487 new starts between 2002-05 (UNCTD 2006:265). In 2006, FDI hit $30bn, with portfolio and direct investments in the ﬁrst half of 2007 at over $60bn (Buckley 2007b:2). GDP is now growing at nearly eight percent, much of it driven by stateowned corporations ﬁnanced by foreign borrowing, which has reached $400bn. Some of the largest lenders include Citigroup, HSBC, BNP Paribas and Deutsche Bank. As UK minister for trade and investment, Lord Digby Jones points out, “No one can ignore the politics, but it isn’t getting in the way” (Buckley 2007c:1).

Conclusion The key link between national and transnational space is that local TCC contingents believe national development takes place through global integration. In examining China, Russia and the Gulf states, we see that economic growth is understood as transnational accumulation through state corporate ownership. National experience can shape the manner by which local capitalists become part of the TCC, but as a class they share a common project to create a world system of production, competition and accumulation. This is a joint, although contested, political project, just as the global economy is both competitive and integrated. This common project is what Goldman Sachs CEO Richard Gnodde (2007) sees when he looks at emerging statist globalization: Russians, Chinese and certain Gulf states . . . are each practicing capitalism in their own distinct way, none of which is identical to the way it is practiced in the West. This new ecosystem of global capital is not only generating great opportunities for established investors from both developed and developing countries; it is also, in the case of Africa’s attraction for Chinese and Russian investors, presenting an opportunity for the continent to share in the beneﬁts of globalization. (p. 11)

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As a result of this “ecosystem of global capital,” blocs emerge where developing countries that share a desire for a bigger role in the global economy ﬁnd solidarity in their opposition to Western dominance. But at the same time they are part of an integrated chain of ﬁnance, production and accumulation in which overall class interests are merged with the West. So alliances most often appear in combinations of TNCs that have nothing to do with national origin or regional membership, reﬂecting the constant search for competitive advantages among the TCC. Within this competitive ﬁeld, state and private capital are co-invested in mutual economic adventures. This integrates all contingents of the TCC even when investments are minority shares without board membership. In fact, minority investments imply a shared trust, common strategic outlook and similar beliefs about how the world works and their ruling role within it. In other words, there is a shared class consciousness based in a common economic existence and political interdependence. As Adam Smith (1776) once pointed out, “The proprietor of stock is properly a citizen of the world, and is not necessarily attached to any particular country.” The emergence of new capitalist centers has quickened the pace of globalization and intensiﬁed the contradictions between national and transnational forms of accumulation. As the US and Europe come under greater competitive pressure, a political/economic disconnect has appeared in their discourse. The rebalancing of world power aﬀects the Western political elite who are burdened with the task of maintaining consensual hegemony and legitimacy for capitalism. Their necessary concern to solve the worst aspects of social dislocation is not always shared by transnational capitalists whose fortunes continue to grow. Therefore attacks on China and Russia become common political rhetoric from former global cheerleaders and parallel the antipathy that neoliberal fundamentalist have for statist globalization. Edwin Truman (2007c), in his testimony before the Senate Committee on Banking, Housing and Urban Aﬀairs, gives voice to this developing problem, when he states, What is distinct about these trends is that they involve a dramatic increase in the role of governments in the ownership and management of international assets. This characteristic is unnerving and disquieting. It calls into question our most basic assumptions about the structure and functioning of our economies and the international ﬁnancial system . . . we favor a limited role for government . . . have a market-based economy . . . view central planning as a failed economic framework . . . and presume that most crossborder trade and ﬁnancial transactions involve the private sector on both ends of the transaction. Unfortunately, our orientation is not congruent with certain facts, and we are being called upon to recalibrate our understanding of the world.

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The great fear is that developing states will use their “international assets to promote domestic economic development” and in so doing undermine “the ﬁscal, monetary, and exchange rate policies that gave rise to the initial accumulations of external assets” (Truman 2007c). In other words, undermine neoliberal hegemony, deprive Western capital of cheap labor and rebalance world power. Truman’s solution is to welcome state capitalists into the family of transnational capitalism, thereby insuring the continuation of neoliberal globalization. But the accommodating TCC will have to do battle with economic nationalists who fear globalization. As for the outcome, Yale trade expert Jeﬀery Garten observes, “If there is a big controversy, it will be between Washington on the one hand and corporate America on the other. In that contest, the ﬁnanciers and the businessmen are going to win, as they always do” (Goodman and Story).

Bibliography Arnold, Martin. 2007. “Big Hitters Recruited for Dubai Fund Board of Advisers.” Financial Times, November 30: 1. Bettelheim, Charles. 1976. Class Struggles in the USSR, First Period: 1917-1923. Monthly Review Press. New York and London. Belton, Catherine. 2007. “Yukos Finally Expires, Victim of Its Battle with the Kremlin.” Financial Times. May 11: 7. Buchanan, Patrick. 2007. “Regimes Use w\Wealth Funds to Raid Firms.” San Francisco Chronicle. August 1. Buckley, Neil. 2007. “Russian M&A Activity Soars to $71bn High.” Financial Times. April 2: 6. ——. 2007b. “Politics ‘is no bar’ to UK-Russo Business.” Financial Times. October 11: 2. ——. 2007c. “Too Good to Resist.” Financial Times, Special Report, Investing in Russia. October 2: 1. Chung, Joanna and Christopher Brown-Humes. 2007. “Momentum of Russian Rally Will Overcome Most Obstacles.” Financial Times. January 4: 20. Dyer, Geoﬀ and Sundeep Tucker. 2007. “In Search of Illumination, Chinese Companies Expand Overseas for Their Own Reasons, Not Beijing’s.” Financial Times. December 4: 13. Financial Times. 2007. “Wealth to Spare.” Financial Times, November 28: 19. ——. 2007b. “Why Finance Will Not Be Unfettered.” Financial Times, June 25: 10. ——. 2007c. “How to Deal with Sovereign Funds.” Financial Times, October 22: 10. French, Howard and Lydia Polgreen. 2007. “Entrepreneurs from China Flourish in Africa.” New York Times, August 18. Goodman, Peter and Louise Story. 2008. “Overseas Investors Buy Aggressively in US” New York Times, January 20. Gnodde, Richard. 2007. “New Actors Play a Vital Role in the Global Economy.” Financial Times. November 12: 11. Gordon, Michael. 2007. “Ignore the Murk and Myths on Sovereign Funds.” Financial Times. December 12: 11. Gorst, Isabel. 2007. “State Company to Become Gatekeeper to Oilﬁelds.” Financial Times. Special Report: Kazakhstan, June 27: 6.

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Harris, Jerry. 2006. The Dialectics of Globalization, Economic and Political Conﬂict in a Transnational World. Cambridge Scholars Press. Newcastle, UK 2006. Hoyos, Carola. 2007. “A New Era of Nationalism.” Financial Times Special Report, Energy. June 19: 2. Khalaf, Roula. 2006. “Sea of Cash Flooding into the Gulf Brings an Explosion of Investment Companies.” Financial Times. October 19: 4. Klein, Michael and Andrei Kostin. 2007. “America and Russia Need Trade Not Tirades.” Financial Times. June 27. Landler, Mark. 2006. “Gas Hal May Produce Big Ripples in European Policy.” New York Times. June 4. Larsen, Peter Thai. 2007. “East’s M&A Still Buoyant.” Financial Times, Corporate Finance Special. November 28: 3. ——. 2007b. “Sovereign Wealth Funds Bag Big Stakes in Banks.” Financial Times. September 26: 19. Li, He. 2007. “Red Star over Latin America.” NACLA Report on the Americas. 40:5 (Sept/Oct), 23-27. McGregor, Richard. 2007. “China Sovereign Wealth Fund to Follow Strictly ‘Politics-Free’ Goals.” Financial Times. October 16. ——. 2007b. “Life and Soul for the Party.” Financial Times. October 6: 1-2 (Life and Art). Mitchell, Tom and Geoﬀ Dyer. 2007. “Heat in the Workshop.” Financial Times. October 15: 7. Molchanov, Mikhail. 2004. “Russia’s Transition to Capitalism: An Unbalanced Scorecard.” Paper delivered at the Global Studies Association third annual conference, Brandeis University. April 23-25. Ostrovsky, Arkady. 2004. “Russia Still Has the Attributes of a Democracy But, Managed by the Siloviki, This Could Become Illusory.” Financial Times. February 24: 13. ——. 2004b. “Politics First: The Kremlin Tightens Its Control over the Commanding Heights of Russia’s Economy.” Financial Times. August 5: 11. Rachman, Gideon. 2008. “Medvedev Will Not Declare Cold War.” Financial Times. March 4: 11. Robinson, William. A Theory of Global Capitalism. Baltimore and London: John Hopkins University Press. Rosen, Daniel and Trevor Houser. 2007. “China Energy, A Guide for the Perplexed.” Center for Strategic and International Studies and the Peterson Institute for International Economics. Shah, Sonia. 2004. Crude: The Story of Oil. New York: Seven Stories Press. Sklair, Leslie. 2002. Globalization, Capitalism and Its Alternatives. Oxford: Oxford University Press Smith, Adam. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations. Adam Smith Institute Online Edition (www.adamsmith.org). Truman, Edwin. 2007. “Sovereign Wealth Funds: The Need for Greater Transparency and Accountability.” Peterson Institute for International Economics, Policy Brief PB07-6, August. ——. 2007b. “Meeting the Challenge of Sovereign Wealth Funds.” Handelsblatt, September 18. ——. 2007c. “Sovereign Wealth Fund Acquisitions and Other Foreign Government Investments in the United States: Assessing the Economic and National Security Implications.” Peterson Institute for International Economics. November 14. Tucker, Sundeep and Jamil Anderlini. 2007. “Citic Conﬁrms Appetite for Expansion into America.” Financial Times. October 17: 19. United Nations Conference on Trade and Development. 2006. World Investment Report 2006. United Nations, New York and Geneva. Wagstyl, Stefan. 2007. “Russian Boom Will End in Pain, Says Banker.” Financial Times. April 24: 5. Weisman, Steven. 2007. “A Fear of Foreign Investments.” New York Times. August 21.

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Wharton School of Business. 2007. “No Going Back: Russia Today Suggests Stability Instead of Chaos.” (http://knowledge.wharton.upen.edu). ——. 2007b. “Russia: ‘Floating on an Enormous Pool of Petrodollars.” (http://knowledge. wharton.upenn.edu). Wolf, Martin. 2007. “We Are Living in a Brave New World of State Capitalism.” Financial Times. October 17: 11.

Australia Has a Transnational Capitalist Class?* Georgina Murray School of Arts, Griﬃth University, Nathan 4111, Brisbane, Queensland, Australia g.murray@griﬃth.edu.au

Abstract This chapter looks at the apparent contradiction of a transnational capitalist class (TCC) within the Australian nation state and asks if they do exist what is their relationship to the Australian Capitalist Class (ACC)? Is their relationship comfy, cooperative or conﬂictual? The test for these likely scenarios is material that comes from a longitudinal study of interlocking directors and major shareholders (drawn from the top 30 companies listed on the Australian Stock Exchange (ASX) 1992-2007 and 300 top Australian companies listed on the Huntley’s 2007 shareholder database) plus interviews with top thirty company directors over a 15 year period 1992-2007. Keywords transnational capitalist class, national capitalist class, major shareholder ownership, ﬁnance capital

Introduction Logically, a transnational capitalist class (TCC) cannot wholly exist in Australia, though there may be traces of its disembodied parts. This chapter seeks to ﬁnd evidence of these TCC traces in Australia and then to ﬁnd clues about the sort of relationship (cooperative, competitive, or conﬂictual) that exists between a native ruling class—in this case, the Australian capitalist class (ACC)—and the TCC. There are necessarily two literatures involved in deconstructing these two classes. The ﬁrst is the very small TCC literature, which ranges from a structuralist through to an agency-based instrumentalist perspective

* The original study was completed with the monetary assistance of the Australia Arts Council (ARC) and the original researchers in that team, including Dr. Malcolm Alexander and Dr. Catherine Hoyt. The earlier comparative material was presented in the Journal of Australian Political Economy (JAPE) and my 2006 book Capitalist Networks and Social Power in Australia and New Zealand. The current work beneﬁts from comments from David Peetz, Jerry Harris, Jeb Sprague and Susan Jarvis. The views expressed in the chapter are entirely my own.

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(Carroll 2007; Robinson and Harris 2000:11; Sklair 2001). The second, and larger, body of literature focuses on the ACC (e.g., Murray, 2006: 96-100) but also includes other nation-centric network studies. Hypotheses from both these literatures are used to test the empirical Australian corporate data described below in the section titled “The Australian interlock case study 1992-2007.” The study conﬁnes itself to these longitudinal data sources, evidence from interlocking board directors of the top 30 Australian companies and the top company’s major shareholders (1992-2007). The data come from the Australian Stock Exchange (ASX) Annual Reports of the top 30 companies and are illustrated with the author’s interviews of top 30 company directors (1985-1997). To help measure corporate ownership, an Owner Penetration Index (OPI) study ranking major shareholding is included. This chapter considers the relevant literature strands and aims to ﬁnd where power lies behind the shareholding and network traces: “We really only see networks after the fact in the traces they leave . . . you know they are powerful, you just don’t know precisely how” (Cornell 2005:59).

The Two Literatures The ﬁrst is the TCC literature, which ranges (Carroll 2007; Robinson and Harris 2000:11; Sklair 2001) from a structuralist perspective, with the TCC representing transnational capital ﬂows from the leading transnational corporations and private ﬁnancial institutions (Robinson and Harris 2000:11), to an agency-based instrumentalist perspective that sees the TCC as social, political, and economic fractions with sometimes overlapping roles as globalizing corporate managers, bureaucrats, politicians, professionals, and consumerist elites (Sklair 2001). There is also a middle ground in which the TCC and “their advisors are embedded in a panoply of socio-political relations” (Carroll 2008). The Transnational Literature In his survey of the TCC literature,1 William K. Carroll (2008:2-8) suggests that a vigorous debate has taken place among a few TCC theorists covering a wide spectrum of thought. Among the earliest of these theorists from a fraction-of-capital transnationalist perspective is Karl Marx.

1

The following survey relies heavily on this source.

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Fractions-of-Capital Transnationalists From these words written in the Communist Manifesto in 1848—“modern industry has established the world-wide market . . . the leaders of the industrial armies the modern bourgeoisie . . . cannot exist without constantly revolutionising the instruments of production”—Marx develops an expansionist theme of capital. In volume two of Capital (1865 or 1867)2 he systematically sets out the dynamic, competitive and expanding motor of capital, beginning with money (M) inherited or gained from a ﬁnance capitalists and taken by an industrial capitalist to set up commodity production (C-P). This commodity production needs labor power (LP) to make a value-added new product (C’) that then becomes a commodity primed. When the commodity is sold, proﬁt can be realized (M’) as money primed. The equation that expresses this whole circuit of production is M-C-P+LP-C’-M’ (Marx 1956: 48-64). The underlying dynamic of the circuit is bourgeois competition: competition for new markets—local, national or transnational; competition for the smartest technology; and competition for the smartest exploitation of labor power. The early 1980s work of Kees Van der Pijl (1984) and Meindert Fenemma (1982) stands out as the beginning of an identiﬁcation of a TCC forming around a European-North American network (e.g., Poulantzas 1975). But a general point is made by Dick Bryan (1995) that Marxists scholars have paid insuﬃcient attention to the international movement of capital. And in his own book Chase Across the Globe (1995), Bryan moves oﬀshore to describe the fractions of capital, their typical modus operandi and their strategies of global accumulation. He focuses on the underlying contradictions between the internationality of value and the necessary role of the national state in the disciplining of labor and the general regulation of accumulation. Jerry Harris and William I. Robinson (2000) use Marx’s circuits to argue that the TCC uses global rather than national circuits of accumulation and that this gives the TCC the basis for an objective global class existence that is spatially and politically over and above any local territories and polities. However, under their arms TCC members carry a “Third Way” economic liberal ideology (Robinson and Harris 2000). Robinson (2007) identiﬁes the TCC as being within a global class structure in which its members own and/or control transnational capital and production; they have no national identity and are in competition with locally or nationally based capitals with a “set of class relations distinct from local and national capitalists” (p. 78). 2 Speculative dates given by Engels, in his Preface, on when Marx wrote Capital volume 2: see http://www.marxists.org/archive/marx/works/1885-c2/ch00.htm.

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Hypothesis H1: If there is a TCC that is identiﬁable within a global class structure by its ownership and/ or control of transnational capital, then it is likely to be competitive with the ACC. Robinson (2007a:82) suggests that the original circuit of production identiﬁed by Marx has now transnationalized, whereby P (productive capital) is increasingly decentralizing and where globally produced goods and services are marketed worldwide in increasingly transnational states (TNS) which are “loose network comprised of supernational political and economic institutions with national state apparatus that have been penetrated and transformed by transnational forces” (Robinson 2007b:131). This is a qualitatively diﬀerent form of transnational ﬁnancial ﬂows from that seen in earlier periods and features a newly emerged TCC from these TNCs. Collectively, the TCC and their TNCs gained the upper hand over nationals in the 1980s and 1990s when they captured strategic parts of the national state apparatus and from that advantageous position were able to push for a self-interested economic liberal agenda of capital globalization and global hegemony. This also led to cross-nation class allegiances within countries, regions, cities, and communities. These strategic transnational networks were followed by the decentralization of production and capital and the retreat of nation-state intervention. But importantly, the nation-state is still signiﬁcant for its generation of local economic policies that are instrumental in creating “macroeconomic equilibrium, the provision of property laws, infrastructure and of course social control and ideological reproduction” (Robinson 2007a:82). Nation-states are captured by the TCC to serve them over local interests; they employ a rising number of TNS apparatuses (e.g., WTO, WB, and IMF) and thinktanks (e.g., IPA, Sydney Institute) to help them initiate and impose their selfinterested ideology—now economic liberalism. Since the mid-1970s, a global structuralist perspective on the world system and the capitalist class’ position within this has come from Immanuel Wallerstein (1976) and Christopher Chase-Dunn (2002). Chase Dunn (2002) notes that the world system reached a point where “both the old interstate system based on separate national capitalist interests, and new institutions representing the global interests of capitalists exist and are powerful simultaneously” (p. 48). A parallel existence between a national and a transnational capitalist class arises with each nation-state having a ruling class fraction allied with the TCC. Michael Buroway (2008) identiﬁes the changing conditions in which the TCC operates. Using Marx, he writes of the development of three waves: the ﬁrst identiﬁed by Marx as the commodiﬁcation of labor; the second by Lenin as the commodiﬁcation of money; and the current wave, the commodiﬁcation of nature. From its beginnings in the mid-1970s, the third wave has seen the

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privatisation of natural resources (water, electricity, security, and telecommunications), a retreat of trade unionism, and a rise of liberal “democracy” that has displaced colonialism and communism but “hides its collusion with and promotion of a third wave marketisation that is destroying human society across the planet” (Buroway 2008:353). Agency-Focused Transnationalists From a Marxist informed perspective but pursuing a Weberian stratiﬁcation thread by locating the importance of status within the distribution of resources, Leslie Sklair’s 2001 article conceptualizes “the systemic organization of politics for global capitalism in terms of a transnational capitalist class” (TCC) (Sklair 2001:21). The TCC organization is considered to be a mix of systemic control and opportunism so, although members have a material basis in the corporations they own and/or control, they also have access to groups that will perform diﬀerent but distinct functions for them, and they are able to move seamlessly between these groups. Sklair’s four fractions of the TCC are: 1. a corporate fraction, “who own and/or control the major transnational corporations and their aﬃliates”; 2. a state fraction, “politicians and bureaucrats at all levels of administrative power and responsibility”; 3. a technical fraction, “globalising professionals . . . from leading technicians centrally involved in structural features and services (including ﬁnancial services)”; and 4. “a consumerist fraction, Merchants and media . . . people responsible for the marketing and consumption” (Skair 2005:487-88). Hypothesis H2: The TCC is a class bigger than just corporate actors. Sklair (2002) also argues that it is profoundly undemocratic to have a TCC with its direct or indirect political power being used to spread economic liberalism through forums such as GATT, WTO, and IMF, where it is spelt out that the “route to prosperity for all . . . is through international competitiveness decided by the ‘free’ market and ‘free’ trade, institutions and processes that they largely control themselves or through their friends and allies in local and national governments and international organizations” (p.171). Agency-Plus-Capital Transnationalists Carroll and Fenemma (2002) take a middle stance in this theory spectrum. They maintain that a nascent TCC is in part deﬁned by the ﬂows of capital but also has agency in non-material spheres. Their work ﬁnds that, while business communities are organized along national lines (largely based on Fenemma’s original 1970s study), there is evidence of nascent TCC development (2007:12; 1985) and this evidence comes from (2007) lateral data crunching of global

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corporate interlocks. The ﬁndings are that the key interlockers are located primarily in northern European and American cities—Paris, London, and New York, but also Bruxelles, Montreal, Frankfurt, The Hague and Zurich. These key interlockers have agency and power beyond borders and nation state-based boardrooms. Carroll recommends a “slowly, slowly” approach to TCC research, whereby interterritorial complexity is acknowledged, and advises caution in making “abstract, polarized characterizations—as in either national or transnational capitalist class; either an American hegemon bent on world domination or a Washington that acts at the behest of the transnational capitalist class; either inter-imperialist rivalry or the united rule of global capital [even though it may be] certainly the case that capitalism’s globalization creates an objective basis for capitalist class unity” (Carroll 2008:22). He leans toward a Saskia Sassen (2002) approach whereby “the global partly inhabits and partly arises out of the national” and he heeds Alex Callincos’s (2006, noted in Carroll 2008:29) warning not to attribute individual or personalised characteristics to capital as a separate and distinct existence but rather more usefully to “analyse the concrete forms of competition and cooperation among ‘many capitals’ at both the national and international level and how these articulate with the processes of geopolitical competition constitutive of the interstate system.” Hypothesis H3: If there is a TCC, it should not be seen as a TCC-foritself but rather as acting globally to partly inhabit and partly arise from the national. The second part of this literature review is from a numerically larger network literature base.

The Nationally Based Network Literature The network literature on the capitalist class is well documented (excellent examples can be found in Glasberg, 1987 and Mizruchi, 1996) and largely falls into four groups: 1. agency, actors and control; 2. corporate collusion and monopolisation; 3. credit discretion; and 4. social embeddedness. Agency, Actors and Control The ﬁrst group, emphasizing managerial control, is Weberian—that is, it again draws from the work of Max Weber (1922:13) and aims to provide independent motives for the actions of interlocking directors who control but do not own companies; managers have control and agency in the boardroom but do not own the company (Berle and Means 1932). Companies in which

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managers and directors control but do not own are therefore more likely to be answerable to a wide community of diverse shareholders. Corporate power is diverse (Burnham 1941) because it resides with many shareholders—typically, from “mum and dad” (that is, low-asset) shareholders through to major shareholders. Therefore, managers and directors are disinterested shareholder representatives rather than self-serving owners. Hypothesis H4: If there is a disinterested national ACC whose members are not the owners of the top companies, then there is more likelihood that they will act in a civilly responsible manner as citizens motivated by interests other than the corporation’s. Collusive Interlocks The second thread is structural Marxist. This looks at the dynamic of capital (generically) but focusing on the collusion practised by banks to dominate industry (Marx 1956:79). Monopolistic forces were seen to be facilitated by interlocking directorates between board members and resulted in business cartels or monopolies (see Baran and Sweezy 1968). Rudolf Hilferding (1981:368), in his book Finance Capital (1910) saw bank interlocks as the vital dynamic within this system of collusion where banks put their directors on others’ boards to further their interests and control (Lenin 1964; Fennema and Schijf 1979). According to Hilferding (1981), ﬁnance capital gave rise to “a desire to establish a permanent supervision of company aﬀairs, which is best done by securing representation on the boards of directors” (p. 225). Hilferding’s abiding contribution to the literature is the observation that the most signiﬁcant development facing capitalism is the concentration of ﬁnance capital with bank representatives on industrial company boards supervising company aﬀairs and protecting the ownership of the banks. Paul Sweezy argued that it was possible to discern eight leading “interest groups” consisting of industrial and ﬁnancial alliances and the dominant interests were investment banks J. P. Morgan and First National Bank (where his father, Everett B. Sweezy, was the vice president) (Foster 2004:4). Another use of the collusive thesis is J. N. Rawling’s Who Owns Australia? (1937). Rawling found that the Australian banks held at their mercy “manufacturer and retailer, who are not big enough to be in the inner circle, the farmer, and the small business man—many of whom are worse oﬀ than the employed worker and the small trader”. The concentrations of Australian industry and ﬁnance, interlocking directorships, shareholdings and corporate subsidies created an oligarchy paralleling that shown by Hilferding to exist in Germany (Rawling 1937). Fox’s Monopoly (1940) is another early text that,

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according to Kuhn (1996), “covers similar ground to Rawling and the later 1963 work of E.W. Campbell, The Sixty Rich Families Who Own Australia”. Hypothesis H5: If controllers of top capital collude, then they are likely to create national monopolies of ﬁnance capital. Discretion This discretionary model is bank-centred too. This model focuses on ﬁnance capital’s decision making and its discretion as to what direction, how much, and to whom credit might go. The theory is most often associated with the work of Beth Mintz and Michael Schwartz, in The Power Structure of American Business (1985). They argue that “interlocking directorates are not a source of hegemony3 but a method for managing discretion. Banks could not be the source of hegemony because they give access to the apparatus of discretionary decision-making and only indirectly oﬀer the possibility of altering structural constraint . . . bank centrality in this context reﬂects the dominant position of ﬁnancial institutions in capital-ﬂow decision making” (Mintz and Schwartz 1985:250). In their estimation, fewer than 15 of the largest banks make the most strategic decisions about the directions of capital ﬂow in the US economy. In contrast to the collusive model, the discretionary strategy is a “hands oﬀ” direction at the decision-making level but still placing dominant power with ﬁnance capitalists. This ﬁts John Scott’s ﬁnding in Corporations, Classes and Capitalism (1996), where he writes that ultimate corporate power increasingly rests with major shareholders and impersonal systems of ﬁnance capital. Michael Useem (1993) brings a paradox to this discretionary mix. His interviews of top corporate players reinforced acknowledgment of the dominance of the major shareholder, who was the player that directors and management needed to continually satisfy but whose power over them and their organization they appeared most to want to thwart. Social Embeddedness Social embeddedness theorists seems to vacillate loosely between a materialist Marxist and a Weberian actor, agency and social stratiﬁcation perspective; interlocks can mean a mechanism for the reproduction of social capital through key class agents (Davis 1991), transmitting ideology (see Cyert and March 1963; Goshal and Bartlett 1990) in a business community-building exercise 3 Hegemony, meaning the position of being the “strongest and most powerful and therefore able to control others”: Cambridge Dictionary Online (http://dictionary.cambridge.org/deﬁne.as p?key=36551&dict=CALD).

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(Carroll and Fenemma 2002:399-400). Marc Granovetter (1985), the writer who identiﬁed the importance of weak ties (impersonal contacts), suggests that interlocks between companies can inﬂuence a wide range of organizational behaviour, such as strategies, structures, and performances. Australian writers Mike Donaldson and Scott Poynting (2004) use a methodology called found life history, whereby life-history methods are linked with information systematically gathered from “autobiographies and biographies” to gain insights into these “distant and unavailable men.” From this perspective, they argue that for top Australian businessmen “at dinner parties or in the boardroom, relations with their peers are instrumental. Close friendships are rare . . . spurred by a keen sense of their superiority and ceaseless acquisitiveness reinforced by their feelings of deservedness . . . it involves the habitual exercise of power expressed in hierarchy, bullying, manipulation and determination to win. They are detached from, and ruthless towards, almost everyone” (2004:148). Useem’s (1984) earlier work importantly depicts an inner circle of Chief Executive Oﬃcers (CEOs) who belong to top lobby groups that seek to inﬂuence the state with one voice. Scott sees interlocks as primarily communication nodes (Scott and Griﬀ 1983; Useem 1984; Mizruchi 1996). Hypothesis H6: The social embeddedness perspective suggests that if the most interlocked individuals act to socially and politically integrate their class, then they will be key class agents forming an inner national network circle.

Hypotheses Hypothesis H1: If there is a TCC that is identiﬁable within a global class structure by its ownership and or control of transnational capital, then it is likely to be competitive with the ACC. Hypothesis H2: The TCC is a class bigger than just corporate actors. Hypothesis H3: If there is a TCC, it should not be seen as a TCC-for-itself but rather as acting globally to partly inhabit and partly arise from the national. Hypothesis H4: If there is a disinterested national ACC whose members are not the owners of the top companies, then there is more likelihood that they will act in a civilly responsible manner as citizens motivated by interests other than the corporation’s. Hypothesis H5: If controllers of top capital collude, then they are likely to create national monopolies of ﬁnance capital. Hypothesis H6: The social embeddedness perspective suggests that if the most interlocked individuals act to socially and politically integrate their class then they will be key class agents forming an inner national network circle.

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These hypotheses form tests from the literature that will be applied using ﬁrst4 the organization of the ACC in relation to its interlocking directorates amongst the top 30 Australian companies; and second to see whether any transnational links are identiﬁable through major shareholdings amongst the top 300 companies’ major shareholders. First is the Australian multiple interlock material covering the 15 years from 1992 to 2007.

The Australian Interlock Case Study 1992-2007 The Australian interlock case study 1992-2007 illustrate the key organizational power structure of top national business through multiple top board interlocks. The 15-year period of interlocks begins with the heavily interlocked corporate board environment of the recession period of the early 1990s. 1: The 1992 Australian Interlock Data Where the information is available from the 1992 Annual Reports (in 50 percent of the cases), it is possible to say the companies on the basis of their market sales and assets are predominantly Australian (with the notable exception of News Corporation). The interlocks in 1992 were busy (see Figure 1). This heavily interlocked period of recession and rapid economic regrouping was arguably exacerbated by the turbulence of an economically liberal regime led by Labor Prime Minister Bob Hawke and his Treasurer Paul Keating. They had deregulated the economy in the 1980s. Finance capital was then able to assume a power it had not formerly held, making industrialist interviewees nervous: It’s wrong to treat money as a commodity . . . This is great for guys who want to trade in money but hopeless for guys who want to make ﬁxed capital investment . . . It makes the decision to invest particularly for export with changing international values that much more diﬃcult. (Murray, 1993-97, Respondent 94)

This was a business community with directors’ heads constantly swivelling like owls to maintain an accurate corporate scan on a fast-changing recessed business environment. A high 56 percent of the top 30 companies were interlocked here. Those with the highest centrality were Paciﬁc Dunlop (industrial) and Telstra 4

For a detailed description of the methodology, see Murray 2006, op cit, pp. 100-103.

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Figure 1

1992 directional interlocks in the top 30 companies TNT

ColesMyer

AMP

Pioneer

R. Cameron

J. Gough

J. Balderstone

Amcor

J. Gough

I. Burgess A. Coates

Westpac

Pacific Power

J. Uhrig

B. Loton

PacificDualop

P. Cottrell

J. Gough A. Coates

J. Uhrig

NAB

Adstream

J. Gough

CSR

Qantas

B. Loton P. Cottrell

J. Gough J. Gough

P. Cottrell

IEL

BHP

J. Gough

J. Gough R. Wright J. Gough A. Morokoff

GoodmanFielderWattie

W. Dix

A. Coates

Borai

BTRNylex

David Jones

ANZ

B. Loton

Woolworths

A. Morokoff NewsCorp Mitsui

A. Coates

A. Morokoff Telecom

J. Ralph

NationalMutual Shell

R. Trotter

CRA

Fosters Mitsubishi

CBA

FCL

Key: the direction of the director’s power base the director has a power base in two companies the non-interlocked companies (e.g. TNT) are at the bottom left Source: Business Review Weekly 1000, 1992, 23 October, p. 76.

(communications) (see Figure 1). The other high interlocks were IEL (industrial), BHP (mining), NAB (banking), Adsteam (industrial marine), CRA (mining), CSR (industrial), FCL (industrial), AMP (insurance), and Qantas (travel). Banks were interlocked throughout, with the highest bank centrality going to ANZ (10), then NAB (9), Westpac (7), and not least in the unidirectional interlocked newly privatised Commonwealth Bank of Australia—the CBA. An indicator of crisis here is the high amount of depth interlocking (Mandel 1972). (For example, major ﬁnance capital ANZ is interlocked with BHP, NAB, CRA, WESTPAC, AMP, CSR, Paciﬁc Dunlop, Amcor, and Pioneer—that is, nine other companies.) In 1992, corporate reconstruction after the disasters of the 1987 share market crash and trying to stave oﬀ hostile takeovers in an unstable wider economic environment was still taking place.

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The major multiple interlocker here is John Gough, a past president of the primary top business lobby group the Business Council of Australia (BCA), who came from productive capital as a CEO but moved on to many other boards, including a signiﬁcant ﬁnancial company, the ANZ. Gough has is one of those who have: Social skill [that] comes with exposure and success. People who become successful often become more relaxed as a consequence and that can make their personalities seem more open, less fearful. But it is true that the people I have most to do with are pleasant personalities. Conﬁdence is critical. (Murray, 1993-97, Respondent 73)

Well known to their peers, the members of this 1992 business inner circle included, apart from John Gough, Alan Coates (CSR, Brambles and Mitsubishi), John Uhrig (AMP, Westpac, and CRA), and Alex Morokoﬀ (Woolworths, Telecom, IEL, and Adsteam). These men keep a low community proﬁle. A top director describes it this way: Most of the business people who were going on running their companies didn’t attract much attention either way. They built their companies into stronger organizations competitively and ﬁnancially and managerially. There are strong individual company leaders Stan Wallis with Amcor, John Gough and Phillip Brass running Paciﬁc Dunlop. Just go through the list of top companies—Boral, CSR, Esso etc.—and look for them. (Murray, 1993-97, Respondent 70)

Hypothesis H6 is proved when Figure 1 clearly identiﬁes an ACC inner circle (Useem 1984). Contrary to the collusive hypothesis, the 1992 Australian data show a dominance of industrials-with-industrials interlocks, rather than ﬁnancials-withindustrials interlocks, indicating little support for direct control of ﬁnance capital over industrial capital through board membership at least. 2: 2007 Australian Interlock Data In 2007 seventeen, or 56 per cent, of the top thirty companies are still predominantly Australian in relation to the amount of sales and assets (used here to ascertain their Australianness). The Annual Reports of St George, Lendlease, Westﬁeld and Woolworths are unclear as to the predominance of their Australian assets and sales. Whereas, the remainder—BP Regional Australia, ExxonMobil, Fonterra, RioTinto and Shell Australia—are all clearly Australian subsidiaries of large overseas multinationals. By 2007, the ACC interlocks had become distinctly thin in appearance. Michael Swartz (2008, personal comment) suggests this hollowing out of

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Figure 2

2007 Directional interlocks in the top 30 companies QBE

RioTinto

Wesfarmers

ColesGroup

StGeorgeBank

Caltex

Lord Kerr

Metcash

Commonwealth

Telstra

LendLease

Jon Schubert

ShellAustralia

MacquaireBank

BluescopeSteel

David Clarke

David Crawford IAG

BPRegionalAustralasia

AMP

David Crawford

BHPBillton

James Strong

AustralianSuper Qantas

Toyota

Fontema

David Morgan

ExxonMobil

WestfieldGroup

Margaret Jackson SuncorpMetway

Westpac

Peter Gregg

NationalAustraliaBank ANZ

Woolworths

Amcor

Leighton

Source: Business Review Weekly 1000 by Revenue, November 22-December 12, 2007, p. 62.

interlocks over the years is due to the overt lack of ﬁnance capital amongst the interlockers. This thinness of interlocks is paralleled in other places. Carroll’s (2007:12) Canada-based work suggests that by the 2000s Canadian boards were dominated by exit strategies (Hirschman 1970) because they had lost their 1990s function of disciplining, lobbying, and economic liberal consensus building, and now board members wanted to focus on just building a business community. This reasoning may explain how David Crawford, one of the most multiply interlocked directors, has not been a president of the BCA when at least three other multiple linkers have been during this 1992-2007 period (see Murray 2008). But he has the right social capital qualiﬁcations, for he went to elite Scotch College; he belongs to the top clubs, including the MCC (Melbourne Cricket Club), Ormond Ski, the Australian, the Carbine, the Melbourne, Barwon Heads Golf (Vic.), and the Kingston Heath Golf; and he participates in the right type of recreational activities—ﬂy ﬁshing, hiking, skiing, tennis, golf, music, reading (Crawford, 2008).

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The 1992-2007, ACC members are shown to be using their national network to build a top business community. I asked a BCA member about the thinking behind a strategy paper the ACC had written for the BCA called the Globalization Report: The Year 2010? He replied: We said, “Let us sit down and take the trouble to layout a program that we think the government should focus on. . . . Let’s take the year 2010. Let’s decide on an objective in the year 2010 that will take us back within the top 10 nations in world by wealth.” (Murray, 1993-97, Respondent 73)

With its status secure in Australia, how keen is the ACC to go oﬀshore and become TCC?

What does the ACC think about being integrated into the global economy? H1 suggests that the ACC is likely to be competitive with the nascent TCC. This is expressed by the interviewees as nervousness about encroaching global ﬁnance, as this ﬁnancier said: The problem for a ﬁnancier is that people are continually creating new instruments because there is an opportunity that they can see. There is an opportunity and they are playing on a market. The entrepreneurs are creating new ideas that create new values. Ten years ago in Australia there were rigid rules and regulations. The moment that you pull down the fences you create a new environment. We used to have rigid control on credit by the reserve bank. With deregulation this is no longer there. (Murray, 199397, Respondent 92)

ACC members are remarking on their changing role and the need for them to integrate into the world economy to ensure that their businesses continue to accumulate more money; however, they fear the unknown: We cannot cope with too much new business. Opening oﬃces in new countries is hard. It is a people resource question. It is not just money and it’s not just growth. It is also a question of making sure that you don’t get ripped oﬀ. You can lose so much money in other countries. (Murray, 1993-97, Respondent 92)

A bank director noted the increasing but not worry free new role of ﬁnance capital: The ﬁnance sector is growing as a proportion of GDP and increasing its importance in terms of large companies that are international in scope but they are also international in their ﬁnancing. One of the things that are happening is that increasingly larger companies with good credit ratings can go direct to the market and bypass banks. This

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georgina murray is a major change that has been happening for some period of time. There is a changing environment for the banks. Lot of the banks are getting leaner and stronger and changing their ways. [It is] an increasingly competitive world. Those that innovate more quickly and more soundly are those that are going to be the winners. (Murray, 1993-97, Respondent 6)

Corporate winners are the ﬂexible, the mobile and the quick in a competitive market. We can conﬁrm now that the ACC is distinct from the TCC; its members have their national interlocks, their own lobby group (BCA); they have their own political leaders (the multiple linkers who are also actively involved with the BCA); and they have their own social capital (see Murray 2006). But do they hold economic ownership?

Major Shareholders and the Owner Penetration Index (OPI) The traces of the TCC are their major shareholders in the top companies. Figure 3 shows the Owner Penetration Index (OPI) representing only the top ﬁve shareholders of the top 30 companies in 1992-2007, and it highlights the importance of deregulation of Australian banking since December 1983. It shows the movement into Australia of US and then UK (but originally Asian) capital, and for the ﬁrst time it identiﬁes the presence of the ownership of the TCC. Figure 3 shows the demise of the “natives ; the only indigenous capital survivors are the National Australia Bank (National Nominees with 1992 5.4 percent average over all top thirty companies and 2007 at 9.4 percent) and the ANZ (ANZ Nominees with 1992 at 5.6 percent and 2007 at 4.6 percent of ownership of the top 30 companies). They have stayed the 16-year distance. After 1992, domestic ﬁnance capital was seriously challenged by transnational capital and the changes became noticeable on the OPI.” Here is some background to the three TCC ﬁnance capitalists who, since deregulation and speciﬁcally since 1992, have interacted competitively with the ACC. J. P. Morgan Chase J. P. Morgan Chase5 was founded by Aaron Burr as the Bank of the Manhattan Company in 1799. It later merged with John Pierpont Morgan who had set up one of the world’s most powerful investment banks, Drexel Morgan and 5 All the following information on J. P. Morgan comes from J. P. Morgan Conde Nast Portfolio. com: http://www.portfolio.com/resources/company-proﬁles/JPMorgan-Chase--Company-63.

australia has a transnational capitalist class?

Owner penetration of Australia’s top 30 companies

14 12 10 8

2007 1992

6 4 2 0

l

na

io

Z

AN

at N

n

ga

or M

JP

C

SB

H p

or

tic

Ci

Owner Penetration Index (=Average shareholding in top thirty companies where the shareholder is one of the top five shareholders

Figure 3

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Notes: 1. 2007 there were 23 (from 30) companies with top 20 investment information in their Annual Reports 2. 1992 there were 20 (from 30) companies (as above)

Co., in 1871. J. P. Morgan then merged with Chase Manhattan in 2000, and Bank One joined them with a $58 billion deal in 2004. James S. Dimon is the CEO and chairperson of the 11-person board and he has a reputation as an aggressive cost cutter (“notoriously slashing funds for company gyms and fresh ﬂowers”). J. P. Morgan currently sells ﬁnancial products and services, and is the third largest bank in the United States. It has assets of $1.4 trillion and operates in more than 50 countries.6 In 2006, the company’s proﬁts rose by 65 percent to a record $13.65 billion. The bank has a history of concentrating companies with layering mergers upon mergers: J. P. Morgan is built from nearly 1,000 previous companies.7

6 J. P. Morgan Conde Nast Portfolio.com: http://www.portfolio.com/resources/companyproﬁles/JPMorgan-Chase--Company-63. 7 J. P. Morgan Conde Nast: http://www.portfolio.com/resources/company-proﬁles/JPMorganChase--Company-63.

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Citicorp Formerly the Bank of New York, Citicorp was ﬁrst chartered by New York State on June 16, 1812. During the mid-1970s, it was renamed as Citibank and Citicorp (the holding company). Citicorp is the second biggest global ﬁnancial service holding company, providing a range of ﬁnancial services to consumer and corporate customers.8 The company is headquartered in New York, with a new CEO—Vikram S. Pandit—who sits on a 14-person board chaired by Sir Winfried F.W. Bischoﬀ. Chuck Prince, the departing CEO, was given a $10 million bonus after the massive mess he made in the sub-prime mortgage market (Cassidy 2008). Currently, Citicorp has a market capitalization of $118.25 billion, a gross operating proﬁt of $25.86 billion and a total net income $5.01 billion, but the bank is staggering “under its own weight, suﬀering from high costs, a lack of coordination among operations, and underinvestment in technology and businesses.”9 H4 suggests that share ownership is now diverse and control rather than ownership is managerial. This is incorrect, as Table 1 (following) shows concentrated TCC ownership in the form of ﬁnance capital’s nominee investment. HSBC HSBC is the new player on the TCC block. Although virtually unknown to Australians, HSBC is “one of the largest banking and ﬁnancial services organizations in the world with well-established businesses in Europe, the Asia-Paciﬁc region, the Americas, the Middle East and Africa.”10 The Hong Kong Bank was founded by Briton Sir Thomas Sutherland in 1865. Sutherland used HSBC and other banks he opened in Shanghai, London, and San Francisco to ﬁnance “much of the lucrative opium trade.”11 He was a member of the British parliament from 1884-91 and controlled the P&O shipping line until 1914. In 1991, HSBC Holdings was established to act as the parent company to The Hong Kong and Shanghai Banking Corporation. The bank is the fourth largest corporation in the world in terms of assets (as of December 31, 2007, equaling $1.861 trillion). In 2000, HSBC’s size was rated globally as the third largest by Forbes. Nearly 22 percent of its earnings come from Hong 8 Citigroup on the Conde Nast website: http://www.portfolio.com/resources/company-proﬁles/ Citigroup-Incorporated-1366. 9 Citigroup on the Conde Nast website, April 22, 2008: http://www.portfolio.com/newsmarkets/top-5/2008/04/22/Hewlett-Packard-Advises-Citigroup. 10 SourceHS BC Annual Report 2007:http://www.hsbc.com.au/1/2/about/world. 11 HSBC Annual Report 2007: http://www.hsbc.com.au/1/2/about/world; and Grand Prix Encyclopedia: http://www.grandprix.com/gpe/spon-022.html.

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Kong, where it was headquartered until 1993. Today its Head Oﬃce is at London’s Canary Wharf.12 For Carroll and Fenemma (2002), HSBC is a core player in the transnational network, identiﬁable as such by its central board interlocks. And today HSBC is recognized as the world’s largest banks with $105 billion in general capital.13 We have now identiﬁed three major shareholders—Citibank, J. P. Morgan Chase, and HSBC—as TCC and currently major shareholders of Australian top companies. But how much are they involved? When we look for further evidence to substantiate the established presence of the TCCs and expand our sample from the top ﬁve shareholders to look at all 20 major shareholders (where listed) of the top 300 companies, we use original data from Huntley’s Investment Information Pty Database. From this database, we found that HSBC holds 7.56 percent of the total Australian market capitalization. HSBC seems to have a strategy of focusing on being the number one investor in number one companies (see Table 1, where it is the number one shareholder in 57 Australian companies). J. P. Morgan, on the other hand—although still ranked top overall with 8.16 percent of the total top 300s market capitalization—is not ﬁrst amongst the competitors as the top shareholder, nor does it hold the top number of total shareholdings. This indicates diverse shareholding strategies: HSBC holds the top number of shares in the top companies. Whatever strategy used by these top ﬁnance companies or banks, Table 1 shows that these TCCs have control over a great deal of money—indeed, they had 34.12 percent of the market capitalization of the top 300 companies in Australia in 2007. This is proof that H1 is right: the ACC and TCC are ﬁnancially competitive. The TCC controls the dominant relationship and is moving to replace the ACC with takeovers, but it is happy for the ACC to remain the political face of Australian business, creating conducive conditions for business through its state lobby group, the BCA. J. P. Morgan Chase has now ousted the four major Australian banks in its bid to establish control over Australasian corporate ownership (J. P. Morgan Chase in 2004 had 11.0 percent going up to 12.7 in 2007) and Citicorp/bank (7.4 percent in 2004 and 5.2 percent in 2007).

12 HSBC Annual Report 2007: http://www.hsbc.com.au/1/2/about/world; and Grand Prix Encyclopedia: http://www.grandprix.com/gpe/spon-022.html. 13 Lee Hyo-sik, Kookmin Bank’s Global Ranking Rises to 56th Korean Times http://www. koreatimes.co.kr/www/news/nation/2008/07/123_27711.html.

251 260

6.78

6.28

6.69

4.36

4.24

2.23

JP Morgan (incl. Chase Manhattan)

National Australia Trustees Limited

HSBC (incl. HKBA)

Citicorp

ANZ

Westpac

2.61

3.84

4.93

6.99

7.56

8.19

Proportion of total market capitalization owned (%)

Source: David Peetz, from Peetz, D. and Murray, G. (2008).

102

275

506

366

Share holdings (#)

Average share holding (%)

Company

7

5

4

2

3

1

Rank avg.

6

5

4

3

2

1

Rank total

38,527,906,861

56,648,051,507

72,795,722,074

103,071,090,535

111,602,145,122

120,776,208,366

Total shareholding

Shareholding and ranking of shareholdings of the top 300 Australian ﬁrms

Table 1

7

14

7

57

18

39

Firms where company is #1 share-holder (#)

72 georgina murray

australia has a transnational capitalist class?

73

What Do the Australian Data Mean? Australian interlocking evidence, as revealed here, shows that, of themselves, interlocks do not reveal the underlying power structures of companies. Until major shareholdings (ownership) and interlocks (politics) are put together, the picture of corporate power in Australia is incomplete. The most signiﬁcant point about this evidence is that, although ﬁnancial capital does not appear to control business through any centrality exercised through interlocking directorates, this is smoke and mirrors, for its real power lies in major shareholdings. For H1 is right, in that the TCC is intensely competitive and likely to subsume the ACC at the economic rather than the political level. Therefore H2 is wrong: the TCC comprises the major corporate shareholders and, although they may be executives or managers of top companies, they alone have controlling economic power over large amounts of capital and can use ACC managers and directors to internalise their interests as their own. They may hold other political or social roles but these are immaterial to this major source of economic power they hold. The ACC can be used to lobby the Australian state (through the BCA). Bureaucrats, politicians, professionals, or consumerist elites are a second order of power not dealt with here, but they are of relative insigniﬁcance economically. H3 is partially right in that the TCC members are a class-for-themselves who globally out-compete the Australian natives; with J. P. Morgan (8 percent control/ownership of the top 300 companies’ market capitalization), HSBC (7 percent), Citicorp (5 percent) against the “native” players, though in Australia the natives still have very high ownership stakes with National Australia Trustees Limited at 7 percent, ANZ at 4 percent and Westpac at 3 percent. H5, suggesting collusive control through director interventions on bank boards, is wrong. Large ﬁnance capitalists are able to maintain their distance, invisibility, and contingently their dominance indirectly, as this banker told the author: A good banker will feed information to a company all the time, particularly if it is lending money to the company. It will see it as a duty to help that company to be successful without prejudicing its other portfolios of customers. Because the more successful that company is then the bank is much more assured of getting the money back. (Murray 1990:262, Respondent 94)

The social embeddedness hypothesis (H6 ) that the most interlocked individuals will act as class agents to integrate the class and create an inner circle is right. The national political cadre is centred on John Gough (1992) and David Crawford (2007). Gough was also a president of the Business Council of Australia (the top business state lobby group), which as a lobby group is

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strongly committed to economic liberal thinking (Porter 1990). Panitich and Gindin (2005) suggest that the US informal empire’s restructuring options— those that are encapsulated in economic liberalism—are passed on to national elites even though they are not necessarily in the national elite’s interest. In the case of the ACC, not every fraction of it beneﬁted from the results of the economic liberal restructure that intensiﬁed economic competition, freed the movement of capital, generated privatizations, and generally deepened capitalist relations but the TCC as a whole did beneﬁt. And the TCC particularly beneﬁted through the ACC lobbying the state through the BCA to create the state apparatus necessary for TNC accumulation (see Murray 2006:147-76). H4, the hypothesis that diverse shareholding means that management and boards will be civically responsible, is not correct. The major shareholders have distributive power through their collective control over available funds, as pointed out by John Scott (1997), to “determine the broad conditions under which enterprises must determine corporate strategies” (p.139). Finance capital is dominant; however, this is not through interlocks but rather through major shareholdings and through bank board decisions as to who is to be given credit. When a director was asked if this meant that banks control through credit, he answered, “Yes, they control credit. Yes, they do all that and so indirectly they can have some inﬂuence” (Murray 1990:276, Respondent 18). The central political interlockers—Crawford and Gough—are not members of the TCC, as identiﬁed by any measure. They are the ACC inner circle and they act on the state through the BCA.14 They are warring brothers amongst themselves and against transnational capital on any issue other than labor. This unites them. All capitalists unite to create the conditions for getting greater proﬁts from labour. H6 is correct, in that the most interlocked individuals act to socially and politically integrate the class and reassure its members of the value of the innovations they propose, and they therefore form a key “inner circle.” This inner circle is economically based and organized, and forms the political core of the ACC. The nascent TCC, in Australia, are the major shareholders of HSBC, Citicorp, and J. P. Morgan, who hold major shares in companies across the globe (not multi-national ownership in a few countries); they are equally disunited because, as Harris points out, “Just because a corporation is headquartered in the US doesn’t give it national identity nor do they serve some US global economic purpose . . . if we take Citicorp we ﬁnd the biggest shareholder is 14 See Murray, G. 2006 ‘Think Tanks, Corporate Collectivity and the Reproduction of Ruling Ideas’, Chapter 6, Capitalist Networks and Social Power in Australia and New Zealand, pp. 147-177.

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a Saudi prince and that China’s sovereign wealth fund just dumped several billions of dollars in.”15 State players can, in this analysis, be members of the TCC. They all ﬁght for their fractional self-interest at the expense of other fractions only united against labor. These are the transnational class members.

Conclusion The major empirical diﬀerence between the situations in the period 1992-2007 was the creeping internationalization of ﬁnance capital from a high national input to being dominated by TCC ﬁnance capital. So, while the top 30 companies and their CEOs are predominantly Australian by the criteria of their sales and assets, and their ASX listing, their major shareholding was not. The OPI allows us to measure and then point to the growing signiﬁcance of TCCs in the form of J. P. Morgan, Citicorp, and HSBC. But also note the continued presence of native capital in the form of NAB, ANZ, and Westpac (Van der Pijl 1998). The ACC expresses some worry as to this TCC development. Still, the degree of transnational capital penetration into Australia continues to remain smaller than the bulk of capital investment by Australian capitalists in Australia (Bryan and Raﬀerty 1999). While the data have shown a hollowing out of multiple board interlocks with the disappearance of ﬁnance capitalists (both global and national), there remain industrial capitalist directors running industrial boards. Finance capital is currently dominant but largely invisible. Carroll’s cautionary words that “tendencies toward TCC formation coexist and intersect with counter-tendencies, limiting the prospects of a TCC-foritself [and that] conscious eﬀorts to create such a class should not be confused with its arrival” (Carroll 2007:137-38) are wise, but the invisible invaders, the TCCs such as J. P. Morgan, Citicorp, and HSBC are becoming increasingly integrated into the Australian economy.

Bibliography ASX. 2000. Survey. Australian Bureau of Statistics. 1992. Feature Article—“Leading Indicators Two Decades”. ——. 2004. Measuring Australia’s Economy. n.1360. Retrieved July 21, (2008 http://www.abs. gov.au/Ausstats/[email protected]/94713ad445ﬀ1425ca25682000192af2/70ef43745fa5445eca256 cbf0017216f!OpenDocument).

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Baran, P. and P. Sweezy. 1968. Monopoly Capital: An Essay on the American Economic and Social Order. New York: Monthly Review Press. Bello, W. 2006. “The Capitalist Conjuncture: Over Accumulation, Financial Crises and the Retreat from Globalization.” Third WorldQ uarterly 27(8):1345-67. Berle, A. and Means, G. 1932. The Modern Corporation and Private Property. New York: Macmillan. Bryan, D. 1995. The Chase Across the Globe: International Accumulation and the Contradictions of Nation States. Boulder, CO: Westview. Bryan, D. and M. Raﬀerty. 1999. The Global Economy in Australia: Global Integration and National Economic Policy. Sydney: Allen & Unwin. Burch, P. 1972. The Managerial Revolution Reassessed. Lanham, MD: Lexington. Burnham, J. 1941. The Managerial Revolution. New York: John Day. Buroway, M. 2008. “What Is to Be Done?” Current Sociology 56(3):351-60. Business Review Weekly. 2004. “Rich 200 List.” ——. 2007a. “From Canadian Corporate Elite to Transnational Capitalist Class: Transitions in the Organization of Corporate Power.” Canadian Review of Sociology (Autumn): 1-24. ——. 2007b. “Global Cities in the Global Network.” Environmental and Planning 39: 2297-323. Business Review Weekly 1000. 1992. October 23. ——. 1998. November 16. ——. 2004. November 11-17. ——. 2007. November 22-December 12. Carroll, W. K. 2007. “From the Canadian Corporate Elite to the Transnational Capitalist Class: Transitions in the Organization of Corporate Power.” Canadian Review of Sociology, Fall, p.12. ——. 2008 (forthcoming). “Tracking the Transnational Capitalist Class: The View from on High.” In World Hegemonic Transformations: The State and Crisis in Neo Liberalism, edited by Yildiz Atasoy. New York: Routledge. Carroll, W. and M. Fennema. 2002. “Is There a Transnational Business Community?” International Sociology 17(3):393-420. Cassidy, J. 2008. “The C.E.O.’s New Armor.” May 12, Condo-Nest Portfolio.com, Retrieved July 17, 2008 (http://www.portfolio.com/views/columns/economics/2008/05/12/CEOs-Enjoy-NewSalary-Security). Chase-Dunn, C. 2002. “Globalization from Below: Toward a Collectively Rational and Democratic Global Commonwealth.” The ANNALS of the American Academy of Political and Social Science, Vol. 581, No. 1: 48-6. Cornell, A. 2005. “In the Belly of the Beast.” The Australian Financial Review Magazine: 59. Crawford, David. 2008. Who’s Who in Australia. Retrieved July 17, 2008 (http://www.cserver. com.au.libraryproxy.griﬃth.edu.au/wwiblive/detail-biog.asp?code=614701). Cyert, R. and J. March. 1963. A Behavioural Theory of the Firm. Englewood Cliﬀs, NJ: Prentice Hall. Davis, G. 1991. “Agents Without Principles? The Spread of the Poison Pill through the Intercorporate Network.” Administrative Science Quarterly 36:583-613. Donaldson, M. and S. Poynting. 2004. “The Time of Their Lives: Time, Work and Leisure in the Daily Lives of Ruling-Class Men.” Pp. 127-53 in The Power, Privilege and Politics of the New Ruling Class, edited by Nathan Hollier. Melbourne: Australian Scholarly Publishing. ——. 2007. Ruling Class Men: Money, Sex, Power. Berne: Peter Lang. Fenemma, M. 1982. International Networks of Banks and Industry. London: Martinus Nijhoﬀ. Fennema, M. and H. Schijf. 1979. “Analyzing Interlocking Directorates: Theory and Method.” Social Networks 1(1):297-332. Foster, J.B. 2004. “The Commitment of an Intellectual: Paul M. Sweezy (1910-2004).” Monthly Review. Retrieved July 17, 2008 (https://www.monthlyreview.org/1004lebowitz.htm). Fox, L. 1940. Monopoly. Sydney: Left Book Club.

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Freeman, C. 1984. Long Waves in the World Economy. London: Frances Pinter. Gettler, L. 2003. “David Crawford: Boys for the Jobs?” Management Today. Australian Institute of Management. Retrieved February 12, 2008 (http://www.aim.com.au/resources/article_ dcrawford.html). Glasberg, D. 1987. “The Ties That Bind? Case Studies in the Signiﬁcance of Corporate Board Interlocks with Financial Institutions.” Sociological Perspectives 30(1):19-48. Goshal, S. and C. Bartlett. 1990. “The Multinational Corporation as an Inter Organizational Network.” Academy of Management Review 15(3):603-25. Granovetter, M. 1985. “Economic Action and Social Structure: The Problem of Embeddedness.” American Journal of Sociology 91:481-510. Harris, J. 2008 pers com. Hilferding, R. [1910] 1981. Finance Capital. London: Routledge Kegan Paul. Hirschman, A. 1970. Exit, Voice and Loyalty: Response to Decline in Firms Organisations and States. Cambridge MA: Harvard University Press. HSBC Annual Report 2007. Retrieved July 8, 2008 (http://www.hsbc.com.au/1/2/about/world). Kuhn, R. 1996. “Class Analysis and the Left in Australian History.” Pp. 145-62 in Class and Class Conﬂict in Australia, edited by R. Kuhn and T. O’Lincoln. Melbourne: Longman. Larner, R. 1970. Management Control and Large Corporations. New York: Dunellen. Lenin, V. [1916] 1964. Imperialism: The Highest Stage of Capitalism. In Collected Works, vol. 2, no. 22. Moscow: Progressive Publishers. Lum, R. and G. Murray. 1988. Centralisation in Top New Zealand Business 1966-1986. Auckland, New Zealand: Department of Sociology, Auckland University. Mandel, E. 1972. Late Capitalism. London, New Left, Books. Marx, K. 1956. “The Circuit as a Whole.” Pp. 48-64 in Capital, vol. 2. Moscow: Progress Publishers. ——. 1970. Socialism, Utopian and Scientiﬁc. Pp. 95-133 in The Selected Works, vol. 3. Moscow: Progress Publishers. Mintz, B. and M. Schwartz. 1985. The Power Structure of American Business. Chicago: University of Chicago Press. Mizruchi, M. 1982. The American Corporate Network. Beverly Hills, CA: Sage. ——. 1996. “What Do Interlocks Do? An Analysis, Critique and Assessment of Research on Interlocking Directorates.” Annual Review of Sociology 22:271-302. ——. 2007. “Political Economy and Network Analysis: An Untapped Convergence.” Sociologica online. Retrieved July 14, 2008 (http://www-personal.umich.edu/~mizruchi). Murray, G. 1990. New Zealand Corporate Capitalism. PhD dissertation, University of Auckland, New Zealand. ——. 2006. Capitalist Networks and Social Power in Australia and New Zealand. Aldershot: Ashgate. ——. 2008. “A Transnational Capitalist Class: Does Corporate Australia have One?” Paper for the Global Studies Association, 5-10 June, New York. O’Lincoln, T. 1996. “Wealth, Ownership and Power: The Ruling Class.” Pp. 145-62 in Class and Class Conﬂict in Australia, edited by R. Kuhn and T. O’Lincoln. Melbourne: Longman. Panitich, L. and S. Gindin. 2005. “Superintending Global Capital.” New Left Review 35. Retrieved July 12, 2008 (http://www.newleftreview.org/?view=2583). Peetz, D. and G. Murray, G. 2008 (forthcoming). Process or Myth: Transnational Integration Looking at Top Australian Company Shareholding Evidence. Porter, M. 1990. The Competitive Advantage of Nations. London: Macmillan. Poulantzas, N. 1975. Classes in Contemporary Capitalism. London: NLB. Rawling, J. N. 1937. Who Owns Australia? Sydney: Modern Publishers. Robinson, W. I. 2004. A Theory of Global Capitalism. Baltimore, MD: Johns Hopkins University Press.

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——. 2007a. “Beyond the Theory of Imperialism: Global Capitalism and the Transnational State.” Societies Without Borders 2:5-26. ——. 2007b. “The Pitfalls of Realist Analysis.” Historical Materialism 15: 71-93. ——. 2007c. “Theory and the Rise of Globalization Studies.” Pp.125-145 in Theories of Globalization, edited by George Ritzer. Oxford: Blackwell. Robinson, W. I. and J. Harris. 2000. “Toward a Global Ruling Class? Globalization and the Transnational Capitalist Class.” Science & Society 64(1):11-54. Sassen, S. 1991. The Global City: New York, London, Tokyo. Princeton, NJ: Princeton University Press. ——. 2002. Global Networks, Linked Cities. New York: Routledge. Scott, J. 1985. “Theoretical Frameworks and Research Design.” Pp. 1-19 in Networks of Corporate Power, edited by J. Scott, F. Stokman and R. Zegler. Cambridge: Polity Press. ——. “Theoretical Framework and Research Design.” Pp. 1-19 in Networks of Corporate Power, edited by F.N. Stockman, R. Zeigler and J. Scott. Cambridge: Polity Press. ——. 1997. Corporate Business and Capitalist Classes. New York: Oxford University Press. Scott, J. and C. Griﬀ. 1983. Directors of Industry: The British Corporate Network 1904-1976. Cambridge: Polity Press. Scott, J. and P. Hughes. 1976. “Ownership and Control in a Satellite Economy.” Sociology 10: pp. 21-41. Scott, J., F. Stokman and R. Zegler (eds). 1985. Networks of Corporate Power. Cambridge: Polity Press. Sklair, L. 2001. The Transnational Capitalist Class. Oxford: Blackwell. ——. 2005. “The Transnational Capitalist Class and Contemporary Architecture in Globalizing Cities.” International Journal of Urban and Regional Research 29(3):485-500. Sklair, L. and P. Robbins. 2002. “Practices that Cross State Boundaries but Do Not Necessarily Originate with State Agencies or Actors.” Third World Quarterly 23(1): 81-100. Retrieved July 12, 2008 (http://www.informaworld.com/smpp/title~content=t713448481~db=all~tab=issueslis t~branches=23-v23). Useem, M. 1984. The Inner Circle. Oxford: Oxford University Press. Van der Pijl, K. 1984. The Making of an Atlantic Ruling Class. London: Verso. ——. 1998. Transnational Classes and International Relations. London: Routledge. Wallerstein, I. 1976. The Modern World-System: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century. New York: Academic Press. Weber, Maximillian. [1920] 2005. In Economy and Society: A Critical Companion, edited by G. Roth and C. Wittich. Stanford, CA: Stanford University Press.

Sample Respondents Murray, G. 1990, Respondent 94. Murray, G. 1993-97, Respondent 6. Murray, G. 1993-97, Respondent 92. Murray, G. 1993-97, Respondent 93. Murray, G. 1993-97, Respondent 94. Murray, G. 1993-97, Respondent 73. Murray, G. 1993-97, Respondent 70. Murray, G. 1993-97, Respondent 73. Murray, G. 1993-97, Respondent 95.

El Salvador and the Central American Free Trade Agreement: Consolidation of a Transnational Capitalist Class Cori Madrid Ph.D. Candidate, Department of Political Science, The Graduate Center, City University of New York

Abstract On December 17, 2004, El Salvador became the ﬁrst of six signatory countries to ratify the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) and on March 1, 2006, it became the ﬁrst to implement the agreement. However, even staunch supporters of trade agreements would likely agree that DR-CAFTA provides questionable advantages for the ﬁve Latin American signatories, as they already received most of the DR-CAFTA-related tradebeneﬁts through the Caribbean Basin Initiative (CBI) with fewer conditions. Meanwhile, the potential beneﬁts are questionable, at best. Thus, begs the question, why would any of the ﬁve Latin American economies sign on to such an agreement? This chapter seeks to explain the motives of just one of these signatories: El Salvador. Understanding El Salvador’s participation in CAFTA-DR is critical not only because it’s government was the most vociferous supporter of the agreement but because DR-CAFTA demonstrates the consolidation of the country’s previously nascent Transnational Capitalist Class (TCC). Keywords DR-CAFTA, El Salvador, Transnational Capitalist Class, Free Trade Agreement, neoliberalism

I. Introduction On December 17, 2004, El Salvador became the ﬁrst of six signatory countries to ratify the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) and on March 1, 2006, it became the ﬁrst to implement the agreement. DR-CAFTA created a trading block among six Latin American economies (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua) and the US, the ﬁrst such agreement since the North American Free Trade Agreement (NAFTA) united Canada, the US and Mexico in 1992 (although the US had certainly continued to negotiate bilateral free trade agreements. Not surprisingly, controversy has surrounded the agreement

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since its inception, as CAFTA-DR became the newest battle in the ideological war regarding the merits of “free trade.” However, even staunch supporters of trade agreements would likely agree that CAFTA-DR provides questionable advantages for the six Latin American signatories, as they already received most of the CAFTA-DR-related trade beneﬁts through the Caribbean Basin Initiative (CBI) with fewer conditions. Meanwhile, the potential beneﬁts are questionable, at best, and thus begs the question: Why would any of the six Latin American economies sign on to such an agreement? There is likely a wide array of economic, political and social motives for which each of the six signatory countries negotiated, signed, and ratiﬁed CAFTA-DR. This chapter seeks to explain the motives of just one of these signatories: El Salvador. Understanding El Salvador’s participation in CAFTA-DR is critical not only because its government was the most vociferous supporter of the agreement but because CAFTA-DR demonstrates the consolidation of the country’s previously nascent Transnational Capitalist Class (TCC). In the following section, I will lay out the potential costs and beneﬁts of CAFTA-DR. As will be shown, the costs appear to far outweigh potential beneﬁts. In Section III, I seek to solve the puzzle concerning El Salvador’s leadership in negotiating and ratifying CAFTA-DR despite its numerous costs. Section IV presents some alternative arguments, and Section V presents conclusions.

II. Measuring the Beneﬁts of CAFTA-DR Despite rhetoric concerning CAFTA-DR’s propensity to bestow new economic opportunities for Central America through free trade, CAFTA-DR provides scarcely any new trade-related beneﬁts. Most of the advantages that CAFTA-DR supporters purport to receive were beneﬁts Salvadoran producers already received under the Caribbean Basin Initiative (CBI) and the US’ Generalized System of Preferences. Under these agreements, 80 percent of Salvadoran goods entered the US duty free (USTR 2005a). While El Salvador enjoyed no or low-tariﬀ rates for goods entering the US market prior to CAFTA-DR, it was able to maintain a range of tariﬀs on US products entering the Salvadoran market. Not only does CAFTA-DR weaken El Salvador’s tariﬀ position, it reduces them by levels that go signiﬁcantly further than those prescribed by the World Trade Organization (WTO). Under WTO guidelines, the average allowed tariﬀ for El Salvador ranges from 41 to 150 percent for import-sensitive products (USTR 2005a), and tariﬀ reductions may be stratiﬁed. The WTO also permits raising tariﬀs within the param-

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eters of the tariﬀ rate ceilings set. In other words, countries participating in the WTO may decrease and increase tariﬀs so long as they remain equivalent to or below the negotiated ceiling. CAFTA-DR, on the other hand, creates a rapid timeline for complete tariﬀ elimination; it does not permit member countries to increase tariﬀs once they have been reduced (Nuñez Salmerón 2005), thereby locking El Salvador into free trade. Some have argued, however, that while the non-US CAFTA-DR signers already received many of the beneﬁts oﬀered by CAFTA-DR through the CBI and Generalized System of Preferences, the US provided these unilaterally and, thus, could repeal them at its discretion. By signing CAFTA-DR, El Salvador’s access to US markets become international law. This point is true. However, not only is it far from obvious that the price of this access (opened access to more competitive US goods) is worth it, the beneﬁts of such access to the Salvadoran economy is also dubious as, despite open access to the US market, the Salvadoran economy has faced major crisis over the past 10-15 years. As Salvadoran economist Raul Moreno notes, . . . it is consequently paradoxical to purport [CAFTA-DR] as an alternative for economic growth and the generation of employment, being that it reproduces the same measures of economic opening and deregulation upon which the failed neoliberal policies of the WB (World Bank) and IMF are based that, over the past two decades, have deepened the structural problems of the Central American economies.1 (Moreno 2004: 78).

CAFTA-DR supporters claim that the agreement will create openings to revive the ailing Salvadoran agricultural sector. Nevertheless, despite being able to enter duty-free for years, with greater tariﬀ protections, this sector has yet to pry open the US market. According to El Salvador’s own Minister of Agriculture, the vegetable subsector is not competitive due to its lack of weight within the productive structure, low levels of technology and lack of suﬃcient areas of irrigation. Thus, it is no surprise that after years of access, Salvadoran corn producers have never been able to sell their product to the US public nor have bean producers been able to increase its market share (Equipo Maíz 2004). In terms of the increased US access to the Salvadoran market, the beneﬁts for US agricultural producers are enormous. US-based rice growers can now export 68,000 tons of rice grain without paying the 40 percent tariﬀ they had paid previously. Although tariﬀs at the old rate must be paid on anything above 68,000 tons, this does not appear to be a large obstacle to the Salvadoran rice market. Even prior to CAFTA-DR, rice production was in steady 1

This author’s translation.

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decline, as Salvadoran rice growers found it diﬃcult to compete with their US counterparts who are not only government subsidized but nearly twice as productive. While Salvadoran rice growers produce just 9,200 kg of rice per manzana, US rice growers produce 16,200 kg.2 Eventually, the tariﬀ on rice imports will be removed completely: a sure deathblow to what remains of rice production (Equipo Maíz 2004). CAFTA-DR also provides for a similar reduction on meat and pork tariﬀs. The US can now sell 1,950 tons of meat and pork, approximately equivalent to 18 percent of Salvadoran national production in the sector, without paying the 40 percent rate in tariﬀs it paid previously. This quantity will increase by 10 percent every year. The US can sell 105,000 quintales3 of chicken (approximately 7 percent of Salvadoran national production) without paying the 15 percent tariﬀ. The tariﬀ on US chicken will be removed completely in 18 years (Equipo Maíz 2004). This trend is repeated for almost every aspect of the Salvadoran agricultural sector. Taken all together, the aﬀected sectors, including vegetable cultivation and the production of beef, employs more than 450,000 people.4 On the other hand, despite some immediate setbacks, CAFTA-DR will likely provide some long-term beneﬁts for Salvadoran sugar producers, albeit comparatively small. Prior to CAFTA-DR, El Salvador exported 27,000 tons of sugar to the US duty-free. Upon the implementation of CAFTA-DR, the amount will decrease to 24,000 tons but will increase to 36,040 tons after 15 years. This increase represents a $4.5 million increase. However, this beneﬁt seems insigniﬁcant compared to the $3 billion of sugar El Salvador exports every year. Similarly, to produce 24,000 tons of sugar employs just 134 people. CAFTA-DR may also provide a new market for fruit producers, especially frozen fruit. However, it will take years for the overall economy to feel these eﬀects (Equipo Maíz 2004). CAFTA-DR also fails to address the asymmetries between the US and Salvadoran economies. As described above, the Salvadoran agricultural sector is much less competitive than their US counterparts.5 In general, the US economy is the most competitive economy in the world whereas the Salvadoran economy ranked 67th (World Economic Forum 2008). With regard to small and 2

A “manzana” is the rough equivalent of 1.27 acres of land. A “quintal” equals 100 kg. 4 CAFTA-DR will aﬀect as many as 400,000 people that work in the cultivation of basic grains, 80,000 people that produce vegetables, 75,000 that produce beef, and 90,000 people that depend on pork production and its derivatives; CAFTA-DR also aﬀects the 1,500 Salvadorans producing chicken meat (Equipo Maíz 2004). 5 Some examples: US corn producers cultivate, on average, 266 quintales of corn per manzana while Salvadoran producers cultivate, on average, 126 quintales of corn per manzana. US rice growers produce 162 quintales per manzana while Salvadoran rice growers produce 92 quintales per manzana. (Equipo Maiz 2004). 3

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micro enterprises (PyMEs according to the Spanish acronym), only 8 percent of these are capable of export. An investigation conducted by the Association of Small and Micro Enterprises (AMPES) in November 2002 on the impacts of CAFTA-DR found that the Salvadoran PyMEs could not compete with American products, which are cheaper. AMPES recommended that PyMEs abandon production and instead begin to import US products (Equipo Maíz 2003). Despite the obvious diﬀerences in the size and productivity of the economies, little has been done to address these asymmetries, which clearly favor the United States. In fact, the US claims that, if anything, CAFTA-DR levels the playing ﬁeld for the US to compete with the Central American economies by equalizing the tariﬀ rates (USTR 2005a). The programs that do exist to prepare the Salvadoran and other Central American economies for competition with the US, center on trainings concerning rights and obligations speciﬁed by the free trade agreement and programs encouraging cooperation. These solutions do not address the structural asymmetries between the countries (Moreno 2004), the most glaring being US agricultural subsidies. It is estimated that the US provides approximately $18 billion annually in subsidies for domestic and exported products (Nuñez Salmerón 2005). While the US has forbidden other countries from subsidizing exports, the US refused to even put its use of subsidies on the table while negotiating CAFTA-DR. Granted, even if El Salvador was allowed to maintain subsidies, the level of subsidies it could oﬀer its producers could never compare to those oﬀered by the US government: as long as the US government continues to subsidize its growers, the Salvadoran agricultural sector will remain permanently disadvantaged. It should, therefore, be of no surprise that, since the implementation of CAFTA-DR, El Salvador’s trade deﬁcit with the United States (and the world) has continued to grow in spite of predictions made by supporters. Since CAFTA-DR went into eﬀect, El Salvador’s trade deﬁcit with the US grew by 75 percent (calculated in constant 2000 US dollars) (BCR). Exports to the US, as a proportion of overall exports, dropped from 67.6 percent in 2003 to 53.4 percent in 2006 (BCR). While imports from the US, in relation to El Salvador’s total quantity of imports, also dropped by 9 percent during this same time, imports from the US still managed to increase by 5 percent. These factors have all contributed to a precipitous increase in El Salvador’s overall trade deﬁcit, as a proportion of its GDP, from 17 percent in 2003 to 23 percent in 2006; the biggest portion of this jump took place within the ﬁrst year of CAFTA-DR’s implementation (COLPROCE 2007). Contrary to expectations, El Salvador’s total exports, as a proportion of its GDP, decreased from 21 percent in 2004 to 19.5 percent in 2007 (BCR). A central piece of CAFTA-DR is the principle of national treatment, which prohibits the signatory countries from “discriminating” against foreign companies

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and investment by oﬀering preferences to companies based in their respective nation or products produced within its borders. According to the US, national treatment will level the playing ﬁeld. However, for David to have any equal footing when facing Goliath, it is essential for the smaller of the two to have a slingshot; this evens out the odds. National treatment has the eﬀect of removing David’s slingshot. Finally, one has only to look at the impacts that agreements similar to CAFTADR have had on El Salvador and other countries in the region to deduce that such an agreement would likely have deleterious eﬀects for the Salvadoran economy. The most notorious of these agreements, and the template for CAFTA-DR (in name and contents) is the North American Free Trade Agreement (NAFTA) signed between Canada, the US and Mexico in 1992. Similar to CAFTA-DR, NAFTA supporters also touted the economic beneﬁts such an agreement would have for the Mexican economy, predicting that it would bring Mexico, once and for all, out of the realm of the Third World and into the First. However, NAFTA seems to have had the opposite eﬀect, sinking the Mexican economy, overall, deeper into poverty.6 Between the years of 1990 and 1999, the minimum wage in Mexico fell 17.9 percent, contract wages fell 21.3 percent, and manufacturing wages, which were supposed to beneﬁt most from NAFTA, fell by 20.6 percent (Scott et al. 2001). More than 10 years after NAFTA went into eﬀect, Mexican household incomes are just now returning to pre-NAFTA levels (Madrid 2008). NAFTA also devastated the Mexican agricultural sector: imports of corn grew by 3,000 percent! The country now imports 50 percent of its rice and 40 percent of its beef. Mexico has since tried to renegotiate parts of NAFTA to maintain some of its agricultural tariﬀs, but the US refuses, claiming that Mexico should modernize its agricultural sector, not protect it, despite the fact that US subsidies to its agricultural sector amount to protection of the industry. Since NAFTA, 200,000 Mexican PyMEs have gone out of business. These PyMEs are similar in size to those of Central America (Equipo Maíz 2003). If Mexico is unable to compete with the US, it is diﬃcult to believe that the Salvadoran economy would fair any better, as it is smaller, less industrialized and its population is in a much more precarious position. In fact, El Salvador has found it diﬃcult to compete with Mexico since signing the Mexico-Triángulo del Norte free trade agreement between Mexico, Guatemala, Honduras, and 6 There is some debate as to whether Mexico’s Peso Crisis, which began the year NAFTA went into eﬀect (1994), can be attributed to NAFTA or whether it was coincidence. As the crisis took place within the context of NAFTA, I treat it as endogenous. While NAFTA was not the direct cause of these policies, they are ﬁrmly tied to the same economic model from which NAFTA emanates. For more on the debate concerning NAFTA’s role in the peso crisis see Whitt 1996, Hinojosa et al. 1996, Blecker 1997, and Gil-Diaz 1998.

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El Salvador. Since ratifying the Triángulo del Norte, El Salvador’s total exports to Mexico did grow but remain insigniﬁcant compared to the country’s imports from Mexico. Immediately after signing the agreement, El Salvador’s trade deﬁcit with Mexico rose by 15 percent.7 El Salvador’s free trade agreement with Chile produced even greater economic losses. In 2001, the year prior to the agreement, Chile exported $16 million worth of goods to El Salvador and El Salvador exported nearly $2 million to Chile. By 2002, the year the free trade agreement went into eﬀect, Chile’s exports to El Salvador grew to $22,266,000 and El Salvador’s exports to Chile shrunk to just $282,000. Exports to Chile have since grown but at a far slower and more variable rate than Chile’s exports to El Salvador. Since the agreement, El Salvador’s trade deﬁcit with Chile has multiplied 967 percent, from $14.5 million in 2001 (in constant 2000 US dollars) to $155 million in 2006 (in constant 2000 US dollars).

III. Why CAFTA-DR? Given these numerous drawbacks, why would the Salvadoran government ever sign onto something like CAFTA-DR? Even more puzzling, why would the Salvadoran government lead the charge in convincing the US and other 7

Trade Between Mexico and El Salvador in US$ Exports Imports Diﬀerence

Before FTA: 2000 (Millions $) 13

After FTA: 2001 (Millions $) 24

2005 (Source: Banco Central de Reservas de El Salvador) (Millions $) 42

257

312

510

−244

−288

−468

Some might argue that the dramatic increase in exports from El Salvador to Mexico over this period means that both parties came out winners in this free trade agreement and that trade is not necessarily a zero-sum game. While I agree that trade is not always a zero-sum game, in some instances this can certainly be the case. El Salvador’s economy has such a large overall trade deﬁcit and balance of payments deﬁcit that closing this gap is imperative. From 1999 to 2005, the Salvadoran trade deﬁcit has grown 76.1%, reaching, $3.96 billion. Its total exports during this period have grown at a far slower rate of just 16.2%, reaching $3.295 billion in 2005. Similarly, between 2000 and 2005, the country’s current account deﬁcit has increased by 16%; between 2000 and 2007 it increased 116% (Source: Central Reserve Bank of El Salvador). Given this context, unless El Salvador and its trade partner both expanded trade at the same rate, the situation most certainly becomes a zero-sum game, as it is vital for El Salvador to reverse this deﬁcit trend.

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countries to negotiate and ratify it? The answer to these questions lies not in the aspects of CAFTA-DR that deal with trade in goods. Rather, it is another aspect of CAFTA-DR that is crucial in explaining the Salvadoran government’s enthusiasm for the agreement: the liberalization of investment and trade in services. CAFTA-DR is designed to beneﬁt a very small, inﬂuential, and relatively new sector of Salvadoran society: the Transnational Capitalist Class (TCC), a fraction of capital particular to the globalized economy. Though free trade agreements are signed by nation-states, this class advances its own interests, which may or may not coincide with the interests of the country from which it originates (Robinson 2004; Robinson and Harris 2000; Sklair 2001). In the case of El Salvador, CAFTA-DR represents the consolidation of this TCC in El Salvador, whose interest in CAFTA-DR do not coincide with any reasonable understanding of a national interest.

Globalization and the Emergence of the Transnational Class As Robinson (2004) points out, the globalized economy is a new, distinct form of capitalism, qualitatively diﬀerent than the formerly internationalized industrial capitalism. Beyond the technological diﬀerences that bring people closer together and make it easier and cheaper to communicate and travel, the globalized economy diﬀers from its predecessor in that processes of accumulation are not nationally embedded but are linked to global markets, beyond any one, or even two, countries. Robinson refers to the process leading to globalization as transnationalization: When national capitalists fuse with other internationalizing national capitalists in a process of cross-border interpenetration that disembeds them from their nations and locate them in new supranational space opening up under the global economy (2004: 54).

Political and economic power gravitates towards those groups linked to transnational capital and the global economy. Finance and investment rule: the spread of transnational corporations (TNCs), the expansion of foreign direct investment, cross-national mergers, worldwide subcontracting and outsourcing, and the expansion of free trade zones are all mechanisms which promote the transnationalization of capital and by extension, capitalists. The ruling class that drives the expansion of this transnational mode of production is the Transnational Capitalist Class (TCC). Members of the TCC are the owners of transnational capital, which has become the hegemonic fraction of capital. The TCC is transnational in character because it is linked to global circuits of production, marketing, and ﬁnance; its interests are not ﬁxed

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in national but global accumulation. Indicators of TCC formation include a large rise of Foreign Direct Investment (FDI), spread of Transnational Corporations (TNCs), increases in cross-border mergers and acquisitions, and the formation of transnational peak business associations (Robinson 2005). However, in general, the TCC is still an emerging, unconsolidated class (Robinson 2004; Sklair 2001). Currently, one can speak of multiple, overlapping TCCs with competing and, at times, contradictory interests; these are the internationalized fraction’s local groups. However, what binds the diﬀerent TCC fractions is that they “increasingly ﬁnd their interests are advanced through an expanded global economy based on worldwide market liberalization” (Robinson 2004: 49). To this end, an inner circle of the TCC has become increasingly aware of its objective interests and is increasingly organized to achieve them (Robinson and Harris 2000; Robinson 2004; Sklair 2001). One critical way in which the TCC secures its interests is via the State, which, in a globalized economic system characterized by the ever-increasing mobility of capital, is no longer the principle organizer of capitalism. Rather, the transnational character of capital accumulation means that the organization of capital must take place on a global level, transcendent of the State. However, States still play a decisive role as the mediator of these interests, negotiating numerous transnational agreements that favor the interests of the TCC; agreements and organizations such as NAFTA, APEC, the EU and the WTO are all reﬂections of the TCC’s interest in worldwide market liberalization (Robinson 2004). Tabb comes to similar conclusions concerning the nature of neoliberalism and the dominance of transnational capital.8 Above all, neoliberalism is the project of the most internationalized fractions of capital, which has been unambiguously successful in achieving neoliberalism’s unannounced goals: the increased dominance of TNCs, international ﬁnanciers, and sectors of local elites. Transnational Capital is able to achieve these goals via Global State Economic Governance Institutions (GSEGIs), such as the WTO, IMF and World Banks, which, in the absence of a global state, take on state-like characteristics. While GSEGIs are projections of power by the most inﬂuential states, such as the US, they actually reﬂect of the interests of transnational capital: To the extent that these countries shape multilateral trade, investment, and ﬁnance, negotiations of the agenda have reﬂected not so much unproblematic national interests but favor their most internationalized corporations and ﬁnanciers, the most dominant sectors of contemporary world capitalism. (Tabb 2004:5)

8 Tabb does not explicitly refer to transnational capital as a TCC, but Tabb’s concept is in line with Sklair’s (2001) and Robinson’s (2004) deﬁnition.

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Transnational capital organizes itself to inﬂuence national states and, consequently, GSEGIs, via industry and sectoral organizations that come together to ensure that their interests play a key role in shaping agreements and frameworks (Tabb 2004; Sklair 2001).

CAFTA-DR: Free Trade Agreement? While the trade measures embodied in CAFTA-DR would have devastating eﬀects on the Salvadoran productive structure, this trade agreement deals with far more than simply trade in goods. In fact, trade in goods is a relatively small part of CAFTA-DR. A signiﬁcant portion of the agreement addresses investment and trade in services.9 Above all, CAFTA-DR is oriented towards the deregulation of foreign capital, with the goal of increasing investment opportunities, the deregulation of investment ﬂows and the protection of intellectual property rights. Some have noted that to call these treaties “free trade agreements” is a misnomer: CAFTA-DR and other free trade agreements should more accurately be called “free investment agreements” due to the central role of investment (foreign and domestic) and the liberalization of services and capital ﬂows. CAFTA-DR deﬁnes trade broadly, essentially as any activity carried out by foreign or domestic capital. Thus, free trade agreements, such as CAFTA-DR, are a “bill of rights” for the protection of transnational capital (Moreno 2004). Of course, CAFTA-DR is not the only trade agreement to focus on investment. Investment played a central role in CAFTA-DR’s predecessor, NAFTA, as well as in numerous other regional projects to which El Salvador has signed on, such as the Mexico-Triángulo del Norte Free Trade Agreement and the Plan Puebla Panama (PPP) (discussed more fully below). According to United Nations Conference on Trade and Development (2006), of the 197 free trade agreements in eﬀect (as of 2006), approximately 55 percent contain chapters on investment and 25 percent contain more generalized investment provisions. Many of these agreements lay out measures for investment that go well beyond the Trade-Related Investment Measures (TRIMs) contained in the WTO in specifying the rights of investors. Investment agreements are increasingly negotiated via free trade agreements instead of bilateral or multilateral investment agreements and include many topics that have been eﬀectively taken oﬀ of the table at the WTO, such as patents on medicines, government procurement, and national treatment of investment (Khor 2005). Thus, these free trade agree9 Chapters include: Government Procurement, Investment, Cross-Border Trade in Services, Financial Services, Telecommunications, Electronic Commerce and Intellectual Property Rights.

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ments are more than simple changes in tariﬀ rates; they institute widespread changes that often complement and deepen structural adjustment policies put forth by the International Monetary Fund and World Bank. Free trade agreements have been able to accomplish what the WTO and, in many ways, the international ﬁnancial institutions have not: to legally change the framework of the nation through international treaty to favor the rights of private investors, especially transnational investors (Moreno 2004). One such mechanism, which has made its debut in CAFTA-DR, is the removal of the concept of sovereign debt through the extension of Most Favored Nation status and National Treatment to US investors. This mechanism prevents El Salvador from prioritizing domestic debt, including wages, salaries and pensions, over debt owed to investors from CAFTA-DR-signatory countries (Caliari 2005). CAFTA-DR’s emphasis on national treatment in all aspects of business prevents El Salvador from implementing policies that favor nationally based companies or investment. It also prevents the government from placing any type of requisite on capital, such as a quota for national content, transfer of technology, or quota for hiring Salvadoran employees, in order to operate or receive certain beneﬁts oﬀered by the government. Thus, a US company could set up shop in El Salvador, utilizing strictly foreign inputs, hiring foreign labor and utilizing technology that it does not have to share with the Salvadoran State. The open-ended deﬁnition of investment ensures that almost any form of activity carried out by capital is covered by such protections and, thus, can freely operate with no requirements or obligations to the country(s) within which it operates. This dynamic frees up capital from the vestiges of national borders.

Evolution of the Salvadoran Economy: From Coﬀee Exporters to US Dollar Importers Over the past 15 years, El Salvador’s economy has transformed from one which is nationally based and agricultural to one which is transnational and based on services, ﬁnance and consumption. The agricultural oligarchy, which once ruled over El Salvador, has converted into a ﬁnance oligarchy whose mode of capital accumulation and consequent interests are no longer embedded in the singular Salvadoran nation-state. While the Salvadoran agricultural sector still employs a signiﬁcant portion of the population, it is in consistent decline and has not served as the motor for economic growth since the early 1990s, when the ARENA-led government, under the leadership of President Cristiani, embarked on implementing a rigid neoliberal economic model. The key to this new model was a move away from agricultural production towards

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industrialization. For El Salvador this would mean the creation of numerous free trade zones to house maquilas and the systematic de-funding of the agricultural sector through policy reform. Over the span of four consecutive ARENA presidencies, the position of agriculture in the Salvadoran economy has become ever more precarious. Cristiani began by cutting agricultural tariﬀs that were as high as 230 percent to as low as 20 percent (under the next ARENA presidential administration of Calderon Sol tariﬀs would again be cut, this time to 15 percent). He then closed the Instituto Regulador de Abastecimiento (Institute of Regulatory Supplies, or the IRA by its acronym in Spanish), which bought corn, beans, and rice at above-market wholesale prices to sell abroad (Equipo Maíz 2003). President Cristiani also privatized the national banks, a move lauded by many in the international ﬁnance world but blamed by others as contributing to the lack of funds available for agriculture and the acceleration of the neoliberal model throughout the country (ANTA 2005). Since then, Presidents Flores and Saca, also from the ARENA party, have worked hard to negotiate and push through CAFTA-DR, a move seen by many as the nail in the coﬃn of the impoverished and dying agricultural sector. The eﬀect of the policies on the nation is clear: agriculture is no longer the basis of the Salvadoran economy. Coﬀee had been the country’s main export and accounted for just 4.8 percent of exports in 200510 and accounts for 1.5 percent of the national economy.11 Today, ﬁnance drives Salvadoran economic growth: in 2007, the sector’s economic activity index averaged 480, by far the most dynamic of all the sectors. Transport, warehouse, and communications came in second, with an index score of 349 while agriculture tied with governmental services for last place, with a score of 123 (BCR). During the latter part of the 1980s and early 1990s, the landed oligarchy which once ruled El Salvador’s economy and government (notoriously known as the 14 families, or “las catorce”) began the process of converting itself into a ﬁnancial oligarchy, ﬁrmly pushing and beneﬁting from El Salvador’s rapid neoliberalization (Wood 2000; Wood 2001; Robinson 2003). According to Wood, it was this change in the economic character of the oligarchy that helped pave the way for an end to the country’s brutal civil war, as new industrial and ﬁnancial elites came to see a negotiated peace as necessary for attract10 Just six years prior, in 1999 (already a good 7-9 years after neoliberal policies took force), coﬀee accounted for 21.5% of exports. Despite rising coﬀee prices over the last three years, coﬀee as a share of Salvadoran exports has not risen above 5.1% (as of 2007) (Banco Central de Reservas de El Salvador). 11 In 1990, coﬀee still made up nearly 5% of the GDP. Agriculture, in general, has declined from 17.1% of the GDP in 1990 to 12.5% in 2007 (Banco Central de Reservas de El Salvador).

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ing foreign capital. Similarly, a dogmatic implementation of the neoliberal model minimized the need for outwardly coercive tactics in keeping down the costs of labor (Wood 2000; Wood 2001). Bank privatizations during the Cristiani presidency provided the primary means for the conversion of agricultural elites to ﬁnancial elites; they boughtup the national banks at cut-rate prices and then used these banks to agglomerate capital: The privatization of the banking sector has been one of the most important mechanisms for the integration of capital, as such, around these banks we ﬁnd a grouping of ﬁrms dedicated to various activities . . . There is a greater relation between family groups not only due to their family ties but also through their alliance of capital.12 (Arias 2005:20).

As a result, ﬁnance capital groups such as Grupo Cuscatlán, Grupo BANAGRICOLA, Grupo Banco de Comercio, Grupo Banco Salvadoreño, Grupo Agrisal, Grupo Poma, Grupo Salaverria Prieto and Grupo Quiros were formed. Each of these groups contain, on average, approximately 35 separate companies, some of which are related to agriculture but the vast majority of which are related to international ﬁnance, insurance, and imports (see Appendix A). Their productive bases are not anchored in any one country but are fused with regional and other foreign capital. For example, in 1996, Banco Cuscatlán (the originator of Grupo Cuscatlán) began expanding its reach into Costa Rica, Guatemala, Honduras, Panama, and the US. Although it originated in El Salvador, Cuscatlán formed and headquartered its controlling group, Corporación UBC Internacional, S.A., in Panama13 (Osorio 2007). The key ingredient in El Salvador’s economy, though, is the remittances Salvadoran émigrés send home to their families in El Salvador. These remittances, which reached $3.7 billion in 2007, have sustained the country’s high levels of consumption given its high rates of poverty.14 Remittances have 12 This author’s translation: “La privatización de la banca ha sido uno de los mecanismos más importantes para la integración del capital, de tal forma que alrededor de los bancos encontramos un conjunto de empresas dedicadas a distintas actividades. . . . Hay una mayor relación entre los grupos familiares no solo por las relaciones de parentesco, sino por la alianza de sus capitals.” 13 Between December 2000 and December 2006 “Salvadoran” banks increased their lending to nonresidents by 540%. This expansion was aided by another measure implemented by the Salvadoran government to promote FDI: oﬃcial dollarization (Osorio 2007). Dollarization, which was passed illegally at the end of 2000, allows banks in El Salvador to acquire US dollars at comparatively low rates of interest and loan them to the rest of Central America. 14 A note on poverty: According to the UNPD, as of 2002, 43% of the Salvadorans live in poverty, a drastic decline from the 65% living in poverty in 1992. However, this number is woefully inaccurate considering that the UNPD measures absolute poverty based upon the basic

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played a critical role in stabilizing the Salvadoran economy and reducing the current account deﬁcit. They have also been a motor for the growth of the TCC, which has proﬁted greatly from the bank fees associated with wire transfers, the large dollar reserves, and the imports these remittances allow Salvadorans to purchase despite the country’s low levels of productivity and high levels of unemployment and underemployment. Almost by deﬁnition, remittances are international in character and represent the eﬀects of a globalized economy, in which national economies are intricately tied and labor ﬂows are transnational. Remittances have contributed greatly to the transnational character of the Salvadoran economy not only because the cash ﬂows come from abroad (almost exclusively from the US) but because the dollars they have brought to the country have contributed to the banking sector’s dollar reserves, allowing it to take a leadership role in the region’s ﬁnance sector, despite the country’s weak economy. It has also enabled the expansion of import companies, which provide almost all of the country’s goods, considering the country produces very little on its own. CAFTA-DR complements the eﬀects of remittances by providing the TCC with access to cheaper imports for it to sell throughout El Salvador and Central America. CAFTA-DR also provides a safe environment for international capital, beneﬁtting the Salvadoran TCC in two main ways: 1) providing investment opportunities throughout the region for which the TCC may take advantage and 2) to encourage foreign investment, from which not only TCC corporations will beneﬁt but so too will its various ﬁnancial institutions. While its public message has emphasized concrete trade-related beneﬁts and job creation, the Salvadoran government also promoted CAFTA-DR as a means of global ﬁnancial integration. Financial integration should, supposedly, raise levels of foreign direct investment (FDI), particularly by attracting international banking institutions to the region. Insofar as CAFTA-DR removes barriers to the free mobility of capital and mandates minimal regulation or requirements of foreign capital, it is not imposing many new policies on the signatory governments: Central America already had a very liberalized ﬁnance sector.15 Nevertheless, CAFTA-DR is seen as a tool to make the area even more hospitable to ﬁnance by harmonizing supervisory standards and regula-

food basket. This measure does not account for other goods and services necessary to survival such as clothing, gas, electricity, transportation and shelter. If one takes into account not just the basic food basket but alsothe cost of social security healthcare (which is automatically deducted from employee paychecks), education for children and rent, the overall poverty level jumps to 84% of families. (Arias 2005). 15 Although CAFTA-DR’s debut of the concept of sovereign debt certainly does deepen the liberalization of the area’s already open ﬁnancial sector.

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tions. To this end, CAFTA-DR uniﬁes the Central American signatories to create a larger, more attractive market for transnational ﬁnance (Osorio 2007). This strategy to promote ﬁnancial integration has already bore some fruit. At the end of 2007, larger transnational banks bought two of El Salvador’s largest capital groups. Citibank purchased the Banco Cuscatlán’s controlling group, UBC Internacional, S.A., for $1.51 billion, and Bancolombia bought Banco Agricola for $1.17 billion. This explosive inﬂux of foreign capital pushed El Salvador to third place in FDI per GDP in Latin America (Latin Business Chronicle 2008). Whether this was a one-time infusion of capital is yet to be seen. However, the Central Reserve Bank of El Salvador predicts greater levels of FDI for 2008 (see Table 1). Table 1 Foreign Direct Investment by Receiving Economic Branch in Millions of $US Receiving Economic Sector

2003

2004

2005 1/

2006 2/

1 Manufacturing

496.1

536.9

853.5

870.2

891.6

902.3

2 Commerce

239.2

278.3

305

356.3

397.3

401.6

3 Services

110.9

110.8

125.2

137.1

177.2

186.1

12.4

12.4

12.4

12.4

12.3

12.3

4 Construction

2007 2/ Mar-08 2/

5 Communications

411.3

746

793.8

793.9

860.6

865.1

6 Electricity

848.2

800.2

800.2

847.6

847.6

847.6

46.8

68.6

67.1

67.7

69.6

69.6

0

0

1.5

29.5

37.8

39.3

9 Finance

161.1

148.1

250.4

321.9

1,489.40

1,489.70

10 Maquila

263.3

294.7

298.9

298.5

399.1

406.5

7 Agriculture and Fishing 8 Mines and Reserves

Sub-Total Inter-Firm Loans TOTAL

2,589.20 2,996.10 3,508.10 3,735.00 5,182.50 686.2

659.4

658.4

650.4

728.5

3,275.40 3,655.50 4,166.50 4,385.40 5,911.00

5,220.10 988.5 6,208.60

1/Revised Figures 2/Preliminary Figures Source: Banco Central de Reservas de El Salvador

Not surprisingly, the Salvadoran business association, ANEP, has enthusiastically backed CAFTA-DR. ANEP membership consists of 43 industry guilds

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ranging from AMPES (the Association of Small and Micro Enterprises) to AZFES (the Association of Salvadoran Free Trade Zones). It is also made up of 153 overwhelmingly large transnational corporations, such as 3M, AES-CLESA, British American Tobacco, Kimberly Clark, Microsoft, Nestle, PUMA El Salvador, Shell El Salvador, Sherwin Williams, Telecom, Telefónica, Telemóvil de El Salvador, Texaco, Xerox of El Salvador, as well as the eight ﬁnancial groups mentioned earlier in the chapter, just to name a few. Through yearly meetings, called ENADEs (National Gathering of Private Enterprise), organized by ANEP and sponsored by some of the bigger TNCs in the country, the association puts out a report outlining its vision for El Salvador with a list of suggested national reforms and legislation it would like to see passed. Many of the suggestions that come out of the ENADEs become law, or are at least placed on the national policy agenda. ANEP, through its ENADEs, is a prime illustration of how the TCC uses industry groups to ensure the advancement of its interests on a national and international basis. Every year the Salvadoran president and other high-ranking oﬃcials attend these ENADEs. In fact, Tony Saca, El Salvador’s current President, was a former ANEP president. Due to the small size of El Salvador’s economy and the dominance of the internationalized fractions within this economy, it should be of no surprise that ANEP pushes hardest for reforms beneﬁting the internationalized fractions, or rather, El Salvador’s TCC. Along with a host of neoliberal reforms, such as the ﬂexibilization of the work force and continued privatization of national services, ANEP, through these ENADEs, was the ﬁrst to make a formal call for the negotiation of CAFTA-DR and, in 2003 and 2004, formally called for its ratiﬁcation.

IV. Alternative Arguments Some may argue that CAFTA-DR, overall, is a bad deal for El Salvador but, given the new dominance of its textile sector, it is the most strategic way for El Salvador to support its lagging textile industry, which cannot compete with China on its own. By signing onto CAFTA-DR, El Salvador secures its largest market for textile exports, the US. CAFTA-DR supporters, in fact, claim that CAFTA-DR will create a united regional front to compete with the entrance of Chinese textile goods into the world market and will preserve both US and Central American jobs. By all accounts, El Salvador’s textile assembly industry (hereafter referred to simply as the maquila sector) will beneﬁt from CAFTA-DR, at least in the short term. This is crucial, because the maquila sector accounts for half of Salvadoran exports (Latin American Monitor 2005). However, the signiﬁcance and duration of this beneﬁt is dubious, at best.

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Under the Caribbean Basin Initiative (CBI), a quota of textile products sewn in El Salvador could enter the US duty-free. However, these products had to contain US thread and tint. CAFTA-DR would eliminate this requirement, allowing it to use regional thread and tint with immediate access to the US market (Moreno 2004). Unfortunately, it is unlikely that these gains will stem the tide of cheap Chinese textiles, which have poured into the US and the rest of the world’s markets since it entered the WTO. To date, the emergence of China onto the world scene has cost El Salvador 27,000 jobs in the maquila sector, putting numerous factories out of business (Nerio 2005). CAFTA-DR supporters claim that, through CAFTA-DR, the US and Central America can unite to confront Chinese imports, saving both the US and Central American textile industry (USTR 2005b). According to a study conducted by the University of Michigan, CAFTA-DR will increase textile and apparel employment by 41 percent. However, as the Economic Policy Institute (2005) points out, similar claims were made concerning Mexico when it signed on to NAFTA but the opposite has been true: since 2000, the share of US apparel imports originating from Mexico has fallen 4.9 percent and the total apparel imports from Mexico have declined by $1.5 billion. During this same period, over 500 maquilas in Mexico have closed, resulting in the loss of 90,000 jobs. Conversely, between 2002 and 2005, total share of US apparel imports from China increased by 8.6 percent. Therefore, it seems diﬃcult to believe that the concessions to the Central American maquila sector gained through CAFTA-DR will increase El Salvador’s ability to eﬀectively compete with China, especially once the Multiﬁber Agreement ends. Of course, even if CAFTA-DR does manage to save El Salvador’s ailing textile industry, it is not at all clear that the beneﬁts are worth the price. Over the past 15 years El Salvador’s maquila sector has grown exponentially. Nevertheless, the lot of Salvadorans has worsened. The maquila industry pays the lowest wages of any sector (wages are adjusted downward in the rural areas to reﬂect the lower cost of living), keeping its workers under the poverty16 line and, arguably, providing the worst working conditions.17 Unlike Asia, where the maquila led to improved standards of living and gave way to more high tech jobs, this has not been the case for El Salvador. By and large the maquila has provided little opportunity for economic or social development. 16 Maquila workers earn a monthly salary of $151.2 per month. The cost of the basic food basket uses 88% of this salary. The basic market basket exceeds this salary by 4.25 fold (Arias 2005). 17 For discussion on the working conditions of the maquila sector, see Quinteros, Garcia, Gochez and Molina. Dinámica de la Actividad Maquiladora y Derechos Laborales en El Salvador. Centro de Estudios de Trabajo, El Salvador, 1998.

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Along similar lines, some may argue that what explains El Salvador’s ratiﬁcation of CAFTA-DR is not necessarily the emergence of a TCC but fear of a presidential win by the left-wing FMLN or an FMLN majority within the Legislative Assembly on the part of the entire capitalist class. CAFTA-DR, albeit not ideal, represents a powerful tool to tie the hands of any future FMLN administration that may seek to implement measures of nationalization and land reform, among others. Through an international treaty that speciﬁes property rights as well as the rights of investors, the FMLN will be limited in the scope of potential reform. While I do agree that CAFTA-DR represents an opportunity for the right wing to institutionalize its preferred policies and to limit possible reforms should the FMLN gain control of the government (the FMLN is the leading opposition party and currently holds a plurality of seats in the Legislative Assembly), this argument appears to be more of a secondary beneﬁt for the right, rather than the driving force behind this agreement. After all, what good is it to protect one’s property if that individual has already lost it to bankruptcy? Finally, some may argue that El Salvador’s ratiﬁcation of CAFTA-DR amounts to nothing more than everyday US imperialism; that El Salvador’s dependence on the US economy, especially due to its need for remittances, forced the Salvadoran government to sign on to CAFTA-DR under the threat of stricter immigration laws. While it is true that El Salvador’s economy is dependent on the US economy for numerous reasons, this argument is still not convincing given the fact that, unlike other signatory countries, such as Costa Rica, Honduras and Guatemala, El Salvador put up not the faintest sign of resistance to the terms of the agreement, either during negotiations or afterwards. In fact, El Salvador was the ﬁrst to ratify CAFTA-DR and worked diligently to pressure the other signatories, including the US Congress, to sign and ratify the agreement. The argument is also unconvincing given the nature of other agreements and projects onto which El Salvador has signed.18 The two most noteworthy are the Plan Puebla Panama and the Mexico-Triángulo del Norte free trade agreement. Plan Puebla Panama (PPP) is a package of projects to create a corridor that would connect all of the Central American countries and Southern Mexico, with the aim of fostering regional integration and facilitating trade with North

18 To date, El Salvador has negotiated free trade agreements with Chile, the Dominican Republic, Panama, Mexico, and Taiwan, in addition to CAFTA-DR. It is also currently in the process of negotiating and/or ratifying bilateral trade agreements with Canada and Colombia and multilateral agreements with the Caribbean Community and the European Union (Ministerio de Economia de El Salvador).

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and South America. The PPP also speciﬁes the modiﬁcation of property rights of hydrocarbons and water as well as the suppression of any constitutional restrictions on owning or renting large extensions of land, opening space for private investment into state dominated sectors, such as electricity/energy and petrochemicals (in the case of Mexico) (Moreno 2002). One of the major projects of the PPP is the regional integration of the energy market, known as SIEPAC by its Spanish acronym, to create a regional electricity market (Inter-American Development Bank 2006), requiring the privatization of any remaining public energy sources. The indirect eﬀect of this privatized energy market would be an estimated $700 million annually in investment in new hydroelectric, gas turbine, and thermal power production (Bank Information Center 2005). In 2001, El Salvador signed onto the Mexico-Triángulo del Norte Free Trade Agreement, an agreement that, from a trade point of view, makes little sense. At the time of signing, trade with Mexico accounted for just 0.9 percent of El Salvador’s exports and 6.2 percent of its imports. After all, the Mexican and Salvadoran economies do not complement each other; they produce similar goods and the Mexican market is one of the most competed-for markets in the region. However, the Mexico-Triángulo del Norte Free Trade Agreement is quite strategic from an investment point of view. Much like CAFTADR, this agreement deﬁnes investment broadly, as almost any activity carried out by foreign or national capital. The privileges accorded to investment are in line with those established in the Multilateral Agreement on Investment (MAI), which has repeatedly failed to pass in the WTO. Through the agreement, Salvadoran capital could gain access to TNCs and foreign capital, not necessarily of Mexican origin, that had set up shop in Mexico since NAFTA. Similarly, the move was strategic for Mexico in consolidating itself as a platform for these TNCs and foreign investors to gain access to the hemispheric market (Moreno 2001). The PPP and the Mexico-Triángulo del Norte Free Trade Agreement demonstrate that one cannot simply attribute El Salvador’s actions to US hegemony, although, I do not doubt that it played a role (and has most certainly played a historic role in El Salvador and the region). The PPP, the trade agreement with Mexico, and other free trade agreements signed by El Salvador, point to a bigger picture, one that goes beyond particular international relations. These projects have the same goals: to deepen transnationalization and provide investment opportunities for transnational actors.

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V. Conclusion Given the fact that El Salvador already enjoyed near complete access to the US market, as well as the likely negative impacts CAFTA-DR would have on the country’s agricultural sector and levels of employment, it is diﬃcult to understand why the Salvadoran government would sign onto such an agreement. This is especially puzzling given the Salvadoran government’s enthusiasm for the agreement and the leadership role it took in pushing the agreement through in Central America and the United States. However, after careful analysis, it becomes clear that this agreement addresses much more than just trade in goods. In fact, trade in goods does not even appear to be the central concern of this agreement. Rather, CAFTA-DR goes to great lengths to assure the rights of investors. For El Salvador, CAFTA-DR is, above all, an investment agreement to beneﬁt its most powerful sector of society, the internationalized capitalist sectors that emerged at the onset of the 1990s. Because of their interest in productive processes that take place on a global level, they serve to beneﬁt from this agreement despite the fact that CAFTA-DR will likely destroy what little remains of a Salvadoran productive structure. This group ﬁts Robinson’s concept of a Transnational Capitalist Class, whose interests are embedded within a global accumulation structure. Thus, CAFTA-DR is just one piece of a larger project to make the world safe for transnational investment and productive processes. Along similar lines, the negotiation and implementation of CAFTA-DR is a decisive victory for the Salvadoran contingent of the TCC in its struggle to wrestle the State from descendent nationallybased fractions of capital. To this end, CAFTA-DR represents the TCC’s consolidation of power within El Salvador.

References Arias, Salvador. 2005. “Salarios y condiciones de ingresos de los trabajadores y hogares en general: Estrategia de ingresos para atacar la pobreza estructural a partir de mayores salarios, generación de empleo estructural y de una mayor inversión publica y privada.” Working Paper El Salvador, Central America. Unpublished. Asociación Nacional de Empresa Privada (ANEP) (www.anep.org.sv). Asociación Nacional de Trabajadores Agropecuarios (ANTA). Meeting with members, El Paisnal, El Salvador. April 25, 2005. Banco Central de Reservas de El Salvador (BCR). Retrieved December 20, 2005 (www.bcr.gob. sv/estadisticas/sr_produccion/html). Bank Information Center. Retrieved December 15, 2005 (http://www.bicusa.org/en/Project. Concerns.16.aspx). Blecker, Robert A. 1997. NAFTA and the peso Collapse: Not Just a Coincidence. Economic Policy Institute Brieﬁng Paper.

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Caliari, Aldo. 2005. “CAFTA’s Debt Trap.” Special Report. Foreign Policy in Focus. Washington, D.C. June 2005. Colegio de Profesionales en Ciencias Económicas de El Salvador (COLPROCE). 2007. Resultados negativos del TLC con EEUU. Colegio de Profesionales en Ciencias Económicas de El Salvador (COLPROCE). Economic Policy Institute. 2005. “Can CAFTA Save Textile and Apparel Producers?” Economic Policy Institute. Washington D.C. August 10, 2005. Equipo Maíz. 2004. ¿Cómo Quedó el TLC? Asociación Equipo Maíz., El Salvador, Central America. ——. 2003. Tratado de Libre Comercio (TLC) entre Centroamérica y Estados Unidos. Asociación Equipo Maíz. El Salvador, Central America. Hinojosa-Ojeda Ratil, Curt Dowds, Robert McCleery, Sherman Robinson, Sherman Runsten, Craig Wolﬀ, and Goetz Wolﬀ. 1996. “North American Integration Three Years after NAFTA: A Framework for Tracking, Modeling and Internet Accessing the National and Regional Labor Market Impacts”. Los Angeles: University of California-Los Angeles, School of Public Policy and Social Research. Inter-American Development Bank. 2006. Construction of SIEPAC Power Transmission Line Begins in Central America Retrieved August 30, 2008 (http://www.iabd.org/news/articledetail.cfm? artid=3182&language=En). Khor, Martin. 2005. “Beneﬁts and Costs of FTAs.” The Star, Monday August 29, 2005. Retrieved August 30, 2008 (http://thestar.com.my/news/story.asp?ﬁle=/2005/8/29/focus/11893235&sec= focus). Latin American Monitor. 2005a. “Central America Report.” Business Monitor Internacional. London, UK July 2005. ——. 2005b. “Central America Report.” Business Monitor Internacional. London, UK August 2005. Latin Business Chronicle. 2008. “Venezuela: Lowest FDI per GDP.” Retrieved August 30, 2008 (http://www.latinbusinesschronicle.com/app/frontpage.aspx). Madrid, Cori. 2008. “The Impacts of NAFTA on Poverty and Inequality in Canada, the US, and Mexico: Results from the Luxembourg Income Study.” Unpublished. Ministerio de Economia de El Salvador. (http://www.minec.gob.sv/). Moreno, Raul. 2004. El Tratado de Libre Comercio entre Estados Unidos y Centroamérica: Impactos económicos y sociales. Impreso en Ediciones Educativas, Diseño e Impresiones S.A. Minagua. ——. 2002. “El Plan uebla Panama; una pieza en el rompecabezas del Area de L Libre Comercio de las Americas.” February 8, 2002. Retrieved December 7, 2005 (www.lainsignia.org/2002/ febrero/dial_oo2.htm). ——. 2001. “El Tratado de Libre Comercio Mexico-Triangulo Norte de Centroamérica (TLCM-TN): Mitos y Realidades.” In Libre Comercio: Promesas versus Realidades. Ed, Beat Schmid. Fundacion Heinrich Boll., Mexico. Nerio, Roger “Blandino.” FMLN Deputy. Meeting with the Committee in Solidarity with the People of El Salvador. San Salvador, El Salvador April 25, 2005. Nuñez Salmerón, Luis. 2005. “¿OMC vs DR-CAFTA?” La Prensa. Nicaragua. Retrieved October 13, 2005 (www.bilaterals.org/article-print.php3?id_article=2416). Osorio, Juan Antonio. 2007. El CAFTA-RD: Implicaciones para la intregración ﬁnanciera. San Salvador, El Salvador: Banco Central de Reserva de El Salvador, 2007-01. Retrieved August 31, 2008 (http://www.bcr.gob.sv/publicaciones/documentos_trabajo.html). Robinson, William I. 2005. “Gramsci and Globalization: From Nation-State to Transnational Hegemony.” Critical Review of International Social & Political Philosophy 8, (4) (12): 559-74. ——. 2004. A Theory of Global Capitalism: Production, Class and State in a Transnational World. John Hopkins University Press, Baltimore.

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——. 2003. Transnational Conﬂicts: Central America, Social Change, and Globalization. New York: Verso. Robinson, William I., and Jerry Harris. 2000. “Towards A Global Ruling Class? Globalization and the Transnational Capitalist Class.” Science & Society 64, (1). Scott, Robert, Carlos Salas, and Bruce Campbell. 2001. NAFTA at Seven: Its Impacts on Workers in all Three Nations. Washington DC: Economic Policy Institute. Sklair, Leslie. 2001. The Transnational Capitalist Class. Oxford: Blackwell. Tabb, William K. 2004. Economic Governance in the Age of Globalization. Columbia University Press, New York. United Nations Conference on Trade and Development (UNCTAD). Issues Related to International Arrangements (www.unctad.org). United States Trade Representative (USTR). 2005. “CAFTA Levels Playing Field.” CAFTA Policy Brief-February 2005 (www.ustr.gov). ——. 2005b. “CAFTA Facts: ‘Textiles: United to Compete with Asia.’” CAFTA Policy Brief. April 2005 (www.ustr.gov). Whitt, Joseph A. 1996. The Mexican peso crisis. Economic Review January/February. Wood, Elisabeth Jean. 2001. “An Insurgent Path to Democracy.” Comparative Political Studies 34, (8): 862-88. ——. 2000. Forging Democracy from Below: Insurgent Transitions in South Africa and El Salvador. Cambridge, UK: Cambridge University Press. World Economic Forum. 2007. The global Competitiveness Report 2007-2008. World Economic Forum.

The Migration-Development Model Can Serve Two Masters: The Transnational Capitalist Class and National Development Rubin Patterson Africana Studies; Sociology and Anthropology The University of Toledo

Abstract International migrants are generally of two distinct classes; namely, highly skilled and highly credentialed professional workers, on the one hand, and low skilled manual workers, on the other hand. This chapter seeks to improve conceptual clarity and attempts to theorize the distinct ways in which the diﬀerent global classes aﬀect development back home. Many of the ﬁndings in the chapter are counterintuitive. The chapter debunks erroneous observations and clariﬁes the relationships between global classes and the migration-development model. Hence, the chapter explores of the aﬀects of global classes on the migration-development model as well as the aﬀects of migration-induced development on global classes. Keywords world systems theory, power transition theory, transnational capitalist class, migration-development model, denationalization

Introduction The migration-development model postulates that under the right conditions and policy approaches, migration can be an eﬀective development strategy. The idea involves a government working with selected nationals to emigrate to core nations in order to enhance their human, social, and economic capital, and subsequently investing some of this complex of capital back into the homeland for its socioeconomic and infrastructural development. In the global South, some governments, NGOs, and some intellectuals even look upon the migration-development model as being counter-hegemonic since the strategy seeks to boldly alter their peripheral or semi-peripheral status within the global political economy, much to the displeasure of the West. While this nation-state-oriented migration-development strategy may appear counter-hegemonic to the economic and political interests of core nations, it

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can also reinforce and globalize a hegemonic relationship for the transnational capitalist class (TCC) over workers. This chapter is an exploration of how the migration-development model can serve the dual objectives of global class domination and national development. By “national development,” I mean a total transformation of the internal economy and the elevation of that economy to a higher level within the external global economy. As this transformation and elevation occur, we would witness marked improvements in the three dimensions of the human development index: longer life expectancy, greater educational attainment, and higher GDP/capita. In addition to dramatic improvements in human development, we would also witness broad transformation in the nation’s infrastructure that is benchmarked against global standards. By global class domination, I mean what Faux (2006) stated parsimoniously: “Markets within nations inevitably produce groups of people who have more money and power than others. So it would be odd if global markets did not create an international upper class of people whose economic interests had more in common with each other than with the majority of people who share their nationality” (12). In other words, national markets and global markets produce winners and losers. Within nations, coalitions of economic interests from around the country utilize their collective access to the state for favorable policies on behalf of their groups. Similarly, coalitions of economic interests (i.e., oligarchies) from around the world shape institutional processes to beneﬁt their global supply chains and ﬁnancial investments. I will demonstrate in this chapter how the migration-development model facilitates both/either the global South counter-hegemonic project and/or the transnational capitalist class hegemonic-reinforcing project.

Perspectives—World-Systems and Power-Transition Theories Neither world-systems theory, power transition-theory, nor the transnational capitalist class perspective is suﬃcient to explain the dual masters of the migration-development model (i.e., national development and transnational capitalist class agenda). World-systems theory argues that core nation-states will seek to both determine and control the processes by which a peripheral nation advances to the semi-periphery, or to a higher status within the semi-periphery, as well as, in the rarest occasions, from the semi-periphery to the core.1 Japan’s advancement from the semi-periphery to the core as well as South 1

For an understanding of world-systems theory application in this latest wave of globalization, see Global Social Change: Historical and Comparative Perspectives, edited by Christopher Chase-Dunn and Salvatoree Babones (2006).

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Korea, Taiwan, Mexico, and Turkey’s advancement from the periphery to elite status within the semi-periphery have been “orderly” processes that protected the core as a whole and the broader international system. But some non-core nations present tougher challenges to the core than others. China is the preeminent example here as it presents an unparallel challenge today for the core. As Swaine and Tellis (2000) note, “Managing the rise of China constitutes one of the most important challenges facing [the core] in the 21st century” (1). Additionally, according to Kahn (2006), “China has in fact emerged as a major power without disrupting the international order, at least so far. It has accepted an invitation by the Bush administration to discuss becoming a ‘responsible stakeholder’ in the American-dominated international system” (A6). However, with the new crescendo of Chinese nationalism (accompanying broad national development) and “power exuberance” (Tammen and Kugler 2006), particularly China’s Great Power self-image, there is no solid evidence that China would be paciﬁed with a subordinate position within the world system. With the Chinese government reporting that its foreign exchange reserves were approaching two trillion dollars (Cha 2008), its ability to upend the US economy by sharply diversifying that reserve out of US dollars and into other currencies and investments (but thereby harming itself in the process) or discontinuing the underwriting of US government deﬁcits, and its being, almost unapologetically, the world’s greatest violator of intellectual property rights with impunity in the interest of narrowing the technology gap with the West, China is demonstrable in its intentions to become an intrepid world leader within the core. Political and international relations theorists have attempted to develop power-transition theories (Tammen et al. 2000; Organski 1958) to explain the decline of nations and regimes from hegemonic status in the midst of rising challengers. Not unlike world-systems theory, those theories tended to focus on contentious hierarchies with a dominant state and/or Great Powers vis-àvis weaker states. The struggle for power and security by both stronger and weaker states, according to these (and realist) perspectives, is unending. The logical process remains unchanged while only the speciﬁc states that are ascending and descending change: “The basic argument of power parity is that key contenders in the international system challenge one another for dominance when they anticipate that the prospects of overtaking the regime leader are credible” (Tammen and Kugler 2006). While China is obviously exceptional for a variety of reasons, many leaders in other countries are also attempting to leverage their strategic assets to reposition their respective economies to higher value-added positions within the global economy. According to this perspective, other nations associated historically with the South may not have designs

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on ascending to the core, but they are all seeking to either ascend to the semipheriphery if not ascend to the upper-tier of the semi-periphery. Core nations maintain order within the international system and they seek to “preserve the extant international ‘rules of the game’ with minimal changes in an eﬀort to accommodate . . .rising [challengers] at the lowest minimal cost” (Swaine and Tellis 2000:234). Just as history teaches that rising powers tend to be assertive in seeking fundamental adjustments to the international system, history also teaches that nations with privilege status within an existing international system will seek to preserve that status by containing rising powers.

Global Class Analysis: Transnational Capitalist Class The United Nations Conference on Trade and Development (UNCTAD) reports on the increasing transnationalization of corporations. The three principal measures of note have been: (1) the ratio of foreign sales to total sales, (2) the ratio of foreign assets to total assets, and (3) the ratio of foreign employees to total. Leslie Sklair (2001) notes that we have begun to witness perhaps an even more telling metric of transnationalism, which is the signiﬁcant rise in the percentage of foreign board members to total board membership. Given the ﬁnancial potency of today’s sovereign wealth funds, coupled with America’s ﬁnancial meltdown and desperate calls to capital markets around the world for cash infusions into corporate giants, the likelihood of increased transnational corporate board membership is high. Early-twenty-ﬁrst century nationstate-based TNCs are already plenty transnational—as witnessed by most of their sales, employees, and assets are outside their country of registration—but the “transnational” in transnational corporations is about to grow in importance with further multinational representation of board membership and equity ownership. Today’s unprecedented levels of transnationalization of economies and corporations as well as other forms of globalization have left the world-systems perspective and power-transition theory with exceedingly less explanatory and predictive powers than in earlier decades. World-systems and power-transition theories provide insight, but they are inadequate alone in explaining the migration-development model today. Though inadequate alone, the transnational capitalist class perspective is nonetheless helpful in that it explains how members of the capitalist class located in many nations, in association with various oligarchic enterprises, have more in common with investment issues than they have with workers of their respective nations or to a speciﬁc ﬂag. The world’s richest 2 percent of the adult population collectively owns over half the world’s household wealth (Davies et al. 2006). As Robinson (2005) explains, we are moving to a global

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economy, wherein the production process no longer results in national circuits of accumulation but rather the globalization of production results now in global circuits of accumulation. The following example illustrates this perspective. The Walton family, the founder and outside steward of the world’s largest retailer, Wal-Mart, share common interests with state and commercial leaders in China, who ensure that low-cost workers produce low-cost products for sale in the United States and other countries. Most workers at Wal-Mart in the United States work for low wages, over 40 percent of workers receive no healthcare coverage, and many of the employees and their families rely on public assistance. Meanwhile, the Waltons and Chinese industrialists—whose employees work for an average manufacturing wage of 67 cents per hour and whose companies produce over $20 billion in products for shipment to WalMart (which is one-eighth of all Chinese exports to the United States)—grow even more wealthy. More than 80 percent of the 6,000 factories constituting Wal-Mart suppliers were in China in 2004 (Goodman and Pan 2004). Inequality growth rates in China have been among the world’s fastest growing over the past decade, which has helped trigger in excess of 75,000 riots across the country annually in recent years (Cody 2004). Two years ago, Wal-Mart and Bharti Enterprises—India’s largest cell phone operator—agreed to open scores of Wal-Mart super stores all across India. Such a move is destined to wipe out millions of the more than 12 million “mom-and-pop stores”, as only about 3 percent of Indians presently shop in Western-style big-box stores (Mahapatra 2006). Once again, the Walton family of the United States and Sunil Mittal—the CEO of Bharti Enterprises whose net worth is approximately ﬁve billion dollars—stand to both gain, as millions of Indian business will fail and American wages and beneﬁts remain unattractive due to the increasing power of the world’s largest retailer and the largest private employer in the United States. This scenario illustrates circuits of accumulation moving from the national level to the global level. But, in each instance with China and India, the other side of the argument is that both countries become more modernized and thus increase their ability to reposition themselves to higher value-added locations within the global production chain. In other words, this example illustrates the national to global circuits shift, but it also illustrates episodes of national development. The transnational capitalist class perspective also contends that heavy industry, such as automobiles, is primed to become more transnational. In 1953, GM’s CEO, Charles Wilson, proclaimed, “What’s good for General Motors is good for America.” This sentiment enabled the Big 3 to work with Washington to aid and abet their success with subsidies and favorable regulations against foreign competition. One obvious example was the government bailout of Chrysler in the late 1970s. Another example was the “voluntary” quotas

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Japan “self-imposed” on shipments of Hondas, Toyotas, and Nissans to America at the behest of the Reagan administration in the mid-1980s, which was in response to pressure from the principal stockholders of the Big 3 who were principally American. Such acts are anachronisms in the twenty-ﬁrst century where, going forward, according to the transnational capitalist class perspective, extremely wealthy stockholders and big institutional investors in Asia, the European Union, and the United States will not only be buying stock in automakers not historically identiﬁed with one country, but also companies that are merged with other companies across the planet. In 2007, Robert Lutz, GM’s vice chairman, stated that Toyota has more inﬂuence in Washington, DC, than does GM. Toyota has more members of congress and senators ﬁghting for their interests than does GM because the former has built factories in recent years in a number of states while GM has been closing factories (Bunkley 2007). The head of GM recently stated that if the company did not subcontract jobs to China, it would not be able to pay retirement and health beneﬁts for existing American retirees.2 What we are witnessing is “ﬁerce capitalist competition [not among nations as world-systems or power-transition theory would suggest, but] among oligopolistic alliances of transnational capitalists” (Robinson 2005:156). As stated above, today’s globalization has altered the world political economy beyond full utility of the world-systems and power-transnational theories. Yet, at the same time, globalization has not reached the point of transnationalism where nation-states no longer matter or even where geostrategic calculations are not made among nationally based elites who seek to inﬂuence state policies on behalf of the local.3 Core nations do have a stake in some nations experiencing national development and experiencing an orderly transition of nations ascending to higher levels within the semi-periphery or even to junior levels within the core. That is, state and commercial leaders in all three tiers have allegiances to transnational oligarchic enterprises that have interest in an “orderly moving equilibrium.” Nevertheless, it is unwise to discount the sense of nationalism among the elite in many countries, which would appear to contradict the transnationalist capitalist class perspective now gaining currency as an eﬀective explanation of today’s advancing globalization.

2 See testimony by Joshua Eisenman. Testimony before US House of Representatives International Relation, Subcommittee on Africa, Global Human Rights and International Operations. 2005. 3 Saskia Sassen (2006) discusses such contradictory and complementary national and global assemblages in her new book, Territory, Authority, Rights: From Medieval to Global Assemblages. Though she contends that nation building and globalization are not necessarily antagonistic, she acknowledges that authority is moving from states to a world of private power.

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Michael Mandelbaum (2005) was only partially correct when he stated that the rest of the world beneﬁts from the services provided by the United States. A more accurate observation would be that the global TCC beneﬁts from the services provided by the United States as much as American citizens. Americans are experiencing a thinning social-welfare network, ﬂat incomes, and increases in unavoidable big-ticket items such as housing, energy, and food. At the same time, the US government still spends more on the military than the rest of the world combined, to a large extent to ensure the ﬂow of oil throughout the world. Other TCC members throughout the world beneﬁt more from this assurance, be they in the oil exporting states themselves, in the production juggernauts such as Japan or Taiwan, a Western power such as France, or a Third World nation such as India. Kennedy (1987) referred to this as imperial overstretch, but that concept was appropriate in the nation-state era of hegemony, not in this global class hegemony era. The US government is not so much in an imperial overstretched mode in serving the needs of its citizens as much as it is struggling to continue serving the needs of the global TCC. It should also be stated that the TCC is not one monolithic bloc. Each capitalist entity has its own private interests, but many of them have collective interests in terms of state and interstate regulation. Such a situation is not unlike in America with the National Association of manufacturers and the Pharmaceutical Research and Manufacturers of America. These trade associations comprise corporations that are ﬁerce competitors, but they do collaborate as it relates to industry-speciﬁc tax loopholes and subsidies that beneﬁt the entire industry. In a similar way, the TCC is comprised of transnational oligopolistic entities that are ﬁerce competitors but who collectively can beneﬁt from weakened regulatory regimes nationally and internationally, lower taxes, and wider subsidies.

Migration-Development Model The model of migration-development may be new to scholarship, but it is hardly new in the real world. Numerous historical cases exist to support the postulates of the migration-development model. Sweden, Italy, and Ireland, among others, were poor, famine-stricken in the 1850s, but between 1870 and 1910 one in six Swedes left for North America, and half the Irish and a third of the Italians ﬂed their respective homelands. Migration played huge roles in these formally grindingly poor Western European countries closing the gap in some respects with Britain and the United States (Legrain 2006) as a result of the migrants expanding their human, economic, and social capital in more advanced economies and subsequently reinvesting some of that

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capital back into their respective homeland. A century later, several Asian nations advanced in part with the migration-development model in a manner that was speciﬁc to their region and, at that historical moment, in comparison to what the Western European nations experienced in another era. Fifty years ago, South Korea and Taiwan were as poor as many of today’s poorest nations. The migration of raw technical talent (i.e., students) to the United States, primarily after the passage of the watershed 1965 immigration act, resulted in extensive graduate engineering and science education and high-tech employment. In the 1950s and 1960s, the stay-rate in the United States among Taiwanese and Korean students who ﬁnished their programs was between 90 and 95 percent. The stay-rate decreased to no more than 75 to 80 percent in the 1980s, and among holders of doctorates, the stay-rate hovers today between 50 to 60 percent. As we see from this trend, as these societies are increasingly able to provide for a higher standard of living, expand the basis for professional advancement that would keep them on the cutting-edge in their ﬁelds, and widen opportunities for wealth accumulation are demonstrated, the stayrates decrease. Right now China and India are increasingly providing such opportunities and, not surprisingly, we have begun to see a decline in the state-rates among these tech-savvy Chinese and Indians graduates of US universities. None of these Asian nations would be in their current advanced semi-peripheral positions if it were not for the brain circulation to the United States where their human capital could grow in lucrative technology ﬁelds, particularly IT. The United States has about 30 percent of the world’s foreign students. Among students enrolled in America’s thirty top business schools, 35 percent are foreigners. Education acquired in Western universities has been instrumental in the internal transformation and the external elevation of national economies that have experienced substantial and sustained gains.4 With the exception of India under the leadership of prescient Jawaharlal Nehru, most of twentieth century’s successful application of the migrationdevelopment model appears to have come about serendipitously. There is abundant documented evidence that Nehru called for many of the educated class to emigrate to the core to grow human and economic capital. Nehru was preaching what he had practiced as he himself had had his brain circulated through Cambridge University. Conversely, there is equally abundant evidence that leaders in Taiwan, Korea, China, and other nations in the global South 4

Westerners certainly are not inherently more intelligent than others. Since the Industrial Revolution, they simply have pioneered and possessed the most advanced technical knowledge and instruments in the aggregate. Going back in history, others played such pioneering roles, from ancient Egyptians to the Chinese to Arabs and many, many others at a time when Westerns were in the Dark Ages.

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lamented the migration of the newly educated youth to the United States and other core nations for graduate study. Another supporter of the migration-development model is the UN Population Fund, which argues that rich nations opening their borders wider to migrants from poor countries is the best way to assist them, far better than foreign aid. Despite the historical evidence of the migration-development model and authoritative studies by the UN population Fund and the International Organization for Migration and others, many still are not convinced for diﬀerent reasons that the beneﬁts of the migration-development model are real. Some minimize the brain circulation aspects of the countries cited while others challenge the model for attempting to swim against the ﬂow of history in the Twenty-ﬁrst century, which is supposed to be all about transnationalism and globalization rather than the promotion of nation-state development. That is, they contend that rolling out a migration-development model is a nationalist project—of “my people ﬁrst”—in an era when denationalizing dynamics are reconﬁguring the state to serve the needs of oligopolies with global reach. Elites today show more concern with the eﬃcient functioning of the global system than with any particular nation. Among the ways that this is demonstrated is with increased deregulation and privatization, which detach economic entities from the nation, reduce welfare-state regimes, and exacerbate inequality. Fareed Zakaria (2008) notes that there is a growing gap between America’s globally-oriented corporate elite and the majority of American people. We are witnessing this growing detachment between classes not only in core nations, but also in semi-peripheral nations on the move, such as China and India. The numbers of billionaires have exploded in India and China, the two countries with the largest numbers of illiterate citizens who are living in abject poverty. In the broadest sense, we can identify two categories of elites in nations located in both the global North and the South. One category champions the denationalization projects and the reconﬁguration of regulatory processes to serve global oligopolies rather than the heretofore mass citizenry of the nation. This category of elites (i.e., transnational capitalists) looks upon national projects rather anachronistically. Transnational capitalists, whether they are citizens of a Northern or Southern country, seek to expand and exploit global circuits of accumulation rather than shallower national circuits. The other category of elites (nationalists or the “my people ﬁrst” crowd) champion the elevation of the nation in the hierarchy of nations and the broad expansion of socioeconomic growth in the nation. The two are not necessarily mutually exclusive: members of the TCC in the periphery all the way up to top-tier semi-periphery countries can also want their respective nations to develop infrastructurally and to advance along the

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three dimensions of the human development index. Hence, the combined imagined communities or double consciousness of the TCC in the periphery and semi-periphery can be of both their transnational class interest and the national interest. Each can be a means to the other’s end. Ironically, both categories of elites can champion the migration-development model to carryout their agenda as the model can obviously serve both masters. The TCC elites champion the model since it generates more technical labor in the global pool that diﬀuses production talent all over the world in order to ultimately reduce wages. GATS under WTO advocates a GATS Visa to generally help with the smooth, eﬃcient movement of service workers between countries. With other examples, we have witnessed heightened eﬀorts for more technical immigrants, H-1B in the United States, Green Cards in Germany, fast-tract approval in Ireland, European Union-wide (EU) Blue Card for skilled immigrant labor across the EU, and educated professionals in Canada and Australia. These are wealth-producing subsidies transferred from the South to Western countries, as the former bore much of the education costs of the professionals who subsequently emigrate. Even those who emigrate to the US as foreign students manage to subsidize the US economy since over 70 percent of foreign students pay with personal or other funds from outside the United States. The Commerce Department reports that education is consistently within the top ﬁve service export areas of the US economy (Khardria 2006). While in the United States on work visas, salaries of professional and technology workers tend to be lower than salaries of their American counterpart and they are taxed on that income. So not only does foreign talent help maintain industry proﬁtability, but the US government collects over $20 billion in payroll taxes from Indian H-1B visa holders (D’Costa 2008). Indians, primarily, and others who provide the back oﬃce operations, software development, and other services do so in India at remarkably lower rates that result in greater proﬁts for Northern TCC elites. In this sense, the migration-development model for India has been good for the global TCC, in the North and the South. Illustrating Migration-Development via Indian, Taiwanese, and Chinese experiences, members of the TCC are linked together through countless threads, from business associations to investments to board memberships to alma maters to common economic interests, and to common leisure interests. “For example . . . members of the JP Morgan advisory network include, from Japan, former chairman and president of Mitsubishi Corporation, Minoru Makihata; one of India’s richest men, Ratan Tata of Tata Industries; and former Mexican president Ernesto Zedillo” (Rothkopf 2008:47). Makihara attended Harvard and Zedillo got his MA and PhD at Yale. Many of the world’s

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business and bureaucratic elites were students at the world’s leading universities. We can turn up the microscopic lens on a few wealthy Indians and their educational backgrounds as well as at a couple of Indian associations for an illustration: Mukesh Amabani (a net worth of $43 billion), Stanford University; Anil Ambani ($42 billion), University of Pennsylvania; Azim Premji ($13 billion) studied at Stanford; and Sunil Bharti Mittal ($12 billion) studied at Harvard. These elite universities—along with institutions such as the Indian Institutes of Technology, Oxford University, Peking University, National Taiwan University—not only provide forums for building social capital but also for facilitating a convergence of compatible regulatory standards throughout the world. The Indian Venture Capital Association (IVCA), as well as the Indus Entrepreneurs, which was founded in Silicon Valley, comprises venture capital and private equity ﬁrms that mobilize capital, entrepreneurial, and innovation opportunities to enhance industry in India as well as help immigrants from the Indian subcontinent to start new technology companies in Silicon Valley and other tech centers in the United States (Legrain 2006). Most of the members of the executive board of IVCA are Harvard and Chicago graduates. In 1998, IVCA had only twenty-one companies registered, but by 2008 nearly sixty companies were registered. Available IVCA venture capital in India stood at $7 billion in 2006. IVCA partners include the conglomerate Thomson Financial, the Connecticut-based venture capital ﬁrm of Stern Fisher, and the European Private Equity & Venture Capital Association. These associations have been instrumental in Indians either founding or heading new technology start-ups in Silicon Valley. Additionally, nineteen of the top twenty Indian software businesses were either founded by or are managed by Indians whose brains have circulated in the United States or other advanced economies (Legrain 2007). NASSCOM (National Association of Software and Service Companies) is the Indian-based association of companies with some 1,200 members that produce and purchase software development and software products to serve many of the world’s largest corporations. NASSCOM members’ software products and services are the backbone of the global oﬀshore IT-business processing operation (BPO) industry. By 2010, the IT-BPO industry is expected to generate $60 billion in sales or about 8 percent of Indian GDP.5 Not only are nineteen of the top twenty software ﬁrms founded or run by an Indian circulated brain through the West, but two of the three executive board members of NASSCOM

5

See NASSCOM website: http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?id=5365.

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studied at Harvard. Transnational Corporations (TNCs) based in the core beneﬁt directly from the subsidized supply of foreign IT workers (D’costa 2008). Evidence of US-based TNCs beneﬁting from lower costs and eﬃcient IT-BPO in India is demonstrated through the American corporate community, which does not complain that eight of the top ten companies in the United States (in terms of having the largest number of H-1B visa employees) are Indian ﬁrms. These employees are not only lower paid, but they help build requisite expertise back in low-wage India. The expertise that these Indian ﬁrms, such as Infosys and Tata Consultancy Services, and their H-1B employees transfer back to India assists all of the world’s largest corporations with high-quality, low-cost software and other forms of knowledge-based industrial services. Information Technology tycoons and major IT trade associations such as the Information Technology Association of America work in conjunction with the Indian diasporic community, Indian multinationals, and with Washington to keep India as the top recipient of H-1B visas and to sustain the eﬀort to increase the number of visas. Indian software ﬁrms are sought out for oﬀ-shoring not only because of their supremely high quality, but also because a company can hire as many as ﬁve software experts in India for the cost it takes to hire just one American. Banks—even before the September 2008 Wall Street meltdown—have begun to go beyond merely outsourcing their back oﬃce operations to India, but they are now increasingly oﬀ-shoring higher value-added ﬁnancial services tasks such as investment research (Timmons 2008). Oﬀ-shoring of more advanced ﬁnancial service jobs accounts for a signiﬁcant share of the more than 150,000 jobs lost by this industry in the United States in 2007 alone. Findings are similar when we examine countries such as Taiwan and China. As a result of the extensive graduate education that many Taiwanese received, sometimes getting graduates from entire undergraduate classes, and subsequent high-tech employment, helped to advance the technical human capital of Taiwanese, particularly in Silicon Valley. They organized ethnic associations such as the Monte Jade Science and Technology Association, which in the 1980s worked to support professional career enhancement among Taiwanese nationals within Silicon Valley companies. A decade later, the associations increasingly turned their attention to supporting entrepreneurship in the Valley as well as founding technology ﬁrms in Taiwan. With government support, the Hsinchu Science-Based Industrial Park (HSIP) was modeled on Silicon Valley. Similar to the way Silicon Valley is the basis of US high-tech and an Information Age-enabled comfortable life in America, HSIP does the same and more for Taiwan. With a workforce now of over one hundred thousand, output from HSIP directly accounts for some 5 percent of Taiwan’s GDP. That

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might not sound like much, but the entire San Francisco Bay Area, which includes Silicon Valley and other areas of Northern California, only accounts for about 3 percent of US GDP, and it is well understood how crucial the technology-Mecca of Silicon Valley is to the US economy. Moreover, some 40 percent of the ﬁrms in HSIP were founded by repatriates who were educated in the United States, most of whom worked for a period before returning to their homeland. HSIP is the basis of the Taiwan Stock Exchange’s status as the world’s largest emerging stock market (Saxenian 2006). The migration-development model has played an indispensable role in the success of the HSIP, and the Park has been a powerful engine in the national development of Taiwan, as the economy has been both fundamentally transformed internally and highly elevated externally within the global economy. Taiwan now produces three-quarters of the world’s notebook computers, twothirds of the monitors, 40 percent of the digital cameras, 55 percent of the PDAs, and so on (Saxenian 2007). All of this successful information and communications (ICT) original equipment Manufacturing (OEM) subcontracting— manufacturing products according to specs and shipping them under the vendors’ brand name (e.g., Dell)—made Taiwan the third largest ICT producer in the world. But, because of sharply rising manufacturing wages on the island, over the past decade and a half, subcontractors began to rapidly and vastly open new operations and further subcontract work to the mainland, particularly in the Guangzhou and Shanghai regions. A consequence of this heady transformation was China’s eclipsing Taiwan as the third largest ICT producer. Foreign ﬁrms, mostly from Taiwan, accounted for 85 percent of ICT exports out of China. As Taiwan and China have advanced from the periphery to the top-tier of the semi-periphery, and China is attempting to thrust itself into a leading role within the core, national development has been undeniable. Taiwan’s infrastructure is as advanced as that of any core nation while China’s is modernizing rapidly, witnessed by the construction of its version of the US interstate highway system. Data in Table 1 clearly illustrates the dimension of the national development (i.e., human dimension and infrastructure) that has occurred in those countries that have successfully implemented the migration-development model. But these national development successes, all made possible by migrationdevelopment, have also been hugely valuable for the transnational capitalist class. Back in the mid-1970s, when Taiwan was ﬁrst being established as an OEM subcontractor, manufacturing wages in that country were only 5 percent of US manufacturing wages. Shifting more and more manufacturing out of the US industrial Midwest to countries such as Taiwan, South Korea, Singapore, the Philippines, Mexico, and others has also been beneﬁcial to the US

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Table 1 Human and Infrastructure Dimensions of Development China

India

Mexico

South Korea

Taiwan

Human Development Indicators 19951 20072

1995

2007

1995

2007

1995

2007

1995

2007

757

77

Life Expectancy

69

72

60

63

71

75

71

77

Education Index

.39

.837

.21

.620

.81

.863

.91

.980

–

–

1,950 6,757

1,230

3,452

5,213

10,71 5,249

22,029

–

30,100

Income

Infrastructure 2000

2007

2000

2007

2000

2007

2000

2007

2000

2007

2

7

1

16

5

21

41

74

28

64

Internet Broadband Users3

<1

5

<1

<1

<1

4

8

31

1

21

Telephone Users3

18

69

4

23

27

83

115

129

137

169

1995

2007

1995

2007

1995

2007

1995

2007

1995

2007

Paved Highways4

0.162

1.5

0.515

1.6

0.065

0.124 0.013

0.079

–

0.038

Physicians

–

1066 2,4397

606

6217

1576

–

Internet Users3

1986

–

NOTES: 2007/2008 UNDP Report 2 1995 UNDP Report 3 Per 100 persons, ITU 4 In millions of kilometers 5 Physicians per 100,000, 2007/2008 UNDP Report 6 People per physician, 1995 UNDP Report 7 Ministry of the Interior, Republic of China 1

members of the TCC. Manufacturing wage arbitraging is not nearly as attractive in the cases of Taiwan and South Korea today as it was thirty years ago. Labor costs in those two countries are no longer 5 percent of US labor costs; rather they are up to 27 percent in the case of Taiwan and 62 percent for South

–

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Korea (Bureau of Labor Statistics 2008). The massive exporting prowess of OEM producers in the case of Taiwan and Chaebol behemoths in the case of South Korea, such as Samsung, coupled with their substantial savings, has enabled these economies to accumulate huge foreign exchange reserves (FERs). A signiﬁcant share of these reserves has been used to purchase US securities, including US Treasury bonds. Therefore, brain circulation through the migration-development model admittedly transformed and elevated the Taiwanese and Korean economies, but as opposed to being expressly counter-hegemonic in the form of challenging the Western powers, this development strategy also increased proﬁtability of American TNCs through wage arbitraging, and the savings of workers in the semi-periphery were used to underwrite US government debt. Chinese brain circulation through America as well as ﬁnancial capital circulating from its diaspora into China were indispensable to the nation’s internal transformation and external elevation within the global economy. More than 60 percent of overseas investments into China over the past two decades came from its diaspora. Led by the US foreign policy and ﬁnancial elite, Western powers were the principal architects of the existing global capitalist system that integrated elites throughout the world. The outcome of brain circulation has been the diﬀusion of American institutionalized practices such as property rights and banking and accounting standards, as well as the creation of a transnational elite throughout the world who would accept their newfound wealth while at the same time accepting that their country would remain second- or third-tier powers vis-à-vis America and other core Western powers. Students and professionals who circulate through the United States are expected to predominately have their aﬃnity for American institutions reinforced before returning to their respective countries and both consolidating those legal and ﬁnancial institutions as well as growing wealth-creating businesses that can spin oﬀ capital for other international investment into the United States and attract new foreign capital from the United States. This new architecture was regarded as the best way to ensure global security and frameworks for wealth-creation on behalf of ﬁnancial investors around the world. The Chinese Institute of Engineers (founded in 1979), the Silicon Valley Indian Professional Association (founded in 1987), the Monte Jade Science and Technology Association (founded in 1990), and the Indus Entrepreneurs (founded in 1992), among many others were founded as professional associations and social networking organizations to facilitate resource mobilization among members of ethnic communities. Co-ethnic sources of capital enabled ﬁrms of non-white, non-US nationals to launch entrepreneurial technology enterprises when they initially faced discrimination in the capital markets.

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Such endogenous sources of capital underwrote a signiﬁcant share of technology start-ups among foreign-born entrepreneurs in Silicon Valley. China has remained within the top three of countries sending students to the United States for higher education. The stay-rate was historically high, now it is beginning to decline in the wake of the growing opportunities for work on the world’s factory ﬂoor. With the shifting of mass manufacturing from the United States and other industrialized countries to China, China has had multiple uninterrupted years of enormous trade surpluses. This has contributed to China’s having some $1.5 trillion in foreign exchange reserves, which allows the country to help keep, among other things, the US government aﬂoat. Thus, China’s migration-development model has been good for the global TCC as well. Of the more than $10 trillion of US government debt, half of it is held by foreigners. As of October 2007, Japan held $592 billion of US Treasury securities, while China held $388 billion, and oil exporters held another $130 billion (Morrison and Labonte 2008). Fareed Zakaria (2008) notes that Americans are borrowing 80 percent of the world’s surplus to support their consumption. China’s ($1.5 trillion), Japan’s ($880 billion), Taiwan’s ($266 billion), and South Korea’s ($240 billion) collectively account for half the world’s foreign exchange reserves. This global ﬁnancial scheme has allowed the American ﬁnancial and industrial elite to also proﬁt from foreign workers while at the same time maintain a quality of life in the United States—known as the bribe wage—for workers. Workers, under this scheme, for decades were able to purchase larger and more expensive homes, regularly upgrade their gas guzzling autos, and pay for college education. The funds came from three sources: (1) the savings of workers abroad; (2) from current account deﬁcits as low-wage nations were building widgets for US-based TNCs that were shipped back to the United States for sale, resulting in trade surpluses for the subcontracting nations; and ﬁnally (3) from oil-exporting nations that continually have huge trade surpluses. For decades, the global TCC beneﬁted from this arrangement and some countries were actually able to experience genuine national development. Hence, neither national development (where it has occurred), advanced global transnational production, nor the transnational capitalist class could have operated as eﬀectively and eﬃciently as they have without brain circulation under the migration-development model established beforehand. At the same time, the development model has also been useful to the nationalist elites as well as categories of skilled and professional workers. Inequality is increasing rapidly in the midst of the explosive growth and national development. The gini index for China increased from .44 in 2002

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to .47 in 2007, while the gini measure of inequality in India increased from 33 in 2000 to 37 in 2007. Another way of getting at the level of inequality is by shining a light on the sharp up-tick in the number of billionaires. In India the number of billionaires in 2007 stood at 34, including four of the world’s top ten richest (Forbes 2008). As for China, between 2006 and 2007, the number of billionaires in China jumped from ﬁfteen to sixty-six (Barboza 2007). So the migration-development model can contribute to growing inequality in countries where the model is eﬀectively applied. However, the model can also contribute to national development. Once again, China makes for a powerful example. In one generation, China has lifted more people out of poverty than the number of people who live in both the United States and Mexico combined. Such a national development outcome could not have occurred without the application of the migration-development model.

Conclusion In this chapter, I have explained the migration-development model from both its scholastic and politico-economic strategic roots as employed by global and national elites. I have also examined this model theoretically from the frameworks of world-systems theory, power-transition theory, and the transnational capitalist class perspective. The conceptual model and its diverse theoretical underpinnings were applied to the cases of India, China, South Korea, and Taiwan. I have attempted to demonstrate that, contrary to the argument of many advocates of the South, the migration-development model is not necessarily a counter-hegemonic strategy for challenging Western powers. While it is true that the migration-development model can contribute mightily to national development—in terms of human capacity and infrastructure—it can also reinforce the entrenched dominance of the transnational capitalist class throughout the world.

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Morrison, Wayne and Marc Labonte. 2008. China’s Holdings of US Securities: Implications for the US Economy. Congressional Research Service. Retrieved October 13, 2008 (http://fas.org/ sgp/crs/row/RL34314.pdf ). Organski, AFK. 1958. World Politics. New York: Knopf. Republic of China. 1997. “Life Expectancy in Taiwan. Retrieved October 17, 2008 (http:// www.gio.gov.tw/info/taiwan-story/society/edown/table/table-3.htm). Robinson, William. 2004. A Theory of Global Capitalism: Production, Class and State in a Transnational World. Baltimore: Johns Hopkins University Press. Rothkopf, David. 2008. Upper-Class: The Global Power Elite and the World They Are Making. New York: Farrar, Straus and Giroux. Sassen, Saskia. 2006. Territory, Authority, Rights: From Medieval to Global Assemblages. Princeton: Princeton University Press. Sklair, Leslie. 2001. The Transnational Capitalist Class. Oxford: Blackwell. Swaine, Michael and Ashley Tellis. 2000. Interpreting China’s Grand Strategy: Past, Present, and Future. Santa Monica: RAND. Tammen, Ronald et al. 2000. Power Transitions: Strategies for the 21st Century. New York: Seven Bridges Press. Tammen, Ronald and Jacek Kugler. 2006. “Power Transition and China-US Conﬂicts.” The Chinese Journal of International Politics 1:35-55. Retrieved December 9, 2006 (http://cjip. oxfordjournals.org/cgi/content/full/1/1/35). Timmons, Heather. 2008. “India’s Role Is Growing: Outsourcing Banks Now Extends to ‘Middle of the Oﬃce’ Jobs.” New York Times. August 12: C1. United Nations Development Programme. 1995. “Human Development Report: Gender and Development.” Retrieved October 17, 2008 (http://hdr.undp.org/en/media/hdr_1995_en_ indicators1.pdf ). ——. 2007. “Human Development Report 2007/2008: Fighting Climate Change: Human Solidarity in a Divided World.” Retrieved October 14, 2008 (http://hdr.undp.org/en/media/ HDR_20072008_EN_Complete.pdf ).

Toward a Theory of Global Proletarian Fractions Jason Struna Young Migrant Scholars/Universities Without Walls

Abstract Globalization provides the material basis for the existence of a global proletariat. However, the worldwide working class is not homogeneous. The global proletariat is fractionated on the basis of workers’ physical mobility relative to nation-states and regions, as well as the geographic scope of workers’ labor-power expenditure relative to the circuits of production in which they are engaged. On that basis, three transnational fractions of the global working class are observed: the dynamic-global, the static-global, and the diasporic-global; and three local fractions of the global working class are observed, including the dynamic-local, the static-local, and the diasporic-local. In order to theoretically locate this fractionated perspective on the global working class this chapter reviews Marxian class theory, class and contemporary perspectives on globalization, global social formations and the global proletariat, as well as labor-capital relation and the global proletariat as it relates to Marx’s concept of simple reproduction. After a discussion of the fractions and directions for future research a typology is provided. Keywords global working class fractions, transnational class relations, global capitalism, Marxian class theory

Let me explain by introducing Gabriel Rozman—a Jewish technologist of Hungarian roots who was raised in Uruguay, educated in America and now heads the Latin American operations of India’s biggest software/outsourcing company, Tata Consulting Services of Bombay. “[The imperative is to] ‘follow the sun,’ he said. We like to start a project in Bangalore or Bombay [sic], then as the day moves on, move it to our oﬃces in Eastern Europe, and then to Latin America.’ ” Tata expects its engineers in each place to be equally trained, speak English and have computing infrastructure to seamlessly receive and hand oﬀ projects. This is a global-scale business (Friedman 2006).

Friedman’s (2006) column highlights two tendencies linked to globalization: ﬁrst, that human beings themselves are physically mobile, that border-crossing is more common and easier than ever for some people; and second, that even if a speciﬁc human being does not physically cross a border, participation in transnational production processes like the one described above ensures that a person’s labor-power does. Workers in transnational production chains

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contribute incrementally and cumulatively to the creation of commodities that range from software to automobiles, and from food to fuel. The parts of a cellular phone may be created from components that derive from China, Israel, and the UK, and may be assembled by workers from Indonesia, Mexico, and Turkey in factories in California, Taiwan, or South Africa. The global division of labor creates interdependencies on the part of capital that operate across borders and within ﬁrms, as documented by Dicken (1996), Robinson (2004), and others (Cox 1996a; Sklair 1999), but it also creates interdependencies and relationships on the part of workers as well. As Robinson (2002) remarks, “globalization has involved a profound and comprehensive restructuring of the world productive apparatus, including the nature of the world production process and of work . . .” (p.1060). In fact, as he continues, globalization as a set of unfolding social practices can be identiﬁed as “the global fragmentation and decentralization of what were once national productive processes, the dismantling of national economies and construction of a single global production system” (Robinson 2002: 1060). In other words, globalization represents the expansion of productive economic activity to more-than-national contexts, and thus constitutes a new stage of capitalist development (Laibman 2005; Robinson 1998).1 So what does the “globalization of production itself ” or the expansion of business to the “global-scale” imply for the concept of class? How do these global interdependencies aﬀect class theory? While Embong (2000) admonishes us not to “assume the formation of transnational classes just because there are domestic classes that serve in global forces of production” (p. 989), Sklair (2000) instructs us that “a transnational capitalist class based on the transnational corporations is emerging that is more or less in control of the process of globalization” (p. 5). However, Poulantzas (1975) maintains that classes exist only in the context of broader and more determinant social formations like nation-states and cultures. Although Poulantzas still asserts that the labor-capital relation conditions class identiﬁcation fairly completely, these social formations have diﬀerent eﬀects on production relations in diﬀerent societies. Still, Robinson (2004), among others discussed below, maintains that the globalization of the production process constitutes the material basis for transnational social formations, including classes, and that economically and politically there is evidence that social formations are themselves becoming

1 Brieﬂy, the stages of capitalist development according to Laibman (2005) are Mercantilism, Liberalism, Imperialism, and Globalism. From his perspective we are transitioning into the fourth, global, stage.

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global. Except for positing the material basis for a global working class that exists in relation to global capital however, the global proletariat remains under-explained and under-theorized. The globalization of production and concomitant social formations, the existence of a transnational capitalist class, and the impact that speciﬁc social contexts have on class relations requires us to carefully re-specify the concept of class if it is going to retain meaning relative (especially) to subordinate groups globally. The ways in which the capitalist project have unfolded since the late 1960s “challenges,” as Cox (2003) puts it, “the Marxist schema of the primacy of class-oriented identities. The nineteenth- and early twentiethcentury concepts of class have been muddied by the emerging social structure” (p. 85). Cox is correct—issues with the concept of class derive from the actual changes that have taken place since the collapse of the Keynesian compromise and the Soviet Union. Liberalization, structural adjustments, austerity programs, welfare-reform, etc.—in short, national state and transnational state apparatus projects aimed at revitalizing the world capitalist project relative to the 1970s world-economic crisis, eﬀectively dismantled the class compromise that labor and capital struck in the Post-War era. These “emerging social structures” create problems with class theory too: as the conditions on the ground changed before our eyes and the capitalist system began to reﬂect transnationalized relations of production, we were left only with the skeleton of a class analysis based on historically speciﬁc, and now faded social realities. The Midwest rustbelt may indicate the disappearance of industrial production as the hegemonic mode of economic activity in the United States, but it does not indicate the disappearance of the living, breathing workers who once acted in the capacity of industrial proletarians. Workers in that context had to be rearticulated (or not) into global forces of production in various ways—often to the detriment of their standard of living, as they became former union members who took service sector jobs, for example. On the same hand, the activities associated with industrial production did not disappear: they were merely relocated by capital seeking to take advantage of wage diﬀerentials in diﬀerent regions of the global system. Thus the labor-capital relation itself may have shifted from an internal relationship relative to nation-states and national classes, to a partially external relationship relative to nation-states, but it still remains a labor-capital relation. We must not throw the baby out with the bath water, however. Class analysis based on relations of production (the Marxist schema) in the global system can be made relevant if the relations that workers share as a class are speciﬁed. We can also still indicate the class orientation of individuals and groups in the global system on the basis of objective criteria: labor-power expenditure for

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the production of commodities on the part of one party in exchange for compensation from another party who retains the product is indicative of a laborcapital relation regardless of the distances in which such a relation is lived, and regardless of the rate(s) and national origin(s) of compensation. While it is true to a degree that “the ‘working class’ in its conventional meaning is now divided among the three levels of the social hierarchy and these three components can be shown to have very divergent interests” (Cox 2003: 85),2 the global proletariat can also be shown to exhibit similarities and convergent interests across its several fractions. As Cox implicitly asserts, the working class remains a class even if its various representatives enjoy various levels of (dis)comfort and (under/over)consumption. My contention is that workers can be identiﬁed as such at various levels of the “hierarchy,” and that the working class can again make sense—this time in a global system. First, the fact that the global proletariat is “highly heterogeneous,” as are proletariats in national contexts, must be acknowledged (Robinson 2002: 1065). Sklair (2001) has shown with great eﬃcacy that the Transnational Capitalist Class is fractionated, that the fractions often overlap in practice (although they are analytically distinct), and that the interests of the transnational fractions often exist in contradiction to the interests of fractions of those that maintain national orientations. A similar perspective on global working classes, one that is able to analytically diﬀerentiate various strata while maintaining a view of the class as a whole, is necessary. Second, the absolute mobility of workers should not be the only criterion for their identiﬁcation as either global or local/national. It is true that insofar as certain workers are required to cross borders ﬂexibly (with legitimacy relative to states) or inﬂexibly (with de jure illegitimacy relative to states) during the conduct of their labor, they can be said to belong to a transnational fraction of the global proletariat. Workers in such a fraction or fractions expend their labor-power in cross-border contexts. That idea is not in dispute. However, the activities in which certain other workers engage—those whose productive activities are geographically ﬁxed, but whose products are geographically diﬀuse relative to ﬁrms and nation-states—indicate a degree of transnationality. Transnational production chains by deﬁnition involve workers from diﬀerent regions realizing labor-power in products incrementally. If “the direct relationship of labor to its products is the relationship of the worker to the objects of his [sic] production” (Marx 1974: 65), then the relation of the worker to transnationally produced objects of production is a transnational relation.

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Lower, middle, and upper levels, presumably.

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Thus, even workers who do not cross borders still participate in transnational relationships relative to one another, and relative to capital as well. Third, the fact that some workers are not transnational either physically or by virtue of their participation in a transnational production chain does not preclude their belonging to the global working class. Whether or not a worker is excluded or only partially articulated into the global system does not indicate that a worker is not dominated by the system. Generalized systemic diﬀusion (Laibman 2005) indicates a worldwide proletariat. Thus, some fractions of the global proletariat remain local in nature. In this chapter I propose that the fractional determination of workers in the global system is dependent on two primary factors: ﬁrst, on workers’ physical mobility relative to nation-states and regions, that is, whether the worker moves to the point of production, or remains ﬁxed relative to a point of production; and second, on the geographic scope of workers’ labor-power expenditure relative to the circuits in which they are engaged, that is, whether the products move successively to the worker (as in transnational production chains), or the products remain geographically ﬁxed (as with local production chains). Using these criteria, I constructed a six-fraction typology of the global working class. The worldwide proletariat can be analytically divided into dynamic-global, static-global, and diasporic-global fractions that can collectively be conceived of as being transnational; and dynamic-local, static-local, and diasporic-local fractions that can generally be conceived of as national or local. Before going any further into the nature of global proletarian fractions and the utility of such a fractionated perspective, this chapter reviews Marxian class theory, class and contemporary perspectives on globalization, global social formations and the global proletariat, and the labor-capital relation and the global proletariat as it relates to Marx’s concept of simple reproduction. After discussing the fractions of the global working class, I address some of the implications concerning a spatial-productive fractionated perspective and directions for future research.

Marxian Class Theory It is not enough to state that “from the assumption of the primacy of production ﬂows the Marxist deﬁnition of class” (Clark and Lipset 2001:40). The speciﬁc linkages in the relations of production conditioned by the production of commodities have to be made clear—if only at ﬁrst in an abstract and general manner. In fact, capitalism itself is characterized by Marx as speciﬁcally relating to the production of commodities—objects produced speciﬁcally for exchang—(not the production relation per se):

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The wealth of those societies in which the capitalist mode of production prevails, presents itself as ‘an immense accumulation of commodities,’ its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity. (Marx 1906: 41)

For Marx, the analysis of political economy begins not with the production process itself, but with the objects being produced in their general, abstract form: A commodity is, in the ﬁrst place, an object outside us, a thing that by its properties satisﬁes human wants of some sort or another. The nature of such wants, whether . . . they spring from the stomach or from fancy, makes no diﬀerence. (Marx 1906: 41)

It is in the subsequent analysis of commodities that it is posited that one’s relation to this process of objectiﬁcation—as worker or as purchaser-recipient of labor-power and the value advanced by it—determines one’s class relation (Marx [1933] 2006). A member of the working class is deﬁned as someone who sells his or her labor-power as a commodity itself (to capital) for the purpose of commodity production for a given amount of time. The buyer of labor-power, so conceived, who accumulates both private productive property and surplus value (value advanced) on this basis is deﬁned as a member of the capitalist class. As suggested above, the speciﬁc form of the commodity is irrelevant— the object can be either material, a cog or a book, or the object can be immaterial, the engineer’s description of a cog (intellectual property) or the contents of a book. Regardless, these objects are the embodiment or objectiﬁcation of human labor-power, and their production in-itself conditions class relations. In order to make the idea of the class relation relative to commodity production more determinant, we turn to commodity circuits. Commodity circuits refer to the process of commodity exchange and production in the abstract; to Marx’s conceptualization of “the general formula for capital.” The idea is that under capitalism, money (M) is exchanged for commodities (C ) and commodities are then exchanged again for money, this time in a greater magnitude (M’ ). The circuit of capital (in general) is classically expressed as M-C-M’ (Capital 168). For our purposes, ultimately the determination of class relations in the global system, it is useful to expand Marx’s basic expression, M-C-M’ into M-C . . .P . . .C’-M’, as Dicken has done in the spirit of Capital, Volume II (Marx 1992 [1893]), where Money is used to purchase ‘commodities’ (materials, labor). These commodities are transformed by the process of production [P, and C’ ]. The monetary value of the original commodities is enhanced. The increased money is used to purchase . . . [ad inﬁnitum]. (Marx1998: 180)

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While this general circuit can be broken down conceptually into “three distinct circuits” including the circuit of money capital, the circuit of productive capital, and the circuit of commodity capital—usually depending on the focus of investigation—it is important to remember that the ‘distinct’ circuits are “in fact . . . part of a completely interconnected whole” (Dicken 1998: 180) and that each systemically relies upon the other. Of course, it is possible to discuss the circuit of money capital independently from productive capital, or commodity capital—as we do when we discuss ﬁnancial ﬂows, securitization, global banking infrastructure, etc. But, as Marx says of the formula, “this whole circuit presupposes the capitalist character of the production process, and hence this production process as a basis, as well as the speciﬁc social relations determined by it” (1992 [1893]: 142). To put these social relations in familiar terms, the capitalist production process constitutes a mode of production based on exploitation.3 “All pursuit of commodity production becomes at the same time pursuit of the exploitation of labor-power,” and therefore the exploitation of those who expend labor-power, namely laborers on an individual basis as well as collectively (Marx 1992 [1893]: 120). To be clear, labor-power, “or capacity for labor is to be understood [as] the aggregate of those mental and physical capabilities existing in a human being which he [sic] exercises whenever he produces a usevalue of any description” (Marx 1906: 186). It is this capacity that the capitalist requires in the realization of commodities (for exchange), and it is this capacity that the capitalist seeks when he encounters the worker in the market place. What makes the relationship diﬀerential or exploitative upon the execution of the contract to sell labor-power on the one side, and to buy it on the other is the way in which the exchange-value obtained from the production process is divided among the parties contracted. Without a long exegesis of the labor theory of value, the process by which value is added to commodities is production, not exchange. Thus, the only source of value creation is labor-power itself. However, in the creation of values the worker is only entitled to a predetermined amount based on the terms of her contract with the capitalist, and the socially determined level of exchange-value necessary to reproduce the worker’s subsistence. The capitalist, though, is entitled contractually to the extra value created in the process of production. Simply put, the worker receives a lesser amount of exchange-value than the labor-power equivalent she puts into it, and the capitalist receives a greater amount of value than he advanced relative to wages and capital expenditures (Marx 1906). 3 I am grateful to an anonymous reviewer at the Global Studies Association of North America 2008 for pointing out that class antagonism is a meaningless concept without the notion of exploitation.

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Again, this diﬀerential, exploitative relation constitutes the essential moment of class formation, and thus of class antagonism. The class positions and places, fractions, segments, situations and categories—qualifying terms for intra- or extra-class groups (Poulantzas 1975; Wright 2005)—all take place in the context of the labor-capital relation, and it is on this basis that the Marxian project of explaining capital and class begins.

Class and Contemporary Perspectives on Globalization Robinson (2004) argues, “that the rise of transnational capital is the basis for economic globalization” which is “ in turn . . . the material basis for the emergence of a single global society marked by transnational political and cultural processes and the global integration of social life” (p. 9).4 While the nature of those economic and social processes that deﬁne globalization are developed more fully in the argument below, suﬃce it to say here that the primary basis for the materialist argument that Robinson (2004) makes relates to “the decentralization and functional integration around the world of vast chains of production and distribution” (p. 11).5 Insofar as this is a central tendency of contemporary capitalist practice, it is thus “the globalization of the production process itself” that provides the basis for the transnationalization of classes (Robinson 2004: 10). The crux of the perspective that he has developed has primarily revolved around the formation of what he and Sklair (2001) call the Transnational Capitalist Class (TCC) (1996; 1998; 2002; 2003; 2004; 1999; 2001). However, Robinson (2004) does deal with the concept of class in general by stating that by class he means “a group of people who share a common relationship to the process of social production and reproduction and are constituted relationally on the basis of social power struggles” (p. 37). Further, he deals with the working class speciﬁcally, in the context of globalization deﬁned above:

4 The political aspect here refers speciﬁcally to the Transnational State Apparatus discussed below; the cultural, I assume, refers to something like Sklair’s (2001) culture-ideology of consumerism; and the social refers to global class formation (Robinson 2004). 5 Production chains as deﬁned by Dicken (1998) refer to “a transactionally linked sequence of functions in which each stage adds value to the process of production of goods or services” (emphasis added p.7). Thus, production chains refer to concrete relations engendered in actual productive activities. Moments within chains add value to the products being produced as the commodities move from point to point—from, for example, mine to factory, ﬁeld to mill, desktop to billboard, or producer to distributor. Commodity circuits on the other hand refer to the process of commodity exchange and production in the abstract, or to Marx’s conceptualization of “the general formula for capital” discussed above.

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jason struna The proletariat worldwide and subordinate groups more generally are clearly caught up in the process of transnational class formation. A transnational working class is increasingly a reality, a class-in-itself, meaning that it exists objectively . . .. But this emerging global proletariat is not yet a class-for-itself; that is, it has not necessarily developed a consciousness of itself as a class. (Robinson 2004: 43)

Beyond the positing of a global or transnational proletariat (of which there are diﬀerences conceptually, see below), Robinson (2004) has not yet developed a fuller account of what such a working class looks like. Although he states that, “workers who make the various component parts . . . in the assembly of a Ford car in a singular” transnational production chain that may “span whole continents . . . enjoy an internal relation to one another” (Robinson 2004: 43), a theoretical explication of this and other ways proletarian fractions are articulated into the global capitalist project is required. Sklair (2001) is best known, regarding class theory, for his proposition that the Transnational Capitalist Class (TCC) is fractionated into four (often overlapping) groups: the corporate fraction, the state fraction, the technical fraction, and the consumerist fraction—discussed in detail below (Sklair 2001: 17). That having been said, his seminal work lacks a theory of class formation that is determinant and speciﬁc. That is, he never thoroughly speciﬁes what makes a capitalist, transnational or not, a capitalist and a worker a worker. The closest approximation to such a statement is reﬂected in his treatment of Domhoﬀ ’s (1996), class dominance theory, which is: Based on three methods of research: analysis of membership networks (the institutional connections between people and organizations), money ﬂows (between people and institutions), and outputs of networks (which involves content analysis of texts). (Sklair 2001: 13)

What the research program yields or “sets out to prove,” according to Sklair (2001), is that there is indeed a “small social upper class” that is marked by “ownership and control of a corporate community . . . that is integrated with a policy-planning network and . . . has great political power” (p.13). Thus, by using class dominance theory, even in the absence of a strict theory of (antagonistic) class formation, Sklair (2001) is capable of identifying the segment of a social system—an identiﬁable elite—most responsible for its direction and maintenance at the highest levels. Even though Sklair (2001) points out that the project undertaken by Domhoﬀ (1996) relates speciﬁcally to American political, economic, and social power relations, he also insists that the same research program can be applied to transnational contexts insofar as similar sets of relationships are established in cross-border networks, money ﬂows, and network outputs. The

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thrust of his work, then, is the establishment of a theory of “a transnational dominant class” as it relates to the global system (Sklair 2001: 16).6 With such a project in mind, Sklair (2001) makes four propositions: 1) that there is a “transnational capitalist class based on . . . transnational corporations that is more or less in control of the process of globalization,” 2) that “the TCC is beginning to act as a transnational dominant class in some spheres,” 3) that “the globalization of the capitalist system reproduces itself through the proﬁtdriven culture-ideology of consumerism,” and 4) that the TCC “is working consciously to resolve two central crises:” the global “class polarization crisis,” and the global “ecological crisis” (2001: 5). Thus Sklair’s (2001) orientation, while not theoretically specifying the basis of class formation, does account for both class antagonism—the TCC is class conscious and hegemonic, and subordinate classes regardless of consciousness are subject to TCC domination— as well as the materially oriented nature of the TCC’s economic project, and the problematics that result from systemic reproduction that is expansionist in nature. Robert Cox (1996a) states, “polarization exists both among and within countries” in the global system, and exhibits itself in a “social structure [that] takes the form of a three-part hierarchy” (p. 26). Keeping in mind that this theory of social structure is not a restatement of world-systems theory where the world is partitioned into core, periphery, and semi-periphery, but an approach to global systems where interdependence conditions hierarchal relations, not regional location, Cox (1996a) states that at the top are people who are integrated into the global economy, including everyone . . . from the managers on down to the relatively privileged workers who serve . . . production and ﬁnance in reasonably stable jobs. The second level . . . includes those who serve the global economy in more precarious employment—an expanding category segmented by race, religion and sex as a result of the “restructuring” of production . . . The bottom level consists of superﬂuous labor—those excluded from the global economy . . .; the objects of global poverty relief and riot control. (1996a: 26)

Here, relative articulation into the global economy conditions social stratiﬁcation, but the strata, speciﬁcally the ﬁrst, can be further broken down in the context of class: “as a consequence of international production, it becomes increasingly pertinent to think in terms of a global class structure alongside or 6 Global system theory for Sklair is centered “on the concept of transnational practices, practices that cross state borders but do not originate with state agencies or state actors. Analytically, they operate [in] the economic, political, and cultural-ideological [spheres]. The whole is what is meant by the global system” (2001: 4). Proponents of this school of thought include Robinson and Harris (2000).

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super imposed upon national class structures” (Cox 1996b: 110). From this perspective, then, transnational classes interact with and reconﬁgure national class relations on the basis of conditions marked by production itself. While Embong (2000), discussed below, highlights some diﬀerences between Cox and Sklair’s conception of the top of the transnational class hierarchy, the transnational managerial class—understoon as those who occupy institutional positions in organizations like the OECD, World Bank and IMF, as well as the primary agents of the TNC (Cox 1996b)—and the transnational capitalist class—analytically viewed as the four fractions comprising the corporate, state technical, and consumerist elements of the global dominant class (Sklair 2001)—can both be viewed as analogs of the same core idea. However, for Cox, the lower rungs of the transnational managerial class occupy a portion of the “middle strata” that also include workers and bureaucrats who operate within the context of the global economy. Cox’s (1996a; 1996b) perspective is thus a bit more diﬀerentiated relative to middle and working class groups in the global system, and provides some nuance to class hierarchy in that realm, but Sklair’s (2001) perspective provides more speciﬁcity relative to the contours of the upper echelons of the global class structure. Clearly, a perspective that is capable of both is called for. Embong (2000) correctly states that “Class is one of the most widely used and most thoroughly contested concepts in the social sciences” (p. 989), as exhibited in the varieties of class and social stratiﬁcation analysis discussed here. But as Embong also states, it “has been conspicuously absent in recent post-structuralist, post-Marxist and state-centered approaches emerging in historical and sociological scholarship” (p. 989). He points out that class analysis in its traditional forms has been understandably preoccupied with “national societies” and the “history, politics, and culture” of particular societies considered internal to nation-states (p. 990). Such an orientation is problematic, especially under current conditions of globalization and transnational production ﬂows. Thus Embong (2000) takes as his starting point “production relations and the global system” in his analysis of transnational class relations (p. 990). The core of his perspective is based on “three interrelated issues: (1) globalization and the reconﬁguration of class relations; (2) emerging class structure and the dominant class; and (3) subordinate groups vis a vis the dominant class” (Embong 2000: 991). At the center of these forces is the transnational corporation. As these ﬁrms penetrate diﬀerent regions and come to be viewed as companies without countries that are “exerting inﬂuence upon members of the domestic classes,” they “[reconﬁgure] class relations transnationally”

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(Embong 2000: 992). Following Cox (1996b) and Sklair (1991), Embong (2000) locates a segment of the capitalist class in a transnational formation, but cautions that Cox (1996b) and Sklair (1991) tend to “overwork their analytical tools” (Embong 2000: 993). He contends that their perspectives tend to be “too broad and amorphous” as a result of their lumping in of transnational managers and capitalists, which he regards as too inclusive of diverse groups (Embong 2000: 993). Consequently, Embong (2000) advocates the diﬀerentiation of transnationally dominant groups into two analytically distinct “concepts—the transnational capitalist class and the transnational managerial class” (p. 994). Thus the dominant transnational class can be fractionated into “bosses” at the top of the hierarchy, and managers in the “lower fractions” (p. 994). As regards the subordinate groups relative to the transnational dominant class, “the key question concerns the criteria for analyzing the relationship between the TNCs and the domestic classes” (Embong 2000: 997). Speciﬁcally, this involves those workers engaged directly with TNCs and “those on the periphery” of transnational production that engage in the reproduction of conditions necessary to the operation of TNC’s systems (Embong 2000: 997). It also concerns the Coxian hierarchy of “subordinate groups [that] (1) consist of the new middle stratum; (2) established (unionized and non established (non-unionized) workers; and (3) the peasantry and the marginals” (Embong 2000: 998; Cox 1996). However, Embong cautions that workers, even in conditions where transnational migration has occurred, “though standing on the same side of the production relation . . ., are not integrated with one another” (2000: 998). The subjective side of class formation remains paramount to Embong (2000), as does the theoretical primacy of nation-state centric classlife. Therefore, while it is possible that there exists a transnational dominant class, from Embong’s (2000) perspective, the subordinate classes remain decidedly national in most contexts. That said, the materially contingent basis of class formation still suggests that the global proletariat “exists objectively” and constitutes “a class-in-itself ” (Robinson 2004: 43) even if the nation-state remains a signiﬁcant source of social structuration (Giddens 1986). The same social forces that reﬂexively constitute the agents and actors responsible for capitalist projects of globalization and dominant class formation—the Transnational Capitalist Class itself, Transnational Corporations, the Transnational State Apparatus (discussed below) (Sklair 2001; Robinson 2004; Dicken 1998)—have an eﬀect, no matter how diﬀerential and disparate across regions, on the subordinate class in a global context. Thus a materialist theory that is capable of balancing the emergent

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nature of global proletarian class formation highlighted by Robinson (2004) with the problematics of intra-class hierarchy indicated by Cox (1996a), and the relation of the TCC (Sklair 2001) and the TNC to subordinate classes (Embong 2000) is necessary. Fortunately, the Marxian toolkit enables us to begin to do just that.

Global Social Formations and The Global Proletariat Keeping in mind Marx’s perspective on class formation—that capital is a mode of production characterized by the realization of commodities, that commodity production itself is the basis for antagonistic class relations, that the laborcapital relation is exploitative, and that the circuits of production in which capital is engaged fully condition “the speciﬁc social relations determined by [them]” (1992 [1893]: 142)—we can begin to (re)conceive of class on a global scale. Indeed, globalization itself (conceptually and practically) may be considered the internationalization of the productive circuit of capital (Dicken 1998; Robinson 2004; Sklair 1999). Although the moments M, C, and C’,M’, of the circuits of capital have been internationalized to a greater or lesser degree throughout the history of capitalist social relations in the forms of trade and ﬁnancial ﬂows across borders the moment, P, that is, production itself, has only recently undergone internationalization as a consequence of changed communications and transportation technologies, and changed juridical conditions in the world economy. Thus production “is increasingly decentralized and globally dispersed” (Robinson 2004: 39). Before moving on to the speciﬁc ways the world wide proletariat is articulated into the global system, a few comments on the nature of the TCC as well as Transnational Corporations (TNCs) (Sklair 2001), and the Transnational State Apparatus (TNS)(Robinson 2004) are necessary, as these are the social formations that constitute the structural and institutional forms in which the global proletariat exists. First, as Sklair asserts, “a transnational capitalist class based on the transnational corporation is emerging that is more or less in control of the processes of globalization [and] is beginning to act as a transnational dominant class in some spheres” (2001: 5). To be clear, a TNC “is a ﬁrm which has the power to co-ordinate and control operations in more than one country [emphases added], even if it does not own them” (Dicken 1998: 177). Toward that end, multiple levels of coordination are necessary in multiple economic, ideological, and political realms—hence, the fractions of the TCC. Members of the TCC are fractionated into four, often overlapping, groups: the corporate fraction, the state fraction, the technical fraction, and the con-

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sumerist fraction (Sklair 2001: 17). The ﬁrst fraction includes mainly what Sklair terms “TNC executives and their local aﬃliates” (p. 17); the second is composed of both those politicians responsible for legislation that enables transnational economic processes, and the “lobbyists” that advocate for TNCs at state levels; the third fraction, some members of which I dispute are materially capitalist though they certainly are agentially, is composed of individuals responsible for the coordination of transnational production processes and the nuts and bolts operation of TNCs; and the fourth consists of “merchants and the media,” or those most responsible for the production and reproduction of the culture-ideology of consumerism, that is, advertisers, and commodity distributors, the Madison Avenues and Wal-Marts of the world. The activities of these fractions embodied in TNCs account for “around two-thirds of world exports of goods and services” and though the ﬁgures are diﬃcult to establish with certainty, approximately “one-third of total world trade is intra-ﬁrm” (Dicken 2007: 38). That it is possible for TNCs to operate across borders either internally (in an intra-ﬁrm capacity) or through networks of local aﬃliates at such startling magnitudes speaks volumes about the material basis for claims about globalization and the existence of a global system. But the existence of TNCs and the TCC class fractions that guide their operation is not enough of an indicator for the expansive, systemic nature of global processes. To complete the social formation (global society) a set of legal, ideological, institutional, and legitimizing factors that make the transnational operations of capital possible—that is, a Transnational State (TNS)—is required: This TNS apparatus is an emerging network that comprises transformed and externally integrated national states, together with the supranational economic and political forums [i.e., WTO, OECD, the EU, ASEAN, etc.], and has not yet acquired any centralized institutional form. (Robinson 2004: 88)

It is in this context that the state fraction of the TCC operates, both within and between nation-states, by mediating political and social processes that enable the transnationalization of economic activity. It is important to note, however, that this is not conceptually used to suggest that the end of the nation-state is upon us, as some “hyper-globalization” (Dicken 2007) theorists suggest. The nation-state “is being transformed and absorbed into the larger structure of a [nascent] TNS” and remains an integral part of global social formations (Robinson 2004: 88). Yet, however amorphous the TNS appears and however multivariate its reach is, it does constitute an important tool for the management of global contradictions that arise both between capital’s fractions (transnational or otherwise) and between capital and labor.

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To sum up, the TNC is the primary institutional form through which transnational commodity circuits are engaged. The TNC thus provides the material basis for the existence of the TCC and its subordinate counterpart, the global working class.7 As the global system is constructed in and through these actors, contradictions arising from their activities require a mediating force for their management: the TNS. Insofar as there is a material basis for these actors, transnational corporations, transnational classes, and a transnational state, there is a basis for transnational social formations, or transnational society. However, the global working class remains an under-explained and under-investigated class beyond the circuits oriented approach and transnational labor ﬂows. The Labor-Capital Relation and the Global Proletariat: Simple Reproduction Digging deeper into the circuits approach employed by Marx in Capital: Volume II, where capital is further broken down into component parts—variable and constant capital—reveals more clearly the nature of the labor-capital relation on a global scale. Variable capital (as value) “considered in its material aspect . . . consists of self-acting labor-power itself, i.e. of living labor set in motion by this capital value” (Marx 1992 [1893]: 472). In the global system, variable capital is constituted transnationally; variable capital confronts the worker as something literally foreign, but at once familiar. It does not matter that the wages paid to a worker derive from capital from a diﬀerent geographic region than the one in which the worker is employed—the market in which the two parties make contracts remains a market, though it now transcends national boundaries. It also does not matter that the worker knows or does not know the national source of wages (transformed variable capital): the relation itself remains transnational even if it is not apparent to one of the parties. In many cases, however, the relation will be known to be transnational by both parties. In this case, the class relation is clearly transnational—as the potential for class antagonism. The case of constant capital is a bit more complex. This form of capital (as value) is deﬁned as “the value of all of the means of production applied to production in this branch. It breaks down in turn into ﬁxed capital: machines, instruments of labor, buildings . . . etc.; and circulating constant capital: materials of production, such as raw and ancillary materials, semi-ﬁnished goods, 7 Keep in mind the global working class from my perspective includes those workers who are transnational in nature as well as those workers who exist in only-local contexts. Most proletarians, with rare exception are more or less articulated into the global capitalist system, and thus constitute global capital’s subordinate counterpart.

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etc.” (Marx 1992 [1893]: 472). Constant circulating capital has been international in nature for a good amount of time, as the history of world trade and imperialism attest. So too have certain forms of ﬁxed capital, but only insofar as the objects can be traded as commodities—the objects become ﬁxed (and really) only (capital) through their employment in the process of production. In a global system, however, the constant capital in both forms is transnational. In the case of constant circulating capital, the production process that uses (consumes) this form of capital operates across borders but within ﬁrms: each ancillary, raw, or semi-ﬁnished object proceeds from one geographic point to another within the TNC or its subsidiaries until they are used up in the production of commodities. Thus the ﬁxed capital utilized to receive and process the circulating capital is employed transnationally as well, which forms the basis of the capitalist project of globalization, as so many commentators have noted (Cox 1996b; Dicken 1998; Ietto-Gillies 2002; Robinson 1996; Sklair 2001). The employment of ﬁxed and circulating constant capital in the process of production also confronts workers worldwide as something that is at once foreign and familiar. This time, however, the social origins of the objects and therefore their transnationality may be clearer: the fact that the circulating capital is stamped literally and ﬁguratively with the cultural and geographic artifacts that may identify them as foreign indicates to the worker that the process of production in which she is engaged is part of a global chain. The character of the ﬁxed capital also has a direct eﬀect on the worker. When the completion of the circuit (the creation of a commodity for exchange) is dependent upon the expenditure of labor-power cooperatively and cumulatively in multiple geographic locations, and thus multiple ﬁxed capital inputs, and utilizes circulating constant capital from as many or more geographic locations as the ﬁxed capital inputs derive, the only factor of production remaining that can be considered national is the worker herself. However, given the fact that the variable capital is transnational, and the constant capital is transnational, the relations of production—regardless of the nationality or cultural aﬃnity of the worker—are transnational as well. As suggested above, not all workers in the global system are transnational in terms of their activities, even though generalized class antagonism itself is constituted on a global scale. But insofar as some are or are not transnational, and insofar as their activities vary in location and content, diﬀerentiation among workers within the global working class is possible. Proletarian class-life even in national contexts is heterogeneous; various strata, depending on activities and regions, that is, whether workers produce and exist in urban or rural, industrial or agricultural, service or manufacturing contexts can be observed historically in all societies organized on the basis of commodity production.

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Even under national conditions where the cultural character of the people is relatively deﬁnite (19th Century Germany for example), the variance in activities and work situations—the ways in which the worker confronts capital on a day-to-day basis—will be signiﬁcant. Whether a worker resides at the top of the aristocracy of labor (Hobsbawm 1999) or at the bottom of the global pool of proletarian marginals (Cox 1996b), the labor capital-relation conceptually and materially ensures that the worker remains a worker. Historically, intra-class diﬀerentiation is generally made on the basis of occupational engagement or authority relations, or on the basis of the material-mental labor divide (Braverman 1998 [1974]; Cox 1996b; Hardt and Negri 2001; Mallet 1975; Poulantzas 1975; Wright 1989; Wright 2005). However, given the scope of global relations of production, and the amount of variance in the possible activities in which workers may confront capital in its various forms, the use of 1) physical mobility relative to nation-states and regions, and 2) the scope of workers’ labor-power expenditure relative to the circuits in which they are engaged, produces more manageable, inclusive, and conceptually ﬂexible fractional determinations (see Typology). This approach also allows for objective determination of the class relation in the global system. Even though the agential dimension of class is important, and the fact that some workers associate with and work on behalf of capitalist class interests (transnational or otherwise) is problematic, this perspective allows us to eschew, at least momentarily, the ideologically centered conceptions of class that have come to dominate sociological conversations about the topic in general. The labor-capital relation is our starting point—even if the quality of life certain workers enjoy sets them apart from their less fortunate counterparts. The places and ways in which the relation is experienced—across or within national boundaries, and within or outside transnational production chains— are our modes of conveyance.

The Fractions The nexus of the mobility/labor-power expenditure matrix results here in six fractions: the dynamic-global, the static-global, and the diasporic-global, which form the transnational fractions of the global proletariat; and the dynamiclocal, the static-local, and the diasporic-local, forming the local or national fractions of the global proletariat. The term, fraction, itself could be substituted for segment, portion, component, etc., but it conveys better—as in its mathematical usage—the notion that a fraction is both merely a portion of a whole and integral to the whole itself. Fractions of the global working class can be considered individually in an analytical manner, but it is important to keep in mind that each relates to one another in a global productive division of labor.

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The Dynamic-Global Fraction The ﬁrst fraction, moving from the global to the local, and from the mobile to the ﬁxed (immobile) is the dynamic-global fraction. This fraction of the global working class is composed of workers whose productive activities and products are geographically diﬀuse relative to ﬁrms and nation-states. For these mobile workers, labor-power is expended at multiple points in a given transnational production chain. Whether they cross borders in order to set up, maintain, or merely sell products related to information technology (or food and beverage delivery systems, or widget production, or concrete), or they act in a ﬂexibly mobile capacity as mid-level managers who regulate the expenditure of laborpower of others, they work on behalf of “key actors who are accumulating rights and powers to cross those borders” (Sassen 2005: 525): namely, transnational corporations. As such, many of these workers function at the highest echelons of the class hierarchy not only in terms of compensation for their labor-power, but in terms of the rights they enjoy relative to nation-states. However, some workers in this group, such as journalists, airline workers, international aid workers, military contractors, and workers for private transportation ﬁrms in active martial contexts like Iraq enjoy relatively lower rates of compensation, though they still have access to more rights relative to states. Members of the diasporic-global fraction discussed below cross borders in pursuit of compensation as well, but they rarely do so with legitimacy relative to nation-states (e.g., they lack documentation as citizens or are deemed temporary guest workers), and therefore, their security relative to ﬁrms is tenuous at best.8 The value-added activities in which members of dynamic-global fraction engage occur physically across borders and within ﬁrms or their subsidiaries, or with ﬁrms’ global/transnational customers. This fraction of the global proletariat is a transnational fraction: in the simplest formulation, the worker ﬂexibly moves to the point of production. Members of the dynamic-global fraction may more closely aﬃliate with the interests of transnational capital as a function of the types of labor-power they expend, the ideological imperatives in which their work is ensconced, and the rates of compensation they enjoy. Indeed, many members of this fraction are workers considered by Sklair (2001) to be members of the technical fraction of the TCC; that is, capitalist in-themselves. Regardless of the agential and subjective orientations of workers in this fraction, the objective conditions of their activities ﬁrmly place them in the camp of labor. One need only look to the recent Screen Writers’ Guild strike (workers I consider to be members of the next fraction, the static-global fraction) to note the potential for 8 This is not to imply that the security of dynamic-global workers is absolute. All workers, highly skilled and compensated or not are disposable in the end.

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combinatory solidarity among workers at the higher levels of the global division of labor against the demands of transnational capital when the correlation of forces reveals open class antagonism. The contradictory nature of this fraction’s social position should not prevent us from seeing the labor-capital relation in which they are engaged. The dynamic-global fraction is working class in-itself, even if it is capitalist in orientation for-itself.

The Static-Global Fraction The static-global fraction is composed of workers whose productive activities are geographically ﬁxed relative to nation-states, but whose products are geographically diﬀuse relative to ﬁrms. Labor-power is expended by stationary workers at single points in a transnational production chain in coordination with workers at other points in that transnational production chain. Workers in this fraction range from Skype phone designers who pass their preliminary sketches, computer-aided drawings, and product prototypes back and forth between Shanghai and London on a 24-hour production cycle, to the Shanghai factory workers who manufacture the phones and install “Qualcomm chipsets” made in California as well as software written in Israel (Gardiner 2008: 138). Other workers in this fraction who may be engaged in global production chains are call center workers who, as communicated to me personally by a worker in India on a recent occasion, communicate with customers from the US, the UK, Australia, etc., as the workday moves from time zone to time zone, and consequently culture to culture on a 24-hour cycle. Still other workers engaged in this fraction are automobile assembly line workers, local transportation workers, Screen Writers’ Guild members, and, in many cases, food service workers. The value-added activities in which members of this fraction engage occur within borders individually, but across borders collectively through the functional integration of activities within ﬁrms or with ﬁrm’s customers. This fraction is transnational as well: the product successively moves to the worker at diﬀerent points of transnational production chains. The static-global fraction ranges in rates of compensation from the highest echelons of the global proletariat, to the lowest depending upon geography, skill, and location in the production chain (design, manufacturing, distribution, etc.). Because of this variation, the subjective class identiﬁcation of members in this fraction will show a great degree of diversity as well. However, as with the dynamic-global fraction, the relation of these workers to the transnational corporations with which they engage as workers and class adversaries remains a labor-capital relation. Class antagonism may most acutely be transnationalized in this fraction: clearly, workers know that the geographic reach of their products is variable, and in some sectors more often than not, trans-

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national. Workers also know that they often cannot aﬀord the products they produce (and that even if they could, the necessary infrastructure for full consumption—as in the case of the Skype phone perhaps—may not be in place). It is in this way that alienation itself is transnationalized: the worker’s detachment from her product spiritually and physically transcends political boundaries. There are no real diﬀerences in a worker who knows that only certain populations/ consumers will be able to enjoy their products locally and workers who know that the product can only be enjoyed on a global basis. The Chinese worker making a particular type of product knows full well that the use-value that her labor embodies will likely remain out of her reach whether it is used in Shanghai or New York. Indeed, that is the self-fulﬁlling, always-unfolding nature of the culture-ideology of consumerism (Sklair 2001): create and maintain desire even when its fulﬁllment is impossible (that is the necessary, but not ﬁnal, link to the world that the static fractions discussed below maintain relative to the global economy). Transnational relations of production and distribution form an ontological whole for workers in this fraction and others.

The Diasporic-Global Fraction The diasporic-global fraction is composed of workers whose productive activities are geographically diﬀuse as a consequence of cross-border migration, and whose products may or may not be geographically diﬀuse relative to ﬁrms and nation-states. In general this fraction is the population that Kennedy and Roudometof (2002) have in mind when they claim that “the strong leaning of the literature has been directed towards research mainly concerned with migrants, [and] diasporas” when the notion of transnational subordinate classes is pursued (Kennedy and Roudometof 2002: 2). Here, labor-power is expended by workers in multiple geographic and productive contexts because of some inducement to relocate more or less permanently. Like the dynamicglobal fraction above, the activity of this fraction is characterized by crossborder movement, but unlike the dynamic-global fraction, diasporic-global workers do so without the full legal rights or ﬂexibility aﬀorded the former.9 The legal illegitimacy or pseudo-legitimacy denoted by the lack of oﬃcial or permenant documentation for many workers in this fraction, combined with capital’s tendency to exploit at the lowest possible wage rate, and capital’s 9 I would like to thank Jerry Harris for pointing out that legal immigration itself may fall within the realm of diasporic-global fractional activity. Limited legal rights and temporary statuses constitute qualitatively diﬀerent subject-state relations than do full rights and/ or citizenship.

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tendency to exploit racial and cultural divisions, creates class antagonism in transnational and national contexts, as well as inter-fractional conﬂicts—as the split labor market suggests (Bonacich 1972). Having said this, the value-added activities in which members of this fraction engage occur despite the borders of nation-states that exist as containers of people (and remittances home), and the cultural and racial conﬂicts present in the production relation and broader social relations in general. Workers in this fraction engage in activities that range from agricultural work, assembly line work, and domestic labor, to food preparation, transportation, and work in other service sectors. While workers in this fraction are often marginalized economically and socially, there remains considerable variance in fractional experience relative to wages and other factors pertaining to the labor-capital relation. But in terms of the global reserve army of labor, the conditions endured by workers in transnational contexts that range from North AfricaEurope, Latin America-United States, Palestine-Israel, and Central AfricaSouth Africa to name a few, are often at the extremes of human capacity. The actual act of border crossing may be among the most dangerous undertakings in which members of this fraction engage. Even when nation-states provide for legitimate (legal) means of immigration into a regional economy, as in the case of Singapore relative to (especially) Thai workers, states “selectively choose the types and nationalities of workers that are allowed entry” (Kong 2007: 82). Just as signiﬁcantly, “the employment [passes immigrants] hold determine the type, terms and length of employment, marking them distinctively as temporary foreign workers” (Kong 2007: 82). Where a worker is from in the global system thus conditions what that worker is legitimately capable of doing; determines the fractional location of work itself, and the legality or pseudo-legality of the worker’s presence in a given region. However, the types of communities created by workers in this fraction are also signiﬁcant social formations that suggest the newness of the global moment, as Kennedy and Roudometof (2002) suggest: In our global age communities have become liberated from dependence upon direct interpersonal relations and, like cultures, from the need to operate primarily within the limits set by particular physical locations. Locality is no longer the only or even primary vehicle for sustaining community. The subversion of physical locality . . . is carried out by the migration of people and cultures across borders. (2002: 13)

To this it may be added, “the subversion physical locality” is often carried out in the context of the labor-capital relation. For whatever reason, in the case of this transnational working class fraction, the worker moves to the point of production.

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The Dynamic-Local Fraction The dynamic-local fraction, like the other remaining fractions in this perspective can be perceived as belonging to primarily nation-state contexts, but because workers are still more or less articulated into the global economy in other way— through the culture-ideology of consumerism (Sklair 2001)—they remain part of the greater, global proletariat. The members of this fraction are workers whose productive activities and products are geographically diﬀuse relative to ﬁrms within nation-states. Here, labor-power is expended by mobile workers at multiple points in a given national production chain. The sectoral activities in which members of this fraction engage are similar to the transnational fractional analog, the dynamic-global fraction. Sales people, managers, Teamsters, engineers, rail workers, doctors, and other professionals are required to be ﬂexibly mobile in the conduct of their working lives. The value-added activities in which members of this fraction engage occur physically within borders and within ﬁrms or their subsidiaries, or with ﬁrms’ local/national customers. Here the worker ﬂexibly moves to the point of production within national/ local contexts. Like the dynamic-global fraction, dynamic-local workers may be tied agentially to the capitalist class, though their activities locate their objective social relations on the side of labor. The gambit of class-life experiences is observable in this fraction, from the purely proletarian trucker who, consequently, represents the aristocracy of labor in his capacity of union member, to the protobourgeois chemical engineer. While it would be tempting to relegate members of this fraction to regions or states that are only poorly articulated into the global capitalist project—which, to be sure, is a condition that needs exploration—or to previous moments in the development of the advanced capitalist economies of the north, the dynamic-local fraction remains a vibrant subset of the global proletariat. In either case, the culture-ideology of consumerism links the dynamic-local fraction to broader market contexts, as does their engagement commercially with segments of transnational capital (and labor).

The Static-Local Fraction The static-local fraction is composed of workers whose productive activities and products are geographically ﬁxed relative to ﬁrms and nation-states. Any of the manufacturing, service, mental/ manual labor, professional or unskilled activities that occur within the context of local chains of production constitute the relations in which members of this fraction work. Labor-power is expended by stationary workers at single points in national production chains and in single

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geographic contexts. This does not preclude the extraction of raw materials for trade on international markets per se, nor does it preclude the export of ﬁnished goods (intended for domestic consumption) as a secondary outcome of production. But it does preclude the practice of “export promotion” or “sacriﬁcing production for domestic consumption and basic needs in favor of earning foreign exchange” (Cox 1996a: 22). Such activities are indicative nominally or at least nascently of a static-global fractional orientation. The value-added activities in which members of this fraction engage occur within borders for local ﬁrms. In general, the product may successively move to the worker within a local context. For this fraction, too, it is tempting to search for its existence only in peripheral or poorly articulated national contexts—if only because of the global nature of global capital, and the expanded role of transnational forces of production (Sklair 1999) and distribution worldwide. To be sure, a localized circuit, combined with the static nature of the worker engaged in it, denotes a condition of national class membership, and indicates an amount of closure economically and socially that would be diﬃcult to ﬁnd let alone sustain in the Global North (or increasingly South). Still, empirical examples of members of this fraction can be derived from multiple national and labor contexts; even within the most globalized societies of the Global North some industries that exist within only one national circuit may be found, though they are increasingly rare. One example that comes to mind is that of local organic foodstuﬀs. However, the transnationality of the laborer also conditions the socio-cultural content of the commodity, so the possible and likely employment of migrant labor (diasporic-global workers) complicates the identiﬁcation of such circuits as purely local.

The Diasporic-Local Fraction Finally, the diasporic-local fraction is composed of workers whose productive activities and products are geographically diﬀuse relative to the nation-state. Labor-power is expended by workers in multiple geographic and productive contexts because of some inducement to relocate within national boundaries. The examples that jump immediately to mind are the workers displaced by the recent earthquake in the Chinese, Sichuan province, farm workers displaced by the massive economic and environmental dislocations associated with the Great Depression, and internal diaspora generated by Hurricane Katrina. While there may be a strong tendency to associate the origination of this fraction with environmental catastrophe because of the examples just given, capital’s ﬂight from a given region, as in the case of the North American Rust Belt,

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also induces workers to relocate (en masse on occasion), as does generalized systemic instability. Obsolescent capitalism (Amin 2003) as it is practiced in local contexts destroys physical communities and infrastructure as it abandons once proﬁtable enterprises in one region for others elsewhere. In the process, workers are forced to relocate—in this case, within a given nation-state. While members of this fraction may derive from any segment of the working class relative to compensation and skill, those on the margins of the productive relation are most often impacted by such dislocations. What is problematic (again) about the notion of purely localized or national fractional contexts is the fact that the motivation for capital’s ﬂight may be location speciﬁc: global impacts on local life complicate the determination of regional cause and eﬀect materially and conceptually. Whatever the cause of disruptions and inducements to relocate, the value-added activities in which members of this fraction engage occur within borders, and may or may not occur within the conﬁnes of ﬁrms. In this case, the worker moves to national points of production.

Conclusion: The Fractions and Directions for Future Research In sum, the fractions of the global working class are divided into two broad segments: transnational fractions, including the dynamic-global, the staticglobal, and the diasporic-global; and national or local fractions, including the dynamic-local, the static-local, and the diasporic-local. Fractional determinations are based ﬁrst, on workers’ physical mobility relative to nation-states and regions, and second, on the geographic scope of workers’ labor-power expenditure relative to the circuits in which they are engaged. By using a fractionated perspective of the global proletariat we can continue to make meaningful the concept of class relative to commodity production regardless of (but respectful of, in many senses) the overwhelming occupational, cultural, and social complexity that conditions the labor-capital relation in the global era. This chapter approaches class from an objective standpoint, as the reliance on commodity production as the centerpiece of class theory suggests, and in so doing disposes temporarily of the subjective and ideological determinations that cloud the understanding of class-life. As Robinson (2002) suggests, I have striven to “break with nation-state centered analysis” and understand global political economy and its impact on class formation based not on “territory but on transnational social groups” (p. 1047). This chapter is an attempt to make sense theoretically of the complexity that such a project implies. Insofar as the production process is transnationalized, class antagonism is transnationalized. Our investigations of these

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relations should reﬂect explications that keep this in mind. I want to make clear the importance of regarding the abstractions I have designated “proletarian fractions” as such—that is, as abstractions. Although I provide a typology below, I do not want to suggest to the reader that I regard the fractions as idealtypes, or that this is the only way to honor the attempt to perform a sociology that moves “from a territorial to a social cartography” (Robinson 2002). The typology merely represents a compact and pseudo-graphical means of communicating my perspective. I hope that I have clearly demonstrated that the relations I have discussed are actually-existing relations that are historically located. The nexus of the labor-capital relation and the spatial-productive relation seemed to me to be an eﬃcient means of reconceptualizing class analysis relative to globalization. A conscious eﬀort to avoid the material-immaterial/mental-manual labor divide so often invoked to determine the diﬀerential nature of working class groups and their hierarchal relationships (Braverman 1998 [1974]; Hardt and Negri 2001; Hardt and Negri 2004; Mallet 1975; Wright 2005) also informed my decision to use the geo-spatial reach of workers’ physical activities and their embodied labor-power for fractional determination. The material-immaterial/ mental-manual divide implicitly suggests (perhaps unintentionally) that those who engage in physical and repetitive labor are less intellectually inclined, when in fact most workers are “the antithesis of Ford’s mindless automaton” (Peña 1997: 7). Workers as individual human beings and as a class, regardless of their fractional position or their occupational activities, tend to be pretty complex animals. This approach allows for a reconsideration of the proletariat as a “universal class” (Gouldner 2001), even if it is heterogeneous, diﬀuse, and only extant in-itself. While the newness of globalizing processes requires a respeciﬁcation of what class means under the conditions of contemporary capitalist social practices, and thus suggests the necessity of an expanded or “new” approach to class analysis, I would like to emphasize the idea that a spatial-productive perspective on class resides at the very core of class as a concept. Take for example the etymology of the term, bourgeoisie, meaning literally, “one who lives in town” or “one who lives in a burg.”10 The spatial relation of those in the towns to those in the country (as well as those at the center of power) conditioned class formation in early capitalist contexts. In contemporary circumstances, “time-space convergence,” and geographic divisions of labor (Dicken

10 See, for example. Marx’s and Engels’ discussion of the feudal origins of bourgeois society in the Manifesto (1992 [1848]).

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1998) continue to alter the appearances of the labor-capital relation and the way class is experienced in the global system. As for the productive aspect of class as a concept (and a social practice) it is important to remember that the proletariat could initially (and substantially still) be identiﬁed as that class who, “having no wealth in property [only serves] the state by producing oﬀspring” (New Oxford American Dictionary 2005, emphasis added). Global chains of production indicate the transnationalization of workers’ “oﬀspring” through the objectiﬁcation of labor-power in incremental and spatially divergent situations across borders; global cross-border laborﬂows indicate the transnationalization of social actors’ oﬀspring—proletarians themselves. Fractions based on spatial-productive relations should then be seen not as the introduction of new theoretical conditions for class analysis, but as the extension of concepts central to class itself into new global contexts. By identifying the global fractions of the working class, potentials for interor intra-fractional solidarity in transnational or broader regional contexts can be theoretically brought to the fore. Understanding the nature of inter- and intra-fractional conﬂict is possible as well, for, as I have so far avoided, the subjective and ideologically induced experiences of the labor-capital relation do matter. Convincing workers at the highest levels of the dynamic-global fraction that they are indeed members of a transnational fraction of the global working class, and that their class allegiance should shift on such an objective basis is clearly a diﬃcult or impossible (utopian) task to propose. But, as the Screen Writers’ strike demonstrated, well-compensated workers normally aﬃliated with segments of the bourgeoisie can be induced to see and react to the labor-capital relation when the class contradictions become too apparent for capital to manage with ideology. In that case, the most active segment of the static-global fraction arguably represented the top of the hierarchy. As the capitalist project unfolds, further contradictions will be exposed at all levels of class-life. As a friend gently reminded me “property [often] has a phenotype” and a gender, and relations of production are experienced “around that phenotypical, [gendered] and epidermal aspect of social life.”11 The ways in which race, culture, and gender intersect with class-fractional experiences need to be explored as well. Class analysis has to, as Cox (2003) makes clear, “embrace comprehensively the various identities—ethnic, religious, gender, etc.—manifested by those groups that have initiated pockets of resistance” (Cox 2003: 85). By fractionating the global proletariat conceptually, we may be able to better manage our understanding of the way non-class social relations act 11

Thanks to Manuel Espinosa for highlighting the cultural and racial dimensions of class-life.

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upon individuals and collectivities under the inﬂuence of globalization. Having said this, I hope that class as a concept can be reinvigorated in its own right as a means of self-identiﬁcation. While I am hesitant to ascribe a ﬁxed hierarchical set of relations to global working class fractions, we must ask, on what basis does one fraction have hegemony over another? If the criterion is numerical, political, or agential the structure of the hierarchy changes. In terms of the current conﬁguration, our answer to the question of hierarchy would focus on the agential aspects: the dynamic-global fraction is partially articulated into the TCC itself, and clearly enjoys a great degree of autonomy and direction over the production process as regards their own labor and the labor of others. In that respect, the globaldynamic fraction resides at the top of the social structure of the global working class. If we assess the relative position of one fraction over another in terms of potentials (relative to the current trajectory of the global system), we must look to the potentially numerically dominant group, the static-global fraction. If indeed the static-global fraction (or even segments of the fraction) is capable of transnational organization by sector, by industry, or by region, their potential for intra-class hegemony (and thereby systemic counterhegemony) locates them at the top of the global proletarian hierarchy. If, however, the diasporicglobal fraction can eﬀectively organize in transnational contexts and advance the causes of labor mobility and full human rights for migrants, the hierarchy shifts in their favor. By advancing the cause of labor transnationally for those with historically the least rights and the least stability in relation to capital, the diasporic-global fraction may function as a vanguard for the global proletariat, thus placing them politically and agentially at the top of the global working class social structure. Further still, the instability of the global capitalist system may cause ruptures within and between fractions that force us to rethink the possibility of global classes in general. While it is perhaps not possible to return to conditions where the nation-state is the ﬁnal juridical, economic, and social container, ala the inter-war period of the twentieth century, the potential for inter-regional conﬂicts and/or collusion to undermine global integration remains. Thus, national class fractions, regional class fractions, or even national and regional classes may socially insinuate themselves once again into international relations and more-local-than-global contexts. Of course, all of these potentials rest upon the ability of working-class formations to assert themselves to gain some ratio of class consciousness and attain a for-itself orientation at least partially. Absent such a “reawakening,” the long interregnum of generalized conscious and eﬀective working class activity in the global system will continue.

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References Amin, Samir. 2003. Obsolescent Capitalism: Contemporary Politics and Global Disorder. New York: Zed Books. Bonacich, Edna. 1972. “A Theory of Ethnic Antagonism: The Split Labor Market.” American Sociological Review 37:547-559. Braverman, Harry. 1998 [1974]. Labor and Monopoly Capital: The Degradation of Work in the Twentieth Century. New York: Monthly Review Press. Clark, Terry N. and Seymour Martin Lipset. 2001. The Breakdown of Class Politics: A Debate on Post-Industrial Stratiﬁcation. Baltimore: Johns Hopkins University Press. Cox, Robert W. 1996a. “A Perspective on Globalization.” In Globalization: A Critical Perspective, edited by J. H. Mittelman. Boulder: Lynne Rienner. ——. 1996b. Approaches to World Order. New York: Cambridge University Press. ——. 2003. The Political Economy of a Plural World Critical Reﬂections on Power, Morals and Civilization. London: Routledge. Dicken, Peter. 1998. Global Shift: Transforming the World Economy. New York: Guilford Press. ——. 2007. Global Shift: Mapping the Changing Contours of the World Economy. New York: Guilford Press. Domhoﬀ, G. William. 1996. State Autonomy or Class Dominance?: Case Studies on Policy Making in America. New York: Aldine de Gruyter. Embong, Abdul Rahman. 2000. “Globalization and Transnational Class Relations: Some Problems of Conceptualization.” Third WorldQ uarterly, vol. 21, no. 6: 989-1000. Friedman, Thomas. 2006. “Latin America Must Decide on Chinese or India Model.” In New York Times. Gardiner, Virginia. 2008. “Skypephone.” Dwell. Giddens, Anthony. 1986. The Constitution of Society: Outline of the Theory of Structuration. Berkeley: University of California Press. Gouldner, Alvin W. 2001. “The Future of Intellectuals and the Rise of the New Class.” In Social Stratiﬁcation: Class, Race, and Gender in Sociological Perspective, edited by D. B. Grusky. Boulder: Westview. Hardt, Michael and Antonio Negri. 2001. Empire. Cambridge, Mass.: Harvard University Press. ——. 2004. Multitude: War and Democracy in the Age of Empire. New York: Penguin. Hobsbawm, E. J. 1999. “Lenin and the ‘Aristocracy of Labor’.” In Revolutionaries. London: Abacus. Ietto-Gillies, Grazia. 2002. Transnational Corporations: Fragmentation Amidst Integration. London: Routledge. Kennedy, Paul and Victor Roudometof. 2002. Communities Across Borders: New Immigrants and Transnational Cultures. London: Routledge. Kong, Magdalene M. 2007. “Economic Globalization and Transnationalizing Labor: A Look at Thai Construction Workers in Singapore.” In Contested Terrains of Globalization: GSA 2007 Conference Documents, edited by J. Harris. Chicago: Global Studies Association. Laibman, David. 2005. “Theory and Necessity: The Stadial Foundations of the Present.” Science & Society 69:285-315. Mallet, Serge. 1975. The New Working Class. Nottingham: Bertrand Russell Peace Foundation for Spokesman Books. Marx, Karl. 1906. Capital: A Critique of Political Economy. New York: Modern Library. ——. 1973. Grundrisse: Foundations of the Critique of Political Economy. New York: Vintage Books. ——. 1974. The Economic and Philosophic Manuscripts of 1844. Moscow: Progress.

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——. 1988. The Civil War in France: The Paris Commune. New York: International Publishers. ——. 1991[1894]. Capital Volume III. New York: Penguin. ——. 1992 [1893]. Capital Volume II. New York: Penguin. ——. 2006 [1933]. Wage-Labor and Capital; Value, Price, and Proﬁt. New York: International Publishers. Marx, Karl and Friedrich Engels. 1992 [1848]. The Communist Manifesto. New York: Bantam. New Oxford American Dictionary. 2005. New Oxford American Dictionary, edited by E. McKean. Oxford: Oxford University Press. Peña, Devon Gerardo. 1997. The Terror of the Machine: Technology, Work, Gender, and Ecology on the US-Mexico Border. Austin, Tex.: Center for Mexican American Studies, University of Texas at Austin. Poulantzas, Nicos. 1975. Classes in Contemporary Capitalism. London: NLB. Robinson, William I. 1996. Promoting Polyarchy: Globalization, US Intervention, and Hegemony. Cambridge: Cambridge University Press. ——. 1998. “Beyond Nation-State Paradigms: Globalization, Sociology and the Challenge of Transnational Studies.” Sociological Forum 13:561-593. ——. 2002. “Remapping Development in Light of Globalization: From a Territorial to a Social Cartography.” Third WorldQ uarterly 23:1047-1071. ——. 2003. Transnational Conﬂicts: Central America, Social Change and Globalization. London: Verso. ——. 2004. A Theory of Global Capitalism: Production, Class, and State in a Transnational World. Baltimore: Johns Hopkins University Press. Robinson, William I. and Jerry Harris. 2000. “Towards a Global Ruling Class: Globalization and the Transnational Capitalist Class.” Science & Society 64:11-54. Sassen, Saskia. 2005. “When National Territory Is Home to the Global: Old Borders to Novel Borderings.” New Political Economy 10:523-541. Sklair, Leslie. 1991. Sociology of the Global System. Baltimore: Johns Hopkins University Press. ——. 1999. “Competing Concepts of Globalization.” Journal of World Systems Research 12:143-163. ——. 2001. The Transnational Capitalist Class. Oxford: Blackwell. Wright, Erik Olin. 1989. “The Comparative Project on Class Structure and Class Consciousness: An Overview.” Acta Sociologica 32:3-22. ——. 2005. Approaches to Class Analysis. Cambridge: Cambridge University Press.

Transnational Fractions

Possible Empirical Examples Project coordinators, IT professionals, sales people, midlevel ‘management,’ journalists, airline employees Call center workers, Screen Writers’ Guild members, automobile assembly line workers, transportation workers, service workers Farm workers, assembly line workers, domestic laborers, service workers

Attributes

Workers whose productive activities and products are geographically diﬀuse relative to ﬁrms and nation-states: labor-power is expended by mobile workers at multiple points in a given transnational production chain. The value-added activities in which members of this fraction engage occur physically across borders and within ﬁrms or their subsidiaries, or with ﬁrms’ global/transnational customers. [The worker ﬂexibly moves to the point of production.]

Workers whose productive activities are geographically ﬁxed relative to nation-states, but whose products are geographically diﬀuse relative to ﬁrms: labor-power is expended by stationary workers at single points in a transnational production chain in coordination with workers at other points in that transnational production chain. The value-added activities in which members of this fraction engage occur within borders individually, but across borders collectively through the functional integration of activities within ﬁrms or with ﬁrm’s customers. [The product successively moves to the worker.]

Workers whose productive activities are geographically diﬀuse as a consequence of cross-border migration, and whose products may or may not be geographically diﬀuse relative to ﬁrms and nation-states: labor-power is expended by workers in multiple geographic and productive contexts because of some inducement to relocate more or less permanently. The value-added activities in which members of this fraction engage occur despite the borders of nation-states that exist as containers of people (and remittances home). [The worker moves to the point of production.]

DynamicGlobal

Static-Global

DiasporicGlobal

Global Proletarian Fractions

Appendix CoExtensive Social Formations

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Typology of Global Proletarian Fractions Transnational Corporations; Culture-Ideology of Consumerism; Transnational State Apparatus; Transnational Capitalist Class

Local Fractions

Project coordinators, IT professionals, sales people, midlevel ‘management’, doctors, lawyers

‘Okies,’ national migrants, nationally internal diaspora (Hurricane Katrina victims)

Workers whose productive activities and products are geographically diﬀuse relative to the nation-state: labor-power is expended by workers in multiple geographic and productive contexts because of some inducement to relocate within national boundaries. The value-added activities in which members of this fraction engage occur within borders, and may or may not occur within the conﬁnes of ﬁrms. [The worker moves to national points of production.]

DiasporicLocal

Farm workers, assembly line workers, domestic laborers, service workers

Workers whose productive activities and products are geographically diﬀuse relative to ﬁrms within nation-states: labor-power is expended by mobile workers at multiple points in a given national production chain. The valueadded activities in which members of this fraction engage occur physically within borders and within ﬁrms or their subsidiaries, or with ﬁrms’ local/ national customers. [The worker ﬂexibly moves to the point of production.]

Workers whose productive activities and products are geographically ﬁxed relative to ﬁrms and nation-states: labor-power is expended by stationary workers at single points in national production chains or in single geographic contexts. The value-added activities in which members of this fraction engage occur within borders for local ﬁrms. Though products may be intended for domestic consumption, international trade is not precluded. [The product may (or may not) successively move to the worker within local contexts]

Possible Empirical Examples

Attributes

Static-Local

DynamicLocal

Global Proletarian Fractions

CoExtensive Social Formations

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Typology of Global Proletarian Fractions Continued Transnational Corporations; Culture-Ideology of Consumerism; Transnational State Apparatus; Transnational Capitalist Class

Section II The Political Economy of Globalization

Towards a Reformulation of Core/Periphery Relationship: A Critical Reappraisal of the Trimodality of the Capitalist World-Economy in the Early 21st Century* Kwangkun Lee Department of Sociology, Binghamton University, State University of New York [email protected]

Abstract The trimodal framework of core-semiperiphery-periphery has been challenged by globalization theorists. This chapter is not only an anti-criticism of critics but also a criticism of the trimodality itself. Against critics, I argue that the national state is still a meaningful unit of world inequalities. But I also argue that semiperiphery has been decomposed since the late-1970s. It implies that the semiperiphery may not be a constant feature of the capitalist world-economy for a longue-durée but an historical product speciﬁc to two decades of development in 1960-70s. Keywords global inequality, trimodality, core-periphery hierarchy, semiperiphery, Immanuel Wallerstein

Introduction The trimodal conceptualization of core-semiperiphery-periphery has been recognized as one of trademarks of the world-systems analysis since Wallerstein’s ﬁrst volume of The Modern World-System (1974) came out. It has made the world-systems perspective distinguished from other development discourses including modernization theory, dependency theory, and orthodox Marxism in the 1970s. Although it tends to be often forgotten, the concept of semiperiphery, playing the pivotal role of the trimodality, was initially advanced as an * Previous versions of this chapter were presented in Graduate Student Conference in Historical Social Science (Binghamton University, April 29, 2007) and Global Studies Association Conference 2008 (Pace University, New York, June 6-8, 2008). The author is grateful to Ravi Palat and William G. Martin for their valuable suggestions on the earlier draft of this chapter, and to an anonymous referee of GSA proceeding book.

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answer to the question that arose from a paradoxical phenomenon—the relative stability of the whole hierarchical structure of global capitalism in spite of the possible upward or downward mobility of constituent units (i.e. national states). The concept of semiperiphery was an attempt to get out of the theoretical quagmire by explaining the paradoxical compatibility of the limited possibility of national economic development with the tendency towards polarization on a global scale. Most of the previous theories had tended to regard the existence of developing middle-income states as exceptional, residual, or transitory, rather than an integral, necessary, and constant feature of the capitalist world-economy. By contrast, the world-systems analysis has tried to conceptualize those states under the rubric of “semiperiphery”, as a stable feature of the capitalist world-economy. This conceptual maneuver liberated the future of developing countries from the rosy prospect propagated by the modernization theory as well as from the gloomy pessimism of the dependency theory. The future trajectory of individual developing countries came to be understood as something predicated on a more or less contingent combination of developmental capacity of national states, conjunctural opportunities, and structural constraints on a global scale. The concept of semiperiphery was born in the 1970s—the “second decade of development” proclaimed by the United Nations in 1970—and subsequently got wide attention. It was actively exploited both for explaining national paths of development and for describing the global structure of capitalism in the 1980s. The trimodal characterization, especially the concept of semiperiphery, had been popular during the initial two decades as it explained simultaneously both possibilities of, and constraints on, national development. In addition, regardless of their Cold War camp membership and geographical regions across the world, developing countries seemed to share some domestic contents such as neocolonial situations, subimperialist roles, stateled late industrialization, military or one-party dictatorship and subsequent democratization, or active antisystemic movements within their territories. These conspicuous similarities of developing countries had made the concept of semiperiphery more attractive. Furthermore, most inﬂuential works of the world-systems analysis regarded the existing state socialist bloc as a part of the capitalist world-economy rather than constituting a separate world-economy. As the conventional image of three worlds delineated by the geography of the Cold War had been erased by the 1990s, the trimodality of core, semiperiphery, and periphery could have emerged as a meaningful framework to analytically partition global capitalism. However, current abuse, neglect, disinterest, and superﬁcial criticisms on this conceptualization stand in stark contrast to the broad attentions, critical discussions, and even active suspicion of this modeling about 20 years ago.

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This chapter consists of three sections. First, I brieﬂy survey recent criticisms of Wallerstein’s trimodal formulation. Second, I revisit the trimodality models of the world-systems perspective. I argue that there is no single trimodality model as assumed by critics and some proponents, and present three diﬀerent models of the trimodality. Third, I examine how these models are adopted by quantitative analyses on global inequality. In conclusion, I refute both the deterritorialization approach and the basic tenet of the trimodality of existing world-systems perspective. Against the deterritorialization approach I argue that between-country inequality is more important than within-country inequality in explaining global inequalities. Against the traditional world-systems perspective, I argue that semiperiphery may not be a constant ﬁgure of the capitalist world-economy.

Deterritorialization Criticisms on Wallerstein’s Trimodality In spite of, and partially because of, the initial success of the world-systems perspective, there have been a variety of criticisms on the trimodal formulation of the capitalist world-economy, especially as it was originally formulated by Wallerstein. The criticisms may be classiﬁed into four categories: (1) criticisms of functionalism, teleological explanation, and the instrumentalist view of the state (Skocpol 1977; Block 1978; Sewell Jr. 1996), (2) criticisms of the underrating of class relations (Brenner 1977; Gerstein 1977), (3) criticisms of the violence of abstraction, in other words, on homogenization eﬀect of the uneven space into a zone or a structural location of the world-economy (Mintz 1977; Wolf 1982; McMichael 1990; Paige 1999; Tomich 2004), and (4) criticisms of the status of national states as constituent units or building blocks of the capitalist world-economy (Castells 1996; Hardt and Negri 2000; Taylor 1987, 1994a, 1994b). What is of special interest here is the fourth category of criticisms that strongly question the current heuristic value of the trimodal formulation through which global hierarchy-cum-network is represented as being built with national state building blocks. Their analyses on global restructuring processes were the main components of the globalization discourse. Following Neil Brenner (2004), I would call these “deterritorialization” approaches. The basic tenet of various deterritorialization criticisms of the trimodality is that the heuristic power of core-semiperiphery-periphery partition of the capitalist world-economy, which was once useful, has been increasingly undermined with globalization.1 Manuel Castells (1996) explicitly rejects the tri-partite 1 This tenet is shared by Walter Mignolo: “Until the middle of the twentieth century the colonial diﬀerence honored the classical distinction between centers and peripheries. In the second half of the twentieth century the emergence of global colonialism, managed by transnational

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model of global capitalism. He is not only well aware of the “deeply asymmetric” nature of the global economy, but also agrees with Braudel and Wallerstein in that the capitalist world-economy has existed in the West at least since the sixteenth century (Pp. 92-93, 108). But for Castells, not until the late twentieth century did the world economy became truly global. Describing his observation of “the newest international division of labor” which consists of “four diﬀerent positions in the informational / global economy,”2 Castells (1996) poses a critical challenge on some basic assumptions on which Wallerstein’s preconceived model of the trimodality is built. Castells argues that the four diﬀerent positions “do not coincide with countries”: “All countries are penetrated by the four positions . . . because all networks are global in their reality or in their target.” (p. 174) Thus, for Castells, the world-systems model of the three-tiered pyramid built with state blocks in which three tiers of core, semiperipheral, and peripheral countries are layered from top to bottom has come to lose its original heuristic value as the new global informational economy, what he called the “network society”, has emerged. Hardt and Negri (2000) take a similar stance with Castells. While they acknowledge “both capitalism’s continuous foundational relationship to . . . the world market and capitalism’s expanding cycles of development”, they seek the reason for the “shift in contemporary capitalist production and global relations of power” in “the capitalist project to bring together economic power and political power” to realize the Empire, which is capitalist (Pp. 8-9). Under this novel situation, they argue that the initial heuristic value of the trimodality or bipolarity has disappeared, as Castells does: “If the First World and the Third World, center and periphery, North and South were ever really separated along national lines, today they clearly infuse one another, distributing inequalities and barriers along multiple and fractured lines” (p. 335). Even before Castells, Hardt and Negri, the same voice has been heard from the inside of the world-systems perspective. Indeed, Peter J. Taylor (1987) has criticized the tendency to use national states as building blocks of the capitalist world-economy. The tendency has prevailed through the world-systems analysis, especially in the quantitative research on the global hierarchy. He argues corporations, erased the distinction that was valid for early forms of colonialism and the coloniality of power. Yesterday the colonial diﬀerence was out there, away from the center. Today, it is all over, in the peripheries of the center and in the centers of the periphery” (Mignolo, 2000: ix). 2 The “four diﬀerent positions” refer to (1) “the producers of high value, based on informational labor”, (2) “the producers of high volume, based on lower-cost labor”, (3) “the producers of raw materials, based on natural endowments”, and (4) “the redundant producers, reduced to devalued labor” (Castells 1996: 147). They can be understood as a contemporary version of what Wallerstein called the “modes of labor control” when he deals with diﬀerent structural positions of the incipient capitalist world-economy in the long sixteenth century in the ﬁrst volume of Modern World-System (Wallerstein 1974).

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that the core, semiperiphery, and periphery “need not coincide with the political boundaries of states” (p. 35). But most of the world-systems studies have taken it for granted that the stratiﬁcation of the world-economy is conceived “in terms of states” (Taylor 1988: 571). By pointing out this presupposition, Taylor aptly challenges Wallerstein: “[W]hen Wallerstein (1979: CWE) applies the semiperiphery concept to the current situation he only refers to states, but he has no discussion of when and how states emerged as a necessary basis for this exercise” (Taylor 1988: 571). Recently, Taylor (1996, 2000a, 2003) systematically elaborates his criticism on the “embedded statism” which constitutes the essence of the “mosaic metageography.” According to his glossary, the “metageography” refers to the “geographical structures through which people order their knowledge of the world”, and a “metageographical moment” is a “critical time of transition between metageographies” (Taylor 2003a: 47). Emerged from decolonization in the mid-twentieth century, a mosaic metageography universalized the image of the world map in which each state is distinguished along borderlines from one another with diﬀerent colors. Presenting a geohistorical interpretation of the capitalist world-economy, he contends that globalization is a metageographical moment shifting from a mosaic metageography to a network metageography and that this is no less than an erosion process of the embedded statism with the rise of trans-state global city networks. Based on this interpretation, he suggests integrating “the traditional political mosaic of state territories with the network of world cities in a single analysis” (Taylor 2000b: 6). Under the rubric of diﬀerent names of globalization, Castells, Hardt and Negri, and Taylor share a critical stance on the trimodality traditionally assumed by the world-systems perspective. They argue that the trimodality of core, semiperiphery, and periphery has lost its heuristic vitality as the world has changed. Are they right? If we want to answer this question, we should put the trimodality of the capitalist world-economy under scrutiny.

Three Diﬀerent Models of Core-Semiperiphery-Periphery Hierarchy/ Network Against the conventional understanding of the trimodality represented by the deterritorialization critics, there is no single coherent model of the trimodal framework. The world-systems analysis as a collective intellectual enterprise has been ever changing while maintaining some essential points.3 We can 3 We may understand what Wallerstein (2001: 267-268) presents three “deﬁning characteristics” of the world-systems perspective as the persistent claims of this perspective. The three speciﬁc

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observe both continuity and discontinuity simultaneously from Wallerstein’s and others’ works done for more than a generation. Here I try to trace how his model of tripartite global hierarchy has changed so far and to clarify how the change produces further changes in his conception of the semiperiphery. Furthermore, I examine how subsequent studies, especially Arrighi and Drangel (1986), try to revise Wallerstein’s earlier modeling. I argue that a critical shift in Wallerstein’s modeling from the initial structural-functionalist to the relation-mix model of the semiperiphery took place as a result of Wallerstein’s attempt at avoiding unnecessary misunderstanding by his earlier critics, for which he was partly responsible. But I also argue that the revised relation-mix model is far from perfect, especially as it comes to encounter some old problems that the earlier structural-functionalist model could handle much better. In this situation, Arrighi and Drangel’s global-wealth-hierarchy modeling can be viewed as an alternative to Wallerstein’s. But this model has evolved with a critical rupture. In more recent studies by Arrighi and his co-authors, the problem of the existence of trimodality has disappeared.

Structural-Functionalist Modeling (1974) Wallerstein (1979) asserts that a “three-layered structure” is an “obvious mechanism” necessary for sustaining existence of any social system based on unequal reward: the system cannot function “without being tri-modal” because the political stability of the system can be guaranteed through “the division of the majority into a larger lower stratum and a smaller middle stratum.” For him, this preconceived model is assumed “operative in all kinds of social structure.” In other words, it is supposed to be observed in any kind of world-systems, at least in those known through history.4 This political rationale of the intermepoints are put forth in terms of (1) unit of analysis, (2) longue durée, and (3) a certain view of the capitalist world-economy, one of which is the “structural existence of a semiperipheral zone.” 4 In this way, Wallerstein (2001) tends to assume that the tripartite structure has existed through the “very long-term”, paraphrasing Braudel, through “the time period of the sages” (p. 137). In the same vein, William Sewell Jr. (1996) also points out the “abstract transhistorical time” of Wallerstein (p. 245-80). Thus, Wallerstein, although it might be unintentional, seems to share this quasi-eternity with nomothetic scientists whom he has criticized. But we should note that the assumption of the tripartite structure is an analytical starting point rather than a synthetic outcome of his intellectual enterprise. In other words, the trimodal structure is a postulate, which is not necessarily a self-evident truth, but rather a presupposition initially adopted for further production of meaningful knowledge within the speciﬁc theoretical totality. In a scientiﬁc enterprise, an explanation on the dynamic processes of the real world does not only rest on, but also is built up from, postulates. If we bear in mind this heuristic nature of the postulate, it would be understandable that Wallerstein’s tripartite conﬁguration of the world hierarchy takes a nomothetic form rather than a more time-space-bounded and more idiographic one. By

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Figure 1

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Structural-Functionalist Model of the Tripartite Hierarchy Core

Semiperiphery

Periphery Social system in general

Capitalist world-economy

diate zone is deduced from the assumed general nature of the world-system. Thus, the tripartite structure is common to world-economies and worldempires as both kinds of the world-system need an in-between buﬀer zone blocking or absorbing any serious threat from the below (Pp. 22, 68-69). However, there is an important diﬀerence between the two world-systems: While world-empires have a central political authority coordinating a “cultural stratiﬁcation” by providing the middle-strata with a limited access to the surplus, the capitalist world-economy has instead “three kinds of states.” In other words, “besides the upper stratum of core states and the lower stratum of peripheral states, there is a middle stratum of semiperipheral ones” (Wallerstein 1979: 23, italics in original ). According to this scheme visualized in Figure 1, every state in the capitalist world-economy occupies one of three structural positions within a hierarchical system. The coupling of the world-economy with the interstate system as the alternative to an absence of the singular political authority is the basis on which the assumption that membership of each zone is conﬁned to the sovereign state is built, so that we can say in such ways as core states, semiperipheral states, and peripheral states. It reﬂects not only a formal equivalency among sovereign states, but also a substantial diﬀerence between strong states and weak states. The assumption, in turn, prevents Wallerstein’s model from being faced with the intangible problem of internal core-periphery relations within a country. Combined and uneven development may exist regardless of the spaimposing the imaginary mental map of the core-semiperiphery-periphery hierarchy on the real world, Wallerstein seeks to delineate an international hierarchy entailed with global division of labor. In sum, the mental map may contribute to producing further knowledge on the aimed object in the real world, but cannot be veriﬁed by itself.

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tial scale of its range. To be sure, there can be core-periphery relationships within a country. Wallerstein also readily acknowledges the historical existence of non-state peripheral areas and the coexistence of diﬀerent zones within the borders of a national state in such cases as France in the long sixteenth century or the United States in the eighteenth century (Taylor 1987). But Wallerstein (1978) pays more attention to a historical speciﬁcity of the capitalist worldeconomy, i.e., the singular division of labor on a world-systemic scale, partitioned with a multiplicity of states rather than core-periphery relationships on multiple scales: “If one starts with the framework of a single division of labor within which there are multiple states and multiple economic processes, then one has to worry about the lack of total coincidence” (p. 220). Together with the lack of total coincidence between core-periphery relational structures and national states, there is another serious problem in his frameworks of the “three kinds of states” in the capitalist world-economy. The criterion by which each state is categorized into three positions of the worldeconomy is not rigorously advanced. Thus, plural features such as the mode of labor control, “complexity of economic activities, strength of the state machinery, cultural integrity, etc.” are put forth for sorting out countries into the three categories of core, semiperiphery, and periphery (Wallerstein 1974: 349). It is this very point where deterritorialization critics reject the core-semiperiphery-periphery framework. They try to vindicate their criticism with the evidence that there is no coincidence of the core-periphery relationships with countries, as is a consequence of their diﬀerent names of globalization. Is the problem of the “lack of total coincidence between the economic processes and the state boundaries” new? Not at all. However, their criticism is partially valid, even if it is not a novel phenomenon brought about by globalization. Indeed, it was the problem already admitted by Wallerstein when he conceded his own responsibility for the prevailing misunderstanding of core-periphery relationship. Although it has been largely neglected, Wallerstein (1974) was aware of the existence of “a multilayered format of layers within layers” when he described the uneven development of the ﬂedgling capitalist worldeconomy: In the sixteenth century, there was the diﬀerential of the core of the European worldeconomy versus its peripheral areas, within the European core between states, within states between regions and strata, within regions between city and country, and ultimately within more local units (Pp. 86, 119).

But his recognition of the multiple scales of core-periphery relationship is not reﬂected in the earlier structural-functionalist modeling, but kept out of his abstraction of the modeling.

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It is not diﬃcult to discern a vestige of the structural functionalism from this earlier framework. What is to be explained, that is, the existence of the tripartite structure of the capitalist world-economy, is just presumed as a general trait of the social system. Unlike a world-empire characterized by the existence of the central authority governing the whole sphere of its division of labor, the capitalist world-economy is coupled with the interstate-system, which consists of many formally sovereign states. Despite this diﬀerence, both a world-economy and a world-empire commonly have the tripartite structure as all social systems have. The diﬀerence is only expressed into the formulation that the capitalist world-economy consists of the three structural locations, namely the “three kinds of states.” The image of organism, in which the whole system is sustained by the function performing of various parts, ﬁts well to this structural-functionalist picture. In the case of the capitalist world-economy, each zone, which is a cluster of states, is viewed as a part performing a typical function, which is conditioned by the needs of the whole system.

Relation-Mix Modeling (1978) Many earlier critics of Wallerstein, such as Theda Skocpol (1977) and Robert Brenner (1977), have preyed on the structural-functionalist modeling. While they (mis)charge Wallerstein’s reliance on conjunctural explanation on historically contingent combination of events, of “teleological”, “a posteriori”, or “ad hoc” justiﬁcations, they keep their blind obsession with the necessary causality against contingency and reluctance to accept Wallerstein’s innovative criticism of the national state unit of analysis. But their criticism of Wallerstein’s functionalist inclination of his systemic-level explanation has some valid points. I believe that it led Wallerstein to departing from the earlier structural-functionalist modeling. The following passage shows his recognition of the fault inherent in his earlier structural-functionalist modeling well. There is a certain sloppiness of which I myself have been guilty in using core and peripheral as adjectives for states. These words refer to processes that are relational, and I add that there is a lack of total coincidence between the economic processes and the state boundaries (Wallerstein 1978: 219-220; 1982: 581).

Now, the focus of core-periphery framework is shifted from the hierarchy to the interconnection, from the classiﬁcatory categories to the relational process. Through the shift, Wallerstein removes the functionalist understanding of the trimodality, which is presumed as inherent in any social system. Keeping himself distant from this ill-founded deduction, Wallerstein comes to lay

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Figure 2

Relation-Mix Model of Core-Periphery Processes Core

Semiperiphery

Periphery

Phenomenal level

Production processes

States

his emphasis, more explicitly than before, on the relational character of coreperiphery production processes.5 In the earlier structural-functionalist model, the three-tiered pyramid structure is envisaged as if each layer, performing its typical function, is composed of the state building blocks. By contrast, according to the relation-mix model depicted in Figure 2, the core-periphery relationship per se entails neither a priori function of its parts nor any notion of the structural location. The identiﬁcation of states as being located in one of three positions is rather just a “geographical consequence of the core-peripheral relationship”: Core-like processes tend to group themselves in a few states and to constitute the bulk of the production activity in such states. Peripheral processes tend to be scattered among a large number of states and to constitute the bulk of the production activity in these states. . . . Some states have a near even mix of core-like and peripheral products. We may call them semiperipheral states. They have . . . special political properties. It is however not meaningful to speak of semiperipheral production processes (Wallerstein 2004b: 28-29, italics added ).

In the earlier structural-functionalist model, the collective function of semiperiphery is an inference drawn from the logic of the social system in general; that is, the role managing the polarizing forces by keeping the lower tier of 5 The changed position has been kept since then: “For shorthand purposes we can talk of core states and peripheral states, so long as we remember that we are really talking of a relationship between production processes” (Wallerstein 2004: 28).

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the system from uniting against the upper tier of the system. In the revised relation-mix model, each state has the diﬀerent proportion of core-like processes to peripheral processes. While the state containing relatively more corelike processes than peripheral processes is classiﬁed as core, the state in which the peripheral processes are predominant is classiﬁed as periphery. In this framework, the semiperipheral state is deﬁned as a state which has “a near even mix” of core-like and peripheral production processes. The distinction between core-like activities and peripheral activities can be said to exist analytically prior to the classiﬁcation of states into three zones. Also, the core-periphery dynamic as a relational process exists analytically prior to the two production processes. While the structural-functionalist model views the state as a constituent unit of the three-tiered hierarchy, the relation-mix model views the state as a container of diﬀerent mix of core-like activities and peripheral activities. For the former, the state constitutes the core-periphery relationship on a global scale; for the latter, the core-periphery relationships are inbred within the state. The relation-mix model of semiperiphery based on the distinction between core-like activity and peripheral activity came to appear and manifested in some works in the late-1970s (Wallerstein, et al. 1982[1977]: 46-7; Wallerstein 1978: 220-222), and later it was more elaborated by analytically locating the production processes within the framework of “commodity chains” (Wallerstein 1985: 34). The model shift accompanies the change of the implication of semiperiphery. Most of all, the previous assignment of the buﬀer-zone function disappears. As a result, the collective characterization of “semiperiphery” as the middle-tier of the three-layered pyramid dwindles. There is no presumed function of semiperiphery as a collective cluster of plural countries. Rather, the semiperipheral contents, which semiperipheral states contain, are revealed and accumulated only through performances of comparative and case studies, which are time-space-bounded in nature. Therefore, the social meaning of semiperiphery varies over time and space: Under certain circumstances it is the expression of ‘anti-systemic’ thrusts. But in others it serves primarily to recuperate such thrusts and further to stabilize the system (p. 39).6

6 The prosystemic function of semiperiphery as a collective zone is relegated to the status of ‘one among many’ by Arrighi, too. Arrighi (1990) classiﬁes organic members of semiperiphery into three kinds of regimes, one of which is antisystemic: (1) stable prosystemic parliamentary regimes, (2) prosystemic authoritarian regimes, and (3) antisystemic authoritarian regimes (Pp. 26-34).

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According to Wallerstein’s revision, the use of “core state” and “peripheral state” is only for shorthand purpose, because the core and periphery are two aspects of the same coin. But; semiperiphery now would not refer to a relational economic process, to which the terms core and periphery refer. Semiperiphery would now refer to a quantiﬁcation of such relations as they fall within the bounds of a given state. Such a concept would be of interest only if it would turn out to be a clue to or indicator of certain political processes (Wallestein 1985: 34, italics in original ).

As he implies by the above passage, the semiperiphery, unlike core and periphery, is still reserved only for a certain kind of states. At least in Wallerstein’s use, there are neither semiperipheral production processes nor semiperipheral cities, but only semiperipheral states having “special political properties.”7 What are the “special political properties?” Wallerstein (1985) suggests a general proposition that “the closer the overall mix of core-peripheral activities is to an even one in a given state—that is, the more semiperipheral the state—the more will the complex calculus tilt towards rewarding eﬀorts to secure economic advantage via aﬀecting (transforming) the state structure . . . because the nearer to some median is the economic mix, the more immediately and directly can state policies aﬀect the accumulation of capital” (p. 35).8 However, the properties are not so presumed a priori to concrete historical analysis as Wallerstein did through the earlier modeling. The relation-mix model seems to be successful not only in avoiding the unnecessary accusation of functionalism as Wallerstein intended, but also in responding to the deterritorialization critics who raise the question of the state-constituted core-periphery model by dissociating the core-periphery relationships from the relationship between dominant states and subordinate states. But it leaves us some other problems. First of all, it still remains very hard to deﬁne the ever-shifting core-periphery relationship. How can we anchor the meaning of core-like activities and peripheral activities in the real world? The distinction may be very useful for the emphasis on the “ever-changing form” of core-periphery relationship (Wallerstein 1985: 33), but confronted with a critical problem in operationalization with regard to the measurement of core-periphery hierarchy on a global level. As the obverse side of the same 7

It is what Peter J. Taylor has criticized as we saw above. Sharing this view with Wallerstein, Etienne Balibar (1991) seeks the reason why “the semiperiphery is the privileged place for what we traditionally call ‘politics’” in the situation in which “social blocs that are at diﬀerent stages of development” exist together “within the same state-organized space”, so that they may “come into conﬂict in explosive ways” (p. 177, italics in original ). 8

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coin, there are diﬀerent arrays of semiperipheral states by diﬀerent researchers, as the classiﬁcation of states into a cluster of semiperiphery is totally predicated on researcher’s deﬁnition of core-like activities and peripheral activities (Martin 1990: 5). The second problem is more diﬃcult. It becomes very hard, if not totally impossible, to deﬁne semiperiphery theoretically as a consistent category. In other words, semiperiphery becomes the residual category again. By abandoning the notion of function, the category of semiperiphery is identiﬁed either with the descriptive term—“middle-income countries” discerned by more or less arbitrary cutting points on a core-periphery continuum—or with a vacant container always waiting for being ﬁlled by concrete analyses of historically speciﬁc conjunctures. The former way is usually taken by most statistical analyses on global inequality using the category of semiperiphery and the latter is adopted by a few case studies or comparative studies. The third problem is that the revised model lacks the image of the hierarchic whole, which was better represented by the ﬁrst model. Related to the second problem above, it is hard to gauge global inequality in terms of the core-periphery hierarchy based on the relation-mix model. One may envisage an image of the network entangled with numerous core-periphery relationships, but the network image cannot be easily translated to the hierarchy. How does the core-periphery model carry both image of the network and hierarchy?

Arrighi and Drangel’s Global-Wealth-Hierarchy Modeling (1986) An attempt at giving a partial solution to the above problems is made by Arrighi and Drangel (1986). They try to depict a new theoretical map of core-periphery relationships by redressing drawbacks inherent in Wallerstein’s theoretical mapping. The contrast between core-like activities and peripheral activities is understood as the outcome of persistent endeavors of various economic actors to “shift . . . the pressure of competition from themselves onto other actors.” In this framework, the economic activities are polarized into “positions from which the pressure of competition has been transferred elsewhere (core-like activities) and positions to which such pressure has been transferred (peripheral activities)” (p. 17). Within this situation, it is necessary for a state trying to upgrade its own mix to “attract and develop organic links with ‘core capital’” (p. 24). Peripheral states can beneﬁt from providing core capitals with ‘cost advantage’ in contrast to the ‘revenue advantage’ enjoyed in core states. But it is very diﬃcult for peripheral states to upgrade the mix because the number of competing peripheral states is much larger than core states, so that the scarcity of cost advantage provided by peripheral states

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becomes much lower than core’s revenue advantage. It produces a further situation to concentrate innovations within the core zone.9 [O]ver time, core states and core capital tend to develop a symbiotic relationship that increases each other’s capability to consolidate and reproduce their association with predominantly core-like activities. The obverse of this tendency is the endemic inability of peripheral states to escape their association with predominantly peripheral activities. Taken together, the two tendencies imply a stable, if not growing, polarization of the space of the world-economy into a peripheral and a core zone (Arrighi and Drangel 1986: 26).

Here the notion of polarity extended from the contrast entails a notion of degree. So, there are some states containing a “more or less even mix of coreperipheral activities” within their territories, as the relation-mix model suggests. These semiperipheral states “resist peripheralization by exploiting their revenue advantage vis-à-vis peripheral states and their cost advantage vis-à-vis core states”(ibid. 26-27). If they succeed in enhancing the cost advantages of locations within their jurisdictions, producers in the semiperipheral zone can eﬀectively compete with producers in the core zone. “This competition, however, far from upgrading the mix of core-peripheral activities of the semiperipheral zone, is one of the mechanisms that turns core-like activities into peripheral activities and keeps the mix of the zone more or less even” (ibid. 27). But it does not exclude the possibility that individual semiperipheral or peripheral states can upgrade their mix of core-peripheral activities. The upward and downward movements of individual states within the core-periphery hierarchy are “key mechanisms of reproduction of the three separate zones of the world-economy” (ibid. 28). Later, Arrighi (1990) makes a further attempt at providing each zone with distinctive quality in terms of diﬀerent character of wealth of the three zones. He elaborates the quantitative diﬀerence among three zones into qualitative one: If the claims of world-systems analysis have any validity at all, observation of the distribution of incomes among the various political jurisdictions of the capitalist worldeconomy over relatively long periods of time should reveal the existence of three separate standards of wealth corresponding to the oligarchic wealth of core states, the democratic wealth of semiperipheral states, and the nonwealth, that is, the poverty, of peripheral states10 (p. 18, italics added ). 9 Arrighi, Silver, and Brewer (2003: 17) point out that the fact that “the innovation process tends to begin in the wealthier countries” is emphasized by both Akamatsu’s ‘ﬂying geese’ model and Raymond Vernon’s ‘product-cycle’ model. 10 “Democratic wealth is the kind of command over resources that, in principle, all can attain

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The disparity of wealth among three zones is championed by the observation that “the distribution of wealth (that is, of long-term income) is more stable than the distribution of short-term income” (p. 22). Together with connoting the contents of each zone in this way, Arrighi and Drangel (1986) also denote boundaries of the three zones. According to them, as the Figure 3 shows, the semiperiphery is bounded both by “perimeter of the core” (henceforth) and by “perimeter of the periphery” (henceforth), so that it could be discerned, if we see “a frequency distribution of world population by the mix of core-peripheral activities of the state of residence” (p. 28).11 Through this new theoretical mapping, Arrighi and Drangel extend the core-periphery relationship formulated by the relation-mix model. They translate the network of commodity chains as an aggregate of the global core-periphery relationships into the hierarchy of world income inequality. Based on this global-wealth-hierarchy model, Arrighi and Drangel try to represent a picture of the core-periphery hierarchy on a world scale through a world distribution of GNP per capita during the period from 1938 to 1983. But, since the early-1990s, Arrighi has not employed anymore the concept of semiperiphery although some ideas developed in Arrighi and Drangel (1986) are still retained in his recent works. Despite Arrighi’s abandonment of trimodality, it still remains as the latest theoretical mapping of the tripartite structure of the capitalist world-economy. In sum, unlike the conventional understanding, the core-periphery model adopted in various works is not a coherent one, rather plural. I discerned three distinct models: (1) structural-functionalist, (2) relation-mix, and (3) globalwealth-hierarchy models. Table 1 summarizes them.

Quantitative Research on the Global Core-Periphery Structure Although I conﬁne the scope of the previous section to the abstract modeling of the tripartite hierarchy, here I examine how the model has been employed, and how the semiperiphery is explicated with the model. Given space restrictions, in direct relation to the intensity and eﬃciency of their eﬀorts. Oligarchic wealth, in contrast, bears no relation to the intensity and eﬃciency of its recipients’ eﬀorts, and is never available to all because generalized attempts to attain it raise costs and reduce beneﬁts for all actors involved” (Arrighi, Silver, and Brewer 2003: 19). 11 This hypothetical distribution of world population in the global core-periphery structure reﬂects Arrighi’s earlier criticism on Wallerstein’s list of semiperipheral countries, including twothirds of world population, as a result of the vagueness and formality of Wallerstein’s criteria for identifying semiperipheral states, in other words, “a confusion between the position of a state in relation to the world division of labor and its position in the interstate system” (Arrighi 1985: 243-244; Arrighi and Drangel 1986: 13-16; cf. Wallerstein 1979: 100).

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Global Wealth Hierarchy Model of Core-Periphery Structure

Percent of World Population

Figure 3

PP

PC

Periphery 0

Semiperiphery

Core 100

Share of Core Activities in the Mix (%) (Percentage of World Population by Mix of Core-Peripheral Activities of the State of Residence) [excerpted from Arrighi and Drangel (1986: 29)]

this section concentrates on how the tripartite hierarchy is depicted in the statistical analysis of global inequality. While Wallerstein’s (1974, 1980, 1989) three volumes of the Modern WorldSystem are based on the extrapolation of the trimodality into the past history of the capitalist world-economy, a series of quantitative analyses have been obliged to deal with more contemporary period as “the systemic collection of data on GNP or GDP only began in the 1950s, and most peripheral and semiperipheral countries lack the historical estimates that observers have calculated for the majority of today’s core countries” (Korzeniewicz, Moran, and Stach 2003: 14). Thus, the possibility and likelihood of empirical research is totally up to the availability of data. Some statistical analyses attempt statis-

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Table 1 Three Diﬀerent Models of the Global Core-Periphery Structure StructuralFunctionalist

RelationMix

Global-WealthHierarchy

Main Figures

Wallerstein in the early 1970s

Wallerstein (and Hopkins) since the late 1970s

Phase I: Arrighi (and Drangel) (1986) Phase II: Arrighi(, Silver, and Brewer) (2003)

Core-Periphery Structure

Hierarchy built with state building-blocks: “three kinds of states”

Relational processes of surplus transfer: Every state has diﬀerent mixes of core-like activities and peripheral activities.

Three types of the wealth: 1. oligarchic wealth 2. democratic wealth 3. nonwealth (poverty)

Distinguishing Criteria

Plural (economic, political, cultural)

Singular (economic)

Singular (GNP or GNI per capita)

Image of the Semiperiphery

The middle tier of a three-story pyramid: “buﬀer zone”

Relatively even mix of The population size of semiperiphery is larger the core-like and than core but smaller peripheral activities than periphery.

tical extrapolation, too. For example, Korzeniewicz, Moran, and Stach (2003: 14-15) approximate a between-country inequality, utilize Maddison’s data “on population and GDP for 24 countries between 1820 and 1990.”12 These statistical analyses have commonly treated the three-layered structure of the capitalist world-economy as a hypothesis to be tested in their initial stage, and, if demonstrated, have attributed the status of a truth to it. So far, many attempts have been made for measuring the international core-periphery structure in various ways; some have been noteworthy and hotly debated; a few have had signiﬁcant eﬀects on the direction of following quantitative studies; few have raised critical questions on Wallerstein’s preconceived model 12

Milanovic (2005) points out the limit of the Maddison’s data: “[T]he problem—even if this information were fully correct—is that for large parts of the world we do not have GDP per capital for the early nineteenth century. There are no data for Africa, most of (what used to be called) Indo-China, the Philippines, Korea, Turkey and the Middle East, the Balkans, and all of Latin America and the Caribbean with the exception of Brazil. . . . Fortunately, Maddison’s data do include China and India, which keeps the population coverage around 80 percent even in the nineteenth century.” (p. 139).

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of the tripartite hierarchy;13 but no agreement on “the world as it really is” has been attained against their own empiricist expectation.14 It is possible to draw some family trees of the quantitative analyses on the global hierarchy of the capitalist world-economy if we pay attention to the persisting research interest of distinctive authors in this ﬁeld. What is of interest is not the cutting-edge technique of statistics to measure the global inequality, but interpretative implications, which can be obtained from the execution of the statistical analyses. To be sure, the former is important. But I intentionally rule out some authors who had treated the tri-partite model of the global hierarchy just once or twice, and then abandoned it, even if their works were published in some major journals. Instead, I include some theoretical considerations on the matter from the same author’s qualitative analyses, if they substantiate the interpretative issues raised by their statistical analysis. The family trees presented in the Table 2 show us not only the continuity and discontinuity of ﬁve pedigrees, but also the divergence and convergence among them. Let me brieﬂy explain each of ﬁve threads. Alpha (α) is the tradition beginning from Snyder and Kick’s (1979) path-breaking multiple network analysis through a block-modeling. The most distinct feature characterizing this tree is its inclusion of non-economic relations such as military and diplomatic ties between countries. With regard to taking multiple criteria to distinguish the three world-systemic positions, it can be understood as adopting the earlier structural-functionalist model. The same research design has been maintained through the recent works by Kick and others. Ronan Van Rossem (1996) also adopts this type of approach with some modiﬁcations. Beta (β) is the tradition of the trade network analysis led by David Smith, who also had some works on semiperipheral contents in the case of South 13 Arrighi and Drangel (1986) is one of the few cases to eﬀectively challenge Wallerstein’s loose framework in several points, such as the introduction of the population limits in each zone, rigorous conceptualization of organic members of core, periphery and semiperiphery enabled by the adoption of the pair of the “perimeter of core” and “perimeter of periphery” together with the upward / downward mobility across the perimeters, and the veriﬁcation of the essential claim of the world-systems analysis, namely, the stability of the tri-partite hierarchy in spite of the mobility of individual countries, etc. But, unlike Wallerstein’s earlier structural-functionalist model, their global-wealth-hierarchy model denies the stability function of semiperiphery: “[T]he function of the semiperipheral zone . . . is neither necessary nor suﬃcient to account for its existence” (p. 13, fn. 3). 14 The controversial situation is not conﬁned to world-systems analyses. Revolving around the issue of whether the world inequality for past and present decades has been increasing or decreasing, two opposing views have been pitted against each other: While Firebaugh (2003), Lucas (2002), Quah (1993), and Jones (1997) have attempted to demonstrate that the world inequality has been decreasing on the one side, Milanovic (2002, 2005), Wade (2004), and Galbraith (2002) have tried to demonstrate the opposite.

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Korea. His focus of study has been changed through some work on world city networks that he co-authored with Michael Timberlake. The characteristic feature of the β tree is its single focus on the trade networks because they think that the trade network data is the best tool to show the ﬂow of economic surplus, which is fundamental to the core-periphery relationships. As the trade networks are understood as a multiplication of the surplus ﬂows between corelike activities and peripheral activities, β can be interpreted as having aﬃnity with the relation-mix model. Peacock, Hoover, and Killian (1988) follow this tradition, even with using a decomposition analysis. The rest, Gamma (γ), Delta (δ), and Epsilon (ε), can be understood as three diﬀerent branches diverging from Arrighi and Drangel’s (1986) global-wealthhierarchy model. Arrighi and Drangel try to empirically demonstrate the existence of the stable three-tiered structure of the world-economy as well as to draw a new theoretical mapping of the global-wealth-hierarchy model. The authors’ empirical analysis shows us the mid-term stability of the three-tiered structure of the world-economy over the 45 years (1938-1983). Despite some exceptional examples of upward or downward mobility, such as Japan, Italy, South Korea, and Ghana, the ascending or descending movements of parts have not changed the stable three-tiered structure of the world-economy. Despite some disputes on measurement problems,15 the analysis by Arrighi and Drangel got some signiﬁcant and theoretically favorable reverberations. What I label Gamma (γ) is Peter J. Taylor’s (1988) work. He supported Arrighi and Drangel’s ﬁnding of the relatively stable existence of three discrete zones by showing that the tripartite distribution is observed even if the componential blocks are changed from national states, all of which have diﬀerent population sizes, to the population blocks, which have the same size of population. As its title, “a supportive note on Arrighi and Drangel”, indicates, Taylor demonstrates that the trimodal hierarchy analogy of the world-systems analysis empirically survives the spatial reorganization of the data, making use of John Cole’s world data that is not state-based. While other statistical analyses tested Wallerstein’s model of three-tiered pyramid built with the nation-state blocks, the size of which is diﬀerent, the Cole’s data utilized by Taylor can be understood as the three-tiered pyramid built with population blocks, the size of which is all the same. As we have seen, here we can observe a convergence of Beta (β) thread of David Smith and Gamma (γ) thread of Peter J. Taylor, eventually making a conﬂuence with the deterritorialization approach togloba lization. 15 On the problem in the use of GNP per capita as an indicator, see Korzeniewicz and Awbrey (1992: 615-616), and Chase-Dunn (1998: 215-216). On Arrighi’s position to the criticisms, see Arrighi (1990: 19-21, 36-37).

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Table 2 Family Trees of Quantitative Analyses of the World-Systems Perspective α

Year 1979/

β

Nemeth & Smith

1986 1986

1988 1990 1991 1992

Kick Smith & Nemeth

Arrighi (1985) Arrighi & Drangel (1986) Arrighi, Korzeniewicz & Martin (1986) Peter J. Taylor Taylor

Smith & White Taylor Smith & Timberlake

Korzeniewicz & Awbrey (1992) Korzeniewicz & Martin (1994)

Arrighi

Taylor

1996

1997

Taylor

2000

Kick, Taylor Davis, Lehtinen, & Burns (2000) Kick & Smith & Taylor Davis Timberlake

2001

ε

Arrighi Arrighi

1994 1995

δ

Snyder & Kick

1985

1987

γ

Arrighi, Korzeniewicz, Consiglio, & Moran (1996) Korzeniewicz & Moran (1997) Korzeniewicz & Moran (2000)

Arrighi & Silver

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Table 2 (cont.) Year

α

β

γ

2001/ 2002 2002

δ

ε

Arrighi

2003

Smith

Taylor

2004 2005

Smith

Taylor

Korzeniewicz, Stach, Consiglio, & Moran (2002) Korzeniewicz, Moran, & Stach

Arrighi

Korzeniewicz & Moran

Arrighi, Silver, & Brewer

Arrighi Arrighi, Silver, & Brewer

* The shaded area includes studies in which the tripartite structure of core-semiperiphery-periphery is focused as one of their main objective of analyses.

Delta (δ) is identiﬁed with the works by Roberto P. Korzeniewicz and his co-authors. Initially, they were interested in the extension of Arrighi and Drangel’s position on the stability of the tripartite hierarchy. Korzeniewicz and Awbrey (1992) use Arrighi and Drangel’s classiﬁcation of the structural position of 102 nations in the mid-1980s for the study intended to observe the correlation between global transition to democracy and semiperipheral position. Korzeniewicz and Martin (1994) also attempt to overcome some shortcomings of Arrighi and Drangel’s analysis by extending their research “to far more time-points (34) and countries (up to 134)”, so that the authors can make some original contributions to understanding zonal distributions of speciﬁc commodity productions and to observing shift of commodities characterizing each zone (p. 71). Yet, Arrighi and Drangel’s essential points are reaﬃrmed and remained unchallenged in these studies. But now, Delta (δ) is focusing on the multi-dimensionality of the global inequalities (inequalities among nations, inequalities among households within nations, and inequalities between men and women), as Korzeniewicz and his co-authors get more interested in the co-relation of the between-country inequalities with the within-country inequalities. Concurring with most of empirical studies on global income inequality (Milanovic 2002, 2005; Firebaugh 1999, 2001, 2003), they argue that the total world income inequality in the 1990s is conditioned more by between-country inequalities than by within-country inequalities. If, as they argue, the between-country inequalities have more

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weight in constituting the global inequality than within-country inequalities, not only the state-based measurement of global inequality, but also the coreperiphery model built with the constituent units of national states is still meaningful in contrast to the deterritorialization criticisms. Finally, Epsilon (ε) refers to Arrighi and his coauthors’ recent works. Arrighi and Drangel (1986) show us that most of states have remained by 1983 within the zone to which they belonged in 1938, notwithstanding rare exceptions. The existence of the “unbridgeable gulfs” between core and semiperiphery (i.e. PC) and between semiperiphery and periphery (i.e. PP) observed in Arrighi and Drangel’s study is reiterated in Arrighi (1990). Later, Arrighi and Silver (2000) argue that the relative demographic size of the three groups remained roughly constant during the period from 1961 to 1981 in spite of some upward movement by Japan, Italy, Taiwan, and South Korea. They attribute the persistence of the relatively stable tripartite structure to the faster average demographic growth of the states in the lower income groups. A remarkable change of this thread is a shift of Arrighi’s focus from the relative stability of the tri-partite hierarchy despite the upward and downward mobility of individual countries in the mid-term period in the twentieth century, to the divergence within the South since 1980, which is outstanding in the contrast between East Asia and Sub-Saharan Africa. Arrighi, Silver, and Brewer (2003) present a novel framework distinguished from the earlier phase of the global-wealth-hierarchy modeling. Most of all, the earlier tripartite structure of world hierarchy that consists of core, semiperiphery, and periphery was abandoned and superseded by the North-South divide. While Arrighi and Drangel (1986) argued that there was stable and distinctive tripartite hierarchy divided by two “unbridgeable gulfs”, PC and PP, the authors present a seemingly traditional claim of the North vs. South or the First World vs. the Third World. There is little consideration of the semiperiphery occupying an intermediate position in the hierarchy of the wealth of nations. But the reproductive mechanism for the North-South divide is attributed instead to the “bifurcation within the Third World countries” explicitly revealed from about 1980 (coinciding with the redirection of capital ﬂows to US and the “Washington Consensus” as a hegemonic reaction to the crisis of capital accumulation) by the authors. Now, the claim on the stable existence of the intermediate sector (the semiperipheral zone) cannot be found. For the same reason, the previous triple categories of the wealth of nations (oligarchic wealth of the core, democratic wealth of the semiperiphery, and the nonwealth of periphery), which appeared in Arrighi (1990) are simpliﬁed to Harrod’s original pair of wealth (oligarchic wealth of the First World and democratic wealth of the Third World).

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The ﬁve threads of Table 2 have their own ﬁndings, but here I conﬁne myself to the matter of the tripartite structure. We can get a general morphology of the tripartite structure from the ﬁndings of the quantitative analyses on the global hierarchy in their earlier stage. Both Snyder and Kick (1979) [α] and Nemeth and Smith (1985) [β] give us a similar image of the tri-partite networks: core countries dominate all over the networks; semiperipheral countries have strong ties with core countries, but also with each other; and the periphery is connected to the international trade system almost exclusively through trade with core states. Arrighi and Drangel (1986) and the subsequent studies of γ, δ and ε in their early stages aﬃrm the mid-term stability of the tripartite structure, too. Arrighi and Drangel put forth nine distributions of world population corresponding to nine time points from 1938 to 1983. Five out of nine appear to conﬁrm the existence of relatively clear tri-modal structure of the capitalist world-economy, and the remaining four distributions also have one or two peaks sandwiched by two low-frequency intervals (i.e. PP and PC). Thus, we can observe the evidence of stable existence of the three-tiered structure from 1938 to 1983, as hypothesized in the Figure 3. There are two noteworthy trends in the family trees. First, earlier attempts of each tree to prove the existence of three discrete clusters have faded out: β and γ are now concentrating on the global city network; δ is focusing on the co-relationships between diﬀerent types of inequalities; and ε is dedicated to the bifurcation of the Third World. Second, there are increasing disagreements on the relatively stable existence of the tripartite structure. In contrast to their earlier studies, some ﬁndings of recent studies are against the claim of the stability of the trimodality. Nemeth and Smith distinguish the fourth strata of the “weak semiperiphery” from strong semiperiphery in the trade data for the year 1970 (Nemeth and Smith 1985: 543; Smith and Nemeth 1988). Kick (1987) also argues that there are four tiers in the world-economy: core, semicore, semiperiphery, and periphery in the period, 1970-1975 (p. 135). Smith and White (1992) even argue the existence of ﬁve tiers. The outcome to suspect the actual existence of three discrete clusters is also observed in other research not included in the above family trees (Bornschier and Trezzini 1997: 430; Van Rossem 1996: 513). Although some of recent studies still conﬁrm the existence of three clusters, their clustering of each zone is done by arbitrary cutting point on a continuum of GNP or GNI, not by the existence of low frequency distribution such as Arrighi and Drangel’s PC and PP (Ikeda, 2004; Babones, 2005). In this case, the trimodality is just assumed, not proved. At this point, we should ask a valid question. The question is whether or not the three discrete clusters of states are observed even by other quantitative analyses performed by researchers outside of the world-systems analysis.

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An innovative research on the world income distribution was made by Branko Milanovic (2002; 2005), a lead economist in the World Bank’s research department. Unlike most previous studies on international inequality measured by GDP or GNP per capital of each country, his study is based on the household survey on a global scale. For the ﬁrst time in human history, it was possible to measure Gini coeﬃcients at multiple levels—country level, regional level, and global level. It makes possible the measure of the diﬀerent weight of between-country inequality and within-country inequality. According to his ﬁnding, while 88 percent of world inequality in 1993 is due to between-country inequality, the within-country inequality accounts for only 2 percent of total world inequality with the remaining 10 percent due to the ‘overlap’ component (Pp. 59-92). Another empirical outcome of Milanovic’s (2005) research poses a critical challenge on one of the most important premises of the world-systems perspective: the overall systemic stability of the tripartite core-semiperipheryperiphery structure despite the upward and downward mobility of parts. Measuring world inequalities at three time points (1960, 1978, and 2000), Milanovic presents a striking picture of global inequality. He classiﬁes almost every country in the world into four categories: (1) the rich, (2) the contenders, (3) the Third World, and (4) the Fourth World.16 Tracing the dynamic of upward and downward movements of individual countries, he derives two concluding observations from the measurement of the upward and downward movements of countries for two periods, 1960-78 and 1978-2000 (Pp. 6870). First, the rich and the Fourth World located at the extremes show a relative stability. At the top, 73 percent of the rich in 1960 had remained rich in 1978, and 82 percent of the rich in 1978 remained still rich in 2000. And, at the bottom, all of the poorest countries in 1960 remained poor in 1978, and 95 percent of them still remained poor in 2000. Second, in contrast to the stability at the two poles, he shows the “churning among the contenders and

16

Milanivic deﬁnes “GDP per capita of the poorest WENAO (Western Europe, North America and Oceania, i.e. the ‘old OECD’ region short of Japan) countries, excluding Turkey, as the cut-oﬀ point between the rich and the contenders” (2005: 61, 2002: 59). “The countries whose GDP per capita is no more than one-third below that of the poorest WENAO country are called ‘contenders.’ . . . Basically, a contender country has a fairly reasonable chance of catching up within a generation or two.” The Third World countries are “those with GDP per capita levels between one- and two-thirds of the poorest WENAO country.” Finally, the Fourth World is composed of “countries whose GDPs are less than a third of the GDP per capita of the poorest Western country” (Milanovic 2005: 61-62).

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the Third World” and its downward pressure.17 Milanovic enumerates thirtythree downwardly mobile countries and seven upwardly mobile countries.18 Further, he points out two features common to twenty countries out of thirty three downwardly mobile countries (“thirteen that in 1960 belonged to the rich world, and twenty that were contenders”): “political instability punctuated by wars, insurgencies, and revolutions; and transition from a planned to a market economy which resulted in massive real income declines” (ibid. 72). Drawing upon Arrighi, Galbraith, Easterly, and Bairoch, he attributes the developing countries’ stagnation and the bifurcation of the developing world to a series of changes occurred around 1978-80: “the increase in world interest rates, the increased debt burden of developing countries, the growth slowdown in the industrial world, and skill-based technological change” (ibid. 79). In sum, his study on the global inequality during the period from 1960 to 2000 shows the relative stability in the two poles of coreperiphery spectrum, combined with a predominant downward pressure for middle-income countries, with a handful of exceptional cases of the upward mobility. The immense imbalance between upwardly mobile cases and downwardly mobile cases, shown in Milanovic’s study, ﬂies in the face of the traditional claim of the world-systems perspective. Has the tripartite structure, as hypothesized in Figure 3, really been maintained, despite the dominant pressure for downward movements? Milanovic (2005) reports ‘twin peaks’ of core and periphery instead of three discrete clusters in 2000. In his study, we can observe a clear existence of three clusters in 1960, but the intermediating 17

“Among the contenders, the number of downwardly vs. upwardly mobile countries was 12 to 3 in the ﬁrst period, and 13 to 2 in the second. Regarding the Third World countries, almost two-thirds of the them slipped into the Fourth World during the 1978-2000 period. Overall upward mobility was 4 and 3 percent in the two periods respectively; overall downward mobility was, in contrast, 24 and 29 percent. . . . Stability on the bottom, combined with downward mobility of the contenders and the Third World countries, resulted in the remarkable fact that once a country became part of the poorest group, it found it almost impossible to escape from (relative) poverty. During the past forty years, only two countries—Botswana and Egypt— escaped from the trap of the Fourth World” (ibid. 69-70). 18 The thirty-three downwardly mobile countries include (1) countries who experienced civil or international wars or both (Nicaragua, Iran, Angola, Croatia, Serbia, Montenegro), (2) countries who faced massive domestic insurgencies or conﬂicts during the period 1960-2000 (Algeria, Colombia, Haiti, Fiji, Panama, South Africa), (3) countries who were aﬀected by the stagnation in the 1980s and then experienced transition from planned to market economy (Russia, Ukraine, Hungary, Poland, Kazakhstan, Lithuania), (4) countries who hit by the lower oil prices (Saudi Arabia, Gabon), and (5) others (Argentina, Barbados, Trinidad and Tobago, Seychelles, Costa Rica, Mexico, Venezuela, Uruguay, Turkey, Jamaica, Guyana, Senegal, and Ghana). The seven upwardly mobile countries are Singapore, Hong Kong, Taiwan, South Korea, Malaysia, Botswana, and Egypt. Milanovic acknowledges that Thailand and China, although their upward movements are not observed in this study, may be added to the success cases because they were among the ten most successful economies during the 1960-2000 period.

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cluster, what the world-systems perspective calls the semiperiphery, has eventually decomposed (Pp. 94, 129).

Conclusion: Decomposition of Semiperiphery? In order to understand the problems of the trimodality of the world-systems perspective and deterritorialization criticisms to the perspective, we have examined three diﬀerent preconceived models of the trimodality and six diﬀerent trends of quantitative research on global inequalities (ﬁve family trees in the world-systems perspective plus Milanovic). The empirical analyses examined here show us a part of the picture of changes on a global scale. Especially, Milanovic’s research provides us with two important points on the morphology of global inequality. On the one hand, as we brieﬂy mentioned above, the between-country inequality has more weight than the within-country inequality in explaining global inequalities, so the deterritorialization critics’ arguments on “general equalization or smoothing of social space” (Hardt and Negri, 2001: 55) on a global scale is somewhat exaggerated. Therefore, the state-based global inequality is not meaningless. Robert Wade’s (2006) recent attention on the emergence of a hierarchy of national currencies and its constraints on economic policies of developing countries eﬀectively back up the meaningfulness of the interstate hierarchy (Pp. 115-127). But, on the other hand, the existence of interstate hierarchy does not guarantee the validity of the existing model of trimodality of the world-systems perspective. The semiperiphery, in other words, the tripartite structure of global hierarchy, has not survived the neoliberal restructuring of global capitalism since 1978-80. If Milanovic is right, the tripartite structure existed in the year 1960. He also implies that it may reappear as a discrete intermediate zone in the future if China and/or India continue their recent pace of fast economic growth. But it does not exist now. The increasing disagreement on the existence of the tripartite structure among the statistical analyses of the world-systems perspective might have reﬂected this reality. How can we interpret this empirical challenge to the traditional claim of the world-systems analysis? In spite of some conﬂicts, some recent statistical research coming from the world-systems perspective conﬁrms the emptying-out of the semiperiphery, too (Babones 2005).19 The 19

Babones’s (2005) distribution of the world population at six time points (1975, 80, 85, 90, 95, and 2000) still shows the existence of three clusters, but, semiperiphery, in all of six distributions, has the lowest proportion among the three zones (Pp. 46-48). It is diﬀerent from Arrighi and Drangel’s hypothesized image of the global-wealth-hierarchy model (Figure 3) in which the semiperiphery has the middle level of population distribution.

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world Milanovic represents shows a clear bi-polar shape of the global inequality. The trimodality of the world premised by Wallerstein and Arrighi should be judged in the mid-term and long-term perspective, so it may be too early to say that they are simply wrong. But it would be safe to say that the current period is not anymore the period when the world-systems perspective was born. After a generation, the polarized shape of global inequality once premised by dependentistas who thought the developing countries were rather residual exceptions seems to more ﬁt to the reality from the viewpoint of the ﬁrst decade of the twenty-ﬁrst century. The concept of semiperiphery was born in the second decade of development. Ever since, many studies have tried to show its discrete existence in various ways. But now, the semiperiphery is disappearing and it is disappearing in two senses. On the one hand, as Arrighi’s abandonment of the term shows, the semiperiphery as a concept useful for representation of the world inequality is disappearing. And, on the other hand, as Milanovic’s study shows, the semiperiphery as a distinct group of countries within the global hierarchy, which is the existential condition of the concept, is disappearing. The disappearance is not an absence, but a process of decomposition of the historical existence, the semiperiphery. It requires situating the tripartite structure in a shorter time-span than Wallerstein did in his theoretical mappings. Wallerstein’s model implies that the tripartite structure is situated throughout the longue-durée of capitalism or, worse still, in his earlier structuralist-functionalist modeling, throughout the very long-term time period of sages. It is not to deny the heuristic value of the concept, but to put it in its relevant place. The current ‘twin peaks’ in the polarized world of global inequality disproves the existence of semiperiphery at this juncture. But, as Milanovic shows, the current ‘twin peaks’ has been shaped by evolving from the tripartite structure in the 1960s, passing through the watershed years around 1978-80. Therefore, what we need to do is not to abandon the concept, but to study what kind of relational process has been undergoing beneath the changing form of core-periphery hierarchy. Although the stable existence of semiperiphery as a discrete zone throughout the longue-durée of capitalism is denied, we cannot deny the existence of global hierarchy or the interstate inequality in global income distribution. Therefore, every national state is still supposed to occupy its structural location within the hierarchy. It is a general condition of existence for all states in the capitalist world-economy. What diﬀerentiates them is the unequal distribution of the wealth and power of nations. In this vein, even with the decreasing heuristic power of the concept of semiperiphery, the qualitative studies on semiperiphery, which are not directly dealt with in this chapter, still retain some signiﬁcance for understanding the reality of states within global capitalism.

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The world-systems analysis has tried to answer, with the concept of semiperiphery, to the question on the stability of the hierarchic whole of the capitalist world-economy despite the mobility of its parts. If the answer that semiperiphery is conducive to the stable reproduction of the global hierarchy is regarded as still valid, the focus of future studies would lay on the instability heightened by the decomposition of the semiperiphery. We may interpret the transformation of the global inequality from the triple peaks to the twin peaks as a symptom of a hegemonic transition period if we can observe the same tendency in the history of past hegemonic transition phases. Or, it may be bigger than a hegemonic transition. As Hardt and Negri argue, it may be the transmutation of the capitalist world-economy into the capitalist Empire. If so, it would shatter the deﬁnition of the capitalist world-economy, once distinguished from world-empires. But now, we need to think about not just the pertinence of the answer, but the validity of the question itself. Does the whole hierarchical structure remain even with the upward and downward mobility of individual countries? Milanovic’s study provides us with a strong negative answer denying the original question. The whole global wealth hierarchy has changed from the triple-peaks to the twin-peaks as a result of few cases of catching-up and many cases of falling-behind of national economies. The movements of the parts shape and reshape the whole. If we cannot prove the stable existence of the tripartite hierarchy during the longue-durée of capitalism, and therefore, if we admit that the tripartite structure is a postulate as a part of the theoretical mapping rather than an outcome of research, there would be no reason to believe that the semiperiphery is a constant of the capitalist world-economy. It would be too soon to drop the concept of semiperiphery as the tripartite structure of the capitalist world-economy is assumed as the long-term phenomenon. It may be resumed in the future if BRICs countries can continue their economic growth as fast as they did for the last decade. Especially, the current global turmoil triggered by the subprime mortgage crisis in US may contribute to the acceleration of their catch-up development (Aglietta, 2008: 72-73). But keeping a suspicion on the postulate of the tripartite structure of the capitalist worldeconomy would be valid at least before we can have the information on the global inequality for the period longer than Milanovic’s study. It would be more reasonable than the abuse of the problematic term—semiperiphery.

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The Political Economy of US Wars of Choice: Are They Really Oil Wars? Ismael Hossein-zadeh Drake University, Des Moines, Iowa

Abstract This study challenges and documents a case against the dominant view that post-Cold War U.S. military adventures in the Middle East, especially the recent invasion of Iraq, have been prompted mainly by oil considerations. The study suggests that although oil is indubitably a concern, and that the United States has used military force in the past for energy purposes, these precedents fail to explain the current military operations in the region. There is strong evidence that major oil companies no longer favor war in the Middle East, because they prefer stability and predictability to periodic spikes in the oil price that result from war and political convulsion. There is also strong evidence that the powerful interests vested in war and militarism might be utilizing oil as a pretext to justify military adventures in order to derive higher dividends from the business of war. Keywords Big Oil, Peak Oil, manipulative speculation in oil markets, resource wars, Neo-Malthusianism, tar sands, oil shale, Iran-Libya Sanction Act, military-industrial complex, OPEC, war proﬁteering

A most widely-cited factor behind the recent US wars of choice is said to be oil. “No Blood for Oil” has been a rallying cry for most of the opponents of the war. While some of these opponents argue that the war is driven by the US desire for cheap oil, others claim that it is prompted by Big Oil’s wish for high oil prices and proﬁts. Interestingly, most antiwar forces use both claims interchangeably without paying attention to the fact that they are diametrically-opposed assertions. Not only do the two arguments contradict each other, but each argument is also wanting and unconvincing on its own grounds; not because the US does not wish for cheap oil, or because Big Oil does not desire higher oil prices, but because war is no longer the way to control or gain access to energy resources. Colonial-type occupation or direct control of energy resources is no longer eﬃcient or economical and has, therefore, been abandoned for more than four decades.

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The view that recent US military adventures in the Middle East and the broader Central Asia are driven by energy considerations is further reinforced by the dubious theory of Peak Oil, which maintains that world production of conventional oil will soon reach—if it has not already reached—a maximum, or peak, and decline thereafter. It follows that, therefore, war power and military strength are key to access or control of the stagnant, shrinking, or soonto-be-shrinking oil. In this study I will ﬁrst argue that while, prima facie, Peak Oil sounds like a reasonable thesis, it is dubious on both theoretical and empirical grounds. I will then show that war and military force are no longer the necessary or appropriate means to gain access to sources of energy, and that resorting to military measures can, indeed, lead to costly, not cheap, oil. Next, I will demonstrate that, despite the lucrative spoils of war resulting from high oil prices and proﬁts, Big Oil prefers peace and stability, not war and geopolitical turbulence, in global energy markets. Finally, I will argue a case that behind the drive to war and military adventures in the Middle East lie some powerful special interests (vested in war, militarism, and geopolitical concerns of Israel) that use oil as an issue of “national interest”—as a façade or pretext—in order to justify military adventures to derive high dividends, both economic and geopolitical, from war.

Has Oil Really Peaked, or Is Peaking—and Running Out? The Peak Oil theory maintains that world production of conventional oil will soon reach a maximum, or peak, and decline thereafter, with grave socioeconomic consequences. Some proponents of the theory argue that world oil production has already peaked, and is now in a terminal decline.1 Although, on the face of it, this sounds like a fairly reasonable proposition, it has been challenged on both theoretical and empirical grounds. While some critics have called it a myth, others have branded it as a money-making scam promoted by the business interests that are vested in the fossil fuel industry, in the business of war and militarism, and in the Wall Street ﬁnancial giants that are engaged in manipulative oil speculation. Regardless of its validity (or lack thereof ), the fact is that Peak Oil has had signiﬁcant policy and political implications. It has also generated considerable reactions among various interest groups and political activists. 1 Hirsch, Robert L., Roger Bezdek, and Robert Wendling. 2005. “Peaking of World Oil Production: Impacts, Mitigation, and Risk Management.” Testimony on Peak Oil before the House Subcommittee on Energy and Industry. Accessed at http://www.netl.doe.gov/publications/others/ pdf/Oil_Peaking_NETL.pdf.

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While environmental and similar activists have used Peak Oil to promote more vigorous conservation and more energetic pursuit of alternative fuels, the oil industry and its representatives in and out of the government have taken advantage of Peak Oil to argue in support of unrestrained extraction of oil and expanded drilling in the oﬀshore or wildlife regions. Because of its simple logic and facile appeal, Peak Oil has also led many ordinary citizens, burdened by high fuel bills during periods of energy crisis, to support unrestrained or expanded drilling. According to a recent Rasmussen poll, 57 percent of Americans favor more oﬀshore drilling. Misled and misplaced popular perceptions, in turn, play into the hands of the oil industry and their representatives to lobby for the lifting of the Federal ban on oil production in hitherto restricted regions. Citing voter anger over soaring energy prices, Senator John McCain of Arizona, the Republican presidential nominee, recently argued that opening vast stretches of the country’s coastline to oil exploration would help America eliminate the dependence on foreign oil. “We have untapped oil reserves of at least 21 billion barrels in the United States. But a broad federal moratorium stands in the way of energy exploration and production,” he said. “It is time for the federal government to lift these restrictions”.2 Perhaps the ﬁnancial giants of New York and London have beneﬁted the most from the misleading implications of Peak Oil. Wall Street ﬁnancial monsters that created the Third World debt crisis in the late 1970s and early 1980s, the tech bubble in the 1990s, and the housing bubble in the 2000s are now hard at work creating the oil bubble. These powerful market manipulators tend to blame the artiﬁcial oil shortages they create (through speculative hoarding) and the resulting oil price hikes on Peak Oil. Just as Peak Oil plays into the hands of manipulative speculators and beneﬁciaries of fossil fuel, so too can it be used by the champions of unilateral wars and military adventures, as it implies that war power and military strength are key to access or control of the “shrinking” or “soon-to-be-shrinking” oil. It thus provides fodder for the cannons of war proﬁteering militarists who are constantly on the look out to invent new enemies and ﬁnd new pretexts for continued war and escalation of military spending—that is, for the looting of the national treasury, or public money. By the same token that Peak Oil can serve as a pretext for war and military adventures, it can also serve as a disarming or pacifying factor for many citizens who accept the Peak Oil thesis and, therefore, internalize responsibility 2

Mosk, Matthew. 2008. “Industry Gushed Money After Reversal on Drilling,” Washington Post. Accessed at http://www.washingtonpost.com/wpdyn/content/article/2008/07/26/AR2008072601891. html.

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for US foreign policy every time they ﬁll their gas tank. In a vicarious way, they may feel that they own the war! Thus, Peak Oil serves as a powerful trap and a clever manipulation that lets the real forces of war and militarism—the military-industrial complex and the pro-Israel lobby—and the main culprits behind the soaring energy prices—the Wall Street ﬁnancial giants engaged in manipulative commodity speculation—“oﬀ the hook. It is a fabulous redirection. All evils are blamed on a commodity upon which we are all utterly dependent”.3 The fact, however, is that there is no hard evidence that world oil production has peaked, or will be peaking anytime soon, or that the current skyrocketing price of oil is due to a supply shortage. (As shown below, there is actually an oil surplus, not shortage.) Not only millions of lay-citizens, but also many scholars and academics have taken the bait and fallen right into this trap by arguing that recent US wars of choice are driven primarily by oil and other “scarce” resources. More broadly, they argue that most wars of the future, like the recent and/or present ones, will be driven by conﬂicts over natural resources, especially energy and water—hence, for example, the title of Michael T. Klare’s popular book, Resource Wars.4 As a number of critics have pointed out, this is reminiscent of Thomas R. Malthus’s theory of “scarcity” and “overpopulation.” Malthus (1766-1834), a self-styled British economist, argued that the woes and vagaries of capitalism such as poverty, inequality and unemployment are largely to be blamed on the poor and the unemployed, since they produce too many mouths to be fed, or too many hands to be employed. In a similar fashion, Peak Oil implies that current crisis in energy (and other commodities) markets is to be blamed, at least in part, on less-developed or relatively poorer nations such as India and China for growing “too fast” and creating “too much” demand on “scarce” resources. Peak Oil theory is not altogether new. M. King Hubbert, a well-known geologist, provided a dramatic discussion of the theory in 1956. A year later, Admiral Rickover discussed the end of the fossil fuel era even more emphatically—at the time, he gave oil about ﬁfty more years to run out. Thirty years ago, the Club of Rome predicted an end of oil long before the present day. Indeed, there is evidence that projections of oil peaking, then declining and running out, have been ﬂoated around ever since oil was discovered in the second half of nineteenth century. For example, the chief geologist of 3

Ron Andreas, reporter/researcher, e-mail correspondence with the author. Klare Michael T. 2002. Resource Wars: The New Landscape of Global Conﬂict. Holt Paperbacks. 4

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Pennsylvania predicted in 1874 that we would run out of oil in four years— just using it for kerosene.5 While Peak Oil theory has been around for a long time, it has usually been dormant during “normal” economic times, or “reasonable” oil prices, but has gained heightened currency during periods of energy crisis and high oil prices. For example, Peak Oil became quite popular during (and immediately after) all of the three recent oil crises: the early 1970s crisis, the late 1970s and early 1980s crisis, and the early 1990s crisis. The obvious reason for the rise in the Peak Oil popularity in the context of those periods of energy crisis was the perception that oil shortage must have played a major role in the respective oil price hikes. It is not surprising, then, that as recent geopolitical convulsions in the Middle East have triggered a new round of oil price hikes, Peak Oil theory has once again become fashionable. It turns out, however, that oil price shocks of all the previous periods of energy crisis were precipitated not by oil shortages, or any real prospects of oil “peaking and running out”, but by international political convulsions, revolutions and wars: the Arab-Israeli war of 1973, the 1979 Revolution in Iran, and the 1990-91 invasion of Kuwait by Saddam Hussein’s armed forces. Each time, as the turbulent period of war or revolutionary atmosphere ended, higher oil prices of the respective crisis situation subsided accordingly.6 The current oil price hike too is precipitated not by an oil shortage, as popularly perceived, but by manipulative speculation in energy futures markets— which are, in turn, prompted largely by the unstable atmosphere of war and geopolitical turbulence in the Middle East. Evidence is therefore unambiguous that, so far, almost all oil price shocks can be explained not by geology, or the so-called Peak Oil, but by geopolitics. Peak oil theory is based on a number of assumptions and omissions that make it less than reliable. To begin with, it discounts or disregards the fact that energy-saving technologies have drastically improved (and will continue to further improve) not only the eﬃciency of oil production but also of oil consumption. Evidence shows that, for example, “over a period of ﬁve years (1994-99), US GDP expanded over 20 percent while oil usage rose by only nine percent. Before the 1973 oil shock, the ratio was about one to one”.7 5 Cavaney, Red. 2006. “Global Oil Production about to Peak? A Recurring Myth,” World Watch. January 1, 2006. Accessed at http://goliath.ecnext.com/coms2/gi_0199-5142950/Globaloil-production-about-to.html. 6 Kanovsky, Eliyahu. 2003. “Oil: Who’s Really Over a Barrel?” Middle East Quarterly.Spring 2003. Accessed at http://www.meforum.org/article/527. 7 Ibid.

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Cars, airplanes and other means of transportation have become more fueleﬃcient than ever before—though not as much as they could. Both businesses and consumers are also doing a better job of trimming their energy costs. Obviously, this means that our demand for energy does not grow as fast as the growth of our economy. For example, according to the Energy Information Administration, in 1981 the United States devoted nearly 14 percent of its overall gross domestic product to energy; by 2006 that number had fallen to about 9 percent. Second, Peak Oil theory pays scant attention to the drastically enabling new technologies that have made (and will continue to make) possible discovery and extraction of oil reserves that were inaccessible only a short time ago. One of the results of the more eﬃcient means of research and development has been a far higher success rate in ﬁnding new oil ﬁelds. The success rate has risen in twenty years from less than 70 percent to over 80 percent. Computers have helped to reduce the number of dry holes. Horizontal drilling has boosted extraction. Another important development has been deep-water oﬀshore drilling, which the new technologies now permit. Good examples are the North Sea, the Gulf of Mexico, and more recently, the promising oﬀshore oil ﬁelds of West Africa.8 Thanks to technological advances, the US Geological Survey (USGS), in its 2000 World Petroleum Assessment, “increased by 20 percent its estimate of undiscovered, technically recoverable oil. USGS noted that, since oil became a major energy source about 100 years ago, 539 billion barrels of oil have been produced outside the United States. USGS estimates there are 649 billion barrels of undiscovered, technically recoverable oil outside the United States. But, importantly, USGS also estimates that there will be an additional 612 billion barrels from reserve growth—nearly equaling the undiscovered resources. Reserve growth results from a variety of sources, including technological advancement in exploration and production, increases over initially conservative estimates of reserves, and economic changes”.9 Third, Peak Oil is also subject to criticism because it pays insuﬃcient attention to substitutes or alternative sources of energy, both actual and potential. These include solar, wind, non-food bio-fuel, and nuclear energies. They also include natural gas, which is now about 25 percent of energy demand worldwide, and it is estimated that by 2050 it will be the main source of energy in the world. A number of American, European, and Japanese ﬁrms have 8

Ibid. Cavaney, Red. 2006. “Global Oil Production about to Peak? A Recurring Myth,” World Watch. January 1, 2006. Accessed at http://goliath.ecnext.com/coms2/gi_0199-5142950/Globaloil-production-about-to.html. 9

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invested, and are investing, heavily in developing fuel cells for cars and other vehicles that would signiﬁcantly reduce gasoline consumption.10 Peak Oil theory also pays short shrift to what is sometimes called “non-conventional” oil. These include Tar Sands, Heavy Oils, and Oil Shale. Canada’s Athabasca Tar Sands is the best known example of this kind of unconventional reserve—estimated at 1.8 trillion barrels. Although this was originally considered cost ineﬃcient, experts working in this area now claim that they have brought down the cost from over $20 a barrel to $8 per barrel. Similar developments are taking place in Venezuela. It is thanks to developments like these that since 1970, world oil reserves have more than doubled despite the extraction of hundreds of millions of barrels.11 Except for natural gas and nuclear energy, most of these alternative sources of energy are still highly costly, and are therefore used in only insigniﬁcant quantities. But, considering the ever-evolving newer and more eﬃcient technologies, they are bound to rise in signiﬁcance. This means that the prospects of reaching a day in our search for energy sources when conventional oil is no longer the world’s dominant source of energy are quite realistic. Humans did not invent motor vehicles because they ran out of horses or horse-driven carriages; nor did they invent electricity because they ran out of candles. Finally, and perhaps more importantly, claims of “peaked and dwindling” oil are refuted by the available facts and ﬁgures on global oil supply. Statistical evidence shows that there is absolutely no supply-demand imbalance in global oil markets. Contrary to the claims of the proponents of Peak Oil and champions of war and militarism, the current oil price shocks are a direct consequence of the destabilizing wars and geopolitical insecurity in the Middle East, not oil shortages. These include not only the raging wars in Iraq and Afghanistan, but also the threat of a looming war against Iran. The record of soaring oil prices shows that anytime there is a renewed US military threat against Iran, fuel prices move up several notches. The war also contributes to the escalation of fuel prices in indirect ways— for example, by plunging the US ever deeper into debt and depreciating the dollar, or by creating favorable grounds for speculation. As oil is priced largely in US dollars, oil exporting countries ask for more dollars per barrel of oil as the dollar loses value. Perhaps more importantly, an atmosphere of war and 10 The Wall Street Journal cited in Eliyahu Kantovsky’s “Oil: Who’s Really Over a Barrel?” Middle East Quarterly. Spring 2003. Accessed March 10, 1998 at http://www.meforum.org/ article/527. 11 The Wall Street Journal. 2001. Cited in Eliyahu Kantovsky, Ibid.; see also Bill Kovarik, “The Oil Reserve Fallacy: Proven reserves are not a measure of future supply,” http://www.radford. edu/~wkovarik/oil/

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geopolitical instability in global oil markets serves as an auspicious ground for hoarding and speculation in commodity markets, especially oil, which is heavily contributing to the recently soaring oil prices. As much as 60 percent of today’s crude oil price is pure speculation driven by large trader banks and hedge funds; it has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. . . . Since the advent of oil futures trading and the two major London and New York oil futures contracts, control of oil prices has left OPEC and gone to Wall Street. It is a classic case of the ‘tail that wags the dog’.12

By purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a ﬁnancial incentive for oil companies to buy even more oil and place it in storage. A reﬁner will purchase extra oil today, even if it costs $150 per barrel, if the futures price is even higher. This has led to a steady rise in crude oil inventories over the last two years, “resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The large inﬂux of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices. . . . In fact, during this period global supplies have exceeded demand, according to the US Department of Energy”.13 The fact that the skyrocketing oil prices of late have been accompanied by a surplus in global oil markets was also brought to the attention of President George W. Bush by Saudi oﬃcials when he asked them during a recent trip to the kingdom to increase production in order to stem the rising prices. Saudi oﬃcials reminded the President that “there is plenty of oil on the market. Iran has put some 30 million barrels of oil that it can’t sell into ﬂoating storage. ‘If we produced more oil, it wouldn’t ﬁnd buyers,’ says the Saudi source. It wouldn’t aﬀect the price at all”.14 And why wouldn’t producing more oil “aﬀect the price at all”? Well, because what is driving the soaring oil prices is not shortage but speculation: “with so much investment money sloshing around in the commodities markets, the Saudis calculate they have no hope of controlling short-term price ﬂuctuations. 12 Engdahl, F. William. 2008. “Perhaps 60% of Today’s Oil Price Is Pure Speculation.” ﬁnancialsense.com. Accessed May 2, 2008 at http://www.ﬁnancialsense.com/editorials/engdahl/2008/ 0502.html. 13 Ibid. 14 Reed, Stanley. 2008. “Help from the House of Saud: Why the leading oil producer wants to cool oﬀ the market.” Business Week. Accessed May 29, 2008 at http://www.businessweek.com/ print/magazine/content/08_23/b4087030945015.htm.

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They blame the recent price run-ups on speculation and fear of shortages [not real shortages], factors they say are beyond their control”.15

War for Cheap Oil? The widely-shared view that the US desire for access to abundant and cheap oil lurks behind the Bush administration’s drive to war in the Middle East rests on the implicit, but dubious, assumption that access to energy resources requires direct control of oil ﬁelds and/or oil producing countries. There are at least three problems with this postulation. First, if control of or inﬂuence over oil-producing countries in the Middle East is a requirement for access to cheap oil, the United States already enjoys signiﬁcant inﬂuence over some of the major oil producers in the region— Saudi Arabia, Kuwait, and a number of other smaller producers. Why, then, would the US want to bring about war and political turmoil in the region that might undermine that long and ﬁrmly-established inﬂuence? Let us assume for a moment that the neoconservative militarists are sincere in their alleged desire to bring about democratic rule and representational government in the Middle East. Let us further assume that they succeed in realizing this purported objective. Would, then, the thus-emerging democratic governments, representing the wishes of the majority of their citizens, be as accommodating to US economic and geopolitical objectives, including its oil needs, as are its currently friendly rulers in the region? Most probably not. Secondly, and more importantly, access to oil no longer requires control of oil ﬁelds or oil producers—as was the case in times past. For more than a century, that is, from the early days of oil extraction in the United States in the 1870s until the mid-1970s, the price of oil was determined administratively, that is, by independent producers operating in diﬀerent parts of the world without having to compete with each other. Under those circumstances, colonial or imperial wars of conquest and occupation were crucial to the control of oil (and other) resources. Beginning with the 1950s, however, that pattern of local, non-competitive price determination began to gradually change in favor of regional and/or international markets. By the mid 1970s, an internationally competitive oil market emerged that eﬀectively ended the century-old pattern of local, administrative pricing. Today, oil prices (like most other commodity prices) are determined largely by the forces of supply and demand in competitive global

15

Ibid.

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energy markets; and any country or company can have as much oil as they wish if they pay the going market (or spot) price.16 To the extent that competitive oil markets and/or prices are occasionally manipulated, such subversions of competitive market forces are often brought about not so much by OPEC or other oil-producing countries as by manipulative speculations of ﬁnancial giants in New York and London. As was discussed earlier, gigantic Wall Street ﬁnancial institutions have accomplished this feat through “innovative” ﬁnancial instruments, such as establishment of energy hedge funds and speculative oil futures markets in New York and London.17 It is true that collective supply decisions of oil producing countries can, and sometimes do, aﬀect the competitively determined market price. But a number of important issues need to be considered here. To begin with, although such supply manipulations obviously aﬀect or inﬂuence market-determined prices, they do not determine those prices. In other words, competitive international oil markets determine its price with or without oil producers’ supply manipulations. Such supply managements are, however, designed not to create volatility in energy markets, or chronic oil price hikes. Instead, they are designed to stabilize global oil prices because oil exporting countries prefer stability, predictability and long-term planning for their economic development and industrialization projects. Here is how Cyrus Bina and Minh Vo describe this relationship: As a result, we conclude that the global oil market is the prime mover [i.e., prime determinant of oil price] and OPEC indeed follows its trajectory accordingly and consistently. . . . When market price (both spot and futures) is falling, OPEC decreases its output; when market price is rising, OPEC attempts to increase its output; and when market price is steady, OPEC keeps its output unchanged. . . . And, this is a kind of oil market we have experienced after the dust settled following the crisis of de-cartelization and globalization of oil industry in the 1970s.18

Producers’ policy to sometimes curtail or limit the supply of oil, the so-called “limited ﬂow” policy, is designed to raise the actual trading price above the market-determined price in order to keep high-cost US producers in business 16 Bina, Cyrus and Minh Vo. 2007. “OPEC in the Epoch of Globalization: An Event Study of Global Oil Prices.” Global Economy Journal, Vol. 7, Issue 1; for a discussion of the theory and history of oil price determination see also, Bina, Cyrus. 1993. “The Rhetoric of Oil and the Dilemma of War and American Hegemony.” Arab Studies Quarterly 15, no. 3; also Bina, Cyrus. 1990. “Limits of OPEC Pricing: OPEC Proﬁts and the Nature of Global Oil Accumulation.” OPEC Review 14, no. 1. 17 Engdahl, F. William. 2008. “Perhaps 60% of Today’s Oil Price Is Pure Speculation.” ﬁnancialsense.com. Accessed at http://www.ﬁnancialsense.com/editorials/engdahl/2008/0502.html. 18 Bina, Cyrus and Minh Vo 2007. “OPEC in the Epoch of Globalization: An Event Study of Global Oil Prices.” Global Economy Journal, Vol. 7, Issue 1.

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while leaving low-cost Middle East producers with an above average, or “super,” proﬁt. While for low-cost producers this limited ﬂow policy is largely a matter of making more or less proﬁts, for high-cost US producers it is a matter of survival, of being able to stay in or go out of business—an important but rarely mentioned or acknowledged fact. A hypothetical numerical example might be helpful here. Suppose that the market-determined, or free-ﬂow, price of oil is $30 per barrel. Further, suppose this price entails an average rate of proﬁt of 10 percent, or $3 per barrel. The word “average” in this context refers to average conditions of production— that is, producers who produce under average conditions of production in terms of productivity and cost of production. This means that producers who produce under better-than-average conditions—that is, low-cost, high productivity producers—will make a proﬁt higher than $3 per barrel while highcost, low eﬃciency producers will end up making less than $3 per barrel. This also means that some of the high-cost producers may end up going out of business altogether. Now, if the limited-ﬂow policy raises the actual trading price to $35 per barrel, it will raise the proﬁts of all producers accordingly, thereby also keeping in business some high-cost producers that might otherwise have gone out of business. Furthermore, supply manipulation (in pursuit of price manipulation) is not limited to the oil industry. In today’s economic environment of giant corporations and big businesses, many of the major industries try, and often succeed in, controlling supply in order to control price. Take, for example, the automobile industry. Theoretically, automobile producers could ﬂood the market with a huge supply of cars. But that would not be good business as it would lower prices and proﬁts. So, they control supply, just as do oil producers, in order to manipulate price. During the past several decades, the price of automobiles, in real terms, has been going up every year, at least to the tune of inﬂation. During this period, the industry (and the economy in general) has enjoyed a many-fold increase in labor productivity. Increased labor productivity is supposed to translate into lower costs and, therefore, lower prices. Yet, that has not materialized in the case of this industry—as it has in the case of, for example, pocket calculators or computers. Another example of price control through supply manipulation is the case of US grain producers. The so-called “set aside” policy that pays farmers not to cultivate part of their land in order to curtail supply and prop up price is not diﬀerent—nay, it is worse—than OPEC’s policy of supply and/or price manipulation. It is also necessary to keep in mind that OPEC’s desire to sometimes limit the supply of oil in order to shore up its price is limited by a number of factors. For one thing, the share, and hence the inﬂuence, of Middle Eastern oil

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producers as a percentage of world oil production has steadily declined over time, from almost 40 percent when OPEC was established to about 30 percent today.19 For another, OPEC members are not unmindful of the fact that inordinately high oil prices can hurt their own long-term interests as this might prompt oil importers to economize on oil consumption and search for alternative sources of energy, thereby limiting producers’ export markets. OPEC members also know that inordinately high oil prices could precipitate economic recessions in oil importing countries that would, once again, lower demand for their oil. In addition, high oil prices tend to raise the cost of oil producers’ imports of manufactured products as high energy costs are bound to aﬀect production costs of those manufactured products.

War for Expensive Oil? Now let us consider the widely-shared view that attributes the US drive to war and military adventures in the oil-rich regions of the Middle East and central Asia to the inﬂuence of big oil companies in pursuit of higher oil prices and proﬁts. As noted, this is obviously the opposite of the “war for cheap oil” argument, as it claims that Big Oil tends to instigate war and political tension in the Middle East in order to cause an oil price hike and increase its proﬁts. Like the “war for cheap oil” theory, this claim is not supported by facts. Although the claim has an element of a prima facie reasonableness, that apparently facile credibility rests more on precedent and perception than reality. Part of the perception is due to the exaggerated notion that both President Bush and Vice President Cheney were “oil men” before coming to the White House. But the fact is that George W. Bush was never more than an unsuccessful petty oil prospector and Dick Cheney headed a company—the notorious Halliburton—that sold, and still sells, services to oil companies and the Pentagon. The larger part of the perception, however, stems from the fact that oil companies do beneﬁt from oil-price hikes that result from war and political turbulence in the Middle East. Such beneﬁts are, however, largely incidental. Surely, American oil companies would welcome the spoils of the war (that result from oil price hikes) in Iraq or anywhere else in the world. From the largely incidental oil price hikes that follow war and political convulsion, some observers automatically conclude that, therefore, Big Oil must have been behind the war.20 But there is no evidence that, at least in the case of the current invasion of Iraq, oil companies pushed for or supported the war. 19

Becker, Gary S. 2003. “Why War with Iraq Is Not about Oil.” Business Week March 17:30. Nitzan, Johnathan and Shimshon Bichler. 2002. The Global Political Economy of Israel. London and Sterling, Virginia: Pluto Press. 20

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On the contrary, there is strong evidence that, in fact, oil companies did not welcome the war because they prefer stability and predictability to periodic oil spikes that follow war and political convulsion: “Looking back over the last 20 years, there is plenty of evidence showing the industry’s push for stability and cooperation with Middle Eastern countries and leaders, and the US government’s drive for hegemony works against the oil industry”.21 As Thierry Desmarest, Chairman and Chief Executive Oﬃcer of France’s giant oil company, TotalFinaElf, put it, “A few months of cash generation is not a big deal. Stable, not volatile, prices and a $25 price (per barrel) would be convenient for everyone”.22 It is true that for a long time, from the beginning of Middle Eastern oil exploration and discovery in the early twentieth century until the mid-1970s, colonial and/or imperial powers controlled oil either directly or through control of oil producing countries—at times, even by military force. But that pattern of colonial or imperialist exploitation of global markets and resources has changed now. Most of the current theories of imperialism and hegemony that continue invoking that old pattern of Big Oil behavior tend to suﬀer from an ahistorical perspective. Today, as discussed earlier, even physically occupying and controlling another country’s oil ﬁelds will not necessarily be beneﬁcial to oil interests. Not only will military adventures place the operations of current energy projects at jeopardy, but they will also make the future plans precarious and unpredictable. Big Oil interests, of course, know this; and that’s why they did not countenance the war on Iraq: “The big oil companies were not enthusiastic about the Iraqi war,” says Fareed Mohamedi of PFC Energy, an energy consultancy ﬁrm based in Washington D.C. that advises petroleum ﬁrms. “Corporations like Exxon-Mobil and Chevron-Texaco want stability, and this is not what Bush is providing in Iraq and the Gulf region,” adds Mohamedi.23 Big Oil interests also know that not only is war no longer the way to gain access to oil, it is in fact an obstacle to gaining that access. Exclusion of US oil companies from vast oil resources in countries such as Russia, Iran, Venezuela, and a number of central-Asian countries due to militaristic US foreign policy is a clear testament to this fact. Many of these countries (including, yes, Iran) would be glad to have major US oil companies invest, explore and extract oil from their rich reserves. Needless to say that US oil companies would be delighted to have access to those oil resources. But US champions of war and 21

Ruby, Melinda K. 2004. “Is Oil the Driving Force to War?” unpublished Senior thesis, Dept. of Economics and Finance, Drake University, Des Moines, Iowa: 10. 22 As quoted in Ruby, Ibid., p. 13. 23 As cited by Roger Burbach, “Bush Ideologues vs. Big Oil: The Iraq Game Gets Even Stranger.” Accessed at http://www.counterpunch.org/burbach10032003.html.

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militarism have successfully torpedoed such opportunities through their unilateral wars of aggression and their penchant for a Cold War-like international atmosphere. When Vladimir Putin ﬁrst became president of Russia he was willing to allow American energy companies to continue with the one-sided contracts they had drawn up during Boris Yeltsin’s presidency. Putin built a seemingly trusting relationship with George Bush who looked into Putin’s soul and liked what he saw. The two leaders grew even closer in the aftermath of the 9/11 attacks on World Trade Centre and the Pentagon—when Russia provided “help for America’s invasion of Afghanistan.” Soon after this generous cooperation, however, “Bush repudiated the anti-ballistic missile treaty in the belief that America could develop the technology for winning a nuclear war. This posed a huge strategic threat to Russia”.24 Describing the heavy-handed, imperial US policy toward Russia, Stephen F. Cohen (2006) writes: “The real US policy has been very diﬀerent—a relentless, winner-take-all exploitation of Russia’s post-1991 weakness. Accompanied by broken American promises, condescending lectures and demands for unilateral concessions, it has been even more aggressive and uncompromising than was Washington’s approach to Soviet Communist Russia”.25 Bush’s withdrawal from the ABM treaty not merely posed an existential threat to Russia, but was almost a betrayal of the trust that Putin had put in him. This led to Putin’s disenchantment with America. “Eventually he seems to have decided that every time America transgressed against Russian interests he would retaliate by stopping another American company from exploiting Russian resources”.26 During the past few decades, major oil companies have consistently opposed US policies and military threats against countries like Iran, Iraq, and Libya. They have, indeed, time and again, lobbied US foreign policy makers for the establishment of peaceful relations and diplomatic rapprochement with those countries. The Iran-Libya Sanction Act of 1996 (ILSA) is a strong testament to the fact that oil companies nowadays view wars, economic sanctions, and international political tensions as harmful to their long-term business interests and, accordingly, strive for peace, not war, in international relations. On March 15, 1995 President Clinton issued Executive Order 12957 which banned all US contributions to the development of Iran’s petroleum resources, 24 Shamir, Israel. “The Writings of Israel Shamir.” Contributor 45. Accessed at http://www. israelshamir.net/Contributors/Contributor45.htm. 25 Cohen, Stephen F. 2006. “The New American Cold War.” The Nation. Accessed at http:// www.thenation.com/doc/20060710/cohen ; as quoted in Shamir, Ibid. 26 Shamir, Ibid.

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a crushing blow to the oil industry, especially to the Conoco oil company that had just signed a $1 billion contract to develop ﬁelds in Iran. The deal marked a strong indication that Iran was willing to improve its relationship with the United States, only to have President Clinton eﬀectively nullify it. Two months later, sighting “an extraordinary threat to the national security, foreign policy and economy of the US,” President Clinton issued another order, 1259, that expanded the sanctions to become a total trade and investment embargo against Iran. Then a year later came ILSA, which extended the sanctions imposed on Iran to Libya as well. It is no secret that the major force behind the Iran-Libya Sanction Act was the America Israel Public Aﬀairs Committee (AIPAC), the main Zionist lobby in Washington. The success of AIPAC in passing ILSA through both the Congress and the White House over the opposition of the major US oil companies is testament to the fact that, in the context of US policy in the Middle East, even the inﬂuence of the oil industry pales vis-à-vis the inﬂuence of the Zionist lobby.27 ILSA was originally to be imposed on both US and foreign companies. However, in the end it was the US companies that suﬀered the most due to waivers that were given to European companies after pressure from the European Union. In 1996 the EU pursued its distaste of ILSA by lodging complaints with the World Trade Organization (WTO) against the US and through adopting “blocking legislation” that would prevent EU companies from complying with ILSA. Meanwhile, the contract that Iran had originally signed with Conoco was awarded to TotalFinaElf of France for $760 million; the deal also left the door open for Total to sign an additional contract with Iran for $2 billion in 1997 with their partners Gazprom and Petronas. In May of 1997 major US oil companies such as Conoco, Exxon, Atlantic Richﬁeld, and Occidental Petroleum joined other (non-military) US companies to create an anti-sanction coalition. Earlier that same year Conoco’s Chief Executive Archie Dunham publicly took a stance against unilateral US sanctions by stating that “US companies, not rogue regimes, are the ones that suﬀer when the United States imposes economic sanctions.” Texaco oﬃcials have also argued that the US can be more eﬀective in bringing about change in other countries by allowing US companies to do business with those countries instead of imposing economic sanctions that tend to be counterproductive.

27 Ruby, Melinda K. 2004. “Is Oil the Driving Force to War?” pp. 14-15; see also Franssen, Herman and Elaine Morton. 2002. “A Review of US Unilateral Sanctions Against Iran.” Middle East Economic Survey 45, no. 34:D1-D5 (D section contains op eds. as opposed to staﬀ-written articles).

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Alas, Washington’s perverse, misguided and ineﬀectual policy of economic sanctions for political purposes—often in compliance with the wishes of some powerful special interests—continues unabated. “Even with the increased protrade lobbying eﬀorts of the oil industry and groups like USAEngage, whose membership ranges from farmers and small business owners to Wall Street executives and oilmen, the lack of support from Washington and the Bush administration could not allow them [major oil companies and other nonmilitary transnational companies] to overtake or counteract the already rolling momentum of AIPAC’s inﬂuence on Middle East policy or the renewal of ISLA”.28 Despite the fact that oil companies nowadays view war and political turmoil in the Middle East as detrimental to their long-term interests and, therefore, do not support policies that are conducive to war and militarism, and despite the fact that war is no longer the way to gain access to oil, the widespread perception that every US military engagement in the region, including the current invasion of Iraq, is prompted by oil considerations continues. The question is why?

Behind the Myth of War for Oil The widely-shared but erroneous view that recent US wars of choice are driven by oil concerns is partly due to precedence: the fact that for a long time military force was key to colonial or imperialist control and exploitation of foreign markets and resources, including oil. It is also partly due to perception: the exaggerated notion that both President Bush and Vice President Cheney were “oil men” before coming to the White House. But, as noted earlier, George W. Bush was never more than an ineﬀective minor oil prospector and Dick Cheney was never really an oil man; he headed the notorious Halliburton company that sold, and still sells, services to oil companies and the Pentagon. But the major reason for the persistence of this pervasive myth seems to stem from certain deliberate eﬀorts that are designed to perpetuate the legend in order to camouﬂage some real economic and geopolitical special interests that drive US military adventures in the Middle East. There is evidence that both the military-industrial complex and hard-line Zionist proponents of “greater Israel” disingenuously use oil (as an issue of national interest) in order to disguise their own nefarious special interests and objectives: justiﬁcation of continued expansion of military spending, extension of sales markets for mili28 Ibid. Pp. 16-17; see also Ivanovich, David. 1997. “Conoco’s Chief Blasts Sanctions.” Houston Chronicle.

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tary hardware, and recasting the geopolitical map of the Middle East in favor of Israel. There is also evidence that for every dollar’s worth of oil imported from the Persian Gulf region the Pentagon takes ﬁve dollars out of the Federal budget to “secure” the ﬂow of that oil! This is a clear indication that the claim that the US military presence in the Middle East is due to oil consideration is a fraud.29 While anecdotal, an example of how partisans of war and militarism use oil as a pretext to cover up the real forces behind war and militarism can be instructive. In the early stages of the invasion of Iraq, when the anti-occupation resistance in Iraq had not yet taken shape and the invasion seemed to be proceeding smoothly, two of the leading champions of the invasion, Secretary of Defense Donald Rumsfeld and his deputy Paul Wolfowitz, often boasting of the apparent or pre-mature success of the invasion at those early stages, gave frequent news conferences and press reports. During one of those press reports (at the end of an address to delegates at an Asian security summit in Singapore in early June 2003), Wolfowitz was asked why North Korea was being treated diﬀerently from Iraq, where hardly any weapons of mass destruction had been found. Wolfowitz’s response was: “Let’s look at it simply. The most important diﬀerence between North Korea and Iraq is that economically, we just had no choice in Iraq. The country swims on a sea of oil”.30 Many opponents of the war jumped on this statement, so to speak, as corroboration of what they had been saying or suspecting all along: that the war on Iraq was prompted by oil interests. Yet, there is strong evidence—some of which presented in the preceding pages—that for the last several decades oil interests have not favored war and turbulence in the Middle East, including the current invasion of Iraq. Nor is war any longer the way to gain access to oil. Major oil companies, along with many other non-military transnational corporations, have lobbied both the Clinton and Bush administrations in support of changing the aggressive, militaristic US policy toward countries like Iran, Iraq and Libya in favor of establishing normal, non-confrontational trade and diplomatic relations. Such eﬀorts at normalization of trade and diplomatic relations, however, have failed time and again precisely because Wolfowitz and his cohorts, working through AIPAC and other war-mongering think tanks such as the American Enterprise Institute (AEI), Project for the New American Century (PNAC), and Jewish Institute for National Security Aﬀairs (JINSA) oppose them.

29 On this issue see, for example, Johnson, Chalmers. 2000. Blowback: The Costs and Consequences of American Empire. New York: Henry Holt and Company. Pp.87-88. 30 The statement was widely reported by many news papers and other media outlets. See, for example, The Guardian. 2003. Accessed at http://www.whatreallyhappened.com/aboutoil.htm.

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These think tanks, in collaboration with a whole host of similar militaristic lobbying entities like Center for Security Aﬀairs (CSA) and National Institute for Public Policy (NIPP), working largely as institutional façades to serve the defacto alliance of the military-industrial complex and the pro-Israel lobby, have repeatedly thwarted eﬀorts at peace and reconciliation in the Middle East—often over the objections and frustrations of major US oil companies. It is a well-established fact that Wolfowitz has been a devoted champion of these jingoistic think tanks and their aggressive unilateral policies in the Middle East. In light of his professional record and political loyalties, his claim that he championed the war on Iraq because of oil considerations can be characterized only as demagogic; it contradicts his political record and deﬁes the policies he has been advocating for the last several decades and it is designed to divert attention from the main forces behind the war—the armaments lobby and the pro-Israel lobby. These powerful interests are careful not to draw attention to the fact that they are the prime instigators of war and militarism in the Middle East. Therefore, they tend to deliberately perpetuate the popular perception that oil is the driving force behind the war in the region. They even do not mind having their aggressive foreign policies labeled as imperialistic as long as imperialism implies some vague or general connotations of hegemony and domination, that is, as long as it thus camouﬂages the real, special interests behind the war and political turbulence in the Middle East. The oil and other non-military transnational corporations’ aversion to war and military adventures in the Middle East stem, of course, from the logical behavior of global or transnational capital in the era of integrated world markets, which tends to be loath to war and international political convulsions. Considering the fact that both importers and exporters of oil prefer peace and stability to war and militarism, why would, then, the ﬂow of oil be in jeopardy if the powerful beneﬁciaries of war and political tension in the Middle East stopped their aggressive policies in the region? Partisans of war in the Middle East tend to portray US military operations in the region as reactions to terrorism and political turbulence in order to “safeguard the interests of the United States and its allies.” Yet, a close scrutiny of action-reaction or cause-eﬀect relationship between US military adventures and socio-political turbulence in the region reveals that perhaps the causality is the other way around. That is, social upheavals and political convulsions in the Middle East are more likely to be the result, not the cause, of US foreign policy in the region, especially its one-sided, prejudicial Israeli-Palestinian policy. The US policy of war and militarism in the region seems to resemble the behavior of a corrupt cop, or a maﬁa godfather, who would instigate ﬁghts

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and frictions in the neighborhood or community in order to, then, portray his parasitic role as necessary for the safety and security of the community and, in the process, ﬁll out his deep pockets. No matter how crucial oil is to the world economy, the fact remains that it is, after all, a commodity. As such, international trade in oil is as important to its importers as it is to its exporters. There is absolutely no reason that, in a world free of the inﬂuence of the powerful beneﬁciaries of war and militarism, the ﬂow of oil could not be guaranteed by international trade conventions and commercial treaties.

Bibliography Becker, Gary S. 2003. “Why War with Iraq Is Not about Oil.” Business Week March 17:30. Bina, Cyrus. 1990. “Limits of OPEC Pricing: OPEC Proﬁts and the Nature of Global Oil Accumulation.” OPEC Review 14, no. 1. ——. 1993. “The Rhetoric of Oil and the Dilemma of War and American Hegemony.” Arab Studies Quarterly 15, no. 3. Bina, Cyrus and Minh Vo. 2007. “OPEC in the Epoch of Globalization: An Event Study of Global Oil Prices.” Global Economy Journal, Vol. 7, Issue 1. Burbach, Roger. “Bush Ideologues vs. Big Oil: The Iraq Game Gets Even Stranger.” Accessed at http://www.counterpunch.org/burbach10032003.html. Cavaney, Red. 2006. “Global Oil Production about to Peak? A Recurring Myth,” World Watch. January 1, 2006. Accessed at http://goliath.ecnext.com/coms2/gi_0199-5142950/Global-oilproduction-about-to.html. Cohen, Stephen F. 2006. “The New American Cold War.” The Nation. Accessed at http://www. thenation.com/doc/20060710/cohen ; as quoted in Shamir, Ibid. Engdahl, F. William. 2008. “Perhaps 60% of Today’s Oil Price Is Pure Speculation.” ﬁnancialsense.com. Accessed May 2, 2008 at http://www.ﬁnancialsense.com/editorials/engdahl/2008/0502.html. Franssen, Herman and Elaine Morton. 2002. “A Review of US Unilateral Sanctions Against Iran.” Middle East Economic Survey 45, no. 34:D1-D5. Hirsch, Robert L., Roger Bezdek, and Robert Wendling. 2005. “Peaking of World Oil Production: Impacts, Mitigation, and Risk Management.” Testimony on Peak Oil before the House Subcommittee on Energy and Industry. Accessed at http://www.netl.doe.gov/publications/ others/pdf/Oil_Peaking_NETL.pdf. Ivanovich, David. 1997. “Conoco’s Chief Blasts Sanctions.” Houston Chronicle. Kanovsky, Eliyahu. 2003. “Oil: Who’s Really Over a Barrel?” Middle East Quarterly.Spring 2003. Accessed at http://www.meforum.org/article/527. Klare, Michael T. 2002. Resource Wars: Th e New Landscape of Global Conﬂict. Holt Paperbacks. Mosk, Matthew. 2008. “Industry Gushed Money After Reversal on Drilling.” Washington Post. Accessed July 27, 2008 at http://www.washingtonpost.com/wpdyn/content/article/2008/07/ 26/AR2008072601891.html. Nitzan, Johnathan and Shimshon Bichler. 2002. The Global Political Economy of Israe. London and Sterling, Virginia: Pluto Press. Reed, Stanley. 2008. “Help from the House of Saud: Why the leading oil producer wants to cool oﬀ the market.” Business Week. Accessed May 29, 2008 at http://www.businessweek.com/ print/magazine/content/08_23/b4087030945015.htm.

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Ruby, Melinda K. 2004. “Is Oil the Driving Force to War?” unpublished Senior thesis, Dept. of Economics and Finance, Drake University, Des Moines, Iowa: 10, 14-15. Shamir, Israel. “The Writings of Israel Shamir.” Contributor 45. Accessed at http://www. israelshamir.net/Contributors/Contributor45.htm. The Wall Street Journal. 2001. Cited in Eliyahu Kantovsky, Ibid.; see also Bill Kovarik, “The Oil Reserve Fallacy: Proven reserves are not a measure of future supply,” http://www.radford. edu/~wkovarik/oil/. ——. 2003. Cited in Eliyahu Kantovsky’s “Oil: Who’s Really Over a Barrel?” Middle East Quarterly. Accessed at http://www.meforum.org/article/527.

Hilferding’s Finance Capital versus Wal-Mart World: Disaggregating the Dollar’s Hegemony Gregory P. Nowell State University of New York, Albany

Abstract This chapter analyzes Hilferding’s Finance Capital as a robust representation of a certain form of capitalist organization. This organization is characterized by industrial production in the core, trade surpluses as a feature of military and economic power, and the gold standard as the institutional metric of sound banking. Banks are the central organizing node of industrial production and favor tariﬀs and monopoly. The focus on gold-ﬁnance-industry leads Hilferding to foresee extreme concentration of capital as the ultimate end-point of capitalism. But the economic foundations of Wal-Mart world, where industry is subordinated to retail and is also divorced from banking, show that completely diﬀerent mechanisms are at work. In contemporary capitalism trade deﬁcits are not necessarily a sign of weakness, and the most powerful ﬁrms tend to favor free trade. The gold standard has long been a relic. For our time key questions are: what gives value to paper assets, and what sorts of spatial asymmetries are evident in the production and consumption process? How does Keynes’s “sudden decrease in the marginal eﬃciency of capital”—as the precursor to recession—take on diﬀering characteristics depending on where one is in the division between production and consumption? Keywords Hilferding, Keynes, imperialism, Wal-mart, free trade, gold standard, banking

Hilferding’s Finance Capital versus Wal-Mart World Rudolf Hilferding’s Finance Capital (1910) is nearly a century old. As an analysis of capitalism at the turn of the last century it is more intellectually integrated and rigorous than other classic contributions of the period.1 Hilferding turns the phenomenon of highly-concentrated industry, linked through an even more concentrated network of banks, into an ideal national type. This 1 Other classic works from the period with similar themes include Hobson (1902), Lenin (1917), Luxemburg (1913), and Bukharin (1916, though not published till 1929). Hovde (1928) is unsympathetic to the socialist theories but oﬀers a large panoply of additional citations. Eckstein (1991) is an excellent resource on scholarly debates concerning the implications of Hobson’s and Lenin’s imperialist models.

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ideal type oﬀers descriptive insights into today’s industrial economies that still retain such linkages, including Germany, Japan, Korea, and other parts of Asia.2 Nonetheless, capitalism now is “anti-Hilferding” in almost every sense; and in some ways it is even anti-Marxist, in that emphasizing capitalism as a “mode of production” directs our attention to the act of producing goods, which process has become (at least for now) the weakest node of capitalist society. To understand capitalism today, we need to know more about it as a “mode of consumption.” The dominant features of the current system appear to be the pre-eminence of horizontally integrated retail operations and the separation of ﬁnance from industry. My goal is simple—to set out features of the “mode of consumption” as an antithetical ideal type to Hilferding’s Finance Capital, using some of Hilferding’s premises. The radical diﬀerences between capitalism in 1910 and in 2008 underscore just how far “obvious contemporary trends” can deviate from future developments. The expectations built into Hilferding’s Finance Capital embody norms that are relevant to Marxist and non-Marxist conceptions of ﬁnancial power. When capitalism “went oﬀ gold” in 1971, virtually everyone thought it was “a bad thing for the United States.” Today, we still look for the “imperialist plan of domination” at the core, trying to ﬁgure out how the United States is manipulating the system to stay on top. One paradox is that powers “subordinate to the hegemon” are lending it money to ﬁnance its vast military apparatus, as well as consumer consumption, with apparent enthusiasm. That is the riddle to be explored. We shall look at the “contemporary capitalist” system as an aggregate of pieces, the main agents of which are all improvising.3 For convenience we refer to Hilferding’s model as the appropriate eponym for “the period of ﬁnance capital,” versus Wal-Mart World, by which we mean the collection of characteristics to be described below. Our analysis will focus on three themes. First, the importance of high volume on diﬀering economic sectors. In Hilferding, these are concentrated in industry; the industrial system is consciously organized to maximize them. In Wal-Mart World, high-volume, thin-margin sales are distributed among various sectors, which are de-linked, and therefore do not coordinate with one another: the most important de-linked sectors are ﬁnance and retail. Second, the spatial sepa2 On chaebols, see Chang (2003); on Germany, Neumann (1942), Gerschenkron (1962), Kaltenhaler (1998); on Japan Katz (1998), Morkawa (1970), and Alley (1997) which has an interesting discussion of deﬁnitional issues on the Japanese keiretsu. 3 Contemporary analyses of the system are of course important—e.g. Gowan (1999), Seabrooke (2006), Arrighi (1994, 2006), Wallersetein (1977, 1980, 1988).

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ration of the acceleration principle, and the related “mode of consumption’s” dominance over the nineteenth century “mode of production.” I consider two forms of spatial segregation. One is that the “export-led development” in nations with lagging consumption (typiﬁed by a high savings rate) signals a dominance of industrial capital and, along with that, of investment goods over consumption goods. This means that vulnerability to the acceleration principle is not “smoothed out” as they might be in a theoretical economy where consumption plays a greater role than investment and hence is “more balanced” in the national income equation. Exporting countries are heavy on industrial production and importing countries are heavy on consumption infrastructure. Exporting countries experience downward pressure on wages because their industrial sector’s proﬁts, and hence ability to pay wages, are kept on a short leash by the dictates of importing country’s retail chains, whose shelf spaces determine, for producers, total sales volume through economies of scale (number of shelves oﬀered worldwide) and turnover (number of times an item sells in a given period). Importing countries are under downward wage pressure because of the spread of the low-wage retail service sector (Wal-Mart type jobs) and the loss of high-wage industrial jobs to the exporting-intensive countries. This is paired with the spatial development of consumption in the importing countries, where suburbanization and the automobile are linked to the economics of mass retail. Third, the combined impact of leverage and volume on the ﬁnancial sector. These eﬀects contrast markedly with the “buy and hold” implied in Hilferding’s ﬁnancial sector. It is a critical feature of the current (collapsing) credit system, in which a major weakness is the expansion of debt faster than the aggregate income needed to service it—the Achilles heel of ﬁnancial remedies proposed in late 2008.

1. “The Flip”—The Eﬀect of Sales Volume and Turnover in Hilferding vs. Wal-Mart World I use the term “ﬂip” to refer to the sale of a product and its replacement in the capitalist’s inventory. The vernacular term is colorful and clear (used in such places as real estate, ﬁnance, selling cars, etc.). “The ﬂip” turns the naïve conception of proﬁt upside down. Sales, volume, and rate of proﬁt are inseparable. If McDonald’s sells a hamburger for $1.00 and that price includes a one-cent proﬁt, the naïve view of the proﬁt is that it is 1 percent. But McDonald’s immediately turns around and uses the 99 cents that are not proﬁt to buy another hamburger, bun, etc., which it sells the next day. It collects an additional penny on that sale, and ﬂips the 99 cents that are not proﬁt into a new burger and bun.

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Annualized rates of return are the benchmark of capital’s productivity. As I write rates of return on high quality bonds are well under 5 percent per annum. But if we look at McDonald’s 99c, it earns one penny per day. That’s $3.65 over the course of a year, and so the rate of return is actually $3.65/.99=3.67, or 367 percent, some sixty times the rate of interest. That’s a “whopper” of a return, in reality rare outside the legal and illegal drug trades. More realistically, to keep one burger on the grill McDonald’s needs to keep four additional burgers in the supply chain. The capital tied up in the hamburger rises to 99 cents times ﬁve, or $4.95, and the rate of annual return (at one penny per burger sold) is now $3.65/$3.95. Adding a tad of real world to our simple example cuts the “whopper” return to 92 percent, and we didn’t say anything about labor, taxes, amortization of capital, and rent, as well as separating inventory from capital costs. 4 Still, the burger ﬂip dramatizes the importance of volume: thin-margin, large-volume markups can lead to industrial proﬁt margins of up to thirty percent, remembering that the reverse side of such proﬁts is that it is also possible to incur heavy losses. For example, returning to the case of the 367 percent return, all it takes is a downward price movement of one cent to reduce the return to nothing; and a downward price movement of two cents or more per unit sold puts the company under extreme pressure. Hilferding and “The Flip” Hilferding develops the logic of “the ﬂip” in several directions. First, he observes that the primary way to achieve high-volume production is through greater market area. Derived from Adam Smith’s observations about market size and the division of labor, this idea has fairly direct connections to the growth of national markets and also to theories of imperialism. (Tables 1 and 2 summarize Finance Capital and Wal-Mart World). Second, and more importantly for Hilferding’s model, scaling up production to serve large market areas requires huge investments of capital. One need only consider the diﬀerence between the capital investment required for one blacksmith to pound out one horseshoe versus huge steel facilities capable of supplying the needs of transcontinental railroads. Hilferding’s perceptions in this regard are heavily colored by German experiences, notably the diﬃculties Germany had in raising capital for both domestic and foreign railroad projects.5 4 The importance of just-in-time delivery of production materials emerges readily from the example provided here; see Womack, Jones, and Roos (1990). We exclude cartels in the example. 5 Dunlavy (1994); Nowell (1994); Kent (1976). German capital markets were not “deep”

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Third, in spite of the fact that the capital requirements tend to increase, the proﬁtability of large scale manufacturing is greater. A blacksmith making horseshoes marks them up, say, by a factor of two. But he only sells a few a month; his “ﬂip,” as is the case of most craft production, is very limited.6 As steel gets produced more eﬃciently it resembles the foregoing hamburger example. The per-unit mark up falls, the good itself becomes cheaper, and the proﬁtability on invested capital actually increases. A factory of ﬁve thousand workers will put out of work forty thousand blacksmiths around the world and in the process boost output thousands of times. Technological development requires “an increasing ratio of organic capital,” Hilferding’s jargon that means that the role of expensive machinery in production gradually comes to dominate the role of wages. Today, a standard-sized oil super freighter or an oil ﬁnery might run with the services of several computers and as few as half a dozen employees; wages have become a vanishingly small component of operation, compared to capital costs. When Hilferding was born in 1877, Romanians produced oil by digging it out with shovels and buckets and heating it in a large vat to separate the kerosene from heavier components. Hilferding argues that as real factories face competitive pressure, they outrun their ability to raise capital. They need to improve production by buying more expensive equipment. But retained earnings fall under competitive pressure. Therefore, industries are forced to turn to the banking system to raise more capital.7 Hilferding assumes that bank-directed capitalism was a necessary institutional form; with hindsight we know that capital markets are perfectly capable of allocating capital without banks. Hilferding is building a keiretsu-style capitalist development model, from the ground up, as it were, arguing that these institutional forms are dictated by the technological forms of the capitalist process. Industry progressively uses more capital, less labor, and produces for larger markets at lower per unit costs. Proﬁ ts earned on “the ﬂip” are not only lucrative, but also attract the eager attention of banks like ﬂies to the jam pot. On the other hand, proﬁts earned on the thin per-unit margins implicit in “the ﬂip” are quite vulnerable to new entrants and loss of market share: a shorter production line threatens the economies of scale that undergird the enough to ﬁnance the Baghdad railroad and related oil development; therefore, as German development groups were interested in collaborating with British companies. 6 Former President Jimmy Carter as a hobby makes and sells high quality furniture for up to $100,000 which he donates to charity. His per-unit markup is extremely high, his ﬂip very low. See Blackmon (2008). 7 Hilferding’s critics, including Sweezy (1942) and Neumann (1942), argued that retained earnings in cartelized subsidiaries allowed industries to break free of their ﬁnance capital masters. There may be something to that, but I think the model has more durability than they suggest.

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Table 1 Finance Capital Attribute Industry

Vertically integrated; concentrated in core; oligpolistic.

Investment

Rationalized & controlled by cartels and ﬁnance Sylos-Labini eﬀect.

Imperialism

Financed by debt markets of core powers.

Finance

Banking system tightly connected to industry; most capital raised through banks; buy and hold.

Currency

Fixed-rate exchange system with loans, tariﬀs, unemployment as major adjustment tools.

Banking System’s Core Asset

Gold.

Balance of Payments

Imperialism tends to surplus trade balance.

Consumer Credit

Low everywhere.

Speculation

Mainly in progress of “real” investments such as land along proposed railroad route; stocks.

Military-Industrial Complex

MI expenditures essential to spur aggregate demand in ﬂagging oligpolistic economies.

Military Activity

Colonial conquests; World Wars.

Weapons Sales

Third-rate weapons to third-rate countries.

basic calculations about production proﬁtability. In our hamburger example, if a Burger King sets up next to McDonalds and the latter’s sales volume falls from 2000 burgers a day to 1000, McDonald’s proﬁts evaporate. Cartelization from suppliers also threatens throughput and proﬁts (for example, by raising the price of beef.) Macroeconomic factors also loom large. A decline in national income, which allows people to eat out, is as threatening as an increase in competition. Capital intensive industry’s exposure to risk is high, and the only way “out” is “through”: that is, once the physical productive structure is built, the only

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Table 2 Wal-Mart World Attribute Industry

Minimal vertical integration; Competitive pricing; Producers subordinate to retailers.

Investment

Acceleration principle concentrated in the “Hilferding” countries; consuming “credit countries” less vulnerable.

Imperialism

Core powers’ military-industrial complex ﬁnanced by countries with raw materials, export surplus, or industrialized export surplus.

Finance

Banking system part of a highly-diversiﬁed ﬁnancial market; industry largely divorced from relationship to banking fees and volume combined with buy & hold.

Currency

Floating rate; Fixed rate seen as cheating (China).

Banking System’s Core Asset

Triple-A public debt (requires secure tax base, stable property rights.)

Balance of Payments

Trade deﬁcit required to ﬁnance industrialization.

Consumer Credit

High in consuming countries; Low in producing countries.

Speculation

Mainly in complex, leveraged ﬁnancial instruments with high turnover (stocks, debt instruments, derivatives, etc.)

Military-Industrial Complex

Military budgets secondary to income transfers that shore up consumer demand.

Military Activity

Multilateral “peacekeeping”; Nuclear peace.

Weapons Sales

First-rate weapons to third-rate countries that lack spare parts and technical expertise.

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way to get the money back out is through production and sale of goods. Hilferding’s banking system becomes deeply embroiled in industrial risks. It has advanced capital in the form of equity (buying stocks to keep in bank portfolios) and loans. If industrial income falls the loans have lower market value, and the stocks decline as well. The asset side of the banking ledger declines, which implies among other things a fall in lending and the possible start of an economic contraction. Bankers therefore ally with industry to make sure that product markets are (1) stable, and (2) large and expanding. With regard to (1), banks and industry converge on market stabilization: tariﬀs to prevent entry from foreign ﬁrms, and cartelization to boost per unit markup. Vertical integration is encouraged to insulate downstream activity from upstream prediction: the steel companies buy their own coal companies to escape being squeezed by the coal cartel. As for (2), market size, Hilferding elaborates an excellent description of dumping wherein price discrimination between two diﬀerent markets8 is used to secure greater production volumes. The quest for market size is also linked to imperialism, meaning the conquest and direct rule over what become captive markets, and military expenditure, which generates additional demand for the creation of weapons systems (e.g. battleships) whose required inputs stabilize demand for heavy industry. Hilferding (1910) takes the logic of vertical integration, cartelization, and protected markets to their extreme conclusion in a remarkable paragraph that epitomizes his views of capitalism’s immanent developmental tendencies: If we now pose the question as to the real limits of cartelization, the answer must be that there are no absolute limits. On the contrary there is a constant tendency for cartelization to be extended. As we have seen, the independent industries become increasingly dependent upon the cartelized industries until they are ﬁnally annexed by them. The ultimate outcome of this process would be the formation of a general cartel. The whole of capitalist production would then be consciously regulated by a single body which would determine the volume of production in all branches of industry. Price determination would become a purely nominal matter, involving only the distribution of the total product between the cartel magnates on one side and all the other members of society on the other. Price would then cease to be the outcome of factual relationships into which people have entered, and would become a mere accounting 8 The classic example is where the domestic or “home market” is priced high while the foreign market is priced low. Between the two markets, manufacturers capture gains on the resulting economies of scale; they can make more money on the same capital investment even if they jigger the price structure “at the margin” to subsidize foreign consumption at the expense of domestic consumers, who, because of tariﬀs, have little alternative. But price discrimination need not work against the e.g., foreign and domestic, but it can work the other way, high prices in Asia might be used to subsidize competition for market share in Europe. See Verdier (1998) for an interesting political model; economic literature includes Greenhut, Ohta, and Sailors (1985); Brander and Krugman (1983).

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device by which things were allocated among people. Money would have no role. In fact, it could well disappear completely, since the task to be accomplished would be the allocation of things, not the distribution of values. The illusion of the objective value of the commodity would disappear along with the anarchy of production, and money itself would cease to exist. The cartel would distribute the product. The material elements of production would be distributed to the working class and the intellectuals, while the rest would be retained by the cartel to use as it saw ﬁt. This would be a consciously regulated society, but in an antagonistic form. This antagonism, however, would concern distribution, which itself would be consciously regulated and hence able to dispense with money. In its perfected form ﬁnance capital is thus uprooted from the soil which nourished its beginnings. The circulation of money has become unnecessary, the ceaseless turnover of money has attained its goal in the regulated society, and the perpetuum mobile of circulation ﬁnds its ultimate resting place (p. 234).

This is “Hilferding world” as an ideal type, not something that Hilferding thought had already happened. It is easy to say, now, that certain developmental tendencies that Hilferding saw as inevitable in 1910 were in fact contingent, and largely ad hoc institutional adaptations. For starters, the Glass-Steagall act of 1933, separating banks form industrial holdings in the United States (thus ending J.P. Morgan’s keiretsu of industry and ﬁnance),9 showed that capitalism could bypass the “inevitable” joining of banking and industrial production. Moreover, the post-World War II emphasis on free trade is incompatible with Hilferding’s theses, as is, I will show below, the abandonment of the gold standard in 1971.10 Pairing Hilferding’s Finance Capital with the little-known but meritorious National Socialism versus International Capitalism (Tenenbaum 1942) highlights the diﬀerent organizational forms of capitalism that fought for world dominion in World War II. Hilferding demonstrates the centrality of high-volume, capital-intensive production to modern capitalism. Industry is drawn to banking by its need for capital, and banking becomes complicit in managing the economy to control prices and competition. Industry builds its power and scale on “the ﬂip”, banking participates in the proﬁts through stockholdings and corporate bond issues. Retail is scarcely present in Hilferding’s theses: it is either a venue for the sale of cartelized products, or brushed aside through mechanisms of vertical integration.11 Wage, banking, tariﬀ, and foreign policies are oriented towards 9 The Morgan keiretsu included US Steel and General Electric, as well as the famous banking operations. 10 The gold standard fell apart in two phases, the end of convertibility, in 1971; and the decision to ﬂoat the dollar following failure to maintain a ﬁxed exchange rate, in 1973. See Garber (1993). 11 Car dealerships and branded gasoline stations still retain signiﬁcant vertical integration. But Hilferding seems unaware that some retail chains in his era purchased upstream manufacturing facilities for high-volume products and thus became vertically integrated. See Strasser (2006:47).

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the maximization of proﬁts for a declining number of producers. These are characterized by vertical integration, increasing capital requirements, and larger production scales. The business of ﬁnance capital is controlling production and consumption. Wal-Mart World and “The Flip” The ﬁnancial and retail sectors’ pursuit of “the ﬂip” has turned upside down the system of power outlined by Hilferding. The current collapsing world economy is linked to the collapse of loans to consumers, most spectacularly in automotive sales and housing. Today the retail sector, nearly invisible in Hilferding’s producer-dominant model, is the force that drives down producer margins as well as wages in the production sector. Producers have been subordinated to the power of retail, in the latter’s capacity as the gateway to consumption. In banking, “the ﬂip” is associated with two characteristic features of the current economy: credit cards and the mortgage market. Credit cards are actually commercial paper at the retail level.12 When a merchant takes delivery today for goods and services and signs over an IOU to pay for them at a later date, the result is a negotiable instrument, an IOU, called commercial paper. The party holding the IOU keeps it to collect principal and interest, or sells it to a third party, a discount operation. The discount broker collects a transaction fee. In retail discounting, tens of millions of customers are tracked via statistical proﬁles of their payment behaviors and histories. The retail customer presents a vendor, say a restaurant, with a piece of plastic that certiﬁes membership in the retail credit system, e.g., a Visa card. These days the “bill of exchange” is a stream of encrypted electrons. The electrons are presented to Visa, which discounts the bill. The restaurant redeems the electrons, and Visa collects the “note due” from the customer who ate the meal at the end of the month. Visa as broker collects a fee of typically 1.5 to 3 percent depending on the volumerelated contract with the merchant (we use 3 percent here).13 By paying oﬀ merchants and keeping the 3 percent diﬀerence when the customer pays, the 12 The credit card took installment credit, which accounted for the majority of consumer durable purchases as early as 1930, one step further. See Calder (1999). 13 The transaction fee structure is tiered by volume and by size of the charge. Paypal’s fees are similar (and Paypal issues credit cards) and readily consulted on line: 2.9% up to $3,000, plus a thirty cent fee on transactions under $100. Most transactions are under $100, and the thirty cent fee signiﬁcantly boosts revenue. For merchant transactions of more than $100,000 a month fees drop to 1.9% . Large customers such as Walmart may negotiate lower fees. Large retail vendors often contract directly with Visa and Mastercard to put their name on the plastic and collect a portion of the transaction fees they otherwise lose. In the extreme case they may try to start a rival card, as Sears did with Discover.

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company realizes a return of 3 percent per month, or 36 percent per year. Credit card companies are anxious to raise interest rates to 24 to 30 percent for customers who don’t pay their bills in full each month. That is because the interest the customer pays on the unsecured loan (the monthly unpaid balance) is a “losing allocation of capital” in the eyes of the credit card companies, for whom grossing 36 percent a year by ﬁnancing transactions is better than collecting from outstanding balances at 18 percent or lower. With a vast computerized billing and transaction veriﬁcation network, security costs, on-line and 24-hour phone banks, the credit system itself represents a signiﬁcant expenditure of capital. The eighteenth century bill discounter ran a labor-intensive paper operation of limited scale, like the blacksmith referred to earlier. Modern credit card companies are capital intensive, and extensive, and their bill-discounting rates are about the same as they were in the eighteenth century. So, we have something Hilferding did not envision—industrial scale ﬁnance, requiring large-scale throughputs in order to be a money-making machine. Credit card companies resort to teasers (introductory interest rates, and points earned) similar to those once pioneered by manufacturers and retailers (some may remember blue chip stamps and the days when oil companies gave away glassware in attempts to lure customers). Debit cards allow the companies to collect the same transaction fee without having to advance their own capital; in the case of debit cards Visa and MasterCard provide an electronic checking network on which they collect 3 percent per transaction. This is a bonanza and, save for the costs of erroneous debits and fraud, represents an almost inﬁnite rate of return. Very little capital is fronted by the company (as it is in the case of credit cards) and most of the hardware installation costs were already paid for by the prior development of the credit card system. The “ﬂip” is also seen in the retail mortgage market.14 Let us say a bank advances $500,000 on a mortgage and in so doing collects $5,000 in various origination fees. The mortgage is executed, the fees are collected, and the mortgage is resold to a third party investor in the same week. The bank gets back its $500,000 and is ready to sell it again to another party the following week. In this case the bank would gross $5,000 per week on a $500,000 capital that turns over once a week—a cool $260,000 per year. Though exaggerated, like our McDonald’s example earlier, this 50+ percent rate of return points to why holding the 6 percent mortgage is for losers—or at least, for players that have other concerns than those that motivate the bank. The bank wants to get out of the “holding” business so it can ﬂip its capital—ﬂip it in 14

See Schwartz (2008, forthcoming) on the housing market in international ﬁnance.

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credit card transactions, ﬂip it in mortgages, ﬂip it in car loans, ﬂip the capital anywhere one can devise a ﬂip. This accounts for the profusion of exotic interest rate arrangements in the mortgage market. These are the low and no-interest rate “introductory” mortgages, where the actual accrued interest is put on the “back end” of the loan. The “re-set rate of interest” was never intended to be borne in fact by the customer; it was intended to give the customer an overwhelming incentive to ﬂip the mortgage for yet another mortgage that would replace it, a process that can be kept relatively painless to the consumer as long as interest rates are low and the costs of each new mortgage are rolled on to the back of the new loan. This is possible in a rising market because the mortgage-which-is-never-paid-down is still secured by the rising value of the property.15 Customers, who are only interested in their monthly payments, pay little attention to the details. The exotic mortgages that have bankrupted the international economy are, in a very narrow sense, a “reinvention” of the “normal” mortgage that prevailed before the 1930s. The 1930s mortgages featured variable-interest rates and normally terms of ﬁve to ten years, and often of as little as one year. The bank held no interest rate risk and, with large down payments, little default risk compared to the no-money-down mortgages of recent times. But the consumer was forced to reﬁnance, then as with today’s Adjustable Rate Mortgages which reset to punitive rates. The 1930s banks built a “ﬂip” (mandatory reﬁnancing costs) into their mortgages by keeping the term of the loan short. The thirty-year mortgage’s denial of the “the ﬂip” to the lender, forcing the lender to assume the interest rate risk by oﬀering a ﬁxed rate mortgage, reﬂects the regulatory spirit of the New Deal.16 Today’s exotic mortgages, put another way, have seduced borrowers, and with them the general economy, into the hazards of the 1930s, with even less protection against ﬂuctuations in the housing market than was available then (due to that era’s prevailing norm of a large down payment). The “ﬂip” has worked its way root and branch into the structure of American ﬁnance, via the powerful mechanisms of credit cards and mortgages. 15 The mortgage that is never paid down is not necessarily a bad thing, and might even be a good one. In the United States as people pay down their mortgages, their per-month cost to inhabit the house actually increases over the life of the “sober” thirty-year mortgage. That’s because the interest portion is continually decreasing, which diminishes the value of the interest deduction from the income tax. The last ﬁfteen years of a thirty-year loan are more expensive to the US homeowner unless inﬂation has eaten away at the total value of the loan. 16 See Green and Wachter (2005), who remark “The invention of the ﬁxed-rate, self-amortizing, long-term mortgage was, above all else, a response to the general crisis, as opposed to a design for the promotion of home ownership per se.” (Pp. 94-96) The Great Depression foreshadowed today’s housing crisis—10% of homes were in default and home prices declined 50%. See Bartlett (1989).

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Unsurprisingly the cascade of mortgage defaults is having secondary repercussions in seemingly unrelated markets such as credit cards and student loans. When the losses on the loans become large, the capital committed to covering the “writing down” of bad loans must come from somewhere. Capital normally allocated to earning a “ﬂip” in some other market must be diverted to cover the losses of the defaulting market. Less capital is available for lending and the economy must slow. But curiously, in the current economy, exportoriented industry fares well because the American dollar is collapsing. In Hilferding’s model such industrial proﬁts would have been the bedrock of the banking system’s portfolio; not so today. In retail goods, the “ﬂip” is of course the essence of the game and always has been. Wal-Mart’s advantages over its competitors include better inventory control and aggressive anti-labor policies.17 In Wal-Mart’s early years, growth was based primarily on low in-store wages and passing much of the savings gained from bulk purchases on to the consumer. That was only enough to get the company started, however. At some point it got big enough to “grow” through an altogether diﬀerent dynamic—being able to dictate terms to producers. These dictates include mandatory outsourcing for American ﬁrms, a “plus one” policy that requires manufacturers to lower the price on the items they make every year; and total indiﬀerence to the needs of recognized national and international brands, including some of the mightiest (Nabisco), to engage in promotional activities. The company also refuses to engage in slotting, the practice of selling conspicuous shelf or ﬂoor space to major brands for promotions.18 Wal-Mart’s pursuit of the ﬂip goes beyond pressure on manufacturers—it includes choosing the right demographic. The company’s mainly rural and suburban locations means that the poorest of the poor, the urban poor, are not a major part of its customer base. The customer base has to at least have enough income to maintain a car. In the US, the customers are concentrated in the 80 percent of income earners who collectively take home the other 50 percent of the national income, not the 20 percent who take home 50 percent. But of the 80 percent who share among themselves only 50 percent of the income, Wal-Mart excludes the bottom decile through its spatial positioning. The remainder, the working poor and median income deciles, have a very low savings rate. That means they reliably spend what they have, much more so than the 20 percent who take home 50 percent, and who actually save a good

17

See Strasser (2006) and Adams (2006); Adams is emphatic on the role of volume and turn-

over. 18

See Petrovic and Hamilton (2006), especially p. 132.

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chunk of that income for college funds and retirement.19 The working poor and median income demographics have income to spend, but limited discretionary income to switch to other retailers if they do not like the quality of the goods. Following Moreton’s (2006) emphasis on Wal-Mart’s culturally “agrarian” roots in Arkansas, I would suggest that the Wal-Mart’s chief advantage is spatial—a vast network of large stores. Ordinarily an agrarian market can be thought of as “thin” in comparison to dense urban markets. But in the age of the automobile that is not so; the Wal-Mart model requires automotive access as a precondition to getting enough people in to justify the size of the store, which must be large enough to have the volume of sales that permits WalMart to dictate terms to overseas producers. In Ghemawat and Mark’s (2006) words, “Wal-Mart operates 2-1/2 times as much selling space per inhabitant in the poorest one-third of states as in the richest one-third.”20 The lower cost of real estate makes possible the vast parking lots that bring the customers in for the high turnover sales. Box stores are eﬃcient consumption factories with scale economies. So Wal-Mart’s ability to dictate to producers stems from its size, and its size is a proxy indicator of its market: large numbers of working poor with enough income to ﬁnance their own automobiles, thereby supporting Wal-Mart’s scale, and enough income to “vote” for Wal-Mart with their high marginal propensity to consume—what they have, they spend. Ironically, Wal-Mart does better in a recession than its rival Target. The higher income demographic that frequents Target has more latitude to cut back on non-essential expenditures, so the “luxury” inventory in Target does not move as quickly as the “essentials” found in Wal-Mart.21 The scale of Wal-Mart’s operations also makes it capital intensive, in the sense of deterring entry; its stores command vast market areas (up to an hour by car in any direction) and can’t be beat in terms of prices. While Wal-Mart “in its maturity” can be identiﬁed as one of the causes of deindustrialization (outsourcing), overseas export of jobs had been going on well before Wal-Mart’s rise to retail dominance. Wal-Mart’s use of high volume throughput has given it a command of “the accumulation process” which it (and other retailers that follow the model) use to further their spatial control of access to the consumer’s pocketbooks. Direct investment in production, anywhere, is shunned, since 19

The argument by Cox and Alm (2008) that the lower income deciles spend more than their income and account for a greater share of expenditure is interesting, and possibly ﬂawed. For our purposes we may note simply that if it is true, then Wal-Mart is even smarter to be “grazing” in the low-income demographics. 20 Ghemawat and Mark (2006). 21 Cheng (2008).

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the costs of production can be minimized by squeezing suppliers. Hilferding (1910) wrote: The transition from commercial to investment credit is also apparent in international markets. In the early stages of development England . . . extended commercial credit to countries which bought English products. The situation is diﬀerent today: credit is not provided exclusively or mainly in the form of commercial credit, but for capital investment, the object of which is to gain control of foreign production (p. 92).

A more diﬀerent situation from today’s practices cannot be imagined. Today’s retail behemoths do not gain control (ownership) of foreign production because they can do so less expensively by ﬁat. They say, “if you want access to the aggregate demand of which we are the gatekeepers, price as you are told to price.” It’s true that many producers have moved operations overseas, but they do so to have the prices that will get them shelf space at Wal-Mart, which forces their production overseas.22 In Hilferding’s day imperial power controlled credit as well as exports. Production in the metropole fueled credit in the metropole that was extended to borrowers in the periphery. Today’s exporters, like their imperial predecessors, are doing the lending to the buyers, but now it is consumption in the metropole that fuels the development of credit in the periphery which is extended to further consumption in the metropole. But the exporters so far are not positioned to gain control of the importer’s productive assets. Indeed exporting “peripheral” countries provide credit, through their lending, to a hyperdeveloped military power whose adventures they might in theory fear. But in fact they don’t really fear invasion and appear to have subcontracted military issues (including ﬁascoes like Iraq) to the hegemon. The debtor as hegemon would have been seen as aberrant in Hilferding’s era; it is the vexing issue that elaborate theories of US hegemony continue to dodge. I cannot ﬁx the problem here and that is why I look at these factors as disaggregated. Some ﬁrst-world ﬁrms (oil, automobiles, pharmaceuticals, cigarettes) do in fact exhibit high degrees of global reach and do so without signiﬁcant need for access to Wal-Mart’s and like companies’ shelf space. Perhaps this is the old “Hilferding classic” economy still visible under the overlay of the more recent production model wherein retail is king. Perhaps, too, we need to re-think the whole “retail service sector” deﬁnition. McDonald’s is not a service industry—it is a food factory with vertically-integrated delivery, like the oil industry. 22

See PBS Frontline documentary, “Is Wal-Mart Good for America?” (2004) available http:// www.pbs.org/wgbh/pages/frontline/shows/walmart/etc/script.html.

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2. Spatial separation of the acceleration principle and the “mode of consumption’s” triumph over the “mode of production.” The acceleration principle, ﬁrst identiﬁed by Clark in 1917, analyzes asymmetries among sectors that grow at diﬀerent rates. Imagine a small town housing 20,000 families. There, the building sector knocks down 50 dilapidated houses a year and replaces them with 50 new ones. The demand for bulldozers and other heavy equipment reﬂects this equilibrium. Now imagine a major manufacturing ﬁrm breaks ground on a major facility. Five thousand families will be joining the community over the next ﬁve years, and projected growth will continue with the addition of 100 families per year after that. The trend is all “up.” Instead of building 50 houses per year, the housing sector will be expected to build 1,000 units a year for the next ﬁve years. Orders are placed for new heavy equipment, stimulating the bulldozer industry elsewhere, and wages rise as construction attempts to lure workers from other businesses in the town and coax others into the work force. The added employment in construction is a huge spur to the town’s service economy. After ﬁve years, however, the 5,000 units have been built. There is a new equilibrium level: we have 20 percent more housing units, and thus a 20 percent increase in the number of older houses that get knocked down (rising from 50 to 60), and we have a new regional employer that continues to add jobs to the area to the tune of 100 additional families a year. So because we have a baseline of expanded equilibrium output and continued expanding growth from the new ﬁrm we should be making 160 houses a year compared to 50 before the new company arrived. But the town goes into a recession. One-hundred sixty houses a year is only 16 percent of the 1,000 units a year the industry has produced for the past ﬁve years. Workers in this sector are laid oﬀ, and bulldozer makers outside the town see the area’s demand for heavy equipment crash. Perfectly good bulldozers are mothballed, obviating any need for new ones. Basically the housing industry has to “step down” its production outlook from 1,000 to 160 units a year and the town is going to have to adjust to the associated decline in aggregate income. The new factory leads economic growth, but there is a simultaneous recession in the “overextended sector,” construction. Many people are, thanks to the factory, doing very well and indulging in gadget consumerism. They think the future looks bright because their company is doing well. This dichotomy between the prosperous export sector (the factory) and the collapsing or stalled local economy is a ﬁrst approximation of Japan in the 1990s.

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Samuelson’s (1980) textbook calls the acceleration principle “a powerful factor making for economic instability.”23 It has generated its own literature.24 The reason that the acceleration principle is “something to consider” but not “continually in our faces” can be deduced from the example just provided. If bulldozer makers can lease to another town when one town slacks oﬀ, they move their unused inventory of bulldozers to another town that is entering an upswing. Many of the workers needed for new housing development are mobile and follow their jobs. In addition there are many economic sectors developing and contracting at any given time. For example, the airline industry’s growth cycle need not be the same as the software industry’s. The acceleration principle’s eﬀect can be “muﬄed” in everyday experience. I propose that with regard to Asian development “to service Wal-Mart” the eﬀects are not so muﬄed, but in fact exaggerated by the spatial separation of the consumption sector (the rich importing country) from the export sector (the much less rich exporting country). The Hilferding Model and the Acceleration Principle Diﬀerences in timing, industrial sectors, and other factors “muﬄe” the acceleration principle in a generic capitalist economy. In Hilferding’s Finance Capital the eﬀect is, however, not just controlled, but also strangled. In the mature “Finance Capital” economy investment is essentially controlled by the large banks linked to existing physical capital. Any new investment is planned with an eye to the orderly phasing out of the physical capital already in place. More plainly, if I am heavily invested in a 30-year-old steel factory I approach the prospect of building a new one more cautiously than if I have no such factory. Enterprises in Finance Capital cannot assume perfectly competitive conditions because they themselves have reduced those conditions to a minimum. Under perfectly competitive conditions a company assumes that its own contribution to the market won’t aﬀect price levels. In Hilferding’s world of Finance Capital the assumption is quite diﬀerent—investors (oligarchs) view the entirety of the production process from their “commanding heights.” As a result the investment component of national income is less subject to speculative frenzy and overgrowth. Indeed, if export dumping combined with tariﬀs is systematically practiced, the tariﬀ already is a consumption tax on the domestic economy, dampening demand. Cartelization of the domestic market basically insures 23

Samuelson (1980:248). This is the 11th edition. See for example Bernanke (1983), Chenery (1952), Clark (1917), Eisner (1963, 1989), Kashyap, Lamont, and Stein (1994). 24

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that the increasingly tiny competitive sector is at the mercy of pricing decisions by bank-directed cartels and combines.25 The eﬀect of systematically raising prices through cartels and tariﬀs is to diminish the real wage, so consumption preferences are not likely to drive investment spirals as implied in the acceleration principle. Sylos-Labini’s Oligopoly and Technical Progress (1962) describes some of the traits of a ﬁnance capital system. Sylos-Labini notes that technical progress in production is guaranteed even under stagnant growth conditions, because as productive equipment wears out it is replaced with more eﬃcient equipment. So, even in a stagnant market, increasing technical unemployment can occur as a result of eﬃciency gains. Investment in totally new sectors—where we would expect to see the acceleration principle manifesting its strongest eﬀects— is relatively restrained because the available income for consumption is set by the dominant cartelized industries, leaving little discretionary income to fund innovative technologies. For example, in cartelized late nineteenth century Britain there is little consumer income to spur the development of a telephone system.26 Our discussion of the acceleration principle could end here were it not for a paradox—outside of Germany, the most Hilferdingesque economies in the world are the Asian development models, which feature strong banks linked to major productive networks. And, below, I am about to argue that these economies are precisely those that are most vulnerable to the acceleration eﬀect. But these exceptions help make the case. Of this group of countries, Germany is the most redistributive with a social security system that is not based on consumption-killing personal savings.27 Hilferding envisions a world in which aggregate demand in the producing country is endogenous and thus administratively decided “in an antagonistic form” (p. 234, see long quotation supra) by a banking and ﬁnance cartel that control incomes by setting the levels of wages and investment. To the extent that administered production creates a trade surplus, gold is accumulated which can become the basis for the further expansion of credit and lending. But this credit and lending is used to further demand for ﬁnance capital’s own industries: a bank will lend money to a foreign country to generate demand for a railroad which will lead 25 For example, the competitive sector gets what is left of the consumer dollar after the cartels and combines have set their prices and wages, just as today, the competitive restaurant sector gets whatever is “left over” of the consumer dollar after the oil cartel has had its slice of consumer income. 26 Cartelization was legal in Britain during Hilferding’s life, and cartel contracts were enforceable in court. See discussion in Nowell (2002). 27 On Germany’s social security as a “pay as you go system” see Potrafke (2007).

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to sales of steel and locomotives from industries in which the bank has a major stockholding. In Wal-Mart World, the demand that drives the development of exporters is exogenous to the exporting country. Dependency on exogenous demand may even be more restricting than dependency on exogenous capital investment in earlier times. Wal-Mart World and the Acceleration Principle Wal-Mart World’s distinctiveness compared to Hilferding’s Finance Capital is the extent to which production is outsourced to low-wage, third world countries. This does not mean that all aspects of the capitalist economy are outsourced. Anything to do with the consumption sector is privileged. One of the most powerful developmental dynamics of capitalism is speculation on land and its relationship to transportation. In the age of canals, land speculation centered on territories proximate to the canal transport; the age of the railroad opened up additional vast new tracts.28 The trolley helped spur the initial wave of suburbanization, but ultimately the automobile trumped them all. Unlike canals, automobiles could go over virtually any terrain, as do railroads; but unlike trolleys and railroads, the capital and operating costs are transferred to the user—only road upkeep is required from the social system. The automobile transforms transportation from a social product to a personal consumption good. Developers ﬁnd that almost anywhere they can persuade the state to pave a road, they have an opportunity to realize large gains by building a house. With the homes comes the related service sector, i.e. malls and Wal-Mart, which provide further personal consumption goods. Developers realize speculative gains on the land; automobile producers sell outsized cars for prestige; and the retailers come in to make their billions on the “ﬂip.” This is a continental-sized investment in the physical structure of consumption. Real goods and physical assets are made (roads, stores, gasoline stations, restaurants, movie theaters) and some of these consumption goods (e.g., agricultural products, some automobiles) are even made (for now) in the UnitedS tates. Financial services companies participate in this bonanza through their highvolume credit card fees and by selling commercial and residential mortgages. The notion of the United States as “consumer of last resort” is well-worn

28 On canals see Hartz (1948); this is Hartz’s better book, the one for which he is not known, and where he attributes ideological change to changes in the productive structure, rather than vice versa. On trolleys see Warner (1969).

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territory.29 Consumption is, at least until recently, more stable over time than investment. Accordingly, the economy that “depends on export-led investment” to fuel its domestic economy is really the one that is most vulnerable to “a sudden decrease in the marginal eﬃciency of capital” which Keynes identiﬁed (315-332) as the cause of an economic bust. The current economic crisis in the United States shows it is not immune to recession and bubble-related contraction of credit. Moreover, consumption is falling.30 Indeed, given that Clark’s 1917 essay on the acceleration principle is actually based on the housing sector, and the United States is in a housing sector crisis, it takes some chutzpah to suggest that the nation with the most serious “acceleration principle” problem is not the United States, but Asian style exporters who follow various versions of the Hilferding Finance Capital model. Nonetheless the scale of US consumption is so vast that even in contracted condition it will dominate world markets. If one is to choose one’s structural economic weakness, a country with over-consumption is likely to triumph over a country with under-consumption every time. And under-consumption, or excess savings, characterizes the Asian exporters.31 US consumption of $9.5 trillion is six times more than Indian and China combined; put another way, ten percent of US consumption equals the entirety of China’s. Smick (2005) is correct to note that China cannot continue with a 40 percent investment and 9.5 percent per annum rate of growth.32 The country is headed for some kind of deﬂation—Japan in the 1990s, or the broader “Asian Contagion” of 1997-1998—and when it does, upheaval may result. So far China has dodged Japan and “Asian contagion” style calamity by pegging the Yuan to the dollar.33 Decoupling the two currencies would certainly lead immediately to deﬂation in China as US assets in the Chinese banking system shrank relative to the Yuan.34 The asset side of bank balances (as is happening in the United States, due to default risk) would shrink, forcing banks to “cover” losses by decreasing lending and/or increasing interest rates. Or, the two currencies can 29 The phrase draws thousands of hits on the Internet, but Tabb (2006) is very good, as is a powerpoint presentation authored by Stiglitz (2005). 30 Healey (2008). Also Kelly Evans and Robert Matthews, “Manufacturing Tumbles Globally,” Wall Street Journal, 3 January 2009, download from http://wsj.com. 31 Bernanke (2005) resurrects the over-savings hypothesis typically associated with pre-Keynesian theorists of capitalist disequilibria such as J.A. Hobson and J.K. Rodbertus. 32 Smick, Pp. 8-9. 33 See McKinnon (2005). 34 Asset deﬂation can happen even when most of the assets are good. Whalen (2005) is among those who think the Chinese ﬁnancial system is stuﬀed with worthless assets. The extent of the US sub-prime mortgage crisis raises the question of “worthless under what conditions,” i.e. BearStearns may harbor better quality assets bankrupt and selling for 3% of its net asset value a week earlier, than China’s banks under boom conditions.

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stay coupled, and the deﬂation will occur when Keynes’s dreaded “decline in the marginal eﬃciency of capital” ﬁnally strikes home either in China’s real estate, equities, or perhaps in some other sector.35 The asymmetries in investment spending in the industrializing countries— their vulnerability to variations in investment due to the low wage structures that are the reason they attract investment—is part of the analytical problem represented by the role of debt in Wal-Mart world. In Hilferding’s model, an imperial or core country accumulates gold reserves, which strengthen its ﬁnancial system and provide the means to make loans which provide further demand to the industrial core. The periphery transfers gold to the core countries and gets into debt; reserves are returned in the form of loans which then present a debt service problem to the colonial dependencies. The colonial IOU is held as an asset (bond) on the balance sheets of ﬁrst-world lending institutions. So, gold reserves are an asset which end up moving to the core country “as a rule,” and so are the paper assets, the bonds. This is a double win for the banking system of the core power which thereby keeps control of what would we would call today “Tier I capital” (gold) and also gets to hold the inferior but interest-producing paper IOU as an asset. Servicing the debt is the chronic burden of peripheral economies, whether colonial (part of formal empires), semi-colonial (e.g. Ottoman Turkey, Iran) or post-colonial (the third world). Such debt is criticized as an income transfer from core to periphery.36 In Wal-Mart world gold is no longer privileged. The primary assets that are “good as gold” are triple-A rated government debt: debt issued by governments of the OECD, but mostly US debt. In racking up a current account deﬁcit, the US exports debt instruments to foreign holders, and in eﬀect funds liquidity in other banking systems. This is a stark contrast to days of yore when imperial arrangements in Hilferding’s day drained the premium ﬁnancial asset, gold, to the metropole, and with it, liquidity from the periphery’s banking system. But nowadays the core asset is the government bond. In the case of China this works in the following way: (1) a Chinese exporter receives payment in dollars, is required to convert the receipt into Yuan, and receives either Yuan cash or a Chinese Yuan bond in the conversion; (2) the Chinese government buys a US Treasury bond or other dollar denominated instrument; and (3) the US economy has now taken out a loan with which to ﬁnance further imports. Schwartz (2008) has argued that the US, through a process of 35 China is building ﬁfty 300 megawatt coal powered stations a year, an example of an investment sector ripe for the abrupt discipline of the acceleration principle. 36 Examples are numerous, but Williams (1978) summarizes a number of African cases associated with the oil-debt crises of the 1970s. See also the World Bank’s “Global Economic Prospects” (2003). Feis (1930) is the classic resource on the pre-World War II period.

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disintermediation, can actually turn a proﬁt on these exchanges by using the cash thus generated to purchase other, higher risk assets and therefore, on average, a higher rate of return. That would certainly be a key to the system’s unexpected viability. But the issue here is that the US is exporting an asset that in theory is “good as gold” (government bonds are formally categorized as Tier 1 capital) and that ends up incorporated into the Chinese banking system. The Chinese government can hold this US public debt as an asset to oﬀset the liability of its own circulating currency. The potential is that the accumulation of the US assets translates into currency expansion, “easy money,” and as a result, asset inﬂation, which in any case has been seen in such diverse cases as Norway, Iran, Saudi Arabia and Texas (oil producing surpluses) and also in economies that accumulate surpluses in another manner, i.e. by exporting goods, as is the case of the Asian tigers. That this expansion should have an “unreal” bubblelike quality to it, and a very real danger of eventual deﬂation, does not change the fact that real physical assets are created in the upward part of the boom/ bust cycle.37 The exported US bonds, which theoretically represent the “riskless rate of return,” constitute a socio-political asset whose function is to be “as good as gold.” Imagine for a moment what the late nineteenth century European economies would have looked like if each country’s central bank had possessed its own inexhaustible gold mine. Would history have been any diﬀerent? The gold would not have been given away, but rather the colonial dependencies would have had to borrow it at interest to invest in productive assets. But as the colonies developed, what then? Perhaps the core countries would have chosen to export gold in exchange for goods, allowing the dependencies to develop their own ﬁnancial systems. But what is the value of a credit system? Only that it can facilitate exchange and investment needed to create aggregate income, and thus the aggregate demand that allows the products to be proﬁtable. So what is the true deﬁciency of being a poor backward country? That one has an insuﬃciency of aggregate income. This very insuﬃciency—low wages—is the reason why one can attract investment and to generate income. And even that is true only up to a point. The security of property rights linked to a market system of 37 It is true that the Chinese government “sterilizes” some of the Yuan that it issues to holders of foreign currency by selling bonds to Chinese investors. The money that comes into the central bank decreases the money supply. But the Chinese bond, whose value is now in a sense “linked” to the payment of the underlying US treasury held by the Chinese central bank, is itself an asset. By raising the net worth of the person that holds it, it raises that person’s eligibility for credit. The sterilization is at best partial. See Phillips, Batson, and Ip (2006).

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exchange is possibly the biggest asset of all, and one reason why rich countries preferentially invest in each other, often for lower rates of return, than in countries with lower wage rates and insecure property rights system. The country with highest aggregate demand, the country with higher wages, is rich. Even if the colonial dependencies had had gold, they would have been poor, so long as they depended on foreign demand and neglected their own domestic consumption with punishingly low wages. And of course, gold and silver reserves have not propelled peripheral countries into full economic development, whereas many other countries have developed without these assets. The metal means nothing; it is the structure of production and consumption, and most particularly consumption, that appears to drive development. When the United States exports bonds to China it is the same as if it were exporting gold, but with some crucial diﬀerences. When one has gold the physical presence of the gold is independent of where it came from. If China had amassed a pile of gold from the United States, the potential bankruptcy of the American system of ﬁnance would shake the Chinese economy but not the ﬁnancial core asset of gold accumulated by its central bank. Other players, e.g. the European economies, would recognize China’s gold as a value “independent” of the solvency (and taxing capability) of the US government. But investors’ valuation of Chinese productive assets, in the absence of an American market to make them proﬁtable, would decline. But US debt is not a lump of metal, it is a social and political relationship. If, as the Wall Street Journal recently put on the front page, US debt is downgraded from its Moody’s Triple-A rating in the next ten years,38 it would imply that the Chinese central bank is operating on two sets of illusory relationships: its investments in its own country’s poor quality debts, and the American.39 China is at risk of emerging from its rapid development with a domestic economy starved for aggregate demand because of low wages, and a banking system gorged with poor quality Chinese and poor quality US debt. If the world bond market cannot sustain the huge expansion of American debt under deliberate deﬁcit stimulus, China is in for big trouble. The alternative, however, of spending US-earned dollars on American products is deﬂationary for the Chinese economy and runs counter to the goal of amassing quality assets to build the ﬁnancial system that ﬁnances the extraordinary growth rates. 38

Phillips and McKinnon (2008:A3). Charles X lowered the interest rate on French bonds in 1825 to fund an indemnity to nobles that had lost land in the revolution. Parliaments exist to control this sort of “unthinkable” behavior, but it is a theoretical risk run by anyone who accumulates a great deal of another country’s debt. For his pains Charles X lost his throne and died in exile. 39

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If China collects goods (buying them with dollars) it cannot collect banking assets. Alternatively China can divest itself of its dollar hoards by selling them to other speculators. But this pushes down the value of the dollar and makes it easier for someone else to buy US goods, purchasing which is the only thing one can “do” with dollars if one discounts the value of holding dollar denominated ﬁnancial instruments. In sum, China can divest itself of dollars only up to its desired level of unemployment; other countries holding US assets face much the same quandary. Moreover they are exposed to management risks related to the US economy: inﬂation, for one, and currency ﬂuctuations, for another. The spatial division of the acceleration principle leads, in some parts of the world, to a mode of production that is recognizably Marxist in character replete with modern exploitive horrors that mirror the worst of nineteenth century conditions. Simultaneously, in other parts of the world, a mode of consumption is created whose physical infrastructure is characterized by the suburban landscapes that are part and parcel of Wal-Mart World. Here children are schooled in the wisdom of protecting the environment while their parents drive them around in SUVs, while in China their age group peers gasp in a variety of pollutants that range from arsenic to coal dust, lead, mercury, barium, cobalt, ﬂuorine, etc. The consumption economy has its own particularities. It cannot exist without a system of social protections that boost aggregate demand, but the corporate actors within Wal-Mart World are hell-bent on beating wages down because it is Wal-Mart World’s ability to do that which helps generate the volume demand that allows it to place orders in China. We can call it class conﬂict or a system of dynamic tension. The acceleration principle is bottled up and contained inside the restraints of economic concentration and tariﬀs in Hilferding’s model. But it is a genie unleashed in Wal-Mart World. The vulnerabilities of the exporting countries are patent.40 In the consuming countries the suburban “mode of consumption” is more insulated from economic shock due to consumption being a steadier component of national income than investment. But nonetheless the shocks can occur and this is the current crisis. And so the consumption-driven economy has its acceleration principle where investment in building consumption infrastructure “hits a wall.” This is true not only of construction, but the ﬁnancial industry which also expands its ﬂotilla of agents, oﬃces, and computerized processing in order to accommodate an expansion in demand that comes to an abrupt halt when lending standards are tightened up. Hilferding 40

See Barta and Walker (2008).

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suggests that the end point of capitalism is a coterie of shrewd ﬁnancial and industrial oligarchs allocating investment with a keen eye to the functioning of the whole. Wal-Mart World returns us to the anarchy of production, but in a manner that is free from the institutional constraints of the gold standard and which inverts a number of power relationships built into Hilferding’s model. Wal-Mart World is in sum investment tous azimuts (in every conceivable direction), with the separation of production from consumption, and where retail is king. The Current Crisis Events have overtaken this chapter which was written to explore the issues that the ongoing economic collapse of October 2008 has now made plain for everyone. Revising the essay in early January 2009, I will do something which academics are not supposed to do, which is make a few predictions. First, the trillion dollar stimulus package envisioned by the Obama administration is better than nothing, but will fail. The reason it will fail is that stimulus measures designed to resuscitate the suburban consumption economy of Wal-Mart World can’t work, because the banks are no longer in a position to inﬂate consumption by deceiving investors and themselves. Loans are the foundation of investment, investment is the source of income, and all of that has collapsed and may collapse more, of which the single biggest indicator will be home prices. I expect the US unemployment rate to go well over 10 percent for some time, more than prognostications I have seen in the press. The collapse of the economy means that there are even fewer people with “good incomes” to support borrowing than there were before the collapse; credit worthiness of the hoi polloi is a direct function of the performance of the economy as a whole. Many of the jobs for those loan oﬃcers, real estate agents, securities vendors, as well as residential and commercial developers will not come back soon. The primary extractive industries (timber, copper for wiring, etc.)41 are already suﬀering and are part of the worldwide commodity collapse. Second, some types of modernization, such as to the power grid and the communications network, may help the US economy ﬁnd its way to a new cycle of growth. The economic collapse of the 1930s, taken as part of the grand sweep of capitalist industrial development, occurred during a period when the nineteenth century industrial structure was fading (trains, steel, shipping, and coal, coal, coal) and the “new age” was beginning: the automobile, paved highways, commercial aviation, and oil, oil, oil. In the 1950s the new patterns became obvious: the Interstate highway pushed the automobile and the trucking 41

Faiola (2008) describes the collapse of a Canadian lumber town.

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industry to commercial supremacy, commercial aviation killed oﬀ transatlantic passenger shipping, agriculture became universally mechanized in the metropolitan countries, and so on. It is very diﬃcult to see, right now, what lineaments of the “next wave of development” are already here among us and waiting to be pushed into dominance in the next cycle of economic growth. By dominance I mean a cycle of economic development that deploys new technologies and new patterns that all but obliterate the old way of life—the McMansion and the SUV—making these as quaint as the family gathering around the radio to listen to broadcasts in the 1930s. It could be that I am just too unimaginative to see these alternatives, and that the forerunners are already here.42 But in my view the “next wave” of development will have to leave the oil age behind, and that future is not easy to envisage at this time. If I am right, economic stagnation could be prolonged.43 Third, the collapse of the consumption model that has fueled Wal-Mart World will be hard on Japan and brutal for China. I think the emphasis on industrial expansion in China, with comparatively limited domestic consumption, will lead to an exaggerated impact of the acceleration principle.44 Arguments that domestic Asian consumption will kick start the faltering export-driven economy strike me as surreal—where will the aggregate income for domestic demand driven growth come from, if the export industries are collapsing, taking with them the investment driven growth of the capital goods sectors that service production? Economic growth there will not just slow down, but is likely to become negative; that is what recessions do, after all. Signiﬁcant political instability is a likely result. But upheaval may not just be conﬁned to China. So much for predictions. The other point is that the crisis has made a mockery of everyone who thought that the supremacy of the dollar was under challenge. This was always dubious, but the crisis has shown to what extent all parties are pretty much stuck with what they have. At the beginning of the crisis there were worries that Sovereign Wealth Funds from China and Saudi Arabia would end up scooping up the pride of American equities and assets. Now we ﬁnd that they are loath to exchange performing paper assets for nonperforming ones, because that is the choice: accumulate paper assets, or import goods. Massive purchases of US private equity or shaky corporate bonds would 42 My pessimism contrasts, say, with the optimism about alternative forms of capitalism and “ﬂexible production” as a means of economic adaptation. See for example Sabel (2002). 43 Usually when Marxist writers predict a prolonged crisis in capitalism it is a strong “buy” signal for an upturn in the market. Since I am inﬂuenced more by Keynesianism than by Marxism, it is unclear whether this rule holds. 44 Glenn Kessler, “Plunge in Exports Reverberates Across Asia,” Washington Post, 23 December 2008, p. A1.

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simply transfer poorly performing US assets (such as the banking sector or General Motors) into Chinese and Saudi portfolios and good US assets—the government bonds they have already bought—into the hands of American sellers. And this game will work only so long as investors are conﬁdent in US treasury bonds. So, while the Washington Post reported that China was insisting on a bailout of Freddie Mac and Fannie Mae in September 2008, leading some of us to think that the day was at hand when a massive sell oﬀ of US assets to “solvent” overseas holders of US dollar surpluses was part of an inevitable day of reckoning, no such transfer occurred. Rather, as one academic wryly noted: “It was only a few months ago that we were worried about sovereign wealth funds from the Middle East and Asia taking sizable stakes in US and Western European banks. Now the sovereign wealth fund is us.”45 And now we know why: as export earnings diminish, the accumulation of US paper assets (in China or elsewhere) to back the expansion of domestic lending slows or even begins to turn negative. Under such conditions the exportdriven economy can’t aﬀord to use its trade surpluses to purchase assets in the importing country on which it depends for its market. In the meantime the declining exports lead to declining real estate and equity prices which put the export economy’s banking system under further stress.46 Oil-producing countries have traversed a violent speculative cycle and need to hoard their dollar assets for needed expenditures as their income falls; this trap has caught the Middle East producers and Russia as well. Finished goods exporters such as China and Japan are no more immune to recession than the commodity exporters such as Russia and Saudi Arabia. Meanwhile, everywhere we turn, in Europe, in southeast Asia, in Russia, in China, there is a critical need for dollars to compensate for the crash in dollarbased assets. Those of us who wasted the 1980s expecting the rise of Japan to supreme economic superpower status must now move down the bench and make room for the politicians and academics who worried about the increasing irrelevancy of the dollar. The decade-long decline in exchange value of the dollar against the Euro and other currencies proved only this: dollar denominated assets got cheaper to acquire, so the world bought more of them and in the process got more hooked on dollar liquidity. Europe’s central bank turned to the Fed to save the continental banking system.47 45 Cornelius Hurley of Boston University’s Morin Center for Banking and Financial Law, cited in Enrich, David and Steven Power. 2008. “Nations Face Thorny Issues in Acquiring Stakes in Banks.” Wall Street Journal. October 11. Accessed at http://wsj.com. 46 Batson, Andrew. 2008. “China Aids Homebuyers to Curb Impact of Slump.” Wall Street Journal, October 24, Accessed at http://wsj.com. 47 Reddy, Sudeep and Joellen Perry. 2008. “Fed Opens Cash Spigot to Overseas Credit Markets.” Wall Street Journal, Accessed October 14 at http://wsj.com.

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Capitalism’s exact institutional mechanisms are always diﬀerent, but when a collapse comes, it invariably has the shape of a sudden decrease in the marginal eﬃciency of capital (proﬁts), and a sharp contraction of liquidity as investors and banks are forced to write down losses. Hilferding’s Finance Capital and Wal-Mart World are two patterns of capitalist growth that have been immensely historically signiﬁcant. Elements of Hilferding’s Finance Capital economics are still visible today in economies where industrial banks participate directly in organizing production. Wal-Mart World’s consumerism has taken ill, but will be with us for a very long time. The main lesson seems to be that there is no end state for capitalism, no ﬁnal institutional adaptation, and no one particular mode for accumulating proﬁt. The forms are so varied that our theoretical understanding of the adaptations that drive capitalism forward lag woefully behind the complexity of its rapid, and even nimble, evolution.

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Neoliberal Agenda in Bolivia and its Aftermath Magda von der Heydt-Coca Department of Sociology, Johns Hopkins University

Abstract The neoliberal agenda was implemented in Bolivia (1985-2004) with great orthodoxy and confronted great opposition from grass-roots movements. The resistance culminated with the election of Evo Morales in 2005. The neoliberal restructuring process is analyzed taking into account international factors related to the dynamic of the world economy in its transnational stage and national factors related to the renascence of grass roots movements encouraged precisely by the neoliberal downsizing of the state. This essay analyzes the consequences of the neoliberal agenda in Bolivia and its legacy on the newly elected government. Keywords neoliberalism, anti-systemic social movements, political economy, Evo Morales’ government

Introduction The neoliberal agenda was implemented progressively in Bolivia between 1985 and 2005. The neoliberal restructuring is only intelligible if the analysis takes into account its articulation with the world economy in its transnational stage (Robinson 2004). In the global era, the tendency in the core countries is toward the predominance of supranational organizations such as Transnational Corporations (TCs), the International Monetary Fund (IMF), the World Bank (WB), and the European Union (EU). These institutions have enjoyed symbiotic relationships with powerful states in military, technological, and economic terms. In contrast, the neoliberal prescription for developing countries has led to downsizing of the state, and in the case of Bolivia, to regionalization and the disintegration of the country. The set of economic policies advised for developing countries became known as the Washington Consensus (WC) and encompasses: reduction of ﬁscal expenditures in social spheres, favorable laws for foreign investments, opening of their economies to free market competition, deregulation of labor markets, privatization of state enterprises, and decentralization.

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The results of the neoliberal policies in Bolivia contradict the promises of economic growth, reduction of poverty, creation of jobs through new investments, etc. The privatization of state-owned enterprises led to the loss of revenues for the government, loss of public services in transportation, and an increase of prices for essential commodities such as water, and resulted in unemployment and underemployment. The failure of the neoliberal prescription made possible the convergence of the peasant, the urban movements, and the discontented middle sectors, agglutinating them under the leadership of Evo Morales behind a nationalistic agenda. The WC reduced the political and economic space of the central government. By downsizing the state, it encouraged political participation of civil society. As an unintended eﬀect, it created new opportunities for deliberation over the disposition of the nation’s natural resources. Massive protests emerged against the sell-oﬀ of public assets, forcing the resignation of two presidents in 2003 and in 2005, and culminated in the election of the ﬁrst indigenous president—Evo Morales. After a truce period, however, the elites who supported the neoliberal agenda and the diﬀerent social sectors behind the new president began to segment along regional, ethnic, and class lines. In this chapter, I analyze the privatization and decentralization laws of the neoliberal era, the shadow they still cast over Morales government, and the role of the Andean culture in guiding collective strategies that led to the new turning point in politics marked by the election of Morales.

Bolivia, a Land Divided Profound geographical, economic, and ethnic diﬀerences divide Bolivia. Geographically, the country is divided into two main ecosystems. On the west, the mineral-rich Andean Cordillera is densely populated, mostly by Quechua and Aymara peasants. The Andes have been the economic center of the country for centuries. Bolivia was the main supplier of silver for the nascent world economy during the sixteenth and seventeenth centuries (von der Heydt-Coca 2005), and was the second-largest producer of tin in the ﬁrst decades of the 20th century (von der Heydt-Coca 1982). In the east, the Amazon Basin, with its tropical and subtropical lowlands, is less-densely populated and was not incorporated into the national economy until the second half of the twentieth century, with the development of sugar and cotton production and cattle ranching. During the 1980s, with the discovery of oil and natural gas reserves, the second largest in South America, the economic center shifted from the Andes toward the Eastern lowlands. Hydrocarbons replaced minerals as the main source of export income for the government and soy production became the most important agricultural export.

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Class and ethnicity have profoundly divided the Bolivian population since colonial times. The dynamics of power relations between people of Spanish heritage and the indigenous majority led to mutual mistrust expressed in their respective ‘ethnic languages.’ “Indio” became the generic term that embodied for the diﬀerent pre-Hispanic ethnicities, a pejorative connotation, signifying “subordinated,” “inferior,” and “uncivilized.” On the other side, Andean indigenous people called the urban, west-oriented people Q’aras, (naked), signifying parasites that live on the shoulders of Indian labor. Even today, inter-ethnic diﬀerences are expressed in everyday life in terms of superiority and inferiority. Indian resistance to domination is symbolized by Katari (“serpent” in Aymara), a mythic deity that emerges from the underworld as a powerful force against the domination and the civilizing mission from above (von der Heydt-Coca 1999). Ethnic polarization corresponds also to spatial polarization between Indio-peasants in the countryside and the western-oriented middle and upper classes in urban centers. Although Bolivia is one of the richest countries in Latin America in terms of natural resources, Bolivians commonly refer to their country as a ‘beggar sitting on a golden chair’. The exploitation of natural resources in Bolivia has been carried out with scant beneﬁt for the majority of the population, while contributing to the building of vast private fortunes. The elites in power have traditionally administrated the state revenues from natural resources to beneﬁt themselves.

Ideology Neoliberalism is not only an agenda, but also an ideology (Harvey 2005). The economic guidelines, based on the rationalizations of the wealthy classes of developed countries, have been promoted as universal economic principles, intrinsically positive and beneﬁcial for everyone. Neoliberal policies were supported and spread by the corporate business class (Harvey 2005). Along with the formal set of economic policies advised by the WC, neoliberalism also brought a new change in the social thought of the Latin American elites with the revaluation of the market capitalism that was discredited by the dependence theory. The elites revaluated market capitalism as congruent with national interest; they considered foreign investments necessary for sustained growth, and believed the market mechanism also created trickle-down eﬀects, thus reducing inequalities (Portes 1997). According to these beliefs, the developing countries would be successfully included, in the long run, into the global economy. Another equally important change in neoliberal thought is the revaluation of civil society and the multiculturalism of the nation. Neoliberal discourse

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emphasizes individual freedom and civil rights that protect citizens from the state interference. Consequently, it has to recognize the pluri-culturality of the nations and the ethnic rights of minorities. The expansion of civil society as the realm of the “private,” of “autonomy,” and of “freedom,” is synonymous with the freeing of the market from the state and of capital from social constraint. The projection of civil society as “a virtuous pole against the state” becomes an ideological construct that legitimates a global capitalist program of dismanteling state-led development projects and proceeding with the privatization and deregulation of the state. (Robinson 2003:223)

Bolivian elites embraced the neoliberal model with the same enthusiasm as their predecessors did the free-trade ideology spread by England in the nineteenth century. The only diﬀerence is that the “magical technological devices” of this era are no longer railroads, telegraph, and electricity, but gene technology and informatics. The elites believe that the export of natural resources is the basis of development (Sanchez de Lozada 2003). The export of hydrocarbons has just replaced the export of minerals of the former era. The neoliberal elites in Bolivia are not the “technopols” described by Domínguez (1997) and Robinson (2003). They have emerged from the old landowner elites. Even though Sanchez de Lozada was educated in the USA, a bachelor’s degree in English doesn’t confer expertise in macroeconomics. Even the electoral strategies of Sanchez de Lozada were designed by a prestigious US consulting team.1 The elites, who implemented the neoliberal agenda, were just reproducing the think tanks spread by J. Sachs.

Neoliberalism and Reconﬁguration Neoliberalism was imposed throughout Latin America in the context of the onerous indebtedness of the 1970s that provided the needed leverage for the IMF to grant stand-by loans to countries in economic crisis during the 1980s—the lost decade. Similar to Latin America, during the 80s, Bolivia was facing one of the deepest economic crises in its history. The service of the foreign debt increased from 28.9 percent of the export value in 1980 to 39.5 percent in 1984. The foreign debt crisis unleashed an inﬂationary process in Bolivia without precedent. The inﬂation rate reached 11,850 percent at its peak in 1985 (Dunkerley 1990: 82). The neoliberal agenda was gradually implemented in Bolivia between 1985 and 2005 following the prescription of 1

As it is shown in the documentary ﬁlm “Our Brand is the Crisis” directed by R. Boynton.

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the WC to the letter. The ﬁrst step, related to Bolivia’s negotiation with the IMF to address the debt crisis, was the Stabilization Plan (D.S. 21060) implemented by Sanchez de Lozada as ﬁnance minister during the second democratic government (1985-1989) after the military dictatorships. Sanchez de Lozada followed the advice of Jeﬀrey Sachs, an American economist at Harvard University (Conoaghan 1994). This law opened up the economy to full external competition by implementing a uniform import tariﬀ of 20 percent and free exchange rates. Public expenditures in administration, welfare, health services, and education were curtailed, a major tax reform to enhance government revenues was introduced, and all public sector wages were frozen. Real wages were reduced by one third through inﬂation and the cuts in public spending especially impacted rural education (Dunkerley 1990). The government decentralized the state mining company, the Corporacion Minera Boliviana (COMIBOL), and the Bolivian development corporation, Corporacion Boliviana de Fomento (CBF), as a ﬁrst step toward privatization. The stateowned oil company, YPFB, was required to supply 65 percent of its revenues to the state and these funds were earmarked to pay the foreign debt. This provision prevented reinvestments and weakened YPFB, which had to take loans to maintain production. This circumstance was later used to justify its privatization, as it was claimed that under governmental control the YPFB was not proﬁtable (Almaraz 2004). This company, allegedly in deﬁcit, transferred US $4,270.9 million to the state treasury up until its capitalization (Camacho, Teran Flores, and Palacios Vargas 2007:181). This ‘shock therapy’ reduced ﬁscal deﬁcits and inﬂation, but at high social costs. Flexible labor laws were implemented to facilitate the dismissal of employees. In order to minimize losses in mining, some of the state mines were closed in 1986, and their labor force was reduced from 30,000 workers to 7,000 (Klein 2003:245). Unemployment reached 20 percent and underemployment 50 percent (Klein 2003). The legions of unemployed and underemployed migrated into the coca production zone of Chapare, invaded cities, and, particularly, resettled in El Alto, a satellite city of La Paz. El Alto’s population grew noticeably in the 1980s. In 1952 only 11,000 people lived in El Alto, at present 800,000 reside there (Gill 2000).

Sanchez de Lozada’s Plan de Todos (Everyone’s Plan) The governments between 1989 and 1993 continued gradual implementation of the neoliberal agenda, privatizing thirty small state ﬁrms (Kohl and Farthing 2006). Sanchez de Lozada’s administration (1993-1997) completely reconﬁgured Bolivia in spheres such as education, taxation, property rights,

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etc. The most relevant step toward neoliberalism was his Plan de Todos. It encompassed two main impacting laws: The Law of Popular Participation (LPP), designed to decentralize the government, and the Law of Capitalization (LC) to privatize the state enterprises. He also implemented a new law concerning foreign investments in hydrocarbons. Although Neoliberalism advocates for small government and freedom of choice, Sanchez de Lozada used his executive power to impose the neoliberal agenda. Privatization Bolivia entered into a new stage of capitalism, which was characterized by the far-reaching privatization of the strong state sector, inherited from the populist era. The LC nr. 1544 allowed the sale of 50 percent of each state-owned industry to TCs, which were allowed to pledge future payment of their investments instead of paying their full share in cash. The earnings from the government’s share were allocated to a private pension fund called BONOSOL. New oﬃcial posts, the superintendentes, were created to manage the privatization and later to represent the government on the boards of the new ‘capitalized’ companies. However, superintendentes salaries came from the ‘capitalized’ companies managed by TCs. This situation created conﬂict of interest between the state and the TCs, and left the door open to corruption. The foreign bidding companies insisted on owning 51 percent of the shares in order to obtain managerial control of the companies. The LC led to the sale of the main state companies YPFB (gas and oil), ENTEL telecommunications, LAB Bolivian Airlines, ENFE railroads, and ENDE electricity. LAB was sold to a Brazilian company for US $5 million in cash and the pledge to invest US $47 million in the following ﬁve years. At that time, LAB had US $13 million in parts inventory alone in addition to operative capital. The new owners transferred the assets, including some airplanes and replacement parts, to their headquarter in Brazil (Kohl and Farthing 2006; Kohl 2004). The ‘capitalized LAB’ reported losses by 1999, and by 2001, declared bankruptcy. The Brazilian company sold its share to a Bolivian investor, Asbun, who in turn declared bankruptcy as well. The railroad system was sold to a Chilean ﬁrm and the new company stopped service and closed stations in ﬁfty communities that were inaccessible by road, dismantled the railroads, and transferred trains to the company headquarters in Chile (Kohl and Farthing 2006; Kohl 2004; Kohl 2002). Geopolitically, the most important target of privatization was hydrocarbons. Two laws facilitated the transnational control of oil and gas. YPFB was privatized via LC. A new Law of Hydrocarbons (Nr. 1689) established the legal framework to grant concessions for exploration, exploitation, and com-

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mercialization of oil and gas under the name of Compañias de Riesgo Compartido (risk-sharing enterprises). Sanchez de Lozada reduced the government royalties from 50 percent to 18 percent for these agreements with the rationale of fostering exploration. For this purpose the government classiﬁed all oil and gas resources into “already existent” and “new reserves.” New reserves had to be developed through concessions via risk-sharing contracts. All the oil and gas reserves that had been tapped through the eﬀorts of YPFB were considered “new reserves.” This new law utilized the same legal framework that granted concessions for the exploitation of resources during the classical liberal era (1880-1938). Thus, sixty years of nationalist policy in Bolivia was nulliﬁed.2 TCs have preferred to apply for new concessions under the risk-sharing contracts. The new concessions evoked the past frustrating experiences of the liberal era that left Bolivia poor in spite of its vast natural resources. The major buyers of oil and gas resources were: the Brazilian state ﬁrm Petrobras, the Spanish Repsol, and American Amoco (Villegas 2004). Investments in oil and gas production rose from US $169 million to US $2 billion after capitalization with the majority of these investments made in services and imported assets from the company headquarters (Kohl 2004). In general, internal prices for amortization and the transfer of goods and services from the matrix house to their subsidiaries are not submitted to the market mechanism of supply and demand; therefore prices can be manipulated to disguise proﬁts (Bornschier and Chase-Dunn 1985). The TCs reported some proﬁts at the beginning, but later even failed to cover the needs of the privatized pension funds. The pension fund enterprises had to resort to credit in order to make BONOSOL payments. With privatization, the government lost not only its assets, but also its main source of income. Before capitalization, 60 percent of government revenues came from state-owned companies. Gas and oil provided 48 percent of state revenues. The promise of jobs creation failed too. As Kohl (2004) states, the Law of Capitalization led to massive ﬁrings of unionized workers on a large scale. Decentralization: Law 1551 of Popular Participation The law of Popular Participation (LPP) shifted political power from central to local governments. The LPP granted the transfer of 20 percent of the government’s revenues to municipalities, the lowest unit of local political administration. 2 During the ﬁrst nationalist wave in 1938 Standard Oil was nationalized and YPFB founded. The second wave in 1952 nationalized the tin mines, but sacriﬁced oil. Under the conditions of IMF a new oil code was elaborated by an American consulting enterprise, Davenport and Shuster, to allow new concessions to Gulf Oil. This TC was nationalized in 1969.

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Municipalities received revenues on a per capita basis to fund public services in health and education and to support local infrastructure projects. The central government transferred the infrastructure such as roads, bridges, and public real estate related to administration, and public services in education, health, and culture to the municipalities. LPP recognized grassroots organizations such as Indian communities, peasant organizations, and neighborhood associations as legal entities, and their traditional leaders as rightful representatives of their constituencies, thereby encouraging broader political participation. Indian communities are organic grassroots organizations based on collective and traditional rights over land and water resources, guided by the traditional law called “Uses and Customs.” The Indian traditional authorities hold veto power over municipal budgets. The government, recognizing indigenous cultural values, declared Bolivia a multicultural society and implemented bilingual education. Indeed, cultural styles, understood as language, art, kinship, clothing, religion, and rituals, did not contradict wealth accumulation within the country or on a global scale. The LPP was supported by Indian organizations for their own reasons. Since the 70s, peasants have been calling for cultural recognition and autonomy as a form of ethnic aﬃrmation against powerful central governments that they consider to be neocolonialist. Sanchez de Lozada chose Victor Hugo Cardenas as vice-president in an attempt to neutralize the militant peasant movements. Cardenas was one of the leaders of the Indian movement Movimiento Revolucionario Tupa Katari (MRTK). While Sanchez de Lozada was selling the Pachamama (mother earth) to oil companies, Cardenas was performing Indian rituals. The LPP fostered the political participation of the indigenous people by opening up political spaces favorable to indigenous authorities. The LPP became the focus of interest for anthropologists, who recognized the multicultural agenda as a great concession to the ethnic demands of peasants (Yashar 2005; Assies 2003). The LPP wanted to fulﬁll two contradictory goals: on the one side, to grant land rights and autonomy to Indian communities, and on the other, to open resources such as water, gas, lithium, lumber, and oil to international markets. At the same time, Sanchez de Lozada supported the export-oriented cattleranchers (Yashar 2005). The government reversed a decree issued in 1986 that protected the land of the indigenous people in the east by reclassifying 579,000 acres as “a forest in permanent production,” which opened up the land to commercial timber extraction (Yashar 2005:207). The conﬂict between the economic and political spheres became evident during the government of Paz Zamora, who was about to grant land and hydraulic resources to the TC Lithco Inc. in 1990, enabling the exploitation of lithium in the Salar de

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Uyuni. This concession couldn’t be implemented because of the resistance of the Indian community, owners of the land since time immemorial (Regalsky 2003). The change with the most economic impact introduced by the LPP was Article 19, which granted 18 percent of state hydrocarbon royalties to the oil and gas producing departments of the so-called ‘Media Luna’ (half moon): Santa Cruz, Tarija and Chuquisaca. This change encouraged the demands of autonomy by the elites, especially from Santa Cruz.

Social Movements and Resistance Paradoxically in Bolivia, indigenous people mobilized resistance against a neoliberal government, which explicitly recognized the right to cultural diﬀerence. Resistance to the neoliberal state in Bolivia can not be understood in purely economic terms; ethnic and social considerations have to be included in the analysis. Global forces might have shaped directly or indirectly the implementation of the neoliberal agenda in Bolivia, but the outburst of visceral protests can be understood in the context of local structures and cultural traditions. International and national factors have to be seen within their historical context. The negative economic eﬀects of the neoliberal agenda in Bolivia provoked a powerful protest from a broad spectrum of the population. The core forces of the anti-systemic protests came from myriad new lowerclass urban movements and peasant movements that found an outlet in the presidential aspirations of Evo Morales. The repertoire of strategies of resistance included: roadblocks, general strikes (paros civicos), marches, and attacks on government buildings. The protests in Bolivia did not result in food riots as scholars (Walton 2001) reported for the Dominican Republic, Brazil, Argentina, and el Caracazo in Venezuela. The uprisings were mostly spontaneous, yet were collectively well-organized by former unionist and political leaders—“organic intellectuals” to paraphrase Gramsci. The Andean organization of skills based on rotation of authority and rotating services for the community persisted even in the urban environment. Coincidentally, the neoliberal decentralization fostered the emergence of new local powers. Urban Labor Movements The populist revolution in Bolivia in 1952 introduced three irreversible changes in the society: (1) the nationalization of the tin mines to gain control over the economy, (2) land reform to end the feudal system in agriculture, and (3) the implementation of universal suﬀrage to include peasants in the

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electoral system (von der Heydt-Coca 1982). The mining union was one of the strongest unions in Latin America, their power reaching into the co-government of the nationalized mines during the populist era (1952-64). Two representatives of the miners were seated on the board of the nationalized tin mines. The umbrella labor organization, Confederacion Obrera de Bolivia (COB), became an independent and combative organization that championed labor rights for decades. Unionism and leftist parties declined during the military dictatorships (1964-1982), when leaders were jailed, exiled, or executed. With the Stabilization Plan (D.S. 21060) the COB shrank in membership due to the massive dismissal of bureaucrats, teachers, miners, and employees in the health system. As Portes and Hoﬀman (2003) reported for Latin America, through the neoliberal restructurization the informal economy in Bolivia became a place of refuge for displaced formal labor. In the decade of the 90s, neo-populist parties initially ﬁlled the political vacuum left by the defeated unions. Following a common Bolivian pattern, charismatic individuals turned their personal followings into political parties. Compadre Carlos Palenque, a popular radio speaker who transmitted his program in Aymara, founded Condepa (Conciencia de Patria). Palenque had no clear political agenda proposing individual solutions to poverty, but played an important role in the Aymara renascence based on the revaluation of the language. Union Civica Solidaridad (UCS), founded by Max Fernandez, who became a kind of godfather, sponsored all kind of events among poor urban dwellers. Fernandez was especially popular in Santa Cruz. The mayor of Cochabamba, Manfred Reyes Villa, who became popular by beautifying the city, founded Nueva Fuerza Republicana (NFR). Without a coherent economic agenda, these parties entered into the political game, seeking alliances with the traditional parties (Mayorga 2003). Condepa and UCS disappeared with the natural deaths of their founders, leaving the urban poor without a compadre and godfather.3 During the neoliberal restructuring decades, myriad discontented grassroots organizations emerged in the urban centers, especially in El Alto. This twin city of La Paz had recently experienced a population explosion resulting from the immigration of Altiplano peasants and relocated miners. Displaced mine union leaders were able to reorganize the informal labor on the basis of common residency. Federacion de Juntas Vecinales (FEJUVE), the neighborhood associations of El Alto, played a pivotal role in ousting the last two presidents of this period. New social agents such as neighborhood associa3 Compadre, literally the godfather of one’s child, underlined horizontal relationships, however, padrino (godfather), looking from the perspective of the godchild, is also a sponsor or benefactor of all kinds of social events, underlining vertical relationships.

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tions, unions of the unemployed, small vendor unions, civic committees, ad hoc committees such as Coordinadora del Agua in Cochabamba, and the teacher union became militant against globalization. Teachers opposed the neoliberal educational reform, which has threatened their social beneﬁts. Peasant Movements Bolivia still has half of its population in the agricultural sector. Subsistence farmers are the main food providers and constitute the majority of the economically active population. In 1952, political force was added to their demographic weight. By granting land and voting rights to peasants, the populist revolution of 1952 irreversibly transformed the peasantry into a political force that no government could ignore (von der Heydt-Coca 1982). The populist governments (1952-1964) tried to control the peasantry by linking union leaders to the Movimiento Nacionalista Revolutionario (MNR), the populist party, which dominated the political process. However, under the military dictatorships of 1964-1985, peasant unions took an independent path as a class and as a culture. They broke with the Military-Peasant Pact, a social contract established by an initiative of the military regimes in an attempt to neutralize the peasants while they were ﬁghting the left and the militant labor groups. In 1973, the world oil crisis reached Bolivia. Banzer froze the prices for agricultural goods, even as the transport cost for those increased. The violent response of Banzer’s government to the peasant’s protests in 1974, known as La Masacre del Valle, radicalized the peasantry. The peasantry joined the union’s struggle against the military dictatorships using road blockades, marches, and demonstrations as political weapons. The umbrella organization of the peasant unions, the Confederacion Sindical Unica de Trabajadores Campesinos de Bolivia (CSUTCB), under the leadership of Genaro Flores in 1979, became part of the COB, the umbrella labor organization. Most of the time, the CSUTCB was in the hands of Aymara leaders. Between 1979 and 2003, ten of the thirteen leaders were Aymara (García Linera, Chávez León, and Costas Monje 2004:116). During the military dictatorships (1964-1985), peasant organizations became politically active and reﬂective of the question of identity. The Maniﬁesto of Tiawanaku, published in 1973, presented a proposal to reaﬃrm Indian identity, denouncing the economic exploitation and cultural domination of Indian people (Rivera Cusicanqui 1987). Aymara peasants’ activism catalyzed in the Katarista movement. Peasants’ organizations added the suﬃx Katari to their acronyms in tribute to Tupac Katari (“powerful snake” in Aymara), the Indian leader of the biggest anti-colonial rebellion of 1781-82. The Katarista movement split along unionist and culturalist lines. The unionist leaning

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became Indianist when Felipe Quispe, who made cultural claims, assumed the leadership of the CSUTCB in 1998. During the neoliberal era, primarily four peasant movements became active against the neoliberal government: (1) the nationalist Indian movement in La Paz, (2) the peasants of the central valley of Cochabamba, (3) the Amazonian Indians of the eastern low lands, and (4) the coca producers peasants in Cochabamba. The nationalist Indian movement of the Aymara, led by Felipe Quispe, who is called Mallcu (condor), emphasized ethnic over class claims. Mallcu explained the situation of the Indios through internal neo-colonial relationships. This line conceptualized ethnic relationships in contrasting terms of Indio and non-Indio without recognizing the shades of gray, and rejected any collaboration with the western-oriented Q’aras. Mallcu pledged the return to Kollasuyo, the Aymara part of the Inca Empire.4 He founded Movimiento Indigena Pacha Cutec (MIP), the electoral branch of this movement, in 2002. Indian leaders, propelled by powerful constituencies, could sit at the same discussion table with the Q’aras. Hugo Cardenas (Sanchez de Lozada’s vice president) and Ester Balboa, the candidate to the vice-presidency from MIP, failing to resist the temptation of power, or perhaps bedazzled by the neoliberal multiculturalism, accepted oﬃcial posts in the government of Sanchez de Lozada, thereby losing the support of their constituencies. The peasant communities of the central valley in Cochabamba organized themselves in the Federacion Departamental de las Organizacion de Regantes Department Federation of Irrigators’ Organization (FEDECOR) in 1997 to prepare the resistance against the privatization of water. This organization emerged to replace the earlier community-based defense committees. The defense of water resources fostered an autonomous movement that became familiar with and involved in issues related to water legislation through meetings and workshops organized by professionals of the middle sectors (Peredo, Crespo, and Fernandez 2004). Amazonian Indians established the Confederación de los Pueblos Indígenas del Beni (CPIB), to defend their territory from encroachment by ranchers. In 1990, in a spectacular move that shook the entire society, eight hundred Amazonian Indians marched from Beni to La Paz over thirty-four days. The Amazonian Indians demanded justice and oﬃcial title to their ancestral lands to prevent encroachment on their territories by cattle ranchers. On their way, they were joined by peasants of the valleys and Altiplano, students, miners, 4 Kollasuyo was the Bolivian part of the Incan state called Tawantinsuyo, the king built of four parts.

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and religious groups. Two thousand people reached the Capital amid the applause of the people. The Amazonian Indians overcame their anonymity in Bolivian society and became participants at the discussion table. An important political force emerged in resistance against the US-sponsored anti-drug policies in the coca producing region of Chapare, department of Cochabamba. Coca production had increased there due to the massive immigration of peasants with insuﬃcient land from the densely populated highlands and miners displaced by the Stabilization Plan (1985-1989). At the same time, the government enacted an anti-drug law 1008 that criminalized coca production in non-traditional areas. The plan was ethnically biased since it targeted mainly Indian peasants growing coca at the bottom of the commodity chain, while people involved in drug traﬃcking at a higher level of added value remained untouched because of their links to high government oﬃcials (Dunkerley 1990; Bellone 1996; Leons and Sanabria 1997). Banzer (1997-2002) decreed Plan Dignidad establishing zero-tolerance for coca production and the militarization of coca production zones that triggered further confrontation with coca growers. Evo Morales became the indisputable leader of the coca growers, and in 1992 was elected president of six umbrella federations that encompassed 700 grassroot unions of coca producers (García Linera, Chávez León, and Costas Monje 2004). The certiﬁcation imposed by the American government, which made US aid dependent on the eﬀectiveness of the coca eradication, curtailed the income provided by coca production, thus depriving peasants of their livehoods. Coca production beneﬁted not only the peasants, but also the middle sectors, beneﬁciaries of trickle-down eﬀects. While rejecting cocaine production, Morales opposed Plan Dignidad and the militarization of the region by US-trained special troops. He advocated the reduction of coca production and the provision of alternatives crops for peasants. Morales founded the political party Movimiento al Socialismo (MAS) to enter into the electoral game. Through a combination of grassroots organizations’ tactics of road blockades, marches, and electoral strategies of press meetings and conferences he obtained, 19 percent of the vote in the 2002 elections. Morales, recognizing the favorable conjuncture, went beyond his local agenda and supported the water, tax, and gas wars against the transnationalization of resources.

From Indian Peasants to Indian Nation During the 70s a new generation of Aymara intellectuals, familiar with urban culture, but at the same time conscious of its own identity, emerged in the political arena. Thanks to increased access to higher education, the Aymara

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intelligentsia played an important role in the revival of ethnic awareness. They redeﬁned their identity by reinterpreting the meaning of Indianness so that it lost its pejorative connotation and became a positive and deﬁant term of self-assertion. Indianness, as a social condition of oppression, became the cultural reference for all exploited people. Urban Aymaras, confronting discrimination in the cities, developed a reactive identity. Grievances developed during 500 years of subordination became the driving force of their social and political behavior. The most inﬂuential intellectual Reynaga (1989), denounced the continuous domination of Indian people from colonial times to the present. For Reynaga, the neocolonial state and the Q’aras became the unifying enemy. Taller de Historia Andina (THA), a nongovernmental organization founded by the ﬁrst generation of more highly-educated Aymaras, also played a key role in the revival of ethnic awareness (García Linera, Chávez León, and Costas Monje 2004; Stephenson 2002). THA pledged historical revisionism from the point of view of the Indians. Its scholarship was recognized at international conventions. THA created not only an opportunity for reﬂection, but also activism to reconstitute the Ayllu, the basic social Andean organization since time immemorial, based on kinships and collective land ownership. The reactivation of the Ayllu has increased since the 1980s in the wake of the austerity measures introduced by neoliberal reforms (Stephenson 2002:99-118). In fact, in each economic crisis, urban surplus labor can always return to their original communities, their Ayllus, to survive within subsistence economies, independent and insulated from the ups and downs of the global economy. Aymaran migrants never cut their ties to their original communities living and commuting between the rural and the urban worlds (Sandoval, Albo, and Greaves 1987). In 1997, THA encouraged the creation of a new organization: Consejo Nacional de Ayllus y Markas del Qullasuyu (CONAMAQ), which became militant based on cultural demands. The Aymaran organization Ponchos Rojos—in the province of Omasuyos, related to CONAMAQ— became fundamentalist with its slogan “Pachamama or Death,” paraphrasing Che Guevara’s “Victory or Death.” In the cosmo-vision of the Andeans, natural resources, especially land and water, are gifts of the Pachamama, the Mother-Earth. Every member of the Indian community has the right of access to land and water without the intermediation of the state. The collective administration of water resources is traditionally given at the community level, following the “Uses and Customs,” which vary according to the localities. Andeans deﬁne their identity through intricate relationships with their respective communities, which confer identity, as well as existential and economic support. Andeans emphasize

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solidarity and the common good and Indian peasants avoid the ‘tragedy of the commons’ through strong social controls within the communities, a rotational system of authorities, and the search for consensus in the exercise of local power. The LPP, by granting political legitimacy to Indian leaders, encouraged political activity that aﬀected more than cultural concerns. Indigenous people started to demand control over their resources—land, water, and particularly, energy—not just the right to be diﬀerent. Indian cultural styles, in terms of language, clothing, rituals, kinships, and art, are compatible with capitalism based on proﬁt and social diﬀerentiation, however, the Andean core structural culture, in terms of strategies of production and administration of resources, is not. These strategies, based on reciprocity, rotational management, and redistribution, are intended to meet people’s basic needs and make possible the survival of the group as a whole. The peasants’ claim to land evolved into a claim to territoriality (sovereignty over the soil and subsoil of their communities). Peasants re-imagined the Indian nation with a repertoire of sacred symbols (Anderson 2006). The rainbow ﬂag, the whipala, became the visual representation of the Indian community, and is carried in all public manifestations as a symbol of rebellion. The claim to nationhood became complete with the militarization of the Altiplano Ayllus. They established a military barrack of 40,000 foot soldiers in Qalachaka, in 2001. The commanders employed the Andean organizational strategies of the mita-system (service in shifts) for recruitment, and the rotational principle for leadership (García Linera, Chávez León, and Costas Monje 2004). The re-foundation of the state through an “Asamblea Constituyente” became a main claim of the Indian movements.

Globalization and its Discontents Three pivotal events led to the convergence of the peasant and urban movements, which were joined by discontented middle sectors: (1) the water war in 2000, (2) the tax war in February 2003, and (3) the gas war in October 2003. Angry crowds ousted two presidents: Sanchez de Lozada in 2003 and Mesa in 2005. Recognizing the political opportunity, Evo Morales supported the wars, unifying the grassroots movements and the discontented middle sectors behind a nationalist agenda. In 1999, the government of Banzer granted a concession for supplying potable water and sanitation to the city of Cochabamba to Aguas del Tunari, a subsidiary of the US Bechtel Corporation, thus privatizing the state ﬁrm SEMAPA, which had previously administered the water system. The concession

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was granted for forty years and included jurisdiction over the aquifers in the central Valley of Cochabamba that by tradition belonged to the Indian peasant communities. The ownership of water wells constructed with the community’s eﬀorts automatically passed to Aguas del Tunari. Peasants were now expected to pay for the irrigation water that they had been using since ancestral times (Peredo, Crespo, and Fernandez 2004). This would mean the economic ruin of 20,000 peasants (Assies 2003). The peasant federation organized the resistance in the countryside. La Cordinadora por el Agua y la Vida emerged in the city of Cochabamba, organized ad hoc by the union leader Oscar Olivera. After Aguas del Tunari had increased water bills by 200 percent, for the ﬁrst time, the peasant along with urban movements such as neighborhood associations, the Civic Committee of Cochabamba, the umbrella labor union COB, and the Cordinadora por el Agua y la Vida united to unleash a veritable war on the streets of Cochabamba. The war lasted for weeks, paralyzing the economy. Not even a strong military intervention could break the will of the population. Finally Banzer rescinded the contract. During the second term of Sanchez de Lozada, civil society again opposed a new law increasing taxation on already low salaries. The government’s former revenues provided by the exploitation of hydrocarbons weren’t being replaced by the dividends from the new transnationalized enterprises. Looking for other sources of income, the government of Sanchez de Lozada created new taxes that targeted the middle sectors and wage earners. During the tax war in February 2003, even the police forces joined the protest. The army had to take control of the situation, shooting into the crowds of protesters who were vandalizing governmental oﬃces. This repression resulted in injuries and deaths. The third round of protests ousted Sanchez de Lozada in October 2003. Two events aﬀected the nationalist sensitivities of all social sectors. A government report in 2003 revealed that British BP, US Amoco, and Spanish Repsol Bolivian subsidiaries had the lowest exploration and operation costs in the world for natural gas, yet returns from their investments in Bolivia were ten to one (Camacho, Teran Flores, and Palacios Vargas 2007; Hylton, F. and S. Thomson 2004). A plan to grant the marketing of natural gas to Paciﬁc LNG, a consortium that includes Amoco, British Gas, Repsol, Elf, and Exxon, became public. LNG was planning to construct a pipeline to a port in Chile in order to ship liqueﬁed gas from there to California. Even the Armed Forces and Chaco-War Veterans, who fought to keep oil within Bolivian frontiers, protested against the exportation of gas via Chile. This time eighty people were killed. On October 17, 2003 an estimated 500,000 people marched to the presidential palace in La Paz from El Alto and rural areas to join urban protesters asking for the resignation of Sanchez de Lozada. The president escaped to the US and two years later, in June 2005, his vice president Carlos

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Mesa resigned under pressure of from the social movements. The protesters won not only the battles, but the war. The privatization of transport, the railroad system, and the state airline LAB, resulted in the loss of services for the community. The privatization of potable water and sanitation drastically increased the cost of water for peasants and the urban sectors. Low wages in Bolivia, one of the poorest countries in Latin America with 60 percent of its population below the poverty line, don’t allow the payment of the international rates demanded by foreign concessionaries. The neoliberal argument disregards the diﬀerence between the rationale of private enterprise, whose goal is proﬁt, and the rationale of state enterprises oriented to the common good. The goal of state enterprises in poor countries, especially in the service sector—sanitation, water supply—is the satisfaction of basic needs of the population without proﬁt. In contrast with the exploitation of silver and tin in the former era, oil and natural gas, as well as water, not only have a market value in the global economy, but also a value of use for Bolivian citizens. Both resources constitute essential elements of the material reproduction of the population. Non-proﬁt oriented oil prices reduce the cost of transportation. Gas (in canisters) is the main source of energy for urban and rural households. The privatization of the water supply and the poor terms negotiated for the country in the privatization of hydrocarbon were the ultimate catalyst for the eruption of protests. The lack of parliamentarian discussions infuriated people from the middle sectors on down the social ladder. The politics relocated from the parliament to the streets. The privatization and transnationalization of hydrocarbons particularly alienated the middle sectors, inﬂuenced by the long populist period. It was easier to convince the rent-seeking elites of the Media Luna—with Art. 19 of the LPP that privatization was in their longterm interest—than to convince a protesting crowd of peasants and urban dwellers that the massive cuts in social expenditures, unemployment, the increase in water prices, and the privatization of their aquifers were beneﬁcial to them. Diverse grassroots movements became the vanguard of resistance with street blockades, marches, and demonstrations. While lower-class demonstrators put their bodies in front of bullets, the middle sector adopted more the role of a pleased accomplice.

The Turn: Morales Presidency Evo Morales won the election in 2005 with a landslide 54 percent of the votes and a record 85 percent electoral participation. The middle sectors expressed their discontent in that election, giving the additional votes to obtain an

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absolute majority, the ﬁrst time that has happened in recent Bolivian history. The middle sectors gave Morales the beneﬁt of the doubt. In contrast to the populist era, when the middle-class leaders sought support of labor unions and peasants to reach power, this time a peasant leader, Evo Morales, used the support of the discontented middle sectors to reach power. The landslide election of Morales conferred on him legitimacy and national and international recognition. The key demands of the social movements—nationalization of gas, calling for a constituent assembly, and the punishment of government oﬃcials who had used lethal forces against civilian population during the gas war—became part of his presidential agenda. One of the ﬁrst acts of Morales’ government was the negotiation of new contracts with the oil and gas TCs. The new contracts returned the majority of shares to state hands in order to regain state control over management. The Brazilian Petrobrass, Spanish Repsol, American Amoco, and BP and BG from the UK signed new contracts to the disbelief of the elites, who had feared legal battles and the retreat of foreign investors. TCs became operative partners of the Bolivian government without any conﬁscation of their holdings. The decree Nr. 27801 of May 2006 established the conditions for new contracts. According to the new rule, the Bolivian state gas and oil revenues increased from US $300 million in 2005 to US $1.6 billion in 2007 (Camacho, Teran Flores, Palacio Vargas 2007). With increased revenues, Morales could reduce the foreign debt and increase the international reserves. The negotiation of new contracts with the oil TCs was welcomed by all sectors of the population.

Aftermath Despite the initial triumph over the negotiation of new contracts, Morales’ government faced an obstacle course. Morales has confronted two main domestic challenges: the claims of autonomy of the gas-producing departmentos of the so-called ‘Media Luna’ (half moon) Santa Cruz, Tarija and Chuquisaca, and the deepening of an ethnic chasm. Regional Autonomies After a short period of truce, the coalition of elites who supported the neoliberal agenda and the diﬀerent social sectors behind the new president started to fall apart along regional, ethnic, and class lines. Relationships with the wealthy elites and even the middle sectors of the Media Luna have proven to be thorny. The wealthy elites of the Media Luna now want to nullify Morales’ jurisdic-

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tion over them, claiming almost total autonomy from the central government. They have built a united opposition driven by the elites of Santa Cruz and the self-nominated Comites Civicos. Article 19 of the LPP that granted 18 percent of royalties from the production of hydrocarbons to oil and gas producing departmentos served to encourage their demands for an even greater share. Rent-seeking wealthy elites of the east, sitting on oil, gas, and iron resources are eager to transform themselves into the Saudis of Latin America and would like to deal directly with the TCs. Santa Cruz held an illegal “autonomy” referendum on May 4th, 2008 without the approval of the national electoral court. According to their self-implemented autonomy statute, a departmental assembly would have the faculty to grant concessions to TCs for the exploitation of oil, gas, and iron under the legal framework Compañias de Riesgo Compartido (risk-sharing enterprises) established by the LC of Sanchez de Lozada. The possession of vast gas, petroleum, and iron deposits exposes the country to international geopolitical struggles for control over these energy sources, and the elites are hoping for some external help. US-ambassador to Bolivia, Phillip Goldberg, former Chief of Mission in Kosovo, was declared persona non grata and expelled from the country on September 10, 2008, accused of being engaged with the opposition. The redistribution policies of Evo Morales, who intends to implement a land reform, threaten the economic interests of the cash-crop exporters. The agro-export elites of Santa Cruz emerged during the ﬁrst Banzer administration (1971-1978) thanks to massive subsidized loans channeled into the agroexport sector.5 While the loans beneﬁted the landowning elites, the real costs were born by Bolivians in general through the neoliberal restructuring plan of 1985. Even during the deepest economic crisis in Bolivia (1985-89), agricultural loans increased almost tenfold to promote export-oriented agricultural and agro-business. The agro-industry, based on soy production, increased exponentially from 40,000 hectares in 1884 to 700,000 hectares by 2003 (Juguete Rabioso 2006). Soy exports make up 27 percent of total exports (Dros 2004:13). Simon Romero reports that the department of Santa Cruz, for example, produces almost half of Bolivia’s tax revenue, but has only about one-ﬁfth of its population (Romero 2006). Even though social conﬂict is driven by economic interests, the elites of the Media Luna are playing the ethnic card, reminiscent of the elite’s ideology of the nineteenth century—Civilization versus Barbarism.” The elites emphasize diﬀerences between the mostly white cambas of the low lands and the 5

The foreign loans were reassigned domestically in national currency. Reimbursement, due to inﬂation, was almost nulliﬁed.

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dark-skin indigenous collas of the highlands. A destabilization campaign is in action in a way that reminds us of the years before Allende’s fall, with circulation of rumors spread via the Internet, editorials attacks in newspapers, and economic bottlenecks. New Order and Ethnic Chasm The election of the ﬁrst indigenous president awakened great expectations among the subordinated classes, reviving old ethnic grievances among the poor and fears among the wealthy elites. Sanchez de Lozada silently transformed the country based on executive decrees, without reforming the constitution and sometimes in contradiction to the constitution. However, Morales has tended ﬁrst to incorporate changes into a legal framework. He called for the Constituent Assembly to rewrite the constitution. In order to redeem his promises to incorporate the indigenous majority fully into Bolivian life, Morales has appointed Indians as cabinet ministers, some with no formal education and these appointments have fermented controversy. The former Foreign Minister, David Choquehuanca declared publically that reading books is pernicious. Former Minister of Education Felix Patzi suggested banning religion from education, in a country where a majority of the population is religious. Former Minister of Justice, Casimira Rodriguez, leader of the domestic maids’ union, became head of the justice system despite the fact that she had no knowledge of the laws. These nominations alienated the middle sectors even as Indians were elected delegates to the assembly. Middle sectors and elites now perceive the new “Indian power” as a threat to their cultural values. The alleged superiority of western culture has served to cement the subordination of the indigenous people since colonial times. The sessions of the legislative assembly have become a battleﬁeld for old and new ethnic cleavages, complete with verbal attacks, including “indio de mierda” (shitty Indian), on the indigenous representatives. The newly-proposed constitution became a center of discord as it was being debated in order to produce a draft that could achieve ratiﬁcation. It established the thirty-six Indian languages of Bolivia as oﬃcial in addition to Spanish. Indian symbols were declared national symbols, touching the sensitivity of the urban, western-oriented population. The new constitution shows ambiguities and inconsistencies that fail to clearly deﬁne the diﬀerent layers of autonomies, the regulation of which is to be left to future legislation. The question of autonomy for the Media Luna departments and a conﬁrmation of Morales’ presidency were submitted to a referendum in August 2008. Even though he won the referendum with 59 percent of the total votes on a national scale, Morales lost in the main Media Luna departments. The new constitu-

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tion was conﬁrmed by the referendum of January 25, 2009 with 61 percent of the votes for and 39 percent against. As expected, support for the new constitution was highest in the western highlands and Chuquisaca where the rural indigenous people form the majority. The referendum was defeated in the opposition strongholds of Santa Cruz, Beni, Tarija and Pando. The results conﬁrm the ethnic polarization and the demographic weight of the Indian population when it comes to popular direct vote. Besides the legal war, the continuing peasant protests in the cities still trigger violent confrontations with urban people. The urban upper and middle sectors’ fear is exacerbated by the Indian trespassing on established social boundaries. Indios no longer “know their place” in the society. One such conﬂict occurred when peasants protesting against the Governor of Cochabamba, who was supporting the autonomy eﬀorts of the Media Luna, clashed with young people of the upper and middle sectors and ended in the lynching of two upper-class students and two peasants. Several lynchings of delinquents and intruders have been reported in Indian communities in the name of “communal justice”. Ponchos Rojos, a radical Aymara organization, is defending the lynch-justice and impeding investigations ordered by Morales’ government. On the other hand, the opposition is turning to open violence against peasants. An open practice of racism took place on May 24, 2008, in the city of Sucre. Peasants marching to the city in a show of support for Morales were seized and stripped to the waist by an angry crowd, who burned their cultural symbols. This collective demonstration parallels the public humiliation of Jews during Nazi times. The most disturbing outburst of racism took place in the department of Pando, where in September 2008, eighteen peasants were assassinated, apparently on the order of the governor. Radicalized youth organizations have vandalized public property in Santa Cruz and gas and oil ﬁelds in the Media Luna. The Army has occupied the gas ﬁelds, petroleum ﬁelds, and reﬁneries to protect public property.

Conclusions A nationalist agenda disappointed TCs and regional elites as well. Downsizing the state and regional autonomies would facilitate the exploitation of raw materials by TCs without the inconveniences of a powerful central government and parliamentary discussions. The existence of huge natural gas reserves in Bolivia places the country in the middle of geopolitical interest. The hegemonic countries welcome autonomies based on ethnic diﬀerences in developing countries, but they don’t admit separatisms in their own backyard. (There is no responsiveness for the autonomy claims of Basques and Kurds.) Paradoxically,

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the decentralization of the state and fragmentation in the peripheral countries coincides with the centralization of command in core countries and the accumulation of capital in mammoth TCs. After the incident in Pando, international opinion turned against the opposition with the explicit support for Morales’ government oﬀered by the Union of South American Nations (UNASUR) and the change of government in the US. The army, with a tradition of interventions, has been assigned a new role—the defense of national resources. Morales’ government dealt successfully with the TCs, however, Morales can not overcome racism and change interethnic relationships by decree and constitutional regulations. The enemy within could be more eﬀective than the enemies from without. The regional economic conﬂict is being carried out as an ethnic conﬂict, and that ethnic breach seems to have become an abyss. The ancestral racism of the elites and the secular grievances of peasants will not disappear easily. Ethnic confrontation is eroding the government and the new Indian power continues to alienate the middle sectors. History in Latin America has taught that without this support there is no governability. Morales is caught between two ﬁring lines. For the opposition, he is the “Indio bruto”(brute), yet the Ponchos Rojos accused him of compromising with the opposition because he is making concessions to make the new constitution viable. He has left the decision of ratiﬁcation up to the people with a new referendum in January 2009. The claims of autonomy of both sides, the “We” and the “Others,” constitute a serious obstacle to the construction of self-sustaining development to beneﬁt the entire society. An increase of state revenues alone is not a guarantee of development. An integral development is based on interacting factors: a distributive process that addresses inequality, and productive investment that addresses economic increase. These two processes can not be maintained, in the long run, without the support of knowledge, education, and technological development. The solutions to Bolivia’s problems are rooted in the right answers to many questions: What kind of society does the new government want to construct? What would the new referents for a new society be? How could the government operationalize the Andean culture to be included in a new state-nation of the twenty-ﬁrst century? How could the Andean system of “good governance” based on consensus and reciprocity—between state and citizens—be included in a new form of government? The issue is not only about creating more schools in the countryside or including more Indians in formal education, but also about determining how to include Andean knowledge in formal education. Andean knowledge and wisdom that have developed for millennia in response to an intricate environment should inspire the construction of a

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future based on both Andeans’ and borrowed cultural traits. How should the government convert the Andean sacralization of Mother Nature into a modern ecological program of development? How should it deﬁne communal justice? And how would it conciliate with the existent system of justice, inherited from the Napoleonic code? How can the new society succeed if the middle sectors, even leftist supporters of Morales, consider the Andean culture as inferior? There has yet to be a positive formulation of workable solutions to these questions. The new conjuncture created by the election of Morales with the emergence of Indian power requires the reconﬁguration of Bolivian society with some extension of the consensus of the middle sectors. At the international level, the world economic crisis will encourage the detachment of national economies from the global economy and the better control of TCs by host countries, a process already initiated by Morales’ government. However, the world economic crisis will negatively aﬀect the demand for and prices of raw products and, consequently, reduce the revenues the state desperately needs. The outcome of the ethnic confrontation is not clear. The uniﬁcation of the nation is, at this moment, an imperative. The diverse groups in the country have to ﬁnd a common denominator in spite of their cultural diﬀerences. The construction of a common identity and the reduction of inequalities will be a long process. Morales can only establish the fundaments. The diﬀerent social movements and the middle sectors that support Morales’ government have to create discursive spaces to negotiate the diﬀerent points of view, diﬀerent cosmo-visions, to make possible a common destiny. Morales government ﬁnds itself in a crucial situation—it could become a “Pachacutec,” a turning point in history that can initiate a qualitative jump forwards, or his government could become merely the means of a distributive process. Any step in one direction or the other will be decisive for the future of Bolivia.

References Almaraz, A. 2004. Restituyamos los hidrocarburos al patrimonio nacional Revista De Debate Juridico y Social 8, (15): 179-88. Anderson, Benedict. 2006. Imagined communities: Reﬂections on the origin and spread of nationalism. Rev. ed. London; New York: Verso. Assies, Willen. 2003. “David versus Goliath in Cochabamba: Water rights, neoliberalism, and the revival of social protest in Bolivia.” Latin American Perspectives 30, (130): 14-36. Bellone, A. E. 1996. The cocaine commodity chain and development paths in Peru and Bolivia. In Latin America in the World-Economy, eds. R. P. Korzeniewicz, W. Smith. Westport: Greenwood Press. Bornschier, Volker, and Christopher K. Chase-Dunn. 1985. Transnational corporations and underdevelopment. Praeger special studies. New York: Praeger. Camacho, S., E. Teran Flores, and J. C. Palacios Vargas. 2007. Nacionalizacion del siglo XXI. La Paz: Ministerio de Hidrocarburos y Energia, Editorial Multimac.

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Conoaghan, C. 1994. Reconsidering Jeﬀrey Sachs and the Bolivian economic experiment. In Money doctors, foreign debts, and economic reforms in Latin America from the 1980s to the present., ed. P. Drake. Wilmington: Scholarly Resources. Domínguez, Jorge I. 1997. Technopols: Freeing politics and markets in Latin America in the 1990s. University Park: Pennsylvania State University Press. Dros, Jan Maarten. 2004. Managing the soy boom: Two scenarios of soy production and expansion in South America. Amsterdam: AIDEnvironment. Dunkerley, James. 1990. “Political transition and economic stabilization: Bolivia, 1982-1989.” Research papers / University of London, Institute of Latin America n studies. Vol. 22. London: Institute of Latin American Studies, University of London. García Linera, Alvaro, Marxa Chávez León, and Patricia Costas Monje. 2004. Sociología de los movimientos sociales en Bolivia: Estructuras de movilización, repertorios culturales y acción política. 1st ed. La Paz, Bolivia: DIAKONIA, Acción Ecuménica Sueca: OXFAM. Gill, Lesley. 2000. Teetering on the rim: Global restructuring, daily life, and the armed retreat of the Bolivian state. New York: Columbia University Press. Harvey, David. 2005. A brief history of neoliberalism. Oxford; New York: Oxford University Press. Hylton, F. and S. Thomson. 2004. “The roots of rebelion.” Nacla Report on the Americas 38, (3): 15-19. Klein, H. S. 2003. A concise history of Bolivia. Cambridge University Press. Kohl, Benjamin H. 2004. “Privatization Bolivian style: A cautionary tale.” International Journal of Urban and Regional Research 28, (4): 893-908. ——. 2002. “Stabilizing neoliberalism in Bolivia: Popular participation and privatization.” Political Geography 21,: 449-72. Kohl, Benjamin H., and Linda C. Farthing. 2006. Impasse in Bolivia: Neoliberal hegemony and popular resistance. London; New York: Zed Books. Leons, B., and H. Sanabria. 1997. Coca, cocaine, and the Bolivian reality. New York: SUNY Press. Mayorga, Fernando. 2003. Avatares: Ensayos sobre política y sociedad en Bolivia. Bolivia: CESUUMSS. Peredo, C., C. Crespo, and O. Fernandez. 2004. Los regantes de Cochabamba en la guerra del agua. Cochabamba: Centro de Estudios Superiores Universitarias, Universidad Mayor de San Simon. Portes, A. 1997. “Neoliberalism and the sociology of development: Emerging trends and unanticipateed facts.” Population and Development Review 23, (2): 229-59. Portes, A., and K. Hoﬀman. 2003. “Latin America n class structures: Their composition and change during the neoliberal era.” Latin American Research Review 38, (1): 41-82. Regalsky, P. 2003. Etnicidad y clase: El estado Boliviano y las estrategias andinas de manejo de su espacio. La Paz: Plural Editores. Reynaga Burgoa, Ramiro. 1989. Tawa-inti-suyu: Cinco siglos de guerra Kheswaymara contra España. 1a Peruana ed. Lima-Peru: CISA, Consejo Indio de Sud América. Rivera Cusicanqui, Silvia. 1987. Oppressed but not defeated: Peasant struggles among the Aymara and Qhechwa in Bolivia, 1900-1980. Report. Vol. 85.1. Geneva: United Nations Research Institute for Social Development. Robinson, William I. 2004. A theory of global capitalism: Production, class, and state in a transnational world. Themes in global social change. Baltimore: Johns Hopkins University Press. ——. 2003. Transnational conﬂicts: Central America, social change and globalization. London; New York: Verso. Romero, S. 2006. “In Bolivia’s aﬄuent east, anger at Morales is growing.” The New York Times, December 26, 2006.

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Sanchez de Lozada, G. 2003. “The best course for Bolivia.” Washington Post, November, 13, 2003. Sandoval, G., X. Albo, and T. Greaves. 1987. Chukiyawu, la cara aymara de La Paz: Nuevos lazos con el campo. Vol. 4. La Paz: CIPCA. Stephenson, Marcia. 2002. “Forging an indigenous counterpublic sphere: The taller de historia oral Andina in Bolivia.” Latin American Research Review 37, (2): 99-118. Villegas, Carlos. 2004. “La industria petrolera en Bolivia: Su situacion actual y perspectivas.” Revista De Debate Juridico y Social 8, (15): 179-88. von der Heydt-Coca, M. 2005. “Andean silver and the rise of the western world.” Critical Sociology 31, (4): 481. ——. 1999. “When worlds collide: The incorporation of the Andean world into the emerging world-economy in the colonial period.” Dialectical Anthropology 24, (1): 1-43. ——. 1982. Die Bolivianische Revolution von 1952. Köln: Pahl-Rugenstein. Walton, J. 2001. Debt, protest and the state in Latin America . In Power and popular protest: Latin America n social movements., ed. S. Eckstein, 229-328 University of California Press. Yashar, Deborah J. 2005. Contesting citizenship in Latin America: The rise of indigenous movements and the postliberal challenge. Cambridge studies in contentious politics. Cambridge; New York: Cambridge University Press. El Juguete Rabioso, Marzo 5, 2006, La Paz.

Documents Our Brand is Crisis. Documentary ﬁlm directed by Rachel Boynton, James Carville, Jeremy D. Rosner, Tal Silberstein and 0 Koch, Port Washington, NY: Koch Lorber Films, 2006. Ley de Participacion Popular No. 1551 U.P.S. Editorial, La Paz, 2005. Ley de Modiﬁcacion de la ley de Agua Potable y Alcantarillado Sanitario, UPS Editorial, La Paz, 2000.

European Markets as Challenges or Opportunities for Mexican SMEs’ Internationalization: A Critical Analysis of Globalization Lorena Ruiz Garcia Doctoral student SPRU, University of Sussex, UK

Abstract This study contributes to the understanding of the eﬀects of globalization on the internationalization of SMEs from developing countries, trading with developed countries. It is based on a case study of BANCOMEXT (the Mexican Trade Commission) in Europe. The ﬁndings show that the opportunities that the players have in the market place is dependent on economic development and growth and although Mexican SMEs have some opportunities and advantages for their operations in European markets, the ﬁndings mainly highlight the internal and external problems Mexican SMEs need to overcome in order to succeed and take advantage of economic integration. Keywords Small and medium-sized enterprises (SMEs), Mexican Trade Council, free trade agreements, BANCOMEXT

Introduction When talking about globalization and ﬁrms’ internationalization it is evident that the internationalization of large multinationals is well documented (Melin 1992; Subramaniam, et al 1998; Daniels et al 2002; Tayeb 2003 and Sim and Rajendran Pandian 2003). Moreover, for some authors (Levitt 1983) the positive eﬀect of globalization and market integration on the internationalization of large multinationals is unquestionable. However, studies regarding the impact of globalization on the internationalization of Small and Mediumsized Enterprises (SMEs) from emerging economies, such as Mexico, targeting developed and distant markets is a new ﬁeld of study. It is worth mentioning that the studies based on the Latin American experience mainly pay attention to the internationalization into neighboring countries (Milesi et al 2007; Dominguez and Brenes 1997; Gomez 1997 and Alvarez 2004).

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For these reasons, this research addresses the problems and opportunities faced by Mexican SMEs in European markets. It engages with the issue of whether or not it is viable for Mexican SMEs to enter and succeed in European markets, considering the globalized system, since it is not certain whether in general the processes of globalization have contributed to their increased internationalization and performance in distant markets. The discussion presented is based on the ﬁndings of empirical research conducted within the Mexican Trade Council in Europe commissioned for promoting the internationalization of Mexican SMEs in foreign markets, and of attracting foreign investment to Mexico. The arguments, discussions and conclusions are supported and contrasted with the information published by the Mexican Government, the Economic Commission for Latin America and the Caribbean (ECLAC), the Inter-American Development Bank (IDB), the Organization for Economic Cooperation and Development (OECD), and the academic literature on the topics addressed in this research. In particular, the research conducted for this chapter suggests that, despite Mexico’s economic liberalization and the network of Free Trade Agreements (FTAs) all over the world, Mexican SMEs have few opportunities for internationalising in markets as distant and developed as the European Union. There are few Mexican SMEs participating in the European markets and they focus primarily on the food industry, textiles, and handicrafts, and only a small proportion of them participate in the automotive, electronic and aero-space sectors. Altogether they throw into question the impact of globalization and the liberalization of the Mexican economy on the performance of Mexican SMEs. Furthermore, the internationalization of Mexican SMEs in European markets may represent a diﬃcult step for Mexican SMEs, since additional issues need to be considered when targeting markets from developed countries that are also distant from the Mexican markets both culturally and physically. Thus, issues such as the physical and psychic distance,1 the perception of developing products in developed markets, and the competitiveness of Mexican SMEs become more relevant. This research aims at understanding, describing and challenging what is currently happening in the internationalization of Mexican SMEs in the EU. Globalization and the internationalization of Mexican SMEs are analyzed through considering the economic and political-economic contexts, in order to discover if the globalization process has favored or aﬀected the Mexican 1 “Psychic distance” includes aspects of language, culture, customs, and industrial development (Johanson and Vahlne 1990; Chetty and Campbell-Hunt 2004).

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SMEs’ internationalization into the EU. The questions addressed in this research are: (a) What is the current status of Mexican SMEs in international markets? (b) Is it possible for Mexican SMEs to enter and succeed in European markets? (c) Has globalization created beneﬁts for Mexican SMEs in European markets? (d) What problems are Mexican SMEs facing in seeking to enter these markets? and (e) What is the role of BANCOMEXT in addressing the internationalization of Mexican SMEs? BANCOMEXT is the Mexican government’s development bank in charge of promoting and ﬁnancing foreign trade,2 which has a vital role in the internationalization of Mexican SMEs. Among the services oﬀered by BANCOMEXT are ﬁnancial and export promotion services, training, consulting, technical assistance, support for participating in international fairs and detection and contact with potential customers.3 Finally, regarding the originality of this research, it can be noted that a) According to some authors there are few studies based on the experience of Latin American SMEs (Carrillo-Rivera 2007); b) The ﬁndings and conclusion from studies comparing diﬀerent Latin American SMEs’ performance (CarrilloRivera 2007; Dominguez and Brenes 1997; Gomez 1997; Alvarez 2004; Milesi et al 2007) cannot be applied to the Mexican experience because although there are commonalities between these countries, diﬀerences in internal and external factors aﬀect diﬀerently the performance of each country’s SMEs (Carrillo-Rivera 2007); c) Academic research on Mexican SMEs targeting European markets is absent.

Globalization The Relationship between Globalization and Growth Since issues relating to international trade, trade liberalization and international agreements have become more important in recent decades, it could be said that globalization is a phenomenon that has recently acquired more force, and its outcomes are diﬀuse. This section pays attention to the relation between globalization and growth to shed light on the impact of globalization. The empirical evidence on globalization and economic growth shows that outwardly-oriented economies have had faster economic growth and development than inwardly-oriented economies (Edwards 1993). The supporters of 2

See http://www.mexico-trade.com/NEWSITE/UK/BRITI_CO.htm (August 18th 2008). BANCOMEXT annual report 2005, www.bancomext.com/Bancomext/Publicasecciones/ 7304/Annual Report Bancomext 2005.pdf (20/05/2007). 3

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globalization claim that the advantages of trade liberalization and globalization include: the promotion of competitiveness, the eﬃcient allocation of resources, and the greater opportunity for consumers to participate in more and larger markets around the world (Bernard and Jensen 2004).However, it is imperative to be aware that globalization refers not only to the growth of transnational politics, the integration of the world economy, and a subsequent blending of cultures around the world (Scholte 2005; Beck et al 2003), but also that globalization can produce both positive and negative outcomes. (Punnett and Shenkar 2004; Thomas-Slayter 2003; Beck 2000). For some, for example Sala-I-Martin (2002), globalization increases inequality between nations, emphasising the gaps between rich and poor countries and the outcomes depend on the stage of economic growth and development of the countries that participate in it; for this reason some countries are becoming integrated into the global economy more quickly than others. Globalization of Markets The economic dimension of globalization means that borders are disappearing, the earth is no longer big and wide; on the contrary, it is dense and small with markets linked to one another by economic relations and telecommunications (Scholte 2005; Beck 2000; Beck et al 2003). Moreover, liberals and neoliberals envision the global marketplace as a natural path of social progression that entails expanding wealth and increasing freedom, liberty and social harmony on a global level (Scholte 2005; Bhagwati 2000). Additionally, because of globalization, the cultural interchange and the mobility of people across countries have brought new ‘market opportunities’ since local cultures are ﬂourishing in cosmopolitan countries (Beck 2000; Scholte 2005; Friedman 2006), giving rise to ‘niches’ or ‘mini-markets’ that nowadays have been successfully exploited (Beck 2000). However, the globalization process is more complex and includes other dimensions. With regard to the actors in globalization, the dominant players of globalization and promoters of the expansion of markets are the ‘transnational corporations’ (TNCs), which play a key role in shaping the economies and societies all over the world due to their unprecedented economic and political power (Rugman 2000). For TNCs the expansion of markets across countries is essential, since they pursue the capture of new markets, not only because “the more countries the greater the proﬁts” but also because entering new markets is seen as a means of surviving competition, and for that reason more regions around the world have been integrated into the capitalist system (Beck 2000; Aulakh et al 2000).

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But when talking about developing countries in the global system the story is diﬀerent since only a small number of their ﬁrms have international operations and the characteristics of the exported products are diﬀerent from those of developed countries. This is because in developing countries the exports are mainly made up of raw materials, low added-value products, and products that do not imply the use of high technology (Aulakh et al 2000).

Trade Liberalization of the Mexican Economy Because this research pays attention to emerging economies, globalization and its impact on the internationalization of SMEs, the Mexican economy was chosen as the object of analysis because of its rapid integration into the global system. Since the 1980s the economy opened to international markets (Hoshino 1996) and as a consequence of the economic liberalization and joining the NAFTA the results have been mixed (Moreno-Brid et al 2005). Analyzing Mexican international trade, the transformation and results due to trade liberalization have been particularly notable in terms of export diversiﬁcation (Carrillo- Rivera 2007) and FDI attraction. The FDI inﬂows have increased and helped to trigger an export boom in manufacturing that helped Mexico’s insertion in the world economy (Moreno-Brid et al 2005), and today Mexico is considered as one of the most internationalized and open economies in the world.4 Nowadays, Mexican exports occupy seventh position in the world and ﬁrst position in Latin America.5 Despite Mexico having diﬀerent trade agreements around the world, Mexican trade is highly concentrated within the North American bloc, speciﬁcally with the US as a consequence of the North America Free Trade Agreement (NAFTA), and 87 percent of Mexican exports are to the North American market. Mexican ﬁrms have mainly internationalized to the neighboring countries; internationalization into other markets is occurring at a slow pace and only a small proportion of the exports are to the rest of the world (see Appendix, Figure 1 and Table 1). Regarding the composition of Mexican exports after the trade liberalization in the 1980s, Mexico went from being essentially an oil-exporting country to becoming a major export platform for manufactured goods to the US, including vehicles, auto parts, ready-made clothing and electronic products. 4 The Mexican Ministry of the Economy-Mexico at: http://www.economia.gob.mx/ ?P=2113 (accessed March 21st 2008). 5 See http://www.economia.gob.mx/pics/p/p2758/Comextglo0405.pdf (18/06/07).

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However, the place in the global economy of most of Mexico’s manufacturing sector, and indeed its whole economy, is based on low wages and maquiladoras;6 but at the same time, it has not yet successfully entered the international market through high value-added processes and products. Moreover, one worrying aspect of Mexico’s boom in exports of manufactured goods is its rapidlyincreasing reliance on imported intermediate goods and raw materials. This reﬂects a rupture of backward linkages and explains why the impact of manufactured exports on domestic value added has been rather limited and why value added by the manufacturing sector in Mexico has barely expanded. This makes it imperative that new policies are created that promote technological innovation in manufacturing and which favor linkages with local suppliers (Moreno-Brid et al 2005). Lastly, it is worth mentioning that Mexican diplomats have expressed uncertainty about the real eﬀects of globalization on Mexican international trade and its impact on Mexican economic growth and development. This is since Silva-Herzog7 (the Mexican Ambassador to the US) pointed out the evidence that the developed countries who are signiﬁcant exporters have shown their great ability for participating in international trade. Nevertheless, there are many doubts about the contributions of international trade to economic growth and development in emerging countries such as Mexico.

The EU as a Market The European markets are of interest for this study because the Mexican economy signed a Free Trade Agreement with the European Union in 2000 that was supposed to beneﬁt the internationalization of Mexican ﬁrms and attract 6 Maquiladora is a Mexican Corporation that operates under a maquila program approved for it by the Mexican Secretariat of Commerce and Industrial Development (SECOFI). A maquila program entitles the company to foreign investment participation in the capital—and in management—of up to 100 percent without need of any special authorization; and to special customs treatment, allowing duty-free temporary import of machinery, equipment, parts and materials, and administrative equipment such as computers, and communications devices, subject only to posting a bond guaranteeing that such goods will not remain in Mexico permanently. Ordinarily, all of a maquiladora’s products are exported, either directly, or indirectly, through sale to another maquiladora or exporter. The type of production may be the simple assembly of temporarily-imported parts; the manufacture from start to ﬁnish of a product using materials from various countries, including Mexico; or any conceivable combination of the various phases involved in manufacturing, or even non-industrial operations. (Source: BANCOMEXT at: http://www.bancomext-mtl.com/invest/vox128.htm). 7 Silva-Herzog, J. (1997). “El debate de la Apertura Comercial en las Economías en Desarrollo y Desarrolladas de Cara al Siglo XXI”, Transición Económica y Comercio Exterior.

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FDI to Mexico. Additionally the Mexican government promotes among Mexican ﬁrms the European markets as high income and large in scale, oﬀering many opportunities for Mexican ﬁrms.8 When talking about the EU, it is worth considering that although the literature points out that the most important incentives to internationalization are generated by global markets and global competition (Levitt 1983), the cultural, legal and economic diﬀerences between countries contribute to the complexity of foreign-market development and altogether make the international expansion more complex (Hutchinson and Quinn 2006). In this regard it may be noted that though the EU as a market oﬀers a great opportunity because of its market size, its 27 member states are socially, politically and culturally diﬀerent, each with its own language; currently the EU recognises 23 oﬃcial languages that are used for business.9 This may cause some diﬃculties for Mexican SMEs interested in operating in these markets. Furthermore, overseas ﬁrms interested in entering and performing in the EU should also be aware that in international trade operations, the EU has been criticized for practices such as the interruption of trade and the political use of aid. These are instruments used for protecting its markets and speciﬁc industries (Bretherton and Vogler 2006), which may aﬀect their performance in the EU. Additionally it is worth reiterating that in developed countries, products from developing countries are perceived as being often of low quality and low price (Al-Sulaiti and Baker 1998; Aulakh et al 2000). Therefore, these issues are considered in this research for searching for the challenges and opportunities that Mexican SMEs may have in European markets, given the absence of studies based on empirical evidence from Mexico.

SMEs: Economic Importance, Deﬁnition, Problems and their Participation in International Markets Studies of SMEs are important because for both developed and developing countries, SMEs make an important contribution to economic growth. According to the European Commission, European small ﬁrms play a relevant role when compared to other countries’ SMEs because of their contribution to the generation of employment, entrepreneurial dynamism and innovation. In

8 See http://www.bancomext.com/Bancomext/aplicaciones/directivos/documentos/EstrategiaEuropa-MOD.pdf (Accessed August 20th 2008). 9 The European Union available at http://europa.eu/languages/en/home, accessed March 26th 2008.

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the EU, medium-sized ﬁrms generate employment for at least 6 people.10 Similarly, according to the OECD in developing and transition countries in which SMEs play an important role, they constitute a major source of employment and generate signiﬁcant revenues and export earnings.11 Regarding the Mexican SMEs’ economic contribution, the micro enterprises and SMEs represent 95.7 percent and 4 percent respectively of the universe of Mexican ﬁrms and contribute 49 percent and 30 percent of the employment generation, and together they contribute 63 percent of the GDP (see Appendix, Table 3). The deﬁnition of SMEs most widely used is based on the number of employees. Nevertheless, it is useful to compare Mexican SMEs with SMEs from other countries, since although they could be similar in the number of employees the diﬀerences could be in the value of their operations and their internal infrastructure, which could explain the diﬀerences in the performance between Mexican SMEs and SMEs from other countries in international arenas. Table 4 (see Appendix) shows the deﬁnition of Mexican SMEs by the number of employees, which is similar to the European SME deﬁnition. European SMEs are ﬁrms made up of 10 to 250 employees with annual turnover between $13.4 million and $67.28 million;12 similarly Mexican SMEs are enterprises made up of 11 to 250 employees but with annual sales from $500,000 to $48 million, this comprising Mexican SMEs from the manufacturing and commercial sectors.13 However, in countries such as China, the small ﬁrms average 15 employees and the medium-sized ﬁrms average 893 employees.14

Problems with Internationalization for Mexican SMEs Mexican SMEs, like other developing countries’ SMEs, are characterized by: managerial and ﬁnancial constraints,15 low production capacity and limited 10 See http://www.economia.gob.mx/pics/p/p2760/cipi_1IReporte_PoliEmpresa_Europa (2004). pdf (Accessed August 20, 2008). 11 Promoting SMEs for Development: The Enabling Environment and Trade and Investment Capacity Building: http://www.oecd.org/dataoecd/6/7/31919278.pdf (Accessed August 20, 2008). 12 Commission of the European Communities: http://ec.europa.eu/enterprise/enterprise_ policy/sme_deﬁnition/decision_sme_en.pdf (Accessed February 7, 2007) 13 Ministry of the Economy-Mexico: http://www.economia.gob.mx/pics/p/p2760/ESTU DIOPYMESCIPI.pdf ( June 28, 2007). 14 Development Bank of Japan: http://www.dbj.go.jp/english/IC/service/seminar/dataﬁle/ china.pdf (May 31, 2007). 15 According to Cruz et al (2004), SMEs frequently do not have the required organizational structure to succeed in the exporting activities.

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experience in international markets (Soto and Dolan 2003; George et al 2005). Moreover, a study published by the Inter-American Development Bank (IDB) identiﬁed the biggest problems faced by Latin American SMEs as their size and small production capacity, which is also usually linked to the ﬁrms’ size.16 According to ITO (1997) the SMEs’ biggest disadvantage in relation to larger competitors is the ﬁnancial constraint. In this regard, according to the IDB, the lack of ﬁnancial resources among the Latin American SMEs explains the low productivity, low rate of innovation and the lag of technological advance.17 It is worth mentioning that according to the OECD (2004) developing countries’ SMEs diﬀer from developed countries’ SMEs in being particularly constrained by weak human and institutional capacities, and they are slow to reap the full range of beneﬁts of globalization.18 Mexican SMEs, like other Latin-American SMEs, need to increase their competitiveness to take advantage of the globalization process because nowadays not only does the competitiveness of SMEs and large ﬁrms diﬀer to a great extent, but also the diﬀerence between SMEs from Latin American countries and SMEs from developed countries is high (Llisterri and Angelelli, 2002). In this regard, the provision of infrastructure, power and telecommunications play an important role in the internationalization of SMEs since they could considerably reduce the cost of going global (ITO, 1997). Along these lines, logistics in Latin America is seen as the toughest business barrier due to the ineﬃcient and almost nonexistent infrastructure system: there are few modern highways, airports or maritime services and the seaports are ineﬃcient. For these reasons, the transportation costs are high, negatively aﬀecting the competitiveness of the exporting ﬁrms, which makes Latin American exporters more vulnerable to international competition (Gómez 1997). Literature on the internationalization of the SMEs (Buckley 1997; Reynolds 1997; Acs and Lee 1997; Acs et al 1997) highlights the beneﬁts of the SMEs’ participation in international trade such as market expansion, acquisition of new technologies, rapid growth, etc. Additionally some authors (e.g. 16) Enterprise Development Strategy: SMEs by the IDB http://www.iadb.org/Publications/ search.cfm?language=English&searchLang=E&keywords=smes+and+international+markets& title=&author=&topics=&countries=&resCategory=&fromYear=&toYear=&x=0&y=0 (Accessed August 21, 2008). 17 IDB: Upgrading to Compete: Global Value Chains, Clusters and SMEs in Latin America, http://www.iadb.org/publications/search.cfm?language=English&searchLang=E&keywords=sm es+challenges&title=&author=&topics=&countries=&resCategory=&fromYear=&toYear=&x= 0&y=0 (Accessed August 21, 2008). 18 Promoting SMEs for Development: The Enabling Environment and Trade and Investment Capacity Building: http://www.oecd.org/dataoecd/6/7/31919278.pdf (Accessed August 20, 2008).

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Acs and Lee 1997) state that SMEs which expand abroad are more proﬁtable than those that do not because as they operate internationally, they quickly attain a size that qualiﬁes them as large ﬁrms. Moreover, evidence from exporting, marketing, international business and entrepreneurship literatures demonstrates that small ﬁrms are active players in the international arena. A successful exporter does not have to be a big exporter to be a dominant player because small ﬁrms have the ability to ﬁnd markets where there are no rivals. Therefore, SMEs may survive as ‘small players’ thanks to their ability to combine technological advances and managerial skills to create their own markets (Kohn 1997). Regarding the link between the Mexican trade liberalization and the internationalization of Mexican SMEs, in general the Mexican government has been disseminating the idea that the ample network of free-trade agreements that Mexico has signed all over the world (see Appendix Table 2) oﬀers SMEs the opportunity to internationalize and to take advantage of opportunities such as the diversiﬁcation and expansion of markets, the enhancement of production and reduction of costs, and access to new technologies.19 Nevertheless, the empirical literature shows that trade liberalization has not translated into more favorable conditions for Mexican SMEs (Haar et al 2004). Due to the trade liberalization, in Mexico there exists a dual structure in the manufacturing sector. On the one hand, there are vast numbers of medium and small ﬁrms struggling to survive the intensiﬁed pressure from their external competitors and on the other hand, a few very large ﬁrms whose links with trans-national corporations (TNCs) and access to foreign capital have helped them to become important players in export markets (MorenoBrid et al 2005). It is worth mentioning that in Mexico trade liberalization and the shift in industrial policies had a particularly signiﬁcant impact on the manufacturing sector. Intensiﬁed competitive pressure in the domestic market meant that local ﬁrms had to modernize and reorient their sales towards exports in order to survive. To show what is currently happening in the area of international trade in Mexico, Table 5 (see Appendix) compares Mexico with the most important Latin American economies. It shows that when comparing the Brazilian, Argentinean, Chilean and Mexican ﬁrms, the Mexicans have the lowest proportion in the use of technology licensed from foreign companies, training, the use of the web to communicate with clients and suppliers, and exporting ﬁrms (only 2.9 percent). With regard to the latter, based on the analysis of information published by the 19

Ministry of Economy-Mexico at http://www.economia.gob.mx/?P=2264 (May 11, 2007).

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Mexican Ministry of the Economy, it is worth noting that only a small proportion of Mexican SMEs (less than 2 percent) have exporting operations, and the value of their annual operations is less than 5 million dollars.20 Lastly, the claims of the Mexican government on the positive eﬀects of trade liberalization could be also questioned when considering the characteristics of Mexican SMEs, the kind of products that Mexican SMEs commercialize, the global environment in which they are operating, the characteristics of the markets they are pursuing—in this case the European markets.

Case Study on the Mexican SMEs’ Internationalization Based on the Mexican Foreign Trade Commission Oﬃces in Europe This research is based on a case study on BANCOMEXT Oﬃces in Europe: London, Paris, Madrid, Frankfurt, The Hague and Milan. Speciﬁcally a case study is used since its contribution to social science research is broadly known (Eisenhardt 1989) and it is also appropriate for researching topics where there is little information available.21 The data collection in this research relies on semi-structured interviews. The interviews were undertaken with the personnel of BANCOMEXT-Europe holding diﬀerent positions such as Commercial Counsellor and Financial Representative, Commercial Counsellor Assistant and Commercial Assistants. The interviews were based on an agenda of 34 open-ended questions which dealt with topics of globalization, Mexican SMEs’ internationalization, European markets and the role of BANCOMEXT. Case Study Findings The ﬁndings substantiate that Mexico has mainly internationalized into the neighboring countries, speciﬁcally to the North American market and especially the US (87 percent of the Mexican exports are to the US.).22 In this regard, an interviewee (CAF) stated: “Mexican SMEs with export activities are 20 Representation of the Mexican Ministry of Economy in Montevideo- Uruguay: http:// www.economia-montevideo.gob.mx/Promocion/PyMES%202002.PPT: “A study about the participation of Mexican SMEs in International trade” (Accessed August 19th 2008). 21 Regarding the availability of information, thought the Mexican Ministry of Economy provides some general information about Mexican SMEs; there are no speciﬁc statistics about SMEs: The SMEs’ exports are included on the total Mexican exports. Thus, the collection of information regarding Mexican SMEs’ performance in international markets is diﬃcult. Another researcher, Rivera (2007) who has studied Mexican SMEs also faced problems of scarce sources of information. 22 See Appendix, Table 1.

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targeting mainly the North American market: The US and Canada because of the NAFTA. In Germany an interviewee (CCG) stated: “Because the American markets is closer and represent lower costs for Mexican SMEs, the American market attracts more Mexican SMEs than European markets”. This agrees with Gomez (2007) who found that Mexican, along with other Latin American ﬁrms, have mainly internationalized into their neighboring countries, and who also states that for this reason it is more appropriate to talk about internationalization rather than globalization (Pp. 225-254). The Mexican experience also shows that when talking about the internationalization of the ﬁrms, an appropriate deﬁnition would be “the process of penetrating foreign markets at a slow and cautious pace”,23 since according to BANCOMEXT-Europe and Figure 1 (in the Appendix), the participation of Mexican SMEs in Europe, though very small, has slightly increased over time. Exporting is the main entry mode when targeting distant markets such as the EU where intermediaries/importers play an important role, because the SMEs’ ﬁnancial constraints do not help them to set up representation abroad or to internationalize through another way. As CCG (Frankfurt) stated: “Mexican SMEs enter the markets that I am commissioned to oversee through exporting through intermediaries. This does not mean we are not interested in establishing alliances and joint-ventures but these imply the use of more economic resources and long-term negotiations”. This agrees with Knight and Liesch (2002) and Johnson and Arunthanes (1995), who found that SMEs mainly internationalize through exporting due to the minimal business risks and the low resource commitment. According to the interviewees there is a small participation of Mexican SMEs in EU markets. Acs et al (1997) point out that in general SMEs have limited operations abroad due to the existence of entry barriers, which could be natural such as ﬁnancial market imperfections, or diﬀerences in legal systems, culture and languages. Altogether these make international business ventures risky for SMEs. Regarding performance CCAS (Madrid) stated: “The participation of Mexican SMEs in European markets is not very representative, it is sporadic and for short periods of time because in the long term Mexican products are not competitive”. There is not an image of Mexico as a business and enterprise option. As CCL (London) stated, “The perception of Mexico as a country in the U.K. is as a tourist destination, a country of friendly and warm people, a peaceful country, and the Mexican icons are: mariachi, tequila and Corona beers, but 23 According to Rugman (1980), internationalisation is the process of penetrating foreign markets at a slow and cautious pace.

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there is no perception of Mexico as a country of business and enterprise, there is no perception of the industrial side of Mexico.” BANCOMEXT-Europe believes in alliances as a solution to increase the entry and performance of Mexican SMEs in Europe. This could be a feasible solution since Hutchinson and Quinn (2006) found that SMEs in international arenas have overcome some weaknesses. These include deﬁcits in terms of managerial, ﬁnancial, operational, informational and learning resources, through alliances to overcome the competitive international environment. However because currently there are not many alliances between European ﬁrms and Mexican SMEs for targeting the EU24 this belief cannot be proved. Note that though BANCOMEXT-Europe has matched European ﬁrms with Mexican SMEs for establishing alliances, the latter aim at targeting the American market since Mexico is geographically favoured by its proximity to the US. Psychic Distance and Adaptations The interviewees pointed out that languages and diﬀerences in culture act as obstacles for targeting the European markets since each European market demands speciﬁc adaptations, as they have diﬀerent customs and languages. As CAF (Paris) stated “Language is another important factor that aﬀects the internationalization of Mexican SMEs into the EU.” In this regard another interviewee (CAFF) stated: “it is diﬀerent exporting to the US than exporting to the EU, because in Europe the products need to be adapted to each market”. It is worth mentioning that in markets where considerable heterogeneity and cultural diﬀerences are present as in the EU, companies make more product adaptations which represent a challenge for either large enterprises or SMEs. A study based on large ﬁrms targeting multi-lingual and multicultural markets showed that because of diﬀerences in languages and culture, multinational ﬁrms invested more time and money in an eﬀort towards internationalization, which moderates the economic revenues (Nakata and Sivakumar 1997). This shows that Mexican SMEs, which by nature are ﬁnancially weak, may face more problems in adapting their products and performing in the markets of the EU than large ﬁrms. In the speciﬁc cases of Spain and the US, the problems of psychic distance were reduced because of the cultural and linguistic similarities between Spain and Mexico, while for the US the psychic distance has been reduced by the 24 From the six BANCOMEXT Oﬃces in Europe, only the Director of BANCOMEXTMilan stated that there are few alliances between European and Mexican SMEs for targeting theEU .

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large number of Mexicans and Hispanics living in the US, which has in turn favored the entry and performance of Mexican SMEs. As CAG (Frankfurt) stated “The natural market for Mexican ﬁrms is the American market because of the large Hispanic population in the US” Similarly CCAS (Madrid) stated “The reduced number of Mexican SMEs that have entered the Spanish market is because Mexico and Spain share the same language; and sometimes the Mexican entrepreneurs have Spanish relatives who help and support them to enter and perform in the Spanish market”. Mexican Sectors There are some Mexican-favored sectors such as the automotive and electronic sectors. As CAF (Paris) stated “There are few exporting Mexican medium ﬁrms in the auto-part, metal-mechanic, electronic, aero-spatial and aeronautical sectors whose products can be classiﬁed as high added value products which have been favoured by European ﬁrms established in Mexico with whom the SMEs have established commercial relations”. However, the great number of Mexican SMEs exporting to the EU are concentrated in traditional sectors of low technological processes, whose products could be classiﬁed between low and medium added-value products. In this regard CAF (Paris) pointed out “Most Mexican SMEs in the French market are focused on the traditional sectors such as handicrafts, leather, the shoe industry, textile and fresh produce which could be classiﬁed as medium added value products but they are mainly focused on the fresh food”. Among them can be mentioned the lack of innovations, adaptations, certiﬁcations, technological advances and ﬁnancial restriction. CAF (Paris) stated “The exports of processed food to Europe is almost insigniﬁcant because Mexican SMEs lack certiﬁcations, or they do not have the technological advances or the innovations need to enter the European markets”. Similarly an interviewee in Germany (CAG) stated: “Among Mexican industry and the SMEs there exists little investment in R&D which makes it diﬃcult for Mexican SMEs to compete in international markets”. Regarding the SMEs’ ﬁnancial constraints CCAF (Paris) stated “Some examples of successful companies in the French market are Corona the brewer, Bimbo and Herdez which are large companies able to invest a large amount of money for promoting their products in France; however, Mexican SMEs do not have the ﬁnancial capability to cover those expenses”. The ﬁndings suggest that it can be considered as an obstacle for the ﬁrms’ internationalization since the interviewees provided various examples of large foreign ﬁrms that have the economic power, managerial capabilities and production required to target and perform successfully in international markets.

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However, less than 2 percent25 of the universe of Mexican SMEs participates in international trade, and this proportion is even smaller when talking about exports to Europe, which represent only 5 percent of the total Mexican exports (see Appendix Table 1). Moreover, it could be said that there is a relation between the ﬁrms’ sizes and their economic constraints, since according to the interviewees Mexican SMEs are typically ﬁnancially weak entities which usually lack the production capacity for supplying the European market; this usually forces them to end the negotiations with European ﬁrms. In this regard CCAS (Madrid) stated: “Mexican ﬁrms interested in entering the European markets need to be a medium to large ﬁrms because the micro and small ﬁrms do not have the production needed to supply the European demand. When the ﬁrms are small they have a sporadic participation in the European markets because if a client asks them a large volume they can not supply it which ends the commercial relation”. Similarly, a study published by the OECD on successful exporting SMEs from Argentina, Chile and Colombia also found that among the successful exporting SMEs that company size is a variable that has an inﬂuence on the production and sustainable foreign presence.26 It is worth recalling that in Mexico 95.7 percent of the ﬁrms are micro-enterprises,27 thus there is only a small number of ﬁrms that could fulﬁl the ﬁnancial, productive and managerial requirements needed for the ﬁrms’ internationalization. Among the interviewees, the eﬀect of the ﬁerce competition on Mexican SMEs is not clear. On the one hand, CCF (Paris) stated: “Overall, the competition is only beneﬁcial”. However, CAL1 (London) stated: “A negative implication of globalization is the huge competition”. Similarly CCAS (Madrid) stated: “I consider a negative implication of globalization is the huge competition, the competition has increased and Mexican SMEs have had either to reduce their prices or to go out of the market”. The interviewees highlighted the Mexican business culture as a factor aﬀecting the ﬁrms’ internationalization because Mexican ﬁrms are not used to working in networks and establishing alliances; moreover, they have shortterm strategies and are not used to reinvesting the proﬁts. Regarding the former CCG (Frankfurt) stated: “Businessmen in Mexico are not used to 25 The representation of the Mexican Ministry of the Economy, in Montevideo: www.economiamontevideo.gob.mx/Promocion/PyMES%202002.PPT (accessed August 17th2008). 26 OECD (2007). Developing Competitive Advantages: Successful Export SMEs in Argentina, Chile and Colombia: http://www.cepal.org/publicaciones/xml/1/31921/MilesiMooriRobert Yogel.pdf (Accessed August 21st 2008). 27 See Appendix Table 3.

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associating even though there are chambers and associations, they do not work as cooperatives”. Regarding this, a researcher on the formation and development of SMEs in Brazil and Mexico (Carrillo-Rivera 2007:150) found that Mexican entrepreneurs tend to be signiﬁcantly more individualistic than Brazilian, which is deﬁnitively a cultural dimension to this.”28 It could be said that the Mexican government has played a passive role because the great diﬃculties that Mexican SMEs face for their internationalization are the lack of infrastructure and appropriate logistics, which together have had a negative impact on the ﬁrms’ competitiveness because the high costs of transport and the time taken for the Mexican products to arrive in European markets is usually longer than the time taken by other Latin American countries (like Colombia and Brazil).29 Thus, ineﬃcient infrastructure and logistics have taken many Mexican ﬁrms out of the market. In this regard Moreno-Brid et al (2005) in a study of Mexico’s economic growth, exports and industrial performance after NAFTA, state that what is needed is a new wave of public investment to extend and improve the basic infrastructure. The ﬁndings also show that considerations of the economic development of the players in globalization are important, e.g. the Mexican SMEs’ performance in the EU has been negatively inﬂuenced by problems of an inappropriate infrastructure for their internationalization, high cost of transport, inappropriate logistics, lack of credit and expensive sources of credit, lack of technological advances. As CCL (London) stated “When we compare Mexican ﬁrms with British ﬁrms it is obvious that the Mexican labour is not as skilled as the British labor, the U.K. has important technological development that can not be compared with the Mexican one, the British ﬁrms can access lower rates of credit than Mexican ﬁrms do. It is obvious that the economic development of Mexico aﬀects the productivity and performance of Mexican ﬁrms. For these reasons it is important to consider the country from which the SMEs belong as I explained, the Mexican SMEs are at a signiﬁcant disadvantage when compared with either large ﬁrms or SMEs from developed countries”. The most important factors identiﬁed were the lack of credits and the way in which international markets are organized and work, where Mexican SMEs are powerless identities. With regard to the lack of credits for Mexican ﬁrms and among them the SMEs, Moreno-Brid et al (2005) stated although 28 According to Carrillo-Rivera (2007:150) though there are some studies that identiﬁed Mexico as a collectivist culture such as Hofstede (1980), it did not include the dimension of a national entrepreneurship culture. 29 According to the interviewees countries such as Brazil and Colombia have taken speciﬁc actions in the area of infrastructure and logistics to support their ﬁrms’ internationalisation into Europe.

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ﬁnancial liberalization of the Mexican economy led to a serious restructuring of Mexico’s banking sector, domestic credit for productive activities and for investment has been severely rationed for the last ten years. Between 1996 and 2005, banking credits to productive activities shrank by more than 15 percent as a proportion of GDP. Certiﬁcations and standards that Mexican SMEs need to fulﬁl in order to enter the European markets act as non-trade barriers since their processes are very time-consuming and costly. Thus, they represent a diﬃculty for Mexican SMEs’ entry into the EU. As CCL (London) stated “The problem with Mexican products is that on average Mexican SMEs interested in entering the U.K. do not have the certiﬁcations required and the main problem is that the whole process of getting certiﬁcation is costly and time consuming; I consider the non-tariﬀ barriers which take the form of new regulations and changes in standards and restrictions which have increased while the tariﬀ barriers have decreased”. Moreover, the subsidies and supports that European ﬁrms receive from the EU represent a disadvantage for Mexican SMEs’ competitiveness and performance because these give the European products an advantage over Mexican SMEs. As CAL1 (London) stated: “It is worth highlighting that the European ﬁrms have received lots of subsidies and supports from their governments and it represents a disadvantage for the internationalization of Mexican SMEs because Mexican ﬁrms mainly operate with their own economic resources, when Mexican SMEs receive support it is only for their promotional activities. Thus the fact that European ﬁrms are receiving important governmental support represents a disadvantage for Mexican SMEs’ in terms of competition”. The ﬁndings show that the Mexican Foreign Trade Commission and the Mexican Ministry of the Economy are promoters and supporters of neoliberal ideology: they believe in free markets and competition, consider the trade agreements as an advantage for SME internationalization and regard the liberalization of the Mexican economy as a source of economic growth. Many of the interviewees did not recognise the negative implications of globalization and just some of them recognised asymmetries of the proﬁt distribution due to globalization e.g. CCF (Paris) stated “There are no negative implications of globalization”. However, CCH (The Hague) has a critical perspective on globalization, he stated “I consider there are more negative aspects of globalization than positive aspects; it is worth recalling that globalization is a phenomenon that has its origins in the developed world, in industrialized countries and Mexico has been a receptor of globalization and when Mexico integrated to the globalized process its SMEs were not prepared enough for

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this globalization. My concern is about the speed at which globalization has taken place where SMEs have not reacted immediately”.

Conclusions This chapter shows that the globalization process continues to favor the developed world since the majority of large ﬁrms that dominate the international markets come mainly from there (Rugman 2000). They have the economic power and the managerial capabilities for internationalizing while Mexico has become a main recipient of FDI. Additionally, it was shown as well that the Mexican SMEs’ internationalization in Europe is a process of stages. And only a small proportion of Mexican SMEs participate in international trade (less than 2 percent),30 speciﬁcally in the EU. The latter indicates that Mexican SMEs are not active players in international markets; rather they are passive players who have faced many diﬃculties and challenges. These ﬁndings disagree with Kohn (1997), who considers small ﬁrms as active international players. Another implication from the ﬁndings is that Mexican SMEs should be aware of the positiveness (size and purchasing power of the market) and challenges they may face in their internationalization into the European markets. Regarding the challenges the ﬁndings show that external factors, such as nontariﬀ trade barriers, the EU supports and subsidies for EU ﬁrms, and the ﬁerce competition, plus weaknesses of the Mexican ﬁrms may explain the Mexican low participation in European markets. Additionally the EU is a multicultural and heterogeneous market made up of diﬀerent countries, thus SMEs should consider the diﬃculties they may expect when targeting heterogeneous markets such as: plenty of adaptation, language diﬀerences and lots of information about these markets. Furthermore, diﬀerences in the economic growth between the EU and Mexico have also implications for the Mexican performance in the EU. For increasing the participation and performance of Mexican SMEs in European markets, more actions such as strengthening the Mexican productive sector and solving problems such an inappropriate infrastructure, high transport costs, inappropriate logistics, expensive sources of credit and lack of credit are important, and it is not just networks of trade agreements that are needed. Moreover, the current performance of Mexican SMEs in European 30 Representation of the Mexican Ministry of Economy in Montevideo-Uruguay: http:// www.economia-montevideo.gob.mx/Promocion/PyMES%202002.PPT: “A study about the participation of Mexican SMEs in International trade” (Accessed August 19th 2008).

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markets may improve if the Mexican government takes some actions to set the appropriate business environment where Mexican ﬁrms can perform and grow. However, the latter could be one of the greatest challenges confronting the ﬁrms, since the Mexican economy is deeply immersed in a globalizing process which mainly favors the largest companies and the developed economies. Thus the preceding ﬁndings shed light on the debate about the losers and winners from international trade. Whilst FDI is being attracted to Mexico, primarily from the US, Mexican ﬁrms remain slow to internationalize, particularly to the EU. Although the trend in participation of Mexican SMEs has slowly increased, the participation of SMEs in EU markets is small, sporadic and volatile. For this reason the ﬁndings indicate that the impact of globalization on the ﬁrms’ internationalization is linked to the stage of economic growth and development of the participant countries; and that the global trend and trade liberalization of the Mexicanca SMEs has scarcely impacted on the internationalization of Mexican SMEs to distant developed markets like the EU. References Acs, Z. and Lee, P. 1997. “Small and Medium-sized Enterprises, Technology and Globalization: Introduction to a Special Issue on Small and Medium-sized Enterprises in the Global Economy.” Small Business Economics. 9: 1-6. Acs, Z. et al. 1997. “The Internationalization of Small and Medium-sized Enterprises: A Policy Perspective.” Small Business Economics. 9: 7-20. Al-Sulaiti, K. and Baker, M. 1998. “Country of Origin Eﬀects: A Literature Review.” Marketing Intelligence and Planning. 16(3): 150-199. Alvarez, R. 2004. “Sources of Export Success in Small and Medium-sized Enterprises: The Impact of Public Programs.” International Business Review. 13: 383-400. Aulakh, P. et al. 2000. “Export Strategies and Performance of Firms from Emerging Economies: Evidence from Brazil, Chile and Mexico.” Academy of Management Journal. 43(3): 342-361. Bernard, A.B. and Jensen J.B. 2004. “Exporting and Productivity in the USA.” Oxford Review of Economic Policy. 20(3): 343-357. Bhagwati, J. 2000. “Globalization: A Moral Imperative.” UNESCO Courier (September), 19-20. Beck, U. et al. 2003. Global America?: The Cultural Consequences of Globalization. Liverpool: Liverpool University Press. Beck, U. 2000. What is Globalization? Cambridge: Polity. Bretherton, C. and Vogler, J. 2006. The European Union as a Global Actor. 2nd edition, Abingdon: Routledge. Bryman, A. and Bell, E. 2007. Business Research Methods. 2nd Edition, Oxford: University Press. Buckley, P. 1997. “International Technology Transfers by Small and Medium-sized Enterprises.” Small Business Economics. 9: 67-78. Carrillo-Rivera, J. 2007. “An Ex-post Comparative Analysis of SME Formation in Brazil and Mexico: Towards a Research Agenda.” International Journal of Emerging Markets. 2:22, 144-165. Chetty, S. and Campbell-Hunt, C. 2004. “A Strategic Approach to Internationalization: A Traditional vs. A Born-Global Approach.” Journal of International Marketing. 12(1): 57-81.

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Cruz, M. et al. 2004. “Policies for Supporting SMEs and Ethnic and Nostalgic Markets: Some Conclusions and Political Propositions.” Economic Commission for Latin America in Mexico 17: 37-64. [In Spanish] Daniels, J. et al. 2002. Globalization and Business. Upper Saddle River, N.J.: Prentice Hall. Dominguez, L. and Brenes, E. 1997. “The Internationalization of Latin American Enterprises and Market Liberalization in the Americas.” Journal of Business Research. 38, 3-16. Edwards, S. 1993. “Openness, Trade Liberalisation, and Growth in Developing Countries.” Journal of Economic Literature. Eisenhardt, K. 1989. “Building Theories from Case Study Research.” Academy of Management Review. 14(4): 532-550. Friedman, T. 2006. The World is Flat: The Globalized World in the Twenty-First Century. Harmondsworth UK: Penguin Books. George, G. et al. 2005. “Ownership and the Internationalization of Small Firms.” Journal of Management. 31(2): 210-233. Gomez, H. 1997. “The Globalization of Business in Latin America.” The International Executive. 39(2): 225-254. Haar et al. 2004. “Efectos del TLCAN en la Competitividad de la Pequeña Empresa en México.” Comercio Exterior. 54:6. In Carrillo-Rivera, J. (2007). “An Ex-post Comparative Analysis of SME Formation in Brazil and Mexico: Towards a Research Agenda”, International Journal of Emerging Markets, 2:22, 144-165. Hirst, P. 1999. “Has Globalization Killed Social Democracy?” The Political Quarterly. 70(4): 84-96. Hoshino, T. 1996. “Privatization of Mexico’s Public Enterprises and The Restructuring of the Private Sector.” The Developing Economies. XXXIV-1. Hofstede, G. 1980. “Culture’s Consequences: International Diﬀerences in Work-Related Values.” Sage, Beverly Hills, CA. In Carrillo-Rivera, J. (2007). “An Ex-post Comparative Analysis of SME Formation in Brazil and Mexico: Towards a Research Agenda.” International Journal of Emerging Markets, 2:22, 144-165. Hutchinson, K. and Quinn, B. 2006. “SMEs Retailer Internationalization: Case Study Evidence from British Retailers.” International Marketing Review. 23(1): 25-53. ITO. 1997. “The SME and the Global Market Place: An Analysis of Competitiveness Constraints.” International Trade Organization/World Trade Organization. Johnson, J. and Arunthanes, W. 1995. “Ideal and Actual Product Adaptation in US Exporting Firms: Market-Related Determinants and Impact on Performance.” International Marketing Review. 12(3): 31. Johanson, J. and Vahlne, J. 1990. “The Mechanism of Internationalization.” International Marketing Review. 7(4): 11-24. Kay, J. 2004. Culture and Prosperity: The Truth About Markets-Why Some Nations are Rich but Most Remain Poor. England: Penguin Books. Kleinknecht, A. and Wengel, J. 1998. “The Myth of Economic Globalization.” Cambridge Journal of Economics. 22: 637-647. Knight, G. and Liesch, P. 2002. “Information Internalisation in Internationalising the Firm.” Journal of Business Research. 55: 981-995. Kohn, T. 1997. “Small Firms as International Players.” Small Business Economics 9: 45-51. Llisterri, J. and Angelelli, P. 2002. “Guide for Competitiveness Programs for SMEs.” Inter-American Development Bank: Sustainable Development Department Best Practices Series. MSM-117. [In Spanish] Levitt, T. 1983. “The Globalization of Markets.” Harvard Business Review. 61(May-June): 92-102. Melin, L. 1992. “Internationalization as a Strategy Process.” Strategic Management Journal. 13, 99-118.

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Milesi et al. 2007. “Three-Country Comparative Study: Identifying factors for Successful Export Development by SMEs:Argentina, Chile y Colombia.” CEPAL Review. 92 [In Spanish]. Moreno- Brid, J. et al. 2005. “Mexico Economic Growth, Exports and Industrial performance afterN AFTA.” ECLAC Review. United Nations Publications. Nakata, C. and Sivakumar, K. 1997. ”Emerging Market Conditions and Their Impact on ﬁrst Mover Advantage: An integrative Review.” International Marketing Review. 14:6, 461-485. Pollard, D. and Jemicz, M. 2006. “The Internationalization of Czech SMEs: Some Issues Relating to Marketing Knowledge Deﬁciencies.” International Journal of Entrepreneurship and Small Business. 3(3/4): 400-416. Punnett, B.J. and Shenkar, O. 2004. Handbook for International Management Research. 2nd Edition, Ann Arbor: University of Michigan Press. Reynolds, P. 1997. “New and Small Firms in Expanding Markets.” Small Business Economics. 9: 79-84. Rugman, A.M. 2000. The End of Globalization: A New Radical Analysis of Globalization and What it Means for Business. London: Random House. Sala-i-Martin, J. 2002. “The Disturbing ‘Rise’ of Global Income Inequality.” NBER Working Paper, No. W8904, April. Scholte, A. 2005. Globalization a Critical Introduction. Basingstoke: Palgrave Macmillan. Silva-Herzog, J. 1997. “El debate de la Apertura Comercial en las Economías en Desarrollo y Desarrolladas de Cara al Siglo XXI.” Transición Económica y Comercio Exterior. Sim, A.B. and Rajendran Pandian, J. 2003. “Emerging Asian MNEs and Their Internationalization Strategies-Case Study Evidence on Taiwanese and Singaporean Firms.” Asia Paciﬁc Journal of Management. 20, 27-50. Soto, E. and Dolan, S. 2003. SMEs in the XXI Century: The New Global Markets. Mexico: Thomson. [In Spanish] Subramaniam et al. 1998. “Global New Product Development Processes: Preliminary Findings and Research Propositions.” Journal of Management Studies. 35:6. Stiglitz, J. 2002. Globalization and its Discontents. England: Penguin Books Stiglitz, J. and Charlton, A. 2005. Fair Trade For All: How Trade Can Promote Development. Oxford: University Press. Tayeb, M. 2003. International Management, Theories and Practices. Prentice Hall, Chapters 5-8, 130-220. Thomas-Slayter, B.P. (2003). Southern Exposure: International Development and the Global South in the Twenty-First Century. Bloomﬁeld, CT: Kumarian Press. Wengel, J. and Kleinknecht, A. 1998. “The Myth of Economic Globalization.” Cambridge Journal of Economics. 22(5): 637-647.

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Appendix Table 1 Total Mexican Exports Distribution 2006 Total Mexican Exports

230304.9 million dollars = 100%

North America ALADI (Latin American Integration Association) Central America The EU European Free Trade Association East Asian NICs (New Industrialised Countries) Japan China

87.12% 2.48% 1.01% 5.35% 0.64% 0.82% 0.31% 0.20%

Source: The information in this table was collated by the author with information published by the Mexican Ministry of the Economy at: http://www.economia-snci. gob.mx/sphp_pages/estadisticas/cuad_resumen/expmx_e.h (Accessed 09/02/2007).

Table 2 Mexico’s Network of FTAs Free Trade Agreement

Relevant Information

1992-Mexico-Chile FTA

This was Mexico’s first FTA; in 1999, the original agreement was complemented with additional topics including trade in services, government procurement, dispute settlement procedures and intellectual property. As a result of the FTA total trade between Mexico and Chile increased twelve-fold from 1991 to 2005.

1994-NAFTA between Mexico, the US and Canada

Since it came into force in 1994, the North American Free Trade Agreement (NAFTA) has been a key instrument in increasing trilateral trade. Between 1994 and 2005 total trade between the three countries grew by 128%. Today the North American region is one of the most dynamic and integrated economic areas in the world.

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Table 2 (cont.) Free Trade Agreement

Relevant Information

1995-G3 FTA between Mexico, Venezuela and Colombia

This FTA has helped to build stronger ties between Mexico and South America. Trilateral trade has increased by 271% since 1994, which helped Mexico to strengthen its position in those markets.

1995-Mexico-Costa Rica FTA

This was Mexico’s first FTA with a Central American country, as a result of the FTA total trade between 1994 and 2005 multiplied by ten.

1995-Mexico-Bolivia FTA

This has helped to increase Mexico’s presence in the Andean market, as a result of this FTA total trade between Mexico and Bolivia increased by 130% from 1995 to 2005.

1998-Mexico Nicaragua FTA

Immediately this agreement came into force, Mexico’s total exports to Nicaragua increased which entered duty-free. Similarly Nicaragua’s exports to Mexico increased and they entered duty-free.

2000-Mexico-EU FTA

This treaty created the first free trade area between Europe and the American continent. This FTA offers increased opportunities for Mexican and European enterprises to create links, through the establishment of strategic alliances and the promotion of investments.

2000-Mexico-Israel FTA

This FTA has helped to increase Mexico’s presence in the Israeli market

2001-Mexico-European Free Trade Association FTA

The Mexico- EFTA treaty signed with Norway, Iceland, Switzerland and Liechtenstein was negotiated on the basis of the Mexico-EU FTA. This FTA makes Mexico the only country in Latin America to have concluded free trade agreements with the vast majority of the world’s highest-income countries.

2001-Mexico-Triangulo del Norte FTA between Mexico, El Salvador, Guatemala and Honduras

This treaty has helped to increase Mexican exports to Central America.

2004-Mexico-Uruguay FTA

This FTA has helped to increase Mexico’s presence in the Mercosur market.

2005-Mexico-Japan EPA

Mexico and Japan are complementary partners. Mexico and Japan have succeeded in concluding a mutually satisfactory balanced and high standard agreement. Since the EPA came into force, the bilateral trade has increased by 21.5%.

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Table 2 (cont.) Free Trade Agreement

Relevant Information Important Multilateral Forums in which Mexico Participates

The World Trade Organization Mexico has played and will continue to play an (WTO) important role in the Doha Development Round. Asia Pacific Economic Cooperation (APEC)

One of APEC’s main goals is to contribute to the development of the region, as ell as to support a free international trade system.

Latin American Integration Association (ALADI)

Mexico has been member of this regional organization since 1980. Mexico has been active in promoting closer commercial integration within the region, through the negotiation of partial scope trade agreements with other members.

Free Trade Area of the Americas (FTAA)

This regional forum aims to unite the economies of the Western Hemisphere into a single free trade area. It brings together 34 countries and seeks to create a balanced, comprehensive and fair free trade agreement, based on the rules and principles of the WTO.

The OECD

The OECD provides a forum for analysis and co-operation. It was created with the aim of expanding production, increasing jobs and promoting economic harmonisation with a particular emphasis on helping developing countries. Mexico joined the OECD in 1994.

Source: The information in this table was collated by the author with information published by The Mexican Ministry of the Economy-Mexico at: http://www.economia.gob.mx/?P=2113 (accessed March 21st 2008).

Table 3 The Economic Contribution of Mexican SMEs Proportion of the ﬁrms

Employment Creation

Contribution to GDP

Micro Firms

95.7%

49%

20%

Small Firms

3.1%

15%

22%

Medium Firms

0.9%

15%

21%

Large Firms

0.3%

21%

38%

Firm Size

Source: The information in this table was collated by the author with information published at: www.secoﬁ-siem.gob.mx/portalsiem/ (08/02/2007).

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Table 4 Firm Size by Number of Employees The European Community

Number of Employees

Micro Enterprise Small Medium Mexico Micro Enterprise Small Medium

fewer than 10 10-49 50-249 Number of Employees fewer than 10 11-50 51-250

The information in this table was collated by the author with information published by the Mexican Enterprises Information System at: www.siem.gob.mx/ portalsiem (Feb 7th/2007), and the Commission of the European Communities at: http://ec.europa.eu/enterprise/enterprise_policy/sme_deﬁnition/decision_sme_ en.pdf (August 19th, 2008).

Table 5 Comparison of Trade, Innovation and Work Force in Latin American Countries Including Mexico Latin American All countries Region

Argentina

Chile

Brazil

Mexico

% of Exporter Firms

43.66

13.92

30.81

02.99

20.83

25.95

% of Firms that Use Material Inputs and\or Supplies of Foreign Origin

77.04

75.11

44.17

24.41

64.94

57.61

% of Firms that Trade Identifying Customs and Trade Regulations as a Major Constraint

19.62

06.06

42.34

00.44

17.12

17.95

Trade

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Table 5 (cont.) Argentina

Chile

Brazil

Mexico

Latin American All countries Region

Innovation and Technology % of Firms with ISO Certification Ownership

26.87

21.97

19.14

20.27

14.51

13.76

% of Firms Using Technology Licensed from Foreign companies

16.40

12.25

07.50

06.37

12.63

11.75

% of Firms using the Web to Communicate with Clients\ suppliers

71.78

61.18

73.14

28.16

41.58

39.57

% of Firms Offering Formal Training

52.15

46.89

67.05

24.61

43.96

39.00

Average Number of Temporary Workers

13.52

20.76

04.00

02.05

10.67

25.46

Average Number of Permanent, Full-time Workers

91.72

91.49

104.82

27.91

48.76

87.77

% of Firms Identifying Labour Regulations as a Major Constraint

45.43

19.87

56.87

3.37

18.01

12.80

Work Force

Source: The information in this table was collated by the author with information published at: http://www.enterprisesurveys.org, (Accessed May, 2008).

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Figure 1 Total Mexican Exports 1993-2006 Total Mexican Exports 250000

Million Dollars

200000 150000 100000 50000 0

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 JanNov 2006 Years

North America ALADI (Latin America Integration Association) Central America The EU.

European Free trade Association East Asian NICs (New Industrialised Countries) Japan

This ﬁgure was elaborated by the author with information published by the Mexican Ministry of Economy: http://www.economia-snci.gob.mx/sphp_pages/estadisticas/cuad_resumen/expmx_ e.h (Accessed on 09/02/2007).

Intellectual Property Rights: The West, India and China John W. Sutherlin PhD, Professor of political science Co-Director, Social Science Research Laboratory University of Louisiana, Monroe, USA www.ulm.edu/ssrl

Abstract Intellectual property rights (IPR) have increasingly been an issue as increased globalization has caused trading states to reconsider their eﬀorts to protect inventions and then license those inventions to other states through their respective multinational corporations. Since China and India have been on the forefront of recent economic advances, states like the US, and international organizations, like the World Intellectual Property Organization (WIPO), have had to analyze their existing regulations on IPR. Here, the author looks a how the US and WIPO developed its present IPR regime and what the likely responses will be from China and India. Keywords intellectual property rights, globalization, China, India, World Intellectual Property Organization, World Trade Organization, patent, trademarks, intellectual piracy

Overview Many assume that the United States, because it has been the most visible, has been at the forefront on developing and protecting intellectual property rights (IPR) due to such Lockean language being stated within the Constitution. In Article I, Section 8, clause 7, the Constitution articulates that Congress shall have the power to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries. This charge was taken up by Thomas Jeﬀerson as Secretary of State and ultimately evolved into the complex web of patent, copyright and trademark system we have in place today. Today, the United States Patent and Trademark Oﬃce (USPTO) is a federal agency under the Department of Commerce. However, the modern period of protecting intellectual property really began with the institutionalization of a

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process for stimulating and diﬀusing innovation by the authorities in 1474 in Venice. In many ways, these edicts “contained all the main features of contemporary patent law” (Ryan 1998). When such laws were extended to other states in Europe, they interpreted these Venetian regulations from diﬀerent perspectives. Many felt that open and free trade was threatened by the monopolies generated by such privileges, often handed out by royal decree (Drahos and Braithwaite 2002). But, the codiﬁcation of laws is one thing, while actually inventing something is another. In an interview with the Economist (November 7, 2007), Simon Cox aﬃrms that many developing states were innovation leaders a few centuries ago. “Clocking-making was clearly an endeavour lead by China and India.” In fact, many such common products and practices were developed long before a system of patent laws was promulgated. From paper to matches to toothbrushes, the West owes a great deal to ancient cultures. So, if the West did not invent so many of the things modern society takes for granted, then how did it acquire such? Strangely enough, it stole, borrowed or improved upon inventions from other countries (Mokyr 1990). And, it even stole from one another. In the nineteenth century, the US ‘imported’ steam engine technology from Britain, despite prohibitions on such (Sell 2003). Industrial espionage and literary theft was common throughout the 1900s. With regard to the latter, the US was hardly and enthusiastic supporter of IPR. While much of Europe had a progressive copyright policy toward other states, the US ﬂagrantly violated literary rights. Victor Hugo and Charles Dickens were among those appealing to the US to become a party to the Berne Convention for the Protection of Literary and Artistic Works of 1886.

The WIPO Regime According to the World Intellectual Property Organization (WIPO), their origins spring from 1883, when Johannes Brahms was composing his third Symphony, Robert Louis Stevenson was writing Treasure Island, and John and Emily Roebling were completing construction of New York’s Brooklyn Bridge. The need for international protection of intellectual property became evident when foreign exhibitors refused to attend the International Exhibition of Inventions in Vienna in 1873 because they were afraid their ideas would be stolen and exploited commercially in other countries. The year 1883 marked the birth of the Paris Convention for the Protection of Industrial Property, the ﬁrst major international treaty designed to help the people of one country obtain protection in other countries for their intellec-

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tual creations in the form of industrial property rights, known as: inventions (patents), trademarks and industrial designs (WIPO). As found in BitLaw (2008), a web source for technology and patent law, Article 1: Establishment of the Union; Scope of Industrial Property, of the Paris Convention states in section 2: The protection of industrial property has as its object patents, utility models, industrial designs, trademarks, service marks, trade names, indications of source or appellations of origin, and the repression of unfair competition.

The Paris Convention entered into force in 1884 with fourteen (14) member States, which set up an International Bureau to carry out administrative tasks, such as organizing meetings of the member States. In 1886, copyright entered the international arena with the Berne Convention for the Protection of Literary and Artistic Works. The aim of this Convention was to help nationals of its member States obtain international protection of their right to control, and receive payment for, the use of their creative works such as novels, short stories, poems, plays; songs, operas, musicals, sonatas; and drawings, paintings, sculptures, architectural works. Speciﬁcally, the Berne Convention for the Protection of Literary and Artistic Works, in Article 2, Section 1 protection was granted toward: The expression “literary and artistic works” shall include every production in the literary, scientiﬁc and artistic domain, whatever may be the mode or form of its expression, such as books, pamphlets and other writings; lectures, addresses, sermons and other works of the same nature; dramatic or dramatico-musical works; choreographic works and entertainments in dumb show; musical compositions with or without words; cinematographic works to which are assimilated works expressed by a process analogous to cinematography; works of drawing, painting, architecture, sculpture, engraving and lithography; photographic works to which are assimilated works expressed by a process analogous to photography; works of applied art; illustrations, maps, plans, sketches and three-dimensional works relative to geography, topography, architecture or science.

It was not until almost one-hundred years later that the US signed this agreement. To be fair, the US had signed the Convention Establishing the World Intellectual Property Organization (WIPO) in 1967 and ratiﬁed it in 1970. The wording of Berne and WIPO was almost identical. Still, the US chose to become a party to this regime when it beneﬁted them and not as a matter of principle. Like the Paris Convention, the Berne Convention set up an International Bureau to carry out administrative tasks. In 1893, these two small bureaux united to form an international organization called the United International

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Bureaux for the Protection of Intellectual Property (best known by its French acronym BIRPI). Based in Berne, Switzerland, with a staﬀ of seven, this small organization was the predecessor of World Intellectual Property Organization (WIPO). As the importance of intellectual property grew, the structure and form of the Organization changed as well. In 1960, BIRPI moved from Berne to Geneva to be closer to the United Nations and other international organizations in that city. A decade later, following the entry into force of the Convention Establishing the World Intellectual Property Organization, BIRPI became WIPO, undergoing structural and administrative reforms and acquiring a secretariat answerable to the member States (Maskus 2000). In 1974, WIPO became a specialized agency of the United Nations system of organizations, with a mandate to administer intellectual property matters recognized by the member States of the UN (WIPO).

The WTO & TRIPS The World Trade Organization (WTO) began life on January 1, 1995, but its trading system is half a century older. Since 1948, the General Agreement on Tariﬀs and Trade (GATT) had provided the rules for the system. It did not take long for the General Agreement to give birth to an unoﬃcial, de facto international organization, also known informally as GATT. Over the years GATT evolved through several rounds of negotiations. The last and largest GATT round, was the Uruguay Round, which lasted from 1986 to 1994 and led to the WTO’s creation. Whereas GATT had mainly dealt with trade in goods, the WTO and its agreements now cover trade in services and in traded inventions, creations and designs, i.e., intellectual property (World Trade Organization). See Appendix A for a chart mapping its complex organizational structure. There are presently 152 nations that are members of the WTO. The US, like almost all Western states, and India joined January 1, 1995; while China joined more than six years later. According to the USPTO, as of January 2000, all developed and developing countries who are members of the WTO were obligated to have domestic laws and enforcement mechanisms that comply with the international standards set forth under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). TRIPS, which is the most comprehensive multilateral agreement on intellectual property, includes a set of provisions dealing with domestic procedures and remedies for the enforcement of intellectual property rights. TRIPS lays down certain general principles applicable to all intellectual property rights enforcement procedures, and contains provisions

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on civil and administrative procedures and remedies, provisional measures, special requirements related to border measures and criminal procedures. Many felt that TRIPS was the most important agreement on IPR in the twentieth century and would mark a “quiet revolution in the way that property rights in information were deﬁned and enforced in an emerging global knowledge economy” (Drahos and Braithwaite 2002). There is a continuing controversy and accompanying debate about the extent of protection to be provided under the TRIPs Agreement (and in particular Article 39.3) for regulatory data (i.e. the extensive and costly proprietary data which must be generated to demonstrate the safety and eﬃcacy of pharmaceutical and crop protection agents before they may be authorised for commercial use). This debate is particularly intense in India and several other developing countries which have yet to ﬁnalize their legislative approach and an independent assessment as its contribution to clarifying the issues involved was commissioned (Basheer 2006). The section is as follows: Article 39.3 Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable eﬀort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public or unless steps are taken to ensure that the data are protected against unfair commercial use.

As reported in a recent Economist article (May 15, 2008), this may invoke compulsory licensing for both India and China, and other states like Brazil and South Africa, who engage in signiﬁcant pharmaceutical research. Many Western MNCs have experienced public relations nightmares due to conﬂicts with local governments, especially when it comes to patenting medicines. Examples include GlaxoSmithKline and Novartis over drugs to treat HIV and cancer. Prashant Yadav of the Massachusetts Institute of Technology said that this may lead to diﬀerential pricing among and within states to meet the needs of diﬀering populations. In India and China, this has lead to copycat innovations for needed drugs priced above the bulk of their populations.

India and China That India and China have grown economically is hardly news. Consider their respective growth since joining the WTO as indicated in Figure 1.

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Figure 1

India and China Gross Domestic Product Gross Domestic Product

$3,500 $3,000

In $bn

$2,500 $2,000

India China

$1,500 $1,000 $500 $0 2003

2004

2005

2006

2007

YEARS

These economies have experienced tremendous growth. India has seen more than 8 percent growth, while China eclipses 10 percent annual GDP growth. According to the Economist (2008), projected GDP growth is not expected to be less than 7 percent for the next decade. Both trade heavily with the US. In fact, US trade accounts for almost 20 percent of all exports for both states. The principal categories for each state are presented in Figure 2. While these categories total less than $90 billion, they account for almost 10 percent of India’s total economy. Also, only engineering and petroleum products are heavily dependent upon IPR. China, on the other hand, totals more than $500 billion for these principal exports, or more than 18 percent of its total GDP. Further, every category is dependent upon technology and IPRs. But how? As a license or franchise holder or as a violator? The answer here depends a great deal on whether you reside in Baltimore, Bhopal or Beijing. Almost twenty years ago, the Christian Science Monitor (1989) published an editorial regarding modern day ‘Blackbeards’ and other copyright ‘pirates’ where it described India and China as among the worst IPR violators on the planet. Then, it was estimated that such ‘piracy’ was costing American companies more than $60 billion annually. The veiled threat implicit by the author was that if India and China do not enforce WIPO regulations, the Paris and Berne Conventions, and certain aspects of the General Agreement on Trade

intellectual property rights: the west, india and china

Figure 2

295

Principal Indian Exports, 2006

Principal Indian Exports, 2006 $30 $25

In $bn

$20 $15 $10 $5 $0 Engineering goods

Petroleum products

Figure 3

Textiles and clothing

Jewellery

Agricultural products

Principal Chinese Exports, 2006

an u O th er m

Cl d an es til Te x

fac

ot

tu

hi

red

ng

t en m ip qu le ca tri

El ec

Te le

co

m

m un

pr oc

ess

ica tio

in

ns

g

$160 $140 $120 $100 $80 $60 $40 $20 $0

D ata

In $bn

Principal Chinese Exports, 2006

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and Tariﬀs (WTO was still a few years away then), large American companies would “simply stop selling or licensing products there.” Then, US Trade Representative Carla Hills was quoted as saying that such oﬀenders as India and China would face retaliation and sanctions if they did not conform. The article ends by saying how large MNCs do not abuse their IPRs against developing states and that “the greatest engines of progress in both art and science” has been protecting such IPRs. Obviously, we have learned much since then. Within 10 years, the same newspaper reported that American companies were patenting yoga moves and breathing exercises and indigenous plants, such as ones that have been used in rituals for centuries, forcing many Indians and Chinese (and others) to wonder what was the intent behind IPRs in the ﬁrst place (Woodard 1999). In an interview with David Rothschild of the Coalition for Amazonian Peoples and the Environment, he remarked, “Some indigenous people say the patenting of this plant is equivalent of somebody in their group patenting a Christian cross, it’s just oﬀensive.” Another area of concern has been with human cells or genetically modiﬁed organisms. Jonathan King, a molecular biologist at the Massachusetts Institute of Technology claimed, “Human genes evolved over hundreds of millions of years. They’re shared property. For a company to claim a patent on a gene sequence is straight theft of the most profound kind.” Two major developments in the 1980s changed the IPR landscape forever. In 1980 Cohen and Boyer were awarded a US patent for gene cloning that allowed them to make human insulin from genetically modiﬁed (GM) bacteria. Also in 1980, a landmark decision by the US Supreme Court granted a patent for a GM bacterium that could break down oil. As summarized in by the Bio-Ethics Project, Dr. Ananda Chakrabarty, a researcher working at General Electric (GE), engineered bacteria that could break down crude oil. Realizing the obvious commercial potential the bacteria might have, GE sought patent protection over the bacteria. The trouble was that nobody had tried patenting a micro-organism before. The issue of whether non-naturally occurring, man-made, living organisms could be patented was ﬁercely debated. Chakrabarty applied for the patent in 1972, and was denied by both the Patent Examiner and the Patent Oﬃce Board of Appeals. The Patent Oﬃce held that the bacteria were products of nature and therefore not patentable. The Board of Appeals agreed that the micro-organisms could not be patented, but did so strictly because the bacteria were living organisms, not because they were products of nature. After more legal wrangling, the issue was ﬁnally settled with a 5-4 split decision by the US Supreme Court in 1980. The Supreme Court ruled in Dia-

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mond v. Chakrabarty, 447 US 303 (1980), that the micro-organisms could indeed be patented. In doing so the Court stressed that patent laws should be given a wide scope, and that the bacteria were markedly diﬀerent from any found in nature. The Court rejected the argument that the 1930 Plant Patent Act and 1970 Plant Variety Protection Act, which protected asexually- and sexually-produced plants respectively, evidenced congressional understanding that living matter could not be patented. The Court further rejected the argument that Congress must explicitly decide whether micro-organisms are patentable since biotechnology was unforeseen when patent statutes were enacted. In one of the more memorable lines from a court case, the majority stated: “the fact that micro-organisms are alive is without legal signiﬁcance for purposes of patent.” Dissenting justices argued the decision should have been left to Congress and that legislation regarding plant protection illustrated that Congress intended only a subset of living matter to be protected by patents. Since Chakrabarty, hundreds of patents on living organisms (including mammals) have been granted. In April of 1988 two Harvard researchers obtained the ﬁrst patent on a genetically engineered animal. The patent was also the ﬁrst one issued based on the introduction of a human gene into another animal. These decisions and other actions of the US (and other western states) have caused outrage in India and China. Thousands in India protested against the US Patent Oﬃce in 1997 when it was considering a ‘novel’ use of turmeric for treating minor cuts and wounds since this had been a practice there for more than 1,000 years. The same thing happened when a Texas company attempted to patent Basmati Rice. India’s more recent, and perhaps more productive step, has been to use western technology to protect ancient rituals and wisdom: the Traditional Knowledge Digital Library (TKDL). This attempt to safeguard their IPR may be the most ambitious ever. The TKDL will hold 30 million pages of herbal remedies, indigenous construction techniques and even yoga exercises (Das 2006). This has been a collaborative eﬀort of bureaucrats, scientists and the newly-created (patented?) profession of Indian IPR lawyer. This has been essential for India. According to Vinod Gupta of the National Institute for Science Communication and Information Resources, 80 percent of the 5,000 patents for plant-based formulations, were of Indian origin. This seems contradictory for a US system based upon patenting novel inventions and not those based on proven technology or devices from ‘prior art’. India has seen major gains in several remarkable categories: they produce more engineering graduate students and have a larger middle class than the

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US. But, with a billion plus people, poverty and quality of life remain obstacles. Still, India’s attempts to codify patent laws (and provide some measure of enforcement) has quelled diﬀusion of technological advances and stymied innovation. One has to wonder if this eﬀort will work toward their gain or simply those in the West. According to a report released by the Organization for Economic Cooperation and Development (OECD), China, unlike India, still has a long way to go before it builds a modern innovative system. China has tried to push for what it calls ‘indigenous innovation’. China’s increased eﬀort at decentralization may work politically, but the diﬀusion of technology across its population is complicated. Still, China, with all of its concerns, ranks among the world’s leaders for scientiﬁc publications and spending on research and development. Perhaps the biggest obstacle to simultaneously enforcing WIPO, WTO and other standards for China is its anti-risk taking culture. In that OECD report, Dr. Zhang Gang encouraged that China develop a “system that is ﬂexible and adaptable in an environment that allows researchers to be creative and freething.” Dr. Fred Simon of the State University of New York in Albany agreed saying, “Chinese are not inherently uncreative, it’s the institutional milieu that does not promote innovative behaviour or reward risk-taking.”

Conclusion The issues discussed herein with remain part of the international political landscape for some time. There is a vast diﬀerence from the 1989 understanding of bio-piracy to that of today. Instead of India and China being on the worst oﬀenders list, where do you begin to rank companies or governments that allow the patenting of ancient technology or even the cells found in remote tribes bloodstream? This issue cuts many ways for the US and the West. With growing economies and a commitment to conduct more research and development, India and China, when fully WIPO and WTO-TRIPS compliant, may represent more of an issue than one where the said states violate international conventions.

Redeﬁning the Issue Some have begun to question the soundness of IPRs as a positive function of a growing economy—for both the West and developing states like India and China. The very notion of an intellectual monopoly through patent and copyright laws appears to contradict the precepts of free-market capitalism (Bold-

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rin and Levine 2002). Others in support of maintaining the present system (often those with the most to gain from the status quo), even suggest that such laws encourage multinational corporations (MNCs) to invest, or for the US to provide more foreign direct aid. Neither of which have proven veriﬁable (Lee and Mansﬁeld 1996). In fact, some ﬁnd that the interests of the North and the South generally conﬂict in the matter of protection of intellectual property, with the South beneﬁting from the ability to pirate technology and the North harmed by such actions. A strong system of intellectual property rights may or may not enhance world eﬃciency (Chin and Grossman 1991). Further research has shown evidence that intellectual property protection is a signiﬁcant determinant of economic growth. These eﬀects appear to be slightly stronger in relatively open economies and are robust to both the measure of openness used and to other alternative model speciﬁcations (Gould and Gruben 1996). Others have claimed that even within countries where there is a strong system of IPR, “legal protection is imperfect, imitation is widespread and often important information leaks out” (Helpman 1993). There is little empirical evidence about whether diﬀering international levels of patent protection inﬂuence trade ﬂows. If a nation strengthens its patent laws it could experience higher or lower imports (Maskus and Penubarti 1995). It could be said that there is, regardless of the IPR system or level of enforcement, a “technological spillover eﬀect” whereby market players already beneﬁt from knowledge and experience without speciﬁcally paying royalties on such (Grossman and Helpman 1991). In one analysis, it was reported that local agents (i.e., managers) learn the multinational’s technology and can defect to start a rival ﬁrm. Contract enforcement, including binding the multinational itself, makes the multinational better oﬀ. Outcomes for the host country are more complex, depending on mode switches induced by enforcement. If enforcement induces the multinational to switch from exporting to local production, welfare improves. If local production was occurring anyway, enforcement may result in the loss of rents to local agents and lower welfare (Markusen 2001). In short, the world’s current system of intellectual property rights has in recent years become unworkable and ineﬀective. Designed more than 100 years ago to meet the needs of an industrial era, it is inadequate to handle the ownership and distribution of intellectual property generated by the brainpower industries that have come to dominate the world’s economy at that time (Thurow 1997). The costs of the intellectual property system in the United States are growing signiﬁcantly faster than the amount of research (Barton 2000). And, in an increasingly global economy, a new system must meet the needs of both ‘catch-up’ states and ‘keep-ahead’ states. A system that

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ignores the lesson of history—that every country that has caught up has done so by copying—will be an unenforceable one (Thurow 1997). Empirical results identify transaction-level characteristics as primary drivers of governance choice in alliances, but intellectual property protection is also a signiﬁcant factor: ﬁrms adopt more hierarchical governance modes when protection is weak. Complete understanding of the structure of inter-ﬁrm alliances thus requires a combined focus on the institutional environment and mechanisms of governance (Oxley 1999). The incentives that Western (or Northern, or developed) governments have to protect intellectual property in a trading world economy is strong and in large part explains why they have developed a non-competitive and restrictive IPR system instead of one that harmonizes the needs of MNCs across the global economy (Grossman and Lai 2002). However, membership in intellectual property treaties increases the ﬂows of payments and receipts for intellectual property as long as domestic patent protection is suﬃciently strong. US parents export more to subsidiaries in countries which do not adhere to such treaties, but their impact on arms’length exports and foreign investment is minimal (Ferrantino 1993).

Observations A major argument can be made that protecting IP and establishing a world regime that enforces laws and governance structures is desirable, especially if one is attempting to encourage development. As the argument goes, without such protections and assurances of reciprocity, investment in research that is necessary to develop platform to launch new services or products would suﬀer. The notion of copyrights and patents is clearly based on utilitarianism: the greatest good for the greatest number. Still, to suggest that creative research is only possible where researchers have copyright and patent protections available is simply ﬂawed. In fact, it could easily be argued that the current system is merely and extension of imperialism under the guise of protecting the ‘free’ market. One ﬁnal example may provide some illumination. Consider the fashion industry, which is completely unregulated and may, in fact, not be able to be regulated under a WIPO regime (Raustiala and Sprigman 2006). Compared with other ‘creative’ sectors, according to a 2002 Economic Census total revenues for movies, books, music and most scientiﬁc inventions were grossly overshadowed by the fashion industry. The fashion industry is a $173 billion US market (The NPD Group) and a global market reaching almost $800 billion. All of this is done without a hint of patent, copyright or trademark governance.

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Could it be said that the fashion world is more ‘democratic’ and oﬀers customers more choices than those heavily regulated quasi-colonialist sectors like pharmaceuticals and software? Could a less restrictive IP regime actually facilitate more creativity and proﬁtability by forcing inventors (and the MNCs and governments that support them) to constantly make improvements? Could better services and products be made widely available at more reasonable prices if so much money did not funnel into building an intellectual gorge? Ultimately, this line of thinking begs the question: who are the real IP pirates?

Sources Bacchetta, Marc and Marion Jansen. 2003. “Adjusting to Trade Liberalization: The Role of Policy, Institutions and WTO Disciplines.” WTO Studies Special. Barton, John H. 2000. “Intellectual Property Rights: Reforming the Patent System.” Science. 17 March: Vol. 287. no. 5460, pp. 1933-1934. Basheer, Shamnad. 2006. “Protection of Regulatory Data under Article 39.3 of TRIPs: the Indian Context.” Intellectual Property Institute. The Bio-Ethics Project. 2008. Web site. http://www.bioethics.upenn.edu/ BitLaw. 2008. Web site. www.bitlaw.com Boldrin, Michele and Levine, David K. 2002. “The Case Against Intellectual Property.” CEPR Discussion Paper No. 3273. Chin, Judith C. and Gene M. Grossman. 1991. “Intellectual Property Rights and North-South Trade.” NBER Working Papers 2769, National Bureau of Economic Research, Inc. Chong, Seung. 2007. “Investing in China: Act to Protect Private Property.” Financial Times. March 28. Christian Science Monitor. 1989. “Copyright Pirates.” May 17, editorial. Crawford, Jo-Ann and Roberto V. Fiorentino. 2006. The Changing Landscapes of Regional Trade Agreements. WTO Discussion Paper (No.8). Das, Anupreeta. 2006. “India: Breathe in, and Hands oﬀ our Yoga.” The Christian Science Monitor. February 9. Drahos, Peter with John Braithwaite. 2002 Information Feudalism: Who Owns The Knowledge Economy? London: Earthscan. The Economist. 2008. Web site. http://www.economist.com Ferrantino, Michael J. 1993.“The eﬀect of intellectual property rights on international trade and investment.” Review of World Economics, Volume 129, Number 2: June. Ford, Peter. 2007. “China Ready to Leap From Industrial to Information-Age Economy.” The Christian Science Monitor. September 5. Financial Times. 2008. Web site. http://www.ft.com Gould, David M. and Gruben, William C., 1996. “The role of intellectual property rights in economic growth.” Journal of Development Economics. Elsevier, vol. 48(2), pages 323-350, March. Grossman, Gene M. and Elhanan Helpman. 1991. “Quality Ladder and Product Cycles.” Quarterly Journal of Economy. Pp.106, 557-586. Grossman, Gene and Elhanan Helpman. 1991. Innovation and Growth in the Global Economy. Boston: MIT Press. Grossman, Gene M. and Lai, Edwin L.C. 2002. “International Protection of Intellectual Property.” CEPR Discussion Paper No. 3118.

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Hart, Tina et al. 2006. Intellectual Property Law 4th rev ed. New York: Palgrave Macmillan. Helpman, Elhanan. 1993. “Innovation, Imitation, and Intellectual Property Rights.” Econometrica. Vol. 61, No. 6 (Nov) Pp. 1247-1280. Jack, Andrew. 2008. “India Looks Beyond Copycat Medicines.” Financial Times. April 17. Krugman, Paul R. 1979. “A Model of Innovation, Technology Transfer, and the World Distribution of Income.” Journal of Political Economy. Pp. 87, 253-266. Lai, Edwin L.C. 1998. “International Intellectual Property Rights Protection and the Rate of Product Innovation.” Journal of Development Economics. Vol. 55:133-153. Lee, Jeong-Yeon and Edwin Mansﬁeld. 1996. “Intellectual Property Protection and US Foreign Direct Investment.” The Review of Economics and Statistics. Vol. 78, No. 2 (May) Pp. 181-186. Loong, Yang Ing. 2006. “Investing in China: An Intellectual Property Project.” Financial Time. June 14. Markusen, James R. 2001. “Contracts, intellectual property rights, and multinational investment in developing countries.” Journal of International Economics. Volume 53, Issue 1, February. Pp. 189-204. Maskus, Keith Eugene. 2000. Intellectual Property Rights in the Global Economy. Washington, DC: Peterson Institute. Maskus, Keith E. Mohan Penubarti. 1995. “How trade-related are intellectual property rights?” Journal of International Economics. Volume 39, Issues 3-4, November. Pp. 227-248. Mokyr, Joel. 1990. The Lever of Riches: Technological Creativity and Economic Progress. Boston: Oxford Press. The NPD Group. 2005. “US Retail Apparel Sales up after Three Years of Decline.” Press Release (February 23, 2005). http://www.npd.com/dynamics/release/press_050223.html. Organization for Economic Cooperation and Development. 2008. Web site. http://www.oecd.org Oxley, Joanne E. 1999. “Institutional environment and the mechanisms of governance: the impact of intellectual property protection on the structure of inter-ﬁrm alliances.” Journal of Economic Behavior & Organization. Volume 38, Issue 3, 1 March. Park, Walter and Douglas Lippoldt. 2004. International Licensing and the Strengthening of Intellectual Property Rights in Developing Countries. Paris: OECD Trade Policy Working Paper No. 10 Park, Walter G. and Douglas C. Lippoldt. 2008. Technology Transfer and the Economic Implications of the Strengthening of Intellectual Property Rights in Developing Countries. Paris: OECD Trade Policy Working Paper No. 62. Perelman, Michael. 2002. Steal This Idea: Intellectual Property Rights and the Corporate Conﬁscation of Creativity. New York: Palgrave Macmillan. Raustiala, Kal and Christopher Sprigman. 2006. “The Piracy Paradox: Innovation and Intellectual Property in Fashion Design.” Virginia Law Review. Vol. 92, No. 8. Pp. 1687-1777. Romer, Paul M. 1990. “Endogenous Technological Change.” Journal of Political Economy. Pp. 98, S71-S102. Ryan, Michael P. 1998. Knowledge Diplomacy: Global Competition and the Politics of Intellectual Property. Washington: Brookings Institution Press. Sell, Susan. 2003. Private Power, Public Law: The Globalization of Intellectual Property Rights. Cambridge: Cambridge University Press. Thurow, Lester. 1997. “Needed: a new system of intellectual property rights.” Harvard Business Review. Sep-Oct; 75(5):94-103. Trumbull, Mark. 2007. “How to Tackle Trade Deﬁcit with China.” The Christian Science Monitor. May 22. United States Census Bureau. 2003. Service Annual Survey, Information Service Sector Services. http://www.census.gov/svsd/www/sas51.html. United States Patent and Trademark Oﬃce. http://www.uspto.gov/main/proﬁles/international.htm

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Woodard, Colin. 1999. “Patent a Plant? Americans Do, Irking Shamans.” The Christian Science Monitor. July 28. World Intellectual Property Organization. 2008. Web site. http://www.wipo.int World Trade Organization. 2008. Web Site. http://www.wto.org

Appendix WTO structure All WTO members may participate in all councils, committees, etc, except Appellate Body, Dispute Settlement panels, and plurilateral committees.

Ministerial Conference General Council meeting as Dispute Settlement Body

General Council

General Council meeting as Trade Policy Review Body

Appellate Body Dispute Settlement panels

Committees on Trade and Environment Trade and Development Subcommittee on LeastDeveloped Countries Regional Trade Agreements Balance of Payments Restrictions Budget, Finance and Administration Working parties on Accession Working groups on Trade, debt and finance Trade and technology transfer (Inactive: (Relationship between Trade and Investment (Interaction between Trade and Competition Policy (Transparency in Government Procurement)

Council for Trade in Goods

Council for Trade-Related Aspects of Intellectual Property Rights

Committees on Market Access Agriculture Sanitary and Phytosanitary Measures Technical Barriers to Trade Subsidies and Countervailing Measures Anti-Dumping Practices Customs Valuation Rules of Origin Import Licensing Trade-Related Investment Measures Safeguards Working party on State-Trading Enterprises

Plurilateral Information Technology Agreement Committee

Council for Trade in Services Committees on Trade in Financial Services Specific Commitments Working parties on Domestic Regulation GATS Rules Plurilaterals Trade in Civil Aircraft Committee Government Procurement Committee

Doha Development Agenda: TNC and its bodies

Trade Negotiations Committee Special Sessions of Services Council / TRIPS Council / Dispute Settlement Body / Agriculture Committee and Cotton SubCommittee / Trade and Development Committee / Trade and Environment Committee Negotiating groups on Market Access / Rules / Trade Facilitation

Key Reporting to General Council (or a subsidiary) Reporting to Dispute Settlement Body Plurilateral committees inform the General Council or Goods Council of their activities, although these agreements are not signed by all WTO members Trade Negotiations Committee reports to General Council The General Council also meets as the Trade Policy Review Body and Dispute Settlement Body

Conﬂicts of Interest: Plasticity of Peace Tourism and the 21st Century Nation Veda E. Ward California State University, Northridge

Abstract Peace tourism is a holistic, multi-dimensional phenomenon that intersects natural, social, economic, political and spiritual systems. This chapter analyzes the dynamic construct of nation through ﬁve study questions, two theoretical frameworks, and three cases demonstrating the impact of varied applications of peace tourism on quality-of-life in diﬀerent regions of the world. Keywords nation, plasticity, peace tourism, peace education theory, Kantian peace theory, leakage, transformative learning

Introduction The movement of natural resources, goods, money and services across boundaries is not a new phenomenon, but one that is intensiﬁed by globalization, and “the nature of present day globalization is capitalist” (Brubaker 2001). Media, electronic communications and international travel connect governments, industries and everyday citizens more rapidly than ever. In light of political and economic forces constantly pushing nations to evolve in a direction that is often described as liberal democracy, it is not diﬃcult to imagine that national autonomy is, at best, an illusion tied to outmoded deﬁnitions of sovereignty. In fact, the term plasticity—the property of being physically malleable; the property of something that can be worked or hammered or shaped under pressure without breaking—can be applied to the topic at hand—the nation in the global era—since the construct of nation, is undergoing signiﬁcant transformation as a result of forces of globalization. In this year of the fortieth anniversary of the US peace movement of the late 1960s, this chapter examines peace tourism as it exempliﬁes one among many social, political and economic constructs being shaped by and helping to shape both the direction of globalization and the meaning of nation for future generations.

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Deﬁning Terms At the core of this discussion is the meaning and relevance of “nation” in light of the impact of globalization. Like many terms in modern times, nation has a variety of deﬁnitions. Two of the more relevant here are: “the body of inhabitants of country, united under an independent government of their own (AR Dictionary), and “a community of people comprised of one or more nationalities and possessing a more or less deﬁned territory and government (Merriam-Webster online dictionary)”. Tracing the evolution of nation-states as products of globalization, Bayart (2004/07) identiﬁes the social costs associated with becoming a “player” in the global community, and the ﬁrst casualty seems to be loss of identity with a single religion, or with a fundamentalist version of a religion as central to national identity. Adhering to a rigid set of beliefs has often resulted in war throughout human history, such as the Crusades or the present US War on Terror. Religion was used as a divinely-inspired rationalization for violence, genocide and other forms of justice for many of the world’s people. Rankand-ﬁle citizens of nations, however, may also act on their personal version of faith that may lead to beliefs that war is the inevitable resolution for nations in conﬂict. Today, whether regional or international in geographic scale, war has repercussions for many nations, not just those directly involved. Ariarajah (2004) explains this seeming conundrum when he notes that “one of the reasons why religions get so easily co-opted in violent situations, and why religious sentiments could so easily be used to fan hatred, is the reality that they already have exclusive, intolerant and anti-relational attitudes built into their self-deﬁnitions and doctrines. Thus, while religions are in theory in favor of justice, peace and love, the doctrines and structures of most religions do not promote or nurture a spirituality of just relations across religious barriers.” (p.117) However, both individuals and organizations seek to take action on their goals for furthering peace. Ironically, those who travel the globe to promote peace may be viewed as “the enemy” by all sides, since their actions suggest an allegiance to no one, and may be perceived as direct deﬁance of religious doctrine. Tourism has often been associated with acquisition of expanded knowledge of the world for both countries and individuals. From ancient nation-states sending explorers to meet the need for natural resources and goods through expanded trade and commerce with foreign nations, to long-term colonization, to the more recent wholesale packaging of travel for fun, relaxation and renewal, tourism has always been characterized by a blend of positive and negative impacts on the visitor-tourist and the host community.

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In modern times, tourism has broadened in scope and purpose, often intermingling personal, national and international outcomes. While the large-scale economic and political factors that drive nations to participate in the global marketplace are well documented in popular media, ordinary travelers are often overlooked as key players in this global drama. For purposes of this chapter tourism will described as self-initiated travel by an individual citizen to explore a (new) nation and its people using personal resources—time, ﬁnancial, interpersonal, etc. When linked to equally complex and malleable concepts like globalization and peace, one cannot but be suspicious of the traveler’s motives, which leads to further analysis. Peace tourism then, is certainly relevant to citizens of nations involved in war, genocide, drug or human traﬃcking, arms sales or any systematic armed violence against other nations. Weapons come in many forms ranging from exploitation of the natural environment to internet fraud. The desire to have a world “at peace” may stem from a deep-seeded concern for the environment, a need to become involved in world politics, an interest in economic venture, or from a simple whim to gather direct evidence about how those most impacted by war are faring. Belief that various forms of humanitarian aid (food, clothing, medicine, etc.) do not reach the intended recipient is commonly reported by international media. In order for individuals to verify conditions, however, they must have time, money, and an acceptable passport. The economic system that allows travel to come to fruition for average people is capitalism in one form or another. In fact, both peace and tourism are often described as outgrowths of the inevitable forces of capitalism, experience production, and consumerism. Tourism is one choice among many as to how individuals use discretionary resources. The relative cost of “peace-making” is commensurate with the level of involvement ranging from direct individual initiatives to multinational business ventures; from governmental to non-governmental organizations. The complexity of interrelationships among these disparate players, acting on diﬀerential layers of issues, may ignite “conﬂicts”—ironically, the very condition the peace tourist sought to ameliorate.

Combining Theoretical Perspectives In a complex geo-political environment—characteristic of much of the contemporary world—no single theoretical perspective seems adequate for understanding a given phenomenon (if it ever was). Peace tourism has evolved at a time when the world has been inundated by a deluge of information with

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optional or limited interpretation. As Postman (1992) noted, “because of what computers commonly do, they place an inordinate emphasis on the technical processes of communication and oﬀer very little in the way of substance.” (p.118) Simply put, the world’s people may have lots of information, but in the absence of various levels of analysis the information may be meaningless. General geographic and linguistic isolation of Americans, as captured in Putnam’s Bowling Alone (2000), has given rise to numerous initiatives to re-connect Americans with the notion of critical thinking, discussion/debate, listening to others’ points of view, and gaining direct involvement in one’s community. Local applications often serve as practice for, and springboards to, international involvement. From the early 1990s to the present day, there has been a renewed focus on community service learning, social networks and the encouragement of thoughtful exchange of ideas through blogs, electronic bulletin boards, and both synchronous and asynchronous “chats”. A theoretical perspective that complements this need to balance autonomy with direct participation with citizens of other nations is Peace Education Theory. Harris (1998/2000) reﬂects this multi-faceted, experiential approach to learning-by-doing. According to Fran Schmidt, a contributor to the Canadian Centres for Teaching Peace website, peace education is a transformative approach to learning that empowers people with skills, attitudes and knowledge to: “1) build, maintain and restore relationships at all levels of human interaction, 2) develop positive approaches towards dealing with conﬂicts— from the personal to the international, 3) create safe environments, both physically and emotionally that nurture each individual, 4) create a safe world based on justice and human rights, and 5) to build a sustainable environment and protect it from exploitation and war.” (p.1) Some believe that there are systemic problems with tourism education curricula that must be overcome, for example an Australian course states that “tourism has the potential to give literacy to concepts of peace-building and to encapsulate ideals of international citizenship. Yet for both tourism educators and professionals, negotiating this terrain and integrating these concepts into practice can present major challenges.” (Peace through Tourism 2008:1) Peace tourism combines desires for personal peace with new experiences through travel and education. This allows individuals to ﬁeld test information and convert it to knowledge. Institutions of higher learning are transforming classroom lectures into living laboratories by aﬀording students, who are reminded of the “global” nature of their present and futures, opportunities to travel. Whether they are conducting research on the internet, calling a ‘trouble-shooter” technician to ﬁx a glitch in their computer application or

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watching the Olympic Games coverage on television, they are keenly aware of their place in the world as citizens of one of several powerful and aﬄuent nations—but not the only such nation. Tracing the evolution of nation-states as products of globalization, Bayart (2004/07) identiﬁes the social costs associated with becoming a ‘player’ in the global community, and the ﬁrst casualty seems to be identiﬁcation with a single religion or a fundamentalist version of a religion as central to national identity. Adherence to a set of singular beliefs results, historically, in war; with examples ranging from the Crusades to the current U.S War on Terror. At the international level, numerous examples of humiliations suﬀered by peacekeeping forces underscore the dilemma. Even missionaries acting on religious convictions to reduce/end human suﬀering may be expelled from a country or killed for that very commitment. Ever-changing interaction among social, economic and political forces are compounded by the preparation, motivation and incentives underlying actions taken by individuals which encompasses the largely material approach of Kantian Peace Theory. Kantian Peace Theory was addressed at a 2007 conference by Lilach Gilady and Min Ye, as part of a session entitled “Comparative Kantian Peace Theory: Economic Interdependence and International Level of Analysis.” Gilady suggested that while Kantian Peace Theory emphasizes the mutually enforcing and pacifying eﬀects of democracy and economic interdependence, he qualiﬁes the theory as not explaining the lack of sustainability of those pacifying eﬀects under conditions of heightened interdependence. Ye, who described the three legs of Kantian Peace theory as democracy, intergovernmental organizations and free trade, asserted that conﬂict will remain low as long as the stakes are relatively low. He found Kantian Peace Theory to be contextspeciﬁc, contingent upon rivalry and territory. Based on the overview of key concepts and related theories, several questions will guide the remaining discussion.

Framing Questions 1. What is the nature of relationships among globalization, nations and peacet ourism? 2. Are peace and tourism compatible terms? 3. Is peace tourism synonymous with globalization of capitalism and a precursor of liberal democracy? 4. Is “war” (turmoil, hostility, terrorism, social unrest, natural disaster) a prerequisite (excuse, opportunity) for peace tourism?

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5. What are some examples that peace tourism is a driving factor for the next generation? Due to the ever-changing interaction among social, economic and political context, along with the preparation, motivation and incentives underlying the actions of the peace tourist, no single theory appears suﬃcient to capture the dynamic. Below are a few examples to help illustrate the complexity.

Examples of Peace Tourism At the heart of peace tourism is fear of physical, psychological or political harm to the individual and society that would interrupt or transform a desired, preferred or established lifestyle. Jean-Francois Bayart (2004/07) challenges the extent of true globalization, since it is often confused with, and clearly parallel to, the worldwide expansion of capitalism (p.2), making it diﬃcult for most to separate the two phenomena. Yet in almost every instance economic conditions are central to individuals’ ability to travel. The following examples are taken from three approaches to peace tourism through higher education, a single individual, and non-governmental organizations or “NGOs”.

Higher Education-Israel and Palestine While some of today’s university students may be uncertain of the historic details of international relations, the explosion of international education opportunities, particularly through campus-to-campus memoranda of understanding (MOUs), in institutions of higher learning—whether in departments of business, sports, journalism, anthropology, engineering or politics—is undeniable. University systems, boards of trustees, and campus presidents are encouraged to infuse long-range vision, strategic plans, and curricula with a global perspective. The Peace through Commerce Survey, for example, identiﬁed more than 40 institutions of higher learning with academic programs focused on global trade and involving some form of scholarly and or student exchange. In April 2008, the George Washington University hosted the International Institute for Peace through Tourism along with the Institute for Corporate Responsibility, focusing on the theme “Peace through commerce: Harnessing the power of the global tourism industry”. The choice of meeting title implies the convergence of peace, commerce and social responsibility as a central theme for the identiﬁed entities and featured speakers with expertise in areas ranging

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from business ethics to livable communities, ecotourism and sustainable development (IIPT April 2008 e-newsletter). This conﬂuence of features is commanding increased attention in the world community. Not only are those aﬃliated with elite, private academic institutions exposed to the integration of global awareness into learning activities, but many students from less-aﬄuent backgrounds are as well. Increasingly direct involvement of students in hands-on educational experiences is highlighted in the 2008 Conference on Community-based teaching and research sponsored by the 23-campus California State University system, entitled “From Local to Global Perspectives”. This system accounts for thousands of university graduates throughout the state, and reﬂects a trend to infuse basic university education with hands-on involvement with global perspectives as they impact local, state or regional agendas. One of the world’s unoﬃcial missionaries, Professor Michael Leitner, used play and recreation activities in multi-generational “neutral” community centers to bring Israeli and Palestinian refugees together, emphasizing some of the positive features of a shared past in a troubled world, with young adults or teens serving as language interpreters. In 1998, Leitner “sought to improve the attitudes of older generation Arabs and Jews through exercise, sport and dancing.” (Willis, 2008:1) Approximately one hundred older adults participated in the project with more than half reporting more positive attitudes toward the other group, not only at the conclusion of the project, but sustained based on a follow-up survey administered a year later. Ten years later, Leitner continues his work with another innovative intervention, targeting a diﬀerent generation, namely Israeli and Palestinian youth. (Willis 2008) Viewed as essential to achieving desired attitudinal change, the new project removes the youth from their traditional setting by taking them to Hawaii for a three-week intensive seminar designed to help them envision a new future for their nations. Of primary focus is the tropical setting and the cumulative shared experiences during discretionary time. This educational initiative is far from an abstract classroom lecture, and embodies many of the attributes of Peace Education Theory. Simple solutions are often eﬀective, and the world community has witnessed novel approaches to peace between Israel and Palestine, completely unrelated to inter-governmental peace talks; for example, when border crossings were allowed for shopping due to reduced availability of essential goods due to prolonged conﬂict throughout the region. As Graham (2006) concludes from extensive research, trade brings peace, since trading nations are generally more interested in protecting wealth gained through international commerce.

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As recently as 2005, however, the Palestinian and Israeli Ministries of Tourism signed an agreement that “seeks to ensure secure passage for tourists and pilgrims to visit the holy places in Israeli and Palestinian territory. ” (Browne 2005) So while the historic geographic and religious diﬀerences remain unresolved, the region must remain a viable tourist destination and source of revenue for each nation. In this instance, the safety necessary for religious pilgrimages may also support peace tourism for other groups or individuals throughout the region.

Afghanistan/Pakistan—Greg Mortenson Peace tourism is a complex venture that may be undertaken for a wide array of reasons. It is unlikely that the process will be intuitive or easy. In Three Cups of Tea , Greg Mortenson, a rugged individualist, self-absorbed mountain-climber shifted goals from achieving fame and recognition by climbing the most challenging mountains to helping a village build a school to educate its young so they could survive in the village and beyond. The process was slow, agonizing, and replete with danger and corruption. The wisdom of the local villagers permeated Mortenson’s western mindset, as he learned patience and gained understanding of diﬀerent cultural values and personal priorities in the midst of war. He learned to sip strong, hot tea with yak butter during the long harsh winters of Afghanistan and Pakistan among the Korphe. But more importantly, he learned the symbolism behind the three cups of tea: the ﬁrst cup you are a stranger, the second a friend, and by the third you are family. Mortenson raised funds to build a school, a lasting contribution to the quality of life for both male and female children. In essence, the villagers and donors served as peace educators for Moretenson, sharing their own methods for attaining success while remaining conﬁdent and resilient, and by overcoming corruption and guerilla attacks, as well as the harsh climate and terrain. These ﬁrst two examples of peace tourism link education and reduction of poverty to global travel, but in very diﬀerent ways. Both were set in regions known for periods of conﬂict and war for many centuries, yet they endure. A third way to gain access to troubled areas is through non-governmental organizations( NGOs).

Non-Governmental Organizations (NGOs) Increasingly, individual initiatives described as person-to-person peace-building are carried out under the auspices of recognized philanthropic groups. Some

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of these have drawn attention because they particularly focus on establishing cooperatives to sustain the health and well-being of women and children. A few examples include church-aﬃliated mission work that continues in Central America focusing on salvaging “discarded children” who have disabling or chronic conditions; providing hearing aids or other assistive technologies/ devices to residents of a rural town in Peru, facilitated through the combined eﬀorts of faculty member and graduate student in conjunction with Catholic charities; and the Canadian-based Women Build Africa project that combined micro-business with heritage tourism. Undeniably there are negative impacts of international tourism. For example leakage is “the direct income for an area is the amount of tourist expenditures that remains locally after taxes, proﬁts and wages are paid outside the area and after imports are purchased.” (Economic impacts of tourism UNEP Tourism) Ecotourism has both positive and negative aspects, but for a variety of reasons, is not uniformly viewed as particularly sustainable or beneﬁcial to the natural environment. Interest, however, in variations of eco-tourism and in the novelty of eco-experiences, in general, persists, but with more attention paid to avoiding damage to fragile eco-systems that may not be “reversible” by the time they are detected. Reuther (2008) recommends a life-long commitment to “ﬁnd[ing] a balance between human and non-human interests in a way that would both be life enhancing for nature to provide for the basic means of life for the whole human community, not simply the interests of the rich and powerful at the expenses of most humans and nature, as is presently the case (p.123).” A case in point, to which all coﬀee drinkers can relate, is destination tourism into the “Java Zone” where personal explorations of coﬀee-growing and its impact on the planet and on those who grow it can be undertaken. Agro-ecotourism, a hybrid of eco-tourism and agri-business, is just one way that average citizens can achieve ideal compatibility between sustainable farming methods, increased local economic stability, and improved quality of life for the growers. The spin-oﬀ eﬀects are exempliﬁed by Las Hermanas, a 195-woman Nicaraguan cooperative that sells its product to Peet’s Coﬀee in the United States. According to Dicum (2008), “With money from local co-ops and Lutheran World Relief, the families . . . built tiny brick guest rooms, installed water ﬁlters and mosquito nets, and added improved stoves that keep smoke out of the houses. Working with outside advisors, they have developed visitor-focused nature walks, informational coﬀee tours and cooking classes.” (Pp.38-9) This adaptation combines familiar concepts to achieve a more sustainable outcome for both people and nature-one that can remain resilient during tough economic times.

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Table 1 Development of Nations and Peace Tourism Nation Stage Early

Middle

Mature

Cultural/Ethnic Diversity

Global Status (power)

Homogeneous Limited migration Single citizenship Mostly Homogeneous Ease of travel

Limited

Heterogeneous or Multi-citizenship

Established

Emerging

Peace Tourism Emergency Relief NGOs, Individual initiatives/philanthropies Education Travel Courses Eco-tourism People-to-People Cooperatives and Environmental focus

Questions Answered In the grand scheme of things the world changes slowly, and as it always has, draws momentum from many sources and forces. Similarly, participation in the global community will continue to evolve diﬀerently for various nations, as suggested by Gilady and Ye (2007). Attaining peace at home may be one indicator of ability to gain status and recognition in the global community, but often won at the high price of lost homogeneity of cultural, religious and political identity. Individuals attempting to expand peace through personal travel and at their own expense are often uninvited guests in another country. They may or may not have experience of language and culture needed to succeed. Some bring the mantras of western business and industry, while misjudging the extent of personal change needed to facilitate lasting peace. Business ventures are conceived and shared with no real limitations on participation other than ability to “buy in” either with ideas or money. Another aspect in the production of goods and services is labor. On a broader scale demands for labor may be met through captive, involuntary workers; the world community now acknowledges the huge rise in slavery (Skinner 2008), the solution to which requires precise quantiﬁcation of numbers of enslaved as well as a commonly accepted deﬁnition. Boundaries are established around what individuals can change, and what they cannot, a lesson for peace tourists who may intervene at the individual level, while having

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only a negligible impact on the broader problem. Where institutions fail, however, individuals can inform about and advocate for prohibitions on the use of slaves or boycott products brought to market in that manner. Noteworthy examples include the “activist-driven ‘No Dirty Gold’ campaign, which has persuaded many top retailers to stop selling gold from mines that cause severe social and environmental damage. Peace, then, has also become a commodity to be bought and sold in the world market, and a state of peace requires either the presence or absence of conditions that are, in turn, inﬂuenced by production of and access to tangible goods and services. Peace cannot be maintained if one or one’s nation is incapable of defending one’s life/way of life, property, loved ones or livelihood. Whether globalization is viewed as a force that will eventually reduce the need for “non-peace” may be the ultimate test of its maturity as an historical movement. In the absence of common social bonds, it seems realistic to view “peace” as a shared social value, that when combined with a sustainable natural environment, accessible/aﬀordable health care and a reasonable standard of living, may be enough to forge a true global community. Summary: Implicit Plasticity The term plasticity is used in forging new paths in the brain. In this way one begins to realize what can be. According to Norman Diodge, author of The Brain That Changes Itself (2007), a key to learning new ways to interact in the world is basically by re-training the brain to become more sensing and perceiving. “ ‘Perceptual learning’ is the kind of learning that occurs whenever the brain learns how to perceive with more acuteness or, . . . in a new way and in the process develops new brain maps and structure . . . It has long been assumed that we absorb culture through universally shared, standard issue, human perceptual equipment, but perceptual learning shows that this assumption is not completely accurate. To a larger degree than we expected, culture determines what we can and cannot perceive. ” (p.299) Evidence suggests that a massive change in our nation-restricted perception of the world is already underway. The demand for ﬁrst-hand experience and people-ﬁrst communication have impacted the travel industry, just as it has the proliferation of international studies programs or living in multiple countries at various life stages. Multinational citizenships are on the rise, and in light of this trend Gustavo de las Casas (2008) questions the value and relevance of nationalism—but after all, what isn’t being questioned these days? As peace education theory states, peace is multi-dimensional-peacekeeping, peace-building, and peacemaking (Harris 2004/07). Until one is fully

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immersed in a new culture, one is still a “tourist” . . . at least until, based on Mortenson’s experience, the third, literal or ﬁgurative, cup of tea. Peace tourism is designed to be transformative; to result in demonstration of new levels of self-eﬃcacy as well as in new skills. In the end, isn’t or shouldn’t all tourism be peace tourism? After all, it is simply a matter of how one perceives and learns to interact in the context of globalized nation.

References Ariarajah, S. W. 2004. Axis of peace: Christian faith in times of violence and war. Geneva. Switzerland: World Council of Churches Publications (Risk Books). Bayart, J. 2004/7. Global subjects: A political critique of globalization. Cambridge, MA: Polity Press. Browne, D. (2008).Tourism becomes vessel for joint Palestine-Israel initiative. ICTP, www. tourismpartners.org. Brubaker, P. K. 2001. Globalization at what price? Cleveland, OH: The Pilgrim Press. Cincotta, R. P. 2008. How democracies grow up. Foreign Policy, March/April: 80-82. Cooke, A. M., S. R. Curran, A. Linton, and A. Schrank. 2008. Globalizations: Trading morsels (Special Issue), 5: 2. De las Casas, G. 2008. Is nationalism good for you? Foreign Policy (March/April): 50-56. Dicum, G. 2008. Destination: The Java Zone. Sierra, 94, 1: 36-39+. Diodge, N. 2007. The brain that changes itself. New York: Penguin. Economic impacts of tourism. UNEP tourism. 2001. Accessed at http://www.uneptie.org/pc/ tourism/sust-tourism/economic/htm. Economic focus: Race and red tape. The Economist.389, 8606: 92. Erickson, T. J. 2008. Task, not time: proﬁle of a GenY job. Harvard Business Review, February: 19-20. Gilady, L. and M. Ye. 2007. Comparative Kantian Peace Theory: Economic interdependence and international level of analysis. Conference paper. Graham, J. L. 2005. Trade brings peace: An essay about one kind of citizen peacebuilding. Harris, I. 1998/2000. Peace education theory. Canadian Centres for Teaching Peace. www.peace. ca/peaceeducationtheory.htm. Jentleson, B. W. and S. Weber. 2008. America’s hard sell. Foreign Policy, November/December: 43-49. Larmer, B. 2009. The price of gold. National Geographic, 215, 1: 41-61. Leitner, M. J. 1999. Promoting peace through intergenerational tourism. Tourism Recreation Research, 24, 1. http://209.85.173.132/search?q=cache:56oun3FXDAJ:www.trrworld. org/promoting.htm. Mortenson, G. and D.O. Relin. 2006. Three Cups of Tea. New York: Penguin Books. Nation. 2008. ARDictionary. Accessed at http://ardictionary.com/Nation/336. ——. 2008. In Merriam-Webster Online Dictionary. Accessed at http://www.merriem-webster. com/dictionary/nation. Peace through commerce survey. Business and International Education program (multiple campus initiative). Peace through tourism (PACS6910). Accessed at http://www.summer.usyd.edu.au/winter. Retrieved December 2008. Plasticity. 2008. Accessed at http://dictionary.kids.net.au/word/plasticity.

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Postman, N. 1992. Technopoloy: The surrender of culture to technology. New York: Vintage Books. Putnam, R. D. 2000. Bowling alone: The collapse and revival of American community. New York: Simon and Schuster Paperbacks. Reuther, R. R. 2005. Integrating ecofeminism. Globalization and world religions. Lanham, MD: Rowan & Littleﬁeld (US). Roubini, N. 2008. The coming ﬁnancial pandemic. Foreign Policy, March/April: 44-48. Sageman, M. 2008. The next generation of terror. Foreign Policy, March/April: 37-42. Skinner, E. B. 2008. A world enslaved. Foreign Policy, March/April: 62-67. Stalnaker, S. 2008. Here comes the P2P Economy. Harvard Business Review, February: 18. The economy is the problem: Workingman’s blues. The Economist, 388, 8590 (July 26-August 1, 2008): 33-36. Tourism Cares Fact Sheet. 2008. www.tourismcarees.org. Tye, M. 2008. E-commerce: What is it? Do I need it? Do I want it? Can I aﬀord it? Courier, September: 23-24. Willis, R. 2008. Professor works for peace in Israel. OnlineExclusive, October 10. Accessed at http://www.theorion.com/home/index.cfm?event=displayArticlePrinterFriendly&uStory.

Section III National Identity and Development

Globalization and Separatism: The Inﬂuence of Internal and External Interdependence on the Strategies of Separatism Ryan D. Griﬃths and Ivan Savić PhD Candidates, Political Science, Columbia University, New York

Abstract At the heart of all separatist movements is the idea that the community in question would be better oﬀ handling its own aﬀairs, including its economic aﬀairs. The existence of economic globalization introduces a paradox: secession cannot produce full autonomy in economic matters because states with smaller economies tend to have less policy autonomy. This chapter argues that separatist movements will use very diﬀerent strategies depending on the level of external (supra-national) and internal (sub-national) economic integration. Separatist groups in developed states (which tend to be integrated both at the domestic and international level) are more likely to look to political means and to support supra-national economic institutions to reduce their dependence on the central government, while such groups in developing countries (which tend to have lower levels of both types of integration) are more likely to use traditional, often violent, means of achieving independence. We test these arguments by examining the strategies of long standing separatist movements in Scotland, Quebec, Biafra and Tamil Eelam. Keywords separatism, globalization, interdependence, civil war

Introduction Separatist movements around the world are quite diverse. They are found in a broad spectrum of countries: in developing and developed nations, under democratic and authoritarian regimes, in highly-centralized states and loose federations. The goals of separatist movements vary from calls for increased autonomy to demands for full independence. Among those seeking full independence there is also a great deal of variation in terms of how they envision post-independence relations with the rump state. While for some this is left vague, for others post-separation political and economic relations form an integral part of their overall strategy. Finally, there is a great deal of variation in the means that separatist movements adopt to achieve their goals. Some use

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non-violent methods such as grassroots activism or participation in national elections while others choose violent tactics ranging from terrorism and lowlevel insurgency to full-scale civil war. We need only to cite a few separatist movements to illustrate this diversity. On the one hand, the Liberation Tigers of Tamil Eelam in Sri Lanka want full independence for their homeland and use violent means to achieve it. On the other hand, the Scottish National Party is dedicated to Scottish independence through democratic means and in the context of EU membership. Similarly, the Party Québécois has declared “Sovereignty-Partnership” with Canada as its ultimate goal and has attempted to achieve this goal through electoral politics and popular referenda on independence. Interestingly, the successor states of both Czechoslovakia and the Former Yugoslavia all expressed interest in joining the EU and three have done so. Slovenia, for example, left Yugoslavia in part over grievances about the political and economic constraints imposed by the federation. However, it is now a member of a union in which it arguably has less inﬂuence over common economic and political policy. We argue that a great deal of this variation is explained by the diﬀerent economic constraints and opportunities that the process of globalization imposes on separatist movements. Our argument proceeds from two key assumptions. First, all sub-national units seek greater autonomy. Second, the beneﬁts of increased autonomy are tempered by economic tradeoﬀs. Whereas small states in an economically-closed world may need to forego some level of autonomy in order to maintain economic well-being, the same states can seek greater autonomy with fewer economic constraints in an economically open world.1 We argue that economic factors have an indirect and complex eﬀect on separatist movements. Our basic argument can be summarized by the following three propositions: 1. The Economic Calculus of Separatism: In order to be successful, a separatist movement must consider the economic eﬀects of its decision to seek greater autonomy or outright independence. The struggle for greater autonomy, even if it is peaceful, has economic consequences, which the separatist and the central government must consider as part of their overall strategy. Each separatist movement must address the following questions: How will the movement be funded? What will be the economic consequences of a particular strategy or action? What will the economic future look like if greater autonomy or independence is achieved? This is not to 1 These assumptions are more or less the same as those of Allesina and Spoloare in their work on the “size of states”. That is, states have to balance the beneﬁts of being big (economies of scale, larger relative military potential, etc.) with the beneﬁts of being small (the locus of decisionmaking can be moved closer to home). See Allesina and Spoloare (2003).

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say that separatism is simply a reaction to economic circumstances, but rather to acknowledge the role played by economic factors.2 Directly or indirectly, economic factors impose constraints on, and provide opportunities for, separatist movements. This, in part, explains the diversity of goals, means, and success rates of separatist movements around the world. 2. The Eﬀect of Two-Dimensional Interdependence: We agree with the traditional liberal argument that economic interdependence has an important eﬀect on the likelihood of conﬂict. We build on this proposition by arguing that economic interdependence also has an eﬀect on the goals and means that separatist movements set for themselves. However, when it comes to intra-state conﬂict, economic interdependence has two dimensions: international or inter-state (i.e. economic ties between states) and domestic or intra-state (i.e. economic ties between the sub-units of a state). It is the balance between the two that shapes the course of a separatist struggle. 3. The Push and Pull of Globalization: Globalization has complex eﬀects on separatism. On the one hand, it erodes some of the economic logic of the nation-state since it provides sub-national regions with economic opportunities outside the national context. On the other hand, it makes small economies more vulnerable and strengthens the logic for economic integration. It therefore aﬀects the nature and importance of both interstate and intrastate interdependence. Of course, globalization does not aﬀect all economies in a uniform manner. The eﬀect of globalization on separatism turns on a number of factors including the nature of the economic resources of a state, its level of development, and the institutional structure that both constitute its national economy and link it to the global marketplace. To recapitulate, separatist movements are heavily inﬂuenced by economic considerations. Economic interdependence, both internal and external, is important insofar as it inﬂuences the decision-making of both separatists and central governments. Given that globalization is shaping these two levels of economic interdependence in complex ways, it therefore plays an important part in shaping the creation and development of separatist movements. This chapter takes a novel approach to the question of how security and economic factors interact. It examines separatism and the various forms that it takes from a new perspective and hopefully provides new insights into our understanding of the topic. It also outlines some of the dangers that globalization poses and the complex eﬀects it has on intrastate conﬂict and human security. 2

This argument is also made in the Greed vs. Grievance literature.

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The next section gives a brief overview of the literature on the economic aspects of intrastate conﬂict. Section three presents our core theoretical argument. Section four presents a brief analysis of our theory in four case studies: Canada (Quebec)—developed federal state, England (Scotland)—developed unitary state, Nigeria (Biafra)—developing federal state, and Sri Lanka (Tamil Eelam)—developing unitary state. Section ﬁve concludes.

Literature Review: The Economic Dimensions of Intrastate Conﬂict The literature on the topics of separatism, civil wars, and the relationship between economic interdependence and conﬂict is vast. Although a full overview of the literature is beyond the scope of this chapter, there are four areas that are particularly relevant. Interdependence and Conﬂict: The debate over the eﬀect of economic interdependence on conﬂict has a long tradition and has seen renewed interest in recent years.3 The usual argument in the Neoliberal literature is that by generating large economic gains, which are easily disrupted by war, interdependence increases the opportunity costs of war and thus decreases the likelihood of violent conﬂict. There are two common counter-arguments to this proposition. First, Marxists and some Realists argue that interdependence leads to conﬂict because of disputes over the distribution of beneﬁts: the more asymmetric the economic relationship, the higher the likelihood of conﬂict. Second, most Realists argue that there is little connection between interdependence and conﬂict; the economic and security realms are largely separate and when they do interact, security considerations always dominate. This is, of course, a very complex issue and it is misleading to think of it simply in terms of interdependence having or not having an eﬀect on the likelihood of conﬂict. The relevant question is not so much whether interdependence promotes peace, but rather under what circumstance will interdependence promote peace.4 The goal of this chapter is to examine how various conﬁgurations of internal and external interdependence will aﬀect the likelihood that a separatist movement becomes violent. In addition, there are three speciﬁc controversies that come out of this literature that are particularly important for our argument. The ﬁrst is the debate 3 A very good recent edited-volume on the subject is Schneider et al. (2003). The introductory chapter by Schneider, Barbieri and Gleditsch gives an excellent overview of the literature on the connection between interdependence and conﬂict. 4 For a discussion of resent empirical ﬁndings that support the conditional nature of interdependence and peace see Schneider et al. (2003), pp. 22-23 as well as Barbieri and Reuveny (2005).

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on how economic interdependence reduces the possibility of conﬂict. Today the argument is mainly limited to the idea that economic interdependence imposes opportunity costs on the use of force. This point was always an important part of the Classical Liberal argument, but it was not the whole argument. Two additional points were also emphasized: 1) Increasing interaction between states and their citizens would result in increasing understanding and, as a result, decrease the likelihood of conﬂict;5 2) Trade is more eﬀective than conquest for increasing state wealth and is therefore a direct substitute for war.6 The latter point is an important part of our argument. As we will argue below, under certain circumstances international economic ties between states and the international institutions that support them can provide sub-state actors with a way of increasing their de facto autonomy without resorting to violence. Therefore, interdependence can, in certain circumstances, make turning to violence not only undesirable but actually counterproductive. The second controversy centers on the argument that interdependence does not have a direct eﬀect on conﬂict.7 The logic is similar to the role that weapons systems play in determining the outbreak and duration of wars. Weapons in themselves do not cause conﬂict, but they do inﬂuence the cost-beneﬁt analysis and likelihood of success calculations of the use of force.8 In a similar way, the level of interdependence can inﬂuence the cost-beneﬁt calculations of separatist groups. This is, in essence, how we see the role of interdependence in motivating separatist. The ﬁnal controversy pertains to the old criticism raised by critics of the Liberal argument: if interdependence causes peace, then how can we explain civil wars? This is an important point and in part motivates this project. We argue that in the case of separatism, interdependence does not matter just at the international level. It is also important to consider the domestic level of interdependence and how internal and external interdependence interact. Economic Openness and Domestic Cleavages: It has long been understood that international economic openness aﬀects domestic cleavages by producing 5 One of the strongest formulations of this idea is found in Kant’s (1795) Perpetual Peace, and it was a central belief of the late nineteenth-century Manchester School. 6 This argument can be found in a number of seminal works in the Liberal tradition such as Adam Smith’s (1776/2000) Wealth of Nations, Benjamin Constant’s 1816 pamphlet, The Liberty of the Ancients Compared with that of Moderns, and Norman Angell’s (1911/2006) The Great Illusion. 7 Indeed, as many have pointed out, the causality also (or perhaps primarily) ﬂows in the opposite direction: peace is a necessary condition for the emergence of interdependence. See Schneider et al. (2003) in particular pages 12-13 and 23. 8 The most famous example of this is the argument that Nuclear Weapons helped prevent great power wars during the Cold War.

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winners and losers and altering the balance of power between domestic groups (Rogowski 1989; Alt and Gilligan 1994; Hiscox 2002). This conﬂict is usually conceptualized in terms of either economic sectors (i.e. export vs. import competing industries) or in terms of factors of production (i.e. land, labor, and capital, where the conﬂict is between owners of the locally-abundant factors vs. owners of scares factors). However, the winners and losers can also correspond to regional or ethnic identities and this can be a source of tension and help fuel separatism. The conﬂict in the Former Yugoslavia was, in part, aggravated by the feelings of both Slovenia and Croatia that, while they were generating much of the wealth and foreign income of Yugoslavia, they were not receiving their fair share. Currently, economic growth in China is concentrated primarily in its coastal regions and along its great rivers. These areas of increasing prosperity are primarily inhabited by Han Chinese, while most of China’s ethnic minorities are found in the less-prosperous interior. These growing economic diﬀerences may aggravate disputes between the central government and the Tibet and Xinjiang autonomous regions, which already have separatist movements. As such, if the conﬂicts that often follow economic openness correspond with sub-national fault lines, it can help fuel separatist impulses. Greed and Grievance: The greed and grievance argument states that economic motives play a role in the outbreak and duration of civil wars. For example, in economies that depend heavily on resource extraction, the government may be tempted to use this as it as a primary source of revenue rather than directly taxing its citizens. This makes the government independent of its citizens and, as a result, less responsive to their concerns. This, in turn, can exacerbate existing grievances. In addition, if the opposition can seize these resources they can disrupt the balance of power vis-à-vis the government by simultaneously gaining additional means to fund their war eﬀort and diminishing the government’s ability to do so. The role that oil, diamonds, and other commodities have played in a number of conﬂicts is well documented. Recently, this argument has been extended to look at the role that other external economic resources such as trade, investment, and aid play in internal conﬂicts.9 Our goal is to build on this work by providing a more general framework for analyzing these arguments.

9 Some good recent works on this include Bueno De Mesquita and Smith (2007), which looks at the role that aid plays in keeping a government in power, while Cramer (2007), Jung (2003), and Berdal and Malone (2000) give a more general analysis of the various ways in which civil wars are motivated and sustained by economic ﬂows. Jung’s edited volume provides a particularly good analysis of the eﬀect of globalization on violent conﬂict in developing nations.

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Globalization and State Size: The drive to see greater congruence between the political and the national unit has resulted in an explosion in the number of states since World War II. According to one dataset, the number of states has tripled from 64 in 1945 to 194 in 2004.10 Some have also argued that globalization is directly leading to increased fragmentation. These arguments fall into two general categories. The ﬁrst argues that globalization is undermining the economic value of the nation-state both by increasing the importance of supra-national organizations such as the EU and by increasing the importance of sub-national regions as targets of investment and trade.11 According to some, globalization is making separatism more viable because it lowers the cost of exit (Meadwell and Martin 1996; Shulman 2000; Allesina and Spolaore 2003). Smaller states need not worry about the perils of autarky if they can plug into the global economy to access capital, beneﬁt from economies of scale, and leverage their comparative advantage. The second argues that globalization is creating a sense of vulnerability among many groups exposed to market forces and the emergence of a global culture based on Western values.12 Globalization is giving these same groups a means of ﬁghting back by providing them with access to new technologies and strategic opportunities (Richardson 1998; Giraldo and Trinkunas 2007). This means that groups that feel under threat from globalization and feel that their government is not doing enough to protect them, may turn to separatism as one avenue of dealing with the problem. The irony here is that their ability to do so is strengthened by the very process of globalization that they fear. All of these arguments indicate that separatists may be strengthened by globalization. However, the impact of globalization on separatism remains under-examined13 and a number of questions remain. If globalization is enabling regions to secede, are those regions merely trading one form of dependence for another? That is, separatists may be gaining greater or even full independence from a central government, but may be simultaneously losing policy autonomy to global market forces! If this is the case, why do we still see separatism? Why do some groups choose violent methods to achieve their goals when others take a more peaceful route? Finally, what factors incite

10

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COW State System Membership List, V2008.1.

This process has been dubbed “fragmegration” by Rosenau (1997). For example, globalization is the driving cause of conﬂict for both Barber (1995) and Huntington (1996). 13 Recently, Barbieri and Reuveny (2005) conducted an important time-series cross-sectional study that tests seventeen propositions about the relationship between globalization and civil war. However, this study does not consider the distinction between intra- and inter-state economic interdependence nor how it relates to globalization and civil war. 12

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regions to aim for complete sovereign autonomy versus other federal options that grant greater autonomy short of complete independence?

The Theoretical Model From the point of view of our research question there are two primary actors of interest: the separatist/sub-national region and the central government/ metropole. We use the term separatist to encompass all sub-national political entities that wish to increase their autonomy vis-à-vis the central government.14 This conceptualization captures not only the aim to gain full political independence, but also any desire to increase a region’s autonomy with respect to the central government. This includes both legally-recognized and de facto sub-national governments and political movements.15 As we already noted, we make the following two important assumptions about the relationship between sub-national regions/units and the central government. First, sub-national units want to increase their autonomy vis-à-vis the central government, all else being equal. Second, the beneﬁts of increasing your autonomy are oﬀset by economic tradeoﬀs. That is, the smaller the country, the less viable it is as an economic entity; likewise, the larger the state, the better suited it is to survive in a state of autarky. Reconceptualizing Interdependence: The traditional conception of interdependence focuses on the relationship between countries. One reason for this is that we tend to assume that a national economy is naturally more economically integrated than the international economy. Therefore, when we think of interdependence we tend to think of it at the international level since it supposedly already exists at the national level. But this is misleading. Just because a national economy lacks formal barriers to trade does not mean that the national economy is actually integrated. Indeed, despite the fact that we tend to think in terms of national economies, truly national economies rarely exist. The US, for example, is actually composed of a number of economic regions that are linked to varying degrees. The states around the Great Lakes have stronger economic ties with the Canadian province of Ontario then they do with the southern states. Similarly, northern Italy has stronger economic ties 14 A sub-national unit is an identiﬁable political jurisdiction—e.g. province, lander, canton— within a state that typically, though not always, corresponds to a nation or ethnic group that is diﬀerent from the majority group of the metropole. 15 We try to avoid loaded terms such as legitimate and illegitimate. However, it is import to recognize that separatists can run the spectrum from recognized political parties with political power (e.g. the Bloc Quebecois, which was the oﬃcial opposition in the Canadian Parliament from 1993-97) to semi-legal movements and outlawed organizations.

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with southern Germany, Austria and Switzerland than it does with southern Italy.16 These regional economic diﬀerences also exist in developing countries. In some of the poorest nations of the world, especially those that depend on subsistence agriculture, there is very little economic integration in the modern sense. As we noted above, in the case of China, the prosperity of the coastal and riparian regions depends more on their ties to the global economy than their economic relationship with the hinterlands. Thinking of economic interdependence simply in terms of the economic connections between states misses a large and very important part of the picture. We therefore approach interdependence from a novel perspective and deﬁne two levels, or dimensions, of interdependence from the perspective of the sub-national region: Internal/Domestic Interdependence: economic interdependence between the sub-national regions that make up the state (the economic ties internal to the state). External/International Interdependence: economic interdependence between the sub-national regions that make up the state and the world economy (economic ties that cross national boundaries). Of course, the levels of economic interdependence are not wholly exogenous to the policy decisions of separatists and the central government. However, there are limits to how much policy can aﬀect interdependence. Two of the most important limits are set by the level of economic development and the locus of economic decision-making in the economy. First, there is a direct relationship between economic development and interdependence. An economy at a low level of development is characterized by the dominance of the primary sector, especially subsistence agriculture, with the secondary and tertiary sectors being of relatively small importance. As a result, domestic economic ties are more likely to be local rather then national in scope, while international economic ﬂows are likely to focus on export agriculture, raw materials extraction, and even aid and remittances from diaspora communities. As more sophisticated agribusiness, manufacturing, and service industries develop, the economy begins to be characterized by increasing specialization and the growing importance of national and international

16 For example see Salvatore (1997) and Dickerson, Gibson, & Tsakalotos (1998) for a discussion of the extent to which the US and EU form an optimal currency area—i.e. the extent to which they represent one economy (and should have one currency) as opposed to a set of linked economies.

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economic ties. Therefore, increasing economic development should increase both the level of internal and external interdependence. Second, the nature of economic interdependence is also inﬂuenced by the underlying economic system. We can deﬁne economies by their primary form of property rights and economic decision-making (i.e. how consumption and investment decisions are made). There are three ideal economy types: 1) market—with decentralized decision-making primarily in the hands of economic entities (individuals, households and ﬁrms); 2) command/state-socialism— centralized decision-making in the hands of the state; and 3) traditional— decentralized decision-making guided by traditional social relationships (here the social institutions such as clans and tribes are the primary economic entities). Thus, in terms of manipulating the levels of interdependence, traditional economies privilege separatists (even if de jure all policy decisionmaking is centralized), command economies privilege the central government, and market economies tend to promote both internal and external interdependence. Of course, no pure economic system exists, but the more economic decision-making is in the hands of economic agents (as opposed to the state or traditional social groups) the harder it is to manipulate the levels of interdependence. Interdependence and Separatism: Economic interdependence can aﬀect separatism in two important ways. First, interdependence inﬂuences the ﬁnal goal that separatists seek. If a sub-national region is highly integrated into the national economy, then full economic independence will be costly. This will likely lead separatists to demand greater autonomy rather than full independence. If they do ask for independence, then they will likely call for some form of independence with continued economic association, as is the case with the Quebec separatists. If the sub-national region is relatively autarkic, or if it has strong external economic ties, then full independence is a more realistic goal from a purely economic standpoint. Second, interdependence inﬂuences the means that separatists choose to achieve their goals. High levels of national interdependence will increase the cost of choosing violence as a means to increase autonomy. It can also give the national government a greater incentive to resist separatism and provide it with leverage over the separatists. If, on the other hand, the region is open to the international economy, this can provide separatists with resources that are better insulated from the control of the national government.17

17 Of course, there are other important factors that inﬂuence the choice of goals and strategies. Examples include domestic political institutions (i.e. the level of centralization and democracy), access to arms, international factors (i.e. regional institutions), etc.

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There is therefore a basic tension between the eﬀects of internal and external interdependence on separatism: internal independence ties the sub-national region closer to the state and makes separatism more costly; external interdependence gives the sub-national region an economic alternative to the state and makes separatism less costly. This can be stated as follows: For any given level of domestic interdependence, an increase (decrease) in international interdependence will strengthen (weaken) the case for separatism. For any given level of international interdependence, an increase (decrease) in domestic interdependence will weaken (strengthen) the case for separatism.

The basic logic of the argument is presented in Table 1 and the four ideal-types are described below. We begin with the simplest type and move to the more complex. Table 1 Four ideal-types of two-level interdependence Internal Interdependence High Low

High

External Interdependence Low

Type 1: Dual Interdependence

Type 2: External Interdependence

Separatism through international integration

Easy case for separatism

Type 3: Internal Interdependence

Type 4: No Interdependence

Hard case for separatism

Separatism not influenced by economic consideration

Type 4—No Interdependence: This is the simplest case because the subnational region has few ties with either the national or international economy; economic considerations play a minimal if any role in the strategy of separatism. An example of this is pre-independence Eritrea whose economy was primarily geared toward subsistence agriculture with comparatively few ties with either the Ethiopian or international economy.

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Type 3—Internal Interdependence: This is the hardest case for separatists as the sub-national region is integrated into the national economy, but relatively isolated from the international economy. As such, separatists have no external economic ties to fall back on. Full independence typically requires that the local economy be transformed if the breakaway state wishes to survive as a separate polity. This vulnerability undermines separatist interest, particularly if the economic relationship is asymmetrical (i.e. the sub-region depends more on the metropole than the metropole depends on it). A good example of this is the former Soviet Union whose economy was highly specialized and integrated. Its external economic relations, on the other hand, were rather minimal with the exception of its ties to other members of the Warsaw Pact. A situation of internal dependence also reduces the likelihood that separatists will choose violent methods. Although interdependence makes the central government vulnerable to the actions of the separatists, it also makes the separatists themselves vulnerable. While interdependence gives both the central government and separatists easy targets for attack and retaliation, it also means that a protracted conﬂict would be very costly. Loyalists and separatists alike will judge the cost of a protracted struggle to be high. In addition, the peril of economic de-integration from the metropole, especially if violent methods are employed, complicates post-independence economic recovery. That is, if amicable relations are not restored with the metropole, then old economic ties may not be restored and, as a result, postwar recovery may be quite diﬃcult. This was one of the problems the successor states of the Austro-Hungarian Empire had to deal with after 1919.18 A more contemporary example is Kosovo, whose economy was hurt by more than a decade of political tension and conﬂict. A current problem for the Kosovar government is not just economic recovery, but also the lack of access to markets. Despite the continued tension between Kosovo and Serbia, and the tension between ethnic Albanians and Macedonians in the Republic of Macedonia, Macedonia and Serbia remain Kosovo’s largest and second largest export markets respectively. Type 2—External Interdependence: Here, the sub-national region has strong economic ties at the global level and weak ties at the national level. This is the easiest case for separatist because, all else being equal, independence makes sense from an economic standpoint. In practice this gives separatists three advantages in calling for full independence. First, separatists have economic resources at their disposal that are less vulnerable to the central govern18 This was also aggravated by the fact that the interwar-trading system was on the whole more protectionist than the pre-war system had been.

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ment. Second, the central government also has less to lose from separatism because of the weak economic ties between it and the breakaway region. Thus, its resolve to challenge the separatists should be weaker. Finally, because outside powers have an economic stake in the separatist economy, they are more likely to get involved in the conﬂict in a way that beneﬁts the separatists. This means that the central government is more likely to face foreign pressure to accept mediation, which can limit its ability to crack down on the separatists and force it to grant concessions. In extreme cases it can mean direct intervention by a foreign power. A classic example of this scenario is the American Civil War. Although the war had complex origins, economic issues played an important role in Southern calculations. While the North was relatively autarkic and protectionist the South was dependent on exports; this was a source of tension between the North and South and it helped shape the conﬂict. The South hoped that it could make up for its lack of industrial capacity through trade.19 It even hoped that the dependence of the British and French textile industries on Southern cotton would lead them to intervene in the war. The ﬁnal Northern strategy reﬂected these economic realities: blockading the South was a key priority. Type 1—Dual Interdependence: Here, the sub-national region is integrated into both the international and national economies. As such, violent conﬂict between the separatists and the central government is less likely. Both the separatists and the central government are vulnerable to the economic cost of violent conﬂict, particularly a protracted one. In addition, foreign powers are more likely to be negatively aﬀected by violent separation. This vulnerability means that it is less likely that external powers will support one side in a separatist struggle, even a non-violent one. Interestingly, two-level interdependence provides separatists with a means of expanding their autonomy through economic policy, thus limiting the need to turn to violence. By increasing their non-national economic links, they decrease their relative dependence on the national economy. In addition, if supra-national economic integration is accompanied by international institutions, such as NAFTA or the EU, then sub-national regions will have access to institutions that are not under the control of the metropole, and provide them with additional leverage. However, with dual interdependence, public opinion may reject full sovereignty on account of economic considerations, but still 19 In fact, the only European country that fully supported the North was Russia. Both Britain and France allowed private contractors to build weapons and munitions for the South, including a number of modern warships. Not only did Russia not allow any support for the confederacy, but it sent a naval mission to San Francisco in 1863, which provided some assistance to the relatively small US Paciﬁc Squadron (Kroll 2007).

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embrace greater autonomy. Therefore, in doubly-interdependent cases, we are just as likely to see calls for decentralized (federal) arrangements as we are for complete separation. In both Type-1 and Type-4 situations economic interdependence does not give a clear advantage or disadvantage to separatists vis-à-vis the metropole (as it does in Type-2 and Type-3 cases respectively). However, these two cases are still distinct. In a Type-4 situation, economic considerations play no role in separatist strategy. In Type-1 cases, however, economic interdependence will tend to restrain the use of violence and the adoption of other radical political strategies. Turning to more extreme policies could impose economic costs on the sub-national region, the metropole, and foreign nations. Therefore, a separatist movement that uses extreme methods in this situation is more likely to face opposition from both its own constituents and foreign governments. Summary and Implications: These four types provide a useful schematic for analyzing the relationship between globalization and separatism. At its very heart, the process of globalization entails the economic integration of national markets. However, this process is far from uniform and its eﬀects vary a great deal between international regions, countries, and regions within countries. Because of the relationship between development and interdependence, developing states are more likely to ﬁnd themselves in Type-2 and Type-4 situations and separatists in these states are more likely to turn to more extreme and violent strategies. More developed states are likely to ﬁnd themselves in Type-1 and Type-3 scenarios and separatist movements here will have to use more moderate political strategies to achieve their goals. We can also draw a connection between these ideal cases and the nature of the national economy. The more market-oriented an economy the more likely it will promote both internal and external interdependence and result in Type-1 situations. Command economies are more likely to emphasize internal interdependence (especially if the government places a lot of importance on controlling foreign economic ﬂows) and yield Type-3 situations. Traditional economies are likely to limit the level of both internal and external interdependence and produce Type-4 situations. The four cases listed above are ideal types. As such, real life examples are likely to exhibit over-lapping characteristics. More importantly, economic relationships are not static. They move across the typology as the balance between internal and external interdependence changes. Although our model describes all four types, we are particularly interested in Type 1 and Type 2 since globalization seems to be making truly autarkic nations a rarity. Not only are these types more common in a globalizing world economy, but globaliza-

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tion seems to be driving sub-national units into one of these two categories. In other words, globalization tends to transform Type-3 and Type-4 situations into Type-1 and Type-2 situations. In general, separatism in developing countries is likely to become more violent while separatism in developed countries is likely to reject violence and other extreme means of achieving their goals. We discuss these movements in our analysis.

Empirical Analysis In this section we use process tracing to examine the development of separatist movements in four cases: Quebec/Canada—a developed federal state; Scotland/ United Kingdom—a developed unitary state; Biafra/Nigeria—a developing federal state; and Tamil Eelam/Sri Lanka—a developing unitary state. The cases were primarily selected because of the variation in the balance of interdependence (which varies not only across the four cases, but also within each case over time). Additionally, the cases also vary in terms of their economic development and level of centralization, factors that are recognized as having an impact on separatism. Scotland Scotland’s current political relationship with the United Kingdom has its formal beginnings with the Act of Union in 1707, an agreement that merged Scotland and England into a uniﬁed kingdom and which permitted Scotland to maintain a separate established Church, its own legal system, and a distinctive education system. The Scottish cultural renaissance of the nineteenth century helped to stir national imaginings, and the Irish quest for Home Rule provided an example, but it was not until 1934 that the drive for increased Scottish autonomy gained momentum. That year the National Party of Scotland and the Scottish Party combined to form the Scottish National Party (SNP). Although the SNP initially sought only a more devolved relationship with London—the position of the Scottish Party—it was not long before they settled into their long-standing position which aimed for complete independence—the position of the Scottish National Party. Unfortunately for the independence movement, the SNP was unable to gain any signiﬁcant support during the mid-twentieth century. The general consensus was that, with poor soil and key export industries that depended on British imperial and Commonwealth networks, Scottish economic well-being was bound up with that of the UK (Palmowski 2003). Less than 22,000 people voted for SNP candidates in the 1959 general election and, outside of the

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capture of a single M.P. seat in 1967, it was not until the 1970s that the SNP would see an upturn in its popularity (Palmer 1979). The discovery of oil in the North Sea during the late 1960s dramatically altered the ability of the SNP to appeal to Scottish nationalism. Collier and Hoeﬄer (2002) contend that with the oil crisis of 1973, and the resulting revenues to the British government from added taxes on oil, the SNP was able to turn the issue to their advantage. The cry “It’s Scotland’s Oil!” helped to remind Scots of the tremendous cash windfall should oil proﬁts accrue to Scotland only (pp. 6-7). The result was that between 1970 and 1974, support for the SNP tripled until they had over 30 percent of the popular vote and some 11 parliamentary seats. The issue over oil proﬁts resonated with Scottish workers, many of whom felt that Westminster did not fully understand the nature of Scotland’s post-war economic depression.20 With a gathering interest in greater independence, the 1973 recommendation by the Royal Commission on the Constitution (a.k.a. the Kilbrandon Report) provided a focal point: there should be a devolved legislature for Scotland. Devolution, as opposed to complete independence, was the compromise worked out between the SNP and the Scottish Labour Party. The SNP was split between those who favored complete independence and those who preferred devolution, and the Scottish Labour Party was split between those who sought devolution and those who preferred the status quo. As such, devolution was the middle way. After several years of consideration, the British Parliament supported a bill for Scottish devolution in July 1978. The establishment of a Scottish Assembly would turn on a referendum that needed to be supported by at least 40 percent of the population. The results, however, fell short of the mark. Although a narrow majority of the voters favored devolution, they were unable to pass the 40 percent threshold since approximately 1/3 of the population did not come out to vote (Palmer 1979). A signiﬁcant blow to the independence movement, the failed referendum signaled a decline of the SNP that would last much of the 1980s. Nonetheless, the drive for greater autonomy was kept alive throughout the Thatcher years partly through the eﬀorts of the Campaign for a Scottish Assembly, whose membership drew on both the Scottish Labour Party and the SNP. It was during the 1990s that the movement resurged and ﬁnally gained Home Rule. Two factors helped the Scots to achieve this goal. The ﬁrst was that British membership in the European Union provided an important economic, political, and cultural focus outside the United Kingdom and the 20 Palmer (1979) argues that this feeling was particularly acute among the youngest voters, which after the extension of the franchise in 1969 included those 18 years of age, who were impatient with the remote and largely alien government in London.

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Commonwealth. Indeed, the EU came to be perceived in Scotland as an “institutional counterweight to the English state and as a possible alternative to the British market” (Meadwell and Martin 1996:78). Recognition of this possibility helped propagate slogans such as “Independence in Europe,” a notion that welds devolution at the British level with integration at the European level. The second factor in the success of devolution was the advent of New Labour in 1997. Whereas the conservative administrations of Thatcher and Major were mostly opposed to devolution within Britain, Blair was willing to accommodate. As a result, a bill on Home Rule was passed in London and was accepted with an overwhelming majority in a Scottish referendum. The resulting Assembly works on a proportional basis and has jurisdiction over some areas of taxation, as well as public health and other public services. In 2007, the SNP ﬁnally achieved a slight majority and was able to form a coalition under First Minister Alex Salmand. The government is currently exploring the possibility of holding a referendum on the issue of independence. Should a referendum take place and should it result in a ‘yes’ vote—a position that most of the other parties currently oppose—then the Scottish government would aim to open talks with London over the issue of secession. The overall direction and character of Scottish separatism is consistent with our expectations. There are two dominant factors which appear to have catalyzed Scottish separatism. The ﬁrst was the discovery of oil in the North Sea, an issue that brought to the fore both the question of revenue distribution and the possibility of economic viability of an independent Scotland. The second was the success of the EU during the 1990s, a development that presented Scotland with more tangible external economic possibilities. Together, these factors eﬀectively lowered the cost of exit for Scotland. Notably, agitation for Scottish separatism has been conducted non-violently and through political channels. Its development is determined through the political process, and it is responsive to public opinion. Although a portion of the population, as well as the SNP, favor complete independence, the current majority of citizens and parties still prefer a middle-ground between an English unitary state and an independent Scotland, which is consistent with our expectation of a doubly-integrated political unit (see Table 1.) The polity has to balance the cost of de-integration at the state level with integration at the supra-national level. The result is a careful and non-violent strategy that aims to play at both tables. Quebec A colony under British control beginning in 1763 and part of the Confederation of Canada since 1867, Quebec has long been a Francophone unit within

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a larger Anglophone state. Largely agricultural for much of its history, industrialization and diversiﬁcation began to take hold in the 1940s and 1950s. But it was the Quiet Revolution starting in 1960 that saw the birth of the Québécois nationalist movement. The increased power of the provincial government, the industrial growth of the economy, and the surge in cultural pride resulted in a more assertive and self-conﬁdent Quebec vis-à-vis the Canadian government (Palmowski 2003). The yearning for independence resulted in the merging of various separatist groups in 1968 into the Parti Québécois (PQ) which, from its beginning, has advocated for secession. Interestingly, the term “sovereignty-association” has often been evoked to express the idea that Quebec would become its own country, but that it would retain economic ties with Canada. The opposition party to the PQ has traditionally been the Liberal Party of Quebec, a party that advocates for a federal arrangement—i.e. a non-sovereign but highly autonomous relationship. Notably, for some time the more extreme proponent of independence was the Front de Libération du Québec (FLQ), which was active from 1963 to 1971. However, the FLQ, and the violent methods it used, were heavily discredited in both the October Crisis of 1970 and in the resulting government crack-down (Palmowski 2003). The strength of the independence movement gathered momentum over the next few decades. After winning provincial elections in 1976, the PQ held a referendum on independence that failed by a large margin; most Québécois preferred to deﬁne their identity within, rather than outside, a Canadian context. However, the constitutional crisis of the 1980s focused Québécois grievances at the federal government, and by the mid-1990s the movement was ready to attempt another referendum. Aided by the Bloc Québécois, the corollary to the PQ at the national level, the movement nearly won the argument in the famous referendum of 1995. The narrow defeat resulted in a shift in PQ emphasis to more immediate economic interests. A striking feature of the nationalist movement has been its liberal stance since at least the 1970s. Both the PQ and the Liberal Party of Quebec “support free trade and economic integration because of the beneﬁts they oﬀer to Québécois autonomy through increased economic diversiﬁcation and strength” (Shulman 2000:375). Although the parties have favored diﬀerent degrees of devolution—the PQ aims for a sovereign state while the Liberal Party of Quebec prefers a federal option—the underlying logic has been the same: increased integration via the Canada-United States Free Trade Agreement, and later NAFTA, provide Quebec with an important counter-balance to Anglophone Canada. As a result, support for NAFTA has been stronger there than elsewhere in Canada. A 1990 Gallup poll found that 57 percent of Québécois

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supported NAFTA versus 27 percent in the rest of Canada. Shulman (2000) notes that the earlier perception of a tradeoﬀ between political autonomy and economic welfare has diminished as Quebec has become more integrated internationally and, arguably, less dependent on the Canadian state (Ibid.: 376). In fact, “the popularity of sovereignty has grown with continental integration.” Whether or not it will grow to the point where the PQ will attempt another independence referendum remains to be seen. For the moment, the party appears to be content to seek greater supranational economic integration. The push for separatism in Quebec is not unlike that of Scotland. Both states are highly integrated at both the domestic and the international levels. Both states saw a rise in separatist interest as the states grew economically and as the perception of external economic options became more apparent—i.e. as they moved from Type-3 cases to Type 1 (see Table 2). Moreover, both states have been rather supportive of external integration partly because of the view that economic connectivity at the supranational level would act as a counterweight and therefore lessen dependence at the national level. In essence, external economic integration lowers the cost of exit. To be fair, there are opponents to this strategy. In Quebec, there has long been a concern that by opening the doors to US trade and investment, the Québécois simultaneously expose themselves to cultural contamination. But for the moment, such concerns tend to be elided by the leadership in both parties who prefer to emphasize the beneﬁts of integration. Although the character of Québécois nationalism is not monolithic, the dominant middle position—as advocated by both parties—is consistent with the central theory of this chapter. That is, doubly integrated polities will seek greater autonomy domestically while conceding that autonomy internationally. This is the subtlety of terms like “sovereignty-association” or “independence in Europe”; they imply increased decentralization on one level and increased centralization on another. Importantly, such objectives are sought primarily (with occasional exceptions) through non-violent, political means. Biafra The Nigerian state was born in 1960 after acquiring independence from the United Kingdom. The resulting country was designed with a federal structure of three units, each of which held a majority group.21 These consisted of the Hausa-Fulani in the north, the Yoruba in the southwest, and the Igbo in the 21 Although there are numerous other ethnic groups, these three accounted for the majority of the population, see O’Mara (1999).

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Table 2 Scotland and Québec Internal Interdependence High Low

High External Interdependence Low

Type 1: Complex Interdependence

Type 2: External Interdependence

Scotland & Quebec, currently Type 3: Internal Interdependence

Type 4: No Interdependence

Scotland & Quebec, early 20th Century

southeast. In this way, the political design of the state overlapped to a large extent with ethnic divisions and, as a result, it was easier for group identities to be imagined along federal lines.22 This tripartite structure was reinforced by political parties: the Nigerian People’s Congress (NPC) had its base among the mostly Islamic Hausa-Fulani, the Action Group (AG) drew on the Yoruba of the southwest; the National Council of Nigeria and the Cameroons (NCNC) found support among the Christian Igbo in the southeast. Economically, the large and populous state was mostly undeveloped with poor infrastructure and very little industry. Primary exports included agricultural products, minerals, and, by the mid-1960s, oil. These products tended to be regionally clustered; the north had mineral wealth, the southeast had agriculture (e.g. cocoa), and the southeast would be closest to the oil ﬁelds in the Niger delta. The state’s federal structure combined with its regionally-based export products had perilous consequences. In the early years, the Hausa-Fulani and the Igbo formed a political alliance against the Yoruba. According to Collier and Hoeﬄer (2002), this was politically expedient since the Yoruba were in possession of the most lucrative export product: cocoa (p. 17). An alliance of the two regions and their parties formed a counter-weight to the southeast. Interestingly, the Hausa-dominated northern region was protective of its mineral 22 In truth, each of these three tribes was internally divided among numerous sub-groups (Diamond 1988).

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export sector and, reportedly, there was low-level interest in secession from the larger state. A collection of factors, including some resentment stemming from the perception of an Igbo elite in the government, created a realignment between the Hausa and the Yoruba against the Igbo during the 1965 election. Concerns over electoral fraud resulted in an Igbo-led coup in 1966. This was in turn displaced by a Hausa-led coup that same year. After a year of deteriorating conditions and massacres, the Igbo-dominated southeast seceded in 1967 and declared the independent republic of Biafra.23 Between 1967 and 1970, the Biafran War of Independence raged. The eventual result was a reconquest by the Nigerian state and as many as 1 million military and civilian casualties (Palmowski 2003). There has been much debate about the extent to which oil motivated Biafran secession. The strongest claim is that its discovery in the Igbo-dominated Niger delta changed the constellation of power in the country. Its potential as a source of revenue drove the Hausa and Yoruba to ally to ensure that they would also receive a share (Collier and Hoeﬄer 2002). Meanwhile, the Igbo found themselves in a much more economically-viable position and, therefore, no longer needed the rest of the country. The weaker claim places less causal weight on the discovery of oil and instead locates the reasons for the political realignment with other grievance-type factors. But here too, oil, and the perception of the proﬁts it would bring, aﬀected the decision of the Igbo to secede. In essence, it lowered the cost of exit. Analytically, the story of Biafran secession is consistent with our theory. Prior to the discovery of oil, the southeastern region of Nigeria could be described as a doubly-independent polity (see Type 4 in Table 1). It had low levels of interconnectivity at both the domestic and international levels. The discovery of oil, however, shifted its interests decidedly in an international direction. Oil was clearly valuable on the world market and its extraction created a dependence on the global economy. Typologically, this could be understood as a shift from a doubly-independent case to an externally-dependent case—i.e. from Type 4 to Type 2 (see Table 3 below). As such, the choice of secession was made substantially easier. That it was done unilaterally, even violently, is consistent with our theory.

23 The name ‘Biafra’ was taken from the ‘Bight of Biafra.’ Interestingly in 1979 it was renamed ‘Bight of Bonney’ by the Nigerian government, who wanted to remove all reminders of the breakaway republic.

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Tamil Eelam At its independence from Britain in 1948, Sri Lanka24 possessed a population that was 75 percent Buddhist Sinhalese and 18 percent Tamil (partly Hindu and partly Christian).25 Early leadership under the popular Senanayake pushed the new-found unitary state in a direction that emphasized agricultural development and a secular balance between the two groups. His party, the United National Party (UNP) gathered support from both right-leaning Sinhalese and Tamils. Unfortunately, his un-timely death in 1952, combined with the weaker leadership of his son—D.S. Senanayake—paved the way for a radical change of course in 1956. That year, Solomon Bandaranaike, leader of the Sri Lanka Freedom Party (SLFP), was elected into power on a platform that catered to the interests of the Sinhalese majority. Sinhalese replaced English as the national language. Educational policies discriminated against both Muslims and Christians.26 When Bandaranaike’s wife, Sirimavo, succeeded him in 1960, she took the country in a decidedly Marxist direction by nationalizing agriculture and stiﬂing private enterprise. Although the return of the UNP in 1977 under Jayawardene promised a reversal of course, one that aimed both to revitalize the weakened economy and to dismantle policies that discriminated against Tamils, a combination of forces had already set a portion of the Tamils on the road to separatism. Twenty years of anti-Tamil policies had resulted in increased animosity on both sides, as well as a series of atrocities and incidents that each side could point to. The foundering of the economy during the SLFP period and the subsequent return to a market economy under the UNP resulted in economic disruption as previously protected sectors withered in the exposed economy. This exacerbated tensions for Tamil farmers in the north. Meanwhile, the discrediting of the SLFP and other parties inadvertently set up the Tamil United Liberation Front (TULF) as the primary opposition party to the UNP. The notion of a separate and independent Tamil state, Tamil Eelam, was ﬁrst oﬃcially proposed in 1976 by the TULF. This constituted an upgrade from earlier Tamil cries for greater autonomy of a federal form. Although the TULF captured most of the Tamil vote in the 1977 election, it was banned from Parliament a few years later for its pro-independence stance. After another six years of unrest and violence, full-scale civil war broke out in 1983. 24 The name of the state was changed from Ceylon to Sri Lanka in 1972. The name, which is of Sinhalese origin, angered Tamils (Palmowski 2003). 25 The remaining 7 percent of the population are of various descents including Malay and Arab (O’Mara 1999). 26 Some historians claim that the British ‘divide and rule’ policy, which favored the Tamils, left a legacy of Sinhalese grievances.

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Table 3 Biafra and Tamil Eelam Internal Interdependence High Low

High External Interdependence Low

Type 1: Complex Interdependence

Type 2: External Interdependence Biafra post-1965 & Tamil Eelam currently

Type 3: Internal Interdependence Tamil Eelam pre-1970

Type 4: No Interdependence Biafra pre-1965

Since then the war has raged on an oﬀ, killing upwards of 70,000 people, and draining as much as a quarter of national GDP. The Tamil drive for independence represents a mixed case insofar as it initially sought to achieve its goals through political channels. Prior to 1976, elements of the Tamil leadership aimed merely for a less-centralized, federal relationship with the larger state. From 1976 until at least 1983, the TULF aimed for complete independence, but its preferred methods were non-violent and politically grounded. It was in the post-1983 years that the more extreme wing of the movement—the Liberation Tigers of the Tamil Eelam (LTTE or simply the ‘Tigers’)—began to win the argument against the TULF, with whom they often clashed, sometimes violently. The overall evolution of Tamil separatism took the form of a multi-decade movement in which the Tamils were moderately dependent on the larger state in the beginning and largely independent of the international environment. That is, the Tamil region of Sri Lanka most resembled a Type-3 situation, though its level of development dampened the degree of internal interdependence (see Table 3). But after decades of conﬂict, economic disruption, and political alienation, the region became gradually less dependent on the Sri Lankan economy as well. Meanwhile, support from Tamil Nadu as well as from the Tamil Diaspora community abroad provided the region with some external economic resources (Collier and Hoeﬄer 2002:25). Collectively, these factors helped to change the incentive structure. Partially cut oﬀ from the larger state, Tamil separatists had little incentive to seek non-violent methods. Meanwhile, the external economic opportunities were not suﬃciently

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developed or available—at least not on par with the choices available to both the Scots and the Québécois—to motivate/pressure these groups to seek independence through more legitimate channels. In sum, this too is consistent with our theory.

Conclusion In this chapter, we have examined the eﬀect that globalization has on separatist movements. Assuming that separatism arises largely independent of economic factors, we have examined how economic factors constrain separatists by imposing costs on, and providing opportunities for greater autonomy or outright succession. As a result, economic factors will play a part in shaping the goals, means, and actual outcome of separatist movements. The primary economic factor at play is what we have called the balance of economic interdependence. That is, the balance between the two levels of interdependence: external/international—the economic interdependence between the sub-national region and the international economy; and internal/national— the interdependence of the sub-national region and the national economy. The importance of this balance lies in the fact that it directly determines the cost and viability—at least in the short run—of separation. According to our theory and the four case studies we have discussed, separatism is likely to take two very diﬀerent paths depending on where the movement is located. For states integrated on both levels—i.e. most developed states—separatism is likely to take a non-violent path and set goals that fall short of full independence. Separatists here are likely to call for some form of integrated independence.27 In these cases, economic interdependence may provide an alternative means of increasing autonomy. Paradoxically, it may result in the devolution of power to sub-national actors while simultaneously strengthening supranational institutions. This will lead not to the demise of the state, as some fear, but rather to a more complex relationship between the national, sub-national, and supra-national levels of politics. For states that are only weakly integrated at the national level—i.e. many developing states—separatism is more likely to turn to violence and demand full independence. Therefore, the process of globalization may generate two diﬀerent outcomes: one in which separatism leads to the devolution of power and, ironically, greater regional integration; and one in which separatism causes true fragmentation. 27 E.g. Sovereignty-Association advocated by the PQ or Independence in Europe advocated by the SNP.

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Demystifying the Nation Globe Conundrum: A Preliminary Sketch JoAnn Chirico The Pennsylvania State University

Abstract Economic, political, and social globalization processes have disrupted the relationship of societies to individual members and of societies to one another. This chapter explores a narrow range of globalization eﬀects on these relationships. Using international data bases to demonstrate people’s attachment to and conﬁdence in various levels of social order, I outline a preliminary sketch of these relationships. Select trends within and among states are analyzed in this context to suggest opportunities through which states may be strengthened rather than threatened by globalization. Keywords globalization, national sovereignty, World Values Survey, political globalization, democracy

I. Theoretical Orientation to Globalization Perspectives on the relationship between globalization, states, nations, and nation states are more than a bit murky. Many “globalists” argue that the state is eclipsed by globalization. The perceived threat comes from two directions: the possible emergence of a world polity and the strength of global economic forces. Independently or synergistically, it is thought that they have the potential to render the state impotent and obsolete. Others point to the resilience of the state, particularly of nationalism, as evidence that globalization is a myth. Consideration of how globalization and the state can be not simply mutually contingent—but mutually reinforcing—is less explored. Using a model of globalization that theoretically integrates globalization eﬀects on individuals, societies and relations among them, I analyze people’s attachment to multiple levels of social order, the implications of this for people’s expectations of their relationship to the state and of the state to the global system of societies. In our disorderly era the fundamental question is “how is order possible?” The conceptual tools that the classical sociologists used to answer this are still

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relevant. Although Simmel explicitly addressed society, neither he, Weber, Durkheim, or Marx conﬁned their responses to the bounded national society, as many contemporary theorists tend to do. The questions they posed referred to “sociability;” the answers referred, unless explicitly particular, to any level of social order. The relevant levels of our time include the globe. The question of “possibility” involves both the objective reality of the social order and its subjective nature, the sense in which it comes to be recognized as a wholeness or totality and the variable ways in which it comes to be known (Simmel 1971:6). Realization of the global, according to Durkheim (1933), would emerge from the rapidly-increasing diﬀerentiation and individualization characteristic of modernity. These twin processes would ultimately lead to the recognition and reality that all individuals have in common is their humanity. The larger and more diﬀerentiated groups become, the more pressure is exerted for a higher level of generality to emerge as the basis for connection, for socio-moral foundation (203). The more particular and speciﬁc singularities (individuals or, in the case of the globe, societies) become, the same pressure for a higher level of generality applies (p. 399). Weber’s work on the development of capitalism also stressed the evolution of a universal morality. “Universal otherhood,” as Nelson (1949) extrapolated, has dual meanings. On the one hand, the Protestant ethic broke down distinctions between norms for diﬀerent groups. Everyone became an “other”, which makes them also equally “brothers.” Instrumental rationality as an organizing principle of life cast the world impersonally. Everyone in this sense, too, becomes an “other.” Thus, ultimately, we arrive at the need for a universalizing morality; everyone subject to the same codes, everyone treated the same by everyone. Durkheim associated the emergence of humanity with a higher international life. As a level of social order, this higher international life, for our purposes global, could only be maintained, according to Durkheim (1933) with an accompanying moral foundation of equal scope (Pp. 408, 475). Without this, the social order reverts, minimally to anomie, potentially to “the war of all against all.” Importantly, the need for a new level of social order arises only under the circumstance of a suﬃcient “eﬀervescence” of interaction. Throughout history, economic, political, and social interactions across the globe, periodically waning, have increased. The nature of this interaction was very limited to the expansion of existing systemic relations. There was not a need for meaning to be shared across the globe. Since about the 1960s, not only has the volume of interactions grown, but their nature has changed. The rules of empire, colonialism, neocolonialism, and domination no longer apply. A new system of meaning at the global level must be established for order to prevail.

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Weber anticipated the continuing rationalization, and eventual hyper-rationalization, of the state and other social forms until the last ton of fossilized fuel was burned, marking the end of the industrialized era. The trend of hyperrationalization and counter pressures of alienation and rationality crisis have created the subjective and objective “space” for globalization; in Simmel’s terms, the circumstances and consciousness. Although consciousness of the role of humanity on a global level was articulated post WWII, it did not acquire widespread status until much later. Similarly, the circumstances for the emergence of globalization—suﬃcient alienation from the existing orders as well as suﬃcient “eﬀervescence” of interaction did not crystallize until the mid 1960s. The circumstances of globalization, all well documented in the literature, with respect to the relationship of the society and the individual include: • Alienation of the individual from the society has “freed” individuals for globalization. This alienation is not a function of capitalism. Rather, it emanates from the failures of instrumental rationality and the forms of social life organized in this way, regardless of the economic, political or social system in question. • The encroachment of the state into matters of “deep concern” regarding the nature and meaning of life has positioned the state to deﬁne in operational terms the meaning of being human. • Increasing awareness and interaction among members of societies via communications media, travel, migration, and the growth of a worldwide civil society, and other connections have increased the “eﬀervescence” of global interaction to the level at which the need for order, subjective as well as objective, is paramount. The second set of circumstances, concerning the relationship between the society and the systems of societies, include: • Increasing awareness and interaction among societies via transnational litigation, intellectual property concerns, cross-national mergers and acquisitions, ﬁnancial markets, the global distribution of labor and production, etc. have risen to the level where the need for order, subjective as well as objective, is paramount. • Environmental damage, resource depletion, food insecurity, nuclear weapons, international terrorism, and singular acts of terrorism have led to increasing awareness of a singular global ecosystem and its fragility. • Decolonization, the end of the cold war, the failures of the models of “the good society,” and alienation of peripheral societies from the “core” have

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raised questions globally regarding the appropriate roles of states and institutions, internally and externally. • The expansion of civil society and the pressures it places on governmental, as well as intergovernmental organizations, increasingly call for recognition of human rights. The subjective dimension of globalization can be documented through a variety of international surveys. The World Values Survey (WVS) measures belonging to various levels of social order, “Locality,” “Region,” “Country,” “Continent,” and “World.” Data from countries, primarily OECD, included in both Round 1 (1981-84) and Round 4 (1999- 2004) indicate the percentages of people responding that they belonged “ﬁrst” to “world,” increased an average of .94 percent.1 Considering that we are well into the global era, the increase in ﬁrst level of belonging is important. Table 1 World Values Survey: Levels of Belonging First Level of Belonging Locality Nation World

Mean Change Mean Change Mean percent R4 R1 to R4 (N=16) R2 to R4 (N=19) (N = 70) 2.79% 0.45% 1.33%

6.63% 6.55% −0.74%

34.4% 26.7% 08.7%

Of countries included both in Round 2 (1989-1993) and Round 4 (19992004), all but two are “developing” countries.2 There is a slight decrease in those responding that they belong “ﬁrst” to the world in those countries. There was wide variation in both clusters. Including all countries queried in R4, the percent of respondents indicating belonging “ﬁrst” to the globe is 8.7 percent. Asked about “belong to ﬁrst” or “second” is a very stringent test of globalization eﬀects. Belonging to the globe increases to 13.9 percent in R4 when “belong to second” is included.3 Many people have very strong feelings of 1

All but one of these countries is an OECD. To make the group more homogenous, the non OECD country was eliminated from the data, although the results were not signiﬁcantly aﬀected. This is not necessarily a steady increase for each country; some have decreased and others increased. The increase is not a lot, but only a 20 year span in the middle of the globalization era. 2 Those were eliminated from the sample, although the results are not signiﬁcantly aﬀected by this. 3 Combining belong to “ﬁrst” and “second” in WVS R1 is 11.4 percent, R2 is 16 percent, R3 is 18.5 percent.

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attachment at the global level. However, there is no reason that belonging to the globe should ever surpass belonging to the nation to demonstrate a globalization eﬀect. Belonging to the nation has not surpassed belonging to the locality. This does not deny a national eﬀect. Attachment to the local, the most particular, as well as the national is important grounding for the increasing emphasis on the global and universal. In many parts of the world, the local is the most important source of civic participation and vitality, as well as the connection to the global (Keck and Sikkink 1998, Naples and Desai 2002). More recent data indicate that almost half of EU members “sometimes” or “often” think of themselves as “world citizens,” virtually equal to those who feel themselves citizens of the European Union (Eurobarometer 64:147, 43). Table 2 Eurobarometer 64: Subjective Feelings of Citizenship Level of Citizenship

% Often

% Sometimes

% Total

World Citizen EU Citizen Country and EU

12 14 17

33 32 38

45 46 55

This represents signiﬁcant increase over 1992 data, resulting from both the high feelings of membership among new admits and increasing feeling of citizenship among original countries (44). Another indicator of the subjective dimension of globalization is how concerned people are about living conditions of “humankind” (WVS, R4). Table 3 WVS: Concern About Living Conditions of Humankind4 Concern about living conditions of humankind (N = 33)

% Total

Very much or much To a certain extent Not so much or Not at all

39.50 05.75 54.70

4

World Values Survey, Round 4, Question E158.

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Although the majority reports very little or no concern about global living conditions, almost 40 percent are very much or much concerned. This is signiﬁcant. While a richer exploration of these data is warranted, particularly concerning the diﬀerences between the nations whose global sentiment increased and those whose decreased, two relevant forces are notable. Feelings of global membership and citizenship are ﬁrmly established. This fulﬁlls the “consciousness” requirement of Simmel’s answer to our question, “what makes order possible.” Second, critically important for understanding the role of the nation in the global era, is that belonging to one level of social order does not jeopardize attachment to other levels. A model of globalization should capture the constraints of widespread consciousness of global belonging and of widespread interaction among people, and institutions (including states) across countries. In the 1960s, alienation and anomie severed consciousness and circumstance from older political, economic, cultural, and social scripts. The structure of social life and the principles on which it was organized increasingly failed more people in more societies. Ultimately the “status quo” became untenable. Globalization as a process of contemporary social change, is analogous to a Kuhnian “revolution.” Part and parcel of the rationality and legitimation crises facing nations, it also provides the reference for a new framework, a new organizing principle for social life and social relations; a way out of the anomie it, at least in part created. The globalization process can be analyzed through two sets of relationships triangulated by the emergence of “humanity” as a contingency. One set transforms or relativizes the self, society relationship and the second relativizes the society, world system of societies relationship. By relativize, I mean change, but, within a particular context; in this case, change is occasioned by the subjective consciousness and objective circumstance of humanity. This model emphasizes globalization as a set of processes rather than outcomes. Outcomes such as increasing volumes of trade, the number of international organizations, the ubiquity of McDonalds, blue jeans and rock and roll, and the increased numbers of “states” may or may not be a result of globalizaFigure 1 Trajectories of the Emergence of Humanity (Adapted from: Robertson and Chirico 1985: 234) Society

World Systems of Society

Self

Humanity

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tion. Many are explainable as outcomes of cultural diﬀusion, the contingency of post-colonial and cold war strategies, economic domination and subjugation, etc.5 Globalization refers speciﬁcally to constraints and opportunities imposed on social actors due to the recognition, however grudgingly, of “humanity” as a point of mutual contingency—recognition of the “world as a single place.” A unique eﬀect on a single individual may be a result of globalization; an event on a truly global scale may be the result of an individual action having nothing to do with globalization. Globalization processes, in attempting to establish order at the level of the globe, relativize the “anthropocentric dualism” of the individual and society established by modernization, universalizing it, and the relationship between societies and the systemic relationships among societies, particularizing it. Globalization is possible because of the “crystallization of consciousness about matters transcending national societies” in conjunction with circumstances in which widespread concern with humanity arises” (Robertson and Chirico 1985:225). The next two sections of the chapter examine the individual society relationship as it pertains speciﬁcally to the state and the society to system of societies relationship as it pertains to relations among states.

II. Relativizing the Individual Society Relationship Three major eﬀects of globalization on the relationship between the society and individuals that have potential to strengthen the state in the global order are (1) nation building, (2) expanding democratization, and (3) changes in the meanings of democracy. Confrontation with universalizing perceptions regarding humanity has exacerbated particularism and “tribalism.” There is promise and peril in this. In the last decades, the world has persisted in its most intense and arguably bloody era of “nation-state” building. This has been contingent on two factors, subjective and objective. • The global emphasis on human rights; rights owed to everyone on the globe because they are part of humanity has conditioned people to demand greater autonomy and self determination. • Many people have chosen to establish sovereign states to forge their autonomy as members of a nation. 5 These outcomes are important conditioning factors of globalization. Factors and forces that increase the level of interaction among individuals and societies increase, in Durkheim’s words, the “eﬀervescence” of interaction. When interaction reaches a suﬃcient level of intensity, order becomes necessary. This applies equally to interaction between two people or among the social actors of the globe.

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The ideal typical nation-state guarantees sovereignty for a people who presumably share a common identity and live within a bounded territory. While many have documented the world-wide spread of the nation-state politicocultural form, particularly in association with decolonization, there is tacit agreement that for most of the world the ideal typical “nation-state” has been a myth. Most states have been eﬀectively controlled through colonialism, cold war, and collusion of interests of local elites and global capital. A sense of common interest and of belonging to a common people within a bounded territory has also been diﬃcult to achieve. Inequality within societies based on race, ethnicity, sect, remnants of caste, and other distinctions of assigned identity often prevent a common identity from developing. The authority of many “nation-states” has relied more on military might, buttressed by foreign states, than national identity based on citizenship. The epidemic of “failed” and “failing” states and the proliferation of new states since the end of the cold war highlights this. The attempts of the non-aligned movement to strengthen states from the 1960s through the end of the cold war were early globalization eﬀects, as was the increasing pressure for decolonization of the 1960s onward. The goals of the non-aligned movement for universal human rights through sovereign states have become mainstream, as emphasized by Koﬁ Annan in a speech celebrating their partnering with the UN (UNIS 2006). Thus states and nations are often not coterminous entities. Attempts, around the world, to make their boundaries coincide are attempts to strengthen the state. Separation, not always the “best” answer, has been a signiﬁcant trend, along with accompanying violence to repress or discourage sentiment for greater autonomy. Alienated from and often oppressed by states, separatist movements have been emboldened by the rhetoric of human rights. While independence movements and separatist movements are hardly new, political ferment with respect to the attempted or actual dissolution of states, the ﬁghting and battles over boundaries and the creation of new states and borders is the latest wave in the establishment of a global system of nation-states. For better or worse, this wave of nation building is an important globalization process, not a challenge to globalization. The tacit and often overt support and approval that separatist movements receive from the global community when the movement is based on democratic, human rights or other issues related to national sovereignty, is globalizing culture. Rather than threaten the state in a “global world,” states are strengthened by assertions that a sovereign state is a fundamental human right. Membership in the United Nations acknowledges the legitimacy of the form as well as the legitimacy of the new nation-states. Tragically, not all nation building expands human rights. Kaldor (2003) diﬀerentiates nation building based on ideas and ideals from those based on

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labels. Much nation building of the late twentieth century is based on ideas, such as autonomy, sovereignty, citizenship and rights. In contrast, some nationalist movements “make claims to political power based on an ethnic label [or religious practice] which excludes and is indeed hostile toward others with a diﬀerent label” (p. 97). Their only concern is political power. While many revolutionary movements that energized the end of the cold war represented the former, the latter arose with vengence after the iron curtain fell. As in the Balkans, the world has resisted, usually belatedly, this mode of state formation as well as genocide and other attempts to make existing states genetically pure. Nationalism is not conﬁned to newly forming or revolutionizing states. Consider the European Union. While nationalism is high, having not lost its primordial pull, alienation from governmental bodies is also high. Conﬁdence in national governments is low. New member states reﬂect even less conﬁdence in national institutions than the older states6 (Eurobarometer 64:24). Unfortunately in the new members this might reﬂect populist backlash against the institutions of liberal democracy (Bugaric 2008:193). Old and new member states both have more trust in international government than national governments.7 This data indicate severe legitimation crises in national governments. Eurobarometer 69 data reﬂects that this sentiment has become a trend. Europeans report signiﬁcantly more trust in the European Government (50 percent) than in national parliaments (34 percent) or national governments (32 percent). National data reﬂect the perception of economic uncertainties; European Union data the perception of greater stability (p. 32). Rationality crises, occasioned by the spread of transnational capitalism, threaten to become legitimation crises. Despite increasing disillusionment with national governments, national pride remains very high throughout Europe (Eurobarometer 68). “European” pride, as might be expected from the conﬁdence levels, is relatively high (low 60 percents) (p. 49) but far below national pride, which averages at 87 percent (Pp. 26-27). National pride has been steadily increasing since the 2000 surveys. Despite both conﬁdence and pride, seventy-two percent of EU citizens are not involved in EU aﬀairs. Forty-nine percent would like to be more involved, but do not know how. Overwhelmingly, they believe it is the responsibility of local (71 percent), international (76 percent), but most of all national (81 percent) government to insure that citizens are able to become more involved (Eurobarometer 68:37-39). This presents an opportunity for EU states.

6 7

Government 33/21 percent, Parliament 39/17 percent, Political parties 19/9 percent. UN 52/55 percent and EU 43/53 percent.

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The data indicate states can strengthen both themselves and more inclusive political bodies simultaneously. As noted earlier, people are more connected to their nation or the nation and the EU, than the EU alone. Yet they have more conﬁdence in the EU. Membership in the EU and UN can strengthen participating states by buttressing weaker national economic and political institutions. Rationality crises stand greater chance of being resolved with coordinated policy and programs (Stiglitz 2006:281). People seem to recognize this more than heads of state. Signiﬁcantly more people think “things are going right” in the EU than in their own nation (Eurobarometer 69: 7). Even threats to liberal institutions by populist elements in Central and Eastern Europe may be tamed through integration in liberal institutions of international bodies that garner more people’s conﬁdence. Two important lessons—the particular and universal complement one another. And though speciﬁc support and conﬁdence for governments is low, diﬀuse support for nation and sovereignty is high. While the spread of transnational capitalism may have undermined the state, globalization has the potential to revive it. Nationalism is sometimes viewed with alarm among those who consider themselves cosmopolitan globalists. But nationalism, like most things, can be constructive as well as destructive. The constructive side of nationalism motivates people to hold their government accountable. The “summer 2008” displays of nationalism in China, while defensive in protesting the global view of China’s role in Tibet, may be turned oﬀensively back upon the Chinese state as anger about “oﬃcial corruption, incompetence and negligence” mounts. “Mass incidents [in China] rose from 10,000 in 1994 to 74,000 in 2004” (Economist 2008:49). Even the Chinese have not been willing or able to completely suppress or ignore the demands for greater citizen participation.8 Similar pressures globally for freedoms in non-democratic regimes and changes in the meaning of democracy also have potential to strengthen states. 8 It is arguable that China has been more aﬀected by globalization than any other society. While the meaning of democracy in China varies from western conceptions, the World Values Survey 2001 shows widespread support for democracy. (E110,120-123) Conﬁdence in government, political “parties,” big companies, and other institutions is very high. Perhaps related to this, people overwhelmingly favor the country being closer to “appropriate regulation to assure safety” (84 percent) over deregulation and “people being responsible for their own actions.” (2.9 percent) (E063) This indicates a desire for more regulation than currently exists as only 51.8 percent of respondents believe the current society to be closer to regulated and 20.2 percent closer to deregulated. (E065) These sentiments vary little by age. The majorities also agree, across age groups, that China should be and is competitive, as opposed to egalitarian. (E063 and E066) This may apply in the political as well as economic realms. This seems to favor a form of democracy tempered by Confucian philosophy. Economic progress has also had very favorable impact on people’s conﬁdence in and support for their government.

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A universal deﬁnition of democracy remains elusive, but near universally, democratic reforms are changing the relationship between states and citizens. Despite the struggles of democracy building, Afrobarometer (2006) surveys of eighteen “third wave” democracies demonstrate that “diﬀuse”9 support for democracy is high, as is rejection of non-democratic forms of government. Commitment to democracy is lower, but still majoritarian. Africans surveyed still believe in democratic ideals. Support for speciﬁc democratic regimes is considerably lower. A pattern of decreasing satisfaction, with signiﬁcantly less decrease in commitment is characteristic across the Afrobarometer nations.10 Table 4 Political Attitudes Across 18 Afrobarometer Countries: 200611 Attitude Diﬀuse Support: Democracy is preferable to other forms of government. Commitment: Willing to be patient for democracy to achieve its results. Speciﬁc Support: Satisfaction with how democracy functions in [own] nation Reject “one man” rule Reject “one party” rule Reject military rule

% 62 54 45 76 71 73

Similarly, WVS R4 data show democracy is seen as “better than any other form of government” by 70.4 percent percent of people throughout some of the newest and frailest democracies, as well as non-democratic societies, surveyed.12 Democracy is thought to be a “very” or “fairly good” way of governing 9 See Ames et al. (2003) for a discussion of diﬀuse support, speciﬁc support and commitment to democracy. 10 For a close up look at Nigeria in this regard, see Afrobarometer 46. 11 From the time this chapter was originally written an online analysis of Afrobarometer data became available. The results from the online analysis may diﬀer slightly from the results published in reports and brieﬁng papers. For example, support for democracy ﬁgures in the online analysis total 46 percent (18 and 28 percent respectively.) 12 World Values Survey, Round 4, Question E123. The countries and their combined scores for “agree strongly” or “agree” are Albania (88.9), Algeria (74.5), Bangladesh (94.5), Bosnia Herzegovina (83.9), Bulgaria (67.2), Belarus (65.5), China (58.7), Czech Rep (88.5), Indonesia (61,7), Iran (41.7), Iraq (68.3), Jordan (75.5), Kyrgyzstan (74.4), Morocco (60.1), Nigeria (44.2), Pakistan (80.2), Philippines (78.5), Romania (66.4), Russia (47.8), Saudi Arabia (61.5),

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the country by 79 percent in these societies.13 Experiments in democracy continue in many, most often widely supported by popular sentiment and increasingly socio-moral pressures from without, making them truly global events. This is not to say that every new democracy will succeed. As Huntington (1993) notes, many do not.14 Pakistan, Kenya and Zimbabwe have been emblematic in these ways. Each country’s struggle wrestling democracy from one party rule or authoritarian leadership shows how long struggles may continue and how fragile democracy can be. Pakistan and Kenya seem to have survived crisis, at least for now, and in so doing strengthened democratic processes. Democracy wanes, or already has already failed, in Zimbabwe perhaps, due to the inability of people to exert their will over Mugabe, perhaps due to lack of insuﬃcient international support, abundant Chinese and South African support and most likely a combination of all three. Ironically, Afrobarometer 68 measures of diﬀuse support were among the highest in Zimbabwe, but, commitment was the lowest among the eighteen nations. Only 31 percent of people said that democracy should be given a longer chance to achieve economic results. Yet, in Zimbabwe many fought, risking and meeting death for open elections. Tragically, in Zimbabwe, after the stolen election, they have neither. Those many Zimbabweans who have been killed or have ﬂed—although at the time of this writing some are returning with the promise of power sharing—will not be available for the next round of surveys. Democracy is advancing in (primarily non-Arabic) Islamic countries as well (Mohamad 2004). Senegal, Turkey, Mali, Indonesia, and Bangladesh have created fairly stable democracies, rating “free” in Freedom House 2008, although there has been vacillation. Malaysia and Nigeria have made progress. Malaysia’s stunning 2008 election was remarkable for meaningful opposition party participation, the acceptance by the governing National Front of the loss of its two-thirds majority in Parliament and its loss of the government of ﬁve states. Even Pakistan, hardly free and forced by tragedy, has taken some steps toward democracy, forging a coalition civilian government based on election results Vietnam (56.6), Zimbabwe (74.7), Turkey (78.1), Uganda (83.9), Ukraine (64.1), Macedonia (71.6), Egypt (90.5), East Germany (83.1), Serbia (74.6), Montenegro (85.3). 13 World Values Survey, Round 4, Question E117. Saudi Arabia was not surveyed on Question E117. 14 This is also in keeping with the analogy to the Kuhnian revolution. There will be many theories advanced to explain anomalies, but not all will work and many will be abandoned. If order is to be established, in science or social life, an over arching framework needs to emerge. In social life, the overarching “organizing principle” or framework takes diﬀerent form in diﬀerent places.

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unfavorable for the Musharraf government. Lebanon, democratic in the early 1970s, has not maintained fair elections (Freedom House 2008). The Pew Global Attitudes Project 2002-2003 survey of seventeen predominantly Muslim countries found that in all but (ironically) Indonesia, majorities believe that democracy would work in their country. Democratization in Latin America seems ﬁrmly established in most countries. After vacillating among democracy, autocracy and military rule, Latin American societies established democracies, with elections for the most part free and fair. Whether the new democratic models will emerge from Latin America, rather than the United States or Europe remains to be seen. As their democratic experiments evolve, Latin models may prove to be more adaptable than “western” to the rest of the developing world. The democratic revolutions of 1989 also wax and wane. In Russia, democracy is losing popular support. Commitment to democracy failed to sustain democratic reforms in the face of severe economic strife. The Pew Foundation’s Global Attitudes Project (2005) found that popular sentiment in Russia favors a “strong leader” over democracy. This sentiment was conﬁrmed in the 2008 presidential election of Medvedev, Putin’s protégée, and Putin’s ascension to Prime Minister. Voters interviewed about the election nearly universally echoed the sentiment that Putin’s economic advances far outweighed concern for a less authoritarian government and more open elections (NYT Blog 2008). In Central and Eastern Europe, the twenty-seven states “in transition” show mixed progress. The new EU nations are electoral democracies; most of the Balkans and former soviet states are not (Freedom House). Waves of democracy represent more than the creation of new democracies. Change and reforms within established democracies also wax and wane. In new and old democracies, revitalization has been ongoing since the mid 1960s, beginning with the intensiﬁcation of the civil rights and student movements. There are three fundamental changes: focus on freedom and civil liberties rather than procedures, demand for full inclusion in democratic processes, not inclusion based on privilege, and emphasis on more direct processes of participation rather than representation. Each of these interrelated reforms relate to increasing autonomy and decreasing instrumentality, characteristics of the global age. Civil liberties, the liberal tradition, and electoral democracy, are independent phenomenon. Not all democracies are liberal. Similarly civil liberties may be granted in states that are not electoral democracies. The ﬁrst half of the twentieth century in Europe was marked by competitions among socialism, liberalism, and most tragically, fascism and nazism. Post-WWII, throughout Europe, deﬁning democracy increasingly has had to do with “liberalism,” the

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establishment of civil liberties and liberal institutions (Bujaric 2008:198,202). This is true globally, although unevenly. Unfortunately, democracy without liberty is dangerous (Zaheed 1997). The rush to electoral democracy without the institutional infrastructure supporting liberty may lead to political and economic failures, as in Africa following decolonization. It wasn’t until the 1990s that some African nations began to recover (Stigliz 2006:40). It has also spawned tragedies of nationalism expressed as ethnic hatred, violence, and genocide. Even where constitutional courts are present, as in the new democracies of Eastern Europe, populism empowered through election can turn on unprotected minorities; governments can abrogate power of other institutions without explanation. As recently as 2006-2007, Constitutional courts in Hungary, Poland, and Slovenia have been ignored, disbanded, or in other ways been rendered impotent. Legislatures in these countries have rewritten law to control media and politicize civil service. Protection of minorities and challenges to the concentration of power becomes at best diﬃcult if not impossible when democracy is not tempered by liberty (Bujaric 2008:194-5). In importance to people, civil liberties now overshadow procedures through which governments are formed (Afrobarometer 69 2006). Table 5 Afrobarometer 69 Meaning of Democracy

Civil liberties/personal freedom Procedures Government by the people

% 1st Choice

% 2nd Choice

30.5 06.5 05.3

10.6 04.4 02.3

The Pew Global Attitudes Project reports that 5 percent more people believe that it is very important to live in a society where people can openly criticize the government (71 percent) than that there are honest two party elections (66 percent). WVS R4 indicates people in new democracies value freedom over equality, when asked to choose. Russia, consistent with views discussed earlier in the chapter, was the sole exception to this, where by a slim margin people chose equality.15 In all but ﬁve of the twenty-nine countries polled on this question, 15

World Values Survey, Round 4, Question E032. The results for the sample of countries

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including new, old, and non democracies, majorities chose freedom over equality. It appears that people believe freedom is more likely to bring equality than the reverse. Appadurai (2007) explains that toward the end of WWII, the meaning of “equality” in democracy began to change, taking on a “powerful secondary meaning having to do with the elimination of poverty.” This evolved with the subjective emergence of poverty as a social ill and mass agitation politics. Equality, he claims, has come to depend on mass politics (Pp. 31-32). Freedom is perceived globally as more desirable, an end in its own right as well as the path to equality, not the reverse. A second trend is pressure for inclusion of the full citizenry in democratic processes. Power, privilege, and other factors of social location traditionally limited participation and made democratic process part and parcel of societal control rather than liberation. That the United States needed a “Voting Rights Act” as late as the 1960s highlights the extent to which full participation in democracy has been thwarted. Appadurai reﬂects that this emergent version of democracy is diﬀerent from older versions in being non instrumental. “It makes participation (and its particular expressions in deliberation, legislation, and governance) a right without regard to current capacity, and thus it eliminates altogether the idea of any sort of privileged group of citizens” (p. 32). In much of the world, women and ethnic minorities remain excluded from democratic procedures and civil liberties. This is, as is argued earlier, increasingly seen as a human rights issue. Full inclusion makes the democratic process less rationalized and subsequently, less predictable, a globalization eﬀect beyond the scope of this chapter. The Bush administration learned this “the hard way” with Hamas victories in Palestinian elections. People’s deﬁnition of active participation in democracy is also changing. Social movement literature diﬀerentiates “old” from “new” social movements. “ ‘New’ social movements are those that sprung from the student revolutions of 1968 and focused on human rights, gender, the environment and peace. . . . a demand for radical democracy” (Kaldor 2003:84). Radical democracy is not satisﬁed with representative democracy and seeks to revitalize forms of direct and participatory democracy. As rationality crises grow and distrust in government far exceeds conﬁdence in government,16 people are taking over, or trying to. were: Bulgaria (54.6/31.9), Belarus (53.8/25.7), Czech Rep (57/33.6), Estonia (50.8/32.9), Lithuania (48.9/27.4), Russia (42.7/43.2), Slovenia (43.5/42.5), Ukraine (46.6/36), East Germany (43.3/32). 16 One major exception to this pattern is China, reporting 74.4 percent a “great deal” or “quite a lot” of conﬁdence in their government and less (37.1 percent) in the UN.

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In the United States, proposition/referendum frenzy in California and other states, for better or worse stunned a public amnesiac with respect to their capacity to govern. In Germany, referendums in all states and municipal governments are possible and are increasingly used to assert popular sentiment. Eighty percent of Germans want to institutionalize referendums at a national level. The Swiss vote on a variety of issues and according to one expert, tax is lower and productivity higher as a result (Economist 2008: 60). Whether or not these forms of direct democratic rule are wise, they change democracy. Other forms of transformation include a renewed emphasis on “deliberative democracy,” similar in nature to the practice of “communicative competence” or the “perfect speech situation” championed by Habermas. Tour “you tube” and witness the fervor of global participatory and deliberative democracy movements. Even China has responded somewhat to pressures for greater participation in government, adopting a “consultative style of rule that combined CCP leadership with an expanded role for experts and public opinion in the decision-making process and for greater reliance on law in policy implementation. In 2007, nonparty ministers were appointed to the government for the ﬁrst time since the 1970s, and draft legislation . . .was changed to reﬂect input from society” (Freedom House China Report).

III. Relativizing The Society Systems of Societies Relationship Globalization is creating a group or “society” of societies, transcendent of the economic, political and other systemic relations that continue to expand and contract. The mutual contingencies of a group, unlike systemic activity, impose not only constraint and opportunity, but rights and obligations. This is the critical diﬀerence wrought by globalization. Social order, as Durkheim argued, requires a socio-moral foundation. The most required among societies prior to the advent of globalization was contract, although domination usually suﬃced as the basis of economic and political systemic relations. New considerations are now on the global agenda. What are the rights and obligations: • of one society to another by virtue of being within the same collectivity, humanity; • of the group of societies toward individual societies; • of the societies of the world to the individuals of the world, including members of other societies?

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The answers to these questions remain controversial. They are being forged through international and transnational economic, political, environmental, cultural forums. Negotiations among member states in international governmental bodies, among members of non-governmental organizations, and between states and governmental and non-governmental organizations are vehicles for debating, testing, and implementing, sometimes belatedly, sometimes disastrously, but often not at all, an emergent global ethic. Critical in both the forging and the implementation of this ethic are states. While forces of globalization are changing states, states are intimately involved in shaping globalization and demands are upon them to implement cultural, economic, political, and other institutional requirements of globalization and the emergent global order. Only the political and economic dimensions are reviewed here. Political Globalization “Ordinary citizens,” Stiglitz (2006) contends, “share a common interest in making globalization work”(p. xiv). A variety of relatively recent polls on World Public Opinion indicate that a majority of people globally believe that decisions on a wide range of issues are best tackled and decided through international bodies. Even in the United States, where disillusionment with the UN seems endemic, people do not perceive that a stronger UN would limit states’ options in the world or constrain national sovereignty. People believe that working within coalitions increases the potential of states. Although there is support for reform of the UN, there is majority support globally for expanding the role of the UN in global decision making. This reﬂects “the subjective dimension of globalization” discussed earlier. People recognize greater capacity of international bodies to deal with transnational economic, security, environmental and other issues, while local and national levels of order remain the primary loci of identity. • A 2005 Bertelsmann Foundation Poll of the nine major global and regional powers indicates that majorities in each nation think “that a world system dominated by a single world power is not the best framework for ensuring peace and stability in the world. Most favor multi-polar systems, either led by the United Nations or by a balance of regional leaders. Respondents also dismissed a system where power was divided between two powers. • A 2005 BBC Poll of twenty-three nations showed that 58 percent of people favor making the UN Security Council more democratic by doing away with the one country veto; 69 percent favor expanding the permanent

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membership; 64 percent would view it positively if the UN would become “signiﬁcantly more powerful in world aﬀairs.” A 2006 BBC poll found 59 percent of people in 30 nations thought the UN was a positive inﬂuence, 16 percent a negative inﬂuence on the world. Chicago Council on Global Aﬀairs, May 2007 survey in 14 diverse nations shows a majority favoring strengthening the powers of the UN in a wide range of areas involving interventions within nations and commitment to UN decisions even when not in the direct interest of their own nation. They also agree that the UN should have its own peace keeping force. A February 2005 Gallup poll in the USA found that a majority believes the UN is important and should be strengthened. People in the United States do not believe that a stronger UN would limit the freedom of the USA. A majority also believe that the USA should pay its dues in full. (2007 Chicago Council Poll) A 2008 Globescan poll shows a majority of people in a majority of nations still support a free market, but are increasingly in favor of strong governmental regulation. A 2005 Gallup poll in 65 nations that showed only 48 percent of people overall had a positive view of the UN.

According to these data, expanding the role of the UN, or similar body, would strengthen it and states. However diﬃcult, political globalization is slowly establishing that states have the obligation to intervene in the internal operations of a state if they pose a threat to internally to their own citizens or to other nations, even in the conduct of their internal aﬀairs. One of the most dramatic acts of political globalization conﬁrming this new right and obligation was the extradition of Pinochet by Spain. It established that heads of state are accountable to other states for the treatment of their own citizens. In addition to the trials of other heads of state, areas of at least moderate success include: • changes in and of regimes within many nations, such as South Africa, • pressure for democratizing UN, IMF, World Bank and other international organizations, • the International Criminal Court and its increasing gravitas, (except in the USA). • China, increasingly tries to mask and hide their activities as they persist in human rights and other abuses. In many areas where the international community should and could have acted, it has debated and failed to act. This deﬁcit in the current system of global politics is a deﬁcit of authority. There are too many “veto players.” The

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more veto players with polarized positions the less likely that innovative policies will be adopted. “Groups with a strong narrow interest are able to block larger groups with a diﬀuse, but generalized interest” (Ames 2002:12). Thus we have yet to see action on Zimbabwe, Sudan, Iran and nuclear proliferation and a host of other atrocities and threats (Brooks A23). Brooks, however, argues that this failure is because “globally, people have no sense of shared citizenship.” International polling discussed in this chapter shows that this is not the case. Interaction in the political arena within and among global civil society and international governmental bodies has created impetus for globalization, underscoring the mutual contingencies among societies in environmental issues, human security, nuclear proliferation, health, inequality and elevating humanity to a level of common concern. Nevertheless, operating under social structural conditions more suited to negotiating between the interests of discrete societies, the political global (dis)order is ill equipped to negotiate the broader interests of humanity. The fault lies in the outdated structure of the international political order. Economic Globalization The worldwide failure of states to protect their citizens from increasing inequality undermines the quest for sovereignty of both established and emergent states. Maintaining political stability is near impossible within societies ravaged economically. The evaluation of economies based on growth lost its relevance or relationship to quality of life measures in the early 1970s. The mobility of capital in the global economy releases it from state contingencies and functions. Rather than empowered to compete with corporations for the value of their labor, resources, and markets, states compete with other states and workers for capital and corporate favor to which they ultimately sacriﬁce their own interests. In the 1980s, economic globalization was shaped through “The Washington Consensus.” This normative structure stressed “unfettered” capitalism, building from the American mythologies of the rugged individual (Beyer 1998). This opened the global economic realm in a way similar to that in which the American West was opened. In both cases, it resulted in lawlessness. “This blind adherence to ideology and the principle of unfettered—thus eﬃcient—market operating at the global level ignored all of the lessons of history”(Stiglitz 2002:74). The instrumentally driven objectives for corporations are simple; to reduce production costs, evade taxes, acquire resources, protect themselves against currency ﬂuctuations and worker demands. This ethic is responsible for the moral drift in business, as well as within many other realms of life. Without

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institutional means of holding corporations accountable, as in newly developing nations or when states feel compelled to deregulate to compete for capital, corporations have not just free reign but obligation to invest and move wherever the best deal is brokered, the most proﬁt found. In much of the literature on “transnational capitalism,” the state is portrayed as powerless, controlled by a transnational class that is perceived to be the real “bogeyman,” bringing states to their knees. . . . the transnational capitalist class is a class group with a subjective consciousness of itself and its interests. Its members increasingly socialize together in their private institutions such as the World Economic Forum in Davos and develop a transnational class consciousness. In this sense it is a class-for-itself, to use Marx’s language on this matter, whereas the global working class is a class-in-itself but not yet for-itself. . . . The continued existence of the nation-state serves to distort the consciousness and subjective experience of the global working class. (Robinson 2007)

However, there is much more potential for states to control economic globalization than credited. It is diﬃcult to argue that the likes of Bill Gates and Steven Jobs are in cahoots. Beyond that, there is evidence that the participants at Davos are not a monolith. Ash, reporting on 2005 Davos for The Guardian, wrote “at a lunch with the leaders of some of the world’s largest multinational ﬁrms, the suppressed tension between Americans and Europeans was palpable.” In an unattributed statement quoted by Ash, it was explained that “the words freedom, democracy and human rights don’t mean the same thing to Europeans and those from ‘the states’.” Despite the common Davos culture, despite having interests on both continents, “emotions run so high . . . blinded by national and ideological prejudice.” If the assessment of this Davos informant is correct, the nation state not only interferes in the consciousness of workers, but equally in the consciousness of “the rulers.” Dore (2000) also questions whether the members of the Davos culture represent a “ruling class” that perceives their interests to coalesce. He maintains that it would take an assertion of the “ruled” against the “rulers” to crystallize consciousness on the part of the Davos class. Although one might be tempted to think that NGOs on behalf of the “ruled” can instigate consciousness, they cannot. The activities of NGOs represent more middle class activists and many diﬀerent interests, than rooted strictly in concern for the oppressed human. Middle class activists may have a catalytic role, but only being joined in signiﬁcant number by the “object” of their sympathy, will it inspire the fear in the ruling class that could generate consciousness. (Dore 2000)

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It is also unlikely that transnational corporations have any more control over their environments than states do. Today’s CEOs will be seen as captains of ships in a turbulent sea—unable to chart a steady course and maintain control of their own fate, at least to the extent that most people think that they can. . . . the pressures of this era will prove to be much greater than anything these individuals could handle well. The challenges that will have arisen—of the Internet, of globalization, of creating trust in the face of rapid change . . . of balancing shareholders and stakeholders, and of understanding the need for broader vision and leadership in society—these challenges will be assessed by historians as having been too diﬃcult for most CEOs to handle all at once. (Garten, quoted in Holzner and Holzner 2006: 212)

CEOs have been successful in the appropriation of capital for their personal wealth. They have been less successful in managing the complexity of the global economy. This is similar to the deﬁcit of authority and abundance of veto players in the political realm. When governments take the opportunity to shape their economies, they have been successful. States are strengthened and one aspect of sovereignty restored. That is not to say that this is an easy task. But without this, there is not a chance to get the economic system under control. No one has that control now. The countries that resisted the conditions of the Washington Consensus beneﬁtted from globalization. The success of China, Malaysia and other East Asian economies relied on careful planning of growth in export industries and restriction of imports, ignoring the Washington Consensus (Stiglitz 2005:33). Bangladesh (86.5 percent) which relied heavily on local decision-making and China (95.2 percent) are among those states whose people have the greatest conﬁdence in government, as discussed earlier (WVS R4: E079). Latin America did not fare well in following the conditions imposed upon them and began succeeding economically when they were freed from them. While not all Latin American nations have the resources of Brazil, the Brazilian case highlights the potential of new politico economic models, not only for growth, but for spreading the beneﬁts of growth in the developing world. A new ethic, similar to that we have documented within societies and within political globalization seems to be emergent within the economy. International economic institutions are now claiming to move toward a more consultative role with states and increase local decision making. Dore (2000) argues that most of the economic realm is already regulated by an array of intergovernmental organizations. Most receive little attention as they go about their non controversial business in non controversial ways. They work well. One economic area where this isn’t the case is ﬁnance. The two main

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areas of concern are the vulnerability of weak states to shifts in international capital and ﬁnancial contagion. These concerns became crises in 2008. The favored solution in the ﬁrst case is national regulation. More widespread is the view that the remedy lies not in international organization but in a reassertion of state over market. Nation-states should partially reclaim sovereignty over their economies by retaining or reintroducing capital controls. Even the IMF, which before the Asian and Russian crises was pushing (under American pressure) for full capital account convertibility in all member states, has since backed oﬀ, even if it is far from recommending such a deviation from free market principles. (Blinder quoted in Dore 2000: 15)

In the second case, of ﬁnancial contagion, systematizing the heretofore ad hoc responses to crises is the perceived solution. The two main international ﬁnancial organizations, the World Bank and IMF have been working for several years to become more transparent, more accountable and more participatory. Formerly secret information about their decision making, their ﬁnancial disclosure rules and their staﬀ codes of conduct is now public. There is also growing acceptance among shareholders that national governments should be the judges of their social and political priorities, though the institutions continue to push for stronger laws and institutions that is legal and ﬁnancial reform, to ensure that borrowing governments are in control of their own countries. (Madslien 2004)

States will need to coordinate and implement normative ﬁnancial standards to strengthen national economies and stabilize the global economy (Stiglitz 2005). The globalization eﬀect on international economics at this point is pressure for greater democratization in economic decision making and more coordinated self determination on the part of states in shaping their economies. Regulations coordinated among states can tame the transnational capitalist zeal for cheap labor, exploitation of the environment, and evasion of taxes as well as control the ﬂow of money. The degree to which these reforms are enacted will determine in large part the degree to which global economic contingencies strengthen states. In response to the crisis of 2008, Nicolas Sarkozy has called for not just regulation and transparency, but morality as well.

IV. Conclusion: A Relativized State This chapter argues that the “globe as a single place” is a relatively new phenomenon, crystallizing in the mid 1960s. Suﬃcient alienation from the existing normative order, suﬃcient individuation and diﬀerentiation, suﬃcient eﬀervescence of interaction congealed to bring “humanity” to the fore in seeking a

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new basis of morality for an emergent level of social order. (Robertson and Chirico 1985) This, like a Kuhnian revolution, requires a paradigm shift. The paradigm shift is relativizing all aspects of social life, giving rise to decades of turmoil as panoply of competing paradigms from radical fundamentalist to plain radical jockey for inﬂuence. While the objective conditions of globalization are well documented, the subjective dimension and socio-moral underpinnings have been less explored. This chapter contributes to those eﬀorts in so far as they relate to the relationship of the state to individuals and of states to other states. International polls reveal that people identify with global and international levels of belonging, while maintaining loyalty to nation and locality. They have greater national pride but greater conﬁdence in international and global bodies to navigate the global order successfully. They look for similar reforms in their relationship to the state as in the relationship of states to the global system of states. In these ways, globalization has enormous potential to strengthen states. There are many other globalization eﬀects, such as transparency and rejection of instrumental rationality that are beyond the scope of this chapter. This analysis suggests that an “international society” of states is in the oﬃng—not an undiﬀerentiated “world polity” but rather a generalized set of normative boundaries that both establishes and limits the sovereignty of states. Many attempts to establish and enforce global norms have failed due to structural deﬁcits in the democratic functioning of international bodies. On the one hand, political intergovernmental organizations have created an abundance of veto players to the detriment of broad, global majority interests. In the economic realm, too much authority had been invested in international organizations that acted autocratically, with little consideration for collaboration, consultation or the sovereignty of states. Ironically, transnational capitalism acts much less cohesively. Whereas the cultural dimension of a global paradigm shift is relatively well formulated, the structural implementation is woefully behind. Here, the analogy to the Kuhnian revolution breaks down. Social reorganization rarely results in the wholesale transformations that the Kuhnian revolution does. It tends to compromise between “progressive” and “reactionary” paradigms. Thus we are not likely to witness, anytime soon, the full democratization of the globe with open and fair elections, civil liberties, full inclusion and meaningful participation. We are likely to achieve greater democratization interpreted in a variety of ways—glocalized” one might say—in most states as well as among states. States will not achieve absolute control over national economies, but, will probably exercise signiﬁcantly more regulation, as has happened in parts of Asia, Latin America and ﬁnally in the United States’ response to the crisis of 2008. States with less internal capacity will probably not be subjected to the same degree of external regulation and subjugation as

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in the heady days of “neo-liberalism.” While this might not seem like much from such a potent process as “globalization,” in recognizing their mutual contingency and responsibilities states can strengthen themselves and one another, while trying to fulﬁll their new function to secure humanity.

References Afrobarometer Brieﬁng Paper No. 46: “Performance and Legitimacy in Nigeria’s New Democracy.” July, 2006. http://afrobarometer.org/papers/AfrobriefNo46.pdf Afrobarometer Brieﬁng Paper No. 40. “The Status of Democracy, 2005-2006” November, 2006. http://afrobarometer.org/papers/AfrobriefNo40_revised16nov06.pdf Afrobarometer. Online Analysis. http://afrobarometer.org Ames, Barry. The Deadlock of Democracy in Brazil. Ann Arbor: The University of Michigan Press 2002. Ames, Barry, Lucio Renno and Francisco Rodrigues. “Afrobarometer Brieﬁng Paper No 25: Democracy, Market, Reform and Social Peace in Cape Verde.” March 2003. Appadurai, Arjun. “Hope and Democracy” in Popular Culture 19:1 (2007) 29-34. Ash, Timothy Garten. “Davos Man’s Death Wish: While the West Bickers Over Minor Diﬀerences, Asia Waits Quietly in the Wings,” in The Guardian (February 3 2005) http://www. guardian.co.uk/world/2005/feb/03/globalisation.comment Accessed May 20, 2008. Associated Press. “British Union Sets Merger with Steelworkers,” in New York Times, May 26, 2008. http://www.nytimes.com/2008/05/26/business/worldbusiness/26labor.html?_r=1&scp= 1&sq=union+merger&st=nyt&oref=slogin Accessed June 1, 2008. Bertleseman Foundation. “Poll of 9 Major Nations Finds All, including U.S., Reject World System Dominated by Single Power in Favor of Multipolarity .” (2006) http://www.worldpublicopinion.org/pipa/articles/views_on_countriesregions_bt/208.php?lb=btvoc&pnt=208& nid=&id Accessed July 29, 2008. Beyer, Peter. “The City and Beyond as Dialog: Negotiating Religious Authenticity” in Social Compass 45 (1) 1998, 67-79. Brooks, David. 2008. “Missing Dean Acheson” in The New York Times, A23 August 1, 2008. Bujaric, Bojan. “Populism, Liberal Democracy, and the Rule of Law in Central and Eastern Europe” in Communist and Post Communist Studies 41:2, June 2008, 191-203. Dore, Ronald. 2000. “Making Sense of Globalization.” LSE: The Center for Economic Performance. http://cep.lse.ac.uk/pubs/download/occasional/OP016.pdf Accessed June 1, 2008. Durkheim, Emile. The Elementary Forms of the Religious Life. New York: The Free Press. 1965/1917. ——. The Division of Labor in Society. Translated by George Simpson. New York: Macmillan. 1947/1893. “When Voters Want A Say.” The Economist May 1, 2008, 60. European Commission. “Eurobarometer 64 Public Opinion in the European Union: Full Report.” June, 2006. .http://ec.europa.eu/public_opinion/archives/eb/eb64/eb64_en.pdf Accessed July 21, 2008. ——. “Eurobarometer 68 Public Opinion in the European Union: Full Report.” May. 2008. http://ec.europa.eu/public_opinion/archives/eb/eb68/eb_68_en.pdf Accessed May, 15, 2008. ——. “Eurobarometer 69 Public Opinion in the European Union: First Results.” June, 2008. http://ec.europa.eu/public_opinion/archives/eb/eb69/eb_69_ﬁrst_en.pdf Accessed July 21, 2008. Freedom House. “Country Report: China.” Undated Document. http://www.freedomhouse. org/uploads/FIWChina2008.pdf Accessed July 20, 2008.

demystifying the nation globe conundrum: a preliminary sketch 369 Gallup International. “Voice of the People 2005: The Image of the United Nations.” October, 2005. http://extranet.gallup-international.com/uploads/internet/UN percent20VoP percent202005 percent20FINAL.pdf Holzner, Burkart and Leslie Holzner. Transparency in Global Change. Pittsburgh: University of Pittsburgh Press, 2006. Huntington, Samuel, P. The Third Wave: Democratization in the Late Twentieth Century. Norman: University of Oklahoma Press, 1991. Kaldor, Mary. Global Civil Society: An Answer to War. Cambridge: Polity Press, 2003. Madslien, Jorn. “The IMF and World Bank: Is Reform Underway?” BBC News, July 22, 2004. http://news.bbc.co.uk/1/hi/business/3914961.stm Accessed June 1, 2008. Mohamad, Goenawan. 2004. “Unnoticed, Democracy Gains in Southeast Asia’s Islamic Countries.” In Yale Global. April 16, 2004. http://yaleglobal.yale.edu/display.article?id=3720 Accessed May 29, 2008. Nelson, Benjamin. The Idea of Usury: From Tribal Brotherhood to Universal Otherhood. Princeton: Princeton University Press, 1949. New York Times Blog. 2008. “Ask Russians About their Presidential Election.” http://questions. blogs.nytimes.com/2008/02/27/ask-russian-readers-about-the-march-2-election/?scp=10&sq= russia, percent20election, percent20medvedev, percent20public percent20opinion&st=cse Pew Global Attitudes Project. “Iraqi Vote Mirrors Desire for Democracy in Muslim World,” February 3, 2005. http://pewglobal.org/commentary/display.php?AnalysisID=107 Accessed July 10, 2008. Robertson,Roland and JoAnn Chirico. “Humanity, Globalization and Worldwide Religious Resurgence.” in Sociological Analysis 46 (3), Fall 1985. Robinson, William. “Transnational Capitalism” on znet, April 13, 2007. http://www.zmag.org/ znet/viewArticle/1595 Accessed July 20, 2008. Simmel, Georg. On Individuality and Social Forms. Edited by Donald N. Levine. Chicago: The University of Chicago Press, 1971. ——. The Sociology of Georg Simmel. Translated and edited by Kurt H. Wolﬀ. New York: The Free Press, 1950. UNIS. “Together, United Nations, Non-Aligned Movement Can Make Real Diﬀerence in Lives of those Who Need It Most, Says Secretary-General to Malaysia Meeting,” May 31, 2006. Accessed May 28, 2008. http://www.unis.unvienna.org/unis/pressrels/2006/sgsm10483.html United Nations High Commissioner for Human Rights. “International Law. Core Human Rights Instruments.” http://www2.ohchr.org/english/law/ Accessed July 20, 2008. World Public Opinion. “General Attitudes Toward the UN.” (Report of February, 2005 Gallup Poll) http://www.americans-world.org/digest/global_issues/un/un1.cfm ——. “23 Nation Poll Finds Strong Support for Dramatic Changes at UN.” (Report of BBC Poll). March 21, 2005. Accessed July 31, 2008. http://www.worldpublicopinion.org/pipa/ articles/btunitednationsra/72.php?nid=&id=&pnt=72 ——. “World Public Favors New Powers for the UN.” (Report of a 2007 Chicago Council Poll) http://www.worldpublicopinion.org/pipa/articles/home_page/355.php?nid=&id=&pnt= 355&lb=hmpg ——. “Erosion of Support for Free market System” (Report of GlobeScan Poll) April 15, 2008. Accessed May 28, 2008. http://www.worldpublicopinion.org/pipa/articles/btglobalizationtradera/ 471.php?nid=&id=&pnt=471 Yardley, Jim and David Barboza. “Many Hands, Not Held by China, Aid in Quake,” in The New York Times. May 20, 2008. A1. Zakaria, Fareed. 1997. “The Rise of Illiberal Democracy.”Foreign Aﬀairs: 76 ( 6) 22, Nov/Dec 1997.

This Part of The Globe is not Flat: The Paradox of the Turkish Relationship with Northern Iraq and the Dilemma of Kurdish Politics Across Borders Kumru Toktamis, PhD Pratt Institute, Brooklyn NY

Abstract The chapter discusses the impact US presence in (re) construction of Kurdishness from ethnicity to nationhood in the Middle East. It compares and contrasts various Kurdish nationalisms as they emerge from diﬀerent historical trajectories and geographical boundaries in Turkey and in Iraq. As a survey of public articulation of claims to ethnicity and nationalism by political actors, it shows the impact of the “nation state era” on the construction of competing discourses of nationhood. Such competing claims have been revised and re-interpreted with the US military presence in Iraq. Keywords Kurdistan, Kurdish Workers Party, Kurdish Regional Government, ethnicity, nationalism

Introduction In March 2008 during a passing visit to Turkey, Vice President Dick Cheney conﬁrmed1 the statements made in November 2007 by the Deputy Prime Minister of the Kurdistan Regional Government that Turkish corporations have invested more than ﬁve billion dollars towards the reconstruction of the infrastructure in Northern Iraq.2 Other visitors have often mentioned the ubiquity of Turkish construction companies and restaurants in the same region and some claim that 80 percent of the commerce in Kurdistan is now handled by Turkish companies.3 Newspapers reported that out of $15 billion worth of 1

As reported in Milliyet March 25th 2008. See: http://www.krg.org/articles/detail.asp?smap=02010100&lngnr=12&asnr=&anr=2152 4&rnr=223. 3 Oppel, R.A (2007) “Turkish Bred Prosperity Makes War Less Likely in Iraqi Kurdistan” New York Times, November 7. http://www.nytimes.com/2007/11/07/world/middleeast/07kurds. html. Also see the following news/analysis websites on the Turkish investments in Northern 2

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new construction contracts, $12 billion has been undertaken by contractors from Turkey or consortiums that have Turkish partners.4 Meanwhile, the Turkish military has performed more than two dozen cross-border operations in the area against the Kurdistan Worker’s Party (PKK), an armed group that has been waging violent warfare against the Turkish government since the mid-1980s. It appears that after decades of brutal suppression and criminalization of political expressions of Kurdish identity within the borders of Turkey and violent clashes with the PKK, the Turkish capital has seized the regional economic opportunities created by the US invasion of Iraq in the Kurdish territories beyond its borders. A dynamic paradox has emerged for Turkey around its borders with Iraq with the de facto (and eventually de jure) carving out of the Kurdistan Autonomous Regional Government. Since January 2005, there has been an autonomous Kurdistan on the territory that was established during the Saddam regime in 1970s and internationally sanctioned through a “no-ﬂy” zone north of the 36th parallel in 1991, in the aftermath of the First Gulf War. The Turkish government claims that its territorial integrity is in danger when a selfgoverning Kurdish political entity gains international recognition because such recognition may increase and justify separatist hopes among a much larger Kurdish population residing within the borders of Turkey.5 On the other hand, while there is a violent history of brutal suppression of political (and often times cultural) expressions of Kurdish ethnic identity in Turkey, Turkish capitalists are now eagerly investing in the territory secured by a Kurdish Regional Government, ﬁnding a lucrative opportunity in the reconstruction of this conﬂict ridden zone. Presently, the regional government with its own national anthem and ﬂag has announced its territory as a “gateway to [global] investments” and a “growing economy” that “build[s] ties between business communities here and abroad.”6 The Kurdish cities of Northern Iraq have been hosting several trade shows in 2008 with hundreds of Turkish contractors

Iraq/KRG): Thomas, J (2008) http://www.rusi.org/research/studies/european/commentary/ref: C47CEC491C191C/. Romano, D (2008) http://www.jamestown.org/terrorism/news/article.php?articleid=2374042. Olson, Robert (2003) http://ﬁndarticles.com/p/articles/mi_qa5400/is_200404/ai_n21347134. Also see, Gunther, M. (2005) “Turkey’s New Neighbour: Kurdistan” in O.Leary, McGarry, and Salih ed. The future of Kurdistan in Iraq, University of Pennsylvania Press. 4 Yilmaz, S. (2007) “Interview with Ilknur Cevik,” Turkish Daily News, April 13 2007. 5 The Kurdish population in Iraq is approximately 5 million, whereas there is an estimated 20 million Kurds living in Turkey. 6 See http://www.krg.org/articles/detail.asp?lngnr=12&smap=03010800&rnr=145&anr=18620.

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and trade companies as active participants and some of these events have even been taking place within the borders of the Turkish Republic.7 In the meantime, transnational Kurdish mobilizations are facing a dilemma posed by the same opportunities created by the US presence in the region. While Kurdish mobilizations in Turkey have almost always been staunchly anti-imperialist (and often socialist), the recent success of their across-theborder brethren who are known to be collaborators of the US aggression creates a dilemma for not only political, but cultural self-identiﬁcation for Kurdish movements. While Kurdish political groups in Iraq are engaged in a contest of arranging power relations in the region, Kurdish political groups in Turkey continue to be highly critical about the US presence thereby. As the claims based on Kurdish identity diversify across the borders, this expansion of Turkish capital into Northern Iraq and ongoing operations of the Turkish military cause further ﬂuctuation in Kurdish identity politics on both sides of the borders. The transnational quality of Kurdish claims, together with Turkish capital ﬂow and military operations today reveal a larger context beyond the demarcation of national states. To complicate matters further, the fact that while traveling between two diﬀerent tribal areas of the Kurdistan Regional Government the travelers need to change the network cards of their cell phones, tells us that competing deﬁnitions of boundaries are not limited by national states or war-zones only. This state of aﬀairs poses a dynamism that calls into question existing power relations and territorial arrangements in the region. Globalization has not created a ﬂat world, as popularized by some commentators in the mainstream media.8 The impacts of dynamic forces that shape the less restricted movements across national boundaries and less limited cross-border interactions have been neither unidirectional nor homogenous; and political, economic and cultural tensions of globalization have led to a more fragmented world.9 The trajectories of globalization have created a 7 See http://www.krg.org/articles/detail.asp?smap=02010100&lngnr=12&anr=24177&rnr= 223,; overall in 2008, there are seven international trade and construction fairs taking place only in Arbil, in addition to several others in Sulemania. In addition to Iranian, Italian and Korean companies, majority of the participating companies (and at least one trade show, namely Arbil Construction and Building Fair on July 9-12) have their contact addresses in Turkey. An interesting observation that needs to be noted that none of the websites of these fairs refer to the region as Kurdistan. 8 T. Friedman (2007) The World is Flat 3.0, Picador; H. Levitt (1983) Globalization of Markets. Harvard Business Review 61, 3:92-102; K. Ohmae (1990) Borderless World: Harper Business. 9 For fragmenting impact of globalization literature see for example: Z. Bauman (2002) Society Under Siege, Polity Press; D. Held et al Global Transformations: Politics, Economy and Culture, Blackwell; D. Harvey (1989) The Conditions of Postmodernity, Blackwell; A. Giddens (1990) The Consequences of Modernity, Stanford University Press; (2000) Runaway World: How Globalization

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worldwide “contested terrain, with opposing forces attempting to use institutions, technologies, media, and forms for their own purposes.10 Especially the relationship between globalization and nationalism has been a complicated one. While the intensiﬁcation global interactions might have forced re-ordering of territory and power, the trajectory of such intensiﬁcations has neither been smooth nor displayed any form of uniformity, rather, as illustrated by the Turkish paradox and the Kurdish dilemmas, they have been shaped by local actors, regional responses and conﬁgurations of power.11 The political and cultural implications of cross-border activities that are intensiﬁed through war and commerce are neither pre-determined nor predictable based on the intentions of the actors, rather produced interactively. This chapter is an attempt to discuss possibilities and patterns of variances and contingencies displayed by an emerging phenomenon of global and regional interactions that challenge political borders and cultural certainties. What will be the implications of these cross-border activities? Are Kurds going to be rewarded with an independent nation-state of their own? Or will Kurdish Nationalism wither away through economic colonization and market is Reshaping Our Lives, Routledge; R. Gilpin (2000) The Challenge of Global Capitalism, Princeton University Press; M.F. Guillen (2001) “Is Globalization Civilizing, Destructive or Feeble? ACritique of Five Key Debates in Social Science Literature” Annual Review of Sociology, Vol 27; D. Rodrik (1997) “Has Globalization Gone Too Far” in T. Robberts, A, Hite eds From Modernization to Globalization, Blackwell; S. Sassen (1988) The Mobility of Labor and Capital: A Study of International Investment and Labor Flow, Cambridge University Press; (1991) Global City, Princeton University Press; (1996) Losing Control? Sovereignty in the Age of Globalization, Columbia University Press; L. Sklair (1991) Sociology of Global System, E. Soja (1989) Postmodern Geographies, Verso; 10 D. Kellner (2002) “Theorizing Globalization” Sociological Theory, Vol 20, No. 3:301. 11 The discussion on the relationship between globalization and nation-state see: M. Albrow (1997) The Global Age, Stranford University Press; J. Baylis, S. Smith and P. Owens eds (2008) Globalization of World Politics, Oxford University Press; S.Berger, R.Dore eds (1996) National Diversity and Global Capitalism, Cornell University Press; R.Boyer, D.Drache eds (1996) States against Markets: The Limits of Globalization, Routledge; J. H. Dunning ed. (1997) Governments, Globalization and International Business, Oxford University Press; P. Evans (1997) “The Eclipse of State” World Politics, 50:62-87; D. Held (1995) Democracy and the Global Order: From Modern State to Cosmopolitan Governance, Polity; P. Hirst and G. Thompson (1996) Globalization in Question, Polity; J.W. Meyer et al (1997) “World Society and the Nation-State” American Journal of Sociology Vol 103, No1:144-181; P. McMichael (1996) Development and Social Change: A Global Perspective, Pine Forge; J.H. Mittelman ed (1996) Globalization: Critical Reﬂections, Lynne Rienner; S.O.Riain (2000) “States and Markets in an Era of Globalization” Annual Review of Sociology, 26:187-213; E.P. Reis, S. Bislev eds.(2004) The Nation-State and Globalization: Changing Roles and Functions, International Political Science Review, Vol 25, No. 3; R. Shamir (2005) “Without Borders? Notes on Globalization as Mobility Regime” Sociological Theory, Vol 23, No: 2:197-217; S. Strange (1996) The Retreat of the State: The Diﬀusion of Power in the World Economy, Cambridge University Press.

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integration, as expected by many American oﬃcials who have been eagerly trying to manage, if not resolve, this explosive Turkish paradox and the Kurdish dilemma? Borders are political constructs with not only economic, but also cultural implications. Collectivities conﬁned within those borders form social spaces with overlapping meanings. The war in Iraq, ensuing occupation and the ongoing ambiguities seem to have obliterated the exclusiveness of these social spaces and increased cross-border social interactions. Now through capital and labor ﬂows and ongoing military clashes, a trans-border space has already been created. Many Kurdish politicians see this as an opportunity for an independent Kurdistan. Some suggest that Kurds will now have the chance to catch the opportunity they missed in the aftermath of the World War I. Yet, despite loud claims of cross-border Kurdish national identity, Kurdish political groups are highly diversiﬁed in terms of their stated interests and claims to nationhood. The Kurdish identity that has been marginalized so far and Kurdish agency that is now being reclaimed by several actors across-borders, is expected to be brought to the forefront in the political climate created by the US occupation of Iraq. Is this occupation an opportunity for Kurdish aspirations for a national-state since Iraqi Kurds have eased the American military presence in the region by actively supporting the invasion? This chapter argues that while there is a perceived opportunity by many actors, who are for or against such development, identity and territory are to be redeﬁned within a dynamism contingent to actions of several Kurdish and non-Kurdish actors in the region. Such contingency involves at least two sets of local questions in addition to several policy proposals US has been negotiating with various other regional and global actors: a) Lack of a uniﬁed Kurdish political will: It seems various Kurdish groups within and across-borders contest over this perceived opportunity and negotiate their diverse claims; and b) the regional ambitions of Turkey (and probably Iran): These regional actors eﬀect the process of such contestations politically and economically. The territory will be redeﬁned, as well as identity, within this dynamic contingency of various actors and how they will handle emerging paradoxes of neoliberal global integration and war. The compelling questions here is what the political, cultural and geographical implications of the opportunities that have emerged for the colonial projects of a regional power (Turkey), and for local ethnic mobilizations (Kurds in Iraq and in Turkey) are as a result of aggressive intervention of a global power. How do cross-border interactions aﬀect the already contested and ﬂuctuating regional identities and boundaries? The nature and possible outcomes of this trans-border interaction creates a new political and economic space that is worth exploring to capture the trajectories of identity and territory reconﬁgurations. In other words, this new space and its overlapping meanings will play

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a crucial role in the formation of new national-ethnic identities and new clashes rather than evening them out through market integration.

Continuity and Change That Redeﬁne Identity and Territory The relationships across the borders of Turkey and Iraq have always been fragile and ﬂuid due to historical and territorial continuities and this situation is now further complicated by the military presence of a global power. The borderline between Iraq and Turkey is historically constructed and has been politically maintained for two-thirds of the twentieth century. The emerging interactions across this space calls for a global contextualization of dynamic changes concerning Kurdish ethnicity and nationhood. Such contextualization needs to capture this border as a territory/space that is a theoretically and politically constitutive aspect of social construction of Kurdish ethnicity and nationhood. This space has been continuously contested by regional actors and global (economic, political or military) interventions only further fragmentation of claims and conﬂicts regarding territory and identity. During the post-colonial, “nation-state era” starting in 1920s, and since then, nationhood as a congruence of culture and political boundaries has become an internationally-sanctioned and powerful goal. After the collapse of the Ottoman Empire, as nationhood became an increasingly powerful vision, and division of the Middle East, actors began to make centralizing claims within the designated borders. However, the political boundaries that were drawn in the aftermath of the First World War were not congruent with the cultural claims of the populations. Since then Kurdish cities and tribes that were contained across the borders of Turkey and Iraq (as well as Iran and Syria) have been through several stages of claim-making addressing repressive policies of the centralized governments. Such claims mobilized historically ﬂuctuating and geographically diverse political identities. These claims to identity, in return, have challenged the designated borders. Beyond the demarcation of nation states these claims have ﬂuctuated exponentially within a larger historical and territorial context. Turkey and Iraq followed diﬀerent trajectories of administrative centralization on the lands carved out of Ottoman territories. The territorial organizations of centralized political power have been diﬀerent in Turkey and in Iraq, especially with respect to the negotiations concerning the relationship between the centralized state and the landed aristocracy, which have taken diﬀerent paths in these countries with diverse political consequences. Over the years, overlapping meanings of space and culture have constantly challenged boundaries in the region, as political actors, Turks, Arabs, and Kurds competed to

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solidify ethnic and national identities within culturally-imagined and politicallysanctioned territories. Iraq evidently remained as a deeply-fractured society under mostly authoritarian rulers with a strong traditional Kurdish aristocracy around the Turkish-Iranian border. Turkey, on the other hand, has achieved repressive centralization via nominal parliamentarianism with a vibrant civil society, marked by persistent democratic movements among students, intellectuals, workers, and religious and ethnic groups. The post-World War I borders and ensuing diversiﬁed centralizations also caused drastic destruction of millenniums old economic activities among the cities and ports along Mesopotamia, from Caucauses to the Gulf.12 While modern borders destroyed traditional trade among local communities, economic decisions were centralized by the two governments whose relations ﬂuctuated with the ebbs and ﬂows of Cold War strategies. Before the 1991 Gulf War, however, Turkey and Iraq were already major trade partners. As a matter of fact Turkey was the largest trade partner of Iraq whose economy was yet to be fully integrated to global neoliberalism13 The most important and globallysigniﬁcant activity was the pipeline between the Kurdish city of Kirkuk and the Mediterranean port of Ceyhan, which was pumping 450.000 barrels of oil every day. During oil-for-food exchange program, 2 million barrels of crude oil were transferred from Kirkuk to Ceyhan every day, giving the Turkish company in charge of this transfer $400 million a year. While the pipeline was the main, if not only, global market integration of Iraq (excluding weapons purchases), the commerce between Iraq and Turkey was then “a trickle”14 compared to what is going on today; the trade exchange between Turkey and Iraq was over $3 billion last year and it was expected to be over $5 billion in 2007.15

Crossing Borders: Turkish Capital and Kurdish Politics World Bank/UN assessments indicate that potential overall relief and reconstruction costs for Iraq would be around $56 billion.16 Today immense reconstruction 12 For a comprehensive historical account of Mesopotamian economy see Issawi, C. 1998. Fertile Crescent, 1800-1914:A Documentary Economic History. Oxford University Press. 13 Some authors such as Naomi Klein argue that the purpose of the military operation in Iraq is to integrate its economy to global markets; see Klein, N. 2007. The Shock Doctrine and the Rise of Disaster Capitalism. Metropolitan Books. 14 “Iraqis Rebuild Thrust with Turkey.” BBC. November 19, 2003. Accessed at http://news. bbc.co.uk/2/hi/middle_east/3284421.stm. 15 As stated by the Trade Minister of Iraq on May 24 at the opening ceremony of the 3rd Iraq Reconstruction Exhibition that took place in Turkish city of Gaziantep, Accessed at http://www. peyamner.com/details.aspx?l=4&id=58003. 16 As cited by SIGIR in http://www.sigir.mil/reports/pdf/Lessons_Learned_July21.pdf: The

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projects are going on throughout Iraq and it has long been suggested that Kurdistan was to be the “Gateway to Investments.” At the several reconstruction, building or trade fairs that has been going on in Turkey or within the territory of KRG, Turkish companies almost always constitute the majority of the participants among other countries.17 The Kurdish region within the borders of Turkey has always been the least-developed area, attracting few Turkish companies. Mostly due to political and military reasons Turkish authorities did not encourage economic development in Kurdish areas, yet today there seems to be a gold-rush like ﬂow of Turkish investments into Northern Iraq. This paradox needs to be understood in order to develop a more nuanced understanding of expansion of global markets and changing principles of territoriality. The struggle over culture and power not only takes place within a deﬁned territory, but the interpretive codes of nationhood redeﬁne that territory.18 Presently in Northern Iraq there are two types of cross-border activities that will shape the future of Kurdish nationalism: cross-border political opposition and cross-border economic integration. In order to capture the implications of cross-border activities we need to look at the processes, actors and their claims:19 A. Capital as Cross-border Integration Given the shaky standards of contracting in Iraq20 it is hard to obtain data concerning the amounts and sources of funding. According to the website of a US State Department organization called Regional ReConstruction: [A]pproximately $595M in reconstruction dollars has been invested in the Kurdistan Regional Government (KRG) area (Dohuk, Erbil, and Sulaymaniyah Provinces).These funds are implemented under the supervision of the Department of State’s Iraq Reconstruction Management Oﬃce (IRMO) and the US and Coalition Forces in the ﬁeld which include the Gulf Region Division of the US Army Corps of Engineers.The overall funding includes approximately $551M from the Iraq Relief and Reconstruction Fund (IRRF) and approximately $44M from the Commanders Emergency Response Program (CERP). In addition to this funding breakdown, approximately $14M from the US State Department’s Economic Support Fund (ESF) has recently UN/World Bank information was formally published in a report in October 2003, see: UN document, “United Nations/World Bank Joint Iraq Needs Assessment,” October 2003, p. ix-x. 17 See http://www.iaccikurdistan.com/DBX2005.php. 18 Agnew, J. A and Corbridge, S. 1995. Mastering Space: Hegemony, Territory and International Political Economy. Routledge. 19 Absolute and relative space: see David Harvey Explanation in Geography. Also see relational space in Social Justice. 20 “Iraq Spending Ignored Rules, Pentagon Says” New York Times. May 24, 2008.

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kumru toktamis been allocated to the Regional Reconstruction Team (RRT) for the KRG area for public welfare infrastructure projects. In addition to this funding breakdown, the Iraqi central government is also allocating about $2.9 Billion, some 8.4 percent of the National Budget, for the Kurdistan Region in 2006. Seventeen percent of the national budget—$6.8 billion dollars assuming a budget of $40 billion—is supposed to be allocated for the Kurdistan Region in 2007.21

If my understanding of this oﬃcial breakdown is correct, while US and coalition aid for the reconstruction of the region is half a billion dollars, the actual amount that has been spent is approximately ten times more than that and will be drawn from sources within Iraq or Northern Iraq. Approximately 17 percent of Iraq’s budget is to be allocated for the reconstruction of the areas controlled by the Kurdistan Regional Government.22 Presently, there are 913 Turkish companies operate in the area, according to a newspaper report: There are 260 contracting ﬁrms in Arbil, 225 in Sulaimaniye, 97 in Dohuk, 45 in Zakho, and 7 in Acre.There are 67 ﬁrms selling construction materials in Arbil, 40 in Sulaimaniye, 30 in Dohuk, 55 in Zakho, and 6 in Acre. Thirteen woodwork and installation companies were set up in Arbil, 12 in Sulaimaniye, 11 in Dohuk, and 7 in Zakho and 3 in Acre. Eight PVC and plastic coating workshops opened in Arbil, 10 in Sulaimaniye, 12 in Zakho, 4 in Dohuk, and 1 in Acre.23

The contracts that were granted to companies originating from Turkey were not small amounts. They include millions of dollars worth of construction projects such as ﬁve airports, four highways and bridges, six universities and student dormitories, ﬁve luxury residences and hotels, six water and sewage systems, two governmental headquarters, two cultural and monumental works and one healthcare center. It needs to be noted that some of these companies are owned by Turkish citizens of Kurdish origin. While they might be seen as part of the Turkish capital expansion in the region, their cultural presence may become assets of capitalist integration for all parties and/or aﬃrmation of political autonomy. For leading Kurdish political actors, namely Patriotic Union of Kurdistan, (PUK) and Kurdistan Democratic Party, KDP) this does not seem to pose a contradiction, whereas Kurdistan Workers’ Party, (PKK) tens to denounce all such parties as “national traitors.”

21

See http://www.state.gov/documents/organization/79901.pdf. On the other hand, US Congressional Budget Oﬃce states that “since2003, the US government has provided almost $38 billion to support reconstruction eﬀorts in Iraq. Other nations have pledged about $15 billion in assistance; See http://www.cbo.gov/ftpdocs/76xx/doc7699/ 12-08-Iraq.pdf. 23 Yilmaz, Serpil (2007) “Turks are reconstructing Northern Iraq,”Turkish daily News, April 12. 22

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B. Labor as Cross-Border Integration According to newspapers reports, Northern Iraq has been a target location for many seasonal workers from Turkey.24 Turkish contractors and subcontractors prefer to bring their own employees from Turkey rather than hiring mostly unskilled labor among Kurdish people.25 Other than being peshemerge ﬁghters who are in charge of the military protection of the cities, or farmers or employed as highly-educated professionals at government oﬃces or universities, Kurds are not hired by Turkish or other investing companies. It is reported that 1200 Turkish trade and construction companies provided jobs for 14,000 Turks.26 Even other investors, such as German, Italian, Austrian and Korean companies also prefer Turkish workers.27 While the oﬃcial number of seasonal and/or immigrant workers in (Northern) Iraq and their comparative wages. yet to be determined, a Turkish construction worker is reported to earn approximately $1000 a month, a Filipino sales person working for retail companies makes around $300 a month. C. Cross-border Opposition: Political Actors and Their Competing Claims While Kurds are looking forward to creation of a national homeland in Northern Iraq, and Turkish military is nervous about the prospect, it is very hard to talk about a uniﬁed Kurdish nationalist movement. Three main political groups that have been historically prominent in Kurdish regional politics are PUK (Patriotic Union of Kurdistan) and KDP (Kurdistan Democratic Party) of Northern Iraq and PKK of Southeast Turkey or as Kurdish politicians and intellectuals prefer to say the PUK and KDP from southern Kurdistan and PKK from northern Kurdistan (a phrasing that Turkish judicial system considers criminal and can lead to harsh punishments in Turkey.)28 KDP is a political party created by the father of the present president of the Kurdish Regional Government. Molla Moustafa Barzani created the party in 24

ibid, Serpil Yilmaz. One informant told me that Iraqi Kurds are either allocated as peshemerge ﬁghters or agricultural workers. According to this Kurdish intellectual from Istanbul, most of the Kurdish population in Iraq neither have the skills nor interest in being hired by construction companies. 26 Serpil Yilmaz in Turkish Daily News, April 14, 2007. 27 Ibid. April 13, 2007 07 28 For a comprehensive overview of fragmented Kurdistan and Kurdish political parties see; Olsen, R. W. 1996. The Kurdish Nationalist Movement in the 1990s: Its Impact on Turkey and the Middle East, Kentucky University Press; Ibid 2005. The Goat and the Butcher: Nationalism and State-Formation in Kurdistan Iraq Since the Iraqi War, Mazda Publishers; Jwaideh W., M. van Bruinessen. 2006. The Kurdish Nationalist Movement: Its Origins and Developments. Syracuse University Press. For the ﬂuid and fragile history of Kurdish mobilizations in Turkey see Toktamis K. 2007. From Ethnicity to Nationalism: Turkish Nationhood and Kurdish Mobilizations, PhD. dissertation, New School for Social Research. 25

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1946. He was a legendary Cold War ﬁgure who survived several navigations between American and Soviet interests. He was known as a conservative, traditionalist, feudal and tribal right wing leader who had occasional victories in carving out a political space for Kurds against aggressive centralization attempts of the Ba’ath Party. Barzanis are Kurmanci speaking large landowners in northwestern Iraqi Kurdistan. Today Kurdish city Arbil (or Hewler) is known to be Barzani’s political and military headquarters. PUK is the political party of Jelal Talabani who is now the president of Iraq as a whole. The party was created in 1975, and throughout the last decades of the Cold War, Talabani and his party were known to be leftist, socialist and progressive. Talabani also belongs to a landowning Kurdish clan that reside in the Sorani-speaking region of Southeastern Iraqi Kurdistan. Today, the Kurdish city of Suleamaniya is known to be PUK’s headquarters. Evidently, there is more than one historical irony in this leftist Kurdish leader’s presidency in Iraq during the American occupation of the country. Historically, KDP and PUK were rarely on good terms with each other and never refrained from forming shifting alliances with Iraq and Iran and engaging in violent clashes with each other. The rivalries between these two groups were ﬁnally brought to an end by several international interventions and in 2005 they formed a political alliance called the Democratic Patriotic Alliance, which controls 104 seats of the 111-seat Kurdish Regional Parliament. Both Barzani and Talabani have publicly declared their interest in advancing political and economic collaboration with Turkey and they explicitly reject the idea of an independent Kurdistan, despite the fact that no Iraqi ﬂags are ﬂying on the territories of Kurdistan Regional Government and this administration has been signing partnerships and trade agreements with several global companies on its own. As a matter of fact, the cities of Arbil and Suleymaniah, the respective headquarters of Barzani and Talabani, also seem to be forging local partnerships and competing for foreign investments and trade. Both the Barzani and Talabani families are reported to be partners of large business consortiums established with Turkish and other global investment ﬁrms and construction companies. PKK was formally established in the late 1970s in Turkey as an armed organization. Its violent clashes with Turkish security forces throughout the last two decades of the twentieth century resulted in close to 35,000 deaths, including of civilians targeted by both sides. Unlike KDP and PUK, PKK did not have its roots in the traditional landowning Kurdish aristocracy and it recruited its activists among the most impoverished segments of rural populations. At the same time, especially in the 1990s, PKK was the only Kurdish organization that had a political constituency and networks in Europe. Both the United

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States and Turkey consider PKK to be a terrorist organization and they pressure the Kurdistan Regional Government not to harbor its militants. However, it is reported that the PKK has a growing constituency within Northern Iraq and even in Iran, especially given the level of corruption and lack of transparency in economic and political aﬀairs of the Kurdistan Regional Government. Following the US invasion of Iraq, Turkish military has conducted more than two dozen cross-border incursions and bombings in Northern Iraq targetting PKK camps, prior to the late-February 2008 siege that lasted 8-days. Since a PKK ambush within the borders of Turkey in October of the same year, military stepped up its daily cross-border activities against the Kurdish rebels.29 In return, as Turkey attempted to convince the authorities of the US and Iraq for further security cooperation against the rebels, PKK started serious attacks, as they had promised, against energy infrastructure along the oil pipelines across the frontier.30 While it was aﬃrmed that the US has been providing intelligence on the activities of the PKK to Turkey, Iraqi authorities agreed to have bimonthly meetings with the Turkish government regarding the same issue.31 In Iraq, the Kurdish population that has been mobilized around the nationalist discourse of an independent Kurdistan, then woke up to an economic situation where foreign investments only bring foreign labor in their midst. Frustration grows as Kurds of Iraq watch their leaders abandon independence even rhetorically and engage in pragmatic and proﬁtable collaborations with Turkey. In turn, the leaders of PUK and KDP are threatened by the PKK’s increasing appeal. In addition to PKK, it has now been reported that Islamists, the Islamic Group of Kurdistan, who now control only six seats in the parliament are also beneﬁtting from aggravating dissatisfactions. Clearly, it is not possible to talk about a uniﬁed Kurdish policy, or even a Kurdish nationalist discourse. There are several overlapping and shifting discourses and strategies for political action.

Future Not So Flat The already-contested political borders between Turkey and Iraq are now being challenged by the growing ﬂow of capital and labor, in addition to cross29

http://www.reuters.com/article/worldNews/idUSTRE4A95KE20081110. For an analyses of such an attack in late-November 2008, see: http://www.upi.com/ Energy_Resources/2008/11/25/Analysis_PKKs_oil_attack_requires_new_Turkish_strategy/ UPI-16631227648974/2/. 31 http://www.upi.com/Emerging_Threats/2008/11/20/Turkey_US_Iraq_agree_on_PKK_ actions/UPI-97451227228687/. 30

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border violent clashes between the Turkish military and the PKK. The ﬂow of Turkish capital is welcomed by the oﬃcers of Kurdistan Regional Government and explicitly encouraged by American oﬃcials who expect improved market conditions to ease ethnic clashes. Under the auspicious of the US military, economic collaborations are preferred activities.32 Statements made by several American oﬃcials reﬂect a deepening trust in the universalizing eﬀect of the market. In October 2007, as the threat of a possible (and eventual) Turkish military attack on the PKK within Northern Iraq became apparent, General Petreus in his attempt to limit Turkish military operations emphasized the signiﬁcance of economic partnership, stating that the “Turkish investments in Northern Iraq are between $8 billion -$10 billion. Much of the construction is being carried out by Turkish ﬁrms and much good and services are from Turkish ﬁrms . . . [t]here is an electricity sharing-agreement, so the economic and commercial ties between the two countries, including Kurdish region are of great signiﬁcance.”33 He not only conﬁrms the volume of economic transactions, but also encourages this over any military adventures Turkish military could be interested in. Since 2007, there were several talks among Turkish and American oﬃcials stating that the violence can be eliminated by economic means.34 These cross-border activities seem to lead to some sort of Turkish hegemony in the region under the US mandate, but it is not likely to eliminate ethnic violence. Especially due to the nature of Turkish capital and the competing nationalist discourses among Kurdish political groups, we may be witnessing increasing territorial diﬀerentiation, rather than universalizing impact of market. Questions that are yet to be answered imply conﬂicts that are inherent to several facades of globalization: Will the ﬂow of Turkish capital to Northern Iraq eradicate ethnic clashes or will it aggravate them? Will Kurdish politicians seek to unify their constituencies in a cross-border nationalist mobilization or will they choose to enhance their power within limited yet secured territories? To establish whether such questions are mutually exclusive or not requires further examination of local economic and political power constellations among regional actors. Globalization is often marketed as a “natural” process of expansion of markets and increased communications among cultures, even when such exchanges are accompanied by military clashes. However, in localities where particular constellations of historical and territorial interactions take place, the emerging 32 Candar, Cengiz. (2007). “Kissinger on Turkey’s Intervention to Northern Iraq” Turkish Daily News, 6/2 33 As reported on BBC October 23, 2007. 34 As reported in Turkish Daily News November 1, 2007.

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economic and political agents need to be identiﬁed because it is the clashing interests and identities of these actors that produce substantive and permanent changes. The future of Northern Iraq and Kurdish nationalism is to be shaped by the conﬂicts and contradictions among contesting actors that include several Kurdish groups and at least one (and more) regional powers. This implies that processes of globalization are contingent on these clashes and global transformations are not “natural”, but products of conﬂicts among agencies that are aﬀected by them. On the hilly road ahead, the of the Kurdish dilemma, regarding political autonomy and economic integration, is likely to be shaped within the processes of political and economic interactions among several actors, rather than being a design of one powerful regional actor or preordained by a global one. In tandem, the Turkish paradox will be resolved through negotiations between and amongst willing and unwilling representatives who act on behalf of Kurdish political and economic interests.

Turkey’s Imperial Legacy: Understanding Contemporary Turkey through its Ottoman Past Joshua W. Walker Princeton University

Abstract The modern Turkish Republic emerged from the ashes of the Ottoman Empire less than 85 years ago. Yet the majority of analysis and writing on contemporary Turkey neglects or superﬁcially treats the Ottoman historical legacy. This chapter argues that contemporary Turkey is very much shaped by the legacy and identity that the Ottoman Empire left it as a clear imperial successor state. A key contention is that understanding Turkey’s Ottoman legacy and the historical memory of past leadership among the Turkish public, in the region and globally, is instrumental for any analysis or discussion about Turkey’s present or future. By looking at Turkey’s identity and international behavior since the Republic, this chapter seeks to develop a better understanding from which to analyze the historical roots of many of the values, tensions, institutions, and motivations that permeate contemporary Turkey today. Keywords Turkey, imperial, national identity, legacy, international relations

Introduction: Understanding Contemporary Turkey Understanding contemporary Turkish politics and foreign policy has become an area of increasing interest for scholars of international relations. As a regional power that exempliﬁes a synthesis between a Muslim-majority population in the Middle East and a functioning democratic ally of the West, Turkey’s stock is on the rise. As analysts and academics debate the recent developments within Turkey and its neighborhood, the focus of attention typically shifts from the present to the past. As the heart of the Ottoman Empire, Turkey claims the mantle for the imperial rule inherited from the former Roman and Byzantine Empires that made the Ottomans the center of Eastern and Western world interactions for over six hundred years. As a result, there is a growing interest in the Ottoman legacy for modern Turkish foreign policy and international vision. However, before one can truly assess the Ottoman legacy for modern Turkey, it is

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imperative not to simply treat this question in isolation or as an anomalous case, but rather evaluate it in the broader framework of identity and politics in post-imperial nations. The fact is that the majority of today’s most important states that are studied under the rubric of great powers in international relations are still recognizably the progeny of empires. Russia, Britain, France, Germany, China, Turkey, and Japan, to name but a few modern-day great and regional powers, are all direct descendants and successor states of their former empires. In the same way that not all nations share the same power capabilities, ideology, or history, these post-imperial nations inherited a diﬀerent type of legacy and experience with international leadership than their former colonies. The legacy that these former empires have bequeathed to their respective successor states vary on a number of important areas ranging from collective memories, institutions, ethnicities, boundaries, and historical disputes. Therefore, the way in which these states deal with and interpret their imperial legacies varies widely and is an important yet under theorized and understudied ﬁeld in international relations. The implications of this research agenda goes beyond the theoretical into the practical as this chapter seeks to demonstrate the impact interpretations and legacies have had on decision-making throughout Turkish history.

Post-Imperial Leadership Puzzle Turkey is not an economic superpower or even a great power by most standards used in the ﬁeld of international relations.1 Turkey’s economic progress, while steadily improving, has never dominated its region in the modern period, either in Europe or the Middle East. Given Turkey’s geographic position, it has been an outlier for most of its modern history as a Middle Eastern regional power that chose to reject its region and past in favor of the West and Europe. Somewhat counter-intuitively, the revolutionary secular ideas upon which the Republic of Turkey were formed made Turkish leaders reluctant to draw on the nation’s 600-year past as head of the Ottoman Empire that might have culturally, historically, and religiously resonated with its Middle Eastern neighbors in concrete and material terms. Yet despite contemporary Turkey’s modern past and relative structural weakness, Turkish leaders are increasingly ﬁnding 1 The typical examples of great powers always include the United States, Russia, and China, and then often diﬀer over countries such as Britain, France, Germany, and Japan. The seminal work in this respect was by Paul Kennedy in his classic The Rise and Fall of Great Powers (New York: Vintage Press 1987) which included all of the aforementioned countries, but not Turkey.

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their country being cast as a Middle Eastern regional leader and spokesman within the Muslim world. Particularly in a post-Cold War account of Turkish foreign policy, Turkey seems to be punching well above its material weight in the Middle East and entertaining new ideas about its place in its wider neighborhood. The question must therefore be asked: where does Turkey derive this status and ambition as a regional and global player that goes well beyond the standard international relations explanations involving economic and political power indicators? This question and the empirical puzzle presented by the modern Turkish Republic cannot be answered by the standard theories in international relations, and it requires scholars to examine Turkey from the comparative context of its former imperial self to fully grasp the complexities of contemporary Turkey. As a result, the purpose of this chapter is to provide a ﬁrst eﬀort at exploring the nature of Turkey’s contested identity in the broader context of non-Western imperial legacies as an important factor in international relations theory building and testing. Speciﬁcally, I hope to create a space to argue that the interpretation of an imperial successor states’ legacy is informed not only by typical material or rational factors studied in traditional international relations theory, but by a constitutive process that involves ideas such as culture, identity and historical memory that I argue can be traced to a country’s imperial legacy.

Imperial Legacy as a Research Agenda The questions presented and the hypotheses developed in this chapter are based on the premise that ideas such as historical legacies or memories of collapsed empires matter on a variety of levels for a successor state’s national identity. Imperial identities that are supplanted by national identities carry with them the expectations of international prestige and great power status that characterized the former grandeur of empire. As such, the identity of a former empire is directly aﬀected by the imperial legacy that its successor state is bequeathed, and, more importantly, the interpretation of this legacy. The choices that a former imperial metropolis’ elites make in dealing with its imperial legacy are not only determined by rational self-interest and material capabilities, but also by the particular ideas that are enshrined in the formation of a national identity that might run counter to its own material and international interests. In addition, the imperial reputation or perceptions of imperial rule by the former metropolis on the former periphery aﬀect international relations between the successor states, and therefore matter to theories of international politics in the region.

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Imperial legacy has rarely been systematically deﬁned or used in international relations. Therefore, it is important to clearly articulate this concept. Drawing from the existing literature, I conceive of imperial legacy for a successor metropolis like Turkey as being the inherited strategic culture from the former empire. Kenneth Booth (1990) deﬁned strategic culture as a “nation’s traditions, values, attitudes, patterns of behavior, habits, customs, achievement and particular ways of adapting to the environment and solving problems with respect to the threat or use of force.”2 Imperial legacy, therefore, is simply applying the concept of strategic culture to a successor state like Turkey. Identities of former empires are directly aﬀected by the imperial legacies that their successor states are bequeathed. Thus, the vestiges of empire live on in the collective memories of a nation’s imperial history that are internalized into a continuum of gloriﬁed nationalism or rejected as the source of a nation’s ideas and identity.3 My theory and narrative of a non-Western successor state’s interpretation of its imperial legacy and identity formation begins with a set of four underlying assumptions. First, imperial periods are a formative and transformative historical event for the metropolis. Second, having conquered their neighbors, there is an inherent sense of superiority over those that were conquered and ruled on the part of the imperial center. Here, I view identities as being particularly important in the case of former empires, given Alexander Wendt’s (1990) emphasis on the interaction between states that help form identities, which then lead to grand strategy.4 Therefore, it matters tremendously what the dynamics of previous interactions were between an imperial core and the relative degree of asymmetrical power relation with its periphery. Third, having once dominated a region, former empires include the option of domination in their strategic calculations and are sensitive to being dependent upon others. Finally, empires that conquered lands nearer to them, such as Russia, Japan, and Turkey, will diﬀer from empires that conquered outside of their region, such as Britain, France, and America, because they have to live 2 Booth, Kenneth. 1990. “The Concept of Strategic Cultura Aﬃrmed” in C.G. Jacobsen (ed.) Strategic Power: USA/USSR. New York St. Martin’s Press. Pp. 121-8. 3 Lebow, Richard Ned. “Memory, Democracy and Reconciliation.” in Claudio Fogu, Wulf Kansteiner, and Richard Ned Lebow, eds., The Politics of Memory in Postwar Europe (forthcoming 2004); Kristof. 1997. “The Problem of Memory”; Andrew Kydd, “Sheep in Sheep’s Clothing: Why Security Seekers Do Not Fight Each Other,” Security Studies Vol. 7, no. 1 (Autumn), pp. 114-154; Van Evera, Stephen. 1993. “Primed for Peace: Europe after the Cold War,” in Sean M. Lynn-Jones and Steven E. Miller, eds. The Cold War and After: Prospects for Peace. Cambridge, Mass.: MIT Press. Pp. 193-243. 4 Wendt talks about interests and priorities in his Social Theory of Politics (Cambridge: Cambridge University Press, 1999), which I see as being complementary to determining one’s grand strategy, which can be deﬁned as prioritizing means to accomplish a particular end.

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next to their neighbors and can’t simply “escape” their past. This premise is particularly true of traditional land-based versus sea-based empires. In attempting to lay out a cohesive framework of how interpretations of imperial legacies impact ideas about identities of successor states, this research seeks to raise a series of interwoven questions. While many of the answers will lie outside the scope of this chapter, it is hoped that future scholarship will attempt to systematically analyze the implications of these important questions: 1) What determines how a state interprets its imperial legacy? 2) Why do some states have a relatively constant interpretation of imperial legacy while other’s interpretations shift over time? 3) How do these diﬀering interpretations of empire shape the present strategic decision-making for successor states? Speciﬁcally, can we trace the existence or impact of these interpretations of legacy on speciﬁc policies of these nations? 4) How does history and identity shape the present context in ways that can add to traditional structural arguments in international relations theory? By tracing the Republic of Turkey’s evolution that began with one of the greatest multinational Islamic empires and ended in a newly independent nation-state that initially rejected its imperial past, I hope to oﬀer an important case-study and demonstrate the importance of this theoretical framework for understanding Turkey today.

Collective Memory: Remembering the Ottoman Empire Turkey’s turbulent birth and the way in which Turks have internalized this history has been a subject of much debate. Unlike the fundamentally unchanged structure of Imperial Germany that would reassert itself again in World War II or the collapsed Russian Empire that reorganized itself through the Bolshevik Revolution into the Soviet Union, Turkey ceased to be a global player both by losing its empire in World War I and voluntarily choosing to focus internally on transforming Turkish society and culture rather than trying to reclaim its lost lands. While many comparisons have been made between the defeat of the Hapsburg and Ottoman Empires at the end of the First World War, the fundamental diﬀerence remains the lack of a clear successor state among Austria, Hungary, and Czechoslovakia that could marshal both the resources and legacy of the former Hapsburgs, while Turkey stands alone as the former heart of the Ottoman Empire that now looks poised to play a greater regional role. Perhaps more than any of the other examples cited, Turkey is most shaped by its identity as a successor state to the collapsed Ottoman Empire. Not since the time of the Roman Empire has any political entity been able to exert a hierarchy of order in the international system stretching from the Balkans

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down into the Middle East and through North Africa for as long as the Ottoman Empire.5 Having been the heart of the Ottoman Empire, the Turks look back on their history with a mixed sense of pride and ambivalence. Despite Turkey’s Ottoman Islamic roots, the modern republic was established as a secular, Western-looking democracy. A consequence of this newly codiﬁed identity was an almost immediate estrangement from its predominantly Muslim, authoritarian neighbors. Many Turks developed a sense of elitism and superiority towards those forefathers who were once subjects of the Ottoman Empire. Scholars such as Philip Robins (2003) have written that this disdain was stronger towards the former Middle Eastern provinces—particularly Arabic ones— who were among the last people to emerge from the ashes of the Ottoman Empire, rather than towards the former Balkan or European provinces. This sense of superiority on the part of the Turks led to what Robins describes as a “deep-seated lack of respect” for the Arab world (p. 98).6 Many Arabs reciprocate this cultural distaste, however, as they view the period of Ottoman subjugation with resentment. It is through this historical prism that a new generation of Arab nationals learned about their former Turkish colonizers and subsequently labeled this the period of the “Ottoman yoke.”7 Collective memory is central to the concept of imperial legacy. It is, after all, the intense memory of the transformative historical empire that informs national beliefs and ensures the continuation of the legacy. One may claim that a distinction needs to be drawn between history and collective memory— a distinction between objective versus subjective representations of the past, which is a valid critique. As demonstrated in the previous example in which Turks view Ottoman “history” versus what Arabs call the “Ottoman yoke,” the same facts may be interpreted by two parties in distinctly diﬀerent manners. Collective memory is naturally subjective and constructed, as it is not possible to have a uniﬁed, detailed and universally-accepted version of events. As a 5 The Ottoman Empire lasted from the decline of the Byzantine Empire in the fourteenth century until the establishment of the Republic of Turkey in 1923. Present-day Turkey sits at the heart of the old Ottoman Empire, whose imperial capital was also located in Istanbul. The empire grew as the lands of Byzantium and beyond were conquered, eventually including the countries of the Balkan Peninsula; the islands of the eastern Mediterranean; parts of Hungary and Russia; Iraq, Syria, the Caucasus, Palestine, Egypt; parts of Arabia; and North Africa through to Algeria. For more on the Ottoman Empire and its relevance to Turkey see Bernard Lewis’ 2002 work The Emergence of Modern Turkey 3rd Edition. New York: Oxford University Press. 6 Robins, Philip. 2003. Suits and Uniforms. London: Hurst and Company. 7 This term was originally used by the Greeks, but it soon spread to other parts of the Ottoman Empire (Robins 2003:102).

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result, a legacy is drawn from “the ‘stock of stories’ that exist in socio-cultural context” and its function is to provide a “usable past”.8 Given the Ottoman’s experience with a long and painful decline, Turkey’s decision to abandon its imperial ambitions and settle into a nation-state model has come to provide exactly this type of narrative for contemporary Turkey. The imperial reputation of the Ottoman Empire and the historical memory of modern Turkey are ﬁlled with paradoxes. On the one hand, the Ottoman Empire is remembered largely in Turkey for its ﬁrst 300 years of expansionist history that saw the Osman Tribe expand from along the Selcuk-Byzantine border in the late thirteenth century to rule throughout Anatolia and the Balkan Peninsula in the following centuries.9 On the other hand, the series of almost uninterrupted defeats at the hands of the West, including particularly the Habsburg and Romanov empires that began with the second siege of Vienna (1683) are remembered as being symptomatic of the decline and backwardness of the empire that was in dire need of modernization by the time of World War One. Like any modern nation, the Turkish Republic selectively constructed its historical narrative and focused attentions on the moments of triumphs, rather than dwelling on the anguish of defeats.

Turkey’s Kemalist Transformation As the Ottoman Empire dwindled and the European nations modernized their armies at the turn of the eighteenth century, the Ottomans became embroiled in a series of wars that ultimately led to their entrance into World War One on the side of Germany, which led to disaster and defeat. It was from the rubble of the Ottoman Empire that the Turkish Republic was founded. On the heels of a defeated, desolate, and occupied people, a revolutionary Turkish leader, Mustafa Kemal, emerged. As the one shining exception to the disastrous war for the Turks, Kemal was determined to work towards a new nation and start a new populist movement against the Sultan and the remaining framework of the Ottoman Empire, which had accepted the harsh settle8 For more on this concept see James Wertsch’s 2006 Voices of the Mind. Boston: Harvard University Press. 9 The teaching of Ottoman history in Turkey has been a constant source of academic debate, particularly the relative lack of treatment of the last 300 years of Ottoman history when compared to the ﬁrst 300 years or the early years of the Turkish Republic. For an interesting study on the teaching of history in Turkey please see Ali Yildrim’s report “An assessment of High School History Textbooks: Teachers and Students Perceptions” Accessed Dec. 30, 2007. http:// www.eric.ed.gov/ERICWebPortal/custom/portlets/recordDetails/detailmini.jsp?nfpb=true&_ &ERICExtSearch_SearchValue_0=ED432510&ERICExtSearch_SearchType_0=no&accno= ED432510.

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ments of the 1920 Treaty of Sèvres. Mustafa Kemal became the logical ﬁgure around whom the defeated nation could rally. With his newly-formed national army, Mustafa Kemal, renamed Atatürk (Father of Turks), declared war on the Western occupiers who had arrived in Anatolia in the aftermath of World War One and began to drive them out of Turkey. Turkish troops, led by Atatürk, stormed from their Anatolian heartland toward the West, reclaiming its lost territory and pushing a frantic Greek force back to the sea. In what has been described as one of the most astonishing military reversals in modern history, “Atatürk turned utter defeat into brilliant triumph, ripping to shreds the Sèvres treaty under which modern Turkey was to have been aborted before it could be born.”10 The ideology espoused by Atatürk, Kemalism, situated modernization and civilization within a Western model of development along with a particularly strict interpretation of Turkey as a secular state. Accordingly—given that both Turkey’s geopolitical and ideological orientation faced westward—Turkish foreign policy has traditionally been skewed towards Europe and away from Turkey’s other immediate neighbors (Robins 2003:12).11 The establishment of a modern, secular, and constitutionally-based nation-state under the leadership of Atatürk created a fundamental shift in the bases of political legitimization and a redeﬁnition for Turkey. Both internally and externally, many saw this Turkish transformation as a transition of a traditional society into a modern one. Having abolished the Ottoman Empire after the War of Independence victory with the stroke of a pen, Atatürk also set about eliminating the most sacred Islamic institutions left in the country. With his top advisors and the support of the military establishment, Atatürk sought to change the predominantly Islamic institutions around him, starting with the Islamic Caliphate. Prior to the Kemalist Revolution, Turkey was considered to be the leader of the Muslim world because of the presence of the Caliphate, who not only held great esteem over Turkish Muslims, but over the entire Islamic civilization.12 Atatürk’s assault on this religious/political institution dealt a crushing blow not only to religious power in Turkey, but also to its neighbors, thereby causing alienated diplomatic relations with its Islamic neighbors. By severing Turkey’s link to the Muslim world and its former empire, Atatürk set about constructing a new state that sought to cut many ties with its pre-Kemalist past 10 This particular phrasing comes from Stephen Kinzer’s 2001 Crescent and Star: Turkey Between Two Worlds. New York: FSG. Pp. 40-41. 11 Robins, Philip. 2003. Suits and Uniforms. London: Hurst and Company. 12 For a more on the Islamic nature of the Ottoman Empire and the importance of the Caliphate see Efraim Karsh’s 2006 Islamic Imperialism. New Haven: Yale University Press.

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and reject all things Ottoman. The Caliphate’s disposal was quickly followed by the dissolution of Islamic courts and a ban on religious brotherhoods in Turkey. Atatürk followed these revolutionary acts by moving the Turkish capital from cosmopolitan Istanbul, where the Ottoman Empire had been based, to the traditional heart of Anatolia, Ankara. In addition to these institutional changes that Atatürk initiated, he attacked the Islamic symbols worn by Turkish Muslims. The traditional fez and veil of the Turkish citizen became a symbol of backwardness and subsequently came under attack and were banned in public buildings. Secular state education replaced the traditional Muslim schools of Ottoman times. Atatürk’s reforms stemmed from his desire to help Turkey progress and develop into a “modern” nation-state fashioned after the Western European model (Kinzer 2001:78). The most interesting characteristic of the Turkish revolution, as noted by Sibel Bozdogan, lies in the totality of its modernization project (Bozdogan and Kasaba 1997:199). For Atatürk, modernization meant westernization, secularization, and autonomy for the individual from religion.13 According to Bernard Lewis, “. . . two dominant beliefs of Atatürk ’s life were in the Turkish nation and in progress; the future of both lay in civilization, which for him meant the modern civilization of the West, and no other.”14 Atatürk ’s vision of a westernized Turkey was not a mere façade. He believed strongly that superﬁcial modernization was worthless, and that fundamental changes were necessary in the structure of Turkish society and culture if the nation was to hold her own in the modern world. Initially rejecting Turkey’s Ottoman legacy allowed Atatürk to reshape a new nation unhindered by the historical baggage and problems that he experienced in the last days of the Ottoman period. As a result, Atatürk ’s legacy of the Kemalist Revolution subsumed the Ottoman legacy by rejecting its immediate past and transformed itself into a nationalist ideology that has guided Turkey for the past eighty years of existence. The ironic narrative of Atatürk and his last generation of Ottoman oﬃcers seeking to save the empire through establishing the republic leaves Turkey with an ambivalence towards its Ottoman past. Atatürk simultaneously tore down the central pillars of the Ottoman political and religious tradition by abolishing the caliphate, while glorifying diﬀerent aspects of the Ottoman legacy as evidenced by the Turkish military’s strong emphasis on Ottoman warfare in its curriculum. As a result, Kemalism cannot simply be seen as monolithically “rejectionist” or “gloriﬁcationist” towards Turkey’s Ottoman past, but rather open to interpretation. This ambivalence has led to a contested legacy and tensions in Turkey when dealing with its Ottoman past. 13 14

Ataturk never used the term “westernization”; rather he referred to “contemporary civilization.” Lewis, 292.

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Subsequent generations of Turkish leaders have followed Atatürk ’s vision of a Westernizing Turkey, but have had very diﬀerent historical memories of the Ottoman Empire. Drawing from its reservoir as one of the most important and impressive Islamic empires, Turkish nationalist leaders have invoked the memory of Ottoman Sultans and various levels of neo-Ottoman rhetoric to explain Turkey’s foreign policy throughout its history. In particular, since the end of the Cold War in which the Soviet Union, Turkey’s main geo-strategic rival and threat, has disappeared, a newly-assertive Turkey has promoted itself as the natural leader of the Muslim world largely on the basis of its imperial legacy from the Ottoman Empire.

Turkey’s Globalizing Role: New Imperial Direction? Turkey now ﬁnds itself simultaneously on the frontline of the democratization process in the Middle East, while standing at the doorstep of the EU. Laden with its history as part of the Ottoman Empire and its more recent past in the Cold War alliance against the Soviet Union, Turkey has been forced to formulate a new strategy for a post-9/11 world that has shifted the emphasis from Turkey’s geography to its historic role as regional leader. By broadening its horizons and seeing the positive role that it has to play in Europe, the Middle East, and Central Asia, Turkey is beginning to realize its full potential as a versatile multiregional and increasingly powerful international actor. As a result, this newfound conﬁdence in Turkey is bringing about an imperial re-collection, memory, and interest in the Ottoman experience as a great power in the region, much like many other regional leaders globally such as China and Russia draw from their imperial legacies. Having emerged from the shadows of isolationism pre-World War Two and dependency during the Cold War, Turkey now has the opportunity to reassert itself in a way unprecedented by modern Turkish Republican standards, but quite normal by Ottoman standards. Given the current political leadership in Turkey, there does seem to be a will for a greater role for Turkey in its region, particularly concerning the Middle East. It is highly unlikely that this role will be imperial in nature, given the prevailing norms of sovereignty and the cost of imposing Ottoman-style rule in this day and age. That said, the prestige associated with playing an active regional role seems to be driving the resurgence in neo-Ottoman thinking on the part of the current government. Neo-Ottomanism as an intellectual movement and a foreign policy strategy is not a new concept in Turkey.15 While its roots go back to at least the early 15

For more see Suat Kiniklioglu’s “The Return of Ottomanism,” Today’s Zaman, March 27,

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1990s with President Turgut Ozal, the true ﬂourishing of the neo-Ottoman philosophy coincides with the current ruling party’s rise to power in 2002. The emergence of the Justice and Development Party (AKP) as a political force in Turkey has rekindled the debate over Turkey’s historical roots and legacy as a successor state to the Ottoman Empire. As a result of its Islamic roots and Muslim outlook, the AKP has focused on the unifying character of the Ottoman Empire and the Muslim values inherited by the Turkish Republic. Articulating a new vision for Turkey that is not dependent upon the West, while actively seeking ways to balance its relationships and alliances, the AKP’s strategy harkens back to the days of the Ottoman Empire.

Utilizing Strategic Depth in Neo-Ottoman Turkey In particular, the work of Professor Ahmet Davutoglu, chief foreign policy advisor to Prime Minister Tayyip Erdgoan, has been pointed to as the most elaborate articulation of neo-Ottomanism and importance of the Ottoman legacy on the strategic thinking of Turkish decision makers. Davutoglu’s writings and inﬂuential book Strategic Depth argue that a nation’s value in world politics is predicated on its geo-strategic location and historical depth. Following the logic of Davutoglu’s proclaimed theory, Turkey is uniquely endowed both because of its location in geopolitical areas of inﬂuence, particularly its control of the Bosporus, and its historical legacy of the Ottoman Empire.16 While traditional measures of Turkey’s national power tend to overlook the cultural links fostered by a shared common history, Davutoglu emphasizes Turkey’s connections to the Balkans, the Middle East, and even Central Asia. In the same vein, Davutoglu argues that Turkey is the natural heir to the Ottoman Empire that once uniﬁed the Muslim world and therefore has the potential to become a Muslim regional power. Accordingly, Turkey is not simply an “ordinary nation-state” that emerged at a certain point due to the play of circumstances or the designs of the outside powers—like, for example, many new states in Central Europe in the aftermath of the First World War. By contrast, Turkey is a regional power in its own right, having strong traditions of statehood and broad strategic outreach. Thus, Davutoglu concludes, “it has no chance to be peripheral, it is not a sideline country of the EU, NATO or 2007. For a thoughtful discussion of the emergence of neo-Ottomanism, see Yavuz, M. Hakan. 1998. “Turkish Identity and Foreign Policy in Flux: The Rise of Neo-Ottomanism,” Critique 12 Spring. 16 See Davutoglu, Ahmet. 2001. Strategik Derinlik, Turkiye’nin Uluslararasi Konumu (Strategic Depth, Turkey’s International Position). Istanbul: Kure Yayinlari.

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Asia.”17 Rather than being peripheral, Davutoglu and other neo-Ottomanists contend that Turkey is a centrally positioned international player. For them, “Turkey is a country with a close land basin, the epicenter of the Balkans, the Middle East and the Caucasus, the center of Eurasia in general and is in the middle of the Rimland belt cutting across the Mediterranean to the Paciﬁc. [Emphasis add]”18 Such geo-strategic vision reﬂects the newly-acquired selfconﬁdence on the part of the neo- Ottomanists who are supportive of a more proactive foreign policy—particularly in what they call the Ottoman geopolitical space—and highly critical of Turkey’s Cold War strategy for its myopic reluctance to embrace the country’s obvious advantages – namely, its rich history and geographical location. Beyond the academic discussions surrounding Turkey’s potential and place in the world, “strategic depth” advocates seek to counter-balance Turkey’s dependencies on the West by courting multiple alliances to maintain the balance of power in its region. The premise of this argument is that Turkey should not be dependent upon any one actor and should actively seek ways to balance its relationships and alliances so that it can maintain optimal independence and leverage on the global and regional stage. The neo-Ottomanists’ reading of Turkey’s history diﬀers markedly from the extreme republican narrative that sought to sever all ties with the pre-Kemalist past and reject all things Ottoman. The appeal of this interpretation has allowed Davutoglu to work with many nationalists and ardent secularists within the Turkish state who actively seek to embrace both Turkey’s Ottoman past and former geopolitical space. In fact, they champion a deliberate revival of the Ottoman past, “both as a matter of cultural enrichment, but also as a source of an enriched Turkish identity as a political actor (Falk 2004).” In this sense, the proposed new strategic outlook is not merely national but regional, and it shifts Turkey’s self-perception as being on the periphery to the understanding that the country is in the very center of important historical developments.

Reconciling Turkey’s Historic Role and its Modern Globalizing Vocation Turkey’s growing economy, population, and importance have forced analysts to take notice of Turkey. Yet the majority of analysis and writing on contemporary Turkey neglects or superﬁcially treats this country’s unique history. 17 Ibid. See also his article “The Clash of Interests: An Explanation of the World (Dis)Order,” Perceptions 2:4 (December 1997-February 1998). 18 Murinson, Alexander. 2006. “The Strategic Depth Doctrine of Turkish Foreign Policy,” Middle Eastern Studies November 42:6.

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Most exploration of Turkish history makes a clear break between the country’s past (especially as the Ottoman Empire) and the present Turkish Republic. Turkey’s ambivalence about its past is reﬂected in the conﬂicting messages and interpretations that its leaders have adopted concerning Turkey’s Ottoman legacy. Yet the fact remains that Turkey is the only country to claim the Ottoman historical identity as its own. As a result, Turkey’s future is increasingly diﬃcult to gauge without clearly understanding from where this nation has come and the historical roots of many of the values, tensions, institutions, and motivations that permeate contemporary Turkey. Turkey’s Ottoman legacy is critical for explaining the role of identity and grand strategy formation in contemporary Turkey. Turkey sees itself as an important international actor that has more to oﬀer than simply its military and economic capabilities. Given their proud history, Turks can be particularly nationalistic and prickly when dealt with as less than equals. Insulting the pride of the Turkish nation by using Turkey as a means to an end can lead to diplomatic failures like the US attempts to “buy” Turkey’s support for the operations against Iraq or current attempts to oﬀer Turkey less than full membership in the EU. Having ruled for the better part of six centuries as the Ottoman Empire, the Turks expect a certain level of respect in their international dealings. The current mood in Turkey of anti-Americanism and antiEU sentiments could lead to a more isolationist or regionally-focused foreign policy in response to electorally popular ultra-nationalist sentiments. Understanding and being sensitive to the Turks’ sense of fairness would go a long way in defusing the current mood in Turkey. Turkey’s contemporary strategic decisions are informed not only by its military and economic power, but also by its Ottoman legacy and the inherited perceptions of self. Turkey’s imperial legacy can serve as both a constraint and as an opportunity for Turkish grand strategy. Turkey’s historic place between East and West has often led to various “identity crises” in the country. If studied in isolation from its Ottoman past, contemporary Turkey’s culture, values, and institutions make little sense. However, by including Turkey’s Ottoman legacy into discussions about Turkey’s strategic culture and decision-making, scholars of international politics can better understand Turkey’s historic place in both the West and the East. History has shown that from the ashes of great empires usually emerges a clear successor state; the imperial metropolis that has reorganized itself in the form of a nation-state. These post-imperial nations dominate international politics today; therefore it is of vital importance that international relations scholars understand the unique circumstances and legacies that dominate these states. As the case of Turkey demonstrates, the identity of nation-states

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formed from the remnants of an imperial metropolis often directly shapes decision makers’ ideas and impacts the context in which foreign policies are adopted. In particular, disputes concerning the “normalization” of defeated empires that were forced to take on their present form by both internal and external forces will continue to be an important area of future research within the literature. Beyond defeated empires such as Germany, Japan, or Turkey, other nations such as France, Britain, and Russia have had to learn how to deal with the loss of empire and how to internalize their respective imperial legacies with their new identities as nation states. The implications of this research extend beyond history into the current debates about America’s imperial role to the rise of China. Imperial legacies are not just ancient history; rather, they are the ideas, interpretations, and motivations that permeate the landscape of international relations and require the sustained attention of scholars if we are to truly understand nations like the Republic of Turkey.

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Motyl, Alexander. 2001. Imperial Ends. New York: Columbia University Press. Murinson, Alexander. 2006. “The Strategic Depth Doctrine of Turkish Foreign Policy,” Middle Eastern Studies November 42:6. Powell, Robert. 1999. Strategic Choice and International Relations. Princeton: Princeton University Press. Putnam, Robert. 1988. “Diplomacy and Domestic Politics: The Logic of Two-Level Games.” International Organization Summer 42:3. Rawi Abdelal, Yoshiko Herrera, Alastair Johnson, and Rose McDermott. 2005. “Identity as a Variable.” Accessed on the Weatherford Center for International Aﬀairs at http://www.wcﬁa. harvard.edu/node/927. Rustow, Dankart. 1964. Political Modernization in Japan and Turkey. Princeton: University Press. Schultz, Kenneth. 1998. “Domestic Opposition and Signalling in International Disputes.” September. Snyder, Jack. 1993. Myths of Empires. Cornell University Press. Sondhaus, Lawrence. 2006. Strategic Culture and Ways of War. New York: Routledge Printing. Wertsch, James. 2002. Voices of Collective Remembering London: Cambridge University Press. ——. 2006. Voices of the Mind. Boston: Harvard University Press.

Cyrillization of Republika Srpska Somdeep Sen MA Student (2008-2009), Department of International Relations and European Studies, Central European University, Budapest, Hungary

Abstract In 1995, the Dayton Accords were signed to eﬀectively end the war in Bosnia. This agreement subsequently divided power and territory among ethnic Serbs, Croats and Bosniaks (Bosnian Muslims). As a result of this, a controversial territorial entity, namely Republika Srpska (Republic of Serbia) was created within Bosnia-Herzegovina. Dominated by ethnic Serbs, Republika Srpska has become the symbol for Serb national and religious identity. Further, one of key markers of this national identity has been the Serbian language. [In this research I am focusing on the use of the Cyrillic script in Republika Srpska, as opposed to Latin. The central question that this study will intend answer is ‘Why was the Cyrillic script used as a marker of Serb national identity in Bosnia-Herzegovina, even though religion is often cited as fundamental to the divisions that marked the violent fall of Yugoslavia?’ Here I would solely focus on the choices made (in terms of ‘national identity-markers’) by the Serb secular political elite. Preliminary ﬁndings indicate that while religion may have been the obvious choice of a national identity marker, it implicitly provided undue political leverage to the Serb religious leadership. Language ensured that the secular political elite maintained a monopoly over the articulation of Serb national identity in Bosnia-Herzegovina. Furthermore, in relation to the question posed earlier, a diﬀerent alphabet created a clearer boundary around the Serb nation, as, despite nationalist claims of distinctness, Bosnian, Serbian and Croatian (all remnants of SerboCroatian) are languages that remain especially similar to each other. Keywords Republika Srpska, Cyrillic, Cyrillization, Yugoslavia, nationalism, Bosnia-Herzegovina, Language, Serbo-Croatian

“The loss of national identity is the greatest defeat a nation can know . . .” Slobodan Milosevic President of Serbia, 1989-1997 President of Federal Republic of Yugoslavia, 1997-2000

When Slobodan Milosevic made this statement, he may have been referring to any suﬀering nation, but during the 1990s, it became a central idea around which the war in the Former Yugoslavia was fought. It was based on the notion of protecting the nation from the perceived threat from the ‘other’. Even

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though, only a few years back, the ‘other’ was not seen as too distinct or different from ‘us’. In 1995, after almost half a decade of brutal violence and the death of close to a 150,000 people in the former Yugoslavia, the Dayton Accords were signed to eﬀectively end the war in Bosnia-Herzegovina. This agreement implemented a consociational system, which subsequently divided power and territory among ethnic Serbs, Croats and Bosniaks (Bosnian Muslims). As a result of this, a controversial territorial entity, namely Republika Srpska (Republic of Serbia) was created within Bosnia-Herzegovina. Dominated by ethnic Serbs, Republika Srpska has become the symbol for Serb national and religious identity in the country. One of key markers of this national identity has been the Serbian language. In this research I intend to focus on the use of the Cyrillic script in Republika Srpska, as opposed to Latin.1 The central question that this study will answer is ‘Why was the Cyrillic script used as a marker of Serb national identity in Bosnia-Herzegovina, even though religion is often cited as fundamental to the divisions that marked the violent fall of Yugoslavia?’ While this study is structured to understand the case of Republika Srpska, it will potentially help us understand how and why certain markers of national identity are chosen as preeminent to the deﬁnition of a nation. Related to the case study at hand, there are two fundamental processes of nation-building implicit to this research. The ﬁrst level of analysis explores the very deﬁnition of a nation and its character. This is then succeeded by an examination of the process and dynamics of choosing speciﬁc markers of national identity.2 In any discourse on nationalism, it is critical to understand the notion that lies at the foundation of this concept, namely, nation. While nationalist leaders and myth- makers often deﬁne a nation as intrinsically ancient, constant (unvarying) and permanent, Benedict Anderson (1991), in one of the classic deﬁnitions of a nation, deﬁnes it as an “imagined political community”3 (p. 6). The key term in this deﬁnition is ‘imagined’. Anderson claims that nations and their boundaries are imagined owing to the fact that it is impossible for one to know every individual in the nation or community (p. 6). What this analysis further establishes is that since a nation is imagined, the basis for social net1 It should be noted that before the fall of Yugoslavia, Serbo-Croatian was the only oﬃcially recognized language and it used Latin and Cyrillic alphabets. The dissolution of the country subsequently led to disbanding of the oﬃcial language and led to the emergence of Croatian (Latin script), Bosnian (Latin script) and Serbian (primarily Cyrillic script). 2 Here the focus would be the choice of national identity markers as a means to create a nation as ‘ancient’, ‘unique’ and ‘opposed’ to another (nation). 3 Please note that following this citation, the expression “Imagined Political Community” will be italicized to accredit it to Benedict Anderson.

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works that a nation claims to provide are imagined and created as well. Therefore, being an artiﬁcial construct, speciﬁc national identity markers are thus chosen4 to be its deﬁning characteristics. This is a critical stage in the process of nation-building as the markers and their (assumed) authenticity is often what lies at the foundation of the nation. Having built a certain conception of a nation, it is then important to note that the process of nation-building, also requires the appropriate choice of national identity. As mentioned earlier, at this level of analysis, this study will focus on the process of nation-building through the notions of the ‘ancient’, ‘unique’ and ‘opposed’, all seen as legitimizing to the deﬁnition of a particular nation. While notion of ‘ancient’ was often central to nation-building in Europe, Jordan and Israel, the idea of a nation as ‘unique’ and ‘opposed’ was critical to nation-building in Macedonia and Bengal (India).

The Nation as ‘Ancient’ Demonstrating the nation as ‘ancient’ Patrick J. Geary (2003), analyzed the particular case of Europe. He noted that nation-building in Europe—even though the nation then was still a modern construct—was done on the basis of distinct cultural building blocks that had ‘ancient’ roots. A direct lineage between the past and present was established and anyone who shared this history automatically became a member of the constructed nation. This automatically distinguished members of the nation from those that did not share this common past. Elaborating this claim, Geary presented the example of the German identity by virtue of which many Germans claim to be the original inhabitants of Europe owing to the consistency in their use of the language of the fore-fathers and the continuous inhabitance on their ancestral land (p. 25). Thus, what we see here is that even though national identities are new and ‘invented’, they are often based on already-existing ancient cultural markers. These markers further deﬁne boundaries for membership to the nation. If one’s national identity cannot be placed on the same time-line as that of the ancient cultural markers they fail to claim membership into the nation. Similar to the Geary’s analysis of nation-building through the notion of the ‘ancient’, Joseph A. Massad (2001) demonstrates a similar dynamic in the creation of Jordanian national identity. While colonialism is claimed to have played in critical role in this process, the author exhibits how the Bedouin of Jordan became the symbol of the national identity based on the colonizers 4 They are chosen because since a ‘nation’ is an artiﬁcial construct, its features, as a characterization of the nation itself are imagined as well.

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perception of them being pure and a personiﬁcation of the ‘ancient’. While there was subsequent opposition to this foreign-induced national identity, the inﬂux of Palestinian refugees led King Hussein to reaﬃrm the Bedouin identity to be the genuine national identity of the Jordanians, as it seemed to be the only sedentary cultural marker, with any long-standing historical roots.5 The notion of the ‘ancient’ in the construction and sustenance of national identities was further seen in Yael Zerubavel’s (1995) Recovered Roots. In this narrative Zerubavel divided Jewish history into three distinct periods (antiquity, exile, Israel state). The author notes, “For the Zionists the major yardstick to evaluate the past was the bond between the Jewish people and their ancient land (p. 14)”. So, while the period of exile was seen as a phase of suﬀering, it was also the stage in which Jewish national identity (as seen by the Zionists) was diluted by the cultures of the societies in which they took refuge (p. 13). For this reason, nationalists used the features of the period of ‘antiquity’ as reﬂective of the ‘true’ Jewish national identity, and thus the basis of the state of Israel. The case of Israel, while dealing with the issue of the ‘ancient’, proposes another dimension to this study.6 While we assume that notions of a nation and nationality, as proposed Anderson (1991), are artiﬁcial and modern constructs, this contemporary process of nation-building (seen through the case of Jewish national identity), often presents itself among nations that have experienced a period in which the purity of the identifying markers of a nation7 having being adulterated through interactions with other cultures and peoples. What this further means is that the diﬀerences between the groups, thus the boundaries between ‘us’ and ‘them’ is de-emphasized. Therefore, the challenge faced by national mythmakers would be to re-articulate the purest forms of the markers of national identity as truest reﬂection of the nation. Elaborating this in scenario (1), let us assume the presence of two nations, namely A and B, with a number of national identity markers (lets say, markers 1, 2, 3, 4, 5) that members of both groups identify with due to decades of interactions. So we have a scenario where:8 (1) A={1, 2, 3, 4, 5}=B 5 This is a dilemma faced by most societies that are faced by an upsurge in immigration. In response to this trend there is always a quest to articulate a national identity that incorporates cultural markers that remain unfazed when encountered by immigration. 6 This will prove highly beneﬁcial when dealing with the case of Republika Srpska. 7 As deﬁned my national myth-makers. 8 This analysis follows a similar format used by Amilcar Barreto in “Constructing Identities: Ethnic Boundaries and Elite Preferences in Puerto Rico”. Barreto’s theoretical framework will be used later in this chapter.

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What scenario (1) shows is that the diﬀerences between nations A and B are not apparent or distinct. A nationalist myth-maker (from Group ‘A’) would thus reinterpret what it means to be ‘A’ (in the purest or unadulterated form). Potentially, he or she could identify with only markers 1 and 2 as exemplifying the true character of nation ‘A’. This leads us to scenario (2) (2) A={1, 2} ‘B’ could still identifying itself with 1, 2, 3, 4 and 5, or its nationalist myth-maker could identify with only markers 3, 4, and 5. This thus creates scenario (3) B={1, 2, 3, 4, 5} or B={3, 4, 5} A={1, 2} (3) Therefore, A ≠ B Thus what we see here is that nationalist myth-makers, in eﬀect, deny the impurity 9 of the nation due to interactions with ‘other’ and use the often ‘ancient’ but pure markers as the characterizations of the nation.

The Nation as ‘Unique’ and ‘Opposed’ While the above analysis largely elaborates the conception of legitimating a particular national identity through the concept of the ‘ancient’, it also brings us to the notion of ‘uniqueness’, which often manifests itself in deﬁning a nation ‘opposed’ to another10 (as in ‘A’ is uniquely diﬀerent from and opposed to ‘B’). This dynamic was evident in the Macedonian case as exempliﬁed by Loring Danforth (1995) in The Macedonian Conﬂict. Here, Danforth deals with “conﬂicting claims to Macedonian identity (p. 28)”, primarily between the Greeks and Macedonians, where the former denies the latter’s claim to be called Macedonian. What this means is that implicit to the creation of a Macedonian national identity was the embedment of the concept of the imagined nation as ‘unique’ and ‘opposed’ to the Greeks through a framework of diﬀerences (since the Greeks did not recognize the Macedonians as belonging to a separate nation). 9

I am using the discourse used by most nationalist myth-makers. The notion of nation as ‘opposed’ to another is sometimes implicit to the concept of ‘uniqueness’. It often manifests itself when faced with a perceived threat to the ‘uniqueness’ and purity of a nation. 10

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While Danforth looked at the nation as ‘unique’ in terms of a quest to legitimize the existence of a nation, Partha Chatterjee (1993) examined the articulation of national identities in Bengali society in the face of a threat from the ‘other’, namely British/Western culture as a result of colonialism. One of the aspects of nation-building that Chatterjee explores is the dynamics between the Material and the Spiritual. While the former was seen as inherently Western and therefore an agent of the occupying power (the British/the ‘other’), the latter is characterized as an indigenous notion (‘us’) and needed to be protected when faced with threats of Westernization. In Bengali society, Chatterjee claims that this conﬂict (between the Material and Spiritual) was manifested in the Bengali family, where the husband was the one submerged in the Material (outside the home), but it was the wife who became guardian of the Spiritual and therefore the indigenous and ‘ancient’ culture and religion within the house thus protecting it from the ‘impurities’ of the outside. So what we see is that while they manifest in diﬀerent ways, the articulation of the nation as ‘ancient’, ‘unique’ and ‘opposed’ are consistent features in nationalist discourses. What this further means is that these characteristics should be exempliﬁed by the national identity markers chosen by the nationalist myth-makers. Failing to do so may weaken the foundation of the deﬁnition of a particular nation.

Language and Nationalism While there could be several markers that could articulate a nation as ‘ancient’, ‘unique’ and ‘opposed’, language (in the context of this study) has often seen as fulﬁlling the appropriate criterions. Mila Dragojevic (2005)11 in Competing Institution in National identity Construction discussed the role of the secular elites in the articulation of the Croatian national identity through the use of Croatian language instead of religion. Implicit to Dragojevic’s argument was the ability of language to establish a network of allegiance and commonality within a nation, while also clearly distinguishing ‘us’ from those that do not fall within the same linguistic realm (therefore, not part of the nation). The author argues, “. . . Language, as a means of communication, connects the members of the in-group and excludes those outside the group. Thus, a distinct language can be used to draw group boundaries, and in turn, strengthen

11 Mila Dragojevic is currently a PhD candidate in the Department of Political Science at Brown University.

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national identity”12 (p. 1). Similarly, Bonnie Urciuoli (1995)13 elaborated on the notion of language establishing a boundary or border around those that consider themselves to be part of a particular linguistic group. She introduced the phrase ‘language and borders’14 that “suggests that language diﬀerences signify categories of person deﬁned by ethnic or national origin and that these categories are opposed to each other (p. 525)”. This further implies that “‘having’ a language . . . [is being] equated to ‘belonging’ to an origin group (p. 1)”. This nation-building capability of language (as a marker of national identity) further manifests itself in the case of Urdu in Pakistan and the Turkish language reforms. When discussing nation-building in Pakistan, in “Conjuring Pakistan: History As Oﬃcial Imagining”, Ayesha Jalal (1995)15 notes that in “projecting the ‘us’ as the positive self in creative imaginings entails slating ‘them’ as the negative other (p. 73)”. While Jalal elaborates that this statement is all the more relevant in “contexts of competing and multiple identities (p. 73)”, she follows a discourse that is similar to those of Geary (2003), Massad (2001) and Zerubavel (1995), where the notion of us/them was critical to the articulation of the boundaries of a nation. Furthermore, in the case of nation-building in Pakistan, it was required there be clear distinction of the Pakistani nation from Hindu/Indian nation (‘them’).16 This subsequently meant that the period of intermixing and impuriﬁcation that happened before the creation of Pakistan be ignored. In eﬀect, for nationalist myth-makers, the goal was to transform the Pakistani nation from scenario (1) A={1, 2, 3, 4, 5}=B to the state of (3) A ≠ B. The nation thus was required to mirror the transition of Jewish national identity (as presented by Zerubavel), which although, in the modern state, reﬂected the impurities of the period of exile, was soon deﬁned by nationalist myth-makers in terms of the purest state, which drew from the period of antiquity (preceding the period of exile). So, when Pakistan was created in 1947, it was established as an Islamic state that was the supposed “homeland for India’s Muslims (Jalal 1995:74)”. At the very onset of its creation, Pakistan as a nation-state faced several challenges. Here religion became a core aspect that articulated the boundaries of 12 Dragojevic states this as an elaboration of Thomas Eriksen’s notion of ethnicity as “an aspect of social relationships between agents who consider themselves as culturally distinctive from members of other groups with whom they have a minimum or regular interaction” (Eriksen. Thomas, Ethnicity and Nationalism: Anthropological Perspective. London: Pluto. 1993: 12 13 Binnie Urciuoli is currently a professor in the Department of Anthropology at Hamilton College. 14 Also the title of the article. 15 Ayesha Jalal is an Associate Professor in the Department of History at Columbia University. 16 This of course was a consequence of the partition of India in 1947.

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the Pakistani nation. While Pakistan’s borders were artiﬁcial constructs and it “proclaimed itself an ‘Islamic state’ created on the bedrock of a non-territorially deﬁned Muslim nation or umma”, it also faced a demographic challenge that saw more Muslims living in India (the realm of ‘them’) than in the Islamic state (Jalal 1995:74). What this meant is that, the boundaries between ‘us’ and ‘them’ in the case of Pakistan and India was indistinct and blurred. So, along with religion, Urdu as a national language now became a key marker of Pakistani national identity. A language that was heavily inﬂuenced by the “vocabulary and literary forms of Persian” (Metcalf 2003:30), Urdu was spoken by 4 percent of the Pakistani population in 1947 (p. 32). Today it is often seen as deeply imbedded within the concept of the Pakistani nation. What this means is that through Pakistan’s history, Urdu has thus been able to transform the Pakistani nation from scenario (1) through scenario (3).17 It clearly deﬁned the Pakistani nation linguistically as ‘unique’ and ‘opposed’ to the Hindu nation while also drawing a historical allegiance to the region’s Islamic past, as Urdu is a derived from Persian. This, in eﬀect, ignores the time period in which Muslims were in close proximity to and were inﬂuenced by the ‘others’. Furthermore, it ignores the impurities and deﬁnes the ancient Islamic past as the only true source and inspiration for Pakistani nation today. Finally, what Urdu does here is create a sense of adherence to the wider Islamic world (especially because the Urdu script is a derivation of Arabic, which in turn originates from Persian), which in a nationalist discourse would be distinctly opposed to the competing national identity in close proximity, namely the Hindu/Indian nation, thus further emboldening the boundaries of the Pakistani national identity. The language reforms in Turkey also demonstrate the nation-building capabilities of a language. Contextualizing this issue to the history of the Turks, Geoﬀrey Lewis (1999)18 in The Turkish Language Reform claims that the adoption of Islam among Turks in the eleventh century was “due to the peoples of Iranian speech (p. 5)”. He further demonstrated that Turkish religious terms such as “namaz ‘prayer’, Oruç ‘fasting’ [and] peygamber ‘prophet’” where all rooted in Persian rather than Arabic (p. 5). While Persian had a dominating inﬂuence, there was an even greater incursion from Arabic. One of the key reasons for this was that Arabic was “the language of the Koran, [and so] it naturally became the language of religion and theology (p. 6)”. Also, the Persian vocabulary “was itself replete with Arabic borrowings (p. 6)”. What this

17 Religion has been able to do the same, but still faces the demographic challenge where more Muslims live in India than in Pakistan. 18 Geoﬀrey Lewis is a Professor of Turkish at University of Oxford.

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meant was that the Ottoman Turkish language was a conglomeration of Turkish, Arabic and Persian. The Turks called this Osmanlica (p. 8). With the fall of the Ottoman Empire, and the rise of Mustafa Kemal Ataturk as the President of Turkey (1923-1938), the country embarked on a new era. Led by its leader, sweeping reforms were instituted to democratize, secularize and modernize Turkey. The Turkey created by Ataturk was not only an “administrative replacement (Cooper 2002:116)” of the Ottoman Empire but embodied a new Turkish national identity. The principles of this new state were “nationalism, populism, republicanism, revolution, secularism and statism (p. 116)”. In an attempt to secularize the country, Ataturk abolished the Caliphate and removed Islam from the realm of governance. Language reform was also a key aspect of this new Turkish republic. While there was growing demands for the puriﬁcation of the language, one of the key aspects of the Ottoman Turkish language (which was heavily inﬂuenced by Persian and Arabic) was that it symbolized the society’s “cultural and ideological connections with the overlapping Asian and Muslim worlds (p. 116)”. Since this embodied a character opposed to goal of modernization (as deﬁned by Ataturk), the entire Turkish alphabet was reformed to adopt “alphabet[s] ‘based on Latin sources’ (Tachau 1964:194)”. In eﬀect, as rightly claimed by Lewis (1999), the purpose of this was to “break Turkey’s ties with the Islamic east and to facilitate communication domestically as well as with the Western world (p. 27)”. While the Turkish case provides for a unique transformation of the boundaries and characteristics of an entire nation, it does also demonstrate the role of language in this process of nation-building. While it is impossible to deny religion and the subsequent secularization as key to the building of the modern Turkish national identity, language also had a profound role in deﬁning the boundaries of the Turkish nation. The Ottoman Turkish language, with its Persian and Arabic inﬂuences, deﬁned the nation on Islamic terms that categorized ‘us’ as those living within the realm of Islam (thus drawing a sense of allegiance to the Muslim world) and identiﬁed ‘them’ as those lived beyond the boundaries of Islam (which represented the Western world). Under Mustafa Kemal, with a goal to secularize and move closer to the West (in terms of its identity), the Latin sources of the Turkish alphabet moved the deﬁnition of ‘us’ (for the Turks) closer to the realm of the West and, compounded with the policy of secularism, identiﬁed the Islamic world as ‘them’. While the Turkish case diﬀers from the Pakistani case in that the former redeﬁned the notion of ‘us’ and ‘them’, while the latter had to create it, both are classic examples that show that language can often be central to the notion of nation and national identity.

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Background for Serbian Nationalism Having established the theoretical framework for our study of Republika Srpska and how language is often an important marker of national identity, it is essential to then understand the history of articulation of the notion of a Serbian nation and furthermore, its manipulation in the context of the fall of Yugoslavia. During the nineteenth century, the entire South Slav region saw a fervent growth in nationalistic sentiments. This in turn helped formulate the collective identity of the inhabitants of the area (Aleksov 2005:114). The key event in history around which the Serb National Identity was structured was the Battle of Kosovo (1389), in which the Ottomans subdued the medieval Serbian kingdom of Prince Lazar. The death of Prince Lazar and the eventual imposition of the Ottoman rule came to be seen, by the nineteenth century Serbian national ideologues, as the beginning of a historical martyrdom of the Serbian people under the unjust Ottoman system (Sells 1996:31). Now, the Serbs have amply exploited this ancient event, especially since the time of nation-building in the nineteenth century. The Battle of Kosovo soon acquired a religious dimension and was transformed and put into the framework of the cruciﬁxion of Christ. In these views, Prince Lazar represented Jesus Christ, surrounded by all his disciples and then ﬁnally betrayed by Milos Obilic, who symbolized Judas. Consequently, the Ottoman Turks acquired the role of murderers of Christ (Prince Lazar). The Serb, Vuk Brankovic, who proved disloyal by giving the Serbian battle plans to the Ottoman, symbolized those Slavic people that converted to Islam during the Ottoman era. Therefore, as the death of Lazar was seen synonymous with fall of the Serbs, the only way Lazar and the Serbs could be resurrected is through the cleansing of the Serbs of the betrayers (p. 31). In the construction of Serbian Nationalist discourse, religious conversion played a very important role. Religious conversion is often seen as an event that destabilizes society while changing the dynamics between people of different faiths (Aleksov 2005:114). In the Balkan case, both Croat and Serb nationalists believed that the Slavic converts to Islam were not only cowards, but also opportunistic. The question of the conversion of Slavs to Christianity several centuries before the Islamization was, on the other hand, taken for granted and viewed as “normal” (Sells 1996:35). Furthermore, the converted Muslims were seen as not only “apostate Serbs” (Cigar 2000:97), but also traitors that sided with the oppressor and thus aided in the destruction of the Serb kingdom, culture and people (p. 98-99). The idea of Lazar as a Serbian “Christ-King” and the myths about the converts were part of a folk epic, and were mostly expressed in the works of

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Serbian writers such as Vuk Karadzic (1787-1864) and Njegos (1813-1851). Serb romantic literary Karadzic, through literature and poetry, emphasized the fact that all Catholics, Muslims and Orthodox were Serbs (Sells 1996:37-38). This, in a way, became one of the historical bases for the Balkan wars in the 1990s, especially with relation to Serbia leadership’s claims to a Greater Serbia thus bringing all the Serbs—and those who were regarded as Serbs—under its control. Karadzic later also emphasized, increasingly, the Battle of Kosovo (p. 38). Another piece of literature of monumental signiﬁcance, especially, in relation to Serb Nationalism, was The Mountain Wreath by Petar II Petrovic (Njegos). Published in 1847, it was a story glorifying a supposed campaign of extermination of Muslims (referred to as “Turkiﬁers”), on Christmas Eve by the Serb warriors (p. 41). Now, it is important to remember that literary works by Njegos and Karadzic were both written at a time where there was an attempt to distinctly formulate Serb identity (Aleksov 2005:16) and the most eﬀective way of doing it was to categorically belittle the conquerors, their culture, religion and ﬁnally those that aligned with them. Interestingly these texts returned as part of the nationalist discourse during the Balkan wars. This was seen in Bosnia, where Serbs repeatedly referred to the Muslims as Turks, even though relations with Turkey were severed earlier in the century (Sells 1996:41). In a more modern context, the earlier notions of Serb nation and nationalism manifested itself following Slobodan Milosevic coming to power as the President of Serbia in 1987. Almost simultaneously he introduced a nationalist program that had taken root, based on the struggle in Kosovo (at that time an Albanian-majority territory within Serbia), which had deteriorated since 1981 (Bryant 1999:9). Now, the intellectual basis for Serb nationalism, at the time, was the Serbian Academy of Arts and Science (SANU) Memorandum of 1986 (created under the then Yugoslav and SANU President, Dobrica Cosic) (p. 9). The Memorandum mainly concerned itself with the apparent threat to the Serbian nation in Yugoslavia. It declared that Serb authority was limited and that the 1974 constitution further weakened its positions. In places like Kosovo, the very existence of the Serbian people was under threat. Also, it complained that Serbs were subjected to such threats because they were not living united in one state. The Memorandum thus provided the policy justiﬁcation of pursuing a Greater Serbia, uniting all Serbs into state in which they would be a majority.19 Of course, the claims were hardly justiﬁed. The policies of Milosevic were not geared at uplifting the Serb population but at giving Serbia a greater voice in the federation than all other. Furthermore, all ethnicities in Yugoslavia had been living in relative harmony. There was no evidence of 19

Serbian Academy of Arts and Sciences (SANU) Memorandum 1986.

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systematic oppression of the Serbs. Those that were blamed for oppressing the Serbs, namely the Croats, Bosnian Muslims and the Kosovo Albanians, were, in reality, just in the path of Milosevic’s expansionist policies. Thus it was only natural that his administration systematically demonized the other. According to Bryant (1999) the claims made by the SANU memorandum soon justiﬁed Milosevic “strip[ing] the provinces of Vojvodina and Kosovo of their autonomy [once] granted by the 1974 constitution” (p. 9). Fearing an unbalanced power paradigm (tilted towards Serbia), the two most-developed republics of Slovenia and Croatia, gave fuel to nationalist sentiments within their respective territories (p. 9). Now, as the other republics pushed for a “looser federal structure” (p. 9) free from a Serb hegemony, Milosevic urged a more centralized system. Negotiations took place between 1989 and 1990. Bosnian President Alija Izetbegovic played a critical role in these conciliatory eﬀorts. As Bosnia was situated between Slovenia and Croatia on the one hand and an expansionist Serbia on the other, it was clear that the republic of Bosnia-Herzegovina would suﬀer the most from the fall of Yugoslavia (p. 9). In addition, Bosnia was home to a large Serb and Croat population. The growing perceived threat from Serbia led by Milosevic of course Slovenian, Croatian and Bosnian towards independence. This led to the eventual violent fall of Yugoslavia. While religion was central to the early notion of a Serb nation and the suffering under the rule of the ‘other’ (Turks) was critical to mobilization of the Serbs in the late 1980s through the 1990s, language was also often used as an important marker in the process of nation-building. During the same time-period as the initial process of Serb nation building in the nineteenth century, Vuk Karadzic, “waged a campaign to free Serbian writing from its thralldom to Russian Slavonic” (Butler 1969:479). While Vuk wanted a pure form of the language and a simpler alphabet based on spoken Serbian, he faced extreme opposition from “Church-led conservatives and others who wished to preserve some bond between the Serbian literary language and Russian Slavonic”. Even though Karadzic developed the alphabets in 1819, the oﬃcial “Vukovian alphabet” was sanctioned only in 1868 (p. 479). This set of alphabets is what is termed as the Serbian Cyrillic script today and is often seen as a reﬂection of the pure and traditional in the Serbian culture and nation. Ironically, the Cyrillic has, for a considerable time period, existed alongside of the Latin script. In 1850 a Literary Agreement was signed in Vienna for a “joint Serbian/Croatian standard” (Ford 2002:350). While both Croatian and Serbian intellectuals signed it, the Literary Agreement was never considered a “binding document [since it was] . . . signed . . . without the overt blessing of any oﬃcial organizations, state organs or councils”

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(Greenberg 2004:27). Ljudevit Gaj,20 introducing the Agreement wrote “Time will soon show whether this proposal is practical, and whether it will lead in today’s situation to the expected agreement and equality, or will it, on the contrary, lead to even greater separateness and literary discord” (p. 27). Expectedly, nationalist leaders criticized the Agreement. Croatian nationalist leader Ante Starcevic “considered cooperation with Serbs such as Vuk and Danicic21 to be equivalent to a surrender of Croatian national identity, and that Vuk’s [Karadzic] language, based on the popular vernacular was undigniﬁed and merely the language of ‘ploughmen and cow herdsmen’ (p. 28)”. Despite the opposition, the Croatian government in 1867 proclaimed, “Every citizen is allowed to use the Croatian and or Serbian language as the oﬃcial language and they can choose freely the Latin or Cyrillic (p. 29)”. While the declaration from the Croatian Sabor (parliament) was seen as a major victory in the quest for uniﬁcation and standardization, this oﬃcial stance did not translate to reality. Regional biases persisted and language standards continued to diﬀer between Zagreb and Belgrade (p. 29). In response to this Jovan Skerlic (1877-1914) called for a language uniﬁcation that would require the Serbs to use only the Latin script, while the Croatian would switch to the Eastern dialect (p. 30). While this level of reform was never implemented, to a lesser extent, steps were taken towards uniﬁcation through the Novi Sad Agreement of 1954. This was a result of meeting between Serb and Croat linguists from 8-10, December 1954 (p. 30). The conclusions (Appendix A) show that this agreement could be seen as the resolution of the controversy regarding the oﬃcial name and script of the language (p. 31). While the Novi Sad Agreement is a manifestation of the attempt to unify and standardize all ethic groups, languages and religions of Yugoslavia under Tito, this sentiment quickly dissipated following the growing ethnic divisions and nationalist discourses of the late 1980s through the fall of Yugoslavia. The dissembling of the Serbo-Croatian language thus started with the adoption of a new constitution by the Croatian parliament in December 1990 that included a section that proclaimed Croatian to be the oﬃcial language of the republic. In response the Serbs declared Serbian to be oﬃcial language in 199222 of their republic. While the languages were now oﬃcially distinct, it was a diﬃcult task ahead to formulate two distinctly diﬀerent languages that 20 Credited with the creation of the version of the Latin alphabets used in Bosnian, Croatian and Serbian. 21 Duro Danicic (1825-1882) was a Serbia philologists and linguist. He was a disciple and close associate of Vuk Karadzic. 22 Even though, before this, Serbian linguists were strong proponents of the uniﬁed SerboCroatianl anguage.

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had been uniﬁed for nearly 140 years (Greenberg 2000:625). Croatian linguists were relatively prepared to make this transition since they had “produced several separatist works in the 1970s and 1980s . . . [while] in Serbia . . . linguists had embraced the Novi Sad Agreement” (p. 626). As a result several factions of Serbian linguists evolved, each with their own perception of the character of the ‘revived’ Serbian language. According to Greenberg there were three broad categories of linguists that emerged: • Advocates of the status quo: Modern Serbian as an outgrowth of SerboCroatian, henceforth referred to as the status quo linguists. • Advocates of rediscovering the Serbian of nineteenth-century Serbian language reformers Vuk Karadzic and Djura Danicic, henceforth referred to as Neo-Vukovites. • Extreme Serbian nationalists seeking an ‘Orthodox Serbian’ language and orthography, henceforth referred to as the Orthodox faction (p. 626). While the status-quo linguists remained popular in the early years, as the fervor of nationalist movement grew, so the did the popularity of the other two factions. The neo-Vukovites also recommended the re-instating of the LatinSerbian alphabet (which was supposedly diﬀerent from the Latin-Croatian script), the Orthodox faction rejected any form of “bi-scriptalism” (p. 629). They claimed “the Latin alphabet as alien to Serbian culture and argued that the Serbian government should disallow it” (p. 626). At this juncture it is important to note that linguistic reforms take time implement (in terms of pronunciation and vocabulary) but the changing of the script proposed, to a certain extent, by the neo-Vukovites and, more fervently by the Orthodox faction, for nationalists was a more immediate and visual reform of the manifestation of the boundaries of the Serbian nation. Therefore today, both in Republika Srpska and Serbia the Cyrillic script is seen as a reﬂection of the pure Serbian culture and national identity.

Republika Srpska: A Manifestation of Serbian National identity in Bosnia Having mapped the articulation of the Serbian nation, both through language and religion, for the ‘Greater Serbia’, it is important note that this speciﬁc construct was of course the basis of the country of Serbia. But, following the signing of the Dayton Accords, the semi-autonomous territory of Republika Srpska created within Bosnia-Herzegovina also derived their national identity from the same nationalist discourse. The creation of this territorial entity was very similar to the inception of Pakistan. While the region that it inhabited

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never had an overtly Serb-only culture or identity, calling it Republika Srpska or Republic of Serbia within the borders of Bosnia meant the creation of exactly that. Republika Srpska, as controversial it may be as a construct, became the symbol of Serb national, cultural and religious identity. Its national allegiance, many say, is not to Sarajevo (the capital of Bosnia-Herzegovina) but to Belgrade. But, while the borders of Republika Srpska can be synonymous to the borders of the Serb nation within Bosnia, the boundaries, both political and national, are porous. There are no territorial barriers to entering or leaving and this, in eﬀect, creates the possibility of rendering the nation impure through the infusion of Croatian and Bosniak culture and values. Since, the construct of Republika Srpska is undoubtedly artiﬁcial, the need to articulate strict boundaries and markers of this nation within Bosnia was even more crucial. Using our three notions of nation-building, namely, the nation as ‘ancient’, ‘unique’ and ‘opposed’, it can be seen that both language and religion can be used to fulﬁll these criterions. Orthodox Christianity connects the Serb nation beyond the period of the Ottoman occupation or the Communist rule in the former Yugoslavia. While the Ottoman represents a period of suﬀering and oppression in the Serbian nationalist discourse, it also symbolizes a sense of infusion of a foreign culture into the region thus forcing the Serbian nation into impurity. A similar discourse is often used with regards to communist era, which is seen as period where Serbs were not allowed to freely practice their religion, a key aspect of their national identity and were forced to be Yugoslav rather than Serbian. Orthodox Christianity by-passes these time-frames and connects it to its more pure and truly Serb past. Thus, establishing Orthodox Christianity as integral to the Serb national identity, in eﬀect, religiously differentiated the Serbs from the Catholics (Croatians) and Muslims (Bosniaks). The Serbian language, and more importantly, the Cyrillic script too served the same purpose as Orthodox Christianity. It rejects the period collaboration with the ‘other’, primarily with the Croatians, and represents the era of purity of the language and the nation (the Latin script is seen as an agent of impurity, rooted in the other, namely the Croats). This analysis of the nation as ‘ancient’ is also in accordance to the earlier illustration of a nations transformation from scenario (1) to (3). For case of the Serbs in Bosnia we could further deﬁne the variables. Let us assume the following23

23 This analysis follows a similar format used by Amilcar Barreto in “Constructing Identities: Ethnic Boundaries and Elite Preferences in Puerto Rico”. Barreto’s theoretical framework will be used later in this chapter.

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Markers: 1 = Language; 2 = Religion Nations: ASerb = Serb; BBosniaks = Bosniaks; CCroats = Croatians So, as a result of intermixing between nations and state-induced suppression of national identities (1-a) ASerb = BBosniaks = CCroats What scenario (1-a) shows is that the diﬀerences between Serbs and Croats and Bosniaks were not apparent or distinct. A nationalist myth-maker (from Group ‘ASerb’) would thus reinterpret what it means to be ‘ASerb’ (in the purest or unadulterated form). Potentially, he or she would deﬁne markers ‘1’= Serbian (Cyrillic Script) and ‘2’= Orthodox Christianity as exemplifying the true character of nation ‘ASerb’. This leads us to scenario (2-a) (2-a) ASerb = {1(Serbian), 2(Orthodoxy)} Similarly, in the Yugoslav context, ‘BBosniaks’ and CCroats used their own religions and languages as markers of national identity. For the Bosniaks marker ‘1’= Bosnian Language (Latin script) and ‘2’= Islam. In the same way, for Croats marker ‘1’= Croatian Language (Latin script) and ‘2’= Catholicism. This therefore creates scenario (3-a) BBosniaks = {1(Bosnian Language), 2 (Islam)} CCroats = {1 (Croatian Language), 2 (Catholicism)} (3-a) Therefore, ASerb ≠ BBosniaks ≠ CCroats As we thus see from scenario (3-a), Orthodox Christianity and the Cyrillic script established ‘uniqueness’ of the Serbian nation in the Bosnian context. Practicing Orthodoxy meant establishing the uniqueness of the Serbs from the Croats and the Bosniaks. Using the Cyrillic script, is thus a visual manifestation of the ‘uniqueness’ of the Serbian language (as a marker of Serbian national identity) from Bosnian and Croatian.24 Finally, the notion of the nation ‘opposed’ to the ‘other’, which as mentioned earlier , while is often implicit to the notion of ‘uniqueness’, becomes even more evident here since there is a perceived threat from the ‘other’. So, being an Orthodox Christian (which is implicit to the Serb nation) means that 24

Although, as spoken languages all three are still quite similar.

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one is essentially ‘opposed’ to Islam or Catholicism. Similarly using the Cyrillic script was seen as being opposed to the Latin script. Also, just as Pakistan (where Urdu along with Islam created a sense of allegiance to the larger Islamic world) and Turkey (when the Latin script brought the country closer to the West) both Cyrillic and Orthodox Christianity created a sense of allegiance for Serbs in Republika Srpska to the country of Serbia, Eastern Europe and Russia.

Why Language?25 As the above analysis shows both language and religion played a critical role in the articulation of the Serbian nation. Some would say that religion, rather than language, more comprehensively created the boundaries of the Serb nations through the notions of the nation as ‘ancient’, ‘unique’ and ‘opposed’.26 Ironically, since the creation of Republika Srpska, language and more importantly, the Cyrillic script became the key marker of Serbian national identity. The Cyrillic script in the territory became synonymous with the Serbian language (as in, if Latin was used it signiﬁed Croatian or Bosnian). While, oﬃcially, both Latin and Cyrillic scripts were recognized, the de facto practice in Republika Srpska is to use the latter. This therefore brings forth the central question of this study, ‘Why was the Cyrillic script used as a marker of Serb national identity and not religion?’ The use of the Cyrillic has often been attributed to the visual-nature of it as a marker of national identity. Some claim that because the spoken languages (Serbian, Bosnian and Croatian) are similar, the Cyrillic script aims to lay clear demarcations between these languages. While these may be important reasons, it was the secular elite in Republika Srpska that advocated for such a language policy. Making a similar claim, Amilcar Barreto (2001), in his eﬀort to identify a similar role of the secular elite in Puerto Rico, sets ﬁve key aspirations of the leadership of an ethnic group,27 namely:

25 Analysis in this section is broadly based on theoretical framework used by Amilcar Barreto in “Constructing Identities: Ethnic Boundaries and Elite Preferences in Puerto Rico”. 26 This is often the perception because of several instances of cooperation between the Serbs and the Croatians for a uniﬁed and standardized Serbo-Croatian language. While many nationalist Croatian linguists pushed for the creation of distinct and pure Croatian language, Serb linguists were proponents of a uniﬁed Serbo-Croatian. This, of course, changed following the declaration of Croatian as the oﬃcial language of the republic. 27 For the purpose of this research ethnic group, following this ‘ethnic group’ will be replaced by ‘nation’.

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• • • •

deﬁne their membership in such a way that outsiders are excluded; ensure that the objectiﬁed trait is not found among outsiders; that the selected trait encompasses the breadth of the group’s constituents; establish either the equality or superiority of their group vis-à-vis others, and • maintain their elite privileges within their group over their followers (Pp. 31-32). Now, in the case of Republika Srpska, both religion and language as markers of Serbian national identity clearly fulﬁll the ﬁrst criterion as elaborated in the transition of the Serb nation (vis-à-vis the Croatian and Bosnian nation) from scenario (1-a) to (3-a). Furthermore, Barreto rightly claims, “there is no ‘us’ without ‘them’ (p. 30)”. In terms of the second requirement both Orthodox Christianity and the Cyrillic script formed the ‘objectiﬁed traits’ that diﬀerentiated the Serbs from the ‘other’, namely the Croatian (with Catholicism and the Latin script in Croatian) and the Bosniaks (with Islam and the Latin script in Bosnian). The third criterion, insinuates that both the elite and the masses of a nation should posses the ‘objectiﬁed trait’. Once again, both language and religion fulﬁll this criterion in the case of Republika Srpska. Since Orthodox Christianity is synonymous to being a Serbian, both the elite and the masses are bound to share this trait. The Cyrillic script also (following the disintegration of Yugoslavia), became synonymous to the Serbian language. So, being the language of the Serbs, both the masses and the elite can claim to posses this trait. The fourth aspiration claims that the leaders of a nation, “whether searching for equality or claiming superiority . . . will endeavor to objectify the group’s [or in relation to this relation to this research, the ‘nation’] membership in such a way they have at least equality, if not superiority (p. 31)”. When applied to case of Republika Srpska we see that if religion becomes the basis of claiming equality or superiority, the authority over this realm shifts from the secular elite to the religious leaders of the Orthodox Church. So, to remain the sole authority over the process of nation building, secular elite in Republika Srpska could not claim religion as an ‘objectiﬁed trait’. In terms of language, the secular elite (which included linguists) had a greater authority over this trait. While in the Bosnian case there never an overt claim of superiority, there was a consistent insistence of equality of the Serbian language in the Cyrillic script to the other languages of Bosnia. Owing to this along with Croatian and Bosnian, the Serbian language (with the Cyrillic script) is one of the oﬃcial languages of the country. Finally, the last criteria, which claims a sense of superiority of the elite over the masses based on the ‘objectiﬁed trait’, has a similar result as the previous

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requirement. Since, by deﬁnition the elite are ‘secular’ it is impossible for them claim any sense of pre-eminence over the masses that they rule based on religion. Similar, to the Puerto Rican case where the elite had to ﬁnd a way to prove they were “more Catholic” (Barreto 2001:33), the Serb elite had to demonstrate that they were in some way ‘more Orthodox’ than the masses. As Barreto analyzes, “religion is simply not a cultural trait that secular ethnic elites can easily claim to master even if they are merely employing it as a social marker” (p. 34). In terms of language, the elite could in fact claim superiority based on the fact this group tends to be highly educated. Furthermore, linguists that were seen as architects of the new ‘Serbian Language’ complete with its own alphabets were also part of this elite class. Also, it is important to remember that when speaking Serbian, is still quite similar to Bosnian and Croatian. So, often the elite can claim that the masses do not really speak the purest form of the language. Therefore, as in Puerto Rico, where the elite spoke “correct Spanish”, the elite-class in Republika Srpska claimed to speak ‘correct Serbian’. The Cyrillic alphabet since had become imbedded into the notion of the ‘correct Serbian’, also added to the claim of superiority of the elite. While this is similar to Barreto’s analysis of Spanish in Puerto Rico, there is a critical diﬀerence between the two cases. While Spanish as a language always existed, the notion of a distinct Serbian language has never been clear in the region. Owing to the era of the Serbo-Croatian language, there was no clear demarcation between Serbian and Croatian (especially for the Serbian linguists). Since the disintegration of Yugoslavia, which also saw the dissemination of the oﬃcial language, a top-down method of the articulation of a purely Serbian language took place, along with the consistent use of Cyrillic as the oﬃcial alphabet of the language. This meant that there was always the presence of a centralized authority (based in the secular elite) in terms of language policy-making. So, when it came to identifying the ‘objectiﬁed trait’ for the Serb nation based in Republika Srpska, language became the obvious choice with Cyrillic as a visual manifestation of it.

Conclusion While this study delves into the case of Republika Srpska, it also demonstrates key aspects of nation building that are applicable to almost cases in the study of nationalism. Whether we examine nationalism and nation building in India, Puerto Rico, Pakistan or Turkey, imbedded in the discourse are the notion of the nation as ‘ancient’, ‘unique’ and subsequently ‘opposed’. These often form the bedrock of nationalist sentiments around the world. But the key aspect that this study intends to devolve is the role the elite in this process

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of nation building. Like the cases of Puerto Rico and Republika Srpska, we see that often it is the elite that deﬁne the preeminent characteristics of any nation. So, since the elite in Puerto Rico and Republika Srpska were secular, the ‘objectiﬁed trait’ was not religious. A similar claim could be made about Pakistan, where, besides the demographic challenge (as earlier discussed), the leadership was overwhelmingly secular thus Urdu (language) becoming a key marker of Pakistani national identity. In the case of Turkey, the secular leanings of the Ataturk, led to a policy of language reform and the removal of religion from the realm of politics. We therefore see that while often nationalism is judged by its ability to mobilize the masses, it is critical that we realize that mobilization is rooted at the elite. Commanding absolute power, it is they that deﬁne the nature of nationalist discourse and subsequently the character of a nation.

Bibliography Aleksov, Bojan. 2005. “Perceptions of Islamization in the Serbian National Discourse”. Southeast European and Black Sea Studies 5.1 (January): 113-127. Anderson, Benedict. 1991. Imagined Communities. London: Verso. Barreto, Amilcar Antonio. 2001. “Constructing Identities: Ethnic Boundaries and Elite Preferences in Puerto Rico” Nationalism and Ethnic Politics 7.1 (Spring): 21-40. Bryant, Lee. 1993. “The Betrayal of Bosnia.” Centre for the Study of Democracy (Autumn). Butler, Thomas J. “Jernej Kopitar’s Role in the Serbian Language Controversy.” The Slavic and East European Journal. 13.4 (Winter, 1969): 479-488. Chatterjee, Partha. 1993. The Nation and Its Fragments: Colonial and Postcolonial Histories. Princeton, NJ: Princeton University Press. Cigar, Dr. Norman. 2000. The Role of Serbian Orientalists in Justiﬁcation of Genocide Against Muslims of the Balkans. Sarajevo: Bosnian Cultural Centre. Cooper, Malcolm. 2002. “The Legacy of Ataturk: Turkish political structures and policymaking.” International Aﬀairs. 78.1: 115-128. Danforth, Loring. 1995. The Macedonian Conﬂict: Ethnic Nationalism in the Transnational World. New Jersey: Princeton University Press. Dragojevic, Mila. 2005. “Competing Institutions in National Identity Construction: The CroatianCa se.” Nationalism and Ethnic Politics. 11: 61-87. Eriksen, Thomas. 1993. Ethnicity and Nationalism: Anthropological Perspective. London: Pluto. Ford, Curtis. 2002. “Language and Planning in Bosnia and Herzegovina: The 1998 Bihac Symposium.” The Slavic and East European Journal. 46.2 (Summer): 349-361. Geary, Patrick J. 2003. The Myth of Nations. Princeton: Princeton University Press. Greenberg, Robert D. 2000. “Language Politics in the Federal Republic of Yugoslavia: The Crisis over the Future of Serbian.” Slavic Review 59.3 (Autumn): 625-640. ——. 2004. Language and Identity in the Balkans. New York: Oxford University Press. Jalal, Ayesha. 1995. “Conjuring Pakistan: History As Oﬃcial Imagining.” International Journal of Middle East. 27.1 (Feb): 73-89. Massad, Joseph A. 2001. Colonial Eﬀects: The Making of National Identity in Jordan. New York: Columbia University Press. Metcalf, Barbara. 2003. “Urdu in India in the 21st Century: A Historian’s perspective.” Social Scientists 31. (May-June): 29-37.

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Lewis, Geoﬀrey. 1999. The Turkish Language Reform. A Catastrophic Success. New York: Oxford University Press. Sells, Michael. 1996. The Bridge Betrayed. Religion and Genocide in Bosnia. Berkeley: University of California Press. Tachau, Frank. 1964. “Language and Politics: Turkish Language Reform.” The Review of Politics. 26.2 (Apr): 191-204. Urciuoli, Bonnie. 1995. “Language and Borders.” Annual Review of Anthropology. 24: 525-546 Serbian Academy of Arts and Sciences (SANU) Memorandum 1986. Zerubavel, Yael. 1995. Recovered Roots: Collective Memory and the Making of Israeli National Tradition. Chicago: University of Chicago Press.

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Appendix A: Novi Sad Agreement (1954)28 1. Serbs, Croats and Montenegrins share a single language with two equal variants that have developed around Zagreb (western) and Belgrade (eastern). 2. Oﬃcially, the name of the language must make reference to its two constituent parts (i.e. both “Serb” and “Croat”) 3. The Latin and Cyrillic alphabets have equal status and Serbs and Croats are expected to learn both alphabets in school. 4. The two pronunciations—ijekavian and ekavian—have equal status in all respects. 5. The Matica srpska will cooperate with the Matica hrvatska in the production of a new dictionary of the joint language. 6. Work will proceed on the establishment of a common terminology for all spheres of economic, scholarly, and cultural life. 7. Both sides will cooperate in the compiling of a joint orthographic manual (Pravopis). 8. Care must be given to the natural development of Croato-Serbian, and no longer should texts be altered from one variant to another. 9. The composition of a Commission from the Pravopis and terminology will be decided by universities in Zagreb, Belgrade, and Sarajevo, the Academies in Zagreb and Belgrade, Matica hrvatska, and Matica srpska. 10. The conclusions will be made available by Matica srpska to the Federal Executive council (i.e., the federal Yugoslav government), the governments of Serbia, Croatia, Bosnia-Herzegovina and Montenegro, and to the universities, the Matica hrvatska in Zagreb, and to daily papers and journal.

28 Used from Greenberg, Robert D. 2004. Language and Identity in the Balkans. New York: Oxford University Press.

A brief comparison: Mexican and Peruvian National Identities* Isaías R. Rivera Faculty, Tecnologico de Monterrey, Campus Chihuahua ABD, Loyola University, Chicago

Abstract Most Latin American countries, if not all, have struggled with issues of national consciousness, identity formation within unifying political systems where some countries have struggled more than others in fostering one common goal: national identity or nacionalidad. Can one speak about a Latin-American identity? Are there Latin-American uniformities that identify its people other than language? This chapter compares the Mexican and Peruvian national identities. Keywords Mexico, Peru, Octavio Paz, Ciro Alegria, Jose Carlos Mariategui

Introduction In Latin America the Hispanic eccentricity is produced and multiplied, more so in countries with ancient and brilliant civilizations such as Mexico and Peru. (Paz 1990)1 Most Latin American countries, if not all, have struggled with issues of national consciousness—identity formation within unifying political systems— where some countries have struggled more than others in fostering one common goal; national identity or nacionalidad. Can one speak about a LatinAmerican identity? Are there Latin-American uniformities that identify its people other than language (Except for Brazil)? One important aspect that has been identiﬁed as a Latin-American uniformity is the strong indigenous heritage that most of the territory seems to have shared a long history. However, it * The author thanks Sara Benitez for her help with the chapter. 1 Octavio Paz, La búsqueda del presente from Les Prix Nobel. The Nobel Prizes, 1990, Editor Tore Frängsmyr, [Nobel Foundation], Stockholm, 1991. Copyright the Nobel Foundation 1990 Accessed September 20, 2006 at http://nobelprize.org/nobel_prizes/literature/laureates/1990/ paz-lecture-s.html.

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is this indigenous heritage that has divided the roots of what we know now as Latin America. Octavio Paz states; “this consciousness of being separate is a constant feature of our spiritual history”2 to refer to the everlasting duality crisis of identity that has characterized Latin-American thought and history. Perhaps in regards to indigenous empires and territory, Mexico and Peru can be identiﬁed as the two Latin-American countries where the strongest roots and identity heritage were implanted. The Inca Empire was the largest empire in the American continent and probably the world, with a social structure dated back to the eleventh century. The Aztec empire can be traced back to the fourteenth century; it was located mostly in central and southern Mexico. These two civilizations established the roots of identity for what we know recognize as Latin-America. Most historians would agree that these two similar civilizations have shaped their own history through a circumstantial betrayal. Although this point can be debated from a historical perspective, in questions of identity, it remains to be strongly relevant. In Peru, the internal quarrel among Huascar and Atahualpa only facilitated Pizarro’s endeavor to control the entire population. Within diﬀerent conditions, yet similar perspectives, the Mexican empire was symbolically defeated when La Malinche “gave herself ” to the conqueror Hernan Cortez.3 To this day, these two anecdotes, each in their respective territory, remain palpable in a form that still provokes sentiments of amoral feeling. In understanding that amoral sentiment in each society, one must proceed through the cultural development and civilization procedure of digesting the birth of Latin-America through rape. National symbols, territory, sovereignty do not suﬃce the shaping of identity for an individual in society. According to Epstein (1985), “not all people are conscious of nationality,”4 in particular indigenous people living in remote areas where sovereignty is diﬃcult to understand. However, in the case of Peru and Mexico, one can ask how notional consciousness is understood by citizens that are not in the country’s periphery. This chapter will brieﬂy analyze the concept of national identity in Peru (peruanidad) and Mexico (mexicanidad) through the thoughts of Alegria and Mariategui, in the case of the ﬁrst, followed with Paz for the latter. It is important to state that the three thinkers that have been chosen for this document represent great cultural value for each country ever since the nineteenth cen2

Ibid. Accessed October 1, 2006 at https://www.cia.gov/cia/publications/factbook/index.html and http://en.wikipedia.org/wiki/Main_Page. 4 Epstein, Erwin H. 1985. National Consciousness and Education in Mexico. In Education in Latin America C. Brock and H lawlor. In Epstein’s ELPS 455 reader. 3

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tury. Mariategui (Peruvian) was born in the 1800s, he lived thirty years into the 1900s. Alegria (Peruvian) and Paz (Mexican) were both born in the early 1900s and witnessed sixty-seven years of that century in the case of Alegria and ninety-eight years in the case of Paz.5 Peru’s independence was obtained in 1821, while the Mexican independence took place in 1810. These three intellectual ﬁgures undertook the task of deciphering post colonial aspects of their country while simultaneously striving to understand the roots of their own civilization and how the fusion shaped present thoughts, culture and national identity. During this parallel review, I will point to speciﬁc historical similarities and diﬀerences and try to paraphrase ideas from the three authors.

Peru It is estimated that about 45 percent of the country’s population is composed by Amerindian, 37 percent are mestizos (mixed Amerindian and white). Around 15 percent of the population is considered white, while the 3 percent is composed by Blacks, Japanese and Chinese.6 The conglomerate of ethnicities in Peru has led to several classiﬁcations that deal speciﬁcally with racial terminology. Terms such as blanquito are used to distinguish white skinned mestizo people, which for the most part might have a stronger European lineage than indigenous. The indigenous people for the most part live in remote areas of the country, however, it is common to see them in cities working in ambulatory and some organized commerce. They are referred to as Indios, which for the most part dress in traditional ethnic clothing that can determine their region of origin. Another group “ ‘in-between’ ”7 is the cholos.8 Even though this group is identiﬁed as “cultural half-breeds,”9 they come from strong indigenous backgrounds, but they might be incorporated in every form into urban practices of labor and living. I want to emphasize the social usage of this term as a derogatory adjective from time to time especially by upper or middle economic classes to signal out ridiculous (not “in”) behavior, clothing 5 Bibliographical facts about all tour writters accessed at http://en.wikipedia.org/wiki/Main_ Page on October 2, 2006. 6 Population data obtained from CIA World Factbook accessed December 3, 2008 at https:// www.cia.gov/library/publications/the-world-factbook/geos/pe.html on December 3, 2008. 7 Epstein, Erwin H. 1971. Education and Peruanidad: “Internal” Colonialism in the Peruvian Highlands. Comparative Educational Review, Vol. 15, No. 2, Colonialism and Education. (Jun.,):188-201. 8 A cholo in Peru is used to point to a peasant or Indian, in a somewhat degrading way because it implies simple minded. Information accessed October 12, 2006 at The Urban Dictionary form: http://www.urbandictionary.com/deﬁne.php?term=cholo. 9 Ibid.

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or attitudes in lower social classes. They are identiﬁed with extreme poverty, denigrating clothing; and in general, with people who come from newly underdeveloped slums referred to as pueblos jovenes.10 Cholo soy y no me compadezcas, esas son monedas que no valen nada, y que dan los blancos como quien da plata,

Cholo I am and do not feel sorry for me, those are coins that are not worth anything, they are things given by whites as silver.

Nosotros los cholos no pedimos nada, pues faltando todo, todo nos alcanza.

Us cholos do not ask for anything, since lacking everything, everything is stretched.

Déjame en la Puna, vivir a mis anchas, trepando los cerros detrás de mis cabras, arando la tierra, tejiendo mis ponchos, pasteando mis llamas.

Leave me in the Puna, to live at my comfort, climbing the mountains behind my goats, plowing the dirt, weaving my ponchos, and grazing my llamas.10

A similar term is used to denounce derogatory speech, views, and attitudes of low social class standards in Mexico. The term being referred here is naco.11 According to a 2005 educational report, Peru has an estimated illiteracy rate of about 12.03 percent represented mainly by indigenous people.12 Therefore it is important to ask about the relation of being an indigenous or a cholo, the economic condition of these people and the rate of education. Is national identity trampled by a legitimating crisis of state, politics and power in the role that public institutions have in promoting this national identity? One can ask about a Peruvian about nationalism and what that would mean to each individual. Maybe these types of questions would only allow an answer to vary just as if one were to ask a Manhattan or an Appalachian resident. However, both 10 Peruvian popular folk song by Luis Abanto Morales: Title Cholo Soy y no Me Compadezcas (Cholo I am and do not feel sorry for me) Yo te choleo, tu me choleas, nosotros nos choleamos is the title of an article written by Rodrigo Montoya in “La Republica” June 18, 2006. He mentions brieﬂy: En mi artículo del domingo último escribí sobre el viejo racismo que existe en el Perú, fuerte y transparente, pese a que la mayoría de racistas parece estar convencida de que en el Perú no hay racismo alguno. Obtained from: http://www.aymara.org/lista/archivo2001/msg00318. html on October 12, 2006. 11 A naco maybe from “Totonaca”, a Mexican tribe of the Pre-Columbian era Classless, pretentious, obtrusive, the Mexican version of white trash. Mostly blue-collar undereducated people, but can be applied even to a wealthier crowd (nouveaux riches, snob). Ibid. Accessed October 12, 2006 at http://www.urbandictionary.com/deﬁne.php?term=naco on. 12 Ibid. CIA The World Fact Publications at: https://www.cia.gov/cia/publications/factbook/ geos/pe.html.

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American nationals would communicate in the same language and perhaps even understand concepts of say, liberty and freedom, (ideas that the American government has fostered or tried to foster through their history). In the Peruvian case, if one were to ask a resident of Iquitos (a north-east region) and one from Lima, it would be very likely that both might speak diﬀerent languages, and even if both understood and spoke Spanish, a concept of national identity may vary drastically. In the case of Iquitos, most of the region’s population is of pure indigenous descent. One from Lima might not only seem or look out of place, however, understand and live a diﬀerent idea about national identity and Peru. It is the identity dialectic of nationality and a duality-heritage that convey the historical struggle of Peru and Mexico. Alegria and Mariategui constantly spoke about an indigenous resistance and a quest for dignity in one’s own territory where the quarrel of oppressed and oppressor has to do mainly with racial factors disguised with cultural folklore.

Ciro Alegria Broad and alien is the world is the title written by Alegria in 1941 during a time of turmoil in the country where they experienced a territorial war against Ecuador. Alegria was a journalist and novelist who practiced politics representing APRA a center to the left political party founded in 1924 by Victor Raul Haya while in exile in Mexico.13 One of the primary ideologies promoted by the APRA and Alegria was the welfare of indigenous people that had been practiced in that country for hundreds of years. Later in his life, he joined the Accion Popular party and was actually elected to the chamber of deputies where he once again strived to better serve the oppressed indigenous population. Throughout his literary archives, a palpable duality among the rich and poor are depicted in an almost entire good and evil battle. The rich would represent greed and desire to oppress while the poor (indigenous) represented dignity and courage to ﬁght for what is rightly deserved. Alegria undertook the task of creating a new identity in his works that reﬂected a Latin-American reality that tried not to borrow, at least consciously, from the European inﬂuence that had much prevalence up to that time. Broad and alien is the world is a denouncement of injustice in Peru, suﬀered by mostly proletariat and indigenous population. Alegria, strongly believed that the white oppression was at fault for the entire Peruvian political misfortune. With his eloquent ability to express 13 APRA (Alianza Popular Revolucionaria Americana) Historia del Partido Aprista Peruano accessed October 13, 2006 at http://www.apra.org.pe/historia.asp.

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thoughts, he believed on creating a new national identity that proclaimed autonomy and consciousness emancipation for who he considered to be the authentic Peruvians, the underclass. The struggle of land is a uniform characteristic that is presented in the Peruvian and Mexican case. Alegria depicts the struggle of an indigenous community over land. Territory for most identiﬁes a cultural root, heritage and national identity. In the Latin-American case, heritage and the cultural root for some part of history had to strive to form national identity with borrowed land. Land is to be understood as a concept that forms identity.14 Therefore, I want to emphasize the ongoing dispute over land amongst people that are the same, however, (simultaneously not the same in regards to race), are part of the Peruanidad and Mexicanidad being depicted here. Indigenous, meztisos, cholos, and others not agreeing not only upon land, but furthermore, upon whom the country belongs to and trying to answer, who is Peruvian?

Jose Carlos Mariategui Seven essays about interpretation of the Peruvian reality depict a “spontaneous Nietzschean”15 analysis about the problem of the indigenous population in Peru. Mariategui is considered to have forged an idealism of ﬁght against the oppression of ideas, practices and auras created with stratiﬁed mestizage and the diﬀerentiation of classes. He was a Marxist and part of the Communist Party of Peru. A short lived-life of only 35 years was enough to be considered an inspiration for continuous struggle in the ﬁght against oppression that many Latin-American leaders invoked during his lifetime and after. Pablo Neruda wrote after Mariategui’s death: “Porque está vivo. Resplandece detrás de las antiguas piedras peruanas, camina por vías y carreteras, sube por los andamios, continúa su pensamiento.” 16 The seven essays reﬂect a more theoretical idea about national identity and Peru. The thoughts are philosophical ideals structured in essays that deal with aspects of economy, history and sociological factors that try to embody a realistic outcome for the national identity of Peru. Mariategui was not a romantic; he mapped out speciﬁc outcomes of land tenure and not paternalistic divisions that gave the less fortunate a retri14

Alegría, Ciro. 1983. El Mundo es Ancho y Ajeno. Editorial Alianza, S.A., Madrid. Mariategui, José C. 1988. Siete Ensayos e Interpretación de la Realidad Peruana. Editorial, Biblioteca Ayacucho, Caracas. 16 Mensaje de Neruda in Manuel González Calzada’s Compilación de La Revolución Mexicana ante el pensamiento de José Carlos Mariategui. Consejo Editorial del Gobierno del Estado de Tabasco, México, 1980. “Because he is alive. It shines behind the ancient Peruvian rocks, it walks thru rails and roads, it climbs thru the scaﬀold, it continues with its thoughts.” 15

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bution for years of repression. However, he contrived a uniﬁcation of the people in order for the outcomes to be reached. Again, concepts of historical heritage, race, land, language fortiﬁed his dialect as he tried to unravel the Peruvian history and make sense for a better national ideology formation. Mariategui discussed and tried to ﬁgure out a nature of Latin-America and Peru, “for the ﬁrst time in a universal context”; he debated about indigenous and American identities to try to understand why Peru struggled profoundly to become one nation.17 During the 1990s, Peru continued to gravely suﬀer from civil wars that propagated rampant violence and tremendous segregation in civil society. Mariategui had envisioned the segregation that is caused by the violence that was generated by that initial segregation. In the case of Peru, I understand to be a historical-stratiﬁcation of discrimination that has created a spiral of violence that in itself has continued to generate further and more complicated social issues grounded on that primal root. A uniform struggle of state and peasant relation embodied in a quest for uniﬁcation upon identity has reigned in the continent for most of the post-colonial era. Peru is to this day a vivid example of the confusion about a Peruanidad that uniﬁes citizens on a quest for shaping a nation.

Mexico In 2006, it has been estimated that Mexico has about 107,449,52 habitants; about 60 percent of that population are of mestizo descent, about 30 percent considered Amerindian, 9 percent white and about 1 percent of other races.18 In the year 1524, the indigenous population in the Aztec Empire was estimated at about 300,000 to 500,000. At the time of the Spanish arrival, the quest of conquest was carried out with no more than 500 Spaniards amounting to a ratio of about ten Indians per every Spaniard.19 The process of society integration in the years to come included some violent domination and slavery. However, the primary method was to be dictated by religious practice, and the second was indoctrination through education. The war of independence took place in 1810 and it continued for almost eleven years. In 1821, the Plan de Iguala was a declaration that was to model Mexico into a constitutional 17 Pita, Alfredo “Jose Carlos Mariategui (1894-1930): Witness to an age.” The UNESCO Courier 1 Dec.1994: 48.Academic Research Library. ProQuest. Biblioteca Digital del Tecnológico de Monterrey. 18 Population data obtained from CIA World Fact book accessed October 13, 2006 at https:// www.cia.gov/cia/publications/factbook/geos/mx.html. 19 Montaner, Carlos A. 2004. Las Raíces Torcidas de América Latina. Plaza & Janés Editores, S.A. Barcelona.

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monarchy. The new country of Mexico and its population, at the time mostly mestizos, strived to achieve a European model of government and lifestyle. However, Gachupínes20 (derogatory for Spaniards) were continued to be pointed out as outsiders and not well accepted. For Mexican national identity, the duality of national consciousness had initiated with the hatred or despite of something that we have in our blood (Spaniard) and a rejection or shame toward the second half (Indigenous). In 1861, Mexico had its ﬁrst Indigenous President, Benito Juarez21 who actually promoted a law that removed military and religious privileges and declared all Mexican citizens to be equal upon the law. Mexico was invaded, and it underwent a military occupation, promoted by the conservatives who believed Mexico should follow a European monarchy model. Maximilian Ferdinand Joseph Von Habsburg; an Austrian born archduke was declared Emperor of Mexico in 1864; by the same conservative group who promoted the military occupation against Juarez. His reign was to last for three short years ending in execution; at which point, Juarez was to return to power and remain there until 1872. In 1876, Porﬁrio Diaz came to power as the 43rd president of Mexico. Diaz was a mestizo also from Oaxaca. However, throughout his political career, he aggressively promoted foreign cultural inﬂuence for Mexican economy and educational practices. The social duality in the shaping of Mexico dealt with a parallel phenomenon. Strong educational policies promoted during Juarez’s presidency inculcated a national identity that was to embody the Mexican nationality and it represented, according to Epstein, “both a break from the ruling class oppression of the past and independence from foreign political and cultural forms.”22 However, at the same time, the romanticism of the law practitioner (Licenciado o Abogado) or Lawyer was a strong symbol of justice in Mexican Society, given that Benito Juarez himself had been a Lawyer. According to Samuel Ramos, the teachings of Roman law (in which the Mexican Law is modeled after) in the newly Mexican Universities had a strong Frenshiﬁcation due to the Encyclopedic dialectic of the ﬁght for Freedom, liberty through Revolution.23 In 1910, the quest to remove Porﬁrio Diaz, dictator by now, form oﬃce, led Mexico to declare Revolution. It is during this period indigenous and mestizos uniﬁed their eﬀorts in order to promote the winning of land rights, democratic rights 20 Gachupin is deﬁned to have represented a Spaniard who lived in Hispanic America. This information according to: Ramón Garcia-Pelayo y Gross in Larousse Diccionario Escolar. Ediciones Larousse, Mexico, 1987. As time progressed, the term was used as a derogatory adjective. 21 You can see a statue of the 41st Mexican president on North Michigan Avenue, Chicago IL. In the “Plaza de las Américas”. 22 Ibid. 4. Epstein. 23 Ramos, Samuel. 1934. El Perﬁl del Hombre y la Cultura en México. Colección Austral Mexicana, México. Pp.46-47.

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and trade union rights. These actions brought a strong sense of uniﬁcation upon the understanding of what the revolting citizens understood to have a Mexican identity. The stories about the great battles and current events were transmitted thru folk songs that were called corridos.2425 La Cucaracha, la cucaracha, ya no puede caminar, porque no tiene, porque le falta, marihuana que fumar. Huerta el ebrio bandolero, es un buey para el arado.

La Cucaracha, the cockroach, can no longer walk, because it doesn’t have, because it lacks, marijuana to smoke. Huerta the drunk bandit, is an ox to the plow.

Ya se van los carrancistas, ya se van por el alambre, porque dicen los villistas, se estarán muriendo de hambre.

The Carrancist are going, are going for the wire, because they say the Villist, will be starving.

Pobre de la Cucaracha, se queja con decepción, de no usar ropa planchada, por la escasez de carbón.

Poor of the Cockroach, complains with disappointment, of not using ironed clothes, by the shortage of coal.

La C ucaracha, la C ucaracha . . .

La C ucaracha, t he C ockroach. . . .25

The corrido is considered a cultural heritage tradition that has helped to shape many aspects of the post-revolutionary Mexico. Characteristic of Macho (the strong male) were depicted to posses honored qualities respected by other males and desired by females. However, the aforementioned revolutionaryuniﬁcation slowly vanished as post-revolution Mexico encountered challenges of industrialization and modernization. The separation and distinction of race based on color, type of language (Indigenous or Spanish) and social class took a new interpretation during the post-revolution era. Social terminology was invented and continues to be used in order to identify class, education, taste in clothing, and life-style in general. For example, Naco can be used to express 24 The corrido is a popular narrative song and poetry form of the mestizo Mexican cultural area taken from Mexican sovereignship in the mid to late 19th. Century. It is most known form consists of 1) a salutation from the singer and prologue to the story; 2) the story itself; 3) a moral and a farewell from the singer. Accessed October 15, 2006 at http://en.wikipedia.org/wiki/Corridos. 25 La Cucaracha is probably the most famous Mexican corrido that talks about poverty; the harsh situation lived during the revolution, in particular by revolutionary soldiers, and mockery of some politicians. You can read more corridos at http://redescolar.ilce.edu.mx/redescolar/act_ permanentes/historia/html/cantando_revolucion/mascorridos.htm. Consulted on October 14, 2006.

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tacky disregarding whether mestizo, Indigenous or white, the term does come from Totonaca which was an Indian tribe that can be traced prior to the Aztecs. Even tough this term does not denote denigration towards an indigenous characteristic, it is still a reﬂection of the duality expressed in the hatred of self-identity, a negation of what one is, an expression of wanting to be someone else (not indigenous) but knowing that one is, at least half. It is a Hegelian idea of spirit and identity where the negation of the self conducts to the self-realization.26 In the case of Mexico, it was about the imitation of something considered greater (than one self ) in order to be. The fact that the great empire had been symbolically rapped through La Malinche,27 and physically, by empowerment of territory left vacuum of culture creating a tabula rasa where the inhabitants of that new territory looked for external justiﬁcation of what it means to be Mexican.

Octavio Paz The labyrinth of solitude is an article ﬁrst published in 1950, it is a structured deconstruction of culture development in Mexico. Perhaps it is no coincidence that I have placed Octavio Paz at the end of this document, and I will explain two particular reasons for my action. First, even though he has also passed, he is the most recent one of the three authors analyzed in the text. This reason leads me to explain my second purpose, which is that even as late as the early 1990’s Paz was still involved in the task of trying to explain the national identity of Mexico and Latin-America. As a Noble Literature Prize recipient, in part of his speech he stated: 26 “The living substance is being which is in truth subject, or, what is the same, is in truth actual only in so far as it is the movement of positing itself, or is the mediation of it’s self othering with itself. This substance is, as subject, pure, simple negativity, and is for this very reason the bifurcation of the simple; it is the doubling which sets up opposition and then again the negation of this indiﬀerent diversity and its antithesis (the immediate simplicity). Only this self restoring sameness or this reﬂection in otherness within itself - not an original or immediate unity or such—is the true. It is the process of its own becoming, the circle that presupposes its end as its goal. Having its end also as its beginning; and only by being worked out to its end is it actual.” (10) In G.W.F. Hegel in the Phenomenology of the Spirit (1807). 27 La Malinche (c.1496-c.1529, some sources give 1551), known also as Malintzin and Doña Marina, was an Indigenous woman (almost certainly Nahua) from the Mexican Gulf Coast, who accompanied Hernán Cortés and played an active and powerful role in the Spanish conquest of Mexico acting as interpreter, advisor and intermediary. She was also a mistress to Cortés and bore him a son, who is considered one of the ﬁrst Mestizos. La Malinche remains iconically potent, seen in various and often conﬂicting aspects, including the embodiment of treachery, the quintessential victim, or simply as symbolic mother of the new Mexican people. Information obtained from: http://en.wikipedia.org/wiki/Malinche on October 15, 2006.

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In spite of these oscillations the link has never been broken. My classics are those of my language and I consider myself to be a descendant of Lope and Quevedo, as any Spanish writer would . . . yet I am not a Spaniard. (Paz 1990)28

This is a declaration of an acceptance of rooted-identity, an understanding of dependence onto an acceptance of something that he and every Latin-American is not (a Spaniard). It is a separation of being and not being, an understanding of one being a separation for eternity. He proceeds: This consciousness of being separate is a constant feature of our spiritual history. Separation is sometimes experienced as a wound that marks an internal division, an anguished awareness that invites self-examination; at other times it appears as a challenge, a spur that incites us to action, to go forth and encounter others and the outside world. (Paz 1990)29

The separation of identity for each individual in Latin-America is an endeavor of reminiscing about a past that is characterized by greatness. They were great empires which possessed immense power, knowledge and wealth; a legacy that is half of our root. However, the defeat of the Aztec empire signiﬁed more than a fall, it symbolized betrayal (in the case of the Malinche), domination and submission upon an outside force, that as the domination culminated, also became part of the new essence; the birth of a new race. This civilization was to be shaped physically and culturally by opposing traits. A recognition of a once great creed turned into slavery, and the procreation by force of a new race that was to be torn away form every precious belief or heritage from the undesired biological half (the indigenous). From then on, events that turned into history shaped what culture in Mexico is today. In accordance to social stratiﬁcation, diﬀerent characters evolved in both the shaping of Peruanidad and Mexicanidad that have been depicted here. To be cholo, blanquito, pelado, naco or many of the other characters that have been social-shaped-individuals, have allowed at least in these two societies to form a sense of national identity in many ways. At one point Paz asks: “¿Qué somos y cómo realizaremos eso que somos?” What are we and how can we (undertake) or realize that who we are? A rather complex question that entails ﬁrst an understanding of what one is and then proceed to decide what to do, after one has understood the to be. It is a quest that growing poverty and unequal social conditions in Mexico dared to be confronted and understood by our Mexicanidad.

28 29

Ibid. Octavio Paz, La búsqueda del presente from Les Prix Nobel. Ibid.

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Conclusion Based strictly on experience, to ask a Peruvian about his or her national identity will result in achieving a set of answers similar to when I ask my students in Mexico about their national identity. This understanding about identity in these two countries varies extensively depending, primarily on economicsocial class, and of course on race. We do not conceive ourselves to be racially oriented or racist (consciously) however; many derogatory adjectives in our common lingo will prove the contrary. In regards to national identiﬁcation there are Peruvians and there are Mexicans, however, in those two categories there are sub-categories, where, for example, the cholos and the nacos are incorporated. The people included in these two sub-categories also “deserve” to be called Peruvian or Mexican, however, they form a part of a lesser-race that makes them less human-Peruvian and Mexican than the ones that do gather the “right” national identity per se. In these two countries, if one argues that it is not considered important to make a diﬀerentiation about race based on color or complexion, another can simply negate that claim on the basis that race denigration implies the insulter not being as indigenous as the other. The mixture in mestizo will make some better than others, depending if one is to “genetically” (based on appearance) have a bit more European blood than Indigenous. To look indigenous would be grounds to be classiﬁed on the subPeruvian or Mexican group. Therefore to speak about Peruanidad and Mexicanidad is to understand twisted historical perspectives that throughout history have become characteristics that are not easily deciphered. National identity in Latin-America is palpable in present social practices that have been formed by positive and negative ideas that do reﬂect the current social conditions. The origins of the idea of citizen can be traced as far back as to the ancient Greek city states. Furthermore, a citizen embodied the idea of belonging to a speciﬁc political community; it was a privilege due to the fact that not all were considered citizens. Alegria, Mariategui and Paz, as presented here, strived to explain, incorporate and deconstruct the identity and root of the peripheral and core citizen form Peru and Mexico. Today, the idea of being Latin-American embodies the uniform ability of speaking and understanding the language of Spanish or Portuguese (in the case of Brazil), a common history of shared struggles and triumphs. It is a shared dual heritage that has troubled the identity of the diversiﬁed population. Ever since post-independence, this dual identity continues to be a quarrel in our social class struggle that many have opted to ignore. Presently, in Peru and Mexico, ideas of progress are encoded with economic-industrialized languages that only divert the attention of understanding one of the most symbolic problems of identity that has troubled our society for hundreds of years. The historical evolvement of

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the nihilism in our identities and the creation of mestizage is one way to exemplify the quest here described. Latin-America should be in the hands of the ones who understand the Latin-American condition of historical violation, struggle and triumph. My experience in Peru and now back in Mexico has led me to believe that a concrete historical, philosophical, psychological and sociological understanding of the Latin-American root can serve as a tool to trace the path for the formation of an authentic national consciousness and identity in both countries.

Section IV The Environmental Impact

China’s Role in the Challenge for Global Sustainable Development Patrick Loy The Johns Hopkins University

Abstract The social and environmental crises spawned by global capitalism renders sustainable development an ominous challenge for the entire world. These crises are occurring amidst a geopolitical context in which a shift in power from the nations of the North to the nations of the South will likely accelerate—and quite possibly usher in a new global economic order. China is playing a prominent role in this transition, and is well-positioned to take the lead in initiating a model for economic and social development that could help guide the world to a sustainable future. Keywords sustainable development, global economic order, geopolitical dynamics, over-consumption, ecological devastation, Chinese initiatives

Introduction The social and environmental crises spawned by global capitalism renders sustainable development an ominous challenge for the entire world. These crises are occurring amidst a geopolitical context in which a shift in power from the nations of the North to the nations of the South will likely accelerate—and quite possibly usher in a new global economic order. China is playing a prominent role in this transition, and is well-positioned to take the lead in initiating a model for economic and social development that could help guide the world to a sustainable future. Sustainability is a term that is usually applied to both the ecological hazards of economic development and the need for renewable energy resources. However, the expression also pertains to social development, stressing the need for an economic system that empowers the members of society to maximize their human potential. All of these aspects of sustainability are interrelated and should be reﬂected in the egalitarian values that form the basis of a society. Nevertheless, the main reason why ecology and energy get the most attention

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in discussions of sustainable development is the grave challenge facing the world with respect to the relationship between humanity and nature. We are reaching a stage of history where the ecological devastation arising from capitalist development threatens not only the survival of our species but the planet itself. Unfortunately, the logic of capitalism, which dominates the current world economic order, cannot solve this problem.

The Root of the Problem of Sustainable Development The engine of capitalism is commodity production. Historically, the original purpose for producing a product was for its use-value, which Karl Marx (1990) described as: “a thing which through its qualities satisﬁes human needs of whatever kind” (p. 126). However, the advent of the capitalist mode of production gave prominence to producing goods and services that comprise not only use-value but, more importantly, exchange-value, i.e., commodities that can be exchanged on the market to generate a proﬁt. Therefore, by its nature capitalism is always trying to create new commodities and to commodify any and all existing goods and services. Over the past few decades we have seen in the USA the increasing commodiﬁcation of hospitals, prisons, military services (including combat), public schools, and even interstate roadways. The ultimate commodiﬁcation of everything seems to be the dream of all capitalists. This state of aﬀairs has led to what Marx (1996) called “commodity fetishism” wherein all realms of society become dominated by commodity production and consumption, including production modes and relations, environmental values, and culture (p. 45). Since the ﬁnal goal of capitalist production is to make a proﬁt, unfettered growth in the productive forces is constantly accentuated, often to the detriment of the environment. Also, consumption must be aggressively promoted in order to keep the demand for more commodities rising. A recent public display of commodity fetishism occurred after the September 11 attacks when the President of the USA, in essence, urged the nation to “go shopping” (Pellegrini 2001). On December 20, 2006, President Bush repeated his advice—this time given to bolster the sagging economy—by saying, “I encourage you all to go shopping more” (see Press Conference by the President 2006). The over-consumption that results from commodity fetishism is especially evident in the advanced capitalist countries and presents an impediment that must be overcome if the earth is to have a sustainable future. According to Jared Diamond (2008), “the average rates at which people consume resources like oil and metals, and produce wastes like plastics and greenhouse gases, are about 32 times higher in North America, Western Europe, Japan and Australia

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than they are in the developing world.” Moreover, consumption will increase in the developing world as its residents become capable of supporting a higher standard of living. But, according to Diamond, if the entire developing world were to catch up to the level of consumption of the US, “it would be as if the world population ballooned to 72 billion people (retaining present consumption rates).” Obviously the world cannot support such a fate, but Diamond suggests that we could avoid disaster by creating a “stable outcome in which all countries converge on consumption rates considerably below the current highest levels.” Diamond believes that “real sacriﬁce wouldn’t be required,” however, because so much of the consumption in advanced capitalist countries is wasteful and does not contribute to the quality of life. Diamond goes on to point out that some of the production methods currently employed are wasteful in industries such as ﬁsheries and forest products, but that operating these industries according to already known methods would allow us to meet the global demand for such products in a sustainable way.

The Hope for a Sustainable Future Diamond’s view that the problem can be solved without sacriﬁce is undoubtedly overly optimistic. However, his suggestions give us a glimpse as to what might be possible if the logic of capitalism were to be constrained by political will. In the short run, at least, this is the key to keeping a lid on environmental catastrophe. Political pressure to pass legislation that rolls back the onslaught against the environment is critical to creating an atmosphere in which we have the “breathing room” to work out truly sustainable production policies and environmental standards for the long-run. Some skeptics, especially in the USA, may wonder if this strategy is workable, given the stranglehold that capitalism seems to have on the political system. However, from a world-historical view there is solid evidence that the ravages of capitalism, at least to a certain degree, can be held in check by the will of the populace. In fact, during the twentieth century many economic systems emerged which demonstrated that some level of political control over the economy that runs counter to the logic of capitalism is possible, an example of which is state-run or state-regulated universal health care in several capitalist countries. In other words, given the proper determination of the people and the political system that represents them, the market can be kept in check. Consequently, to the extent that those characteristics of a market economy which are non-sustainable can be nulliﬁed through political action there is hope for a sustainable future.

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However, although much of the political struggle around sustainability must take place at the national level, clearly the ultimate problems of—and ﬁnal solutions to—sustainable development are global in nature. Consequently, our ultimate concern is the global economy and whether or not it will eventually follow a sustainable path. For this reason we must take a look at the changing geopolitical landscape and try to draw out what the shift in global power relations might mean for the possibility of a sustainable future. Joshua Cooper Ramo (2004), author of the monograph, The Beijing Consensus, believes that the ascension of China as an economic power could be the harbinger of a new economic order that would promote mutual respect among nations and make the world a “safer, more equitable place” (p. 60). According to Ramo, “China’s rise is already shaping the international order by introducing a new physics of development and power. . . . China’s new ideas are having a gigantic eﬀect outside of China” (Pp. 2-3). Ramo calls this package of ideas the Beijing Consensus, asserting that it “oﬀers hope for the world” (p. 60). One of these ideas is “localization,” a doctrine that stresses the importance of allowing development to be custom-made to local needs. This concept contrasts sharply with the “standard” reform package mandated by the policies of the IMF, World Bank, and US Treasury Department, collectively known as the Washington Consensus. Another idea that China is promoting is “multilateralism” which recognizes the importance of mutual respect for political and cultural diﬀerences between nations and stresses cooperation, rather than unilateralism, in constructing a new global economic order (Pp. 32-40). It is easy to see why nations of the global South are drawn to ideas such as these, having experienced the results of the increasingly discredited Washington Consensus. As Ramo puts it: China is marking a path for other nations around the world who are trying to ﬁgure out not simply how to develop their countries, but also how to ﬁt into the international order in a way that allows them to be truly independent, to protect their way of life and political choices (p. 3).

China’s role in promoting an alternative development path to the world has been bolstered by its leadership in helping Southern countries get out of the grip of the IMF. China, along with several countries of the South, are producing goods and services at lower prices than the North, and consequently the South is beginning to generate a surplus of capital. An increasing amount of this surplus is being rerouted to other Southern destinations. China recently announced an astounding loan package to the Philippines of $2 billion each year for three years. By comparison, the World Bank and Asian Development Bank had oﬀered only $200 million (Perlez 2006). Responding to this ﬁnan-

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cial transaction, Giovanni Arrighi (2007), author of Adam Smith in Beijing, had this to say: This was just one of a large and growing number of similar deals in which China has been out-competing Northern agencies by oﬀering Southern countries more generous terms for access to their natural resources; larger loans with fewer political strings attached and without expensive consultant fees; and big and complicated infrastructure projects in distant areas at as little as half the cost of Northern competitors (p. 383).

Other cash-rich countries have complemented the Chinese initiatives by redirecting their surpluses to the South. For example, Venezuela has committed $2.4 billion to Argentina so that it could extract itself from the clutches of the IMF, and Venezuela has purchased $300 million in bonds from Ecuador (Weisbrot 2006). Howard French (2005) ﬁnds particular signiﬁcance in the growing investments by China and India in each other’s economies: In its next incarnation, globalization will be more about interpenetration . . . Interpenetration means that the world’s emerging economic powers will begin to globalize each other, creating new sectors in each other’s markets, infusing each other with capital, and drawing on each other’s giant pools of talent. Recent word of huge new investments by India and China in each other’s booming economies—most speciﬁcally in their red-hot information technology sectors—may just presage the dawn of this moment, one in which the giants of the developing world ﬁnally and truly discover each other.

What does French say such a cross-pollination of these two giant countries, with over 2.3 billion people between them, and both with rapidly developing technology sectors, represents for the future of the world? What it clearly means already is the day when a cozy club of the rich—the United States, the strongest economies of Western Europe, and Japan—sets the pace for the rest of the world, passing out instructions and assigning grades, is fast drawing to a close.

The geopolitical reality that the above examples exemplify is that the hegemonic control that the US has enjoyed for several decades is in decline. With the IMF loan portfolio at its lowest level since the 1980s, its inﬂuence (and thus that of the US) over global economic policy is greatly diminished. As Arrighi (2007) puts it, “the ﬁnancial underpinnings of US and Northern dominance rest on increasingly shaky grounds” (p. 381). Arrighi believes that the advent of a world-market society centered in EastAsia is becoming increasingly likely (Pp. 7-8). Moreover, with US hegemony

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in decline the time may be ripe for a new Bandung-type alliance of developing countries to be formed. The original Bandung Conference of 1955 was aimed at countering economic and political subordination of third world countries to the USA, or to any other imperialist nation. A new Bandung would have a similar mission, but suitable to an era of economic globalization of unprecedented proportions. With the rising economic strength of the Global South the conditions for a new Bandung are more favorable than ever before. Such an alliance, Arrighi contends: can do what the old [Bandung] could not: it can mobilize and use the global market as an instrument of equalization of South-North power relations (p. 384).

The implications of this shift in global power from the North to the South have a direct bearing on the potential for global sustainable development during the twenty-ﬁrst century. If China is to eventually become the nexus of an Asian-centered global economy it must play a leading role in charting a course capable of emancipating not only China but also the entire world from the social and ecological devastation of Western capitalist development. China, along with the ruling groups of the global South (especially India), must try to forge a model for sustainable development that can serve as an archetype for the entire world.

China: Which way forward? The prospect of China taking the lead to begin creating such a model raises a critical question: In what direction is China heading as a nation, and will this path ultimately lead to becoming a powerful egalitarian socialist state that practices and promotes sustainable development—or to something entirely diﬀerent? This has become a growing debate among scholars, with occasional fervent arguments being given to both sides of the issue. In contrast to the tone of some of these debates, David Schweickart (2004) takes a cautiously optimistic view that there is hope that “the CPC will be creative enough to implement reforms that will address [China’s] real problems and at least partially resolve them . . . [and] move China in the direction of Economic Democracy” (p. 408). (Economic Democracy is a form of market socialism conceived by Schweickart.) Schweickart’s essay implies that it is not possible at this time to make an erudite prediction about China’s future economic and social trajectory as a nation—a position I agree with. The facts on the ground—though some are quite disturbing—do not clearly point in one direction. Moreover, it is not clear that the usual concepts of capitalism and socialism are the most

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helpful for analyzing China. For example, Xudong Zhang (2008) argues that Chinese socialism is not over, but survives as “postsocialism” which is articulated, in part, through China’s exceptional uniqueness and the coexistence of multiple modes of production and socio-cultural norms. Perhaps even more important, China’s unique attributes present an analysis problem that prevents us from making a prediction about its future trajectory with any sense of certitude. Let me illustrate this analysis problem using two contrasting examples from my ﬁeld of complex systems analysis and design. In the1960s and 70s, as the 1947 invention of the transistor began to make an impact on every facet of electronics, the demand for software-driven computing systems exploded. As a consequence, a great deal of investment went into creating large, complex systems, the likes of which had never been seen before. For example, there had never been an online interactive airline reservation system, but it was evident that the technology now existed to produce one. After several failed attempts by various airlines costing millions of dollars, American Airlines ﬁnally came online with a working system in 1962 (Serling 1985). This pattern of extremely costly failed attempts repeated itself many times over, especially in military systems. There were numerous eﬀorts to build exotic multimillion-dollar systems, some taking upwards of ﬁve years to develop, which never became operational. Indeed, I was a consultant for a company that had previously developed a large nonmilitary software system in the late 1970s which, after over 30 “man-years” of eﬀort, could not even be compiled, i.e., translated into binary machine code that the computer can understand. This period in software engineering history is often characterized as the “software crisis.” In examining what went wrong to create such a foul-up most software historians point to the lack of meaningful precedents as being at the heart of the problem. Very complex systems were being attempted to be built with no similar systems yet in existence from which to learn. Consequently, this all-at-once development approach turned out to be disastrous. Now, contrast this example with the NASA program to go to the moon. By the time Apollo 11 landed on the moon in 1969 there had been scores of space ﬂights in the Mercury, Gemini, and Apollo programs, each one learning the lessons from the previous missions and adding only a small amount of additional complexity. In fact, by the time of Apollo 11 two previous Apollo missions had circled the moon and ﬂown back to earth. This incremental development approach enabled each mission to take advantage of the meaningful precedents of the previous ﬂights, thus avoiding the risks of tackling too much added complexity in one fell swoop. I believe that trying to assess China’s future trajectory is more analogous to the software crisis example than to the Apollo moon mission. In analyzing

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China, where would we look for meaningful precedents? If, for example, we examine the erstwhile socialist countries that have now embraced a market economy there does not seem to be much there to help guide our analysis. Indeed, China has many unique attributes that make it substantially diﬀerent from these places. China is the most populated country in the world, many times the size of the former Soviet bloc nations. The mere size of its population and land mass would have important implications for our investigation, such as the ramiﬁcations of having such a huge internal market. China has a 4,000-year history and cultural heritage, the eﬀects of which on its current trajectory are profound, and yet diﬃcult for the Western world to comprehend (Lu 2000:172-82). It has a strong communist party that has remained both intact and in control of the state apparatus after emphatically departing from the strict doctrine that had guided it for nearly 30 years. Rural farmland in China continues to be collectively owned, thereby preserving the right of farmers to have control over their own plots, and preventing a class of landlords or large agribusiness enterprises from taking over the land. Because of China’s particular history it has a strong inclination toward self-reliance, and, according to Arrighi (2007) it harbors a huge, “high quality [workforce] in terms of health, education, and capacity for self-management” (p. 351). In short, China is a very large, complex “system,” the likes of which has never been seen before. Consequently, making a prediction on the which way forward ? question at this time would be little more than an educated guess. Having said this, it is important to recognize that the kind of leadership China is able to oﬀer to the world as power shifts from the West to the East will reﬂect, to a large degree, China’s ability to take decisive steps to solve its domestic problems and demonstrate that it honors egalitarian values. China must lead by example, as well as through its global economic inﬂuence. Therefore, not only must China resolve the ecological issues caused by its rapid economic development (such as clean air and water) but it must also correct the widening gap between those who have greatly beneﬁted from such rapid growth and those who have beneﬁted little or not at all. A sampling of the serious problems that China must deal with in the wake of its astounding economic growth include the following: Millions of workers continue to live on less than $2 per day, many of whom work under sweatshop conditions; independent labor unions are not allowed; the wealth gap between the rich and poor is at an all time high, and the country now has over 100 billionaires by some recent estimates (China Daily, 1 January, 2008, “China has 146 Billionaires”); although reliable ﬁgures are elusive, it is generally agreed that there are thousands of “mass incidents” in China every year, mostly protests over environmental and labor issues; while China has so far

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developed a variety of economic-related environmental regulations, enforcement and implementation remain inconsistent (Ling 2007d); corruption continues to be a major problem, and Xiao Yang, president of the Supreme People’s Court (SPC), said that Chinese courts tried and concluded 120,000 embezzlement, bribery and dereliction of duty cases over the past ﬁve years, up 12.15 percent over the previous ﬁve years (China View, 10 March, 2008, “China vows no mercy to corruption”); automobiles are being built, sold, and used at a rapid pace creating environmental problems as well as tension between motorists and bicyclists; millions of Chinese workers have little or no access to adequate health care; and reports of defects in Chinese export products have become a staple of the international evening news. These problems, and others are consistently reported in the Western and Asian news media. Fortunately, the Chinese are not trying to sweep their problems under the rug. In fact, Chinese newspapers regularly report on all of the issues mentioned above, and on my visits to China in 2007 and 2008 I was impressed to ﬁnd that, generally speaking, everyone (including party and government oﬃcials) was willing to talk about such matters and seemed to have a real concern that they get resolved. As mentioned earlier, the facts on the ground do not consistently point in one direction, so let us take a look at the other side of the coin. Although China’s problems are massive in scope, there are hopeful signs that it is making a concerted eﬀort to solve them. In fact there are programs in place to address many of the problems mentioned above, and virtually every day there is an account in the Chinese or international press of innovative projects or new government policies to address energy and environmental problems, as well as social issues. Let us ﬁrst look at some steps being taken to address environmental issues. One measure seems to be of special signiﬁcance here as it addresses China’s long-term plan of action regarding sustainable development. On December 26, 2007 China’s Information Oﬃce of the State Council issued the country’s ﬁrst ever white paper on its energy conditions and policies. This 16,000-word document includes China’s proposed goals, strategies and initiatives for energy development, including its commitment to develop “renewable energy resources . . . [and] . . . coordinate energy development with environmental protection, [making] the two promote each other for sustainable development.” A long-range goal is to “use sustainable energy development to support the sustainable economic and social advancement” (see Peoples Daily Online). Complementing this policy statement, many programmatic initiatives are being launched in the area of sustainable development. A small sample of these includes: The “green loan” initiative in which “Banks will . . . factor in

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environmental considerations when distributing loans” (Yingling 2008a); the suspension of “all new industrial projects in 13 cities and industrial parks along four major rivers that are suﬀering from severe water pollution—the Hai, Huai, Yangtze, and Yellow” (Ling 2007a); the initiative by China’s State Electricity Regulatory Commission (SERC) to “assume nationwide oversight over power companies that are required under the country’s renewable energy law to prioritize purchases of the maximum amount of ‘green’ electricity available in their coverage areas . . . This renewable power includes energy generated from sources such as hydropower, wind power, biomass, solar power, tidal power, and geothermal energy” (Ling 2007b); the closing of “hundreds of mills and [targeting] hundreds more for shutdown by 2010 . . . in a bid to clean up China’s rivers and spur the paper-making industry to consolidate and modernize by using wood pulp” (see Baltimore Sun); the launching of a new energy conservation guide for citizens by China’s Ministry of Science and Technology (MOST) in an eﬀort to promote the twin goals of saving energy and reducing emissions (Ling 2007c); an amendment to the Law on Science and Technology Progress, which aims to create a better environment for scientiﬁc and technological innovations (China Daily, 29 December, 2007); a signiﬁcant boost in funding for research on carbon emission reduction to tackle climate change (Wang 2008); and the recent directive issued by the State Council, China’s cabinet, “banning the production of ultra-thin plastic bags. The ruling also prohibits shops, supermarkets, and sales outlets nationwide from handing out free plastic bags starting on June 1” (Yingling 2008b). As these examples demonstrate there is clearly a consciousness of the severity of China’s environmental problems and the need to take decisive steps to correct them, but, as with all initiatives, policies and laws in China, enforcement is not always certain. This is one reason why the Chinese government has put so much stress on weeding out corruption by government and party oﬃcials. However, there are important voices in China who are optimistic that programs such as those mentioned above mark a turning point. According to Yingling Liu (2007), China Program Manager for WorldWatch Institute, “As a Chinese citizen and researcher who has followed these developments for many years, I am more optimistic that China is beginning to turn the corner on its monumental environmental challenges.” In terms of recent initiatives to address China’s social problems, the following have been reported by the newspaper China Daily: the passage of a landmark labor law in 2007 directed at tightening rules and regulations to beneﬁt industrial workers (December 29, 2007); the decision to establish a cooperative health care network covering all rural residents by the end of 2008, and to extend the medical insurance system to the entire population by 2010 (January 2, 2008); the increase of the individual income tax threshold to relieve

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the economic burden of low- and medium-income earners (December 29, 2007); and the dramatically increased budget for social programs passed by the Fifth Session of the 10th National People’s Congress, which includes, “a system to guarantee a nationwide minimum standard of living for farmers” (March 6, 2007).

Conclusion: The Challenge for a Sustainable Future This small sample of the initiatives China is undertaking gives a ﬂavor of the potential leadership that China might oﬀer in the realm of sustainable development. These eﬀorts are commendable and must be followed through to begin creating an ongoing process that can serve as a model for sustainable development based on science and egalitarian values. The emphasis that China is putting on innovation will serve it well in this task. However, as the challenge for a sustainable future is global in scope, the US and other advanced capitalist countries must be constantly confronted to reign in the wasteful production and consumption patterns that capitalism promotes, to protect the environment, and to make an all out eﬀort to develop renewable energy sources. The inherent greed and wastefulness of the capitalist system must be replaced by values that promote conservation and social cooperation. The changing geopolitical landscape, coupled with the ascension of China as a global economic power and its growing leadership among the nations of the South, oﬀer the hope that through the application of egalitarian principles and scientiﬁc knowledge to a market economy a sustainable development model can emerge that would launch a world-historical transformation. Such a model would open up a path for achieving a satisfactory standard of living for everyone on the globe using renewable energy sources while not permanently degrading the environment, and at the same time facilitate the personal and social potential of society to be realized. The key to such an outcome lies in the principle that political control can be eﬀectively imposed on the functioning of the market; or put another way, that political power can trump the logic of capitalism. Reference List Arrighi, Giovanni. 2007. Adam Smith in Beijing: Lineages of the Twenty-First Century. New York: Verso. Baltimore Sun, December 18, 2007. “Business Commentary.” Accessed on January 13, 2008 at http://www.baltimoresun.com/business/bal-bz.paper18dec18,0,2002894.story. Diamond, Jared. 2008. “What’s Your Consumption Factor?” New York Times. 2 January.

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French, Howard. 2005. “The Cross-Pollination of India and China.” International Herald Tribune. 10 November. Ling Li. 2007a. “China Takes Steps to Restore Polluted River Basins.” WorldWatch Institute. 23 August. Accessed on 25 April, 2008 at http://www.worldwatch.org/node/5325. ——. 2007b. “China Urges Electricity Suppliers to Buy ‘Green’ Power.” WorldWatch Institute. 30 August. Accessed on 24 April 2008 at http://www.worldwatch.org/node/5330. ——. 2007c. “China Launches Energy Conservation Guide for Citizens.” WorldWatch Institute. 13 September. Accessed on 4 April 2008 at http://www.worldwatch.org/node/5346. ——. 2007d. “China Needs New Environmental Policies.” WorldWatch Institute. 25 September. Accessed on 15 May, 2008 at http://www.worldwatch.org/node/5370. Lu Aiguo. 2000. China and the Global Economy since 1840. New York: St. Martin’s Press. Marx, Karl. 1990. Capital: A Critique of Political Economy. Vol. 1. Trans. Ben Fowkes. New York: Penguin. ——. 1996. Capital. Vol. 1. In vol. 35 of Karl Marx, Frederick Engels: Collected Works. New York: International Publishers. Pellegrini, Frank. 2001. “The Bush Speech: How to Rally a Nation.” Time. 21 September. Perlez, Jane. 2006. “China Competes with West in Aid to its Neighbors.” New York Times. 18 September. People’s Daily Online, December 26, 2007. “China’s Energy Conditions and Policies.” Accessed on 15 May, 2008 at http://english.people.com.cn/90001/90776/90785/6327632.html). Press Conference by the President. 2006. Accessed on January 12, 2008 at http://www.whitehouse. gov/news/releases/2006/12/20061220-1.html. Ramo, Joshua Cooper. 2004. The Beijing Consensus: Notes on the New Physics of Chinese Power. London: The Foreign Policy Centre. Accessed on March 1, 2007 at http://fpc.org.uk/ publications/123. Serling, Robert. 1985. Eagle: The oﬃcial corporate history of American Airlines. St. Martin’s-Marek. Schweickart, David. 2004. “Successor-System Theory as an Orienting Device: Trying to UnderstandChi na.” Nature, Society and Thought. vol. 17, no. 4. Wang Shansan. 2008. “Rise in funding pledged to tackle climate change.” China Daily. 24 April. Weisbrot, Mark. 2006. “The Failure of Hugo Bashing.” Los Angeles Times. 9 March. Yingling Liu. 2007. “China’s Coming Environmental Renaissance.” WorldWatch Institute. 29 November. Accessed on 8 May, 2008 at http://www.worldwatch.org/node/5510. ——. 2008a. “China Uses Green Loans to Tackle Environmental Problems.” WorldWatch Institute. 11 February 2008. Accessed on 12 May, 2008 at http://www.worldwatch.org/node/5604. ——. 2008b. “China’s Plastic Bag Ban Likely to Change Consumer Habits.” WorldWatch Institute. 15 January. Accessed on 12 April, 2008 at http://www.worldwatch.org/taxonomy/term/53. Xudong Zhang. 2008. Postsocialism and Cultural Politics: China in the Last Decade of the Twentieth Century. Duke University Press.

Is Sustainable Capitalism an Oxymoron? David Schweickart Loyola University Chicago

Abstract Is Joel Kovel right that it is either “the end of capitalism or the end of the world”? Or are Paul Hawken, Amory and Hunter Lovins right that we are on the brink of a “natural capitalism” that can usher in an ecological and social utopia, “a world where cities have become peaceful and serene because cars and buses are whisper quiet, vehicles exhaust only water vapor, and parks and greenways have replaced unneeded urban freeways. . . . Living standards for all people have dramatically improved, particularly for the poor and those in developing countries. Involuntary unemployment no longer exists. . . .” I argue that while Hunter-Lovins’ have much to oﬀer and Kovel overstates his case, a sustainable capitalism is highly unlikely. I sketch an alternative to both “natural capitalism” and Kovel’s non-market socialism that is more promising than either. Keywords capitalism, socialism, sustainability, natural capitalism, exponential growth, ecological crisis, economic democracy

Marx says that revolutions are the locomotives of world history. But the situation may be quite diﬀerent. Perhaps revolutions are not the train ride, but the human race grabbing for the emergency brake. Walter Benjamin

The subtitle of Joel Kovel’s The Enemy of Nature (originally published in 2002, revised edition 2007) states his thesis bluntly: The End of Capitalism or the End of the World ? Kovel thinks we need a revolution—although he is fully cognizant as to how remote that prospect seems. Growing numbers of people are beginning to realize that capitalism is the uncontrollable force driving our ecological crisis, only to become frozen in their tracks by the awesome implications of this insight (Kovel 2007:xi).

Paul Hawken, Amory Lovins and Hunter Lovins also think we need a revolution, but of a diﬀerent sort than the one envisaged by Kovel. Their book,

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Natural Capitalism (published in 1999), is subtitled Creating the Next Industrial Revolution. Then-President Clinton is reported to have called it one of the ﬁve most important books in the world today. Hawken and the Lovins’ agree with Kovel that the current model of capitalism is problematic. “Capitalism, as practiced, is a ﬁnancially proﬁtable, nonsustainable aberration in human development (Hawken, Lovins, and Lovins 1999:5).” But they do not see the problem as residing in capitalism itself. They distinguish among four kinds of capital, all necessary for production: human capital, ﬁnancial capital, manufactured capital and natural capital. The problem with the current form of capitalism, they argue, is its radical mispricing of these factors. Current market prices woefully undervalue—and often do not value at all—the fourth factor: the natural resources and ecological systems “that make life possible and worth living on this planet (Ibid. 2).” All economists, liberal, Left and Right, recognize that market transactions can involve “externalities”—costs (or beneﬁts) not paid for by the transacting parties. All agree that there is a role for governments to play in rectifying these defects. The standard remedies involve taxation (for negative externalities) and subsidies (for positive externalities). More recently, “cap and trade” schemes for carbon emissions have been added to the list. Hawken and the Lovins’ argue that these remedies—properly applied— can work. The ﬁrst step, they say, is to eliminate the perverse incentives now in place. They document the massive subsidies that governments currently provide for ecologically destructive behavior, e.g. highway construction and repair, which encourages suburban sprawl and the shift away from more eﬃcient modes of transportation, agricultural subsidies that encourage soil degradation and wasteful use of water, subsidies to mining, oil, ﬁshing and forest industries, etc. Second step: impose resource and pollution taxes so as to reﬂect the true costs of “natural capital.” Sweeten the pie by phasing out all taxes on labor— the payroll tax, which increases unemployment, and income taxes as well. The point is to level the playing ﬁeld so that more sustainable technologies and more energy-eﬃcient processes can compete fairly with the destructive practices of “industrial capitalism.” We might even want to go further, and subsidize— at least initially—the technologies that reduce the negative environmental impact of our production and consumption choices. Natural Capitalism is chock full of examples of the shocking waste pervasive in our current system and of the existing technologies and procedures that could reduce our impact on the environment to a small fraction of what it is now. Many of these changes are already underway. Many more will follow if appropriate government policies are adopted. Hawken and the Lovins’ envisage a bright future:

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Imagine for a moment a world where cities have become peaceful and serene because cars and buses are whisper quiet, vehicles exhaust only water vapor, and parks and greenways have replaced unneeded urban freeways. OPEC has ceased to function because the price of oil has fallen to ﬁve dollars a barrel, but there are few buyers for it because cheaper and better ways now exist to get the services people once turned to oil to provide. Living standards for all people have dramatically improved, particularly for the poor and those in developing countries. Involuntary unemployment no longer exists, and income taxes have been largely eliminated. Houses, even low-income housing units, can pay part of their mortgage costs by the energy they produce. (Ibid. 1).

Such a future will come about if we harness the creative energy of capitalism and let the markets work. Let us examine these two contrasting perspectives. Let us think ﬁrst about ethics and energy. Consider the ethical commitments that underlie their respective analyses. Kovel cites Marx directly and with full approval: From the standpoint of a higher form of society the private ownership of the globe by single individuals will appear quite as absurd as private ownership of one man by another. Even a whole society, a nation, or even all simultaneously existing societies taken together, are not the owners of the globe. They are only possessors, its usufructuaries, and like boni patres familias, they must hand it down to succeeding generations in an improved condition.1

Hawken and the Lovins’ might not agree that private ownership is absurd, but they would certainly embrace the ethical clause: We “are only possessors [of the earth], its usufructuaries, and like boni patres familias, [we] must hand it down to succeeding generations in an improved condition.” There is no real disagreement here about ethics. Kovel, although cataloguing at length the environmental destruction taking place on our planet, says very little about energy policy, per se. He is conﬁdent that an “ecosocialist” movement, based on “ecosocialist” values, if victorious, will be able to solve our concrete problems. Hawken and the Lovins have much to say about energy. They argue that vast amounts of energy are currently wasted—and that there is much proﬁt to be made in reducing this waste. They are convinced that technologies already exist that, if properly implemented, could drastically reduce, and eventually eliminate, fossil fuel consumption—without relying on nuclear power. Many of these are already proﬁtable. Others would be, if sensible governmental policies were put in place.

1

Kovel, p. 268, citing Capital, v. 3.

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Kovel would object here, not to the technologies per se or to the proposals for eliminating the vast amounts of energy wasted due to faulty building or production design, but to the Hawken-Lovins’ faith that the “capitalist market” can be successfully employed to get us to the promised land.2 In essence there are two fundamental diﬀerences between the “ecosocialism” of Kovel and the “natural capitalism” of Hawken-Lovins. • Kovel is deeply distrustful of the proﬁt motive.3 He does not think greed can serve the good. Hawken-Lovins’ think that the proﬁt motive can be harnessed so as to provide powerful incentives to develop sustainable sources of energy and to eliminate the energy waste so rampant today. • Kovel is convinced that “grow or die” is an imperative of capitalism that renders “sustainable capitalism” impossible. Hawken and the Lovins’ do not confront this argument directly, but appear to believe that either a) capitalism is compatible with a steady-state, non-growing economy or b) an economy can grow indeﬁnitely without consuming more energy and natural resources than it can sustainably reproduce. Let us examine the “grow or die” issue ﬁrst.

Capitalism: Grow or Die? Anti-capitalist ecologists always say this. In Kovel’s (2007) words, “capital must expand without end in order to exist (p. 38).” But is this true? It would seem not to be. Individual small businesses sometimes survive for long periods of time. Marx’s prediction that the “petty bourgeois” sector would disappear has turned out not to be true. (The tendency toward monopoly/oligopoly, which he correctly identiﬁed, has been oﬀset by the continual rise of new entrepreneurial businesses.) Capitalism itself has survived prolonged depressions—the Great One of 1929 lasted a decade. Periods of stagnation have been even more common—witness Japan throughout the 1990s. To be sure, capitalism incentivizes growth, but it is not at all clear that thwarted growth leads to death. We can point to lots of counterexamples. 2 See his critique of Herman Daly, “the best of the mainstream ecological economists,” pp. 186-7. 3 In fairness to Kovel (2007) it should be noted that he rarely criticizes proﬁt-seeking per se, although he does applaud the Bruderhof for “a belief-system which allows them to renounce proﬁtability” (p. 211). His book strongly suggests the identiﬁcation of proﬁt-seeking with capitalism. Whether he would be open to a competitive, proﬁt-seeking non-capitalist economy such as I will advocate is unclear.

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It is not true either that the various ecological crises we are facing will bring about “the end of the world.”4 Consider the recently-released Stern Review, commissioned by the British government, which has been applauded by environmentalists for its strong recommendation that urgent action be taken. If nothing is done, we risk “major disruption to economic and social activity, later in this century and the next, on a scale similar to those associated with the great wars and economic depression of the ﬁrst half of the 20th century.”5 This is serious. Some sixty million people died in World War Two. The Stern Review estimates as many as two hundred million people could be permanently displaced by rising sea level and drought. But this is not “the end of the world.” Even if the eﬀects are far worse, resulting in billions of deaths, there would still be lots of us left. If three-quarters of the present population perished, that would still leave us with 1.6 billion people—the population of the planet in 1900. I say this not to minimize the potentially horriﬁc impact of relentless environmental destruction, but to caution against exaggeration. We are not talking about thermonuclear war—which could have extinguished us as a species. (It still might.) And we shouldn’t lose sight of the fact that millions of people on the planet right now, caught up in savage civil wars or living beneath those US bombers currently devastating Iraq, are faced with conditions more terrible than anyone reading this chapter is likely to face in his or her lifetime due to environmental degradation.6 Nor will readers suﬀer more than most of the three billion people alive now who survive on less than $2/day. We may not be facing the end of the world—but still, Kovel has a point. He may have overstated the case, but from an ecological point of view there is something, at least prima facie, crazy about capitalism. An ecological worldview tends to emphasize harmony, sustainability, moderation—rather like that of the ancient Greeks, for whom a constant striving for more was regarded as a mark of an unbalanced, deranged soul. Yet every capitalist enterprise is motivated to grow, and to grow without limit. For reasons of greed and fear.

4 Kovel (2007) is aware that he is being somewhat hyperbolic here, but not, he would argue, by much. “As capital keeps growing, the crisis grows, too: civilization and much of nature is doomed. Indeed it is not unwarranted to ask whether this will prove to be the way of our extinction as a species.” (p. 159) 5 Sir Nicolas Stern. 2007. The Economics of Climate Change. Cambridge: Cambridge University Press.:ii. 6 During one ten-day period in January 2008, some 100,000 lbs. of explosives were dropped on a Baghdad neighborhood. For a vivid account, see Tom Engelhardt, “Bombs Away over Iraq,” January 29, 2008, at Tomdispatch.com. Engelhardt points out that was the same quantity of explosives dropped by the German airforce on the ancient Basque city of Guernica in 1937, provoking an international outcry that included Pablo Picasso’s famous depiction.

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There is no mystery here. We all know how it works. Under conditions of constant or increasing returns to scale, expanding production brings increased proﬁts, which accrue to the ﬁrm’s owners. For almost everyone, more money is better than less money—even if one wants to give much of it away to the charity of one’s choice. It is an idiosyncratic businessman indeed, who does not want his business to grow. (Classical political economists used to invoke the law of diminishing returns to argue that successful businesses would be self-limiting in size—but no one makes that argument anymore.) The fear factor is at least as important. Failure to take the steps that will, if successful, “grow the company,” puts the company at risk. The big ﬁsh tend to eat the little ﬁsh. Capitalist market competition is cut-throat competition. (It is worth noting that not all competition is like this. Athletic competition typically is not. Losers don’t lose everything. Losing teams aren’t driven from the league. Indeed, steps are usually taken in professional sports, e.g., giving the teams with the worst records priority in drafting new players, to prevent the strong teams from getting ever stronger at the expense of the weaker teams. No such corrective mechanisms exist in capitalist economies—apart from rather feeble anti-trust laws.) There is a deeper structural issue that we must consider. It may well be the case that all capitalist ﬁrms want to grow—but wanting doesn’t make it so. Obviously many ﬁrms do not get what they want. Many ﬁrms fail. The root problem with capitalism is not that individual ﬁrms are incentivized to grow, but that the economy as a whole must grow—not to survive, but to remain healthy. As we have noted, there have been signiﬁcant periods in which capitalist economies have failed to grow but did not collapse. However, none of those periods—recession, stagnation, depression—can be regarded as happy times. Why should it be the case that a capitalist economy must grow to be healthy? The answer to this question is rather peculiar. A capitalist economy must grow to be healthy because capitalism relies on private investors for its investment funds. These investors are free to invest or not as they see ﬁt. (It is, after all, their money.) But this makes economic health dependent on “investor conﬁdence,” dependent on, as Keynes put it, “the animal spirits” of the investors. If investors do not foresee a healthy return on their investments, commensurate with the risks they are taking, then they won’t invest. Or they’ll invest abroad. But if investors don’t invest domestically, their pessimism becomes a selffulﬁlling prophesy. Lack of investment translates into layoﬀs, ﬁrst in the construction industry, machine-tools industries and the countless others dependent on orders for capital goods, and then, since layoﬀs lead to a decline in consumer-goods consumption, in other sectors as well. Aggregate demand drops further; the economy slides toward recession.

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As we all know, a slumping economy is not just bad for capitalist investors; it is bad for almost everyone. Unemployment rises, which adds stress to almost all workers, even those who retain their jobs. Government revenues fall, adding pressure to cut both government employment and government services. Indeed, public funds for environmental programs are jeopardized—as mainstream economists are quick to point out, impatient as they are with “antigrowth” ecologists. Growth is necessary, they insist, to give us the means to clean up the messes we have made. (It might be noted that in some ways recessions are good for the environment. People consume less, waste less. CO2 emissions dropped drastically in the US during the Great Depression and even more dramatically in Russia during its post-Communist collapse. But no political movement anywhere is going to come to power promising to confront the environmental crisis by engineering a depression—nor can a party be expected to remain in power if its policies provoke one.) So we see: a healthy capitalism requires a steady expansion of consumption. If sales decline, investors lose conﬁdence—as well they should. To be sure, some proﬁtable investments can be made in a slumping economy (deﬁned in the business press—correctly—as a declining rate of growth, or worse, a negative rate of growth), but far fewer investors are willing to play a zero-sum or negative-sum game than will play the positive-sum game that investors play in an expanding economy. (Environmentalists and others often point out that GDP growth is not an accurate indicator of human happiness or human development—which is certainly true—but these critics rarely, if ever, point out that GDP growth is precisely what is important to investors, who must, at all costs, be kept happy.)7 For a capitalist economy to remain healthy, sales must be kept up. Which means that a healthy capitalism requires what would doubtless strike a visitor from another planet (or from a pre-capitalist society) as exceedingly strange— a massive, privately-ﬁnanced eﬀort to persuade people to consume what they might otherwise ﬁnd unnecessary. Advertising is but the tip of the iceberg. John Kenneth Galbraith’s account, articulated more than forty years ago, remains apt:

7 For a recent survey of alternative indices—Human Development Index, Index of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator (GPI), Index of Social Health, and the Happy Planet Index)—and their relationship to GDP, see James Gustave Speth, The Bridge at the Edge of the World: Capitalism, the Environment, and Crossing from Crisis to Sustainability (Yale University Press, 2008), pp. 138-142. I’m pleased to report that Speth, Dean of Yale University’s School of Forestry and Environmental Studies, who served at Jimmy Carter’s White House environmental advisor and as head of the United Nation’s largest agency on international development, has come to essentially the same conclusion this chapter purports to demonstrate.

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david schweickart The control or management of demand is, in fact, a vast and rapidly growing industry in itself. It embraces a huge network of communications, a great array of merchandising and selling organizations, nearly the entire advertising industry, numerous ancillary research, training and other related services and much more. In everyday parlance this great machine, and the demanding and varied talents that it employs, are said to be engaged in selling goods. In less ambiguous language, it means that it is engaged in the management of those who buy goods (Galbraith 1967:200).

Government also has a key role to play. Governments must be prepared to go into debt to stimulate the economy when an economy slows down. “Fiscal responsibility” goes out the window, no matter how conservative the government, when people stop buying—as well it should. Those recent checks sent to all US taxpayers, courtesy of President Bush and a Democratic congress, aimed at containing the gathering ﬁnancial storm triggered by the subprime mortgage debacle, should remind us all how vitally a capitalist economy depends on what so many environmentalists and other social critics deride as “consumerism.” The problem is not simply “growth.” A healthy capitalism depends, not simply on ever-increasing consumption, but on a steady rate of growth. When the growth rate declines, investors pull back. But a steady rate of growth, so essential to healthy capitalism, implies exponential growth, and exponential growth, to anyone with mathematical sensibilities, is deeply disturbing. If an economy grows 3 percent/year—the U. S. average growth rate during the twentieth century—consumption doubles every twenty-four years—which translates into a 16-fold increase in consumption over the course of a century. (Of course we did not have steady growth during the twentieth century. On the contrary, we had many ups and downs, among them a Great Depression—and fascism, World War II, etc. Still, the average rate of growth for the century was 3 percent/year, giving us a 16-fold increase in inﬂation-adjusted GDP.) Needless to say, exponential growth tends to stress the environment. Even a much lower growth rate, say the 1.2 percent/year that the Stern Report assumes, entails a doubling of global consumption every sixty years. As Kenneth Boulding (himself an economist) has noted, “Only a madman or an economist thinks exponential growth can go on forever in a ﬁnite world.”8 We don’t have to imagine “forever.” Simply note that if our economy were to continue to grow at 3 percent/year throughout the twenty-ﬁrst century, we will be consuming sixteen times more in 2100 than we are now. Not sixteen percent more. Sixteen times more.

8 Quoted in Mancer Olsen and Hans-Martin Landsberg (eds). The No-Growth Society. New York: Norton. 1973: 97.

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Objection There is an important rejoinder to be made to this argument. Growth need not add to resource depletion or pollution. GDP is a quantitative ﬁgure that doesn’t pretend to correlate with general well-being. An oil spill that puts lots of people to work cleaning it up enhances GDP; when harried couples eat out more often, no longer having time to cook at home, GDP goes up. By the same logic, if unemployed people are put to work planting trees, GDP goes up. If there is a shift from capital-intensive factory farming to labor-intensive organic farming in such a way that the market value of the latter exceeds the market value of the former, GDP goes up. Consider the eﬀect of a green tax—say raising the gasoline tax from its current forty cents to $4/gallon (a third of what is needed to capture the externalities involved, according to Lester Brown’s (2008) latest calculation (p. 268))— bringing the pump price up to $7/gallon. In and of itself, this need not eﬀect overall spending (i.e. GDP) at all. People would presumably drive less—which is the point of the tax. Their overall expenditures on gasoline likely would go up, which means they could consume less of other things. But their total expenditures would not be aﬀected. Of course their cutback in consumption elsewhere would trigger layoﬀs in those industries, and hence a decrease in overall demand. But the government could counter that eﬀect by using the gasolinetax revenues in such a way as to compensate. If they are used to employ people engage in environmentally constructive work (either directly or by awarding contracts to private businesses engaged in environment-enhancing endeavors), then overall demand will not be impaired, and society will be better oﬀ. Consider a variation on this model—the one suggested by Hawken and the Lovins’ and heartily endorsed by (conservative) economist, Gregory Mankiw (head of George W. Bush’s Council of Economic Advisors for a number of years). Instead of the government involving itself directly in employing people to restore the environment, suppose it just cuts income taxes instead, by precisely the amount that it would garner from the gasoline tax. Here’s Mankiw’s assessment: Cutting income taxes while increasing gasoline taxes would lead to more rapid economic growth, less traﬃc congestion, safer roads and reduced risk of global warming—all without jeopardizing long-term ﬁscal solvency. This may be the closest thing to a free lunch that economics has to oﬀer (Quoted by Brown (2008), p. 270).

Reply to the Objection How should we evaluate this rejoinder? The reader will recall that in evaluating the Hawken-Lovins’ case for “natural capitalism,” I pointed out that they

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do not confront the “grow or die” argument directly, but that they must believe that either a) capitalism is compatible with a steady-state, non-growing economy or b) an economy can grow indeﬁnitely without consuming more energy and natural resources than it can sustainably reproduce. My argument thus far has been directed at a). The rejoinder claims b). Notice the assumption tucked away in the Mankiw endorsement of a heavy gasoline tax paired with an income tax cut. If we are to have our cake and eat it too, it must be assumed that the negative eﬀect on the environment of the “more rapid economic growth” he asserts will be forthcoming will be more than oﬀset by the decrease in carbon emissions resulting in the gasoline tax. Is he wrong? I can’t say that he is. But it should be noted that we are no longer talking economic science anymore. We are talking about faith—the economists’ faith that exponential growth can go on forever in a ﬁnite world. Is this a rational faith? One is reminded of Pascal’s Wager. Blaise Pascal (1623-1662) was a mathematician-philosopher deeply concerned with the question of God’s existence. His argument is simple. Does God exist? Maybe yes, maybe no. What is the rational response to this hugely important, highly contentious question? Pascal’s answer: do what any good mathematician would do—calculate expected gains and losses. Consider: If you bet yes, that God exists, and are right, and live your life accordingly, the rewards are inﬁnite—an eternity in heaven. If you bet yes, and are wrong—how much will you lose? In fact very little. The time you will have spent going to church or in prayer. Feelings of guilt from time to time. The gains you might have obtained from taking advantage of certain situations in ways that an existing God might disapprove. But if you bet no and are wrong? An eternity of hellﬁre. An open and shut case, no: the possibility of inﬁnite happiness set against a life that may or may not prove to be a bit happier now and inﬁnite horror afterwards. Can exponential growth go on forever (or at least for a long, long time)? If we decide to stick with capitalism, betting that it can—well, here’s the Pascalian kicker: we can be almost certain it won’t make us happier—at least not those of us who are doing most of the consuming and polluting right now. There is a large literature on happiness. We know that increased consumption, once we get beyond a certain point, does not translate into increased happiness. Bill McKibben cites some of the evidence: Compared to 1950, the average American family now owns twice as many cars, uses 21 times as much plastic, and travels 25 times farther by air. Gross Domestic Product has tripled since 1950 in the US. We obviously eat more calories. And yet—the satisfaction meter seems not to have budged. More Americans say their marriages are unhappy, their jobs are hideous, and they don’t like the place where they live. The number who, all things considered, say they are “very happy” with their lives has slid

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steadily over that period. . . . In the United Kingdom per capita gross domestic product grew 66 per cent between 1973 and 2001, and yet people’s satisfaction with their lives changed not a whit. Nor did it budge in Japan, despite a ﬁvefold increase in income in the postwar years.9

Thus, if we put our trust in a regulated capitalism, and it delivers the wise governance and technological innovation that keep the economy growing steadily without inducing environmental havoc, the expected gain is slight at best. But if we place our faith in capitalism and are wrong? Not hellﬁre or the end of the world—but massive planetary misery. This Pascalian argument has been a bit too quick. There are some implicit assumptions that need to be examined. Growth may not make those of us in the “developed” world any happier, but what about the bottom half of humanity? What about the 1.2 billion who live on less than a dollar a day? Would not steady growth make them happier? Certainly growth of a certain kind would increase well-being in large parts of the planet—increased access to healthy food, clean water, eﬀective waste disposal, health care, education, and to employment. But do we have any good reason to think that capitalist growth will provide these things? Certainly the historical record suggests the contrary. Angus Maddison’s (1995) careful studies show that the gap between rich countries and poor countries has steadily widened from 3 to 1 in 1820 to 70 to 1 in 1990, and still more since then. Immanuel Wallerstein (1995) goes so far as to argue that the basic well-being of the lower half of humanity is signiﬁcantly worse now than it was ﬁve hundred years ago. (To be sure people live longer now and there are many more of us, but compare the life of a median-income person today, living in a desolate, crime-ridden, drug-infested slum in one of the Third World’s mega-cities with a peasant living in an intact community ﬁve centuries ago (p. 115 ﬀ ).) One can still hope that things will change, but the evidence in support of such hope is meager. Indeed, capitalism’s desperate drive to grow is deeply implicated in the persistence of global poverty. The argument is straightforward. As Marx and Keynes have emphasized, capitalist stability is constantly threatened by the specter of overproduction (deﬁcient eﬀective demand), leading to economic crises unlike those of any preceding epoch, deriving not from scarcity caused by war, pestilence or bad weather, but from the expansionary dynamic of the system. Too much leads to too little. If more goods are produced than people of the inclination or money to buy, prices fall, workers are laid oﬀ, demand slumps further—recession. 9 Bill McKibben, “Happiness Is . . .” The Ecologist. January 2, 2007: 36. See also the Speth reference cited in note 12.

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Hence capitalist economies must continually seek new markets, at home and also abroad. But poor-country domestic industry and agriculture cannot compete with their rich-country counter parts, and there are no forces intrinsic to capitalism that insure that people displaced by more productive technology will ﬁnd employment elsewhere. So poverty increases. (The phenomenon of free trade devastating poor-country economies is as old as capitalism itself. Marx (1967) quotes from the Governor-General’s report of 1834-35 on the eﬀects of British textile imports on domestic cloth production in their crownjewel colony: “The misery hardly ﬁnds parallel in the history of commerce. The bones of the cotton weavers are bleaching the plains of India.” (p. 406)) Of course there have been many, many schemes proposed to address the stark fact that globalizing capitalism, 160 years after Marx and Engels issued their Manifesto, has left eighty percent or so of the world’s population deeply mired in poverty, some 47 percent subsisting on less that $2/day (purchasing power parity). None of these have put much of a dent in the global disparity, nor are they likely too. I have argued this point in more detail elsewhere.10 Let me simply note here that to counter that Pascalian argument, one must assume that the capitalist growth one bets on must not only be sustainable but must trickle down substantially to the bottom segments of humanity. Given the historical record to date, and the structural features of capitalism causally implicated in this record, a bet on capitalism would be, surely, a very long shot.

An Alternative? There is an even deeper assumption built into my Pascalian argument. Pascal’s wager is not just about belief. It is about restructuring one’s life. My Pascalian wager is also about restructuring. But if there is no viable alternative to capitalism, then what? We might as well assume that growth can go on forever in a ﬁnite world. A belief that allows for hope is surely better than one that counsels despair. Can we conceive of a economic alternative to capitalism that is a) economically viable, b) not dependent on growth for its stability, yet c) conducive to the entrepreneurial innovation we will need to get though the current crisis? It will probably come as a surprise to many readers, but the answer is clearly yes. In my view theoretical analysis, well supported by empirical evidence, strongly supports the thesis that a truly democratic economy could satisfy the above criteria. Let me sketch the basic institutions of a democratic economy, one 10

See my “Global Poverty: Alternative Perspectives on What We Should Do—and Why.” Journal of Social Philosophy (Winter 2008): 471-91.

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that retains competitive markets, but extends democracy to both the workplace and to the ﬁnancial system. (Needless to say, I will have to paint with a broad brush. In practice a democratic economy would be more complex than what I present here.)11

Democratized Work Imagine an economy as technologically developed as our own in which each workplace is run as a democratically. Suppose businesses are regarded as communities, not legal entities that can be bought and sold. Management is appointed by a worker council elected by the workforce, one-person, onevote—just as, in some localities today, city managers are appointed by an elected city council. These enterprises compete with one another in the market. Such enterprises can be expected to be eﬃcient. Workers do not receive wages but a speciﬁed share of the ﬁrm’s proﬁt. Hence everyone has a direct, tangible ﬁnancial stake in the company’s performing well. Everyone is motivated, not only to work eﬃciently, but to monitor co-workers—thus reducing the need for external supervision. It is not surprising, then, that empirical studies that compare democratic ﬁrms to comparable capitalist ﬁrms consistently ﬁnd the former performing at least as well as the latter, and often better.12 But here is something interesting. Although democratic and capitalist ﬁrms are both motivated to produce eﬃciently and to satisfy consumer desires, they are strikingly diﬀerent in their orientation toward growth. Under conditions of constant returns to scale, capitalist ﬁrms expand, whereas democratic ﬁrms do not. For capitalist ﬁrms aim at maximizing total proﬁts, whereas democratic ﬁrms aim (roughly) at maximizing proﬁt-per-worker. That is to say, if the owners of a capitalist ﬁrm can make $X under present conditions, they can make $2X by doubling the size of their operation. But if a democratic ﬁrm doubles its size, it doubles its workforce, leaving its per-capita income unchanged. This is an enormously important structural diﬀerence, with implications that go well beyond environmental concerns. Let us focus on those that bear on the question at hand. One implication: democratic competition is less intense than capitalist competition. Firms compete for market share, but not for market dominance. 11 For more details and a fuller presentation of the arguments to be set out in this section, see my After Capitalism. Lanham, MD: Rowman and Littleﬁeld. 2002. A more extensive treatment of essentially the same model, oriented more toward professional philosophers and economists, can be found in my Against Capitalism. Cambridge: Cambridge University Press. 1993. 12 See my After Capitalism, Chapter Three for references.

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This means that democratic ﬁrms—when competing with other democratic ﬁrms—do not face the same “grow or die” imperative that capitalist ﬁrms face. Neither greed nor fear works the same way. However greedy workers may be, they cannot increase their incomes by expanding, unless economies of scale are signiﬁcant. At the same time, they do not have to worry much about being driven out of business by a more innovative or eﬃcient rival. They have more time to adjust, to copy whatever successful innovation their rival has introduced. (Non-proﬁt institutions are similar to democratic ﬁrms in this regard. Successful universities, for example, do not keep expanding. They compete for students, but they do not drive their competitors out of business. When educational innovations occur, they are not used to dominate their competitors. Innovations tend to spread, administrators coming under pressure to adopt “best practices.”) A second implication: When innovation brings about a productivity gain, workers are free to choose leisure over increased consumption. This option is virtually non-existent in a capitalist ﬁrm. Owners do not increase their proﬁts by allowing their workforce to work less. To the contrary, increases in productivity often lead to workers working more or harder than before—since productivity-enhancing innovations often put their jobs at risk. As economist Juliet Schor (1992) has documented, per capita consumption doubled in the United States since post-World War Two, while the number of hours of work—for those who had work—went up, not down. Suppose, sixty years ago we in the US, happy with our standard of living (which was the envy of the world) had opted to take our productivity gains in leisure instead increased consumption: We could now produce our 1948 standard of living (measured in terms of marketed goods and services) in less than half the time it took that year. We actually could have chosen the four-hour day. Or a working year of six months. Or, every worker in the United States could now be taking every other year oﬀ from work—with pay [emphasis hers] (p. 2)

We should remember that 1948 was not the Dark Ages. Families had washing machines, refrigerators, cars (not as many as today, but there were more buses and trams), telephones, record players, TVs (admittedly black and white), typewriters. There were lots of movie theaters, bowling alleys, community swimming pools. True, people didn’t have cell phones or CDs or PCs or DVDs, but life was hardly uncomfortable. (I’m thinking here of middle-class life. Life for poor people was miserable—as it still is.) If excess consumption (consumerism) is a serious environmental threat, and if market competition is essential to an eﬃciently functioning economy, then

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it is vital to have an system that oﬀers non-consumption incentives to its businesses. Increased leisure is a readily available option in a democratic ﬁrm. But not in a capitalist ﬁrm. (As Marx so vividly documented in Capital, the struggle over the length of the working day has been on-going from the inception of capitalism. The struggle for shorter hours, more vacation time, more leisure has always been resisted by capital—and for good reason. All else equal, ﬁrms do not make more money by giving workers more time oﬀ.) It follows that, unlike a capitalist economy, an economy of democratic ﬁrms can be innovative, but non-growing (in terms of consumption). Workers may well be content to live on steady incomes, choosing to take the beneﬁts of innovation as leisure rather than increased consumption. Of course this choice is not guaranteed by the democratic structure. An environmental consciousness—or at least a consciousness as to what actually makes people happy— matters. But such a consciousness does not conﬂict with the structural imperatives of a democratic economy, as it does with the imperatives of a healthy capitalism. The reader will notice that the alternative to capitalism being sketched here might seem to be more in line with the “natural capitalism” of Hawken-Lovins’ than with the ecosocialism of Kovel. As indicated above, Kovel disagrees with Hawken, Lovins and Lovins as to the utility of the proﬁt motive. The “Economic Democracy” that I am sketching here embraces market competition. However, it should be noted that “proﬁt” under Economic Democracy is conceptually distinct from capitalist proﬁt. In both cases the desire for proﬁt motivates production. In both cases, proﬁt is deﬁned as the diﬀerence between sales revenue and costs. But in a capitalist ﬁrm, labor is a cost; in a democratic ﬁrm, it is not. In a democratic ﬁrm proﬁt is the diﬀerence between sales revenues and non-labor costs. Proﬁt is the residual that goes to the workers as income. This diﬀerence accounts for fundamental motivational diﬀerences. Workers are incentivized to use their non-labor materials eﬃciently and to marshal their work-time eﬀectively, but they have no interest in relentless expansion, no interest in replacing skilled labor by unskilled, no interest in driving down the “cost” of labor. Nor do they have the slightest interest in moving their facilities abroad, where labor costs are lower and environmental regulations less strict.

Democratized Investment I have said that Economic Democracy democratizes both the workplace and the ﬁnancial markets. Thus far we have considered the democratization of work. Enterprises are regarded as communities, not entities to be bought or sold. Let us turn our attention now to ﬁnance.

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Capitalist ﬁnancial institutions, for all their ever-increasing, mind-boggling complexity, exist for one fundamental purpose: to mobilize the private savings of individuals and make them available to individuals wanting to start new businesses, or to existing enterprises wanting to expand production, upgrade their technologies, introduce new products, etc. Suppose we decide not to rely on the private savings of private individuals for investment. Suppose we don’t want to be hostage to the “animal spirits” of investors. A substitute mechanism for generating investment capital is readily available: taxation. For technical reasons, the most appropriate tax is a ﬂat-rate tax on the value of each enterprise’s capital assets. (This tax is a surrogate interest rate—the charge enterprises and entrepreneurs pay for their use of capital. It can also be thought of as a “leasing fee,” the charge workers in a democratic enterprise must pay for the capital assets they employ.) These tax revenues will fund the bulk of the new investment our society decides to undertake, both private and public. How will they be allocated? There are various possibilities. The most transparent, and in many ways the fairest is to allocate these revenues to regions and communities on a per capita basis. That is to say, if region A has X percent of the nation’s population, it gets X percent of the investment funds. These funds are then distributed to local and regional investment banks—public banks—charged with loaning them out to individuals and enterprises needing funds to start up, upgrade or expand business operations. Loan applications are judged in terms of projected proﬁtability, employment creation, and, if the community so desires, environment enhancement. Bank managers are public oﬃcials, charged with allocating eﬀectively the funds entrusted to them. Since all records are open to public inspection, the task of monitoring their performance should not be unduly diﬃcult. This democratization of investment has two consequences of importance to environmental sustainability. First, and most importantly, economic stability and economic health, regional as well as national, no longer depend on economic growth, since investment no longer depends on the “animal spirits” of investors. Every year funds ﬂow into each region. If there is insuﬃcient demand for these funds, they can be rebated to the taxpayers, thus keeping up eﬀective demand. If the problem persists, the capital-assets tax rate can be cut. There is no longer any danger of investors deciding not to invest or to move their funds abroad. The investment fund is tax-generated. All of it stays incountry. The second important consequence: every year regions receive funds that can be used as they see ﬁt, so long as they involve capital expenditure. This means that every year funds are available that can be used for environmental

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experimentation—for the construction of local mass transit or bike paths or community gardens, whatever. Communities can learn from the experiences of other communities what works and what doesn’t. Funds are available for “public entrepreneurial projects” that might otherwise be diﬃcult to come by. With democratic ﬁnance, regions do not compete for capital as they do under capitalism. Capital ﬂows in each year as a matter of right. Regions do not have to entice businesses to their areas by oﬀering subsidies, tax holidays, lax environmental regulations, etc., as they commonly do under capitalism. The “natural capitalists” might object at this point. They are eager to harness the entrepreneurial spirit to ecological ends. They like to point out the many opportunities that currently exist to make good by doing good—more energy eﬃcient manufacturing, green buildings, leasing rather than selling (to promote recycling), eﬃcient water management, organic agriculture—the list goes on. They may be right—although it is striking, when one surveys the concrete proposals for dealing with environmental issues being put forth in the ﬂood of books now on the market, how large a role almost all assign to local and national governments. No serious thinker thinks laissez-faire will save us.13 Be that as it may, a good case can be made for maintaining an entrepreneurial capitalist sector in a democratic economy. We need entrepreneurs (capitalist or socialist) to respond to the environment-enhancing incentives put in place. Workplaces in the capitalist sector will not (by deﬁnition) be democratic, but given the fact that these capitalist enterprises must compete with democratic enterprises for qualiﬁed workers, abuses are unlikely. Indeed, most capitalist ﬁrms will likely set up some participatory structures to keep morale high (though they are not required to do so.) Where would private entrepreneurs get their capital? From private sources, if they want, but also from the public banks. There is no reason to restrict the loans these banks make to democratic ﬁrms only. However, to prevent an entrepreneurial ﬁrm from becoming a permanent, eternal capitalist ﬁrm, paying dividends forever to passive shareholders, a simple provision can be enacted. To set up a capitalist ﬁrm, (i.e., one in which workers who do not elect the ﬁrms management), a ﬁrm must obtain a license, which is good for a ﬁnite period of time, say twenty or thirty years. When the license expires, the enterprise must be sold to the state and turned over to its workers to be run democratically. (Its originators may sell it earlier, to the state or to private individuals, 13 See for example, Paul Hawken, The Ecology of Commerce: A Declaration of Sustainability. Harper Collins 1993, 2005), Karlson Hargroves and Michael Smith, eds., The Natural Advantage of Nations: Business Opportunities, Innovation and Governance in the 21st Century. Earthscan 2006, Stuart Hart, Capitalism at the Crossroads: Aligning Business, Earth and Humanity. Wharton School Publishing 2007 and well as Lester Brown, Plan B 3.0.

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but it remains a private ﬁrm only for the number of years speciﬁed on the initial license.) I have argued at length in both Against Capitalism and After Capitalism that such an “economic democracy” would work, and would be more ecologically sustainable than even best-case forms of capitalism. It would also be far more egalitarian than capitalism and far more democratic. It could be a full-employment economy with the government serving as an employer-of-last-resort. It could (therefore) be a society without domestic poverty.14 There is one ﬁnal feature that should be explicated. The economic democracy I advocate practices “socialist protectionism.” It practices “free trade” with countries of comparable levels of development and comparable environmental regulations, but it blocks both wage and environmental competition by imposing tariﬀs on goods coming from countries with low wages and or weak environmental standards, so that the price to consumers of an imported commodity is what it would be if the exporting country paid comparable wages and had comparable environmental regulations. (Economic Democracy embraces competition based on eﬃciency and consumer satisfaction, but not “race-to-thebottom” competition.) The tariﬀ is the “protectionist” part of socialist protectionism. The “socialist” part is the rebating of the collected tariﬀs to the countries that produced the items upon which the tariﬀs were leveled. These funds are targeted to governmental or non-governmental agencies that are working to improve labor and environmental conditions in that country. One further note: Our Economic Democracy relinquishes all claims to “intellectual property rights” with regard to poor countries, and with regard to all publicly-funded environmental research. Since workers do not face the threat of low-wage competition from poor countries, and since the per-capita beneﬁts from squeezing poor people are slight, they can be expected to generous with their intellectual “property.”

Conclusion I have argued that Kovel, although excessively apocalyptic and too dismissive of market competition, is essentially right. A sustainable capitalism is an oxy14 Genuine full employment is impossible under capitalism, since unemployment is the essential disciplinary stick to keep the workforce in line. Democratic ﬁrms do not need this stick, since the conﬂict between the interests of owners and the interests of workers that lies at the heart of every capitalist enterprise—more work for less money/less work for more money—does not exist in a democratic ﬁrm. Domestic poverty is also essential to a healthy capitalism, since unemployment, to be disciplinarily eﬀective, must be degrading.

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moron—if “sustainable” means more than the survival of the human species, with perhaps a relatively small global middle class continuing to live in relative comfort and aﬄuence behind whatever walls are necessary to keep out the desperate multitude. Our species cannot ﬂourish under capitalism. I have also argued that Hawken, the Lovins’s and other “natural capitalists,” while doing excellent work in proposing creative solutions to concrete problems, have not confronted two fundamental questions: Does a healthy capitalism require a steady rate of growth? Can exponential growth go on forever in a ﬁnite world? I have argued that the answer to the ﬁrst question is “yes,” but that it is foolish to the point of irrational to base one’s hope for the future on a positive answer to the latter. I am inclined to say that too many environmentalists aren’t “ecological” enough. An ecological consciousness entails an awareness of the interconnectedness of things. The fact of the matter is, the massive environmental problems we face are not unrelated to other social problems: national and global unemployment, national and global poverty, political dominance by an immensely wealthy capitalist class that undercuts genuinely democratic governance, an increasingly harried and increasingly insecure “middle class” that ﬁnds its opportunities for self-, family- and community-enhancing leisure time ever more restricted.)15 We need to recognize that institutional reforms are possible that address, simultaneously, all of these problems, including the environmental ones—and that these reforms must take us “beyond capitalism.” Of course I am not the only one who believes this. All the “watermelons” do (the derisive term the anti-environmental right applies to those who are “green on the outside, red on the inside.”) But so does at least one Nobel laureate in economics. Let me call your attention to a little noted, almost oﬀhanded, remark made by Amartya Sen in this 1999 treatise, Development as Freedom—a work based on, interestingly enough, a series of presentations given to the World Bank. The solutions to these problems—inequality (especially that of grinding poverty in a world of unprecedented prosperity) and of public goods (that is, goods people share together, such as the environment) will almost certainly call for institutions that take us beyond the capitalist market economy (Sen 1999:267).

I think we are in position now to see what those institutions might be.

15 Hawken and the Lovins’ are not guilty of this charge. Hawken, for example, in his most recent book, explicitly links the fate of the environmental movement with that of the social justice movement. Cf. Blessed Unrest: How the Largest Movement in the World Came into Being and Why No One Saw it Coming. Viking 2007.

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Coda My argument is not meant to imply that nothing can be done so long as global capitalism dominates our world, or that all our eﬀorts should be directed at delegitimizing this deeply destructive yet deeply-rooted system. Kovel is right that people can become “frozen in their tracks by the awesome implications of the insight” that capitalism must go. But as the proponents of Natural Capitalism make clear, there are many things that can be done right now—things which are good in and of themselves, things, the struggle for which help to develop further an environmental consciousness—fertile ground for the “watermelon consciousness” that must ultimately prevail if our species is to ﬂourish. My argument should make it clear, moreover, that neither “the market” nor “the corporation” nor “the entrepreneur” is the fundamental structural barrier to ecological and social sanity. A sensible socialism will be an “ecosocialism.” It will also be a market socialism. Corporations need not be abolished. They should be democratized. Entrepreneurs ought not be scorned. Entrepreneurial creativity—properly incentivized—has a vital role to play in getting us to a rational, sustainable, human social order. There are intelligent people on the Left who disagree with the conciliatory approach I seem to be taking here. Radical physicist-environmental researcher, Denis Rancourt (2007) insists that reformism avoids root causes, it does not challenge the relevant power structures, it entices us into collaboration, it seduces us into personal consumption responsibility as a substitute for eﬀective political action, it turns our attention toward learning about atmospheric chemistry rather than about the relevant major human-controlled planetary forces, and it gives us something we relate to (the weather) rather than sensitizing us to real world problems and all the exploited people outside of our class rather than creating meaningful occasions for empathy and solidarity.

I think this is wrong—although I feel the force of the argument. To be sure, one should be wary of environmental initiatives funded by major corporations (of which there are now many)—but being wary does not imply automatic rejection. It is here that having a concrete, viable alternative in mind is helpful in evaluating which initiatives to support and which to reject. We must keep in mind that should we get to Economic Democracy, our democratic corporations will face many of the same hard issues that rapacious capitalist corporations now face, e.g., how to produce eﬃciently, minimizing waste, how to shift from a reliance on oil, how to recycle eﬀectively, etc. The more we learn now, the better—including what does not work and why not.

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Will we get there? One can take heart from Paul Hawken’s latest book, mentioned above. The subtitle lifts the spirit: How the Largest Movement in the World Came into Being and Why No One Saw it Coming. Hawken argues that three great currents have begun to converge: organizations concerned with environmental issues, those with social justice and those with preserving indigenous cultures. His data base points to the existence at least a million organizations involving tens of millions of people. There exists enormous discontent with the existing world order, and the discontented are organizing. There is enormous distrust of corporations. There is a deep suspicion, especially now that global ﬁnancial markets are in turmoil, that the masters of the universe are not as smart as so many thought they were. Clearly the global economic order is in the midst of a legitimation crisis. Might this crisis open up some space for thinking the unthinkable, i.e., that there exists a viable, desirable, sustainable economic perhaps within reach? If so, where might this thinking take us?

Bibliography Brown, Lester. 2008. Plan B 3.0: Mobilizing to Save Civilization. New York: Norton. Galbraith, John Kenneth. 1967. The New Industrial State. Boston: Houghton-Miﬄin. Hargroves, Karlson and Michael Smith, eds. 2006. The Natural Advantage of Nations: Business Opportunities, Innovation and Governance in the 21st Century. Earthscan 2006. Hart, Stuart. 2007. Capitalism at the Crossroads: Aligning Business, Earth and Humanity Philadelphia: Wharton School Publishing. Hawken, Paul. 2005. The Ecology of Commerce: A Declaration of Sustainability. New York: Harper Collins. ——. 2007. Blessed Unrest: How the Largest Movement in the World Came into Being and Why No One Saw it Coming. New York: Viking. Hawken, Paul, Amory Lovins and L. Hunter Lovins. 1999. Natural Capitalism: Creating the Next Industrial Revolution. Boston: Little, Brown. Kovel, Joel. 2007. The Enemy of Nature: The End of Capitalism or the End of the World ? New York: Zed Books. Maddison, Angus. 1995. Monitoring the World Economy, 1820-1992. Paris: OECD. Marx, Karl. 1967. Capital v. 1. New York: International Publishers. McKibben, Bill. 2007. “Happiness Is . . . “ The Ecologist. January 2, 2007. Olsen, Mancer and Hans-Martin Landsberg (eds). 1973. The No-Growth Society. New York: Norton. Rancourt, Denis. 2007. “Global Warming: Truth or Dare?” Activistteacher.blogspot.com/2007/ 02/global_warming_truth_or_dare.html. Schor, Juliet. The Overworked American: The Unexpected Decline of Leisure. New York: Basic Books. Schweickart, David. 1993. Against Capitalism. Cambridge University Press. ——. 2002. After Capitalism. Lanham, MD: Rowman and Littleﬁeld. ——. 2008. “Global Poverty: Alternative Perspectives on What We Should Do—and Why.” Journal of Social Philosophy

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Sen, Amartya. 1999. Development as Freedom. New York: Anchor Books. Speth, James Gustave. 2008. The Bridge at the Edge of the World: Capitalism, the Environment, and Crossing from Crisis to Sustainability. New Haven: Yale University Press. Stern, Nicolas. 2007. The Economics of Climate Change. Cambridge: Cambridge University Press. Wallerstein, Immanuel. 1995. Historical Capitalism with Capitalist Civilization. London: Verso.

Index Abu Dhabi, 19, 36, 37 Accion Popular, 425 Afghanistan, 191, 198, 311 AIPAC, 199, 200, 201 Alex Callincos, 59 America Israel Public Aﬀairs Committee, 199 Amory Lovins, 8, 449 Antonio Negri, 147, 182 ARENA, 89, 90 Argentina, 2, 177, 245, 276, 286, 287, 441 Australia, 1, 5, 8, 54, 60, 64, 65, 67, 68, 69, 71, 72, 73, 74, 75, 110, 138, 438 Aymara, 238, 239, 246, 247, 248, 249, 250, 257 Aztec empire, 422, 427, 431 Ba’ath Party, 380 BANCOMEXT, 262, 264, 272, 273, 274 Bandung Conference, 442 Bangladesh, 356, 365 Beijing Consensus, 440 Benito Juarez, 428 Berne Convention, 290, 291, 294 Blackstone, 31, 41 Blaise Pascal, 458 Bob Hawke, 63 Bolivia, 2, 6, 8, 34, 237, 238, 239, 240, 241, 242, 243, 244, 245, 246, 247, 252, 253, 255, 256, 257, 258, 259 Bosnia-Herzegovina, 399, 400, 410, 412, 413, 420 BP, 35, 36, 40, 46, 47, 65, 252, 254 Branko Milanovic, 176 Brazil, 18, 22, 30, 35, 42, 48, 169, 242, 245, 277, 286, 287, 293, 365, 421, 432 Bretton Woods, 21

BRIC, 18 Business Council of Australia, 65, 73 CAFTA-DR, 80, 81, 82, 83, 84, 86, 88, 89, 92, 93, 94, 95, 96, 98 Canada, 3, 5, 8, 36, 37, 38, 48, 66, 79, 84, 96, 110, 191, 273, 283, 320, 322, 333, 335, 336, 337 Canadian Centres for Teaching Peace, 307 Caribbean Basin Initiative, 79, 80, 95 Carlyle, 31, 36 Charles Bettelheim, 38 Chevron, 35, 47, 197 China, 3, 5, 6, 7, 8, 15, 18, 19, 22, 23, 29, 30, 31, 33, 35, 37, 38, 39, 40, 41, 42, 43, 48, 49, 50, 75, 94, 95, 103, 105, 106, 108, 109, 112, 113, 114, 115, 116, 117, 121, 178, 188, 211, 224, 225, 227, 228, 230, 231, 269, 283, 289, 290, 292, 293, 294, 296, 297, 298, 324, 327, 355, 360, 362, 365, 385, 393, 397, 437, 440, 441, 442, 443, 444, 445, 446, 447 China National Petroleum Corporation, 37 Chinese Institute of Engineers, 115 Christopher Chase-Dunn, 57, 102 Citicorp, 69, 70, 71, 72, 73, 74, 75 Citigroup, 31, 36, 37, 45, 48, 49, 70 CNPC, 35, 37, 38, 48 Cochabamba, 246, 247, 248, 249, 251, 252, 257 Cold War, 154, 185, 198, 323, 347, 351, 352, 353, 376, 380, 386, 387, 393, 395 Colombia, 38, 96, 177, 276, 277, 284 Communist Manifesto, 16, 56 Confederacion Obrera de Bolivia, 246 Croatian, 399, 400, 404, 410, 411, 412, 413, 414, 415, 416, 417

472

index

Cyrillic, 399, 400, 410, 411, 412, 413, 414, 415, 416, 417 David Crawford, 66, 73 David Harvey, 15 David Schweickart, 3, 8, 442, 449 Davos, 364 Deutsche Bank, 31, 46, 47, 48, 49 Dick Cheney, 196, 200, 370 Dicken, 121, 125, 127, 131, 132, 133, 135, 144, 290 Dominican Republic, 79, 96, 245 Dubai, 19, 36 Economic Democracy, 442, 449, 463, 466, 468 Ecuador, 34, 38, 42, 425, 441 Edwin Truman, 30, 50 El Alto, 241, 246, 252 El Salvador, 3, 6, 8, 79, 80, 81, 82, 83, 84, 85, 86, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 284 EU, 15, 36, 47, 87, 110, 133, 199, 237, 263, 264, 267, 268, 269, 273, 274, 275, 277, 278, 279, 280, 283, 288, 320, 325, 327, 331, 335, 349, 353, 354, 357, 393, 394, 396 European Union, 96, 106, 110, 199, 237, 267, 268, 334, 349, 353 Evo Morales, 6, 237, 238, 245, 249, 251, 253, 254, 255 ExxonMobil, 35, 38, 40 Fareed Zakaria, 109, 116 FDI, 29, 39, 41, 42, 49, 87, 91, 92, 93, 266, 268, 279, 280 Federal Reserve, 24 Felipe Quispe, 248 FMLN, 96 Foreign Direct Investment, 39, 87, 93 France, 3, 36, 44, 45, 46, 49, 107, 160, 197, 199, 275, 331, 385, 387, 397 Fred Block, 26 Free Trade Agreement, 79, 84, 88, 267, 283, 285

GATT, 58, 292 Gazprom, 29, 35, 40, 44, 45, 46, 47, 48, 199 General Motors, 105, 231 George W. Bush, 192, 196, 200, 457 Germany, 2, 36, 46, 49, 60, 110, 136, 206, 208, 222, 273, 275, 327, 360, 385, 388, 390, 397 Giovanni Arrighi, 181, 441 globalization, 1, 5, 7, 8, 11, 12, 14, 15, 18, 21, 23, 26, 29, 30, 33, 39, 43, 49, 50, 51, 57, 59, 86, 102, 104, 105, 106, 109, 120, 121, 122, 124, 127, 129, 130, 131, 132, 133, 135, 144, 146, 153, 155, 157, 160, 171, 194, 247, 262, 263, 264, 265, 266, 267, 270, 272, 273, 276, 277, 278, 279, 280, 289, 304, 305, 306, 308, 309, 314, 319, 320, 321, 324, 325, 332, 333, 342, 345, 347, 348, 349, 350, 351, 352, 354, 359, 360, 361, 362, 363, 364, 365, 366, 367, 368, 372, 373, 382, 383, 441, 442 Goldman Sachs, 19, 30, 33, 41, 45, 49 Great Britain, 12, 21 Great Depression, 14, 142, 216, 455, 456 Gulf States, 5, 8, 19, 20, 29 Gulf War, 371, 376 Halliburton, 196, 200 Hausa-Fulani, 337, 338 Henry Paulson, 33 HSBC, 31, 36, 40, 41, 49, 69, 70, 71, 72, 73, 74, 75 Hugo Chavez, 23 Hugo Grotius, 12 Hunter Lovins, 8, 449 Igbo, 337, 338, 339 IMF, 11, 21, 22, 24, 32, 33, 42, 57, 58, 81, 87, 130, 237, 240, 241, 243, 362, 366, 440, 441 Immanuel Wallerstein, 6, 57, 153, 459 Inca Empire, 248, 422 India, 6, 7, 8, 12, 15, 18, 19, 22, 30, 31, 35, 36, 42, 48, 105, 107, 108, 109, 110,

index 111, 112, 114, 117, 120, 138, 169, 178, 188, 289, 290, 292, 293, 294, 296, 297, 298, 401, 405, 406, 417, 441, 442, 460 Indian Professional Association, 115 Indonesia, 31, 34, 41, 121, 356, 357 Intellectual Property Rights, 88, 289, 292 Inter-American Development Bank, 97, 263, 270 International Monetary Fund, 16, 21, 89, 237 Iran, 19, 34, 35, 42, 177, 185, 189, 191, 192, 197, 198, 199, 201, 225, 226, 363, 374, 375, 380, 381 Iraq, 6, 7, 8, 24, 25, 34, 137, 185, 191, 196, 197, 198, 201, 202, 219, 370, 371, 372, 374, 375, 376, 377, 378, 379, 380, 381, 382, 383, 389, 396, 453 Israel, 121, 138, 186, 196, 198, 199, 200, 201, 310, 401, 402 J.P. Morgan Chase, 68, 71 Japan, 15, 36, 102, 106, 107, 110, 116, 171, 174, 206, 220, 224, 230, 231, 283, 284, 288, 385, 387, 397, 438, 441, 452, 459 Jared Diamond, 438 Jelal Talabani, 380 Jerry Harris, 1, 5, 19, 25, 29, 32, 54, 56, 139 Jessica Drangel, 181 Joel Kovel, 449 John Foster, 25 John Gough, 65, 73 John Kenneth Galbraith, 455 Jordan, 355, 401 Jose Carlos Mariategui, 421, 426, 427 Justice and Development Party, 394 Karl Marx, See Marx Kazakhstan, 18, 37, 38, 177 Kees Van der Pijl, 56 Kemalism, 391, 392 Kenya, 356 Keynesianism, 14, 230 Kosovo, 255, 330, 408, 409, 410

473

Kurdish Regional Government, 370, 371, 379 Kurdistan Worker’s Party, 371 Kurds, 257, 371, 373, 374, 375, 379, 380, 381 Kuwait, 31, 33, 34, 36, 189, 193 Law of Popular Participation, 242 Lenin, 22, 57, 60, 205 Leslie Sklair, 104 Liberation Tigers, 320, 341 Malaysia, 32, 34, 35, 177, 356, 365 Manuel Castells, 155 maquiladoras, 267 Marx, 11, 12, 16, 17, 18, 55, 56, 57, 60, 123, 124, 125, 126, 127, 132, 134, 346, 438, 449, 451, 452, 459, 460, 463 Massachusetts Institute of Technology, 293, 296 Max Weber, 59 McDonalds, 210, 350 Merrill Lynch, 31, 41 Mexico, 3, 5, 6, 7, 8, 34, 42, 79, 84, 85, 88, 95, 96, 97, 103, 114, 117, 121, 177, 262, 263, 266, 267, 268, 269, 271, 272, 273, 274, 275, 276, 277, 278, 279, 280, 283, 284, 285, 286, 287, 421, 422, 424, 425, 426, 427, 428, 429, 430, 431, 432, 433 Michael Leitner, 310 Michael T. Klare, 188 Middle East, 36, 70, 169, 185, 186, 189, 191, 193, 195, 196, 199, 200, 201, 202, 231, 370, 375, 379, 385, 386, 389, 393, 394, 395, Morgan Stanley, 19, 30, 31, 32, 41, 45 Movimiento al Socialismo, 249 Multilateral Agreement on Investment, 97 Mustafa Kemal, 390, 391, 407 NAFTA, 79, 84, 87, 88, 95, 97, 266, 273, 277, 283, 331, 336, 337 NASSCOM, 111 Netherlands, 36, 38

474

index

New Deal, 216 NGOs, 101, 309, 311, 313, 364 Nigeria, 8, 34, 41, 42, 322, 333, 338, 339, 356 North American Free Trade Agreement, See Free Trade Agreement Octavio Paz, 421, 422, 430, 431 OPEC, 185, 192, 194, 195, 196, 451 Organization for Economic Cooperation and Development, 263, 298 Oscar Olivera, 252 Ottoman Empire, 375, 385, 388, 389, 390, 391, 392, 393, 394, 396, 407 Pakistan, 19, 311, 356, 405, 406, 412, 415, 417, 418 Palestine, 310, 389 Paris Convention, 290, 291 Patent and Trademark Oﬃce, 289 Paul Hawken, 8, 449, 465, 469 Paul Sweezy, 60 Paul Wolfowitz, 201 peace tourism, 7, 304, 308, 309, 311, 315 Peak Oil, 185, 186, 187, 188, 189, 190, 191, 192 Pentagon, 196, 198, 200, 201, 377 Persian Gulf, 201 Peru, 7, 8, 42, 312, 421, 422, 423, 424, 425, 426, 427, 432, 433 Peter Gowan, 25 Peterson Institute, 30, 38 Petrobrass, 254 PetroChina, 37, 38, 40 Pew Foundation, 357 Philip McMichael, 13 Philippines, 3, 113, 169, 355, 440 PKK, 371, 379, 380, 381 Plan Puebla Panama, 88, 96 Poland, 177, 358 Porﬁrio Diaz, 428 Puerto Rico, 402, 413, 415, 417, 418 Putin, 19, 43, 44, 45, 47, 48, 49, 198, 357 Quebecois, 326

Repsol, 243, 252, 254 Robert Brenner, 25, 161 Robert Cox, 129 Rosneft, 44, 45, 47, 48 Rudolf Hilferding, 6, 60, 205 Russia, 5, 8, 18, 19, 22, 29, 30, 33, 34, 35, 43, 44, 45, 46, 47, 48, 49, 50, 177, 197, 198, 231, 331, 357, 359, 385, 387, 389, 393, 397, 415, 455 Saddam Hussein, 189 Sanchez de Lozada, 240, 241, 242, 243, 244, 248, 251, 252, 255, 256 Saskia Sassen, 59, 106 Saudi Arabia, 37, 177, 193, 226, 230, 231 Scottish Labour Party, 334 Scottish National Party, 320, 333 Serbia, 330, 356, 399, 400, 409, 410, 411, 412, 413, 415 Serbs, 399, 400, 408, 409, 410, 411, 413, 414, 415, 416 Shanghai Cooperation Organization, 18 Shell, 35, 38, 46, 47 Silicon Valley, 111, 112, 113, 116 Slovenia, 320, 324, 358, 410 South Africa, 18, 22, 41, 42, 121, 140, 293, 356, 362 South Korea, 1, 6, 8, 108, 115, 116, 117, 171, 174, 177 Sovereign Wealth Funds, 30, 230 Soviet Union, 38, 122, 330, 388, 393 Sri Lanka, 8, 320, 322, 333, 340, 341 Sri Lanka Freedom Party, 340 Stern Review, 453 Sudan, 36, 37, 42, 363 Taiwan, 6, 8, 96, 103, 107, 108, 111, 112, 113, 114, 115, 116, 117, 121, 174, 177 Tamil Eelam, 319, 320, 322, 340, 341 Tata Industries, 110 TCC, 5, 6, 11, 12, 13, 14, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 29, 30, 32, 33, 36, 37, 38, 39, 41, 42, 43, 45, 46, 47, 48, 49, 50, 51, 54, 55, 56, 57, 58, 59, 62, 67, 68, 70, 71, 73, 74, 75, 79,

index 80, 86, 87, 92, 94, 96, 98, 102, 107, 110, 114, 116, 127, 128, 129, 132, 133, 137, 146, See Transnational Capitalist Class Theda Skocpol, 161 Third World, 30, 32, 35, 42, 43, 84, 107, 156, 174, 175, 176, 177, 187, 459 Tibet, 324, 354 TNS, 13, 57, 132, 133, 134 Total, 35, 45, 197, 199 Toyota, 106 Transnational Capitalist Class, 5, 6, 11, 12, 13, 15, 17, 18, 19, 20, 21, 26, 29, 32, 54, 57, 58, 59, 79, 80, 86, 98, 101, 102, 104, 105, 106, 110, 114, 117, 121, 122, 123, 127, 128, 129, 130, 131, 132, 364 transnational corporation, 130, 132 transnational state, 14, 15, 16, 29, 122, 134 TRIPs, 292, 293 Turkey, 2, 7, 8, 103, 121, 169, 177, 225, 356, 370, 371, 372, 374, 375, 376, 377, 378, 379, 380, 381, 382, 384, 385, 386, 387, 388, 389, 390, 391, 392, 393, 394, 395, 396, 397, 406, 407, 409, 415, 417, 418 UAE, 33, 36, 37 UBS, 31 UNCTAD, 104 United Arab Emirates, 31, 36 United Nations, 34, 88, 104, 154, 292, 352, 361, 377 United States, 3, 5, 6, 8, 12, 15, 17, 20, 21, 22, 24, 25, 69, 83, 98, 105, 106, 107, 108, 109, 110, 111, 112, 113, 115, 116, 117, 122, 140, 160, 185, 187, 190, 193, 199, 202, 206, 213, 216, 223, 224, 227, 289, 299, 312, 336, 357, 359, 360, 362, 367, 385, 441, 462 USPTO, 289, 292

475

Venezuela, 3, 23, 34, 35, 38, 42, 177, 191, 197, 245, 284, 441 Victor Raul Haya, 425 Wal-Mart, 6, 105, 205, 206, 207, 208, 214, 217, 218, 219, 221, 223, 225, 228, 229, 230, 232 Washington Consensus, 174, 237, 363, 365, 440 William Robinson, 5, 32 WIPO, 289, 290, 291, 292, 294, 298, 300 World Bank, 33, 41, 42, 44, 48, 81, 89, 130, 176, 225, 237, 362, 366, 376, 377, 440, 467 World Economic Forum, 82, 364 World Intellectual Property Organization, 289, 290, 291, 292 World Trade Organization, 16, 21, 80, 199, 285, 289, 292 World Values Survey, 345, 348, 355 World War I, 374, 376, 388 World War II, 14, 213, 225, 325, 388, 456 world-systems analysis, 153, 154, 156, 157, 166, 170, 171, 175, 178, 180 WorldWatch Institute, 446 WTO, 21, 57, 58, 80, 81, 87, 88, 89, 95, 97, 110, 133, 199, 292, 293, 296, 298 WWII, 347, 357, 359 Yoruba, 337, 338, 339 Yugoslavia, 7, 320, 324, 399, 400, 408, 409, 410, 411, 413, 416, 417 Yukos, 44, 45, 46 Zimbabwe, 356, 363 Zionist, 199, 200, 402