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 .....................................................................

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

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

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

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

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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

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

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

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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

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262 289

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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

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

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

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

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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


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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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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

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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

globalization today: at the borders of class and state theory

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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.

statist globalization in china, russia and the gulf states

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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


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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.

australia has a transnational capitalist class?

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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.


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


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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-

el salvador and the central american free trade agreement

81

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

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