The process of globalization does not signify merely the transfer of production as such. It is rather the disaggregation of previously unified production processes, the dispersal of these processes to different parts of the world either to advanced capitalist or backward countries in order to minimize costs and increase profits, and the integration of these disaggregated processes across national borders and whole continents.
That is, for the first time in history, the process of surplus value extraction the essence of capitalist accumulation has been internationalized. This is the qualitative change in the structure of world capitalism signified by globalization.
What is distinctive about globalized production is that a given production process takes place simultaneously on a planetary scale. This could only arise on the basis of a new infrastructure, made possible by new communication technologies and more efficient forms of transport.
The Spartacists argue that since finance capital has always been invested internationally, there is nothing new in the present situation. This is to ignore the vast quantitative increase of international capital flows and the myriad new forms it has assumed. The instant transfer of funds, the abolition of exchange controls, the development of global share and bond markets and international futures markets, to name just a few processes, represent, in their totality, a qualitative change.
One measure of this transformation is given by the fact that transborder financial flows for the major capitalist countries of the G-7 increased by a factor of 10 for the period 1980-92, as capital was transferred around the globe. Nationally insulated stock markets have all but disappeared. In the decade 1980-90, the volume of cross-border transactions in equities grew at a compound rate of 28 percent a year, from $120 billion to $1.4 trillion. Over the same period, international bank lending rose from $324 billion to $7.5 trillion and the international bond market increased in size from $295 billion to $1.6 trillion.
The Spartacists maintain that since trade levels, measured as a proportion of GDP, only reached their 1913 levels in 1970, the international economy was more globalized 80 years ago. They conveniently ignore one salient fact: a considerable proportion of international trade has been replaced by the international production activities of transnational companies.
Figures collected by the United Nations illustrate this process. In 1993, the production of the 170,000 subsidiaries of companies operating outside of their country of origin exceeded by 37 percent the total volume of world trade. In that year, world trade totaled $4 trillion, while the total of local sales of these transnational companies was $5.5 trillion.
The absurdity of the Spartacists’ claims becomes even more apparent when the changes in the nature of international trade are taken into account. In the previous period, trade involved the purchase and sale of raw materials or finished goods. Today, an increasing amount of world trade consists of transfers of commodities or semi-finished articles within a single transnational company. At least one-third of world trade consists of such transfers. Around one half of world trade is produced by transnational companies, and some two-thirds of transactions in goods and services combined are dependent on the operations of these companies.
Every statistic points to the growing integration of the world economy under the aegis of transnational companies. While the current value of exports increased 3.5 times between 1975 and 1989, the outflow of foreign direct investment (FDI) over the same period rose seven fold.[1]
Overall, the annual FDI outflow and inflow almost doubled every five years for the period between 1970 and 1988. In the 1970s, FDI, domestic output and domestic investment grew at similar rates. From the early 1980s onwards, the rate of growth of FDI began to significantly outpace the other two, and in the period 1985-90, global FDI grew almost four times faster than domestic output and more than twice as fast as domestic investment.
The rapid increase in foreign direct investment is the statistical expression of a qualitative change in the organization of production by transnational companies a system in which planning processes within the global corporation are developed in an attempt to counteract the unplanned operation of the market. In the words of a United Nations report: “Elements of ... an extended international production system are gradually emerging as a result of the strategies of TNCS. In that sense, international production can be thought of as performing a wider role than trade, that is, one of moving not only goods and services across borders, but also moving factors of production and organizational methods, skills and technologies under a unified management structure. ... As a result of that organizational effort, the world economy is being transformed qualitatively: trading and other linkages are being complemented, if not supplanted, by linkages at the production level. In an international production system for goods and services, it is increasingly firms transnational corporations that play this coordinating role and that determine participation in the international division of labor, rather than arms-length transactions.”[2]
Different components of a production process can now be located in different parts of the world in different countries and continents so that costs are minimized. This was not possible previously for two reasons. First, the cost of transportation was prohibitive. That barrier has been greatly reduced by the lowered costs of both sea and air transport. Second, the requirements of supervision and the enforcement of standards required that a particular production process be organized within a single factory, or at least in plants in close proximity to each other. Today, different components of a production process can be sub-contracted out to firms all over the globe. Rapid and relatively cheap transport, together with computer-based information systems, make possible the separation of what once were necessarily unified processes. In the past, design had to be in close proximity to production. This is no longer the case; designs can be transferred around the world just as easily as they can be shifted from one room to another.