The global paradox

Most people missed it but America’s intelligence services also looked recently at developments in the world economy.  The Office of the Director of National Intelligence (DNI)  published its latest assessment, called Global Trends: The Paradox of Progress, which “explores trends and scenarios over the next 20 years”.

The DNI concludes that the world is “living in paradox – industrial and information age achievements are shaping a world both more dangerous and richer with opportunity. Human choices will determine whether promise or peril prevails.”  The DNI praises capitalism over the last few decades for “connecting people, empowering individuals, groups, and states and lifting a billion people out of poverty in the process.”

But American capital’s eyes and ears are worried about the future.  There have been worrying “shocks like the Arab Spring, the 2008 Global Financial Crisis, and the global rise of populist, anti-establishment politics. These shocks reveal how fragile the achievements have been, underscoring deep shifts in the global landscape that portend a dark and difficult near future.”  All these developments are bad things for global capital and American supremacy, it seems.  And the DNI reckons that things are not going to get better.  The next five years will see rising tensions within and between countries. Global growth will slow, just as increasingly complex global challenges impend.”

What is the answer?  Well, this comment from the DNI report is unvarnished: It will be tempting to impose order on this apparent chaos, but that ultimately would be too costly in the short run and would fail in the long. Dominating empowered, proliferating actors in multiple domains would require unacceptable resources in an era of slow growth, fiscal limits, and debt burdens. Doing so domestically would be the end of democracy, resulting in authoritarianism or instability or both. Although material strength will remain essential to geopolitical and state power, the most powerful actors of the future will draw on networks, relationships, and information to compete and cooperate. This is the lesson of great power politics in the 1900s, even if those powers had to learn and relearn it.”

In other words, while it would be better to just crush opposition and “impose order” in America’s interests, this is probably not possible with a weak world economy and lack of funds.  Better to try “draw on networks, relationships and information” (ie spy and manipulate) to get “cooperation”.

But it is not going to be easy to sustain America’s dominance and the rule of capital, the DNI report concludes, as globalisation “hollowed out Western middle classes  (read working classes) and stoked a pushback against globalization.”  Moreover, “migrant flows are greater now than in the past 70 years, raising the specter of drained welfare coffers and increased competition for jobs, and reinforcing nativist, anti-elite impulses.” And “slow growth plus technology-induced disruptions in job markets will threaten poverty reduction and drive tensions within countries in the years to come, fueling the very nationalism that contributes to tensions between countries.”

You see, the problem is that the population of America and its capitalist allies are getting older and the new powers have younger, more productive populations.  Yet capitalism cannot deliver for these growing populations in the so-called ‘developing countries’.  Meanwhile, “automation and artificial intelligence threaten to change industries faster than economies can adjust, potentially displacing workers and limiting the usual route for poor countries to develop.”  And then there is climate change and environmental disasters that will entail. This is all going to “make governing and cooperation harder and to change the nature of power—fundamentally altering the global landscape.”

So it is not a pretty picture beneath all the optimistic talk and fanfare we heard from the rich elite at Davos only last month.  Instead, the DNI reckons “challenges will be significant, with public trust in leaders and institutions sagging, politics highly polarized, and government revenue constrained by modest growth and rising entitlement outlays. Moreover, advances in robotics and artificial intelligence are likely to further disrupt labor markets.”  The DNI tries to sound hopeful at the end of this litany of dangers to global capitalism but they are not convincing.

I have posted before about the clear signs that the age of globalisation and capital’s expansion at the expense of labour everywhere appears over.  Another indicator of this was a report from the US-based Global Financial Integrity (GFI) and the Centre for Applied Research at the Norwegian School of Economics.  The report found that trade misinvoicing and tax havens mean the world’s givers are more like takers.  The GFI tallied up all of the financial resources that get transferred between rich countries and poor countries each year: not just aid, foreign investment and trade flows but also non-financial transfers such as debt cancellation, unrequited transfers like workers’ remittances, and unrecorded capital flight (more of this later).  What they discovered is that the flow of money from rich countries to poor countries pales in comparison to the flow that runs in the other direction.

In 2012, the last year of recorded data, developing countries received a total of $1.3tn, including all aid, investment, and income from abroad. But that same year some $3.3tn flowed out of them. In other words, developing countries sent $2tn more to the rest of the world than they received. If we look at all years since 1980, these net outflows add up to $16.3tn – that’s how much money has been drained out of the global south over the past few decades.

Developing countries have forked out over $4.2tn in interest payments alone since 1980 – a direct cash transfer to big banks in New York and London, on a scale that dwarfs the aid that they received during the same period. Another big contributor is the income that foreigners make on their investments in developing countries and then repatriate back home.  But by far the biggest chunk of outflows has to do with unrecorded – and usually illicit – capital flight. GFI calculates that developing countries have lost a total of $13.4tn through unrecorded capital flight since 1980.

Most of these unrecorded outflows take place through the international trade system. Basically, corporations – foreign and domestic alike – report false prices on their trade invoices in order to spirit money out of developing countries directly into tax havens and secrecy jurisdictions, a practice known as “trade misinvoicing”. Usually the goal is to evade taxes, but sometimes this practice is used to launder money or circumvent capital controls. In 2012, developing countries lost $700bn through trade misinvoicing, which outstripped aid receipts that year by a factor of five.

But now global trade growth has slowed to a trickle and capital flows are also falling back.  It has become just that more difficult for multi-nationals and banks to exploit the global south as a way to boost profitability from its decline in the global north.

capital-flows

The ratio of import growth to real GDP growth in the major economies has fallen back sharply.

import-elasticity

The DNI report suggests that increased rivalry over the spoils of imperialism in the 1900s led to a world war.  The DNI reckons that “Although material strength will remain essential to geopolitical and state power, the most powerful actors of the future will draw on networks, relationships, and information to compete and cooperate”.  Compete and cooperate?  And Trump in the presidency?

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12 Responses to “The global paradox”

  1. Nadim Mahjoub Says:

    Hi Michael. I suggest you write something about the following: is capitalist today progressive (science, technology, robots, etc), regressive/reactionary (plunder, crises, inequality, wars, etc) oe both (paradoxical, contradictory). Thanks

  2. Tiago Says:

    Excellent blog. Thank you for your great work! I study a lot the capitalist crises and the collapse of civilizations and seems to me that we are heading to a crises so vast and deep that can very well crush capitalism and froze global trade in a dramatic way. We have ship container companies going bankrupt or having huge losses …etc.

    Do you think that it would be a good theme for a future post? If so, I would love to see it.

    thanks

  3. Mike Ballard Says:

    Healthcare provided on the basis of need is progressive. Healthcare as a commodity for sale to the highest bidder is regressive.

    Thanks for a great run down on modern imperialist practice, Comrade.

  4. Peter Petrov Says:

    There is no paradox. Lefts/obamanoids pretend that they help the poor by sending money to to their puppets around the world.
    If they invested $1 million they want to get back $1.5 million. Right?

  5. Steve Hudson Says:

    Hi Michael, thanks for this – you (and the DNI) paint a very dark, but very convincing picture.

    When it comes to changing the world, as opposed to just analysing it, where do you see the priorities? In the short term, an alliance between socialists and liberals in an attempt to stave off fascism, world war, pre-industrial inequality and ecological disaster seems possible (and not entirely undesirable given the catastrophic implications…. right?)

    In terms of economics,a neo-Keynesian FDR-style programme of massive public investment seems to be by far the most leftist offering on the mainstream democratic agenda at the moment (Sanders, Corbyn). As such, it’s really interesting to read your criticisms in your other blog entries. In your opinion, is there any chance a new New Deal could herald a return to the Golden Age? Or is it simply doomed to failure, stagflation and all the rest?

    And if so – what is the political alternative? What – in your opinion – is to be done? Do we just sit tight and wait for inevitable historical determinism to kick in as capitalism collapses under its own contradictions? I’ve got 3 kids, and it would be nice to leave them a world that doesn’t look like something out of the Hunger Games.

    • michael roberts Says:

      Well, we should support any changes that would be in favour of labour eg. wage increases, public works programmes for jobs and investment, ecological measures, renewables, public services etc. The problem with the ‘New Deal’ type economic solutions is that the New Dealers think these changes can be achieved through monetary injections and/or fiscal stimulus a la Keynes. Such policies did not work in the 1930s, contrary to the myth, and they wont work now. Any Corbyn/Sanders-type govt that came into office and tried to implement such policies would have limited results while driving down profitability of capital and provoking a new slump. Only decisively ending the dominance of the private sector and the law of value would turn things round – and that could not stop at a national level, even if it started there. Does that mean we wait for Godot? No, for two reasons: first, capitalism will not collapse under its own contradictions, it will find a way out at our expense if we let it. Second, fighting for reforms that are in the interests of labour will intensify the class struggle and produce opportunities for decisive change in the mode of production and social relations. But if nothing happens, then it’s over to your three kids.

      • sartesian Says:

        Does that mean you/we should oppose, withhold support from a Syriza, Corbyn, Sanders type government?

      • Jhon Says:

        Its focus on the class struggle is purely spontaneist is to say that only with the radicalization of the working class is enough for it to decide to make the leap to the socialist revolution and worse still you expect it to be done from a reformist perspective !!! Mr. Roberts, with all due respect, I can only tell you how wrong he is on this matter. It is true that every class struggle manifests itself politically but not every political struggle has class perspective. The hour of the reformist approach is disappearing more and more rapidly and the hour is made in which the only possible perspective is none other than the revolutionary. If that radicalization is not directed towards revolutionary working-class ends then it will be terrain gained by fascism. I know that many people will not like this idea but the working class can not be doing nothing. A new world war must be avoided at all costs because it would sooner or later lead to the use of nuclear weapons. There is no other way but to create a revolutionary party of the working class willing to do anything to destroy capitalism and avoid war. The only thing that should terrify us is that this is not happening.

      • Charles Says:

        “Only decisively ending the dominance of the private sector and the law of value would turn things round – and that could not stop at a national level, even if it started there.”

        The Cuban people are immensely more literate, healthy, and cultured today than they would be if Batista had not been overthrown. Their economic lot is most likely better too for the great majority, as compared to neo-colonial development that Cuba might have undergone under continued U.S. domination. It is rather imprecise to glide over almost 60 years of the socialism that Cuba achieved with denigration of anything less than global defeat of capitalism.

      • sartesian Says:

        I don’t understand your point, Charles. Cuba’s economy was subsidized for 30 years, in the face of the US embargo, by the former Soviet Union. Since the collapse of the fSU and the end of the subsidy, class differentiation has percolated throughout the society, with “market reforms” gaining traction, and disparities in income growing.

        The fact that the revolution in the fSU couldn’t be completed at the national level got the world to…the Great Depression, WW2, and the eventual collapse of the fSU. You can slice and dice it all you want… absolve the CPSU and the 3rd Intl from all responsibility; blame British and US imperialism– but whatever you come up with, it all boils down to the same thing– the impossibility of revolution to be sustained on a national scale. Took 75 years to destroy the remnants of the revolution in Russia, but in those 75 years the working class got the snot knocked out of it around the globe– Germany, Spain, France, the UK, Poland, Chile, Argentina, Egypt, Iran etc etc. That’s what the price you pay for a national revolution.

        Took 30 years to start the big “unwind” in China.

        You think Cuba is going to escape, when in fact the big unwind has been going on for years?

  6. Wal Says:

    Here the key messages from the DNI report in English and German:

    http://marx-forum.de/Forum/index.php?thread/626-ein-ende-der-welt-die-wir-kennen/

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