Globalization and the End of the Labor Aristocracy, Part 1

By Jayati Ghosh, Professor of Economics and Chairperson at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. Cross posted from Triple Crisis

Economist and Triple Crisis contributor Jayati Ghosh argues that imperialism has not disappeared, but changed shape. The direct military conquest and control of economic territory by the great powers has given way (at least some of the time) to control through multilateral agreements and international institutions. Economic territory may still mean the seizure of land, mines, or oil fields—but it also may mean privatization of public assets and services, or the extension of intellectual property rights to new realms. Where the “labor aristocracy” of the imperialist countries once shared in the bounty of empire, the new incarnation of empire as “globalization” has helped grind away the incomes and status they once enjoyed.

Twenty-first century imperialism has changed its form. In the 19th century and the first half of the 20th century, it was explicitly related to colonial control; in the second half of the 20th century it relied on a combination of geopolitical and economic control deriving also from the clear dominance of the United States as the global hegemon and leader of the capitalist world dealing with the potential threat from the Communist world. It now relies more and more on an international legal and regulatory architecture—fortified by various multilateral and bilateral agreements—to establish the power of capital over labor. This has involved a “grand bargain,” no less potent for being implicit, between different segments of capital. Capitalist firms in the developing world gained some market access (typically intermediated by multinational capital) and, in return, large capital in highly developed countries got much greater protection and monopoly power, through tighter enforcement of intellectual property rights and greater investment protections.

These measures dramatically increased the bargaining power of capital relative to labor, globally and in every country. In the high-income countries, this eliminated the “labor aristocracy” first theorized by the German Marxist theorist Karl Kautsky in the early 20th century. The concept of the labor aristocracy derived from the idea that the developed capitalist countries, or the “core” of global capitalism, could extract superprofits from impoverished workers in the less developed “periphery.” These surpluses could be used to reward workers in the core, relative to those in the periphery, and thereby achieve greater social and political stability in the core countries. This enabled northern capitalism to look like a win-win economic system for capital and labor (in the United States, labor relations between the late 1940s and the 1970s, for example, were widely termed a “capital-labor accord”). Today, the increased bargaining power of capital and the elimination of the labor aristocracy has delegitimated the capitalist system in the rich countries of the global North.

Increasing inequality, the decline in workers’ incomes, the decline or absence of social protections, the rise of material insecurity, and a growing alienation from government have come to characterise societies in both developed and developing worlds. These sources of grievance have found political expression in a series of unexpected electoral outcomes (including the “Brexit” vote in the UK and the election of Trump in the United States). The decline of the labor aristocracy—really, its near collapse—has massive implications, as it undermines the social contract that made global capitalism so successful in the previous era. It was the very foundation of political stability and social cohesion within advanced capitalist countries, which is now breaking down, and will continue to break down without a drastic restructuring of the social and economic order. The political response to this decline has been expressed primarily in the rise of right-wing, xenophobic, sectarian, and reactionary political tendencies.

21st Century Imperialism

The early 21st century has been a weird time for imperialism. On the one hand, the phase of “hyper-imperialism”—with the United States as the sole capitalist superpower, free to use almost the entire world as its happy hunting ground—is over. Instead, the United States looks significantly weaker both economically and politically, and there is less willingness on the part of other countries (including former and current allies, as well as those that may eventually become rival powers) to accept its writ unconditionally. On the other hand, the imperial overreach that was so evident in the Gulf Wars and sundry other interventions, in the Middle East and around the world, continues despite the decreasing returns from such interventions. This continued through the Obama presidency, and it is still an open question whether the Trump presidency will lead to a dramatic reduction of this overreach (“isolationism”) or merely a change in its direction.

The latter point is important, because there is little domestic political appetite in the United States for such imperial adventures, due to the high costs in terms of both government spending and the loss of lives of U.S. soldiers. The slogans that recently resonated with the U.S. electorate, such as that of “making America great again” were in that sense somewhat self-contradictory—looking towards an imagined past in which the American Dream could be fulfilled relatively easily (at least for some), without recognizing that this was predicated upon the country’s global hegemony and far-flung empire.

The global context of imperialism is a complex one, in which the contours shift constantly. Recent political changes in various countries of the North have meant that global strategic alliances are also much more fluid than at any time over the past half century. The most talked-about current examples are the changing attitude of the Trump administration towards the United States’ traditional enemy, Russia; and the complicated international politics emerging in Europe, with the Brexit vote and the emergence of right-wing political forces in a number of other European countries. But it is also evident in other parts of the world, notably in China, where traditional friends and foes are no longer so easily demarcated. Yet there is another sense in which the fundamentals of the imperialist process have not changed, even as the forms in which they are expressed are altered.

Defining imperialism broadly, as Lenin did—as the complex intermingling of economic and political interests, related to the efforts of large capital to control economic territory—it’s clear that imperialism has not really declined at all. Rather, it has changed in form over the past half century, especially when we embrace a more expansive notion of what constitutes “economic territory.” Economic territory includes the more obvious forms such as land and natural resources, as well as labor. These are all still hugely contested: The wars for oil in the Middle East, the continuing attempts at land grabs in Africa, and the struggle over the fruits of extraction of natural resources in parts of Latin America and Asia all testify to this.

But the struggle over economic territory also encompasses the search for and effort to control new markets—defined by both physical location and type of economic process. Understanding territory in this way helps us understand how imperialism is still very much alive and kicking, even though some of the more classic features (such as direct colonial control and annexations) are less in evidence.

One of the key aspects of recent capitalist dynamism has been its ability to create new forms of economic territory, bring them within the realm of capitalist economic relations, and therefore also subject them to imperialist control. Two forms of economic territory that are increasingly subject to capitalist organization and imperialist penetration today are 1) basic amenities and social services (earlier seen as the sole preserve of public provision) and 2) the generation and distribution of knowledge.

A major feature of our times is the privatization of areas that, until recently, were generally accepted as public responsibilities. Basic amenities like electricity, water, and transportation infrastructure, and social services like health, sanitation, and education all fall into this category. Of course, the fact that these were seen as public duties does not mean that they were always fulfilled. Indeed, expanding public provision and access to high-quality public infrastructure and social services has only come about historically as the result of prolonged mass struggles. And issues of inequality in access have always existed. Nevertheless, the fact that provision is no longer necessarily in the public domain, and that private provision is increasingly seen as the norm, has opened up huge new markets for potentially profit-making activity. This has been a crucial way of maintaining demand, given the saturation of markets in many mature economies, and the inadequate growth of markets in poorer societies.

Opening up such markets has occurred through a combination of inadequate public provision and changes in economic policy to encourage private investment. The expansion of the global bottled water industry, for example, is partly a result of the failure of adequate public delivery of potable water. Meanwhile, global institutions—including formal organizations such as the World Bank, the International Monetary Fund (IMF), and the World Trade Organization (WTO), as well as more informal bodies such as the World Economic Forum—have actively encouraged private investment in formerly public sectors. This is a more complicated expression of the imperialistic drive for control over economic territory than the direct annexation of geographic territory, but that does not make it any less consequential.

Another new form of economic territory, increasingly subject to imperialist penetration, relates to knowledge generation and dissemination. The privatization of knowledge and its concentration in fewer and fewer hands—especially through the creation and enforcement of new “intellectual property rights”—have become significant barriers to technology transfer and social recognition of traditional knowledge. This is evident in the case of access to medicines, even essential and life-saving drugs. Patents reward multinational companies, allowing them to monopolize production, set high prices, or demand high royalties. Similarly, control over seed patents, overwhelming held by multinational agribusinesses, have enabled monopoly control over crucial technologies for food cultivation across the world, even in the poorest societies. The cases of medicine and food are comparatively well known and highly controversial, but much the same is true for industrial technologies, as well as knowledge for mitigating and adapting to adverse environmental changes (themselves resulting from the production systems created by global capitalism).

It’s not just that national and international institutional structures that should provide checks and balances to the privatization of knowledge are more fragile and less effective than they used to be. Rather, it’s that they are actively working in the opposite direction. The numerous “trade agreements” that have been signed across the world in recent years have been much less about trade liberalization—already so extensive that there is little scope for further opening up in most sectors—and much more about protecting investment and strengthening monopolies generated by intellectual property rights.

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  1. HopeLB

    The CIA’s feeling might be hurt by the author’s omission of regime change/installation of US imperialist puppet rulers which helps to obscure both who is in control and the looting.

  2. Susan the other

    great essay. this new global imperialism looks like the victory of rentier capitalism, without borders. back in 1964 when LBJ took us into Vietnam, he consulted with Eisenhower who sternly advised him to “be fair to both capital and labor.” A comment that went over my young head but makes a lot of sense in light of the last 50 years which this piece above has defined so nicely. Without the social contract/compact between capital and labor we have nothing. Privatizing social infrastructure is just one of the bricks in the wall. And all of this is run by central bankers, dear Jesus, who control national treasuries so that all social spending has to be borrowed. But…the borrowing could run dry because the big banks cannot buy up all that debt because they have inadvertently killed the underlying economy, replacing it with a disbursement of that debt and the punchline is that it all ultimately leads back to them. Sweet irony. And grief because this is the model we are pushing on the world. Is there even a good mechanic left who knows how to fix breaks?

  3. Roland

    Lenin’s chapter on “Finance Capital” in the 1916 pamphlet Imperialism still makes excellent reading, although one must bear in mind that he is discussing wealth extraction under a hard currency system. Under a hard currency system, wealth extraction is visible as a large current account surplus. But under a fiat system, imperial wealth extraction can manifest as an enormous apparent deficit.

    What’s particularly interesting are a couple of passages Lenin quotes from J. A. Hobson, which show great prescience of how the imperial metropole will become post-industrial, and greatly so once China is fully integrated in world capitalism.

    1. bob k

      Yes you are right. Lenin famously predicted the imperialists (or monopoly capitalists as he said the two are one and the same) would become coupon clippers living off dividends and bonds. But even he couldn’t have predicted the accession of finance capital that has its tentacles all over the world.

      He said imperialism was capital’s “final and last stage,” but he didn’t imagine the staying power capital had and has. The author of the excellent piece above points to two reasons for this. One is the bribing of the labor aristocracy in the US primarily and Europe secondarily. And bought off they were, because the US ruling class could afford it. It was relatively cheap. Awash with super profits they could easily afford higher wages in strategic industries, FHA loans (but to white workers), the GI Bill for college (but only for whites) and generous health benefits (before health costs started to expand beyond other price increases).

      The second reason is the expansion and dominance of financial capital which has pushed industrial capital to the second row and has cut off financing of capital reinvestment in favor of stock buy backs and other financial tools to blow up asset prices in the service of the banks and financial overlords.

      This has reached the level where, inevitably it would seem, some of the last remaining areas for rent gouging are heretofore public services and the intellectual trademarks and copyrights the author goes into (but these are dependent on political power and what the US doesn’t claim as its own it steals, just as all countries of a more or less equal nature engage in industrial espionage).

      You can see this everywhere. In the US there isn’t an area that finance doesn’t want to devour: public education, utilities, water and infrastructure, social security and medicare. In Greece one of the terms under which Germany kept the Greek people strung out on more debt was the agreements to allow private capitalists to invest in and capture the public utilities and infrastructure.

      But what comes after the public sphere and intellectual property, if finance succeeds in capturing them? Will we see another war to redivide the world? Nothing can be gained by predictions. If I were going to go out on a limb it would only be to predict that I would not be surprised to see imperialism hold on for another 100 years. Or at least until the eco-catastrophe that is coming intervenes first. It is currently impossible to imagine any real revolution taking place, peaceful or not. At least in the US.

      1. olga

        There are only two barriers to another 100 yrs of imperialism: war and/or destruction of the environment. Neither one bodes well for humanity. (Or – people could suddenly wake up and protest the takeover… but I somehow doubt that).
        I think we’ll probably end up in another major (and maybe the last) war in not too distant future. In addition to all the economic pressures, as described so well above, there is MIC and its inertia (or, more accurately, military-industrial dictatorship) – all those weapon systems have to be used sometime, somewhere… Chalmers Johnson (of the Blow-back fame) called it a suicide pact… (yes, US public is part of the pact, however unwittingly).
        There may be another option, though… if China gets enough time to develop an alternate system (with the help from its friends, of course)… but I don’t know if sufficient time is forthcoming…

      2. Michael C.

        Marx of course, according to my understanding, was aware of the power of capitalism to change shapes and was much in awe of its ability to adapt. It’s troubling that those forces are also getting better at undermining, fracturing, and co-opting dissent while fortifying the enforcement arms of governments, police, electronic surveillance, and the national security state.

  4. Tomonthebeach

    A slightly different perspective is to see how the global expansion of corporate capitalism is blurring the identity of states and cultures. Until recently, imperialist hegemony depended largely on military force. Increasingly, it is dependent on economic (corporate and state) leverage – backed by the threat of annihilation of the human species.

    Hellova way to run a planet.

  5. RBHoughton

    I thought the Zeitgeist movie got it right. Whether its communism, socialism, fascism or capitalism that characterizes a government the people in its loving care work competitively for reward. We all do it. The only distinction is the extent of government intervention in society. This is hardly a matter to get hot under the collar.

    How nice if we could return to that wise policy of international law that forbade interference in the internal affairs of other nations. Countries will make their choices, hopefully democratically, and we should be content with that. If our free enterprise system really is superior we will soon see the world adopting it.

  6. gepay

    Yes, it has been known for some time that a small minority may be made rich (a small price to pay) by cooperating with the international control (mostly corporate and financial) by selling the country’s resources cheaply. This is why Chavez was so disliked as for some reason he thought that Venezuela’s oil riches should be used for the general welfare of the populace – rather than just benefit the small oligarch class.
    I have argued with people who refuse to acknowledge that the US runs an Empire because the US doesn’t have outright colonies.

  7. blert

    The ‘battle’ has not been of capital over labor … but of knowledge privileged workers over the rest.

    This is best seen in London, where those at the apex of the information node ( the City ) have astounding incomes, both absolute and relative.

    These priviledged few only rarely have any fixed capital.

    Their wealth is due to skimming — and is recorded digitally, for the most part.

    Facebook is another example.

    Creating another information super-node made Zuckerberg an instant billionaire.

  8. Sound of the Suburbs

    Keynesian solutions to today’s supply side excesses.

    Keynes re-cycled the surplus in the Bretton-Woods agreement after the Second World War to create a sustainable trading environment.

    The US surplus went to Europe to rebuild it after the war and allow Europeans to buy US goods, everyone benefitted from this re-cycling of the surplus.

    Today, everyone sat back and did nothing until the inevitable protectionist policies began to appear to stop the West going bankrupt, within the Euro-zone Greece has already gone the way of all long term debtor nations and serves as a warning for all.

    Just imagine Germany and Northern Europe recycling their surplus in a way that rebuilt Greece and the Club-Med nations and maintained a sustainable trading environment.

    Today it’s a fantasy.

    Everyone is relying on an assumption from today’s economics that international trade will just reach a stable equilibrium.

    The fact that it is not happening in the real world (ref. US/China) has always been a minor consideration for economists. They have created a theoretical world and as long as that is consistent this is all that matters.

    Keynes in China.

    China is very vulnerable and totally reliant on the nations it exports to, it cannot maintain a surplus forever as this is unsustainable and its export nations will go bankrupt.

    Instead of creating a global problem of empty Chinese investment property, they could keep that money inside China and become much more self-reliant.

    A strong welfare state would remove the need to save for a rainy day, help reduce the global savings glut and boost consumption.

    The West has very low savings rates (close to zero) as there is a welfare safety net.

    Keynes to the rescue.

    Keynes said income was just as important as profit.

    Income looks after the demand side and profit the supply side.

    China has the opportunity to create a virtuous circle through internal demand.

    The way most Western nations developed a successful consumer society.

    They did it in the Keynesian era.

    Supply outstripped demand in the US in the 1920s due to increased productivity.

    Extensive advertising was now required to shift all the surplus stuff and they used debt to maintain demand leading to the debt deflation of the Great Depression.

    Debt. maxes out and is unsustainable.
    Re-cycling the surplus is sustainable.

    Keynesian ideas were a forward step from debt based consumption; we have now gone backwards again and are beginning to see the problems.

    “Another Payday loan sir?”
    “No, I’m maxed. out on the repayments already.”

    Neo-liberalism is an empire of debt based consumption, when interest rates rise it stops working.

    1. Sound of the Suburbs

      Keynes had a demand side solution to the supply side excesses that preceded it.

      Milton Freidman had a supply side solution to the demand side excesses that preceded it.

      We have now gone full circle and should realise it’s a balance between supply and demand.

      Debt based consumption is never a long term solution as it maxes. out on the personal and national level.

      Now we have gone full circle, we can see capitalism has enemies at the top and bottom.

      We are all too familiar with the militant trade unionists of the 1970s, pushing wages too high leading to stagflation.

      The old money, aristocracy were the impediment at the beginning and looked likely to strangle capitalism at birth with their rent seeking ways, raising the costs of labour to the new class of industrialists.

      Old money fortunes require conserving and naturally seek to stifle capitalism’s dynamism as they are risk averse and are always looking for ways to be maintained in luxury and leisure while taking no risks and find rentier activity to their liking.

      Bankers must always be the servants of the real economy and never the masters; their role within capitalism is as a service industry to provide the necessary funds to business and industry.

      Leave them to their own devices and you produce another set of parasites feeding on the system along with the idle rich.

      The French revolution was a Bourgeois revolution and it let capitalism develop free from the aristocracy that would have stifled it.

      In the UK we had a longer and more protracted battle.

      The Corn Laws were eventually repealed to usher in the era of Laissez-Faire, a bloodless battle between rent seeking, old money and the new capitalists.

  9. JTFaraday

    “The decline of the labor aristocracy—really, its near collapse—has massive implications, as it undermines the social contract that made global capitalism so successful in the previous era. It was the very foundation of political stability and social cohesion within advanced capitalist countries, which is now breaking down, and will continue to break down without a drastic restructuring of the social and economic order. The political response to this decline has been expressed primarily in the rise of right-wing, xenophobic, sectarian, and reactionary political tendencies.”

    I’m thinking that must have been a pretty crappy foundation.

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