Neil Wilcock - Not Paying the Rent: Imagining a Fairer Capitalism

The world requires a benign globalisation of profit via globalisation of welfarist structures where labour is again empowered (Elsenhans, 2002, 2019b). The world is headed, however, towards a globalisation of exacerbating inequalities through politically controlled modes of production with increasingly insecure and marginal labourwhat I term a globalisation of rent .

The promises of globalisation of profit in the post-World War II setting, through the capitalist mechanism of demand expansion resulting in shared prosperity, have not been kept. It had been expected that intensified trade and capital movements would provide knock-on positive results of growth for all economies that were ready to open their markets and liberalise their economies. Globalisation would give technically backward economies the chance of catching up without hurting the positions of the leading economies of the international division of labour, by ultimately creating equal levels of technical development. Common growth was expected to be the result of industrial specialisation. Specialisation would increase the demand for unskilled labour, the plentifully available factor of production of the periphery, and backward countries were promised that their incomes would increase and full employment would result.

State intervention was not essential for managing the world economy in this idealised form; a loose network of international organisations was sufficient, especially as the economically powerful nations controlled them and agreed on basic political and economic orientation. The increasingly demonstrated inefficiency of centrally planned economies, i.e. real socialism, was expected to peter off remaining antagonisms and converge global economics and politics towards democracy. When the Berlin Wall fell, the perspective emerged that the world was close to the end of history (Fukuyama, 1995); the final victory of peace-loving, internally liberal and democratic market economies against their authoritarian rivals.

With the so-called Great Recession, the rise of new cultural identitarian political movements, often called fundamentalism in the Global South (Elsenhans, 2012), and the rise of neo-populism also in the West, this hope greatly diminished. New rising powers, especially in the Global South (new great powers such as China or India, but also minor powers such as Indonesia or Iran), intensified local conflicts, while a new aspiration of weaker powers to possess nuclear weapons rendered erstwhile optimistic perspectives null and void.

Globalisation did not arrive at the harmonious world it promised and mainstream economics remains at a loss to explain. Mainstream economics does not recognise the two fundamental mechanisms driving globalisation, namely changing the industrial mix through the exchange rate mechanism (explained later), nor rising mass incomes which is the essential condition for stability and growth .

Globalisation in the nineteenth century between the West and the Global South was driven by comparative advantage of the South in raw material production, ultimately by high earnings for raw materials in relation to average productivity in industrial productions in the countries of the Global South. High raw material prices sheltered industries in the West from low wage competition in manufactured products from the Global South.

Signs of a shift in this configuration of the West being protected by relatively high raw material prices for the Global South appeared in the form of manufactured exports from the rising Asian tigers South Korea, Taiwan, Hong Kong, and Singapore since the 1960s. Already in the nineteenth century some production sites in the then Global South achieved competitiveness in some manufacturing industries, if they were able to keep their exchange rates for their currencies low. For example, Japan and India developed from the 1880s onwards increasingly competitive textile industries based initially on machinery imports, however, in the case of Japan, they demonstrated the capacity of technically backward countries to assimilate most modern technologies, partly because of state intervention, but also on the basis of exchange rates of their currencies below purchasing power parity-cheap labour allowed them to move up the production chain. In difference to India, Japan had no lucrative raw material exports, only productive agriculture. It could keep its exchange rate below purchasing power parity already in the early twentieth century (Morimotu, 1918, p. 144).

In more modern times, globalisation of the last third of the twentieth century was based on a shift of comparative advantage. Cheap labour economies were able to achieve comparative advantage in industrial exports, initially relatively simple labour intensively produced products, but increasingly also in technically more demanding productsthereby moving up the development chain. These economies were never as capable in production as the industrial world, but their earnings from raw materials often never had existed such as the case of South Korea, Taiwan, Hong Kong and Singapore. More commonly, specialisation on raw materials had become a development dead end with the exception of oil.