Home > Uncategorized > How dynamic is global capitalism?

How dynamic is global capitalism?

from C. P Chandrasekhar and Jayati Ghosh

Capitalism is supposed to be all about economic growth, through the dynamism that is created by competition. This growth is meant to be driven by investment (or accumulation) which in turn is used to justify the shares of national income that are delivered to private profits, to the owners of capital. “Accumulate, accumulate! That is Moses and the prophets” famously said a certain Karl Marx in the first volume of Capital more than 150 years ago. It is undeniable that investment is the fundamental driving force of capitalism.

Of course, there have been and continue to be many naysayers, who object to this obsession with economic growth at all costs. There are obvious problems with using GDP as the basic indicator for even material well-being, and for all the important processes and outcomes that are important for human life. GDP does not capture human well-being, and can even disguise adverse outcomes. Per capita income is a poor estimate of general welfare when there are pervasive and growing economic inequalities. Many dimensions of human life that economies are supposed to provide a frame for, are ignored in this perspective.

But within the terms set by market-driven profit orientation, GDP is what matters, since capitalism is really concerned only with whatever is commercialised. Investment, the associated technological progress and the resulting expansion of economic activity are the most important metrics by which capitalist systems are judged. Never mind that this has been compared to the “grow-at-all-costs-and-in-all-circumstances” proclivity of cancer cells. To judge capitalism on its own terms, look at investment and monetary incomes. 

Based on these (admittedly limited) indicators alone, how has capitalism been doing in its triumphal “globalised” phase? Remember that this is the period (beginning with the 1980s but really gathering force from the 1990s) when global capital managed to reduce if not eliminate almost all restrictions and regulatory constraints on its activities; when it was able to lobby for and put in place an international institutional and legal architecture that blatantly privileges its own interests over those of societies and the people who live in them and their human rights, as well as over nature and the preservation of the earth. New forms of ownership were strengthened, like intellectual property rights, that enabled monopolies of knowledge that in turn created other monopolies and forms of surplus extraction. Public sectors across the world were eroded and states withdrew from the provision of important physical and social infrastructure, amenities and social services, thereby leaving the field open for profit-making private activity. Tax rules led to reduced rates and loopholes that enabled multinational corporations and very rich people to pay very little tax, even when their profits and wealth soared.

Therefore, the past three decades should have experienced an explosion in private corporate activity: conditions have never been so favourable for large (and especially multinational) corporations. How did global capital respond to this immensely supportive configuration? Aggregate data at the global level on incomes and activity are necessarily subject to many concerns, but data from the World Bank’s World Development Indicators can still provide a rough idea.

Figure 1: Global GDP growth has decelerated over past fifty years

Note: In Figures 1 and 2, simple averages of the decade have been calculated.


Source for all figures: World Bank World Development Indicators online, accessed on 4 Sep 2021.

Figure 2: Global investment growth has been volatile


Note: Gross capital formation can be less than gross fixed capital formation if change in stocks is negative

Figure 1 indicates that average rates of growth have been declining over the half-century considered here. Figure 2 suggests that average investment rates (gross capital formation as per cent of GDP) plummeted in the first decade of the current globalisation, the 1990s, while the recovery of the 2000s reflects the low base effect. In the 2010s, Gross capital formation grew much faster than gross fixed capital formation, suggesting that there was more stockholding of machinery and equipment or increase in assets held as stores of value. Overall, the performance was not significantly better than the “stagflationary” 1970s or the crisis-ridden 1980s. Note that this was despite all the regulatory and other changes that so comprehensively tilted the playing field in favour of large private capital.

What is more, even the apparent recovery of global investment from 2000 onwards has really been due to the emergence of new kids on the block, specifically in East Asia. Figure 3 show that East Asia (for which WDI data are only available from 1995) became really significant in terms of investment in the 2000s, equalling both the USA and the European Union. After 2007, China’s capital formation soared well beyond that of these other two major capitalist economies. The force behind that rise of East Asian investment was China, which alone accounted for 77 per cent of the increase in East Asian gross capital formation between 2007 and 2019.

Figure 3: East Asia dominated investment in the past two decades

This regional shift could be interpreted as another example of the inherent dynamism of capital, such that when the richer and more advanced regions show signs of saturation of growth, capital moves to newer, lower-income geographical areas. This then allow these newer areas to expand rapidly. That is very much what is argued by the proponents of neoliberal globalisation, arguing that the very success of China shows the inherent possibilities for income convergence under neoliberal globalisation.

But that argument assumes that it is really private capital that is doing the heavy lifting, in response to all the liberalisation, deregulation and other policy changes that have eased its functioning and greatly increased its bargaining power. It turns out that the opposite is true. WDI data provide private shares of investment (for gross fixed capital formation) for some countries, and those for the USA and China are particularly revealing.

Figure 4 shows that throughout this entire period, private capital provided only the smaller part of gross fixed capital formation in these two economies. Surprisingly, the share of the private sector investment in total fixed capital investment was even smaller in the USA, at less than one-fifth, compared to China at just under 30 per cent. In other words, most of the fixed investment so crucial for capitalist accumulation and economic growth was undertaken by the public sector in these two most significant economies.

Figure 4: Private capital provided smaller shares of fixed investment in both the USA and China

This is really quite an extraordinary pattern, which completely confounds the general perception of private accumulation being the driving force of economic expansion during the phase of globalisation. At least in the two largest economies in the world, it was actually public investment that was far more weighty and substantial in fixed capital formation, accounting for more than four-fifths of total fixed capital formation in the USA and more than two-thirds in China.

This underlines the fact that global capitalism is on life support provided by governments. Not only is central bank intervention through massive creation of liquidity now essential even to maintain economic functioning in the advanced economies, but even the investment that does occur is mainly because of public sector activity, with private investment playing at best a supporting role. Purely on its own terms, global capitalism is failing.

(This article was originally published in the Business Line on September 7, 2021)

  1. Ikonoclast
    September 7, 2021 at 10:54 pm

    “Purely on its own terms, global capitalism is failing.” – C. P Chandrasekhar and Jayati Ghosh.

    I agree in one sense and disagree in another. Capitalism has two “terms”. One is its overt claim. The other is its covert objective. The overt claim of capitalism is that it exists to “lift all boats”: to increase overall wealth so that all are assisted to increased prosperity. The (not so) covert objective of capitalism is to monopolize wealth and leave others out in the cold. The callous disregard of the poor is hidden in plain sight. Within close sight of the White House there is a little church. I forget its name or the street it is in. At night, homeless people, almost exclusively black men, doss down on the church steps or little courtyard out front, just off the footpath, at least in summer. I don’t know where they go in winter.

    To person from a country with less and less obvious homeless people (though we still have them), the sight is shocking and a confirmation of something seriously and fundamentally wrong with America and thus with the neoliberal capitalism of which America is the champion and exemplar. As an aside, the more Australia adopts neoliberalism, the more we become like America. It is heartbreaking and infuriating to see.

    Perhaps I have a little Old Testament “prophetical” anger in me, despite being an agnostic. The whole situation with capitalism is beginning to make me immensely furious. And of course I feel guilty for my position of petite bourgeois, or more precisely retired labor aristocracy, comfort. The world is being destroyed by capitalism and thus by humans greedy enough to run and stupid enough to acquiesce to capitalism. The system and the people seem unable to stop itself and themselves. A judgement is coming down on us. It is not, in my view, a judgment from a transcendent god. It’s a “judgement”, or rather an axiomatic outcome, from the immanent laws of the natural world and cosmos and our transgressing of them. And we continue to be too greedy and too stupid to see what’s coming.

    Capitalism is not failing to make its most adept practitioners super rich. This is what late stage, neoliberal capitalism is succeeding at and it is this term which the cabal(s) of plutocrats take to heart and follow. Capitalism IS failing to help the global poor. Indeed it often makes many of them poorer and more rootless in the transition from self-sufficient peasant in a community to urban day-laborer, street sweeper or electronic-parts factory fodder. Capitalism is also failing to develop itself as a sustainable, renewable and circular economy.

    Capitalism’s failure unavoidably will propel it to total collapse. The beginning of this collapse is imminent. Indeed, with the arrival of COVID-19 and the mass global wildfires and extreme weather of the 2020s it has arrived. There will be immense disruptions and an enormous death toll, I suspect in the hundreds of millions at least and perhaps even billions of premature deaths. That will certainly change political economy.

    A theology teacher whose views I paid attention to, once said, “The (conventional) Church should not leave the Book of Revelation to the Evangelicals. We must pay attention to its exegesis as well.” I would make that warning to atheists, agnostics, humanists and Leftists too. We should not leave the apprehension and exegesis of imminent earthly apocalypse to the devoutly religious. We too need to interpret what it means for possible futures, or the lack of them, for the human race. We also need to interpret what our embrace of imminent earthly apocalypse out of sloth, greed and selfishness means about ourselves and our nature as a (supposedly) intellectually self-aware and morally self-aware species.

  2. Edward Ross
    September 8, 2021 at 1:40 am

    As usual have to agree with Ikonoclast However i also know some ordinary old work mates who are aware that the present economic system is rotten to the core, but the problem is to motivate them to stand and fight the system through peaceful means. On this subject I remember Hargraves Heaps IDEAS on how communities are led or misled on social media. here i seem to remember an old saying are are more ways than one of killing the (vermin). Ted

  3. September 8, 2021 at 1:50 am

    Ikonoclast, for once I agree and appreciate. I was in the US in the early 1980s when Ronald Reagan’s beggars appeared on the streets of San Francisco, where I used to attend an annual conference. It was shocking. By now I have seen homeless dossing down in the streets of Australia’s national capital and it is shocking. We are also having a ‘debate’ about whether we should continue to imprison children as young as 10, or should it be 14? Whoever thought of imprisoning children at all? Yes, our current masters are dead set on making us just like the US – collapsing empire that it is.

    Those beggars dated the beginning of the decline of the US too. It was 1980, and Ronald Reagan unleashed the financial sector. Soon the parasites were sucking the life out of the productive economy.

    • yoshinorishiozawa
      September 8, 2021 at 2:05 am

      Please read two comments of mine in Levels of Aspiration among Economists page, posted on September 5, 2021 at 7:13 am and September 5, 2021 at 3:26 pm, just after your post on September 5, 2021 at 1:14 am.

    • Robert Locke
      September 8, 2021 at 12:06 pm

      In 1980 I belived that the rich in corporate america had accepted the new deal synethsis, as a basis for the long-term survival of the system/ The financialization of the economony, including its digitalization proved me wrong.

  4. Ken Zimmerman
    September 10, 2021 at 12:05 pm

    Capitalism can take a hundred forms. All of them harmful for workers, for all aspects of any society or culture, and deadly for the Earth. In the United States capitalists have always taken a large portion of their short- and long-range ‘investment’ through theft and deception. From the public at large and via government subsidies. Capitalists have shown themselves fierce opponents of democracy and of the workers who create the wealth they take as their own. Which in my view confirms that the rules, norms, and theories of capitalists and their ‘apparatchiks’ (e.g., economists) are mere cover for simple banditry.

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