Raymond Lotta on World Economy
(I got this article through mail.I found it very interesting and insightful,however on some points I am in disagreement with it.I think article exaggerates the aspect of stability of present world capitalist system but overlooks the finanicial crisis which have the possibility to converge in the economic crisis.what do you think please comment.)
Shifts and Faultlines in the World Economy and Great Power Rivalry:What Is Happening and What It Might Mean
by Raymond Lotta
I. INTRODUCTION:THE WORLD SYSTEM DOES NOT STAND STILL
The U.S. remains the dominant, still hegemonic, power in the world.
But it is facing heightened economic pressures and growing strategic
necessity. Major transformations are taking place in the world
imperialist system. Of central importance are shifts in the
distribution of global economic power and the emergence of incipient
constellations of geoeconomic and geopolitical power—that is,
potential blocs of countries with growing capacity to challenge U.S.
global dominance. China is a highly dynamic element in this equation.
These phenomena are interacting with other contradictions and
conflicts in the world, especially the post-9/11 military offensive of
U.S. imperialism and its wars in Iraq and Afghanistan, the
difficulties it has been experiencing, and military threats against Iran.
The significance of new competitive challenges to U.S. imperialism
will be missed if they are measured by the degree to which they
present themselves as a mirror “counter-hegemony” to U.S.
imperialism—militarily, economically, and institutionally. This is not
what these challenges embody at this time. And though there are
emergent elements of that, they are not concentrated in a single power.
No potential challengers to U.S. imperialism are seeking to go
toe-to-toe with the U.S. militarily, or to confront it in a major way,
in this current conjuncture. But the existence of these challenges
(and challengers) means that U.S. imperialism has to look more and
more over its shoulder.
U.S. imperialism is seeking to preserve and extend its supremacy
against a backdrop of eroding economic strength and an increasingly
fragile and unstable world financial architecture based on the
privileged role of the dollar. And, importantly, this is occurring in
a period of dynamic flux in the world system—in which new poles of
power are appearing as cracks in U.S. global hegemony widen.
The collapse of the social-imperialist Soviet bloc in 1989-91
represented the most significant change in inter-imperialist relations
since the end of World War 2. The creation of a new, more integrated
geopolitical framework for capital accumulation contributed to the
acceleration of a massive wave of globalization. This was facilitated
by new technologies and consolidated under the U.S.-led project of
neo-liberalism: privatization of government assets, opening up of
markets to foreign capital, loosening of regulations over business,
cutbacks in social spending and labor protections.
Leaps in the industrialization of world agriculture and the
transnational integration of food production and transport have sped
up the destruction of traditional agricultural systems in the
countryside of the Third World. This has furthered a process of
historically unprecedented urbanization focused in the Third World:
the movement of populations from rural areas to cities, the breakneck
growth of cities, old and new. For the first time in human history,
more than half the world’s population lives in cities, with one
billion people inhabiting the contemporary slums within and
surrounding Third World cities. This is, as Mike Davis aptly put it, a
“planet of slums.”2 ……
Also arising, and unexpectedly, out of the particular resolution of
contradictions concentrated in the collapse of the Soviet Union, but
involving other factors as well, was a reactionary transnational
Islamic fundamentalism that remains a real material and ideological
force in the world.
Notes on Political Economy and “The New Situation and the Great
Challenges” (published respectively in 2000 and 2002) present analyses
of much of this.3
These developments are now interpenetrating with and being influenced by:
* China’s rapid economic rise and power projection in East Asia,
central Asia, and other strategic regions of the Third World.
* The consolidation of the European Union (EU) as extended into
central and Eastern Europe and the creation of a coherent monetary
zone around the euro, which, taken together, pose an economic
challenge to U.S.-dollar hegemony and represent an embryonic,
alternative framework of governance to a U.S.-led imperial order.
* An increasingly assertive, raw-materials-based Russian
imperialism reaching out to and exerting pressure on Western Europe,
countering U.S. moves and promoting its own imperial interests in
energy-rich Central Asia, entering into forms of strategic partnership
with China across wide swaths of Eurasia, and providing
high-technology assistance and advanced weapons to countries like
Iran, Venezuela, etc.
* The emergence of new regional centers of accumulation in the
Third World. This has been principally driven and based on the
imperialist-led spread and deepening of capitalist relations of
production and new divisions of labor flowing from a more integrated
“network capitalism” that involves the geographic decentralization of
production facilities, subcontracting, and outsourcing. An important
outcome has been that certain dependent and subordinate comprador
regimes now have more maneuvering room, especially in connection with
rising energy and commodity prices and new geoeconomic constellations
of power (like Russia-China).
* U.S. imperialism’s continuing quest to secure unchallengeable
global dominance for decades to come on a foundation of militarization
and increasing financialization of its home base. This involves the
explosive growth of the financial sector relative to manufacturing and
the economy as a whole, and the proliferation of speculative and
destabilizing financial instruments of wealth accumulation).
These phenomena are interpenetrating with and influenced by two
closely connected developments. There is intensifying global
competition for resources, fueled by the major industrial powers’
growing demand for energy, supplies of which are shrinking (whether or
not the notion of “peak oil” is scientifically valid), and by rivalry
to gain control over these resources. And global ecological stresses
are approaching a tipping point beyond which it may not be possible
for human society to counter long-term damage to climate and
ecosystems, while the short-term effects grow more serious.
Environmental stresses are impacting food production and price,
population movements in response to natural disasters, and social
stability—as in a country like Somalia that has suffered the combined
effects of drought and lower crop yields, U.S. backed-invasion by
Ethiopia, and institutional breakdown and urban chaos resulting in
There are many different levels at which geoeconomic and geopolitical
changes are taking place; and particular historical factors are
operating. But these are not random trends and events. At the deepest
level, what underlies these changes is the nature and logic of the
capitalist system: the compulsion to expand and maximize profit to
gain competitive edge; the blind, anarchic growth, and the short-term
horizons of capitalism; and the inherent tension of a system in which
production is highly socialized and globally interconnected, involving
the interlinked and collective efforts of thousands and millions of
wage-laborers, while the means of producing wealth, the wealth that is
socially produced, and even knowledge itself are privately controlled
and deployed by a small capitalist class.
II. SOME SALIENT POINTS ABOUT THE NEW ECONOMIC GEOGRAPHY OF THE WORLD ECONOMY
At the end of World War 2, the U.S. accounted for roughly 50 percent
of world gross domestic product (GDP), and an even higher percentage
of world manufacturing capacity. This reflected the historically
specific outcome of World War 2: the rise to preeminence of U.S.
imperialism and the destruction of much of the productive capacity in
the imperial-industrial heartlands of Western Europe and Japan.
By 1960, the U.S. share of global GDP had fallen to 30 percent; today
it stands at some 21 percent. The relative economic decline of U.S.
imperialism dates back several decades—1968-71 is a kind of turning
point, marked by the European challenge and abandonment of the
gold-U.S. dollar standard. The emergence of Japan as an
industrial-financial competitor, and major exporter of capital, in the
1980s marked another kind of turning point.
But what is different today is something even more seismic in
magnitude and suddenness: China’s rise in the imperialist world
economy. In 1976, socialism was overthrown and capitalism restored in
China (following the death of Mao Tsetung and the arrest of the
so-called “Gang of Four”).
The phrase “China’s rise” is both descriptive and analytic. China is
not an imperialist power, but it is a growing and competitive world
economic and geopolitical power in the world imperialist system.
The sheer size of China’s rapidly growing economy; its central place
in the global accumulation process, as a destination of imperialist
capital and axis of world manufacturing; its massive export earnings
that have contributed to China’s central bank becoming the world’s
largest foreign holder of dollars; China’s regional impact in East
Asia and global reach (into Africa and South America, for example);
and its rapidly expanding military capability—all this is having
profound effects on world economic and geopolitical relations. And for
reasons that need to be explored further, the baton of leadership for
an East Asia-based challenge to U.S. dominance in the region seems to
have passed from Japan to China.
A. The New Economic Geography of the Planet
Table 1 measures one important aspect of the new economic geography of
the planet: the share of global Gross Domestic Product (GDP) of
different countries. GDP quantifies in money terms a given country’s
output of goods and services in a given period, typically a year. From
a Marxist perspective, the GDP measure is flawed and incomplete: it
covers over the reality of exploitation, issues of equality and
inequality, the environmental costs of production, etc.
But this measure is useful for getting some sense of economic
performance, the distribution of global economic strength, how that
has changed over particular periods, and how this might influence
competition and rivalry.
Table 1 provides a useful portal into some important trends in the
The U.S. is still the single largest economy in the world capitalist
system. But its economic supremacy is being eroded. Some time in the
early 2000s, China eclipsed Germany to become the world’s third
largest economy. Now it has overtaken Japan. And among the biggest
five economies, China’s growth rate, 9 to 11 percent annually over the
last 20 years, ranks first, with India not far behind at 8 percent in
recent years—while the U.S., Japan, and Germany have been growing at 2
to 4 percent. China’s sustained high rate of growth is unprecedented
in the history of capitalism.
China’s share of world manufacturing output rose from 4 percent in
1995 to 8 percent in 2005. In 2006, Germany had the highest share of
world manufacturing exports (9.2 percent), followed by the U.S. (8.6
percent), with China in the third position (8.0 percent). 4
Moving on to another important measure of strength in the world
economy: capital export, or capital that is invested by firms from one
country in another country. Table 2 focuses on a key and very large
component of capital export, foreign direct investment (FDI). This
outward direct investment is capital invested by firms from one
country in production facilities (like factories and mines) in the
Five countries—the U.S., United Kingdom, Japan, Germany, and
France—account for 50 percent of the stock of outward direct
investment. In 1960, the U.S. alone held almost half of the world’s
stock of outward foreign direct investment; its current share of world
investment is in the range of 20 percent. Between 1960 and 1985,
Germany and Japan substantially increased their share of accumulated
outward world investment. Japan’s share continued to rise through 1990
but then declined sharply in response to internal slowdown and the
East Asia financial crisis of 1998.
The European Union (EU) countries have maintained their share of the
stock of total world outward direct investment, while the U.S. share
has declined. And the EU is now the largest source of outflows of
direct investment capital. All this takes on greater significance in a
context in which the EU in the last few years has become a much more
cohesive and integrated bloc with a currency that is vying with the
dollar internationally. The EU has actually overtaken the U.S. as the
biggest investor in Latin America. But the U.S. is still the single
largest exporter of FDI. And it is, far and away, the single largest
investor-country in Latin America. With NAFTA, it has welded a tighter
regional network that also serves as a platform for world investment
These are all indications of a reduced international economic gap
between the U.S. and other imperialist powers and competitive positioning.
In 2007, 167 of the largest 500 companies in the world were based in
North America, 184 were based in the European Union, and 64 in Japan.
Over recent years, the U.S. share of this total has declined.5
About 15 percent of the accumulated stock of foreign direct investment
(FDI) is now in the Third World. But outflows of FDI to the Third
World on a year-to-year basis have been rising as a proportion of
total annual flows: in the range of 25 to 35 percent of the world
total in the last ten years. Flows of capital to countries in the
Third World have also been quite volatile at times—as in the movements
of imperialist capital leading up, and in response, to the East Asia
crisis of 1997-98.
Most foreign direct investment by imperialist countries goes to other
imperialist countries. This has to do with several factors: the
productive forces and national markets of the imperialist countries
are more highly developed and afford a wider range of investment
possibilities than in many Third World countries; investments often
involve expensive buyouts, mergers, and takeovers of large
enterprises; there is rivalry among imperialist corporations and
powers to gain strong market positions inside highly developed
national imperialist and continental markets; and, at the same time,
some of this investment, like oil refineries, is linked to related
investments in Third World countries.
On the other hand, a growing proportion of FDI in manufacturing is
going towards the Third World, especially China. Rates of return on
FDI in manufacturing in the Third World are generally, and often
considerably, higher than in the developed capitalist countries. And
overall profitability of investments in the Third World is influenced
by the existence of subcontractoring networks that thrive on intense
superexploitation—for instance clothing and parts and supplies
produced in sweatshops.
Another signal development: the oppressed countries now, as Table 1
shows, account for 41 percent of the world’s output; this is up from
36 percent in 2000 (and less than 30 percent in 1990). This is mainly
a product of China’s (and secondarily India’s) rapid growth as centers
of imperialist-led accumulation. A great deal of material production
is shifting to the Third World. And 80 percent of the Third World’s
commodity exports by value are now manufactured products—a sea change
from previous periods of imperialism.6
The so-called BRIC countries—Brazil, Russia, India, and
China—represent 21 percent of the world economy. To be clear, this is
neither an economically integrated bloc of countries like the European
Union, nor an alliance of states (and one of these BRIC countries,
Russia, is an imperialist power). Actually, the term was invented by
the Western financial and investment community to designate large,
high-growth and high-profit markets.
Nonetheless, there is some limited analytical validity to grouping
these countries together: they are rapidly growing “emerging markets”
for productive and financial investment; they are playing an
increasingly important role in the world economy; they are either
major producers or consumers of energy; and some are collaborating
with others in various and significant ways, especially Russia and China.
At the end of the first Gulf War in 1991, of the 20 largest companies
in the energy industry, 55 percent were American and 45 percent were
European. But in 2007, according to a study by the financial firm
Goldman Sachs, 35 percent of the 20 largest energy companies were from
BRIC countries (and most of these companies are state owned), about 35
percent are European, and about 30 percent are American. Russia and
Brazil are major energy producers.7
China and India, on the other hand, rely heavily on imports to meet
their energy requirements. But China’s state-controlled energy
companies are becoming major international players, as evidenced by
the 2005 attempt by the Chinese oil company CNOOC to acquire the
U.S.-based Unocal Corporation (which held extensive oil reserves in
North America and Asia).
B. Ongoing Divide Between Imperialism and Oppressed Nations…But New
Maneuvering Room for Some Third World Regimes
Energy producing countries in the Third World like Brazil, Venezuela,
Saudi Arabia, Nigeria, and Iran have not broken out of structural
dependency on the imperialist world market—in terms of reliance on
foreign technology; refining, marketing, and transport; etc.; extreme
vulnerability to fluctuations in price; and so forth.
Oil- and energy-led development continues to have profoundly
distorting effects on agriculture, urban-rural relations and social
structure, and exacts a high human price. Venezuela under Chavez
imports 70 percent or so of its food, while the landed oligarchy
remains largely in place. The shantytowns in Caracas are still home to
a huge concentrations of urban poor, many locked out of the formal
economy.8 The “other side” of Brazil’s ethanol boom is the hundreds of
deaths and tens of thousands of injuries for the plantation workers
harvesting the sugar cane from which the fuel is made (and U.S.
companies like ADM and Cargill are major investors in Brazil’s
But for the local ruling elites, real economic power is concentrated
in these spheres of oil, natural gas, and biofuels production. And a
certain confluence of developments has afforded some dependent Third
World regimes greater maneuvering room. U.S. imperialism has focused
attention on its wars for greater empire in Iraq and Afghanistan. The
steep, though by no means permanent, rise in raw materials prices has
generated high earnings and some financial clout. And the fact that a
rising economic power like China is pursuing its own competitive
global agenda and has accumulated substantial financial resources to
do so means that a country like Venezuela can counter certain U.S.
pressures by turning to China for loans and credits.
The changing economic geography of the planet involves a major
dispersion (globalization) of productive capacity. But “the world is
not flat”—nor is it flattening. Advanced productive forces are still
lopsidedly concentrated in the rich countries. GDP per capita in the
rich countries is still more than five times higher than in what the
International Monetary Fund calls “middle-income countries,” like
Brazil, Mexico, and Turkey. GDP per capita in the rich countries is
more than 19 times higher than in low-income countries, such as most
in sub-Saharan Africa.9 Vast differences in wage levels and huge
swaths of humanity subjected to brutal conditions of
super-exploitation trace out and underscore the oppressor-oppressed
Globalization is having contradictory effects. It is resulting in
higher levels of industrialization in the Third World, and income
gains for sections of middle classes. But this is not overall
equalization. In this phase of imperialist globalization, one of its
most significant differentiating effects has been to increase unequal
development among and inequalities of wealth within Third World
countries. China’s income distribution is among the most unequal in
the world—right up there with that of the United States and Brazil.
The changing economic geography of the planet is also affecting world
agriculture—to devastating and unequal effect in the Third World.
Imperialism is transforming national systems of agriculture into
globalized components of transnational production and marketing chains
detached from local need—that is, food is grown more and more for
export, not to feed people locally, or land is taken out of food
Where, historically, food production has been at the foundation of the
economies of most of these countries, increasingly, agriculture is
becoming less “foundational” to many national economies of the Third
World. Food production has been swept into the vortex of speculative
commodity and financial markets at the same time that imperialist-led
agro-industrial cultivation of biofuels displaces food crops. Basic
food staples are no longer being produced in adequate supply in many
parts of the Third World—while the forces of world competition,
imperialist control over new agricultural technologies, and the
vagaries of world price further undermine food security.
And so in early 2008 a global food crisis unlike any experienced
before in modern economic history exacts, and continues to exact, a
terrible human toll in large parts of Africa, Asia, and Latin America.
This too is an expression of the deep divide between oppressor and