Author: William Saint
Date: September 6, 2011
Tags: ,

The Principles of Capitalism and Their Effects in the World

4.   Encouragement of consumption: Advertising is the means
In a capitalist economy, consumption fuels growth.  Increased consumption generates higher rates of growth. Advertising is the main instrument employed to stimulate and steer consumption around the world. Consumerism, after all, has to be taught to people who have not yet developed the habit. Advertising was thus a $450 billion industry in 2009. On a per capita basis, this is $65 for every person on the planet. According to estimates by MagnaGlobal, worldwide advertising spending will rise by 6.9 percent next year. Through 2016, MagnaGlobal expects average annual growth in worldwide advertising expenditures to be 6.3 percent. However, that growth will not be even. Projections show that advertising growth in developing markets will be nearly double the pace in developed markets.[9] For example, between 2007 and 2008 advertising expenditure increased 17 percent in China. The internet is proving to be a fertile ground for the promotion of consumerism. Digital advertising is set to surge nearly 50 percent annually. The research firm IDC expects rapid growth in online advertising spending, projecting that the global market will reach $106.6 billion by 2011.

5.   Market deregulation: Free trade agreements are the mechanism
A free trade agreement is intended to eliminate constraints to market competition. It creates a type of trade bloc, a designated group of countries that have agreed to eliminate tariffs, quotas and preferences on most (if not all) goods and services traded between them. It can be considered the second stage of economic integration. Countries tend to choose this approach to economic integration if their economic structures are viewed as complementary.

The United States is partner signatory to three regional free trade agreements. They are: the North American Regional Free Trade Agreement, 1994; the U.S.–Southern African Customs Union Regional Free Trade Agreement, 1999; and the Central America Regional Free Trade Agreement, 2005. It has also concluded 17 bilateral Free Trade Agreements with countries such as:  Jordan, 2000; Chile, 2004; Colombia, 2004; Singapore, 2004; Australia, 2006; Malaysia, 2006; Morocco, 2006; Panama, 2006; and Peru, 2006. Notably, most of these were signed during the presidency of George W. Bush and involve countries that either lack or fail to enforce workers’ rights laws.  Indeed, labor unions are viewed by neoliberalism as a significant constraint on competition (and profits).

In addition, the United States has signed free trade agreements with South Korea and Panama, but Congress must enact legislation to approve each individual agreement in order for them to go into effect. The United States is also negotiating for a regional, Asia-Pacific trade agreement, known as the Trans-Pacific Partnership Agreement. In short, the free-trade movement continues to gather momentum, despite its questionable benefits.

The advantages of free trade agreements have been hotly debated over the past decade.  Proponents cite its stimulus to growth, promotion of efficiency, reduction of poverty, cultural enrichment and the possibility—through greater integration and interdependency—of decreasing the chances of war. Critics point to negative effects in the United States and abroad on local development, job loss through outsourcing, the instability associated with mobile capital, environmental degradation, cultural homogenization, the increased risk of economic “bubbles,” and evidence that the benefits of economic globalization accrue primarily to developed countries, multinational corporations, and the wealthy.

6.   Unrestricted capital movements: Financial instability and worker migrations

With the integration of international capital markets, global flows of foreign direct investment (FDI) grew strongly in the 1990s at rates well above those of world economic growth and trade, averaging 13 percent a year during 1990–97. This brought annual FDI totals up from an average $198 billion in 1990-94 to $1.5 trillion in 2000.[10] For low-income countries, net FDI inflows have more than quadrupled since 2000, growing at an average annual rate of 20 percent during 2000–2008.[11]

Global flows of foreign direct investment peaked at $2.1 trillion in 2007 before the Great Recession. In 2011, FDI is expected to continue its recovery and grow towards $1.6–2 trillion in 2012. This recovery is projected to be stronger in developing countries than in developed ones.  This shift in foreign investment towards developing and transition economies is expected to accelerate in the years ahead. As a result, developing and transition economies now account for nearly half of global inflows of foreign direct investment.

As noted in Just Globalization, unrestricted capital flows can introduce great volatility into the capital markets of individual countries. When capital flows out, attracted by a better opportunity elsewhere, the financial and human cost to a country can be huge, as the Asian Tigers discovered in the late 1990s and Argentina did in 1999.[12]

As capital has become more mobile in the quest for favorable profit-making conditions, employment opportunities appear and disappear with increasing frequency. Consequently, workers have often been forced to follow capital in search of jobs. For example, as NAFTA has decimated Mexican agriculture by enabling cheap food imports, unemployed farmers have increasingly sought to enter the United States in the quest for work. Likewise, as many as 500,000 Chinese have immigrated to Africa, lured by jobs in its oil, copper, uranium, wood, and other natural resource industries.[13] The International Organization for Migration estimates total international migration has risen from 154 million in 1990 to 214 million in 2010.[14] As a result, international remittances from such workers were expected to surpass $550 billion last year (see chart below).  Interestingly, although substantial efforts have been made to reduce barriers to the free flow of investment capital, no such similar attempt has been made to eliminate constraints on the free flow of labor – although labor and capital are the two main factors of production.

Source: Remittances data, Development Prospects Group, World Bank, 2010

The downward pressure on wages worldwide also creates a global market for forced labor. The U.S. Department of State estimates that roughly 800,000 people are trafficked across borders each year.[15] If trafficking within countries is included in the total world figures, official U.S. estimates indicate that some 2 to 4 million people are trafficked annually. According to International Labor Organization (ILO), in 2005 as many as 12.3 million adults and children around the world may currently be victims of forced labor, bonded labor, and coerced prostitution (i.e., slavery). This constitutes an international business that generates an estimated $32 billion annually.[16]

One Response to The Principles of Capitalism and Their Effects in the World

  1. Gary Green says:

    I invite readers to also read “Good Capitalism Bad Capitalism, and the economics of growth and prosperity” available at the following URL: http://www.acton.org/pub/religion-liberty/volume-17-number-4/good-capitalism-bad-capitalism-and-economics-growt

    Another good source of information on the subject of capitalism and socialism is a video presentation entitled Rev. Robert A. Sirico on Socialism and Social Justice, available for viewing online at: http://vodpod.com/watch/3357265-rev-robert-a-sirico-on-socialism-and-social-justice

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