Globalization and the End of Capitalism

Globalization, a U.S. capitalist policy, will destroy capitalism as we know it. Higher global competition will require domestic reduction in production cost, outsourcing the production, increased unemployment at home, reduction in benefits such as health care and retirement, and reduction in domestic production of goods and services. Pushed reduction in the margin of profits will finally eliminate capitalism as we know it.

Based on my some forty years study and research relating to socio-economic development in a variety of societies, it is my deep belief that capitalism has reached the point of its own destruction moving the world toward a more equitable standards of living. Two factors are prominent in this incredible, irreversible and unavoidable process. These are the electronic information and communication system particularly the Internet and the rapid development of free trade or globalization process. These have created a tremendous disequilibrium in production and marketing of goods and services in the world market. While hourly pay for a skilled worker in the United states is around $20.00, the equivalent of the same labor is about $0.80 per hour in China and around $1.80 in India, two massive communities with a combine population of 2.4 billion with advanced technology and millions of skilled workers and professionals. These countries are now capable to overtake the process of production of goods, services and marketing for a fraction of their cost in the United States and Europe. They produce the same quality of goods even in some cases better that those produced elsewhere. Considering only the labor cost, an enormous pressure is already imposed on production firms operating in the global markets. Jobs are being rapidly outsourced to developing countries with ample skilled resources, to China and India in particular. Besides cheap labor, there are other substantial benefits inducive to movement of production to these countries. For example, there is a minimal or no health care cost, particularly in those countries with national health care programs, whereas this is a very significant cost of production in the United states; there is no or a little government regulation of the production particularly concerning the work environment, hours of work and child labor; there is no or a minimal, often loosely regulated retirement benefits imposed on producers.

Consequently, advanced countries have to reduce the labor cost by reducing pay per hour, improve automation and lay off workers in order to remain competitive in the world free market. We are already seeing such moves in some industries in the United states such as airlines, production of computers and other electronic devices, agricultural sector, etc. Now developing countries particularly China and India are rapidly advancing in the global market. $1.00 stores are now all over the United states. You can practically find most of your needs in these stores. Nearly all goods sold are made in developing countries particularly China. A plier which is about 8.00-12.00 if made in the United States you pay one dollar, nearly the same quality but made in China. The same goes for a wrist watch-calculator or ladies and men hear coloring. I recently bought a prescription glasses for reading for $1.00. Not only it fit my eyes perfectly, it was also beautifully and professionally designed and produced. The price, of course, included the material and production cost, transfer overseas from China to the United States, the middleman’s profit and finally the retail store profit. Looking at the glasses I wondered how in the world this could be possible even with $0.80 per hour skilled labor cost!

However, the effects of free trade and globalization, despite being harsh on developed countries, is promising for the rest of the world. It will force advanced countries of the West and Japan, first to cut the production cost and then reduce the volume of domestic production as they transfer their production systems to developing countries. The major items in production cost are wages, health care services and retirement benefits. In order to stay competitive in the world market, the cost in all these three areas has to be cut down continually and ultimately substantially. Gradual reduction in wages and other benefits will place some 90 percent of the American families in precarious conditions. The purchase of, so called, luxury items will be sharply reduced and a part of the income will be channeled to necessary items such as health care and some saving for retirement. Purchase of multiple items now practiced nearly in every family such as two or more TV sets cameras, particularly clothing will be brought to a minimum. As a result the volume of consumption nationwide will substantially decrease forcing the producers to cut production accordingly. The living standards will come down to a modest level leading toward a more equitable life. Reducing workforce will not solve the problem when a substantial number of workers would be out of job. The only way these countries can peacefully and democratically survive would be through a democratic employment process by the application of the principle of equality of opportunity at work place, resulting in total elimination of the layoff or firing of the workers.(1) The result would be substantially reduced pay but full employment.(2)

In developing countries, on the other hand, based on gradual advancement in societal consciousness, there will be an increasing demand for better wages and benefits. Wages will gradually go up, work environment will improve, health and retirement benefits will be established. As a result, the standards of living will improve toward a modest level for most of the citizens.

The global keen market competition, particularly between the United States, Europe and Japan, while it would require continuous cutting the cost of production and marketing, it will also necessitate continual cutting of the profit margin in order to be able to compete in a very tight market. Ultimately, it will be a matter of survival for all production firms. Producers will be satisfied if they come out even with no profits and no losses. The production firms will then tend to be and act as non-profit organizations. Income from the production would offset the wages, benefits and other costs. Though the profit motive will still persist, but opportunities of profit will not be there anymore. That will be the end of capitalism as we have known. The alarming fact for the capitalists is that, because of world free trade market, this process of change will be irreversible and will not take too long. I believe it will not go beyond four to six decades.(3)

References:

  1. See the theory of equality of opportunity at Rezazadeh, Reza. Technological Democracy: A Humanistic Philisophy of the Future Society, New York :Vantage Press, 1990, pp.188-209; Technodemocratic Economic Theory: From Capitalism and Socialism to Democracy, Platteville, WI: Eternalist Foundation, 1991, pp.221-248.; and Passage to a Just Society: Secrets of Democratic Life, leisure and Happiness, Xlibris, 2003, pp.203-208.
  2. See the concept of shared opportunity at Technological Democracy, op. cit.,pp.198-205; and Technodemocratic Economic Theory, op. cit. p. 186; and Passage to a Just society, op. cit. P.205.
  3. You will find detailed discussion of globalization and disappearance of capitalism in my writings particularly in the above cited books.

Professor Emeritus at the University of Wisconsin System,and a Fulbright scholar, a multi-disciplinary, multi-cultural, and multi-lingual scholar with background in Mechanical Engineering (B.S.M.E.), Continental and Islamic Law (Licenciate), J.D. in American Jurisprudenxce, LL.M. in International Law and International Economics, Ph.D. in Political Science, Economics and Administration, and Doctor of the Science of Law (S.J.D.) the highest law degree offered in U.S. Fluent in five languages: English, French, Spanish, Persian, Azeri-Turkish. Elementary knowledge of Arabic, Urdu, Russian and Italian. Patented inventions; an artist, a poet (oil and pastel), a musician (violin), with over 35 years of academic background in teaching, reseasrch and administration, research and cultural studies in many countries in Europe including USSR, Middle East, Central Asia, Northe africa, Central and South America. Author of 8 books and many scholarly articles listed in his website www.democracywhere.com.

Copyright © 2007 Reza Rezazadeh