The Globalization of Capitalism

The Rise of Capitalism's Fourth Epoch

Members of the Rainforest Action Network hang a banner in protest WTO policies in 1999. The following days of mass protest would become known as the "Battle in Seattle.".

Capitalism, as an economic system, first debuted in the 14th century and existed in three different historical epochs before it evolved into the global capitalism that it is today. In this article we take a look at the process of globalizing the system, which changed it from a Keynesian, "New Deal" capitalism to the neoliberal and global model that exists today.

The foundation of today’s global capitalism was laid, in the aftermath of World War II, at the Bretton Woods Conference, which took place at the Mount Washington Hotel in Bretton Woods, New Hampshire in 1944.

The conference was attended by delegates from all Allied nations, and its goal was to create a new internationally integrated system of trade and finance that would foster the rebuilding of nations devastated by the war. The delegates agreed to a new financial system of fixed exchange rates based on the value of the U.S. dollar. They created the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development, now a part of the World Bank, to manage the agreed upon policies of finance and trade management. A few years later, the General Agreement on Tariffs and Trade (GATT) was established in 1947, which was designed to foster “free trade” between member nations, premised on low to non-existent import and export tariffs. (These are complex institutions, and require further reading for deeper understanding. For the purposes of this discussion, it’s simply important to know that these institutions were created at this time, because they go on to play very important and consequential roles during our current epoch of global capitalism.)

The regulation of finance, corporations, and social welfare programs defined the third epoch, "New Deal" capitalism, during much of the 20th century. The state interventions in the economy of that time, including the institution of a minimum wage, the cap of a 40 hour work week, and support for labor unionization, also laid pieces of the foundation of global capitalism.

When the recession of the 1970s hit, U.S. corporations found themselves struggling to maintain the key capitalist goals of ever-growing profit and wealth accumulation. Protections of workers' rights limited the extent to which corporations could exploit their labor for profit, so economists, political leaders, and heads of corporations and financial institutions devised a solution to this crisis of capitalism: they would shake off the regulatory shackles of the nation-state and go global.

Ronald Reagan’s presidency is well known as an era of deregulation. Much of the regulation created during Franklin Delano Roosevelt’s presidency, through legislation, administrative bodies, and social welfare, was torn down during Reagan’s reign. This process continued to unfold over the coming decades, and is still unfolding today. The approach to economics popularized by Reagan, and his British contemporary, Margaret Thatcher, is known as neoliberalism, so named because it is a new form of liberal economics, or in other words, a return to free-market ideology. Reagan oversaw cutting of social welfare programs, reductions to federal income tax and taxes on corporate earnings, and removal of regulations on production, trade, and finance.

While this era of neoliberal economics brought the deregulation of national economics, it also facilitated the liberalization of trade between nations, or an increased emphasis on “free trade.” Conceived under Reagan’s presidency, a very significant neoliberal free trade agreement, NAFTA, was signed into law by former president Clinton in 1993. A key feature of NAFTA and other free trade agreements are Free Trade Zones and Export Processing Zones, which are crucial to how production was globalized during this era. These zones allow for U.S. corporations, like Nike and Apple, for example, to produce their goods overseas, without paying import or export tariffs on them as they move from site to site in the process of production, nor when they come back to the U.S. for distribution and sale to consumers.

Importantly, these zones in poorer nations give corporations access to labor that is far cheaper than labor in the U.S. Consequently, most manufacturing jobs left the U.S. as these processes unfolded, and left many cities in a post-industrial crisis. Most notably, and sadly, we see the legacy of neoliberalism in the devastated city of Detroit, Michigan.

On the heels of NAFTA, the World Trade Organization (WTO) was launched in 1995 after many years of negotiation, and effectively replaced the GATT. The WTO stewards and promotes neoliberal free trade policies among member nations, and serves as a body for resolving trade disputes between nations. Today, the WTO operates in close concert with the IMF and the World Bank, and together, they determine, govern, and implement global trade and development.

Today, in our epoch of global capitalism, neoliberal trade policies and free trade agreements have brought those of us in consuming nations access to an incredible variety and quantity of affordable goods, but, they have also produced unprecedented levels of wealth accumulation for corporations and those who run them; complex, globally dispersed, and largely unregulated systems of production; job insecurity for billions of people around the world who find themselves among the globalized “flexible” labor pool; crushing debt within developing nations due to neoliberal trade and development policies; and, a race to the bottom in wages around the world.

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Cole, Nicki Lisa, Ph.D. "The Globalization of Capitalism." ThoughtCo, Mar. 2, 2017, Cole, Nicki Lisa, Ph.D. (2017, March 2). The Globalization of Capitalism. Retrieved from Cole, Nicki Lisa, Ph.D. "The Globalization of Capitalism." ThoughtCo. (accessed March 19, 2018).