A PREVIOUS article sketched out how it was that Western transnational companies came to outsource much of their home-based textile industries, focusing especially on Honduras and the Caribbean, and on rising indebtedness of poor “developing countries” or “emerging markets” which had become bargain-basement exporters to the advanced economies.

Today’s deregulated, neoliberal, globalised capitalism certainly looks and is different from the “old” capitalism of half a century ago.

In Global Finance (2000), Walden Bello and fellow contributors summed up neatly enough the situation which still applies: “In most countries, banks, savings associations, insurance companies, and investment houses can now do, what used to be each other’s business.

“The lines of demarcation that distinguished the international eurocurrency markets from national, domestic financial markets have also become blurred or are disappearing altogether.”

Until the early 1970s, regulation reigned across much of the world in accordance with the 1944 Bretton Woods settlement and national government preferences.  

Besides strong regulation of financial sectors, capital flows across borders were limited and currency exchange rates were fixed, while corporations were required to rely on retained earnings for investment.  

Bretton Woods had established a firm link between the dollar and gold, entitling dollar holdings owners if they wished to swap their dollars for gold at $35 per ounce.  

But in 1971, with US gold reserves under threat, US president Richard Nixon severed the link between dollars and gold.

The value of the dollar would now float freely against the values of other currencies, but safeguarded by the relative strength of the US economy.

An early contribution to a transformed world was the massive dollar surplus accumulated from US financing of the Vietnam war, dollars that “found their way abroad in financial transactions made by the US.” 

In London commercial banks and other financial set-ups were thereby enabled to extend their remit beyond domestic banking into the international arena, assisted by additional funds generated by the oil embargo instigated by the Organisation of Petroleum Exporting Countries (Opec) in 1973, imposing a price rise.  

Cross-border lending — much of it to developing countries — flourished, as did greater domestic deregulation.

The removal by the Thatcher government of foreign exchange controls was another step. Globalisation became a reality, though marked by ever feebler growth of “real” elements of the economy, such as the production of cars and energy. Surplus production capacity became increasingly visible.

Indeed, John Smith, in his 2016 study — Imperialism — concluded that outsourcing was “not so much driven by the awakening of finance but by stagnation and decline in the rate of manufacturing profit.” 

Outsourcing countries benefiting included US favoured client state Japan as well as the US and European countries.

They each slashed labour costs abroad while reducing the number of directly employed workers at home.

In consequence, more than half the total manufactured exports of many developing countries came profitably to the advanced economies.

Outsourcing can be direct or indirect. A directly outsourcing company retains ownership of the invested capital.  

Direct outsourcing, states Smith, is notably carried out in the extractive industries (hydrocarbons and minerals), where owners gain more protection for the “rents” from these assets, and in natural resources (such as foodstfuffs).  

Indirect outsourcing is “at arm’s length,” ie with no ownership of the outsourced establishment retained by the outsourcer.  

A 2011 World Investment Report explained that the indirectly outsourcing company maintains “a level of control over the operation by contractually specifying the way in which it is to be conducted.” 

The role of investment banks in these operations, through loans and investments, participation in hedge funds, and deriving their own profits therefrom, should not be ignored.

Nor should a special advantage gained from arm’s length exploiters. Having established a technically equal partnership with the outsourced company, they could, whenever scandals arose identifying pollution, poverty wages, fearsome working conditions and suppression of trade union rights, claim clean hands.  

Thus Coca-Cola production bases in Colombia, where trade union suppression had gone so far as to invoke death squad intimidation, could be the subject of “Not me” assertions from the company’s international directors.

A large proportion of outsourced workforces function in an unregulated “informal economy,” without legal recognition, without taxation or workplace inspection.  

India, states Smith, is an extreme case, “with 83 per cent of its employed population active in the informal economy, 48 per cent of those working for a wage.”

Paradoxically, as Noam Chomsky comments in What We Say Goes, India has fared better in terms of growth, than many other developing countries, citing road building, software engineering programmes and advanced laboratories. That was, he notes, because India did not stick to the neoliberal rules.  

The Indian government had maintained control over capital flows and finance, and had readily breached some International Monetary Fund (IMF) requirements, while accepting harsh credit restrictions for struggling farmers.

In the overall context of neoliberal policies and outsourcing by transnational companies, migration from developing countries has predictably grown.  

The loss of highly skilled workers to advanced economies has damaged domestic health and education services. The World Health Organisation (WHO) has estimated that between 1995 and 2004 Tanzania lost almost 80 per cent of its doctors through emigration.

Neoliberalism has had a more chequered career than is always realised.  

Chile, following the US-backed coup against the socialist regime of Salvador Allende by General Pinochet in 1973, was the earliest full-blooded and bloody neoliberal experiment, with privatisation and entry for foreign imports centre stage.  

Torture and killings were supplemented by mass loss of livelihoods and escalation of wealth inequality.

The policy was eventually much revised, with bailouts for collapsed private industry and banking, and a return of state control, propped up by the nationalised copper producer. 

The largest successful violator of neoliberal rules has been China, whose increasing economic strength both at home and in trading partnerships, has put “the rules” to shame.  

In Who Rules the World, Chomsky urges caution regarding China’s further development: “China is the world’s major manufacturing centre, but largely as an assembly plant for the advanced industrial powers on its periphery and for Western multinationals.” 

He goes on to point, however, to increasing innovation in China’s economy, drawing attention to its “takeover of the growing global solar panel market.”

Japan and South Korea, both US satellites from the early post-war years as part of the US imperial project to hold back communism and project US power, have been more generously treated than non-client states.

Both were denied nationalisation of industry, but permitted land reform, state guidance of the economy and protectionism, and granted favoured access to the US domestic market. Japan, especially favoured, was gifted advanced technologies too.

Capitalism’s inherent tendencies to go out of control were evidenced in the 1997 economic meltdown of South Korea, Thailand, Indonesia, Malaysia and the Philippines.  

The stage was set by 1996, when Asia was the destination for half of all global investment. Thailand’s experience illustrates the disasters awaited from roving speculative capital.  

In line with IMF advice, it maintained relatively high interest rates and a currency exchange rate linked to the dollar — enticements for foreign investment — which piled in, eyes especially on real estate development. But soon unsold land, coupled with a fall in export growth, sounded the alarm.

The outsider capital fled, some first betting against the Thai baht, causing it to lose more than half its value. There followed an IMF rescue at crippling cost in the form of austerity budgets, high interest rates, and fire sales of assets.

In 2007, a decade later, capitalism was running amuck again, triggered by absurdly persistent investment in US “sub-prime property” (borrowers unable to sustain unrealistic mortgage loan payments).

Investors had declined to place their funds in the real economy where returns were to be sniffed at.  

Is imperial capitalism now getting ready, after a decade-plus of containment of the crisis by ultra-low interest rates and injection of liquidity by government bond purchases, to shove itself off another cliff, demonstrating its systemic deficiencies once more, and at the same time bringing fresh misery to the majority across the world?