Is China the new #1?

The coming of the Chinese century and the final demise of American hegemony have been announced frequently as a sure thing. I have dealt with several of the issues associated with that, from the misconception of the fears about the dollar as the key currency (yep, will continue to be the unit of account in international affairs for a long time) to the question of the global imbalances (the problem is not that they are big, but the fact that they are not big enough; if the US grew decently and pushed the world economy its trade deficits would be larger).

Here I want just to point out a recent study that looks at corporations. The study shows that a small number of financial institutions basically controls the overwhelming majority of transnational corporations (TNCs). To be precise "only 737 top holders accumulate 80% of the control over the value of all TNCs." These, mostly financial, institutions "are at least in the position to exert considerable control, either formally (e.g., voting in shareholder and board meetings) or via informal negotiations," still according to the same paper.

How many Chinese groups are part of these elite institutions? Well below the list of the top 20.

1. BARCLAYS PLC (UK)
2 CAPITAL GROUP COMPANIES INC (US)
3 FMR CORP (US)
4 AXA (France)
5 STATE STREET CORPORATION (US)
6 JPMORGAN CHASE & CO. (US)
7 LEGAL & GENERAL GROUP PLC (UK)
8 VANGUARD GROUP, INC. (US)
9 UBS AG (Switzerland)
10 MERRILL LYNCH & CO., INC. (US)
11 WELLINGTON MANAGEMENT CO. L.L.P. (US)
12 DEUTSCHE BANK AG (Germany)
13 FRANKLIN RESOURCES, INC. (US)
14 CREDIT SUISSE GROUP (Switzerland)
15 WALTON ENTERPRISES LLC (US)
16 BANK OF NEW YORK MELLON CORP. (US)
17 NATIXIS (France)
18 GOLDMAN SACHS GROUP, INC., (US)
19 T. ROWE PRICE GROUP, INC. (US)
20 LEGG MASON, INC. (US)

The first Chinese corporation is at number 50, the China Petrochemical Group, a resource based State firm. Oh yes, the evil giant vampire-squid is only number 18, but it is on the list. The Chinese economy, like the economies of almost any peripheral country, is partly owned and managed by a network of firms that are fundamentally from developed countries (in the top 20 above, from the US, the UK, France, Germany and Switzerland). The reverse, that is Chinese control of firms in developed countries, is minimal. Yes, sure, China is number one!

American decline?

A few readings on why American hegemony is not on the verge of collapse, prompted by a conversation with a graduate student. Note that all come from a group of people that has been influenced by Maria da Conceição Tavares, who wrote in 1985 a classic paper (A Retomada da Hegemonia Norte-Americana; in portuguese), on the rise of US hegemony when almost everybody was going in the other direction.

Fiori, J. L. (ND) "The Global Power, Its formation, its expansion and its limits," processed.

Serrano, F. 2003. “From Static Gold to Floating Dollar,” Contributions to Political Economy, 22: 87–102.

Medeiros, C. A. (2003), "The post‐war American technological development as a military enterprise," Contributions to Political Economy, 22: 41-62. (Subscription required)

Fields, D. and M. Vernengo (2011), "Hegemonic Currencies during the Crisis," Levy Economics Institute Working Paper No 666.

And yes, I did notice the number of the working paper!

Deindustrialization and American Hegemony

Manufacturing jobs have declined precipitously in the United States since the late 1960s. As the graph below shows they fell from 28% of total employment to 10% last year. The decline is continuous, and, one should add, precedes NAFTA and other Free Trade Agreements, (FTAs) which are often associated with the process of deindustrialization in the US. That the topic is old should be highlighted by the fact that the classic on the subject is Barry Bluestone and Bennett Harrison’s book published in 1982.

However, if one looks at the absolute number of manufacturing jobs, rather than their share in total employment, a slightly different picture emerges. First, manufacturing employment grows up to 1979 (peaking at around 19 million jobs). In other words, the fall in the manufacturing employment share from the 1960s to 1979 is fundamentally the result of a rate of employment growth in the manufacturing sector lower than in the economy as a whole. From 1980 manufacturing employment basically starts falling slightly up to 1994, and from 1994 to 2000 it grows only a trifle, fluctuating around 17 million jobs. Interestingly enough, 1994 is the year of the implementation of NAFTA. The whole period from 1980 to 2000 is a period in which the share of manufacturing employment falls, not just because employment grows faster in other sectors, but also because it stagnates.

However, after 2001 (the year China entered into the World Trade Organization, WTO) manufacturing jobs collapse, with only 11.5 million jobs in 2010. This may suggest that, in part, one may have to revise Bob Rowthorn’s view that North-South trade has no role to play in deindustrialization. But clearly the process that starts in 1979 is of a different nature. One view is that it represents a natural result of economic maturity, and that faster growth in manufacturing implies more workers absorbed in the services sector.

I would suggest, but not elaborate too much here, that deindustrialization in the United States, and I mean the post-1979 phenomenon, is part of a strategy of accumulation, which was based on lower wages and higher interest rates, with demand pushed by increasing the debt leverage of the private sector (as suggested in another post). The weakening of the unions (and FTAs have played a role in this), and the move of manufacturing jobs abroad (mostly to Asia), and, as a result, deindustrialization, are part of the pattern of accumulation since the 1980s. However, this should not be read as a general weakness of the United States industrial sector.

As noted by Fred Block, the United States has a shadow industrial policy machine, that has allowed certain sectors to be weakened, but has promoted vigorously other sectors deemed strategic.  For him:

“The rise of the computer industry in the U.S. was, at every stage, orchestrated by major government initiatives and even to this day large federal investments are being made to keep the U.S. computer industry ahead of foreign competitors. Nor is the computer industry atypical. Virtually all U.S. industries have become heavily dependent on scientific and technological advances that are financed primarily by the federal government's support of university and government laboratory researchers.”

Block argues that there is a hidden developmental State in the US. In that sense, deindustrialization has not been a sign of the weakness of the US, or of the demise of its hegemonic power, as some on the left would argue. On the contrary, is part of the renewed American Hegemony, which has been maintained at the cost of certain sectors, and, in particular, of its working class.