Like most terms in social theory, the term "conservative" is profoundly ambiguous and contested. In the United States today the word is often applied to those who call for an absolute minimum of government interference in capitalist markets. In another meaning it refers to those who insist that social life should center on the preservation of a community’s traditions and cultural values. There is a deep tension between these two viewpoints. Capitalist markets left to themselves radically destabilize established communities, and so preserving cultural traditions and values requires political intervention in economic life. Given this ineluctable tension it is probably best not to use the same term to refer to both positions. In the present paper I shall refer to the former perspective, whose intellectual roots are found in the "classical liberalism" of John Locke and others, as "neoliberalism." The latter perspective will be referred to as "neoconservatism."

John Gray’s False Dawn: The Delusions of Global Capitalism is to my knowledge the most important and influential account of globalization presented from a neoconservative perspective. In the first section of this paper I shall present Gray’s answer to the crucial question whether globalization has fundamentally transformed the relationship between states and markets. The second section summarizes the political implications Gray draws from his account. The final section will be devoted to a critical assessment of his standpoint.

One important debate regarding globalization has to do with the relationship between states and global markets. A familiar neoliberal account begins by emphasizing the way in which technological developments have vastly expanded the exit options available to financial and industrial capital. Financial investments in a nation’s currency and bonds, or in the bonds and equity of a nation’s enterprises, can be reversed with a few keystrokes. Information technologies significantly heighten the ability of industrial capitals to shift parts of the production chain across borders, through either foreign direct investment or subcontracting arrangements. The mere presence of such exit options does not in itself logically rule out any particular state policy. Neoliberals insist, however, that these options necessarily tend to make many forms of state activity much less feasible. Global markets in effect place an "electronic straightjacket" on states. (Friedman 2000)

More specifically, neoliberals claim that the rise of globalization makes the social democratic agenda pursued by Labor Parties in Europe (and, to a lesser extent, by the Democratic Party in the U.S.) historically obsolete. This agenda includes government deficit spending in order to avoid economic downswings and involuntary unemployment, progressive income taxes to reduce economic inequality, and relatively generous social programs to minimize the effects of economic disruptions (welfare programs, unemployment insurance, etc.). But today international flows of finance capital in currency markets, bond markets, and equity markets tend to shift away from countries maintaining high levels of government deficit spending or steep corporate and income taxes. In an age of heightened global capital flows it thus becomes less and less feasible in normal circumstances for the state to engage in deficit financing in order to stimulate demand and secure full employment. It also becomes less and less feasible for the state to use taxes to lessen inequality significantly, or to maintain traditional welfare state protections. Full employment guarantees and generous welfare provisions must also be abandoned if labor markets are to have the "flexibility" neoliberals believe is required to compete successfully in the global economy.

Neoliberals do not simply describe these changes. They vehemently applaud this qualitative shift of power from states to global markets. They hold that this shift removes distortions that inevitably arise when the state intervenes in economic life. (Wriston 1992)

Recalcitrant social democrats, in contrast, deny that globalization has essentially eroded state capacities. These theorists insist that the most significant fact about globalization is that it has been and will continue to be a state project, pursued by central banks, departments of the treasury, and other sections of the state apparatus. These state agencies, representing the interests of finance capital and significant factions of manufacturing capital, have shifted the balance of power between capital and wage labor through deregulation, privatization, and the liberalization of markets. The concept of ‘globalization’ has been an important ideological weapon in this political project, deployed to persuade the public that all alternatives to neoliberalism have been eliminated by technological and economic developments. But the concept does not accurately describe some new stage in capitalist development in which the state is all but powerless in the face of global markets. "Globalization," in brief, is "globaloney." If the political will were present to pursue full employment and reduced inequality, the social democratic project could be effectively revived. (Palley 2000)

From Gray’s standpoint, both positions in this debate must be unequivocally rejected. Regarding the latter, Gray agrees with neoliberals that the epoch of social democracy is definitively over. The extension of capital mobility has proceeded too far to be pushed back to the extent required to maintain the welfare state policies set in place after the Second World War. (6, 54, 98-9, 202, 232) Gray mentions five specific reasons for this:

1. The pressures of competitive deregulation forces nations to attract capital investment, and lowering regulations on capital is an effective way of attracting capital. (98)
2. Similar pressures force a lowering of corporate taxes, since "worldwide mobility of production allows enterprises to locate where regulatory and tax burdens are least onerous." (213)
3. Workforces in regions where social democracy has held sway are increasingly in competition with highly educated, low-wage workforces from other areas of the globe, a process that is sure to intensify. (98)
4. Governments are now more dependent on international capital markets (34), and the global bond market has a "chronic allergy" to job creation through public borrowing and to all forms of counter-cyclical policies perceived to be excessively expansionary. (98)
5. In the medium to long term, the social democratic model of capitalism may enjoy significant advantages over the neoliberal model. It may well tend to superior education and skill levels, higher investment in infrastructure and other public goods and services, and superior social cohesion, while attaining comparable levels of efficiency. But all of this is quite irrelevant. Short term economic pressures prevent variants of capitalism with long term advantages from competing successfully with variants enjoying lower labour, regulatory, or tax costs in the short-to-medium term. (80)

These factors work together "to drive down social provision and raise the taxes on labour." (88) Gray concludes, "social democracy . . . belongs to a world that cannot be revived." (204)

This does not by any means imply that Gray is in the neoliberal camp. For one thing, he believes that neoliberalism rests on a false philosophical anthropology. Neoliberals assume that free markets are somehow "natural," held back only by extraneous political power. Following Karl Polanyi, Gray insists that free markets do not just arise spontaneously: "Encumbered markets are the norm in every society, whereas free markets are a product of artifice, design, and political coercion." (17)

A second problem for neoliberalism is that its normative foundations are deeply suspect. Depending on circumstances, neoliberals appeal either to deontological claims formulated in terms of individual rights, or to the consequentialist argument that free markets left to themselves automatically tend to maximize the social good. Regarding the former, Gray holds that there are no natural rights to individual freedom in the economic realm. It is not "natural" to hold that "the exercise of personal choice is more important that social cohesion, the control of economic risk, or any other collective good." (108). For neoconservatives rights talk is legitimate only when based on a moral consensus rooted in a common ethical life. The appeal to rights by neoliberals in the absence of such a consensus is thus illegitimate. It is an ideological tactic employed "to shield the workings of the free market from public scrutiny and political challenge." (109)

Utilitarian defenses of global free markets fare no better. These defenses ultimately rest on Ricardo’s theory of comparative advantage, which holds that whenever "opportunity costs" differ in two nations, each benefits from specialization and trade, even when one holds an "absolute" advantage in all the relevant economic sectors. Suppose England is more efficient in the production of both textiles and wine than Portugal. Suppose further that if England were to shift a unit of labor from textile production to the production of wine, it would lose more output of textiles than if Portugal were to undertake the same shift, while if Portugal were to shift a unit of labor from wine to textile production, its output of wine would decline by more than England would lose from this adjustment. Under such circumstances England has a comparative advantage in textiles and Portugal in wine. If England and Portugal each specialize in the area where it has a comparative advantage, total output of both textiles and wine will increase. Both countries can mutually benefit from foreign trade such that individuals in both countries are able to consume higher levels of textiles and wine. In this manner, Ricardo concludes, specialization and trade lead to an overall gain in social utility.

Taken on its own terms this is a powerful argument, and it remains the foundation of mainstream international economics. (Kenen 1994, Chapter 2) But when all is said and done the theory of comparative advantage is almost completely irrelevant to the global economy today. Ricardo assumed that the only relevant flows across borders consisted of traded commodities. There are no cross-border flows of investment capital in his model. If we try to make the model more relevant to the contemporary global economy by allowing flows of investment capital across borders, absolute, not relative, advantage becomes the determining factor. Portuguese capital will flow to England, where there are productivity advantages in both textiles and wine. This shift may result in a net gain of output in both sectors, but there is no mechanism to ensure that individuals in Portugal will benefit from the gain. Just the opposite holds. Individuals in Portugal will face declining levels of consumption. Given the principle of marginal utility, accepted by neoliberals appealing to Ricardo’s argument, the successive gains in utility for each additional unit of consumption in England will not compensate for the successive losses of satisfaction in Portugal as a result of fewer consumption opportunities. The utilitarian defense of global free markets thus collapses.

A second problem with this utilitarian defense of global free markets is that increases and losses in utility are measured solely in terms of levels of individual consumption. But there are many other factors relevant to assessment of the social good besides this. For Gray and fellow neoconservatives social stability and cohesiveness is an absolutely essential matter. The very identity of individuals is a function of their community, with its traditions and cultural values. If neoliberal policies undermine community stability and cohesiveness, no increase in consumption levels can compensate for this loss.

This brings us to the very heart of Gray’s argument. He holds that the neoliberal project of extending global free markets to the greatest extent possible leads to a range of profound social pathologies. Taken together they impose social costs that far outweigh any gains in economic efficiency. These costs include:

• the disintegration of family life; (29-30; 72)
• the erosion of the material foundations of specific communities; (112)
• the erosion of "intermediate institutions" between the individual and the state, institutions that are absolutely essential for social stability (trade unions, professional associations, etc.); (26)
• the eradication of bourgeois values such as those associated with a career; (217)
• the formation of an "underclass," a "neoliberal dependency culture"; (30; 42)
• levels of inequality that threaten to undermine social cohesion; ( 32; 48; 107)
• generalized economic insecurity; (71-2)
• socially destructive levels of crime and incarceration; (32, 113; 116-18) and
• environmental crises.

According to Gray, the worst instances of these social pathologies are found in precisely those regions where the neoliberal agenda has been implemented to the greatest extent.

For Gray, the neoliberal project of instituting global free markets as rapidly as possible in the name of economic rationality is the latest and perhaps most dangerous result of Western Enlightenment thought, which has always betrayed a willingness to destroy substantive communities in order to further the abstract dictates of "reason." Classical conservatives such as Edmund Burke first articulated the argument that attempts to impose a rational utopia necessarily degenerate into dysutopian results. Gray’s contribution to the globalization debate can be seen as an application of Burke’s conservative thesis to contemporary circumstances.

We may now introduce Gray’s third critique of neoliberalism. It is not only the case that neoliberalism both appeals to a false philosophical anthropology and fails to provide plausible normative justifications for global free markets. The neoliberal project is also self-undermining.

The present attempt by neoliberals to institutionalize the free flow of commodities and capital investment across borders is not the first experiment in liberating capitalist markets from social controls. Whenever such an experiment has been made, the result has always been the same: the social disruptions resulting from the extension of free markets inevitably call forth a social reaction, which forces state officials to regulate markets once again in order to maintain some degree of social stability and cohesiveness. The same result is all but inevitable today. The massive social disruptions inflicted by global free markets, culminating perhaps in a series financial crisis in the U.S., will lead to politically effective demands to escape this chaos, forcing states to abandon the neoliberal agenda. The more the neoliberal project succeeds, the more it brings about its own demise.

If the neoliberal project is to be abandoned, what is to replace it? Gray is not the least bit interested in considering alternatives to capitalist markets. He insists, however, that these markets are "inseparable from other areas of social activity"; they do not "form a separate realm, distinct and independent from all others." (12) In other words, Gray affirms "market economies," while vehemently rejecting the "market societies" that neoliberals dream of instituting globally today. (12)

Since "the replacement of global laissez-faire by a managed regime for the world economy is, at present, nearly as Utopian a project as a universal free market," it to the nation state that we must turn ( 200). And since "social democracy . . . belongs to a world that cannot be revived" (204), new forms of the nation-state must be developed, forms that can maintain social cohesion and avoid social pathologies in a manner consistent with the inevitable extension of cross border flows of trade and investment.

Gray does not presume to pronounce the shape of these new state forms, nor does he explicate the "policies which harness markets to the satisfaction of human needs." (92) What we get instead are the following two propositions:

It would be thoroughly mistaken to think that a single model will emerge in response to the challenges of globalization. For one thing, the rise of a global economy does not at all result in a homogenization of either economies or cultures. National variations of capitalist persist. Different traditions and cultural values remain in place. The traditions and cultural values of the United States and England, for example, are quite different from those of Germany or the Netherlands, let alone those of China or Japan. States must embody the specific traditions and cultural values that hold within their borders, creatively adapting national variants of capitalism to the new historical period:

If states are to protect their citizens from the social pathologies that global free markets would otherwise inflict, controls on global capital flows are required. A "framework of global regulation - of currencies, capital movements, trade and environmental conservation" is necessary in order to create the political space for effective state policies. (199) The only part of this framework mentioned by Gray is a "Tobin tax" on financial transactions, named after the Nobel prize winning economist who first proposed a tax on short-term cross-border capital flows to minimize the dangers of financial instability. (200)

Gray is certainly aware that such measures go against the neoliberal perspective that dominates policy debates today. Two points, however, must be kept in mind. First, there is already sufficient empirical evidence available to conclude that states can in principle impose restrictions on global capital flows. The capital adequacy standards initially imposed on banks as a result of the (recently updated) 1988 Basle accord provide one example. The international accounting standards imposed by a coalition of states (led by the U.S.) to monitor cross-border flows of drug money, provide another. (Helleiner 1996). If these sorts of measures can be effectively implemented, then why not measures of the sort advocated by Gray?

Second, the successful institutionalization of capital controls certainly requires a shift in the dominant factions controlling the state, that is, a new "ruling block," in Gramsci’s sense of the term. As we have seen, however, Gray holds that there is every reason to expect that the neoliberal agenda will eventually provoke the rise of social pathologies with the capacity to bring a new ruling block to power.

The great strength of the neoconservative perspective lies in the recognition that global free markets necessarily tend to generate profound social pathologies. Its great weakness lies in the failure to address the roots of this problem in capitalist property and production relations. In so far as he does not call these relations into question, Gray’s break from neoliberalism is far from complete. I shall attempt to sustain this general criticism by means of a number of more specific criticisms, beginning with the claim that the very arguments he asserts against recalcitrant social democrats apply with equal force to his own call for states with the power to ensure that markets are "socially embedded."

To put the point in the form of a dilemma: either measures such as a Tobin Tax are capable of leading to a resurgence of social democracy on the national level or they are not. If the latter is the case, as Gray’s critique of social democracy implies, is there any reason to think that these measures will be sufficient to allow the establishment of the sort of state called for by neoconservatives? For isn’t it plausible to assume, prima facie at least, that this sort of state will need at least as much "breathing room" as the social democratic state? After all, it must – in some unspecified fashion – provide similar sorts of social protections to those provided by the social democratic state.

We should quickly recall the five factors mentioned in Gray’s polemic against social democracy: the pressures of competitive deregulation, the pressures to lower corporate taxes, the role of educated, low-wage workforces in global labor markets, the "chronic allergy" of the global bond market to job creation through public borrowing and to "excessively" expansionary counter-cyclical policies, and the irrelevance of long term advantages in a global economy where short term success is required for survival. Here is the problem: Implementing the Tobin tax, the only specific proposal Gray mentions, leaves all five of these factors in place. And so we clearly need some sort of argument here why these factors are powerful enough to undermine social democracy and not the neoconservative state Gray advocates. The burden of proof, it seems to me, lies entirely with the neoconservatives here.

A closer look at Gray’s discussion of two national regimes illustrates the problem. Regarding Germany, Gray concedes that "at some point, social relations among stakeholders will become more marginal in the life of German firms," as global competition for equity leads companies to give increasing weight to share values at the cost of "weaken[ing] the company’s commitment to other stakeholders." (96) The irreversibility of this development is an essential premise for Grey’s conclusion that social democracy in Germany is doomed. Gray insists, however, that Germany is not about to evolve towards the Anglo-American model so beloved of neoliberals, a model in which shareholder interests trump all other social concerns. He argues that "the complex system of cross-holdings in Germany together with the institutions of co-determination will prevent this. These restraints on corporate policy will counterbalance the increasing power of shareholder interests." (97) Let us consider each of these restraints in turn.

First of all, as we have just seen Gray himself invokes the ever-increasing force of the "global competition for equity" in his argument against social democrats. (34) But this implies, in effect, that "the complex system of cross-holdings in Germany" is slowly being dismantled. An ever greater percentage of equity in German corporations is being held by foreign investors rather than German banks. This move away from a system in which flows of equity capital are "intermediated" by banks is not a contingent or easily reversible feature of economic globalization. As the scale of capital accumulation increases over time, there is a general tendency towards "disintermediation," that is, for direct relations between firms and investors, without banks mediating between them.

This extremely important development does not concern the equity market alone. The same tendency can be seen in the credit market, where the sale of corporate bonds to international investors is also becoming increasingly important in comparison to bank lending. This tendency towards disintermediation can be derived from a number of features of contemporary capitalism (Guttmann 1994):

In the light of all this, anyone believing that the "system of cross-holdings in Germany" can serve as a basis for an alternative to neoliberalism in the twenty first century has an extremely difficult case to make indeed.

What of the German system of co-determination, in which labor unions are granted rights to board seats and consultation? Gray himself provides an illustration of how this system tends to work in the age of globalization. In 1997 Osram communicated to IG Metall, the engineering union, that it was considering setting up a new production line in Italy, where labour costs are 40 per cent lower. IG Metall kept the jobs in Germany by signing an agreement that increased management flexibility in assigning shifts lengthening the work week. Now this does indeed point to a specifically German form of capitalism in the age of globalization. Most firms in the U.S. would have simply implemented a unilateral management decision to move, or simply imposed a longer work week unilaterally. But this should not blind us to the actual result of process of consultation in Germany: a significant worker concession of that is quite unlikely to lessen job insecurity, even in the short-to-medium term. Yet more threats to leave Germany will follow, eliciting yet more concessions. (Moody 1997) It is accurate enough to insist that national variations of social relations persist in the age of globalization. Some national variations institutionalize labor rights to consultation, something for which there is little room in the pure neoliberal model. Even in these variations, however, the balance of class power has still fundamentally shifted in favor of capital. Calling for "policies that harness markets to the satisfaction of human needs" (92) without addressing this shift appears to be a futile endeavor.

Gray’s discussion of the Japanese variants of capitalism raises similar difficulties. Consider his take on the likely evolution of the Japanese model. Globalization is now forcing Japan to abandon the institutional forms within which the market was embedded in the post world war two period:

I shall overlook the fact that lifetime job security was offered to a relatively small fraction of Japan’s labor force, and that it is a bit difficult to imagine what a "culture" of full employment might mean in the absence of the material practice of full employment. This leaves the problem that the Japanese variant of capitalism was premised on high growth rates, rates that cannot be sustained. Gray responds to this state of affairs with the following question:

But the growth imperative is hardly the imposition of neoliberals in Washington! It is built-into the ways capitalist markets work. Units of capital that do not grow have fewer resources to invest in the battle for market share; they necessarily tend to disappear or be taken over by other units of capital. Within the rules of the capitalist game there is simply no escaping the "grow or die" imperative.

Gray appears to be caught in a trap. He insists that the German and Japanese variants of capitalism can provide social cohesion and job security in a way consistent with their respective traditions and cultural values. (230) But in his critique of social democracy he acknowledges that globalization is eroding essential features of these variants. And his own proposals for modifying globalization appear to stop well short of anything that might reverse this erosion. We arrive, once again, at a fundamental dilemma. Gray could continue to take the domination of global capitalism as a given, and simply accept the social pathologies that follow from that as a price that must be paid. He could then still emphasize that the response to these pathologies will take different forms in different national settings, and that many states should be able to compensate for harms inflicted by global instabilities to a certain extent. But he would have to give up the idea that nation states are capable of formulating and implementing effective "policies which harness markets to the satisfaction of human needs." (92) Or he could continue to insist on the necessity of precisely those policies, and acknowledge that they demand a profound transformation of the global capitalist order. Gray cannot accept either option without abandoning essential tenets of the neoconservative position. The former option pushes him into the neoliberal camp, while the latter pushes him towards some form of radical left internationalism. Gray does not want to choose either path. And so he is left in the incoherent position of accepting the global capitalist order more or less intact, while denying its inevitable consequences, consequences he himself emphasizes in his critique of social democracy.

Germany and Japan are privileged regions of the global economy. What are the prospects that states in poorer regions will be able to protect communities from excessive social disruptions imposed by global markets? Without a transformation of property and production relations the prospects are entirely bleak. For there are tendencies towards uneven development in the global economy, that is, tendencies for regions at the "center" of the global system to reproduce and expand their advantages over regions at the "periphery." Gray himself grants this. (56; 58) But he fails to note how this condemns neoconservativism to almost complete irrelevance to the vast majority of the world’s population.

Uneven development is an immense and complicated topic, and there is space here to consider only a few themes. We can begin by noting that investment funds are by definition disproportionately found in wealthy regions of the global economy. These funds tend to flow predominantly to regions with extensive consumer markets, high levels of labour and management skills, adequate infrastructure, access to state of the art research and development, and so on. These factors are generally present to the greatest extent in wealthy regions, and so capital investment generally tends to flow from wealthy regions to other wealthy regions. Economic globalization thus has far more to do with flows of trade and investment among wealthy regions than it does with flows to poorer regions. In the last decades, for instance, between 70 and 80% of all foreign direct investment has flowed to wealthy regions of the global economy. (Moody 1997, Chapter 3)

The funding of research and development warrants special attention. Wealthy regions are able to devote significant private and public resources to R&D. Firms that operate in these regions thus have advantages in developing commercializable process and product innovations. Successful innovations grant firms temporary monopolies, enabling them to charge monopoly prices and to appropriate surplus profits. (Smith forthcoming) This establishes a virtuous circle, since a portion of these surplus profits can be plowed back into further R&D, providing the preconditions for future innovations, future temporary monopolies, and future surplus profits. For poorer regions, in contrast, the circle is a vicious one. Resources for a high level of R&D are lacking, so firms based in these regions will tend to sell commodities that do not embody product or process innovations. Lacking temporary monopolies from successful innovations, these firms will not be able to charge monopoly prices or appropriate surplus profits. And this lack of surplus profits implies that the level of R&D funding in the next cycle will not be high either.

There is a dialectical unity of these virtuous and vicious circles. In other words, the drive to appropriate surplus profits through technological innovation results in the systematic reproduction of uneven development in the global economy over time. (Marx 1981: 344-5) At present 95% of research and development is located in the so-called "first world," and 97% of all patents are held by individuals and institutions located in the first world. (Friedman 2000, 319) As long as nothing reverses this state of affairs, international trade institutionalizes an "unequal exchange" in which firms from wealthy regions are able to appropriate surplus profits in their transactions with firms and consumers from poorer regions. This ensures that the pressure on work conditions, wage levels, and worker communities in poorer regions remains unrelenting, a pressure quickly transferred to working men and women and their communities in the so-called North.

Many other aspects of the world market reinforce the tendency to uneven development, including the remission of profits resulting from foreign direct investment in poorer regions, capital flight undertaken by local elites desiring to escape currency risks and/or protect the fruits of corruption, the ability of units of capital in wealthy regions to play off subcontractors in poorer regions against each other, and the ability of firms to manipulate the ‘prices’ of commodities ‘exchanged’ in intra-firm transactions. Finally, while entities in relatively wealthy regions of the global economy can certainly be beset by high levels of debt, all of the above mechanisms (and others not mentioned here) make it likely that many regions of the global economy will fall into a "debt trap." Once in such a trap, international investors and the governments and international agencies representing their interests then have an opportunity to force a restructuring on those regions. "Recolonization" is the more accurate term.

Gray’s professed goal is to protect communities from the social pathologies imposed by global markets. But his proposals leave the systematic tendency towards uneven development in place. From the perspective of the vast majority of world’s population, then, his proposals do not come close to addressing the very problem with which he claims to be most concerned.

The final points I wish to raise in this critical assessment concern overaccumulation crises and financial crises. If there are systematic tendencies to such crises in global capitalist markets, this would provide a further reason to be skeptical of the neoconservative thesis that nation states can develop new capacities enabling them to protect communities from excessive social disruptions imposed by global markets. The drive to appropriate surplus profits through innovation can once again serve as a starting point.

When new firms and plants enter into an industry that are more productive than those already established, they are able to appropriate surplus profits. Some firms in the sector are forced out of business by the entry of innovative newcomers. But not all established firms and plants automatically withdraw. (Reuten 1991; Brenner 1998) Given that the fixed capital costs (machinery, plant, etc.) of established firms are already ‘sunk,’ they may be happy with receiving the average rate of profit on their circulating capital (investments in raw materials, labor, etc.). They also may have established relations with suppliers and customers that would be impossible or prohibitively expensive to duplicate elsewhere in any relevant time frame. Or their management and labour force may have industry-specific skills. Or they may enjoy access to state subsidies for training, infrastructure, or R&D that they would not be able to replace. As a result of the continued operation of established firms there is a systematic tendency the entry of more productive units into a sector to lead to excess capacity and a declining rate of profit in that sector. When this tendency is manifested in a number of key sectors simultaneously, the result is a general economic crisis based on the overaccumulation of capital. In more traditional Marxist terms, insufficient surplus value is produced to valorize the investments that have been made in fixed capital, leading to a fall in profit rates for an extended historical period. (Smith 2000b) Robert Brenner has provided considerable empirical evidence that the lower rates of growth afflicting the world economy beginning in the late 1960’s and early 70’s was primarily due to excess capacity in the leading sectors of the global economy. (Brenner 1998)

In Gray’s view the proper response to the social pathologies resulting from the neoliberal agenda of deregulation, privatization, and free markets is a return to the primacy of the state, for only the state can control global markets in a manner consistent with national regional customs, values, and traditions. This "turn to the state," however, leaves the systematic tendency to overaccumulation crises in place. When overaccumulation crises break out, previous investments in fixed capital must then be devalued on a massive scale. At this point the entire system becomes convulsed in endeavors to shift the costs of devaluation elsewhere. Capital attempts to shift as much of the cost as possible onto labour, through economic, political, and cultural attacks aiming to increase unemployment, worsen work conditions, and ensure that a greater portion of the value produced in the labour process is appropriated by capital. Each unit (or network of allied units) of capital attempts to shift the costs of devaluation onto other units, at the inevitable cost of generalized economic insecurity and social disruption. As long as the systematic tendency to overaccumulation crises is in place, the social pathologies that neoconservatives such as Gray rightly wish to negate remain overpowering.

Nor is that the end of the matter. In periods when the main industrial sectors of the economy suffer from overcapacity problems, investment capital tends to flow primarily into the financial sector. This flow eventually sets off rapid capital asset inflation. As the value of capital assets rises, individuals and units of capital borrow heavily to make further purchases in financial markets, using past gains in these markets as collateral. "Ponzi schemes" develop as the value of financial assets loses all connection with any rational assessment of future earnings potential. Sooner or later such speculative bubbles must burst. And when they do, the following generalization kicks in with the force of the law of gravity: the groups that benefited least from the inflation of capital assets tend to bear the greatest burdens of their subsequent fall. In the United States alone equity values have declined by $4 trillion as of spring 2001; the figure for the global economy as a whole is $10 trillion. Unemployment, declining wages, demands on women to increase their unpaid labor, household bankruptcies, the disintegration of vulnerable communities, and so on, will all be exacerbated in the wake of this financial crisis.

Gray calls for increased taxes on short-term flows of finance capital. Such taxes might lessen somewhat the vast stampedes of capital inflows and outflows that operate like a wrecking ball on local societies. But they would not reverse the systematic tendency to financial crises just sketched, crises which impose the very social pathologies neoconservatives hope to avoid.

The main negative conclusion of this discussion, I believe, is that both the neoliberal assertion that global capitalist markets ought to supercede the state, and the social democratic and neoconservative arguments for the continued centrality of the state, are inadequate. The positive result of the argument is that there is a need to create a global regime beyond the present economic and political order, a regime capable of reversing the systematic tendencies to uneven development, overaccumulation crises, and financial crises that infect economic globalization today. This will ultimately require a transformation of capitalist property relations and production relations. And it will demand the formation of new forms of subjectivity. I would like to conclude with a brief remark on the latter.

Neoconservative theorists such as Gray are certainly correct that national differences of culture persist in the age of globalization. But new traditions can start, and new cultural values can emerge, as a result of new shared experiences. Who is to say that groups thrown together in cross-border production chains cannot forge new traditions and shared values out of their shared experiences? Who is to say that migrant workers cannot help establish links between their new communities and their home regions? Who can rule out the formation of transnational identities co-existing with more localized identities (Sassen 1998; Jameson 2000)? In the course of transborder struggles for workers rights in the global economy, for debt relief, for the overcoming of patriarchy and racism, and for environmental sanity, these new forms of identities are being forged around the globe today. As these identities mature, "policies which harness markets to the satisfaction of human needs," to invoke Gray’s stated goal one final time, might then be possible to an extent unforeseen today.

IOWA STATE UNIVERSITY

Boyer, Robert, and Daniel Drache. States Against Markets: The Limits of Globalization.

New York: Routledge, 1996.

Brenner, Robert. ‘The Economics of Global Turbulence’, New Left Review, 229, 1998.

Friedman, Thomas. The Lexus and the Olive Tree. New York: Anchor Books, 2000.

Gray, John. False Dawn: The Delusions of Global Capitalism. London: Granta, 1998.

Guttmann, Robert. How Credit-Money Shapes the Economy: The United

States in a Global System. Armonk, New York: Sharpe, 1994.

Held, John, Anthony McGrew, David Goldblatt, and Jonathan Perraton. Global

Helleiner, Eric. "International Capital Mobility and the Scope for National Economic

Management." In Boyer and Drache (1996): 193-210.

Jameson, Fredric. "Globalization and Strategy." New Left Review 4 (July/August

2000): 49-68.

Kenen, Peter. The International Economy (third edition). Cambridge: Cambridge

University Press, 1994.

Marx, Karl. Capital, Volume III. New York: Penguin. 1981.

Moody, Kim. Workers in a Lean World. New York: Verso Press, 1997.

Palley, Thomas. Plenty of Nothings: The Downsizing of the American Dream and the

Case for Structural Keynesianism. Princeton: Princeton University Press, 2000.

Reuten, Geert, and Martha Campbell, The Culmination of Capital: Essays

on Volume III. London: Macmillan (forthcoming).

Plender, John. "Froth Blown Away as the Bull is Caged." Financial Times

(18 April 2000): 20.

Robin, Corey. "The Ex-Cons: Right-Wing Thinkers Go Left!" Linguafranca (February

2001): 24-33.

Sassen, Saskia. Globalization and Its Discontents: Essays on the New Mobility of

People and Money. New York: The New Press, 1998.

Schweickart, David. Against Capitalism. New York: Cambridge University Press, 1993.

Shiller, Robert. Irrational Exuberance. Princeton: Princeton University Press, 2000.

Smith, Tony. Technology and Capital in the Age of Lean Production. Albany:

State University of New York, 2000a.

"Brenner and Crisis Theory: Issues in Systematic and Historical

Dialectics," Historical Materialism, 5, 2000b: 145-178.

----. (forthcoming) "Surplus Profits from Innovation: A Missing Level in Volume

III?" In Reuten and Campbell.

Toporowski, John. "Monetary Policy and Capital Market Inflation in

Toussaint, Eric. Your Money or Your Life! The Tyranny of Global Finance. London:

Pluto, 1999.

Wade, Robert. Governing the Market: Economic Theory and the Role of Government

in East Asian Industrialization. Princeton: Princeton, 1990.

Went, Robert. Globalization. London: Pluto, 2000.

Wriston, Walter. The Twilight of Sovereignty. New York: Charles Scribners Sons,

1992.