Capitalism and Economic
Globalization
Economic globalization (see p. 94) is
the process through which national
economies have, to a greater or lesser
extent, been absorbed into a single
global economy
Historical Development of Capitalism
Historical Development of Capitalism
Capitalism emerged in seventeenth and eighteenth-century Europe, transitioning
from feudal societies to market-oriented production and waged labor.
The shift towards capitalism intensified pressure for technological innovation,
leading to the 'agricultural revolution' and increased productive capacity.
The industrial revolution, starting in the UK and spreading to the USA and
Europe, marked a significant development in the history of capitalism.
The victory of capitalism over socialism was solidified with the collapse of
communism, shaping the economic landscape of the nineteenth and twentieth
centuries.
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Victory of Capitalism over Socialism
The Contest Between
Capitalism and Socialism
The contest between capitalism
and socialism was a core
battleground in politics for much
of the nineteenth and twentieth
centuries. (Remember Cold War)
The victory of capitalism over
socialism was solidified with the
collapse of communism.
This victory marked a significant
shift in economic ideologies and
global power dynamics.
The triumph of capitalism over
socialism underscored the
dominance of market-oriented
principles in shaping global
economic systems.
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Role of Technological Innovation in Capitalism
01 02 03 04 05
Technological Globalization of High-Tech Rise of Knowledge Technological
Innovation and Economies Manufacturing Hubs, Economies Innovation and
Productive Capacity Financialization
Technological innovation has Advancements in The integration of The rise of knowledge Technological innovation has
been a driving force in the technology have facilitated technology in capitalism has economies, fueled by also played a role in the
evolution of capitalism, the globalization of resulted in the creation of information communication financialization of the
leading to increased economies, enabling the high-tech manufacturing technologies, has reshaped economy, with the
productive capacity and rapid flow of information, hubs in developed countries industries and contributed expansion of the financial
efficiency. goods, and services across to the transition from sector and the influence of
borders. industrial to information investment firms on global
societies. markets.
Silicon Valley has become a Today, financial sector uses
globally known hub for Technological Innovation
knowledge economy intensively to deliver
services and earn more
(think about banking
applications, and
applications that enable you
to do forex trading)
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Industrial Revolution and Capitalism
The industrial revolution marked a significant shift in the history of capitalism,
leading to the mechanization of production processes and the rise of factory-
based economies.
Technological advancements during the industrial revolution, such as the steam
engine and mechanized looms, revolutionized manufacturing and increased
productivity.
The industrial revolution transformed societies by urbanizing populations,
creating new social classes, and reshaping economic structures.
Capitalism during the industrial revolution thrived on the exploitation of labor,
with workers facing harsh conditions and long hours in factories.
The industrial revolution laid the foundation for modern capitalism by fostering
innovation, mass production, and the growth of global trade.
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Knowledge economy
With the technological advancement in ICT – information
communication technologies, we have seen the emergence of
knowledge economy. Knowledge economies are sometimes
portrayed as the economic expression of the transition from an
industrial society to an information society. These include that, as
knowledge (unlike other resources) does not deplete with use. For
instance, factories need raw materials, which can be finite (its
amount can come down to 0 after long time of use). Knowledge,
however, is infinite and intangible. It is in your brain. Some
examples are academic institutions, companies engaging in
research and development (R&D) and programmers developing
software and search. For instance, the financial contribution of
foreign students to the British economy in 1 year (2021/22) was
approximately 100 billion manats. Microsoft earns billions of
dollars through its software.
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High technology manufacturing
it has increasingly been concentrated in the developed world. USA,
UK, China, Germany, Japan, Taiwan, Korea and Israel are some of
the examples where items requiring high technology are produced
(airplanes, microprocessors, laptops, expensive electronics,
vehicles and so on). These items can be small in size, but high in
value, and require advanced scientific knowledge.
In particular, has increasingly been concentrated in the
developed world, while for many poorer states integration into
the global economy means the production of agri- cultural
goods or raw materials for export.
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Concept of Neoliberalism
Understanding Neoliberalism
Neoliberalism is an updated version of classical liberalism and classical political
economy.
It advocates for free market economics and minimal government intervention in
the economy.
Key neoliberal policies include privatization (such as schools, hospitals, factories,
industries), low public spending on education and social welfare policies,
deregulation, tax cuts (especially corporate and direct taxes), and reduced
welfare provision.
Neoliberalism believes that unregulated market capitalism leads to efficiency,
growth, and widespread prosperity.
The philosophy of neoliberalism can be summarized as 'market: good; state:
bad'.
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3 forms of capitalism
Enterprise capitalism Social capitalism State capitalism
The home of enterprise capitalism is the USA, and secondly, the UK This model of capitalism took root in much of central and western In this model of capitalism, the state plays a crucial
Europe. directive role.
Some key scholars in developing enterprise capitalism idea are
Adam Smith, Riccardo and Haye
Its central feature is faith in the untrammelled workings of market The central theme of this capitalist model is the idea of a social State decides what to produce, its price, amount, so on.
competition, born out of the belief that the market is a self- market: that is, an attempt to marry the disciplines of market
regulating mechanism. Market regulates itself* competition with the need for social cohesion and solidarity. This is
reflected in an emphasis on long-term invest- ment rather than Russia’ and China (to some extent) and former Soviet
short-term profitability. Business organization in what has been Union are some examples
As the USA adopted this model of capitalism, some scholars argue called Rhine-Alpine capitalism also differs from Anglo-American
that it helped USA quickly became an economic superpower after capital- ism in that it is based on social partnership.
World War 2. Another feature is that large companies foster strong
bonds between employer-employee. Thus, workers
Trade union is an organisation that represents workers/employees. (particularly male workers in larger businesses) are
It plays a crucial role in negotiation between its members and ‘members’ of firms in a way that does not occur in the
employers/businesses. USA or even social market Europe. In return for their
loyalty, commitment and hard work, workers have
traditionally expected lifetime employment, pensions,
Like enterprise capitalism, market regulates itself social protection and access to leisure and recreational
opportunities. Particular stress is placed on teamwork
and the building up of a collective identity, which has
One of the problems is that it leads to relatively high levels of social been under- pinned by relatively narrow income
expenditure** required to maintain high-quality welfare provision. differentials between managers and workers.
These push up taxes and so burden both employers and employees.
The state plays a vital role in ‘guiding’ investment,
research and trading decisions.
China’s mixture of burgeoning capitalism and Stalinist
political control*** has been remarkably effective in
delivering sustained economic growth, benefiting from a
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huge supply of cheap labour and massive investment in
State-Directed Capitalism Model
State-Directed Capitalism Model
Involves the state playing a crucial role in decision-making, determining what to
produce, its pricing, and quantities.
Exemplified by countries like Russia, China, and the former Soviet Union, where
the state guides investment, research, and trading decisions.
Large companies foster strong bonds between employers and employees,
offering lifetime employment, pensions, and social protection in exchange for
loyalty and hard work.
China's unique blend of capitalism and political control has been effective in
achieving sustained economic growth through massive investment in economic
infrastructure and a large supply of cheap labor.
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Causes of Economic Globalization
01 02 03 04
Easier air travel and Online payments Opening up of new markets Intensified
improved road connectivity interdependence between
national economies
Facilitated the movement of Streamlined international Created opportunities for Led to a shift towards a global
goods and people across borders. transactions. companies to expand their reach. economy.
Made it easier for businesses to Increased profits. Impacted production and
engage in global trade. financial flows worldwide.
Opening up of new markets in Asia,
Africa, post-Soviet Union, South
America and Middle East. Many
countries in these parts of the world
used to be relatively closed, state-
run economies during mid 20th
century. However, since then, they
also have opened up themselves to
investment from all around the
world. Remember, each country
means potential source of profits
for capitalists!
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Immanuel Wallerstein's Theory of the Modern World-System
01 02
International Core vs. Periphery
Division of Labor
Wallerstein's theory Core regions benefit from
highlights the division of capital concentration, while
labor between the 'core' and peripheral regions rely on
the 'periphery' in the exporting raw materials and
modern world-system. ready goods (created by
TNC investment) to the
core.
Role of TNCs
It is them who provide
foreign direct investment Role of TNCs
from core to periphery, It is them who create new
create jobs on massive problems in periphery
scale and have been countries (check last slide)
important in getting lots of
people out of poverty
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Immanuel Wallerstein's Theory of the Modern World-System
What factors make some periphery countries attractive to TNCs?
- Lower taxation
- Lower labour cost
- Less regulation on environment (for instance, it is easier for TNCs to pollute environment during production
process)
- Ideal geographical location to transport items (all key periphery countries are located by the ocean or sea,
giving them access to international waters)
- Weaker protection of human rights
- Political stability
One of the underlying principles of capitalism: consumerism
Consumerism: A psychological and cultural phenomenon whereby personal happiness is equated with the
consumption of material possessions.
- If you do not have the latest model of iPhone or BMW, hmm, you may feel sad and upset
- People are constantly encouraged by advertisements and social media celebrities to buy, buy and buy
- Consumerism is crucial for capitalism for its maintenance/survival/development
- Imagine that people collectively stop buying new models of items, despite the production of them. That
would be catastrophic for TNCs
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Some other/additional examples of economic globalization and soft power
Investors from Saudi Arabia, UAE and Qatar fully or partly owning multi billion dollar assets (factories,
buildings, football clubs, highways, airports) in UK, USA, Turkey and vice versa
TikTok and Instagram, which are from China and USA respectively, create opportunities
for people in UK, Azerbaijan, Kenya and Bolivia to earn money. Interesting stats – 7 million
busineeses in USA rely on TikTok to find customers and sell items/services. Or, in Turkey,
there was a brief shutdown of Instagram, which threatened a digital economy worth of
nearly 2 trillion liras.
Some of the problems of economic globalization are
as follows;
- Exploitation of cheap labour in the developing world where
wages are low and state regulation is weak or non-existent
- It forces poor countries to open up their markets and allow
their resources to be exploited by rich states.
- TNCs’ shareholders and executives earn massive amounts,
while they pay little to their employees, especially in the in
the developing world. As a result, it leads to greater global
inequality.
