Globalization As a Model For Failure

Globalization As a Model For Failure

First, in a closed system there can be no profits. If the point of Capitalism is to produce a profit, well, there is the problem right there.

Lets look at the easiest of all possible examples. Let’s say we have one small isolated town which has one factory, where everybody works, and which produces all of the town’s goods and services. Well, in order for there to be a profit, the workers are paid less than the value of their work, the markup being the expected profit margin. Well, in this isolated community, the town’s people have only what they have been paid, and so they buy what they can until they run out of money. Goods are left on the shelves, and the owners get no profit.

When we look at the big Capitalist Nations, they have operated in the same way, and so from the very start of conscious Capitalism, outside markets were sought, and it was assumed within the system that the profit markets would be covered in serving an export trade. Profits would come from other people’s economies.

All that we hear today in favor of ‘Free Trade’ comes to us from capitalists who without a doubt suppose that they have more to gain from opening up formerly closed markets than they have to lose by opening up their own markets. And then, many of the calls for Free Trade are hardly sincere, as America, Europe and Asia still have extensive protections in place upon many sectors of their economies, while the constant propaganda about Free Trade is mostly aimed at developing nations that had been protecting themselves ever since they had tossed off the old Colonialization , that is, the last time that the major Capitalist Nations had a hand in exploiting their economies. Developing Nations are expected to voluntarily submit their economies to Free Trade, but if they need a push, then the various International Banks make every effort to put these nations under an effective economic siege until they surrender to Globalization and start contributing toward filling the profit margins of the great Capitalist nations.

But so far such profits have been sustained because Globalization has still been able to keep breaking new ground. What should happen when Globalization becomes complete? Well, we return to our original model of a closed system that does not pay out enough to provide its own profits.

Well, of course, our hard-core Capitalists will say that certainly there must be winners and losers. Some companies will make a profit and win, and the less competitive companies will take their losses and lose. They will say that this is how the system stays “healthy”. Survival of the fittest and all that.

Well, let’s look at that model in action. Give our simple isolated town two factories. Call one Toyota and call the other GM. Both companies do not pay their workers up to the equitable value of the goods they produce, and so they cannot purchase enough from the factory they work for to generate it’s profit. So it is that Toyota depends upon a certain number of GM employees to buy Toyota products thus to provide the profit that will keep the Toyota factory going. Okay, so that is what happens, and Toyota survives. But what happens to GM? Well, they shut down and the employees are let go. Well, isn’t Toyota now in the same situation as before, being the one remaining factory in the town? Oh, but now it is worse, because half of the town’s people are unemployed.

Well, according to economic models, nobody is really supposed to be unemployed. What is supposed to happen is that people will price themselves down to the point where they will be worth hiring. So in our model of the isolated town we would have the Toyota Company hire all the former GM employees, but pay them far less because of course they would be desperate for work. But here again we have even less funds available within that closed market for buying the available goods.

Oh, we must remember another thing about Capitalist Theory, and that is that goods and services will be priced in relation to the demand for them – that high demand will force prices up and low demand will collapse prices. But in the real world it only works the one way, that manufacturers will only offer goods that are in demand and which are returning a profit. They will close their doors before ever selling at a loss.

Such is what happens in Capitalist Depressions and Recessions, that entire economies shut down rather than continue to operate below their profit margins. So, in our first example of the isolated town with one big factory, if the one person who happens to own the factory might suspect that prices world fall under his profit margin, then he would have every reason, as a capitalist, for shutting down his factory. Yes, everybody else might starve to death, but he could live on his capital until he could find a foreign market to invest in.

But if we were thinking about what is good for the town, then we would price the factories goods and services to be roughly equal to what the workers are getting paid, and then the system would become self-perpetuating.