In last week’s article we examined the concept of Imperialism and analyzed the social, economic and technological process underlying the unique dynamism of capitalism. In this article we will analyze the process of structural change in the global capitalist economy and indicate the historical epochs associated with each phase in the process of its development. This will set the stage for posing a new question in next week’s article: Is Imperialism counter productive for capitalism today?

In the process of capitalist expansion after the industrial revolution, four distinct phases in the structure of the global capitalist economy can be identified. A brief discussion of these phases would indicate the dynamics of the world economy in the context of the changing relationship between the dominant capitalist countries and the dependent countries.

1. From the 16th century to the mid 18th century: Direct appropriation of resources: This precursor stage to the industrial revolution was characterized by the coercive extraction of resources from Asia, Africa and South America on the basis of organized, though selective use of military force and administrative measures. As Ernest Mandel argues, the appropriation of resources in this period by Europe from the countries of the East was “the outcome of values stolen, plundered, seized by tricks, pressure or violence, from the overseas peoples with whom the Western world had made contact”.
   
   In this pre industrialization phase, trade consisted of imports into Europe of luxury goods from the East such as silk, cotton and peshmina fabrics, spices, jewelry and precious stones. ‘Trade’ in this period was neither conducted within ‘free markets’ nor were norms of fairness in fashion at the time. This is illustrated by a complaint made by one of the Nawab of Bengal’s administrators as, quoted by H. Verelst (1772): “They forcibly seize the belongings and goods of the peasants, traders, and others, at a quarter of their value, and by means of violence and oppression they make them pay five rupees for goods that are worth no more than one.”
   
   The resources extracted from the countries of the East during this period, were not only substantial, but may have played an important direct or indirect role in the process of investment and economic growth in Europe. According to a conservative estimate by a senior colonial official, Sir Percival Griffiths, £ 100 to 150 million was plundered from India alone during the period 1750 to 1800. Its significance can be judged from the fact that the British National Income in 1770 was only £ 125 million and the total investment that had been made in the whole of Britain’s modern metallurgical industry (including steel), by 1790, was only £ 650,000. According to another estimate, gold and silver valued at 500 million gold pesos were exported from Latin America during the period 1503 to 1660. Similarly profit obtained from the slave labour of the Negroes in the British West Indies amounted to over £ 200 million.
   
   
2. From late 18th century to mid 19th century: Export of European manufactures. Following the industrial revolution in Britain (which subsequently spread to Europe), the imperative of capitalist expansion was for each of the new industrial countries to secure sources of raw materials and exclusive markets for their manufactured goods. This involved not only sovereign control over the colonized countries of Asia, Africa and Latin America, but a restructuring of their economies to enable systematic resource extraction through the market mechanism. Specifically this consisted of rupturing the link between domestic agriculture and handicrafts industry, which was the basis of the self-sufficiency of many of these countries. This domestic disarticulation laid the basis of integrating the colonized economy into the global capitalist economy.
   
   The undermining of the domestic industry of the colony was in many cases conducted through protectionist measures. For example even as late as 1815, Indian cotton and silk goods were 50 to 60 percent cheaper than similar British goods, thereby making Indian exports more competitive than the British. Accordingly Indian exports to Britain were subjected to an import duty of 70 to 80 percent for a long period. Moreover on at least two occasions (in 1700 and 1720), import of Indian cotton textiles into Britain were prohibited altogether.
   
   The domestic economy of the colonies was restructured to specialize in the export of cheap raw materials for the emerging European industry on the one hand and import of its expensive manufactured goods on the other. Thus the economy of the colony became structurally dependent on, and a source of resource extraction for, the European Economy: The economies of Asia, Africa and Latin America became part of world capitalism, yet the accumulation of capital that characterizes the system, occurred essentially in the dominant industrial countries. Thus while the global economy was integrated, its gains were divided unequally between, what Samir Amin calls, the metropolitan and peripheral countries respectively.
   
   
3. Late 19th century to mid 20th century: The export of capital. As Schumpeter’s “gales of creative destruction”, swept away the inefficient firms, the efficient firms through new products and manufacturing processes rapidly increased their market share. By the 19th century large national corporations emerged as an important production unit in the dominant capitalist countries. This enabled considerable monopolistic profits to be made. Yet soon, there was the attendant problem of reinvesting these within the European market, which set the stage for the great depression of the 1870s. This crisis impelled a historically unprecedented export of European capital. During the period, 1870 to 1914, large investments were made in Canada and Australia. Apart from this rapid development of communication technologies (steam ships, railways and telegraphy) enabled export of capital to a number of countries in Asia, Africa and Latin America for building economic infrastructure to facilitate the export of raw materials and the import of European manufactured goods.
   
   The growth of large national corporations during this period resulted in intense rivalry and occasional conflict between the dominant industrial countries as their respective national corporations sought to secure sources of raw materials, and markets for their goods and capital in the rest of the world. These tensions constituted one of the underlying factors leading to the First World War.
   
   
4. Mid 20th century to the present: Multinational Corporations, The IT Revolution and the Financial Sector. After the Second World War a new era of globalization, and (after the end of the Cold War), a new structure of power relations has emerged whose specific features are just beginning to be manifested. At least three characteristics distinguish the globalized economy at the end of the 20th century from that of the late 19th century. These are:
   
   
   1. In the late 19th century the globalized process of extracting raw materials, manufacture and sale of goods, was conducted by large national corporations. This induced a contention between the dominant industrial countries. Since the Second World War the multi national corporations have emerged as the predominant production unit. Within this framework there has been a far greater inter-penetration of capital amongst the advanced industrial countries than ever before. Consequently the earlier rivalry and conflict between the advanced industrial countries has been replaced by the possibility of growing collaboration in the economic, and political spheres for ensuring the conditions of growth and stability in the global economy.
      
      After over two hundred years of economic growth within the advanced capitalist countries and their dependent territories, a much more integrated globalized economy may be emerging in the world. It is a world where economic boundaries and indeed the sovereignty of nation states is eroding, although more for the weaker than for the stronger states. The doctrine that the free market mechanism at the global level is the most efficient framework of resource allocation, production and distribution of goods is resurgent. It is being translated into national economic policies of various countries through the loan conditionalities imposed by multilateral institutions such as the World Bank and IMF, which emerged after the Second World War. More recently the “open economy” policy framework has been embodied into a set of international trade agreements under the auspices of the newly formed World Trade Organization (WTO). Under these circumstances those ‘developing’ countries, which do not have the institutions, economic infrastructure and resources today to compete in the world market, are vulnerable to rapid economic deterioration, debt and impoverishment. This could become a new factor in accentuating international economic inequality.
      
      
   2. The revolution in Information Technology (IT) has created the potential of a new trajectory of technological growth. Its consequences may be as far reaching as the industrial revolution in the late 18th century. The industrial revolution involved the systematic application of science to machine manufacture and thereby laid the basis of rapid productivity growth. Now artificial intelligence embodied in interactive computers can become an aid to human intelligence itself, and could therefore help achieve an unprecedented acceleration in technological change.
      As knowledge intensive industries particularly the IT industry, become the cutting edge of growth, the economic gap between countries with a highly trained human capital base and those without such a base, is likely to grow rapidly. While this fact has opened new opportunities for developing countries to achieve affluence (For example the ‘newly industrializing countries’), it has also created a grave danger of rapidly increasing poverty for those countries that are not positioned to meet the challenge of knowledge intensive growth.
      
      
   3. The financial sphere in the second half of the 20th century has grown much more rapidly than the sphere of production, so that the volume of international banking is now greater than the volume of trade in goods and services in the global economy. For example international banking in 1964 was only US $ 20 billion compared to US $ 188 billion worth of international trade in goods and services. By 1985 the relative position of the two sectors had reversed with international banking valued at US $ 2598 and the value of traded goods and services worldwide being lesser, at US $ 2190.
      
      The predominance of the financial sector, internationally integrated financial markets and the previously unimaginable speed with which financial transfers can be effected, have combined to induce in the global economy a new fragility. Exogenous shocks (such as terrorist attacks, regional wars and political instability in raw material producing countries) can be transmitted much more rapidly through the globalized economic space than before. Therefore the world’s real economy that underlies the financial sphere and spawns production, employment and standards of living in individual countries, is prone to instability. Economic instability in the real economy is likely to have a relatively greater adverse impact on poorer countries than on the rich, thereby further accentuating poverty and inequality.

[This is the second of a series of articles, which are based on the author’s paper on Imperialism, being published in the forthcoming Encyclopedia of Capitalism, Golson Books, New York]