University of Massachusetts Amherst



International Economics and the Growing Dominance of Multinational Corporations:Explaining the Disconnect and Finding a New Approach for International EconomicsbyHendrik Van den Berg*AbstractKeywords: Culture, Neoclassical economics, Orthodoxy, Sociology, Dialectic, Marxism* Instructor, Department of Economics, University of Massachusetts, Amherst, 217 Gordon, 218 North Pleasant St., Amherst, MA 01002, email: hvandenberg@econs.umass.edu; Professor Emeritus, Department of Economics, University of Nebraska, Lincoln.I. IntroductionThe models used by mainstream international economists have not kept up with the changing political, economic, and social conditions in the “globalizing” world economy. The standard model of international trade is still the Heckscher-Ohlin model, which assumes perfectly competitive markets, fixed factor endowments, profit maximizing behavior among firms and self-centered welfare maximization on the part of consumers. Models of international investment and international finance assume efficient markets, rational expectations, and full information. And, models of immigration are still based on the idea that people voluntarily move to maximize their personal well-being while the effects of immigration are analyzed in a labor market framework. The shortcomings of these approaches have been widely discussed and criticized, but to no avail in terms of how international economists go about analyzing, prescribing, and estimating the consequences of international economic activity. For example, the Heckscher-Ohlin framework is still used to estimate the gains from prospective trade agreements, immigration policy is still analyzed using the static labor market model of immigration, and open-economy macroeconomists were as blind to the possibility of a global financial crisis as were all mainstream economists in 2007. In fact, mainstream economists continue to tout free trade agreements, while they add little to the immigration debates going on in political circles throughout the world and they remain silent as governments dial back even the meager financial regulations enacted after the 2007-2009 global financial crisis.The main reason for the inaction of international economists and the slow movement of economic thinking after major shifts in political, economic, and social circumstances is the failure of economists to understand the implications of the growing dominance of large multinational corporations in global economic activity, the political sphere, and in the formation of popular culture. This particular failure of international economists results requires a new way of thinking as well as a much broader perspective on what economists are supposed to do. I suggest a way forward: international economists should embrace Marx’s materialist dialectic.The narrow mainstream perspective of economic activity as consisting of only exchange rather than a complete cycle of production, exchange, consumption, and indirect production, that is, Marx’s circuit of capital, will continue to hinder international economics. International trade is part of the whole circuit of capital, not an independent, isolated source of utility, and to assume that all gains from international trade are the result only of this exchange, without taking into consideration production, misses the fundamental source of human well-being. Yet, this is what mainstream international trade theory does. By focusing only on exchange, it is impossible to understand the full causes and consequences of international trade, especially now that trade is just one component of the overall activity of large corporations who produce, trade, employ labor, accumulate capital, and finance both short-term stocks and long-term investment and innovation throughout the global economy. Models of efficient markets tell us little about how large business organizations decide where to produce, what to export and import, who to employ, how much capital to accumulate, what technologies to develop, or how to maximize profits and, ultimately, how to extract surplus from their various global activities. Using mainstream terminology, international economics must become more holistic. That is, it must adopt a more dynamic, systemic, and inter-disciplinary approach. Comparative advantage is not static, and international trade involves commodities, commodities that are the result of production that requires human labor. All across the international economy there are complex systemic relationships between technology, resources, labor, production, consumption, and finance that extend beyond the simple markets international economists focus on. Furthermore, the economy is well-embedded in human society and the natural environment, which are both influenced by and causes of international economic activity. All economic activity is historical, in that economic activity takes place in within economic structures and social structures that developed over time. International economic activity takes place within structures that developed historically in many different places, in part influenced how those places were integrated into the international economic, political, and social structures. The were also shaped, in part, by the very same international economic activities they now influence. Mainstream international trade theory’s depiction of international trade as nothing more than the exchange of products in order to exploit comparative advantage is “silly,” as the heterodox economist Michael Hudson (2018) recently suggested. We will make the case here for adopting the Marxian materialist dialectic, a “holistic” form of thought and analysis, in international economic theory, analysis, and education. This dialectic will bring out the importance of the modern multinational corporation in all international economic activity. The quest for surplus has led business firms to extend their activity across borders, and the largest firms today are those who extended themselves into the world economy most successfully at the expense of national firms. The wealthy class associated with these large firms now dominates within nations and across national boundaries, effectively becoming the contemporary ruling class. This political reality is shaping current political, economic, and social outcomes. II. The Growing Economic and Social Dominance of Multinational CorporationsThe growing concentration of most industries in the United States and in the World has been well-documented. According to a report for the Brookings Institute, a rather mainstream organization, by William Galston and Clara Hendrickson (2018), the Fortune 500’s revenue as a share of GDP has increased from 58 percent to 73 percent since 1980. The share of the largest 100 has risen from 33 percent to 46 percent. They conclude: “Over the last two decades, over 75 percent of U.S. industries have seen an increase in concentration, with the number of firms competing against one another in precipitous decline.” Along with the rise in concentration, corporate profits have risen sharply: Shapiro (2017) finds that corporate profits made up 7-8 percent of GDP in the mid-1980s, but is now in the 11-12 percent range. The Economist finds, furthermore, that today’s firms are much more likely to remain profitable for longer periods, suggesting that persistently high profits remain unchallenged for longer periods of time. Grullon, Larkin, and Michaely (2017) investigate recent mergers in the U.S. economy, and they find many different manifestations of industrial concentration, not least the lax enforcement of anti-trust laws and the near complete freedom for large firms to buy smaller rivals: …authorities are less likely to investigate a $20 billion form buying ten $1 billion firms that a similar firm buying a $10 billion firm. Gao, Ritter, and Zhu (2013) found that the main reason for the near disappearance of IPOs over the past two decades is that innovative startups are now much more likely to sell their assets directly to a larger firm than to go public. Grullon et al. (2017) also look at the role of foreign competition in mitigating the consequences of increased concentration in the U.S., but they find that neither the presence of foreign firms nor import competition substantially changes the strong relationship between concentration measures and firm profitability. International competition has often been suggested as a source of competition, but that channel does not seem to be offsetting the effects of concentration in corporate profits. Of course, when similar increases in concentration are occurring in all countries, and the firms operating in each country are the increasingly multinational firms rather than local firms, foreign firms are no longer adding much to competition levels in national economies. Pol Antràs and Stephen Yeaple (2014) collected a wide range of data on the operations of multinational firms, and they distinguished the following general characteristics of firms that operate internationally:Most multinational business activity occurs in developed economies, and developing countries were more likely to be the destination of multinational activity than the source.The relative importance of multinationals in economic activity is higher in capital intensive and R&D intensive goods, A substantial share of two-way FDI flows is intra-industry in nature.The parents and the affiliates of multinational firms tend to be larger, more productive, more R&D intensive, and more export oriented than non-multinational firms.Within multinationals, parents are relatively specialized in R&D while affiliates are primarily engaged in selling goods in foreign markets.Cross-border mergers and acquisitions make up a large fraction of FDI and are particularly important mode of entry into developed countries.The implications of these general findings are obvious. Multinational firms have grown in importance because they are more productive, conduct more R&D, and specialize and trade more than non-multinationals. Furthermore, multinational firms are engaged in extending the capitalist accumulation process into developing countries with new investments, but within the more developed capitalist economies, they are primarily engaged in concentrating production by acquiring competitors. Helpman (1984) showed that intrafirm trade is correlated with factor endowment differences across countries, suggesting that FDI is often used to take advantage of comparative advantages across borders. The finding that most FDI occurs between similarly-endowed developed economies suggests that, indeed, most FDI serves to concentrate ownership, which conforms with findings elsewhere that globalization has not offset concentrations within individual economies. Concentration of production occurs within and across countries, with the result that multinational firms control an increasing share of economic activity worldwide. Pol Antràs and Stephen Yeaple (2014) find evidence suggesting that greenfield investments and M&A are not equivalent, even though the efficient markets literature suggests that they should be. More productive firms tend to engage in greenfield investments more often. Another issue is that greenfield investments add to competition while M&A investments reduce competition; this latter phenomenon seems to dominate FDI between developed economies. The prediction that wage inequality should decline, as suggested by the Stolper-Samuelson theorem, does not seem to be supported by the evidence. Antràs and Yeaple point out that while vertical integration may be common to many large multinational firms, many multinationals that offshore production do so not by opening their own foreign production plants, but by contracting with other producers. This brings up the issue of why firms choose to internalize production across borders instead of operating at arms length with foreign suppliers, licensors, and distributors. The Singer Co. learned back in 180 that internalization, despite its investment costs, may be more profitable than licensing. Contract theory, and the imperfections of contracting, have been used by economists to predict FDI flows. The new institutional economics, with its focus on transactions costs, provided much of the impetus for this research in international economics. Rent dissipation and hold-up problems may lead to direct foreign investment, either by creating an affiliate production or distribution operation abroad or by acquiring and directly controlling a foreign operation. Also, high firm-specific economies of scale relative to plant-specific economies of scale generally favors FDI over contracting. And, ownership per se raises bargaining power, no matter what the combination of international arrangements.All of these conclusions by researchers examining the growth of multinational firms confirm that, indeed, industrial concentration is occurring. However, there is little discussion within the field of international economics with the deeper causes and consequences of this global concentration of production, profit, and power. Specifically, the current discourse in international economics has stranded on an unproductive path, along which a narrow set of issues are discussed within a narrow theoretical framework that ignores the changed power structure within the international sphere of economic activity. Not only are multinational corporations (MNCs) responsible for most of the world’s international trade and international investment, but they increasingly “capture” government institutions. Technically, as the overall stakes from international economic integration rise, policy makers’ political ability to close borders gives them power over MNCs and international financial corporations. On the other hand, MNCs seem to be getting the upper hand in their relationship with governments because international economic integration lets MNCs play one government against another. That is, commercial interests no longer bargain with a single national government about how they pay for protection and favoritism, but with open borders they can threaten to take their taxes, political contributions, investment projects, and jobs elsewhere if one national government’s terms are not to their liking. Of course, the superior ability to accumulate wealth also gives MNCs the economic power to shape national and international institutions in their favor. They engage in lobbying, public relations, advertising, marketing, and other exercises to solidify their political and economic power. Modern Mercantilism?It is important to note that even when Smith (1776 [1976]) was writing about why free trade is beneficial for human well-being, most international trade was being carried out within colonial empires, and among very unequal trading partners. So when Smith criticized mercantilism, he was effectively criticizing the business culture of his day. Unfortunately for subsequent historical analysis, Smith framed his criticism of mercantilism in a very simplistic manner, defining mercantilism as little more than the attempt by countries to accumulate gold by boosting exports and restricting imports. This interpretation of mercantilism persists in the international economics literature. More appropriate is Charles Wilson’s (1963, p. 26) definition of mercantilism as “all the devices, legislative, administrative, and regulatory, by which societies still predominantly agrarian sought to transform themselves into trading and industrial societies.” As described by Marx and many other historians, sixteenth century Europe mercantilism solidified the political base of national monarchs at the expense of the local feudal relationships that remained from earlier feudal societies. Mercantilism is characterized not only by actively managed international trade, but also by the primitive accumulation and strengthening of property rights detailed by Marx in his Capital. When the same alliances between central governments and commercial interests were extended overseas, mercantilism became colonialism, the government-private conquests of overseas territory and resources.The growth of modern MNCs, which increasingly shape government policy by using a combination of direct monetary influence and indirect threats to shift investment and employment overseas, as a new phase of mercantilism, one in which government is very much the junior partner in the power arrangement. As a result of the political clout of wealthy and footloose MNCs, the internationally integrated economic system is increasingly characterized by formal and informal institutions that raise MNC profits and reduce political and economic opposition to corporate power and profit. Voters increasingly vote for right-wing and libertarian politicians who lower taxes on capital, scale back labor laws and union power, and accept “the market” as a symbol of not only economic efficiency, but also of justice. The fact is that markets can only function in the presence of rather sophisticated government institutions, such as a legal system that enforces property rights and contractual arrangements, a justice system that arbitrates business disputes, regulations that require information on products and firms’ financial conditions, and regulations that prevent the financial sector from stealing the savings entrusted to its care. It is this need for collective institutions in a market system plus the likelihood that the private business enterprises that arise under these institutions will gain disproportionate power to shape the institutions in their favor that has led many intellectuals since the time of the Enlightenment to argue that government should be democratic. The self-interested behavior of individuals and wealthy firms will not maximize overall human well-being unless the institutions that shape the individual behavior are designed with the public interest in mind. MNCs are using their huge financial wealth to corrupt democratic political systems and to shape institutions that give them greater freedom of operation. Large entertainment MNCs have even come to control most of the news media around the world, and MNCs increasingly use their money to influence universities and other educational institutions to manipulate people’s beliefs and society’s cultures. MNC-funded advocacy groups have even influenced appointments to the U.S. Supreme Court, which in 2010 returned the favor by ruling that corporations are effectively individuals with unlimited freedom to directly fund political campaigns. Critical to this conflict between national governments and MNCs is the degree to which MNCs increasingly control the power of national governments and use that power to shape the world to their commercial ends. In short, modern mercantilism is international, not national in nature. As MNCs and multinational financial corporations gain control of national government institutions, other national constituencies, such as farmers, labor organizations, bureaucrats, professionals, regional ethnic groups, small businesses, intellectuals, and national political parties, among others, are losing the influence they had gained under the spread of democracy and the creation of democratic institutions during the nineteenth and twentieth centuries.Modern mercantilism is potentially very destructive of democracy and social justice. MNCs and international financial firms are enriched by the profits from international economic integration, agglomeration, and the monopolization of global product and labor markets, and this wealth permits them to capture national government institutions. Instead of the democratic principle of one person, one vote, modern mercantilism puts economic policy in the hands of inherently autocratic organizations that tolerate little dissent from their single-minded pursuit of profits. Corporations are certainly not democratic organizations, which means that their control of national governments is an inherently antidemocratic shift in political power. As the wealth of MNCs lets them gain greater control of mercantilistic commerce-government alliances, it becomes even less likely that international trade, investment, finance, and migration will maximize human welfare or spread the gains from international economic integration equitably. Under these ominous circumstances, it also becomes less likely that trade policy can be used to improve human welfare. It is important to grasp the nature of the large corporation. As William Dugger (1989, p. xiii) described over 25 years ago:Unfortunately, the capitalist corporation is an inherently narrow and short-sighted organization. It has not evolved to serve the public purpose. It has not evolved to monitor and coordinate economic activity for the benefit of society at large. The corporation has evolved to serve the interests of whoever controls it, at the expense of whoever does not. This is the simple but profound truth. The corporation, not the market, is the dominant economic institution in the industrialized West, and it serves the private purpose rather than the public purpose.Dugger was also keen enough to distinguish the rise of new management structures and methods that were, already 25 years ago, transforming how corporations were managed. No longer was management widely dispersed throughout large corporations; instead, new financial controls and rigid procedures were being introduced to, in Dugger’s (1989, p. xiv) words, “allow huge commercial empires to be managed by one central staff.” Dugger saw that even in the late 1980s:…while the corporate purpose has narrowed down to the immediate bottom line, corporate planning and administration have expanded. The modern economy has become a global, corporate economy. And the corporate economy is a mindless growth, driven onward by a renegade institution that serves its own narrow and immediate interests and denies its long-term, social responsibilities.So, in June 2009, the Royal Dutch Shell Oil Company settled a court case for a minute percentage of its annual profits over alleged killings of political opponents of its oil operations in Nigeria. Among the dead were the environmentalist and writer Ken Saro-Wiwa, who had organized a worldwide campaign to stop Shell’s projects on the Ogoni tribe’s lands in Nigeria. According to company documents obtained by lawyers representing the families of those killed and reported on in 2009 by the London newspaper The Independent, Shell had written to the local governor requesting “the usual assistance” after Ogoni activists blocked the laying of a pipeline in 1993. One death resulted when government soldiers disrupted the protests. A few days later, Shell went to the country’s military leadership to “request support from the army and police.” Eventually, the military’s clampdown on the Ogoni resulted in about two thousand deaths, thirty thousand people made homeless, and numerous reported cases of rape, plunder, and theft by the brutal forces of Nigeria’s military government. Then there is the extraordinary evasion of environmental regulations by Volkswagen, the German automaker. In 2015, regulators finally admitted that Volkswagen had systematically designed the computer chips on more than 10 million diesel powered vehicles to run the engines in such a way that they would satisfy emissions requirements when the motors were connected to environmental test equipment, but to provide a peppy but 40 times more polluting performance for drivers at all other times. Between 2008 and 2015, Volkswagen automobiles were responsible for most diesel emissions of pollutants that caused health and climatic damage in Western Europe. III. Meanwhile, in Mainstream International Economics…The Heckscher-Ohlin model of international trade continues to be the model taught to most students in an international economics class, and the model continues to form the fundamental framework for analyzing international trade. The model is essentially a model of exchange, as it assumes given endowments of resources and a given state of technology. With regard to exchange, the model assumes perfect competition, the absence of externalities, and welfare as dependent only on the consumption of goods produced and traded. Not only is the model used to show that all countries gain from free trade, a result that is emphasized by mainstream economists, but it is used show how comparative advantage, as determined by opportunity costs of production, determines a country’s trade pattern. The principle of comparative advantage enjoys near heavenly status in international economics, so the Heckscher-Ohlin model’s elegant proof of the idea necessarily given the model its status in the field. Finally, the model is also used to estimate the precise gains from international trade because its assumptions make such estimates easy to derive.Measuring the Gains from TradeThe empirical estimates of the gains from trade using the purely exchange focus of mainstream economic theory are very small. There have been numerous studies in which economists use the Heckscher-Ohlin model’s general framework, assuming specific functional forms for a consumption-determined welfare function and production functions representing the economy’s fixed supply side to estimate how the predicted price changes from shifting to free trade affect overall national welfare. The conclusion of virtually all of these studies is that the welfare gains from abolishing restrictions on international trade are very small. For example, one of the earliest studies by Giorgio Basevi (1966) estimated that trade restrictions cost the United States one-tenth of one percent of the value of its GDP. Robert Feenstra (1992) surveyed a set of pre-1990 studies on the costs of protection to the U.S. economy and found that estimates of the total loss to the United States from its protectionist tariffs and quotas across all industries was $30 billion at 1986 prices, or about three-quarters of one percent of U.S. GDP. U.S. protectionism also caused losses in other countries, of course, and Feenstra concluded that these foreign losses were about equal to the United States’ losses, which implied that the total cost of U.S. trade restrictions to the world was about $60 billion, a very small percentage of total world income. More recent studies based on the conceptual framework of the HO model presented above provided estimates of the gains from international trade that ranged from 0.5 to 1 percent of a country’s GDP. Dialectically, it is difficult to reconcile these small estimated gains from trade with either mainstream economists’ enthusiasm for free trade or the attention that trade policy gets from lobbyists, corporate interests, or labor interests. Perhaps the model, and thus estimates based on the model, misses much of the action surrounding international trade. A general equilibrium approach to imperfect competitionMultinational corporations have not been incorporated in the main models of international trade, finance, investment, and migration. However, it would be incorrect to say that they have been completely ignored. To the contrary, there is an extended literature dealing with what causes firms to become multinational business organizations, what advantages accrue to international corporations, and why they choose to operate in some countries but not others. Traditionally, MNCs were considered nothing more than profit-maximizing arbitrageurs who allocated capital across countries. Hymer (1960) is usually credited beyond that simplistic finance approach to MNCs by proposing n industrial organization approach to finding what strategic advantages a MNC gained over purely national firms in both their home market and in potential foreign markets. In other words, Hymer posited that it was real factors that shaped the location of multinational activities, while the resulting financial flows were just the consequences of such real managerial decisions. This approach culminated with Dunning’s (1981) OLI framework of analysis, which highlighted Ownership, Location, and Internalization as the deterministic characteristics of MNCs.There was a major increase in analysis of multinational firms after the field of microeconomics developed its general equilibrium analysis of imperfect competition, increasing returns to scale, and product differentiation, and others developed contract theory. Krugman’s (1980) model of increasing returns to scale in international trade is still the most-often cited alternative model in international economics. In his classic article “Increasing Returns, Monopolistic Competition, and International Trade (1979),” Krugman assumed that the world consisted of several identical economies, each with the potential for producing a wide range of products whose production functions are all subject to increasing returns to scale. He also assumed that consumers preferred more variety to less variety. With increasing returns to scale making large-scale production cheaper but consumers preferring more variety to less variety, a choice would need to be made. The economy thus has to decide whether to concentrate production in a small number of large industries that produce very large amounts of just a few products very inexpensively or in a large number of different small-scale, high-cost industries. Krugman showed that international trade makes possible a one-time gain in welfare from both lower unit costs and increased variety. By specializing, each country produces a larger quantity of fewer goods, thereby taking advantage of increasing returns to scale. And, by exchanging some portion of each of the goods for different foreign goods, each country increases the variety of goods available to its consumers. For example, suppose that in the absence of international trade each identical country balances variety and unit-cost results by producing 1,000 differentiated products. In the case of free trade, however, new options become available. For example, each country could continue producing their 1,000 products and send half of the total of each product overseas in exchange for half of each of the 1,000 products produced by the other country. In this case, consumers in each country would enjoy a doubling of the variety of products without any increase in unit costs. On the other hand, each country could cut the number of different products it produces in half, thus more than doubling the production of each of the remaining products, and then export half of each of those products. In this case, consumers in each country would enjoy lower prices while still enjoying 1,000 different products. Most likely, since consumers value both variety and low costs, trade will result in some intermediate solution—for example, each country produces larger quantities of 750 different products and consumers thus have access to 1,500 different products. Under this idealized scenario, international trade permits more favorable compromises between costs and variety.An interesting implication of Krugman’s simple economies of scale trade model is that the direction of specialization by each of the two initially identical economies is arbitrary. What made one country specialize in producing one set of products and the other in another set of products? How will the terms of trade develop over time as production and consumption changes over the long term? In practice, these decisions are made by large firms that think and act strategically. Therefore, depending on the size of the firms, their market positions, and consumer demand, a great variety of outcomes are possible. There is also a timing issue: the first firm to expand and exploit increasing returns gains the comparative advantage. There may be competition among imperfectly competitive corporations to gain a competitive advantage in those businesses that will in the future generate the greatest profits. For example, the income elasticity of demand may be such that, as economies grow and income increases, demand increases more for pizza than for books. Perhaps government policy can push the direction of international trade toward a more favorable outcome, rather than letting these decisions be made independently by corporations. Policies to protect and promote industries with the greatest growth potential are called strategic trade policies. Increasing returns to scale are common in manufacturing, mining, agriculture, and many other productive activities. Over the past thirty years, international economics has investigated what dropping the assumption of increasing costs in favor of the assumption of increasing returns to scale does to models of international trade. T he model of two identical countries above suggests that national welfare can still increase from international trade when production is subject to increasing returns to scale. This is reassuring because so many of the products traded are produced in factories and firms whose activities are subject to economies of scale. However, note that the model also suggests that future gains may not accrue equally across countries as corporations make their decisions on what to produce, what new products to develop, where to produce them, how to market them, and how well they can use the power of the state to help shape the events in their favor. The growth of MNCs links international trade to international investment, market structures, and institutional factors that are not covered in the HO model of trade. When a large portion of the gains from trade are in the form of corporate profits, the country with the most stockholders of TNCs gains the most from international trade, while workers and many other groups across all countries may experience declining real incomes.The fact is that TNCs, not small national firms, dominate international trade, and the foreign direct investment that constructs these TNCs dominates long-run international investment flows. Factor Price Equalization TheoremThe way international economics has dealt with the price equalization theorem of the Heckscher-Ohlin model is an interesting example of how the field deals with its blatant contradictions. This theorem says that under completely free trade, not only will the price of each of the final products be equalized across countries, but the price of each factor of production will also become identical in every country. As with the other theorems derived from the HO model, the assumptions of completely free trade, zero transport costs, and perfect competition are critical to this result. In this case, free trade effectively unifies separate national markets into fully integrated single-product markets. Hence, free trade will make the price of clothing the same in all countries. Then, if we also assume that both product and factor, including labor, markets are perfectly competitive, so that the price of final goods is exactly equal to the costs of the resources used to produce them, and we also assume that technology and production methods are the same in all countries, then the identical product prices translate into identical factor prices. This result is formally known as the factor price equalization theorem.The factor price equalization theorem seems to verify rich-country workers’ worst fear, which is that free trade will drive wages down to the levels of sweatshops in Bangladesh and India. That interpretation is not quite correct, of course. The theorem also suggests that free trade will raise the wages of poor Indian workers closer to current American workers’ wages. The model suggests that all workers’ wages will end up somewhere between the world’s highest and the world’s lowest wages. Even this prospect is not comforting for workers in high-wage countries. Unfortunately, there is no consistent evidence showing anything like this happens in the real world, and, interestingly, those who use the Heckscher-Ohlin model to justify free trade often reject the factor price equalization theorem as unrealistic. Of course, it is completely inconsistent to accept one theorem but not another derived from the same model and assumptions.There have been many studies to estimate the effects of international trade on the distribution of income. Observers noted already back in the 1990s that in a number of countries, such as the United States, Great Britain, and China, the growth of international trade over the past several decades has coincided with a sharply rising income inequality and stagnant real wages. That is, the surplus accruing to capital has consistently increased over the past several decades, in both capital and labor intensive countries. Economists in developing countries saw comparative advantage differentlyFrom the perspective of the developing countries, international trade did not always seem so beneficial. The colonial and postcolonial experiences of countries in the third world led one school of mostly Marxist economists to call third world countries to sever all economic ties with their former colonial masters and the capitalist developed economies in general. Representative of this perspective was Andre Gunder Frank (1967), who built on the works of Karl Marx, the socialist economist Paul Baran (1957), and numerous Marxist Latin American economists. Specifically, Frank pointed out that developing countries were not just in a stage of development that the more developed countries had passed through earlier. Contemporary developed capitalist countries had never passed through a stage during which they had had to coexist with much wealthier and more highly industrialized countries and to play the role of subservient provider of those countries’ economic needs. According to Frank (1967, p. 100):[E]ven a modest acquaintance with history shows that underdevelopment is not original or traditional and that neither the past nor the present of the underdeveloped countries resembles in any important respect the past of now developed countries. The now developed countries were never underdeveloped, though they may have been undeveloped. It is also widely believed that the contemporary underdevelopment of a country can be understood as the product or reflection solely of its own economic, political, social, and cultural characteristics or structure. Yet historical research demonstrates that contemporary underdevelopment is in large part the historical product of past and continuing economic and other relations between satellite underdeveloped countries and the now developed metropolitan countries. Furthermore, these relations are an essential part of the structure and development of the capitalist system on a world scale as a whole.Frank and the other dependency theorists distinguished themselves by claiming that economic interdependence with wealthy countries prevents less developed economies from ever developing and permanently raising their living standards:When we examine this metropolis-satellite structure, we find that each of the satellites, including now-underdeveloped Spain and Portugal, serves as an instrument to suck capital or economic surplus out of its own satellites and to channel part of this surplus to the world metropolis of which all are satellites. Moreover, each national and local metropolis serves to impose and maintain the monopolistic structure and exploitative relationship of this system . . . as long as it serves the interest of the metropoles which take advantage of this global, national, and local structure to promote their own development and the enrichment of their ruling classes. (p. 101)Dependency theorists hypothesized that rather than serving as an engine of growth, trade is the channel through which rich center countries exploit poor peripheral countries within an institutionalized power structure that perpetuates the unequal distribution of world income.Economists like Frank and many of his Latin American contemporaries were often labeled as Dependency Theorists or classified as members of the Structuralist School of economics. Structuralist economists explicitly rejected mainstream economics’ fundamental assumption that economic outcomes were the result of free choices made by individuals who sought, rationally, to maximize their individual welfare. Structuralists argued that human behavior is holistically influenced by, among other things, culture, institutions, and psychological factors that have a high degree of persistence. Like structuralists in the fields of philosophy, anthropology, and sociology, structuralist economists accepted that human economic behavior was tightly bound by broader economic systems and, for developing countries, the international economic system, within which they lived. Structuralist economists emphasized that international trade perpetuated unequal economic and social structures, such as, for example, the way the export of sugar by Brazil in the sixteenth and seventeenth centuries created a plantation society whose slavery and unequal wealth still distorted Brazilian society. Thus, where modern economic analysis assumes smooth functions and continuous marginal adjustments to price signals, structuralists were convinced that if developing countries followed their current comparative advantages, they would forever be locked in to exporting primary products and to deteriorating terms of trade. Protectionist policies by developing countries after World War II were often blamed on the emotional reaction to colonialism, but structuralism provided an economic justification based on the rejection of both mainstream Western economic thinking as well as the rejection of the Western system. Interestingly, even mainstream international trade theory predicted that trade changes the structure of the economy and alters the income distribution.IV. A Better Approach: Marx’s Materialist DialecticThe international economy that international economics strives to describe, analyze, and explain is inherently a dynamic phenomenon, governed by persistent relationships within and across the economic, social, political, and natural spheres of human existence. This calls not for the traditional narrow static equilibrium analysis that currently dominates mainstream economics, and especially international economics, but rather for a holistic approach. Gaining an understanding of our complex human existence is a difficult task. To be successful, one must recognize, formally and informally, the interdependence of economic, social, and natural phenomena. One needs to adopt an intellectual methodology for increasing our knowledge about this complex reality. Such an epistemological approach has been referred to as holism. The term holism is derived from the Greek word holos, meaning entire, total, whole. The term was initially used in the early twentieth century to describe new dynamic theories in the physical sciences, such as Charles Darwin XE "Darwin, Charles" ’s XE "Darwin, Charles" theory XE "Theory" of evolution, Henri Becquerel XE "Becquerel, Henri" ’s theory of radioactivity XE "Theory of radioactivity" , and Albert Einstein XE "Einstein, Albert" ’s theory of relativity XE "Theory of relativity" . These new theories described the world as evolving dynamic systems, in which the parts are related to all other parts in complex ways that effectively condition how each observed part actually functions. Holism is the explicit recognition that the component parts cannot be understood in isolation and their functions cannot be predicted without knowing the whole environment in which they exist. Overall, the outcomes of the whole system are a function of both its parts and the systemic interactions among those parts. Holism explicitly rejects the mainstream economics idea that the whole is the simple sum of its parts.In looking for such a holistic epistemology for international economics, this paper makes a case for Marx’s materialist dialectic. Many economists who have managed to free themselves from the shackles of the mainstream economics culture opt to ignore Marx’s methodology; perhaps, they feel they can be holistic without being accused of being a Marxist. However, this paper will argue that confronting the established culture and institutions of mainstream social science and international economics is difficult. Marx’s materialist dialectic protects the objective heterodox economist from the mainstream culture by expressly providing a political economy perspective on the dynamic movement of the economy, society, and nature. In the words of Lenin (1915), “dialectics is the theory of knowledge of Marxism.” Marx is associated with a materialist dialectic, not Hegel’s idealist dialectic. Hegel argued that dialectics is the self-development of a concept; that is, he saw all real things as the result of human consciousness, as concepts of human thinking and interpretation, which evolved over time as a dialectic process. Even though he was strongly influenced by Hegel, Marx was also influenced by Feuerbach’s rejection of Hegel’s idealistic dialectic in favor of a materialist perspective, accepting human thoughts as reflecting real things instead of images of this or that stage of the absolute concept. According to Engels, Marx came to see the dialectic of concepts as “merely the conscious reflex of the dialectical motion of the real world….thus the dialectic of Hegel was turned over; or rather, turned off its head, in which it was standing, and placed upon its feet [reality].”Engels describes the materialist dialectic as reflecting:…that the world is not to be comprehended as a complex of readymade things, but as a complex of processes, in which the things apparently stable no less than their mind images in our heads, the concepts, go through an uninterrupted change of coming into being and passing away, in which, in spite of all seeming accidentally and of all temporary retrogression, a progressive development asserts itself in the end….This description of the accumulation of knowledge is not the same as the (also materialistic) scientific method, in which new truths are continually revealed and falsehoods abandoned so that knowledge necessarily improves over time. The materialist dialectic means that the investigator remains conscious of the limitation of all acquired knowledge, of the fact that knowledge is conditioned by the circumstances in which it was acquired. Engels goes on to say: On the other hand, one no longer permits oneself to be imposed upon by the antithesis…between true and false, good and bad, identical and different, necessary and accidental. One knows that these antitheses have only a relative validity; that that which is recognized now as true has also its latent false side which will later manifest itself, just as that which is now regarded as false has also its true side by virtue of which it could previously be regarded as true. One knows that what is maintained to be necessary is composed of sheer accidents and that the so-called accidental is the form behind which necessity hides itself—and so on.Engels then goes on to argue that not only is nature a historical process of development, so is “the history of human society in all its branches and of the totality of all sciences which occupy themselves with things human (and divine). Here, too, the philosophy of history, of right, of religion, etc., has consisted of the substitution of an interconnection fabricated in the mind of the philosopher for the real interconnection to be demonstrated in the events.” People are endowed with consciousness, they act with deliberation or passion, they work towards some set of goals. However, in spite of the consciously desired aims of all individuals, accident seems to reign on the surface. “That which is willed happens but rarely.” To understand and predict outcomes, we need to consider what all of these individuals really want and decide. Engels anticipates behavioral economics when he writes:The will is determined by passion or deliberation. But the levers which immediately determine passion or deliberation are of very different kinds. Partly they may be external objects, partly ideal motives, ambition, ‘enthusiasm for truth and justice”, personal hatred, or even personal whims of all kinds….the further question arises: What driving forces in turn stand behind these motives? What are the historical forces which transform themselves into these motives in the brains of actors?Hegel’s dynamic systemic dialectic could not answer these questions, because he projected philosophical ideology into history, rather than looking at history itself for the answers. The dialectic and political economyIn Capital, Marx describes how the bourgeoisie and proletariat both arose out of the changing modes of production and production technologies. This necessarily requires dealing with the class conflicts within contemporary political orders, social circumstances, and changing economic conditions. Again according to Engels (1886): …all class struggles for emancipation, despite their necessarily political form—for every class struggle is a political struggle—turn ultimately on the question of economic emancipation. Therefore…the state—the political order—is the subordination, and civil society—the realm of economic relations—the decisive element.” It is true that all the needs of civil society—no matter which class happens to be the ruling one—must pass through the will of the state in order to secure general validity in the form of laws. But what determines these wills of people and states? If we enquire into this, we discover that in modern history the will of the state is, on the whole, determined by the changing needs of civil society, but the supremacy of this or that class, in the last resort, by the development of the productive forces and relations of exchange. Here we arrive at Marx’s circuit of capital. The specific form of the circuit of capital influences the state, which tends to become a reflection of the economic needs of the class that controls production. Libertarian economists from the time of Marx were correct describing the state as having politically-determined power over individuals, and that this human institution will inevitably seek some degree of independence from society that it will use for the benefit of specific interest groups or those individuals who exercise control over government. But Marx does not, as Bastiat and other contemporaries do, conclude that government must be severely restricted to a few simple collective tasks. Instead, he uses the materialist dialectic to explain how, under capitalism, government ends up doing the bidding of the dominant class, often with enhanced power as the ruling class needs the power of government to legalize, protect, and justify their wealth. Hence, he concludes: “The fight of the oppressed class against the ruling class becomes necessarily a political fight, a fight first of all against the political dominance of this class.” Unfortunately, the interconnection between this political struggle and its economic basis has been completely ignored in mainstream international economics, as in other branches of our economics. Even worse, professional economists play an active role in eliminating inconsistencies between the juristic mechanisms that keep the state acting on behalf of the ruling class and the actual economic facts. Culture, or what Engels and Marx called “private law”, also reflect the organization of production in society. This leads to the separation of religious and philosophical ideologies from economic facts. Only a materialistic dialectic, as established by Marx, can overcome this separation of ideas from reality and get to the bottom of the shifts in political, economic, and social organization. Behavioral and sociological justifications for the dialecticAs argued just above, Marx anticipated the more realistic behavioral economics approach to human behavior. Yet, international economics continues to use almost exclusively neoclassical models, which usually assume that economic actors are rational individuals who take only their own material well-being into consideration when they make economic choices. Often such models are reduced to representative agent models, in which one average economic person, or homo oeconomicus, represents aggregate economic behavior. Among the many costs of the intellectual mistake of placing an unrealistically individualistic and self-centered homo eoconomicus at the center of economic analysis is that it prevents economists from analyzing the important economic roles of groups and organizations. The behavior of business firms, labor unions, government agencies, and entire classes of people cannot be explained or analyzed in a meaningful way. Also, the emphasis on the individual makes it difficult for mainstream economists to analyze the development of social phenomena such as institutions and culture. This denial of humans as fundamentally group animals, in turn, has resulted in the lack of realistic analysis of the role of large corporations in our contemporary globalized society. Human rationalityBehavioral economists have suggested that humans follow more realistic strategies. For example, Simon (1955) has used experiments to show that people are likely to take short-cuts and engage in “satisficing, ” and Simon (1959) later described people as doing the best they can, but that they are only “boundedly rational” because humans often need to make decisions quickly and without all the facts in hand. Keynes (1936) people, including the managers of business firms, go by “convention,” in the sense that, for lack of anything better, some ideas seem to provide a reasonable guide for action, which then becomes the conventional way of doing things. Also, in Chapter 12 of his General Theory, Keynes (1936) compared innovators to explorers of the South Pole, who, in a state of uncertainty, drew on their animal spirits to decide when to move forward and when to be cautious. Neuroscientific research provides further evidence that humans do not function as the hypothesized homo oeconomicus. According to Churchland (2002, p. 308):The Brain’s earliest self-representational capacities arose as evolution found neural network solutions for coordinating and regulating inner-body signals, thereby improving behavioral strategies. Additional flexibility in organizing coherent behavioral options emerges from neural models that represent some of the brain’s inner states as states of its body, while representing other signals as perceptions of the external world. Brains manipulate inner models to predict the distinct consequences in the external world of distinct behavioral options. Using these methods, scientists such as Lebeouf (2002) and Medin and Bazerman (1999), among many other researchers, have confirmed that the automatic and emotional processes in the human brain depend largely on the recognition of patterns. Their experiments show that the human brain becomes agitated when unfamiliar patterns emerge or familiar patterns cannot be found in what is being observed. But it is important to note that, as experiments reported in Frederick (2005) clearly demonstrate, even the most intelligent people routinely misinterpret a problem or an observation because they place it in a familiar pattern that, in fact, does not accurately apply to the problem at hand. By relying in patterns, people often make mistakes, but overall the strategy must have worked because humans have become a dominant species on Earth.The human brain thus evolved not only to use abstract reasoning to deal with complex issues, but also to derive practical rules to guide human actions within that complex reality. Quick reactions were required to deal with predators and unexpected natural disasters; long deliberations were not a practical way to deal with the bear that suddenly appeared at the cave entrance. Humanity did not survive on practical combinations of abstract thinking and clever short-cuts alone, however; humans survived because they also maintained cohesive groups in which members could efficiently interact to generate social outcomes greater than what a simple sum of individual actions could accomplish. The evolution of humans into group animals reflects the safety of numbers, the efficiency of splitting tasks, the benefits of sharing knowledge, and the ability to carry out large projects. The group can only be maintained if its members are able to suppress individual thoughts and actions that would be detrimental to the survival of their social groups. A sharing of perceptions, ceremonial actions, traditions, and social norms, that is, culture, helps to sustain group solidarity in the face of external threats. This is not to say that human culture always achieves the fundamental goal of survival. There have certainly been many conflicts among individuals and between groups of individuals. And, virtually all human civilizations ultimately collapsed because they were not able to deal with all the social and natural challenges they faced. Overall, however, human culture has been quite successful in that it has enabled humans, in a very short evolutionary period of time, to gain a large presence on Earth. Unfortunately, economists have not done a very good job analyzing the group and organizational behavior that enabled this human evolutionary success. The power of cultureCulture consists of the set of common patterns of human activity and behavior that people value and identify with. Culture consists of informal institutions such as traditions, myths, religions, norms of behavior, manners, artistic expressions, and symbols. Culture emerged from the process of human evolution because it enabled humans to cope with the growing complexity of their existence. Fundamentally, culture serves to enhance social cohesion by inducing independently-thinking but socially-inclined individuals to conform to the patterns recognized by others who embrace the same culture. The work of the French sociologist Pierre Bourdieu provides a useful framework for understanding why economists developed and sustain a culture that effectively makes is difficult for economists to escape from the well-established culture of individualism, especially because this culture prevents economists from seriously recognizing the shortcomings of its own culture.Bourdieu takes as his starting point the work of the early twentieth century sociologist Max Weber (1978), who recognized that people generally adhere to more than one culture because their position in society often cuts cross traditional concepts of class or culture. Professions like sociology or economics develop strong subcultures that are embraced by practitioners that, simultaneously, live in different national and ethnic cultures. This embrace of multiple cultures is important for understanding the widespread acceptance of neoclassical analysis by economists the world over; the economics subculture can apparently survive within many different national and ethnic cultures.Bourdieu’s first analytical concept is the field, which he defines as the social or intellectual arena within which people spend much of their day and within which they can best advance their primary economic and social interests. People normally identify with broad national or ethnic cultures, but in going about their daily activities they tend to pay the most attention to their immediate professional or social environments. Many people closely identify themselves with the culture of a particular job, industry, or work environment in which they spend much of their available time and effort. For academics, the term field is straightforward because most of an intellectual’s life is spent within a well-defined intellectual field. Note, however, that Bourdieu’s concept of a field is more general. For example, teenagers tend to embrace the culture of their school environment and the new social relationships that they develop there. Members of the military adopt a distinctive military culture of hierarchy, obedience, and violence. And, athletes focus on a culture likely to include specific rules, norms, and perspectives on repetitive training, physical prowess, competition, and, depending on the sport, aggressive behavior. Each individual usually spends a large proportion of time focused on the one field because that is where they judge their success in life. For example, a teenager may clash with the culture of his/her household or even that of his/her nation, but showing up in school wearing clothes that clash with the school culture would be unthinkable! Similarly, economists come from a great many ethnic, national, and other social cultures, but as quickly becomes obvious to anyone attending an international economics conference, they all dress, act, talk, and present research that uses very similar models, procedures, and presentations. Nearly all economists tend to judge their colleagues by the same set of criteria covering the subjects, methods, and procedures that have come to be viewed as appropriate in their field.Bourdieu develops two useful concepts that help to more precisely describe the culture of a field. First, people in a field adopt certain attitudes, behaviors, and dispositions, which Bourdieu defines as the field’s habitus, a term he took from the writings of Aristotle and Max Weber. A habitus is a set of subjective but persistent perceptions, customs, conventions, norms, mannerisms, behaviors, expressions, and procedures that are deemed appropriate or “normal” by practitioners in the field. Habitus effectively constitutes both a person’s personal disposition towards others and the set of behaviors by which she thinks others within the field will judge her to be one of them. Bourdieu effectively straddles the long-running sociological debate between subjectivity and objectivity by defining the field as objective and the habitus as subjective. Bourdieu argued that people develop the subjective dispositions and attitudes of their habitus in order to be successful in their well-defined objective field. A soldier, therefore, is likely to adopt a habitus characterized by a clear willingness to engage in aggressive behavior, an unquestioning acceptance of authority and rank, as well as a strong affirmation of group loyalty. A businessperson’s habitus tends to be characterized by an admiration for aggressive salesmanship, a disdain for government restrictions on business activity, and a positive response to monetary rewards. An economist’s habitus most likely includes the use of neoclassical models to analyze a set of issues from the perspective of a market economy, a preference for mathematics in stating hypotheses, familiarity with statistical methods, and a reluctance to address issues that extend beyond the market economy or, heaven forbid, into other disciplines. Recall our general discussion of culture and group behavior; venturing into other disciplines tends to be viewed as disloyalty to one’s own culture, and such disloyalty could weaken the cohesion of the group. Hence, outside ideas are instinctively mocked, but the models and methods that fit the neoclassical framework of the habitus are seldom criticized from within the field.Bourdieu points out that there is an inherent conflict between the reality of one’s field and the arbitrary nature of much of what comprises the field’s habitus. Psychologically, it is difficult for an intelligent person to deal with this combination of an objective field and a subjective habitus. Therefore, human societies, groups and organizations within human societies, and fields develop, largely unconsciously, sets of beliefs, symbols, and popular stories that provide some justification for the subjective and somewhat arbitrary habitus associated with one’s objective field. Bourdieu calls these sets of well-established but largely unproven beliefs, stories, and philosophies doxa. These doxa include unproven but widely accepted religious dogma, general social philosophies, and assorted political views. Doxa provide the broad patterns with which people judge their behavior in their field, and the behavior of others within their field and elsewhere. Together, the habitus and its supporting doxa constitute what we call culture. A field’s doxa includes the “half-baked ideas” that North (2005) has argued were social constructs that enabled people and societies to deal with the poorly understood complexities that they routinely faced. Bourdieu (2005b) and Wacquant (2009) explicitly describe the doxa of economics as consisting of neoliberal ideas that include the characterization of individual humans as always rational and scientifically objective in their decision making, a strong belief that “an economy” can be reasonably modeled as a system of competitive markets in which the “invisible hand” does a reasonable job of transforming self-interested individual behavior into an optimal state of general well-being, a conviction that markets offer greater freedom and better options than “coerced” government programs and regulatory regimes, and strong biases against collective action and in favor of private enterprise. The policies imposed on many indebted developing economies by the International Monetary Fund after the 1982 global debt crisis, the so-called Washington Consensus policies, were a direct reflection of this neo-liberal doxa. These policies included free trade, privatization of government assets, conservative monetary policies to reduce inflation, balanced government budgets, the elimination of labor market regulations, and diminished financial market regulation. The austerity policies currently being imposed in indebted countries of the European Union, such as Greece and Ireland, are another reflection of the Washington consensus and its underlying neoliberal doxa. It is still not clear that these policies have actually improved human well-being anywhere, but they have nevertheless been given very favorable treatment in economic textbooks and most research without causing much debate among mainstream economists. Of course, it is not the function of a doxa to generate debate; the doxa must have widespread and unquestioned acceptance if it is to serve its function of mitigating the urge for economists to question the arbitrariness of the methods and policy options that are in economists’ habitus. The neoliberal doxa of free markets and individualism closely reflects many fundamental aspects of the broader Western social culture, especially that of the United States, the United Kingdom, and other countries with strong Anglo-Saxon cultural heritage. Economists, by projecting their subculture into the rest of the world, are, therefore, effectively forcing major elements of Western culture on others in the guise of science. Third world economists trained at Western universities or taught from Western economics textbooks effectively serve as the foot soldiers for Western culture in their native countries. Respected Western economists use neoclassical models to judge economies and economic policies everywhere in the world. In short, most economists behave like the Western sociologists Bourdieu criticized for judging foreign cultures from the perspective of their own Western cultures.The obvious example of bias in the subject matter of economics is the tendency for economists to focus exclusively on market activities, to use data generated by markets, and to interpret the observed results as if all economic activity was undertaken by rational individuals operating in competitive markets. Recall the quote by Bourdieu at the start of this article. Hence, most economic research analyzes activities included in measured GDP, uses market prices and quantities to quantify human economic activity, and even uses market generated prices to proxy for the value non-market activity if such activity is included in the analysis. Of course, most non-market activity, such as household production and volunteer work, is effectively ignored and given the implicit value of zero. Any objective examination of real world economic activity shows that most human economic interactions do not occur among individuals in formal markets, but among people interacting in a great variety of non-market settings, including within households, within business organizations, in voluntary interactions, in government, and in various collective activities. At the same time, the neoliberal doxa of economics leads most economists to view issues such as psychological happiness, environmental problems, and species losses in the natural environment as non-economic issues that fall outside the field of economics. The narrow scope of most professional economics journals reflects the conformity of the economics habitus to the neoliberal doxa that closely equates economic activity with market activity. A most important aspect of the culture of economics is that it discourages economists from studying group behavior and the role of organizations in human societies. Therefore, despite overwhelming evidence to the contrary from numerous fields of science and social science, mainstream economists still almost exclusively use welfare functions that aggregate the individual welfare of separable individuals. Even after giving Nobel prizes to behavioral economists, for example Kahnemann, Tversky, and Akerlof, for studying the psychological aspects of economic activity, and organizational economists such as Ostrom and Williamson for studying organizational aspects of economic activity, most economists continue to measure economic growth in terms of individuals interacting in markets. They thus pay relatively little attention to the role of groups and organizations, such as labor unions, large corporations, and large financial firms, in explaining economic outcomes. The power of culture is strong.Symbolic violence Culture is not merely a reflection of a dominant paradigm, it also tends to actively protect that paradigm from rivals that seek a paradigm shift. Bourdieu (1986, 1989b) explains that culture has staying power because it exploits people’s inherent desire to maintain acceptance within the group. People tend to consciously or unconsciously interpret reality in ways that often effectively leads them to act against their own individual interests because they also value social approval, friendship, and a role in their society and field. Recall that the evolutionary role of culture was, at least in part, to enable individual behavior that benefits cohesion of the whole group, not necessarily the welfare of each individual. Culture can be oppressive.In much of his research, Bourdieu (1986, 1989) focused on cultural oppression. One of his themes was that such oppression was driven by an unequal distribution of cultural capital. Bourdieu’s uses the word capital here to emphasize that a person’s familiarity with, and ease of acting within, a culture is accumulated through the long, slow processes of social experience, family upbringing, assimilation, and formal learning. Bourdieu described various forms of cultural capital. For example, inherited cultural capital includes learned behaviors such as knowledge, habits, language and dialect, social mannerisms, and conversational manners. Economists definitely acquire a distinctive jargon and knowledge. There is also objectified cultural capital, which includes real physical things such as a musical instrument, a carpenter’s tool box, or, in the case of economists, an office computer and shelves of books and professional journals. In each case, the musician, the carpenter, and the economists would lose status if they did not posses such objectified capital. Note that the size of the collection of professional journals clearly reflects an economist’s tenure in the profession. Finally, institutionalized cultural capital includes diplomas, awards, certifications, and other official credentials, whose accumulation also takes a lengthy effort. Together, these forms of cultural capital give those who possess more cultural capital power over those who possess less. The use of this power to impose one’s will over another person with less cultural capital is referred to by Bourdieu (1977b, 1986, 1989, 2001) as symbolic violence. Discrimination and harassment are overt forms of symbolic violence. But there are also many subtle forms of symbolic violence, such as a frown or look of disapproval by a parent that makes a child change its behavior or the concerned mention of “unfinished work” by a boss that effectively signals to an employee that (s)he had better put in some extra hours over the weekend. Symbolic violence among adults is fundamental to the perpetuation of gender, ethnic, and age inequalities. Bourdieu (2001) shows that symbolic violence often leads people to accept what are, objectively viewed, injustices because they adjust their doxa to match the social field they inhabit. He documents how working class children often accept the social order as legitimate and thus view the educational success of their upper- and middle-class peers as a reflection of the latter’s greater ability or harder work rather than the social privilege that enabled them to acquire the mannerisms, accent, and clothing associated with the habitus of a higher class. Economics graduates of lower-rated universities, say the University of Nebraska, see the professional success of the graduates of higher-ranked universities, such as Harvard, MIT, or UC Berkeley, as a legitimate reflection of the latter’s greater ability or their harder work, even though in reality the institutionalized cultural capital (the diplomas) are seldom more than the result of class-based inherited cultural and economic capital. Economic pressures, such as the need for income or an employer’s health insurance, often lead a worker to accept the underlying doxa of hierarchy and the acceptance of the existing distribution of economic and cultural capital that justifies the unequal economic outcomes. So economics PhDs from Nebraska accept one-year instructor contracts at lower level universities while the Harvard graduates get the tenure track positions at the higher ranked universities. According to Bourdieu (2001), people are complicit in the symbolic violence they experience because they subconsciously adjust their doxa in order to maintain their sense of dignity within what they are forced to accept as the immutable reality of the social or professional field they inhabit. The resignation to the existing social order is due, according to Bourdieu, to the fact that redistributing cultural capital in order to reduce symbolic violence is likely to be a gradual, difficult, and slow process, and those who have the most cultural capital are likely to use it to resist redistributive measures. But within the strong culture of economics, few economists will question their neoclassical models much less their neoliberal doxa. They received strong and continuous approval for mastering neoclassical economics from their professors during graduate school, and after graduation they continue to receive implicit reassurance of the legitimacy of the doxa and habitus from colleagues, journal editors, and employers. As an illustration of the subtle nature of symbolic violence, consider, say, a Marxist economist in line for promotion and in need of increasing her publication record to justify the promotion; she might very well convince herself that it is permissible for a Marxist to write an article based on a standard neoclassical model that reflects an idealized capitalist economic structure because such an article would be more likely to get published in a “first-tier” economics journal. A further justification would be that unless she gains the promotion, she will not be able to do good Marxist economic analysis in the future. In the meantime, of course, the dominant paradigm is not challenged.In many intellectual fields like economics, the symbolic violence is most often carried out by the field’s most highly regarded members who serve on the editorial boards of professional journals and the faculty committees that hire, promote, and fire new faculty members. Thus, a young assistant professor seeking to publish and gain tenure will be “well-advised” by her older mentors to write articles that apply only neoclassical analysis. Course content in the leading economics departments, dissertation advice, and the selection criteria for research grants further install the orthodox habitus and doxa in the minds of the young students who will become our future economists. Outside of academia, the corporate-funded think tanks, the Federal Reserve Bank in the U.S. and other central banks elsewhere, international agencies such as the IMF, World Bank, and OECD, the business press, and private financial firms also keep the neoclassical models and other elements of the economics habitus firmly entrenched by means of their employment practices, their ability to influence policy and the press, and their money that funds research, publication, grants, internships, and philanthropy. Kuhn’s (1962) distinction between ordinary science and a paradigm shift may apply here. By intimidating actual and potential purveyors of alternative paradigms, those with the greatest investments in the current paradigm use symbolic violence that effectively protects both the doxa and habitus from contradictory facts, or what Kuhn (1962) called anomalies. If anomalies are openly and objectively discussed and examined, a paradigm shift becomes more likely.V. The Dialectic, International Economics, and International Economic ActivitySo, we have presented evidence of the concentration of production in the hands of multinational firms, we have explained why mainstream international economics has not paid much heed to the growing dominance of multinational corporations in international economic activity, and we have argued that a materialist dialectic provides a framework that could enable international economists to more fruitfully understand the reality of their field. In this next-to-the-last section we take a look at some of the international economics issues that the materialist dialectic could shed useful light on. Marx on ImmigrationMarx wrote little about immigration, even though the international movement of people was certainly a common phenomenon by the middle of the nineteenth century. But when he did address the issue, he quickly extended his perspective towards political economy. In 1870 he wrote a letter to two of his U.S. collaborators concerning British policy toward Ireland. Marx wrote that the British aristocracy and bourgeoisie shared an interest “in turning Ireland into mere pasture land which provides the English market with meat and wool at the cheapest possible prices.” And, the British capitalists had “the same interest in clearing the estates if Ireland as it had in the clearing of the agricultural districts of England and Scotland….Ireland constantly sends her own surplus [labor] to the English labor market, and thus forces down wages and lowers the material and moral position of the English working class.” Interestingly, Marx immediately extends his political economy of Irish immigration: “And most important of all! Every industrial and commercial centre in England now possesses a working class divided into two hostile camps, English proletarians and Irish proletarians. The ordinary English worker hates the Irish worker as a competitor who lowers his standard of life. In relation to the Irish worker he regards himself as a member of the ruling nation and consequently he becomes a tool of the English aristocrats.Dugger’s dismal dialecticWilliam Dugger (1989) has been recognized as predicting the corporate hegemony over the world economy. In his 1989 book, he wrote:Before the rise of the big corporation, economic forces pushed society one way, technological forces pushed another way, and political forces pushed different ways as well. “The resulting movement was largely haphazard, and the society itself was largely pluralistic. Except for during the Puritan period, no one institution dominated it. But now [1989] life in the United States is dominated by the giant, capitalist corporation. Capitalism, Inc. eats away at the alternative lifestyles and institutions that once provided a degree of balance to the society.Dugger describes how, little by little, the forces that enhanced the corporation’s power over product and labor markets, not to mention the state and its institutions, led to the corporate hegemony that was becoming obvious already in 1989. For example , Dugger (1989, p. xvii) described the weakening of the family as a potential counterbalance to corporate hegemony. He describes how “The corporation first drew in the father, absenting him from the family circle as he pursued career values and learned to interpret his life in career terms. The corporation now lures away the mother too, as more and more women pursue the own corporate careers.” This situation has only become even more clear today.Dugger also predicts that organized religion and organized labor were also rapidly losing their ability to organize or, in the case of the latter, their willingness to counter the corporate culture. At the same time, Dugger does see the education sector as a possible counterforce, but his optimistic evaluation of the role of education to counter corporate hegemony looks rather na?ve today:The school is potentially a stronger and more enlightening counterbalancing institution than the small town or the neighborhood. The college experience has a particularly strong effect on middle-class youth who move away from home for their four years of college life.” (p. xvi)All in all, Dugger is not optimistic, even as far back as 1989:…a working class revolt is distinctly not in the offing. But a middle-class counterrevolution, even without a working class revolution, is occurring at this very moment. And it is the middle class that is moving to the extreme right in a counterrevolutionary fashion, even though there is no working-class revolution to counter in the first place….The corporation has come to dominate the middle class as never before. (pp. xvi-xvii) So where might the counterbalancing power come from? Murray’s territorial non-coincidenceThe current dominance of multinational corporations in the globalized economic system has produced a new contradiction. On the one hand, the structure of production and the entre circuit of capital crosses borders, but that same circuit of capital operates within an institutional structure that is still largely national. The dialectic suggests that conflicts between the political and economic organizations of society are potentially dangerous for the entire system. Murray (1971, p. 58) warned about this “territorial non-coincidence” nearly half a century ago. While Marxists have long recognized that national economic systems are integrated into a world economic system, ne that Trotsky (Permanent Revolution, p. 10) described as not “the simple addition of its national units, but as a powerful independent reality created by the international division of labour and by the world market which dominates all the national markets.” There is the interesting debate between Kautsky and Lenin over the meaning of this for the structure of capitalism, with the former arguing that in the future capitalism will be characterized by “internationally unified finance capital in place of the mutual rivalries of national finance capital,” while the latter argued that international rivalry among nation states would continue because “capital is thriving on armaments and wars.” Murray argues that neither of the two addressed the problem of how the institutions capitalism needs to operate, such as property rights, the legal structure that supports and regulates market activity, the support a national moneys, and the protection of wealth in general, will be able to support a capitalist system based on large multinational corporations with interest spread throughout the world and with little or no national loyalties. Hence the important question: What will be the outcome of the territorial non-coincidence between the corporations that dominate monopoly capitalism and the national government they depend on for institutional support?Murray offers some suggestions for bridging the growing non-coincidence: (1) annexation of national states (more colonialism), (2) subordination of small states by larger states, (3) private takeover by multinational firms of former state institutions, (4) all states are pushed to provide a harmonized set of institutional supports that multinational firms need, or (5) new international forms of governance are created to replace the nation states.Some closing thoughtsThe argument between Kautsky and Lenin has not yet been definitively settled, as it really can never be in the dynamic, complex evolution of human society as suggested by the materialist dialectic. On the one hand, we have witnessed the establishment of the single currency for nearly 20 European countries, we have the global “Eurodollar” money market, and the dominance of the dollar promoted by U.S. financial interests since Bretton Woods and still backed by U.S. military power. Nevertheless, there are still many national currencies, and the Brexit vote suggests there will be national currencies for some time. On the other hand, countries are still negotiating international “trade” agreements that contain ever more powerful State-Investment Dispute Settlement mechanisms that clearly undermine a national government’s power to establish national regulations, laws, taxes, and other rules that impact international corporations. In fact, the Trans Pacific Partnership that President Trump withdrew the United States from has just been completed by the remaining 11 countries, and the agreement contains a SIDS clause as well as other rules that restrict national policy sovereignty. Despite the widespread protests, votes, and economic arguments against the continuation of neoliberal economic policies, all international institutions, such as the IMF, World Bank, BIS, the European Central Bank, etc., continue to push governments to adopt capitalist-friendly neoliberal policies. And the European Union continues to push countries in that same direction through various agreements and ruling bodies, despite the political backlash that now shows up most often in the form of votes for extreme right-wing candidates. There seems to be more tolerance of fascism than economic diversity within the EU, but given the hegemony of multinational corporate capital, that should not be surprising. Capital has always preferred fascism to even mild democratic socialism. And the extension of NATO to a global military alliance dominated by the U.S. continues unabated, increasingly fueled by imagined or exaggerated pretexts. 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