Over a number of centuries our world has been transformed through two main unified developments. First of all, production and productivity have triggered to such levels that previously would have been thought of as unimaginable. Also the nature of industry itself and its produced goods have made such an alteration it is beyond recognition. For example, aircrafts now carrying passengers to destinations all over the globe; making our global ‘one world'. Secondly, inequalities of wealth and power between different parts of the world have grown to an equally unprecedented degree. The western world (America and Europe) can enjoy safe and comfortable environments, with opportunities to indulge in luxury when desired. They can sit contentedly in their homes watching their televisions with documentaries and news reports of mass starvation and impoverish populations in places such as; Asia, Africa and South America.
However, it is a common know fact that over half of the world's population are living dreadful impoverished lives. Though we continue to choose to ignore the extent to which they determine the whole character of the modern world. Yet they can be understood and analyses by looking at historical processes that have evolved globally over many centuries.
Around the same period of the two interconnected developments that had taken place, the dominance of a capitalist mode of production was quickly beginning to take over many systems. This meant that production that is carried out by many separate, privately owned enterprises which sell their products on the market and employ waged labour. The evaitatibly lead to the displacement of earlier traditional forms of organisations (peasant agriculture, feudal estates, and slave plantations etc) in the advanced countries. Leaving the underdeveloped countries lagging behind; peasant agriculture supports a large part of the population all over the world. However, these areas have now been lured into a world market and world-wide system. This completely undermines the traditional economic and social structures that were once predominant in these areas. (Marxist theories of imperialism, Brewer).
Through the fast progression of the western world (the advanced countries) this allowed them to be the dominant countries by whom through empower exploited(s) the underdeveloped world for their cheap land, and labour and suitable infrastructure. This has become more evident in most recent years were the developed world have seen a shift of their industries to undeveloped countries. Companies begin to move overseas for cheaper production rates. Causing losses in jobs in places like the United Kingdom and America. This enviably left a massive financial strain on a huge number of the population. Like Hobson 1938: 77-8 explained, ‘When saving exceeds the scope for domestic investment owners of capital look for investment opportunities abroad.' This was due to the high labour costs in across Europe and America. Hobson's statement here was simple, even though workers were getting paid a reasonably high wage they weren't spending their money making it harder for consumption to keep up with production. To be more cost efficient, often markets move overseas were overall the net pay as a whole is more than half of that in Europe and America. This meant the production of goods is much lower in price, making them run at a profit.
Hobson expressed his concerns on the shrinking of continental markets. His main issue was that it primarily drives the capital within the country or continent (European) overseas (mainly to Asia and parts of Africa). This has lead to the inequitable distribution of wealth in industrial Europe. The realisation that wages of European workers did not provide enough purchasing power to take in the cosmic amount of capital built up during the Second Industrial Revolution. Hobson claimed that due to the growth of monopoly capitalism and the consequential focus of wealth in fewer hands, appears to have increased the misdistribution of purchasing power that capitalism have suffered from under-consumption. Hobson's worries was that the ‘now' wealthy saved their money instead of spreading it out to an evenly degree. Whilst the rich were tying their money up in ‘investment' or ‘savings' more than the rest of the population in Europe were living on a unattractive wage, some even living in poverty.
Lenin, like Hobson in the 1880s to 1900s, argued that capitalism necessarily induced monopoly capitalism. This was in order to discover new markets and resources, representing the final and highest stage of capitalism. (marxists.org). Lenin's theory of necessary expansion of capitalism outside the boundaries of nation-states - one of the foundations of Leninism as a whole was also shared by Rosa Luxemburg (marxists.org) and liberal philosopher Hannah Arendt. Lenin's theory has since been extended by Marxist academics to be a synonym of capitalistic international trade and banking.
These theoretical views are critical in the processes that occurred thirty years ago. This theory of imperialism provides a theoretical basis for a discussion of the present world order.
In the 1970s - 1980s the world saw a massive recession, there was two underling reasons for this. Firstly was the intensification of international competition. For example, the British steel industry was the world leader in producing steel but by 1970 Britain faced massive competition from Japan who began to become a main competitor within the steel industry. Secondly, overproduction and underconsumption has a direct effect on the general dip Gross Domestic Product (GDP).
Hobson 1938:83 argues, even though incomes rises - so does consumption but by less than the full amount of change in income. Implying that savings are being increased at a rapid rate (more so than normal). The savings are next invested leading to the boost in the capacity of industry and its output. Nonetheless, consumption has seen a rise, yet still more slowly than capacity output, having insufficient consumption and thus excess supply of goods. Output subsequently subsides taken incomes again downwards with it. But as incomes drop, then all the savings fall and the proportion of consumption in income increases. (newschool.edu)
The arguments that Hobson makes about underconsumption correlates with the major tell tale signs of a recession. It begins with a dip in GDP often through high unemployment which reduces the level of consumption within that area, as people just don't have the money to spend. This means that the level of demand decreases dramatically reducing the production rates, as the products are not being sold.
Fundamentally Hobson's argument explains that excessive saving has a major effect on inequality in the distribution of income, with monopoly as one possible cause of inequality. He believes that when a country has consuming power they tend to exceed needs for possible uses, leading to a high wastage. ‘Monopolies may increase prices, and hence profits and inequality, and might also reduce wastage of capital, reducing profit, and simultaneously reducing the amount required' (Hobson 1938:75-6).
Whilst considering Hobson's views, it is clear to see that economic recession and restructuring are in a vicious circle. This process has to happen to allow development and reshaping of the economic structure.
The world has recently seen the horrific effects that economic recession has had on the economy and everyday life. It has caused thousands of jobs losses within the United Kingdom and all over the world. This has lead to people being left without basic everyday essentials (for example, basic food, running warm water, lack of clean clothing). The economy as a whole has seen a massive collapse, the biggest in decades.
There is no doubt there are many causes - and many consequences - for the cause of the global financial crisis developing. The main backbone however is the sudden rise in high levels of market liquidity (which is basically the ability of asset's to be sold without causing a significant movement in the price. This has to have contained a minimum loss of value. Money, or cash in hand, is the most liquid asset). There has also in most recent years been a build up of low global interest rates. With the low cost of capital, and very low yields on safe investments - a collapse in economy has been evitable and just a waiting game to see when.
Also there has been strong investor factors which have contributed dramatically, with the large demand for higher valued assets, banks seized the opportunity to expand on mortgages. The lending of huge sums of money and the repackaging in order for people to be able to pay back debts has been disastrous. Banks have been selling the underlying credit risk as securities with different levels of risk and return (referred to as "securitisation") - the packaging of loans into securities. Banks have been lend money to individuals without doing vast in-depth research on the individual (people having different credit ratings - some good and some atrocious). Banks have been lending money far too easily to people whom many not have been lent should large qualities, as they just cannot pay them back. The fact is we have actually saw in recent years an outstanding extension of credit, especially in the United States, in parallel with a dramatic rise in securitised mortgages, principally after the year(s) 2004 and 2005. (oced.org)
Security products were particularly intricate on the investing side. Investors had almost none due to the lack of conscientiousness; they relied on the provided credit ratings. Unfortunately the credit ratings that were issued often gave a misleading picture of the quality of the loans and the securities that they entail. Another vital inadequacy was that the banks had set up structures to obtain and hold loans which depended entirely on continual contact to short-term funding.
The crisis was generated most recently, when the market saw a scoring higher than ordinary defaults on United States subprime residential mortgages. Investors began to realise that the lack of research done ‘today' had a spiral effect, acknowledging the fact that they were in a high risk world than they had initially thought. Markets had totally frozen. The short-term funding for securities dried out and their prices plunge. There was no information on which banks held the damaged assets, which lead to the lending between banks stopped until the information was obtained. There was ‘zero' additional liquidity to help or even allow the markets function accurately. While the subprime mortgage problem is largely limited to the United States, the repackaging practices were an international cause, so banks outside the United States, especially in Europe, were also drawn in.
J.A. Hobson's analysis of over-accumulation and under-consumption has been criticised by many. Some arguing that it does not explain why less developed nations (LEDC's) with very little surplus capital i.e. Italy, participated in colonial expansion. It fails to fully clarify the expansionism of the great powers of the next century i.e. the United States and Russia, which notably net borrowers of foreign capital. Rivals to Hobson's under-consumption theory highlight that there are many instances in which foreign rulers needed and requested Western capital, such as the hapless moderniser Khedive Ismail Pasha.
Hobson's argument has also been questioned about the capital investment that migrates abroad if savings exceeds the scope of domestic investment. Brewer argues this view is only valid if output and investment are constrained by limited supply of labour. So in order for Hobson's theory to make any sense in practices it would have to be reformulated in those terms.
Following the "Scramble for Africa", Hobson's accumulation theory most often pointed to frequent cases when military and bureaucratic costs of occupation go beyond financial profits. He point out that we were spending on a lot on these things when it was not necessary especially not to the extent that it had currently gone. In South Africa the amount of capital investment by Europeans was relatively small before and after the 1880s. However companies that were involved in tropical African commerce exercise limited political influence. However Hobson thought that finance was manipulating events to make its own profit. This was most frequently against broader national interests. Also statistics only made the fact that African formal control of tropical Africa had strategic implications in an era of feasible inter-capitalist competition highly unlikely for example, Britain. Britain at this time found itself in forceful economic and political pressure to secure profitable markets in places such in Asia and South America (India, China, and Latin America). There areas which supplied the cheap land, labour and suitable infrastructure. (newschool.edu)
Hobson argument was strong when he referred to the reasoning behind the huge impoverished industrial working class - that are often far too poor to consume the goods produced by an industrialised economy.
Under-consumption is an important element in many theories of imperialism. Consumption demand is special, because it is a real aim of economic activity, whilst investment is inferior to it. Investments purpose is to provide for future consumption. Hobson believed that if consumption is too low then saving investment will increase, and lack of opportunities to invest, as low consumption means low demand which leads to low investment. However, this view ignores both scope of economic growth and scope for capital-intensive methods of production.
The expected certainty of imperial expansion as an essential outlet for progressive industry is now manifesting. Misdistribution of consuming power prevents the absorption of commodities and capital within the country is what demands the opening up of new markets and areas of investment not the industrial progress. Hobson's refers the over-saving as having a major effect on the impoverished. The economic root (i.e. over-saving) of Imperialism is establish by analysis to consist of rents, monopoly profits, and other unearned or excessive elements of income, which, not being earned by labour of head or hand, have no legitimate raison d'être. They have no natural connection to production; they push their recipients to no corresponding satisfaction of consumption: these ending up forming a superfluous amount of wealth, which has no proper place in the normal economy of production or consumption. This often accrues as extreme savings.
Excessive analysis has been carried out so far to highlight foolishness of spending half our financial resources in fighting to protect foreign markets. Especially when there are people left hungry within this country. There are areas with badly furnished houses indicating numerous unsatisfied materials wants amongst our own population. Information shows that in 2007, more than one-fourth of the population of our towns are living at a standard which is below bare physical efficiency. If, by reorganisation of the products which flow from the surplus saving of the rich to swell the overflow streams could be diverted so as to raise the incomes and the standard of consumption of this inefficient fourth, there would be no need for forceful Imperialism, and the cause of social reform would have won its greatest victory. (Imperialism as military and export Keynesianism, 1902)
It has not been made compulsory for us to spend all our natural resources on militarism, war, and risky, unscrupulous diplomacy, in order to find markets for our goods and surplus capital. An intellectual advanced community, whom organised a substantial equality of economic and educational opportunities, will lead a raise in its overall consumption to correspond with every increased power of production. This will provide full employment for the country it occupies through providing a high steady flow of capital and good labour. If the distribution of incomes was almost equal across the nation it would the classes of that country to convert their felt wants into an effective demand for commodities, this would mean there can be no over-production, no under-employment of capital and labour, and no necessity to fight for foreign markets.
Nether-the-less I question as Implicit in Hobson's analysis is the assumption of declining marginal propensity to consume with respect to income - and that the relationship between income and MPC is constant over the level of inequality throughout society. Is there any reason to think that's true? It seems to be that some of the most equal societies on this planet are amongst the biggest savers for example, Japan, while some of the more unequal ones like the United States whom save very little in comparison. This makes Hobson's theory overall seems to be rather realistic at first glance. However the assumptions I don't believe are empirically true.