Un espacio de debate, análisis crítico e intercambio sobre los sucesos más relevantes en el mundo, nuestra patria grande y en Guatemala.
Intan Suwandi Behind the Veil of Globalization
Monthly Review Agosto 2015
Globalization is not a novel development in the history of capitalism. In his final Monthly Review article, Paul Sweezy argued that globalization is a process, and that it has been occurring for a long time. As Marx has shown us, Sweezy wrote: “Capitalism is in its innermost essence an expanding system both internally and externally. Once rooted, it both grows and spreads.”1 The accumulation of capital, in other words, has always meant expansion. Furthermore, this very process of growing and spreading is global in scope and, most importantly, imperialistic in its characteristics. Marxist scholars have long argued that imperialism has always accompanied capitalism; in the words of economist Prabhat Patnaik, “capitalism without imperialism is inconceivable.”2 Or, as Samir Amin explains, from the very beginning, “imperialism is inherent in capitalism’s expansion.”3 Starting from the conquest of the Americas, to the colonial subjection of Asia and Africa, to the current neoliberal globalization, Amin argues, the goals of capital remain intact: to control the expansion of markets, to plunder the earth’s natural resources, and to exploit the labor reserves in the periphery—even when they are pursued without the presence of “colonies.”4
Nevertheless, even if we start with the idea that globalization—or global capitalist expansion—is not novel, this does not trample the argument that the development of such expansion is marked by new characteristics in certain periods. Examining these historically specific characteristics can highlight the imperialistic “nature” of capitalism throughout history, including the development of our current global economy, which will be the focus of this essay. The analyses of globalized production offered by perspectives such as global chain theories necessarily fall short of the reality that Marxist analyses try to uncover, namely the extraction of surplus from the global South associated with: (1) the development of monopoly capitalism and the oligopolistic power of multinational corporations; (2) a process of what financial analysts refer to as “global labor arbitrage”; and (3) the value of labor power. Based on this political-economic approach, we can bring the imperialism that hides behind the veil of globalization out into the open.
New Trends in the Global Economy
Both the cheerleaders and the critics of capital can at least agree on one thing: there is clear evidence of new characteristics that mark our current global economy. Relatively distinctive patterns of the current wave of globalization that started in the late 1970s can be seen in both the spheres of production and finance: the dramatic increase in trade and direct foreign investment flows, along with the massive expansion of international portfolio flows.5 But what is especially important to note is the accelerating pace of offshoring—especially in the manufacturing sector—whether done through arm’s length contracts (offshore outsourcing) or within the confines of a single multinational corporation (intra-firm trade).6
Foreign direct investment (FDI), which is tied to intra-firm trade, has been rising “much faster than world income” in the last few decades, with an increasing trend in FDI inward stock—from 7 percent of world GDP in 1980 to about 30 percent in 2009.7 However, direct investments do not tell us the complete story of offshoring. Arm’s length contracting is also an important part of the workings of our global economy. Through this process, firms can capture “extremely high profit margins through their international operations and [exert] strategic control over their supply lines—regardless of their relative lack of FDI.”8 Even multinationals with high levels of foreign direct investment are also major international subcontractors.9
The emphasis here is the fact that both increases (in intra-firm trade and contracting practices) signify globalized production, with increased production in low-wage areas in the global South. It is not a secret that processes such as offshoring mark the relationship between capital and labor on the global level, with some distinctive patterns throughout the last twenty-five years. One of these patterns is the booming of export-oriented industries in the global South, focused on the manufacturing sector. As Edna Bonacich and her coeditors claim in their introductory chapter to Global Production: “An important feature of the new globalization is that [multinational corporations] are searching the world for the cheapest available labor and are finding it in developing countries.”10 A big portion of global foreign direct investment, for example, goes to the global South, starting with the “slow and steady rise” of these countries’ share of world foreign direct investment in the late 1980s. In 2010, “for the first time, more than half of all FDI went to third world and transition economies.”11 A 2003 World Bank report claims that foreign direct investment is the biggest source of external funding for developing countries.12 Unlike direct investments, arm’s length contracting is difficult to measure, but an estimate shows that “at least 40 percent of the world trade is linked to outsourcing.”13
One significant impact of these patterns is the formation of a global labor force. It is not an exaggeration to say that the current globalization refers to a phenomenon that has restructured global production processes—with distinct capital-labor relations. On the global level, 78 percent of the world’s industrial workers now live in the global South, compared to 34 percent in 1950 and 53 percent in 1980.14 At this rate, manufacturers became “the chief source of the third world’s dynamism” both in exports and in production, especially in East and Southeast Asia.15 By 1990, this region’s GDP share in manufacturing was higher than other regions. A report by the Asia Development Bank shows that most countries in Southeast Asia, particularly those that are considered developing, experienced an increase in their manufacturing output shares from the 1970s to 2000s.16
Global chain theorists—consisting of mainly sociologists, economists, and geographers—are among those who offer analyses of the current workings of the global economy. Even though these theories have enhanced our understanding of various social linkages within commodity or value chains, they have been less successful in uncovering the imperialistic characteristics of the power relations that govern globalized production, especially in relation to the exploitation of global South labor by global and local capital. In addition, these theories lack examination of the historical development of monopoly capitalism and the oligopolistic power held by multinational corporations. This analysis is necessary to discuss how capital maintains and enhances its power in the global economy.
Global Chain Theories
The concept of “commodity chains” was coined by Immanuel Wallerstein and Terence Hopkins in the 1970s, who developed the theory in line with the world-system perspective. However, in the following years, several different approaches emerged in the field of global chain studies. The three main ones are as follows. First, the theory continues to develop within the world-system tradition of “macro and long-range historical analysis” of commodity chains. Second, the theory becomes—with Gary Gereffi as one of the main proponents—a global commodity chain (GCC) framework. And third, inspired by the GCC, and mixed in with the neoclassical tradition of transaction cost economics, another variation is known as the global value chains (GVC) framework, sometimes referred to as global supply chains.17 What differentiates the GCC and GVC frameworks from the world-system’s take on global chains—at least as claimed by their proponents—is mostly the former’s focus on the “relatively recent and qualitatively novel process of economic integration.”18
But even the above “distinctions” are not clear-cut. For example, William Milberg and Deborah Winkler use the GVC framework in a way that is critical of transaction cost economics.19 Also, they provide the same analysis of value chains’ governance structure as GCC proponents like Gereffi—dividing it into “buyer-driven” and “producer-driven structures.”20 And then there are collaborations. Gereffi, for example, collaborated with other scholars to expand the theory of global commodity chains governance and worked within the GVC framework in order to do so.21 In the end, we can conclude that these approaches are reasonably overlapping, as the terms are often used interchangeably. This essay will treat these perspectives as such, and will refer to the frameworks simply as global chain theories.
Proponents of global chain theories have attempted to explain the new features of our current globalization by focusing on the characteristics and dynamics of commodity or value chains. Throughout the development of these theories, the concept of commodity chains is still more or less the same as how Hopkins and Wallerstein define it: “a network of labor and production processes whose end result is a finished commodity.”22 Such chains are usually geographically extensive and “contain many kinds of production units within them with multiple modes of remunerating labor.”23 Commodity chains scholars use the term “boxes”—or “nodes”—to refer to separable processes that constitute a commodity chain. In this context, a node signifies a particular or specific production process, and each node within a commodity chain involves “the acquisition and/or organization of inputs (e.g., raw materials or semi-finished products), labor power (and its provisioning), transportation, distribution (via markets or transfers), and consumption.”24
However, the later-developed global chain theories focus more on the patterns that arguably mark the current global economy. One of the patterns often discussed as a novel process is a trend in the national development strategies of most developing countries that started in the 1970s, namely, the shift from import-substituting industrialization (ISI) to export-oriented industrialization (EOI).25 In relation to this, the discussion of offshoring/outsourcing occupies a central place in the field of global chains research. Offshoring—defined as the “decision to move the supply of goods and services from domestic to overseas locations”—is not, in itself, a new trend.26 But the global chain scholars emphasize that a distinctive feature of the current globalization is the increase of international production and offshoring practices to the world-system periphery in the last few decades. Trade has occurred through increasingly sophisticated value chains, with higher levels of organization, in which the core relies more on imported inputs of goods and services from low-income countries.27 As a consequence, like other scholars of contemporary globalization, the global chain proponents emphasize one of global value chains’ striking features: “the very large and growing proportion of the workforce… located in developing economies.”28
William Milberg and Deborah Winkler argue that a shift in corporate strategy—with offshoring as an integral part of this shift—is a key driver in this “new wave” of globalization. The strategy involves a search for lower costs and greater flexibility, as well as a desire to “allocate more resources to financial activity and short-run shareholder value while reducing commitments to long term employment and job security.”29 Further, Gereffi emphasizes the emergence of corporations that do not manufacture their own products. He claims that this is central to the “new trends” of offshoring—such corporations, which are usually large retailers and branded marketers, can be referred to as the “new drivers” in the global chains that have existed for the last couple of decades.30 Such corporations engage in outsourcing practices in “buyer-driven” chains in which they play a pivotal role in setting up decentralized production networks in exporting countries, typically in the third world.31 They are actually not real manufacturers, but merely merchandisers, i.e., companies who “design and/or market, but do not make, the branded products they sell.”32 This suggests that, as opposed to “producer-driven” chains that are characterized by FDI, buyer-driven chains, according to this framework, are characterized by arm’s length contracting.
There are certainly useful insights that the global chain theories contribute to the general discussion of globalized production. The GVC framework is especially valuable, if compared to the GCC theory led by Gereffi and his colleagues. Unlike the latter, whose approach heavily focuses on the “organizational features and changes in the transnational production systems” that consist of networks (or “nodes”), the GVC framework deals directly with global exchange value.33 Studies of value chains, such as the ones that examine the production of the iPod and iPhone, have provided sophisticated criticisms of value-added concepts in mainstream economics (which will be discussed in the last section)—although these studies themselves are not particularly critical of capital.34 However, in the end, even the GVC framework still lacks the critical apparatus necessary to bring out the material relations—especially those between global capital and global South labor—that underlie the globalization of production processes. This remains true despite several seemingly critical claims by global chain theorists—who argue that “power relations” among economic actors and institutions involved in the value chains are “determinants of the direction and volume of trade,” or who promote the “nuanced analysis of world-economic spatial inequalities in terms of differential access to markets and resources.”35
This problem, among others, is illustrated in their superficial treatment of multinational corporations—who hold an important position of power in the global economy, and in the globalization of production in particular. This is especially unfortunate, considering Gereffi’s claim that “transnational corporations” are “the chief economic organizing agent in global capitalism”—and that the GCC framework is distinguished from previous theories (such as dependency theory) precisely because those theories “did not have a good way to tie the activities of TNCs [transnational corporations] into the structure of the world economy.”36 The emphasis on the decentralized character of buyer-driven chains, for example, may underestimate the degree and means of control exercised by multinational headquarters. Even under supposedly dispersed networks of commodity chains that rely on subcontracting practices, multinational corporations continue to hold a high level of control over such practices, albeit indirectly. Further, since subcontracting is not typically associated with the “standard definition” of what makes corporations multinational (which is based on FDI), such indirect control is overlooked—thus, it does not reveal the “true extent” of the power held by multinationals.37
The question is whether the power of multinationals is weakened just because production is increasingly “globalized.” Radical economists have argued that the emergence of dispersed networks of commodity chains does not necessarily mean that power has been dispersed equally around the globe in the sphere of production. Ernesto Screpanti, for example, debunks the myth of the trans-nationalization of big firms in the globalization of production. By incorporating several studies, Screpanti shows that—despite the common belief that big firms now adopt network-based structures and cease to be hierarchical—multinational corporations are still pretty much national in their governance structure. The main point here is the fact that the center of management and advanced technological research of multinationals is still concentrated in the developed global North. As Screpanti concludes: “Innovations, then, are transferred, through direct investments, into various emerging and developing countries, where they produce a derivative form of technological research.”38
This phenomenon can be illustrated by China. It is true that China has produced a growing number of patents. However, what appear to be “innovations” created from this country are mostly “improvement, adaptation, and creative imitation of imported technologies.”39 Another economist, Martin Hart-Landsberg, also shows that the designation of China as “the largest exporter of high-technology goods” in 2006 is misleading. Citing existing studies, Hart-Landsberg demonstrates that 85 percent of China’s high-technology exports are produced by multinationals. Moreover, the amount of foreign control of China’s production of high-technology exports has increased—indicated by the increase in the share of such exports produced by foreign-owned corporations, from 55 to 68 percent within the span of seven years, from 2002 to 2009.40 These facts suggest that power is not decentralized in globalized production, and the headquarters of multinationals, in the words of economist Stephen Hymer, still “rule from the tops of skyscrapers; on a clear day, they can almost see the world.”41
The global chain theories largely miss this relationship between the power held by multinationals and the unequal relations between the global North and the global South. Much of their discussion regarding the inequalities created by the world economy is limited to what developing countries can do to, basically, “catch up” to a more profitable node or box within the chain—a concept most commonly associated with modernization theory. This can be exemplified by how Gereffi examines the “upgrading” success experienced by newly industrialized countries in East Asia, such as Taiwan and South Korea, through the process of “triangle manufacturing.” This process is seen as a means for these countries to move up from suppliers for U.S. retailers and branded marketers to “middlemen” in buyer-driven chains (whereas production is now shifted to the periphery, such as China, Indonesia, and Guatemala).42 Nevertheless, the inequalities that mark the “new wave” of globalization cannot be examined (let alone solved) merely by looking at the movements of actors within or between chains. These inequalities are rooted in the long history of the development of global capitalism that is imperialistic in its characteristics. To understand this, we need to first and foremost take into account the explanation of monopoly capital and the rise of multinational corporations.
Monopoly Capital and Multinational Corporations
Global chain theorists seem to ignore the larger historical context of capitalist development that underlies the rise of multinational corporations and the expansion of their power. Through this explanation, we can also examine the characteristics and structures of multinationals that can in turn help us analyze their role and position in the global economy. Multinationals do not come out of the void—their existence and evolution cannot be separated from the development of monopoly capitalism. In 1916, V.I. Lenin provided a theory of imperialism that argued that the existence and practices of monopolistic entities—in his words, “monopolist combines”—in capitalism suggested that “free competition” had become obsolete.43
Echoing Lenin, Paul Baran and Paul Sweezy argue in Monopoly Capital that capitalism can no longer be examined using a competitive model of market relations.44 One of the main reasons is the dominant position held by giant multinational corporations, whose defining power is the ability to create monopolies in prices. Under monopoly capital, corporations “can and do choose what prices to charge for their products,” as the system bans the practice of “price cutting” under the assumption that it would lead to “economic warfare” among oligopolies.45This ability was non-existent in the traditional free competitive system. As a result, while price-cutting—where this would seriously endanger profit margins—rarely happens, “price increases by firms generally occur in tandem, most commonly under the price leadership of the largest corporation in the industry.”46
As demonstrated by the issue of price control, even when monopoly capital no longer plays by the rules of the competitive model, it still follows the rule of profit maximization. In many ways, it indeed intensifies it, leading to a key contradiction of monopoly capitalism: “that of rising surplus and the associated problems of surplus absorption”—a problem that generates the tendency to stagnation.47 But what is worth noting here is that the extent of this rising surplus can give us a picture of the degree of power held by multinationals. Although these corporations originated in mature capitalist economies (the triad), they hold oligopolistic power on a global scale.48 They operate within a system of oligopolistic rivalry where a small number (and the number keeps shrinking) of multinational corporations dominate world production.49 Basing his analysis on industrial organization theory, Hymer argues that corporations’ strength and ability to accumulate capital are enhanced as their size and internationality grow. Multinationals give birth to a new structure of management that allows them to rationalize production and to incorporate the advances of science into economic activity “on a systematic basis.”50 This new management structure also allows them to create significant advances in decision-making capabilities by enabling a vertical system of control, with the Head Office in the core countries at the top of the hierarchy. This Head Office holds a particular function, i.e., to “coordinate, appraise, and plan for the survival and growth of the organism as a whole”—with this, the organization becomes conscious of itself and gains “a certain measure of control over its own evolution and development.”51
With such characteristics, Hymer points out a contradiction inherent in the workings of multinationals: they are “torn in two directions.” On the one hand, because these corporations operate internationally, they need a decentralized system of decision making, since they need to adapt to local circumstances in each country. On the other hand, they also need a system of centralized control, since they have to coordinate their activities that are scattered throughout the globe. Thus, instead of a decentralized market, what exists is, at best, a “trickle down” structure on an international scale.52 This trickle down structure and processes of multinationals have wide consequences that reinforce patterns of authority and control—above all, they enable multinationals to hold oligopolistic power over the imperfect (global) market, or a market in which competition has been eliminated.
This context cannot be dismissed when the offshoring/outsourcing practice, that is deemed central to the “new wave” of globalization, is looked at. The practice of exporting capital itself has accompanied the development of monopoly capitalism. Lenin claimed that the export of capital—owing to colonialism that previously incorporated the periphery into capitalist intercourse—became the “basis for imperialist oppression and the exploitation of most of the countries and nations of the world… a solid basis for the capitalist parasitism of a handful of wealthy states!” For the sake of capital accumulation and the rate of profit, big capitalists exported their capital to poorer countries, where “capital is scarce, the price of land is relatively low, wages are low, raw materials are cheap.”53
In the following decades, accompanying the emergence of U.S. leadership in the postwar imperialist system, foreign investment continued to gain in significance in the imperialistic world capitalism, especially in the realm of manufacturing. As Harry Magdoff argues: “the acceleration of investment in foreign manufacturing ventures added a new dimension to the internationalization of capital.”54 Foreign (especially direct) investments are a way to penetrate foreign markets. They allow U.S. firms to compete in foreign markets directly, rather than through exports only. In addition, they also allow these firms to “enter into the world channels of the competing powers.”55 Magdoff’s explanation of foreign investments resonates with Hymer’s, who emphasizes that (direct) foreign investments are a tool to maintain and expand the oligopolistic power of multinationals: “direct investment tends to be associated with industries where the market share is largely accounted for by a small number of firms.”56 Hymer also points out that the rapid growth of a foreign country is attractive for foreign investment not only because of the expanding market, but also due to the growth of rival capitalists—i.e., local capital, capital from other countries, or state capital.
Even though it may be true that the world remains competitive for corporations in some respects, writes John Bellamy Foster, “the goal is always the creation [or] perpetuation of monopoly power—that is, the power to generate persistent, high, economic profits through a mark-up on prime production costs.”57 Whether through intra-firm trade or outsourcing, the increasing trend of foreign investments in the last few decades shows the continuation of imperialistic characteristics of these practices. Or as Zak Cope puts it, as production becomes globalized, “the leading oligopolies compete to reduce labor and raw materials cost. They export capital to the underdeveloped countries in order to secure a high return on the exploitation of abundant cheap labor and the control of economically pivotal natural resources.”58 Examining the quest for profit through a “mark-up on prime production costs” can reveal the imperialistic nature of offshoring/outsourcing that marks the so-called “new globalization.” To do this, we need to engage in a discussion of what financial analysts refer to as “global labor arbitrage.”
The Imperialist Global Economy: Looking through the Eyes of the Global South
In his response to Ellen Meiksins Wood’s avoidance of “the intricacies of value theory” in defining the essence of capitalist imperialism, Marxist scholar John Smith instead argues that we need to apply value theory to the imperialist world economy in order to find a systematic theory of imperialism.59 As he writes elsewhere, analyses of contemporary imperialism must proceed from, and attempt to explain, “the systematic international divergence in the rate of exploitation between nations“—particularly between the imperialist nations in the global North and the peripheral nations in the global South.60 He contends that there is nothing new about international differences in the value of labor-power, or about superexploitation. What is new, Smith writes, is the “centrality these phenomena have attained during the past three decades of ‘neoliberal globalization.‘”61
To help us understand the labor relations that underlie the imperialistic global economy, it is beneficial to examine the offshoring/outsourcing practice as a process of global labor arbitrage. The term itself was coined by Stephen Roach, the former chief economist of Morgan Stanley, who defines it as the replacement, in the United States and other rich economies, “of high-wage workers with like-quality, low-wage workers abroad.” Roach argues that global labor arbitrage “is likely to be an enduring feature of the economy” and U.S. companies do it “under relentless pressure to cut costs.”62 In Roach’s understanding, global labor arbitrage is rationalized as an “urgent survival tactic” for companies in the global North—pressured by the need to “search for new efficiencies” in an era of excess supply.63 However, Smith uses this term to explain the exploitative characteristics of globalization.
To begin with, the cost-control imperative discussed by Roach is none other than the issue of taking advantage of wage differentials within the imperfect global market, which is illustrated by immigration restrictions. Smith argues that global labor arbitrage occurs in an imperfect global market precisely due to the unequal freedom of movement of capital and labor. While global capital and commodities can move relatively freely (outside the monopolistic controls and barriers to entry created by firms and the protectionism still in place in the wealthy countries) due to trade liberalization, labor is still largely held captive within national borders—a situation caused by a variety of economic, political, and social factors, including immigration policies. Global labor arbitrage—the pursuit of higher profits through the substitution of higher-paid labor with low-paid labor—thus serves as a means for multinationals to benefit from the “enormous international differences in the price of labor.”64
In a way, Roach is correct when he says that offshoring is driven by cost-control imperatives, or the quest for efficiencies. Offshoring is, after all, a way to cut costs through low-wage labor and “cheap” materials. But we should not ignore the fact that such cost-cutting is, at its core, a tool to perpetuate their monopoly power. And upon further examination, this process of achieving efficiencies is imperialistic—it is fundamentally an exploitation of labor in the global South by imperialist global capital. Global labor arbitrage itself, writes Smith, constitutes unequal exchange, in which capitalists gain much more profit from lower labor costs in the global South.
Unequal exchange, understood as the exchange of more labor for less, is closely related to the export of capital. As explained by Samir Amin, this export of capital—made possible by the formation of monopolies—enables the capitalist centers to raise the level of the rate of profit. Especially in the early emergence of monopolies (in the late nineteenth century), the export of capital allowed the establishment of the forms of production in the periphery, which, although modern (e.g., same production techniques), possessed the “advantage” of low wage-cost.65And with this, unequal exchange occurred, indicating a form of “hidden transfer of value”—or “imperial rent”—on a global level, rooted in the unequal power relations among nations, and fueled by the oligopolistic power of multinationals and their ability to control prices.66 At the same time, this process marked the further incorporation of the periphery into the global economy.67 In this context, global labor arbitrage also leads to further incorporation of the global South into the world capitalist economy, with an increase in both direct investments and subcontracting in the developing nations, as mentioned previously.
The aggressiveness of global capital in its search for potential price differences in labor is reflected in the efforts of financial institutions, such as the World Bank and Asian Development Bank (ADB), to foster a “healthy investment climate” in the global South. Reports produced by such institutions are clearly representative of the perspective of capital. The issue of labor, in particular, is obvious in their discussion of what constitutes a good investment climate. Take Indonesia as an example. A team of ADB economists consider “labor regulations” as a “serious concern, more so than labor skills,” that hinders Indonesia from improving its investment climate. Likewise, minimum wages also “weigh heavily on firm operations.”68 The attempts of the Indonesian government to increase the minimum wage after the 1990s crises were met with criticisms that the policy would endanger Indonesia’s competitiveness in the investment market.69
Viewed in this way, we can associate global labor arbitrage with several processes. First, global labor arbitrage—taken as “the exploitation of the wage differentials worldwide”—is a quest of capital for valorization.70 The emphasis on “efficiencies,” as Roach states in his essay, is one of the keys here. In the context of the labor theory of value, global labor arbitrage is a strategy for both reducing socially necessary labor costs (by employing low-wage workers) and maximizing the appropriation of economic surplus (by extracting more out of workers through various means, including repressive work environments in foreign factories, state-enforced bans on unionization, quota systems or piece-rate work, and so on) in an imperfect global market. This, in turn, creates and enhances exploitation of the workers in the global South.
Second, global labor arbitrage is associated with what Marx refers to as “the industrial reserve army of the unemployed”—but on a global scale, thus the global reserve army of labor. The creation of this reserve army is partly connected to the “great doubling” phenomenon, in which the integration of the workforce of former socialist countries (including China) and former protectionist countries like India into the global economy expands the availability of the global force.71 But also central to the creation of this reserve army is the depeasantization of a large portion of the global periphery through agribusiness. This forced movement of peasants from the land has resulted in the growth of urban slum populations. Creating this global reserve army of labor is a strategy not only for increasing profits; it serves as a divide-and-rule approach to labor on a global scale. While competition among corporations is limited to oligopolistic rivalry, competition among workers of the world—especially those in the global South—is greatly enhanced. In other words, workers are pitted against each other. This divide and rule strategy “integrates disparate labor surpluses, ensuring a constant and growing supply of recruits to the global reserve army” who are “made less recalcitrant by insecure employment and the continual threat of unemployment.”72
Third, if we focus on outsourcing practices, or contractual relationships with independent suppliers abroad, global labor arbitrage can reveal more complex imperialist relationships between global capital and labor in the global South. In outsourcing, multinational corporations have only an indirect connection with the workers/farmers who produce their goods. There are often no visible flows of profits from these foreign suppliers to their global North customers (multinationals). Smith argues that this is highly problematic in several ways.
To begin, Smith shows that we can see the problem by tracing profits generated by multinationals’ goods, such as smart phones, T-shirts, and coffee. Let us take an iPod, for example. In 2006, the retail price of a 30Gb Apple iPod was $299. The total cost of production (that was performed entirely abroad) was $144.40—meaning, the gross profit margin was 52 percent. The “gross profit” of $154.60 is divided among Apple, its retailers and distributors, and, by taxes, the government. But here is where the “magic” kicks in: this 52 percent of the final sale price is counted as value added for the United States and is added to U.S. Gross Domestic Product (GDP). This “accounting” does not make sense, since the production was performed outside of the United States. Even though a large share of jobs required to produce the iPod are located abroad (in this case China, where Foxconn factories are located), the total Chinese wage bill for iPod production was only $19 million, compared to the U.S. wage bill of $719 million. A major factor that contributes to this inequality is the fact that the “professional workers” category—those employed in the United States—captures more than two-thirds of the total U.S. wage bill. Moreover, citing Tony Norfield’s study of Bangladesh-made H&M T-shirts sold in Germany, Smith explains that core citizens cannot only buy cheap commodities, but they also benefit from the profit that these commodities generate. A major part of revenue from the sales price goes to the state in taxes, as well as to a number of groups, including workers, executives, landlords, and businesses in core countries.73
Further, this case illustrates what Smith calls the “GDP illusion.” Standard data on GDP and trade flows exaggerate the global North’s contribution to global wealth and, at the same time, decrease that of the global South. As seen from the examples above, when we buy say, a T-shirt, the country where it was produced receives in its GDP only a small proportion of the final sales price. Meanwhile, the larger part shows up in the GDP of the country where it is consumed. Such an approach leads to absurd “facts”—in poorer countries where production happens, i.e., countries that are actually making a greater contribution to global wealth, GDPs are much smaller than countries that are not productive. Why is this the case? Smith argues that the GDP and trade data only account for marketplace transactions. But nothing is produced in markets—as Marx explains in his first volume of Capital, we should go instead to the hidden abode of production. Smith writes: “Values are created in production processes and captured in the markets and have a prior and separate existence from the prices finally realized when they are sold.”74
The failure to take this into account leads to another fallacy: the conflation of value with price. In the framework of neoclassical economics, GDP is “essentially the sum of the ‘value added’ generated by each firm within a nation,” where value added is defined as “the difference between the prices paid for all inputs and the prices received for all outputs.” Hence, in this understanding, “the amount by which the price of outputs exceeds the price of inputs is automatically and exactly equal to the value that it has generated in its own production process, and cannot leak to other firms or be captured from them.” Taking a Marxist approach, Smith rejects this “absurdity” and provides a counterargument: value added is really value captured. Meaning, “it measures the share of total economy-wide value added that is captured by a firm, and does not in any way correspond to the value created by the living labor employed within that individual firm.” He also points out that mainstream economics fails to note that many firms that supposedly generate value added “are actually engaged in nonproduction activities such as finance and administration that produce no value at all.”75 The GDP problem explains why the global South is underestimated in the dominant paradigms—its contribution to global wealth is overlooked. In the end, this means that, “Labor’s share of GDP within a country is not directly and simply related to the prevailing rate of exploitation in that country, since a large component of ‘GDP’ in the imperialist nations represents the proceeds of exploited labor” captured from abroad.76 Thus, it is important to rip the veil that hides this exploitation.
Mainstream measurements of national economic performance have also been questioned within environmental perspectives. Among them are the work of Herman Daly and John Cobb, who provide a critique of GNP (Gross National Product) in their book For the Common Good.77 The discussion of the GDP illusion above, however, shows that there is a pressing need to develop such critique of dominant paradigms in a way that takes into account the global South perspective. To reveal the imperialist relations between the global North and the global South that are hidden in such economic measurements, we should at least start from an examination of how the global South’s contribution to global wealth is ignored—and how this ignorance further conceals the labor exploitation that occurs in the hidden abode of production in the global South.
With the explanation above in mind, it is difficult to exaggerate the importance of incorporating value theory into our examination of the imperialist global economy. Marx’s value theory can help us understand the fundamental problems of global production, and the processes of appropriation of economic surplus on a global level in particular. This kind of abstraction in understanding globalized production as imperialistic processes can be accompanied by empirical studies that can highlight historical and political analyses of such processes. For example, more attention can be given to how global South capital and nation-states serve as actors in the global economy who, on the one hand, are arguably subordinate to global North capital but, on the other hand, are exploitative of their own labor force. Through this, we can also see the diversity in the patterns of power relations among various nation-states, in relation to their position in the global economy.
In the end, I believe that we can construct a theory of imperialism that uses the analyses of commodities without undermining the material relations that underlie globalized production. Marx himself opens the first chapter of the first volume of Capital by claiming the importance of the commodity as an analytical tool: “The wealth of societies in which the capitalist mode of production prevails appears as an ‘immense collection of commodities’… Our investigation therefore begins with the analysis of the commodity.”78 This can include an analysis of an iPhone or a T-shirt, but most importantly, an analysis of the “special” commodity: labor power. As Smith argues, living labor is central to the globalization of production processes precisely because “it too is a commodity—commodification of labor power is the essence of capitalism—and its production is also being globalized.”79 Thus, an examination of the imperialist global economy cannot be sufficient without an examination of the labor theory of value.
William Milberg and Deborah Winkler, Outsourcing Economics (New York: Cambridge University Press, 2013).
John Bellamy Foster and Robert McChesney, The Endless Crisis (New York: Monthly Review Press, 2012), 105.
Edna Bonacich, Lucie Cheng, Norma Chinchilla, Nora Hamilton, and Paul Ong, “The Garment Industry in the Restructuring Global Economy,” in Global Production (Philadelphia: Temple University Press, 1994), 16.
See Jennifer Bair, “Global Capitalism and Commodity Chains: Looking Back, Going Forward,”Competition and Change 9 (2005): 153–80; “Global Commodity Chains: Genealogy and Review,” in Jennifer Bair, ed., Frontiers of Commodity Chain Research (Stanford: Stanford University Press, 2009).
See Bair, “Global Commodity Chains: Genealogy and Review,” 10.
Milberg and Winkler, Outsourcing Economics, 18–19.
See e.g., Gary Gereffi, John Humphrey, and Timothy Sturgeon, “The Governance of Global Value Chains,” Review of International Political Economy 12 (2005): 78–104.
Terence K. Hopkins and Immanuel Wallerstein, “Commodity Chains in the Capitalist World-Economy Prior to 1800,” in Gary Gereffi and Miguel Korzeniewicz, eds., Commodity Chains and Global Capitalism (Westport: Praeger, 1994), 17.
Immanuel Wallerstein, “Introduction to Special Issue on Commodity Chains in the World Economy, 1590–1790,” Review (Fernand Braudel Center) 23, no. 1 (2000): 2.
Gary Gereffi, Miguel Korzeniewicz, and Roberto P. Korzeniewicz, “Introduction: Global Commodity Chains,” in Gereffi and Korzeniewicz, eds., Commodity Chains and Global Capitalism, 2.
Gary Gereffi, “The Organization of Buyer-Driven Global Commodity Chains,” in Gereffi and Korzeniewicz, eds., Commodity Chains and Global Capitalism, 100.
Stephen Hymer, The Multinational Corporation (Cambridge: Cambridge University Press, 1979), 4.
Gereffi, “Global Production Systems and Third World Development,” 118–20.
Vladimir Lenin, Imperialism, the Highest Stage of Capitalism (New York: International Publishers, 1939), 64.
See also Foster and McChesney, The Endless Crisis, 81, 85. They provide a thorough explanation about the development of the theory of monopoly. Baran and Sweezy’s Monopoly Capitalwas developed based on the works of Kalecki and Steindl, which evolved “out of the concept of the ‘degree of monopoly.'” Foster and McChesney also mention that John Hicks, a British economist, argues that neoclassical theorists tend to “retain the perfect competition model, despite its inapplicability to real world conditions.” They do this, according to Hicks, since they realize that a recognition of monopoly and an abandonment of perfect competition assumption “must have very destructive consequences for economic theory.”
Paul Baran and Paul Sweezy, Monopoly Capital (New York: Monthly Review Press, 1966), 57–58.
Foster, McChesney, and Jonna, “The Internationalization of Monopoly Capital,” 3. One example can be seen from the increase in global mergers and acquisitions in the last decade or so, reaching $4.38 trillion in 2007.
Hymer, The Multinational Corporation, 59.
Lenin, Imperialism, the Highest Stage of Capitalism, 63–64.
Harry Magdoff, The Age of Imperialism (New York: Monthly Review Press, 1969), 54. Along with his explanation, Magdoff provides the percentages of foreign investments of leading capital exporting countries (1914–1960) that shows a dramatic increase in U.S. investments throughout the years, from 6.3 to 59.1 percent. By 1960, U.S. foreign investment accounted “for almost 60 percent of the world total” (56). Such investments include both portfolio and direct investment, but during that period, a significant part went to manufacturing industries, in the form of direct investment.
Magdoff, The Age of Imperialism, 58.
Hymer, The Multinational Corporation, 174.
Foster, “Monopoly Capital at the Turn of the Millennium,” 7.
Zak Cope, Divided World, Divided Class: Global Political Economy and the Stratification of Labour Under Capitalism (Montreal: Kersplebedeb, 2012), 202.