Pensamiento contracorriente

Immanuel Wallerstein.: End of the Road for Runaway Factories?

 April 15, 2013


Ever since there has been a capitalist world-economy, one essential mechanism of its successful functioning has been the runaway factory. After a period of significant accumulation of capital by so-called leading industries (usually about twenty-five years), the level of profit has gone down, both because of the undermining of the quasi-monopoly of the leading industry and because of the rise in labor costs due to syndical action of some sort.

When this happened, the solution was for the factory to “runaway.” What this means is that the site of production was transferred to some other part of the world-system that had “historically lower wage levels.” In effect, the capitalists who controlled the leading industries were trading increased transaction costs for reduced labor costs. This maintained significant income for them, if nonetheless lower than in the previous period when they still had a quasi-monopoly.

The reason why labor costs were lower in the new location is that the runaway factory recruited labor from rural areas that were previously less involved in the market economy. For these rural workers, the opportunity to work in these runaway factories represented a rise in real income, while at the same time for the owners of the runaway factory these workers were being paid less than those who had been working in the previous location. This is what is called a win-win solution.

The problem with this seemingly wonderful solution has always been that it was not lasting. After about another twenty-five years, the workers in the new location began to launch syndical action, and the cost of their labor began to rise. When it rose enough, the owners of the runaway factory had only one real option – to runaway once again. Meanwhile, new leading industries were being constructed in zones that had accumulated wealth. Thus, there has been a constant movement of the location of industries of all sorts. Quasi-monopolies after quasi-monopolies! Runaway factories after runaway factories!

It has been a marvel of capitalist adjustment to a long process of constant change of circumstance. This marvelous system has however depended on one structural element – the possibility of finding new “virgin” areas for relocation of runaway factories. By virgin areas, I mean rural zones that were relatively uninvolved in the world market economy.

However, over the past 500 years, we have been “using up” such areas. This can be measured quite simply by the de-ruralization of the world’s populations. Today, such rural areas are reduced to a minority of the world’s surface, and it seems likely that by 2050, they will be a very, very small minority.

To see the consequences of such massive de-ruralization, we need only turn to an article in The New York Times of April 9. It is entitled “Hello, Cambodia.” The article describes the “flocking” to Cambodia of factories that are fleeing China because of the rise of wage-levels in China, a previous recipient of such runaway factories. However, the article continues, “multinational companies are finding that they can run from China’s rising wages but cannot truly hide.”

The problem for the multinationals is that the incredible expansion of communications has caused the end of the win-win situation. Workers in Cambodia today have begun syndical action after only a few years, not after twenty-five. There are strikes and pressure for higher wages and benefits, which they are receiving. This of course reduces the value for the multinationals of moving to Cambodia, or Myanmar, or Vietnam, or the Philippines. It now turns out that the savings of moving from China are not all that great.

The Times article notes that “some factories have moved anyway, at the request of Western buyers who fear depending on a single country.” Conclusion of a manufacturing consultant: There are risks of moving to Cambodia, but “there’s a risk in staying in China, too.” In any case, is there somewhere to move the runaway factory? Or is Cambodia the end of the line?

The bottom line is that the combination of already enormous and still increasing de-ruralization and the rapidity with which workers can learn of their relatively low wages and therefore begin to take syndical action has resulted in a continuing rise in the pay levels of the least skilled workers, and therefore a worldwide negative pressure of the possibilities of accumulating capital. This is not good news for the large multinationals.

This is all one element in what has become the structural crisis of the modern world-system. We are experiencing a combination of ever-increasing austerity pressures on the 99% with a capitalist system that is no longer so profitable for capitalists. This combination means that capitalism as a world-system is on its way out.

Both sides are seeking alternatives – but obviously different ones. We are collectively facing a “choice” over the next decades. One possibility is a new non-capitalist system that replicates (and perhaps worsens) the three essential features of capitalism – hierarchy, exploitation, and polarization. The other possibility is a new system that is relatively democratic and relatively egalitarian. The latter system, one should underline, has never existed in the history of the world. But it is possible.

In any case, Cambodia is not the future of the modern world-system. It represents rather the last vestiges of a mechanism that no longer performs its task in salvaging capitalism.