An excellent article, perhaps slightly impaired by the myopic and lazy tendency of writers to use Foxconn to stereotype the entirety of China’s labor situation. The article gets to the heart of a concern I’ve had about Marx’ Theory of the Falling Rate in Profit, which is capitalism’s intractable self-destructing mechanism; that this tendency would be “paralyzed” by tremendous amounts of reserve labor (e.g. such that exists in China and India). – Zuo Shou
by John Bellamy Foster and Robert W. McChesney and R. Jamil Jonna
November 8, 2011
In the last few decades there has been an enormous shift in the capitalist economy in the direction of the globalization of production. Much of the increase in manufacturing and even services production that would have formerly taken place in the global North—as well as a portion of the North’s preexisting production—is now being offshored to the global South, where it is feeding the rapid industrialization of a handful of emerging economies. It is customary to see this shift as arising from the economic crisis of 1974–75 and the rise of neoliberalism—or as erupting in the 1980s and after, with the huge increase in the global capitalist labor force resulting from the integration of Eastern Europe and China into the world economy. Yet, the foundations of production on a global scale, we will argue, were laid in the 1950s and 1960s, and were already depicted in the work of Stephen Hymer, the foremost theorist of the multinational corporation, who died in 1974.
For Hymer multinational corporations evolved out of the monopolistic (or oligopolistic) structure of modern industry in which the typical firm was a giant corporation controlling a substantial share of a given market or industry. At a certain point in their development (and in the development of the system) these giant corporations, headquartered in the rich economies, expanded abroad, seeking monopolistic advantages—as well as easier access to raw materials and local markets—through ownership and control of foreign subsidiaries. Such firms internalized within their own structure of corporate planning the international division of labor for their products. “Multinational corporations,” Hymer observed, “are a substitute for the market as a method of organizing international exchange.” They led inexorably to the internationalization of production and the formation of a system of “international oligopoly” that would increasingly dominate the world economy.1
In his last article, “International Politics and International Economics: A Radical Approach,” published posthumously in 1975, Hymer focused on the issue of the enormous “latent surplus-population” or reserve army of labor in both the backward areas of the developed economies and in the underdeveloped countries, “which could be broken down to form a constantly flowing surplus population to work at the bottom of the ladder.” Following Marx, Hymer insisted that, “accumulation of capital is, therefore, increase of the proletariat.” The vast “external reserve army” in the third world, supplementing the “internal reserve army” within the developed capitalist countries, constituted the real material basis on which multinational capital was able to internationalize production—creating a continual movement of surplus population into the labor force, and weakening labor globally through a process of “divide and rule.”2
A close consideration of Hymer’s work thus serves to clarify the essential point that “the great global job shift”3 from North to South, which has become such a central issue in our time, is not to be seen so much in terms of international competition, deindustrialization, economic crisis, new communication technologies—or even such general phenomena as globalization and financialization—though each of these can be said to have played a part. Rather, this shift is to be viewed as the result primarily of the internationalization of monopoly capital, arising from the global spread of multinational corporations and the concentration and centralization of production on a world scale. Moreover, it is tied to a whole system of polarization of wages (as well as wealth and poverty) on a world scale, which has its basis in the global reserve army of labor.
The international oligopolies that increasingly dominate the world economy avoid genuine price competition, colluding instead in the area of price. For example, Ford and Toyota and the other leading auto firms do not try to undersell each other in the prices of their final products—since to do so would unleash a destructive price war that would reduce the profits of all of these firms. With price competition—the primary form of competition in economic theory—for the most part banned, the two main forms of competition that remain in a mature market or industry are: (1) competition for low cost position, entailing reductions in prime production (labor and raw material) costs, and (2) what is known as “monopolistic competition,” that is, oligopolistic rivalry directed at marketing or the sales effort.4
In terms of international production it is important to understand that the giant firms constantly strive for the lowest possible costs globally in order to expand their profit margins and reinforce their degree of monopoly within a given industry. This arises from the very nature of oligopolistic rivalry. As Michael E. Porter of Harvard Business School wrote in his Competitive Strategy in 1980:
Having a low-cost position yields the firm above-average returns in its industry…. Its cost position gives the firm a defense against rivalry from competitors, because its lower costs mean that it can still earn returns after its competitors have competed away their profits through rivalry…. Low cost provides a defense against powerful suppliers by providing more flexibility to cope with input cost increases. The factors that lead to a low cost-position usually also provide substantial entry barriers in terms of scale economies or cost advantages.5
This continuous search for low-cost position and higher profit margins led, beginning with the expansion of foreign direct investment in the 1960s, to the “offshoring” of a considerable portion of production. This, however, required the successful tapping of huge potential pools of labor in the third world to create a vast low-wage workforce. The expansion of the global labor force available to capital in recent decades has occurred mainly as a result of two factors: (1) the depeasantization of a large portion of the global periphery by means of agribusiness—removing peasants from the land, with the resulting expansion of the population of urban slums; and (2) the integration of the workforce of the former “actually existing socialist” countries into the world capitalist economy. Between 1980 and 2007 the global labor force, according to the International Labor Organisation (ILO), grew from 1.9 billion to 3.1 billion, a rise of 63 percent—with 73 percent of the labor force located in the developing world, and 40 percent in China and India alone.6
The change in the share of “developing countries” (referred to here as the global South, although it includes some Eastern European nations), in world industrial employment, in relation to “developed countries” (the global North) can be seen in Chart 1. It shows that the South’s share of industrial employment has risen dramatically from 51 percent in 1980 to 73 percent in 2008. Developing country imports as a proportion of the total imports of the United States more than quadrupled in the last half of the twentieth century…7
…The new imperialism of the late twentieth and twenty-first centuries is thus characterized, at the top of the world system, by the domination of monopoly-finance capital, and, at the bottom, by the emergence of a massive global reserve army of labor. The result of this immense polarization, is an augmentation of the “imperialist rent” extracted from the South through the integration of low-wage, highly exploited workers into capitalist production. This then becomes a lever for an increase in the reserve army and the rate of exploitation in the North as well…
…Marx was unable to complete his critique of political economy, and consequently never wrote his projected volume on world trade. Nevertheless, it is clear that he saw the general law of accumulation as extending eventually to the world level. Capital located in the rich countries, he believed, would take advantage of cheaper labor abroad — and of the higher levels of exploitation in the underdeveloped parts of the world made possible by the existence of vast surplus labor pools (and non-capitalist modes of production). In his speech to the Lausanne Congress of the First International in 1867 (the year of the publication of the first volume of Capital) he declared: “A study of the struggle waged by the English working class reveals that, in order to oppose their workers, the employers either bring in workers from abroad or else transfer manufacture to countries where there is a cheap labor force. Given this state of affairs, if the working class wishes to continue its struggle with some chance of success, the national organisations must become international.”32
The reality of unequal exchange, whereby, in Marx’s words, “the richer country exploits the poorer, even where the latter gains by the exchange,” was a basic, scientific postulate of classical economy, to be found in both Ricardo and J.S. Mill. These higher profits were tied to the cheapness of labor in poor countries — attributable in turn to underdevelopment, and a seemingly unlimited labor supply (albeit much of it forced labor). “The profit rate,” Marx observed, “is generally higher there [in the colonies] on account of the lower degree of development, and so too is the exploitation of labour, through the use of slaves, coolies, etc.” In all trade relations, the richer country was in a position to extract what were in effect “monopoly profits” (or imperial rents) since “the privileged country receives more labour in exchange for less,” while inversely, “the poorer country gives more objectified labour in kind than it receives.” Hence, as opposed to a single country where gains and losses evened out, it was quite possible and indeed common, Marx argued, for one nation to “cheat” another. The growth of the relative surplus population, particularly at the global level, represented such a powerful influence in raising the rate of exploitation, in Marx’s conception, that it could be seen as a major “counterweight” to the tendency of the rate of profit to fall, “and in part even paralyse[s] it…”
…Today Marx’s reserve army analysis is the basis, directly and indirectly (even in corporate circles) for ascertaining how long the extreme exploitation of low-wage workers in the underdeveloped world will persist. In 1997 Jannik Lindbaek, executive vice president of the International Finance Corporation, presented an influential paper entitled “Emerging Economies: How Long Will the Low-Wage Advantage Last?” He pointed out that international wage differentials were enormous, with labor costs for spinning and weaving in rich countries exceeding that of the lowest wage countries (Pakistan, Madagascar, Kenya, Indonesia, and China) by a factor of seventy-to-one in straight dollar terms, and ten-to-one in terms of purchasing power parity (taking into account the local cost of living).
The central issue from the standpoint of global capital, Lindbaek indicated, was China, which had emerged as an enormous platform for production, due to its ultra-low wages and seemingly unlimited supply of labor. The key strategic question then was, “How long will China’s low wage advantage last?” His answer was that China’s “enormous ‘reserve army of labor’…will be released gradually as agricultural productivity improves and jobs are created in the cities.” Looking at various demographic factors, including the expected downward shift in the number of working-age individuals beginning in the second decade of the twenty-first century, Lindbaek indicated that real wages in China would eventually rise above subsistence. But when?…49
…there can be no doubt about the sheer scale of the relative shift of world manufacturing to the global South in the period of the internationalization of monopoly capital since the Second World War—and accelerating in recent decades. Although this is often seen as a post-1974 or a post-1989 phenomenon, Hymer, Magdoff, Sweezy, and Amin captured the general parameters of this broad movement in accumulation and imperialism, associated with the development of multinational corporations (the internationalization of monopoly capital) as early as the 1970s. Largely as a result of this epochal shift in the center of gravity of world manufacturing production toward the South, about a dozen emerging economies have experienced phenomenal growth rates of 7 percent or more for a quarter century.
Most important among these of course is China, which is not only the most populous country but has experienced the fastest growth rates, reputedly 9 percent or above. At a 7 percent rate of growth an economy doubles in size every ten years; at 9 percent every eight years. Yet, the process is not, as mainstream economics often suggests, a smooth one. The Chinese economy has doubled in size three times since 1978, but wages remain at or near subsistence levels, due to an internal reserve army in the hundreds of millions. China may be emerging as a world economic power, due to its sheer size and rate of growth, but wages remain among the lowest in the world. India’s per capita income, meanwhile, is one-third of China’s. China’s rural population is estimated at 45–50 percent, while India’s is around 70 percent.66
Orthodox economic theorists rely on an abstract model of development that assumes all countries pass through the same phases, and eventually move up from labor-intensive manufacturing to capital-intensive, knowledge-intensive production. This raises the issue of the so-called “middle-income transition” that is supposed to occur at a per capita income of somewhere between $5,000 and $10,000 (China’s per capita income at current exchange rates is about $3,500). Countries in the middle-income transition have higher wage rates and are faced with uncompetitiveness unless they can move to products that capture more value and are less labor-intensive. Most countries fail to make the transition and the middle-income level ends up being a developmental trap. Based on this framework, New York University economist Michael Spence argues in The Next Convergence that China’s “labor-intensive export sectors that have been a major contributor to growth are losing competiveness [sic] and have to be allowed to decline or move inland and then eventually decline. They will be replaced by sectors that are more capital, human-capital, and knowledge intensive.”67
Spence’s orthodox argument, however, denies the reality of contemporary China, where the latent reserve army in agriculture alone amounts to hundreds of millions of people. Moving toward a less labor-intensive system under capitalism means higher rates of productivity and technological displacement of labor, requiring that the economy absorb a mounting reserve army by conquering ever-larger, high-value-capture markets. The only cases where anything resembling this has taken place—aside from Japan, which first emerged as a rapidly expanding, militarized-imperialist economy in the early twentieth century—were the Asian tigers (South Korea, Taiwan, Singapore, and Hong Kong), which were able to expand their external export markets for high value-capture production in the global North during a period of world economic expansion (not the deepening stagnation of today). This is unlikely to prove possible for China and India, which must find employment between them for some 40 percent of the world’s labor force—and to a mounting degree in the urban industrial sector. Unlike Europe during its colonial period the emigration of large pools of surplus labor as an escape valve is not possible: they have nowhere to go. China’s capacity to promote internal-based accumulation (not relying primarily on export markets), meanwhile, is hindered under today’s capitalist conditions by this same reserve army of low-paid labor, and by rapidly rising inequality.
All of this suggests that at some point the contradictions of China’s unprecedented accumulation rates combined with massive labor reserves that cannot readily be absorbed by the accumulation process—particularly with the growing shift to high-technology, high-productivity production—are bound to come to a head.
Meanwhile, international monopoly capital uses its combined monopolies over technology, communications, finance, military, and the planet’s natural resources to control (or at least constrain) the direction of development in the South.68
As the contradictions between North and South of the world system intensify, so do the internal contradictions within them — with class differences widening everywhere. The relative “deindustrialization” in the global North is now too clear a tendency to be altogether denied. Thus the share of manufacturing in U.S. GDP has dropped from around 28 percent in the 1950s to 12 percent in 2010, accompanied by a dramatic decrease in its share (along with that of the OECD as a whole) in world manufacturing.69 Yet, it is important to understand that this is only the tip of the iceberg where the growing worldwide destabilization and overexploitation of labor is concerned.
Indeed, one should never forget the moral barbarism of a system that in 1992 paid Michael Jordan $20 million to market Nikes — an amount equal to the total payroll of the four Indonesian factories involved in the production of the shoes, with women in these factories earning only 15 cents an hour and working eleven-hour days.70 Behind this lies the international “sourcing” strategies of increasingly monopolistic multinational corporations. The field of operation of Marx’s general law of accumulation is now truly global, and labor everywhere is on the defensive.
The answer to the challenges facing world labor that Marx gave at the Lausanne Congress in 1867 remains the only possible one: “If the working class wishes to continue its struggle with some chance of success the national organisations must become international.” It is time for a new International.71
Excerpted by Zuo Shou
Full article with footnotes: http://www.globalresearch.ca/index.php?context=va&aid=27549