Imperialism In the Twenty-First Century by John Smith
June 2020 - Jan 2021
Chapter 1: The Global Commodity
[12] "The capital-labor relation has become a relation between northern capitalists and southern labor." according to traditional economic theory and data, value is realized where an article is consumed, and profits/GDP of first world countries/firms have nothing to do with production in low wage countries.
Smith starts out with a discussion of three commodities that symbolize this relationship: t-shits, iphones and coffee.
[13-21] discussion of the t-shirt value chain. of the final price, the worker makes almost nothing, the state and firms in the country where the t-shirt is sold take the largest share of the price by far. wages in countries where t-shirts are produced are kept low through violence, below even the cost of labor power. the buyers market for textiles and the arms-length relationship between buyers and producers drives down health and safety regulations and wages. even building collapses like Rana Plaza only result in toothless promises from northern firms to contract more fairly. US and UK unions only response to Rana was to call for the suspension of Bangladesh's access to the global market, and higher tariffs. the higher tariffs led to the US government making more money from imports of Bangladeshi clothing than the workers were paid to produce it. protectionism and genuine concern for workers aren't the same thing.
[21-31] discussion of the iphone value chain. since Apple doesn't own Foxconn, the production chain hides the GDP in America and the exploitation in China. the move away from in-house FDI in general conceals all of this. almost all value is added in China but almost all GDP, tariff, profit and wages appear in the US. low wages (200/month) and long overtime, as well as hukou discrimination are typical. absolute surplus value accumulates rapidly. this exploitation also never leads to improvement in wages over time. Apple collects huge (but falling) profits from the iphone but its contract assemblers are facing strikes and declining margins well below Apple's. automation and offshoring within China are hitting Foxconn and others already.
[31-34] coffee is only grown in oppressed nations, so the effects of agricultural price subsidies are absent. but two northern firms dominate the global coffee trade, and Germany is one of the biggest re-exporters of coffee. 400+ percent markups are common between the production and final sale of coffee, in a cafe the markup might approach 900%. attempts at global agreements similar to OPEC have not prevented collapse in coffee prices, or increasingly abrupt price cycles actuated partially by climate change and speculative investment. the international coffee agreement which provided some stability collapsed in 1989, a contributing factor to the Rwandan genocide immediately after. coffee processing is not labor intensive and is concentrated in the global north, along with tremendous markups associated with it.
[34-38] seven themes that emerge from this analysis and define the book overall:
- the global shift of production to low wage countries and the new form of the outsourcing relationship
- conditions in labor markets are at least as important as conditions in product and capital markets. what are the conditions under which southern workers sell their labor-power? how are wages kept so low?
- global wage differentials and the myth of convergence of wages.
- wages and productivity - glaring paradoxes that mainstream and heterodox economic theory cannot explain. what is economic productivity, what is its link, if any, to wages, and what are the paradoxes that arise from data?
- wage differentials and differences in the rate of exploitation. how does the rate of exploitation interact with wage differentials? does Marx's investigation of value help?
- how imperialist exploitation is obscured by conventional interpretations of economic data, like GDP.
- the origin, nature and trajectory of the global economic crisis - why the "financial" crisis is rooted instead in capitalist production, and why "a decades-long economic depression, increasingly punctuated by wars and revolutions, is now unavoidable."
Chapter 2: Outsourcing, or the Globalization of Production
[39] outsourcing is the latest iteration of a process basic to capitalism from its beginning - the search for cheap, easy-to-exploit labor power.
[40-42] the textile and jute industries are early examples of wage-differential driven outsourcing. US textile factories relocated production to nonunion lower-wage areas in the early 20th century. jute production moved from Bangladesh to England and back to India.
[43-44] when work cannot be outsourced it's typically done with migrant labor. thus capital flight and migration are two sides of the same coin. why export-focused industrialization also causes unemployment and migration needs to be explained.
[44-46] labor power has itself become a global commodity with a value chain. cheap consumer goods lowers the cost of labor power in the imperialist countries, and migration leads to competition for scarcer jobs in imperialist countries. lose a factory job but buy the product you used to make for much less.
[46-51] intermediate goods have become much more important in international trade flows, either within firms or through subcontracting. and finished goods are often imported as inputs for northern firms. none of this appears in normal econ stats. labor-intensive steps are often offshored, even if the whole product is technically bolted together in the US. 60% of total trade into the US is inter-firm, and mostly from low-wage countries. the in-house/FDI vs. arms-length outsourcing relationships are distinct but this will be explored later.
whereas before workers would be made redundant through automation, now the trading of high wage for low wage workers causes most redundancy.
[51-54] there are basically two paths upwards for poor counties - primary commodity export or export-oriented industrialization. very few countries actually manage to become preferred destinations for export industrialization though. these countries tend to bt the most populous. the trade in manufactures between these 'developing' nations and developed ones has increased dramatically through the 70's and 80's.
[54-56] even where primary commodity export dominates, most developing countries have export processing zones - free of taxes, tariffs, regulation, or even labor laws. hostility to trade unions and preference for female labor. EPZ's rarely make a positive contribution to development, and typically reproduce colonial infrastructure development patterns, not genuine development.
[56-58] digital offshoring has increased since 1990, which is a new threat to 75% of the GDP of high-income countries, and to the value-added from services that shows up in manufactured goods re-exported (does he mean branding and design and shit?). for marxists the important thing about 'services' is whether they're employed in a commodity production process, in production or circulation, or as a personal service.
[58-60] to develop this idea, Smith discusses Marx's concept of commodity production. barter gives way to C-M-C, and merchant capital or M-C-M' emerges. to make more money you basically have to steal somehow. capital as capital involves buying a commodity, labor power, and paying less for it than the value of what it can produce. this gap value gap between labor power and what it produces is called surplus value - where profit and capital itself are made up of.
[60-66] the concepts of productive and non-productive labor in Marxian economics hinge on social relations of production, and not opinions or value judgments or whatever. if a 'service' is only contingent on economic activity - banking, security, government bureaucracy, etc., it makes no contribution to production. transport, by contrast, where it is actually socially necessary, is productive.
the type of services that are present in northern and southern economies are very different. northern services are typically things like finance and advertising and other unproductive sectors. but not all economic activity is productive, not all GDP or price has an actual value behind it. security guards for example, produce nothing even if their presence is necessary for the realization of value and the process of circulation. exploitation can still occur if workers have to work for longer than the cost of their labor power would require, and they're only paid enough to secure those needs. this is Marx's distinction between necessary and surplus labor. the more employment in unproductive services, the more surplus value must be appropriated from elsewhere.
[65] productivity in services and construction has declined over the last 30 years, and the increase in manufacturing productivity has been partially due to contracting and outsourcing, which artificially lowers the amount of employees in a manufacturing firm and decreases labor costs. this explains the popular graph of productivity and wages you see posted all over the place. offshoring can show up as imported productivity in econ statistics. the confusion of GDP with use values in statistics obscures more than it reveals. smith has a whole chapter on this later.
Chapter 3: The Two Forms of the Outsourcing Relationship
[68-70] foreign direct investment (FDI) and arms-length outsourcing are the two primary forms of the outsourcing relationship. FDI occurs between a corporation and its foreign affiliate, and the arms-length relationship is mediated through a contract or just a market exchange. this means that the old definition of corporation, narrowly focusing on ownership instead of the "ability to coordinate and control operations in more than one country" is inadequate.
[70-71] FDI can have several purposes. to replace high wage labor with low, to overcome protectionist barriers by moving production to a given country and to gain access to markets (this mostly happens between imperialist countries), FDI to enable resource extraction, and technology-seeking FDI, which is rare between imperialist and exploited countries.
[72-75] the importance of foreign exploitation to imperialist country firms has been systematically under-counted, even by marxists. ignoring arms-length outsourcing, over-counting unproductive service FDI, conflating greenfield FDI with mergers and acquisitions, and mislocating FDI where investment in an imperialist firm with productive assets mostly in exploited countries is only counted for the imperialist country.
[75] FDI stock results in higher employment per dollar in southern economies, not including subcontracting which skews the numbers even more.
[76-79] FDI profit flows between northern countries are bidirectional, but not between northern and southern countries.
[79-80] arms-length outsourcing is another thing entirely. companies prefer it to FDI because of the opportunities for lower liability (or no liability) and higher profits. 3/4 of China-US trade in 2008 was of this type, so clearly its more important than traditional FDI.
[82] 4 major reasons for arms-length vs traditional FDI:
- foreign investors might have to pay higher wages with traditional FDI.
- arms-length means hands-clean (no liability)
- transference of risk onto separate firms.
- avoiding FDI releases funds for speculation and acquisitions
[84] northern firms generally don't compete with southern ones, they incorporate them into their value chains/production processes. concern over the trade deficit that this can sometimes result in is "absurd and disingenuous."
[85] there is some emerging direct competition in certain areas like solar and wind power, civil engineering (China?), pharmaceuticals, smartphones etc. but the general pattern holds. something called the complexity index helps demonstrate this.
economic complexity is a measure of the diversity and uniqueness of the products an economy produces. low complexity means a country produces few goods or few types of goods, that are also produced by many other countries. high complexity (the highest complexity country in the world is Japan) indicates many types of goods are produced, and more of these goods are unique or have very few other countries capable of producing them. high speed trains or water turbines or something, I'm guessing.
[93-95] export-led industrialization has not worked. the same countries that have tried this are now trying to 'upgrade' by seizing larger shares of the value of finished commodities. this flies in the face of the theory of comparative advantage that is supposed to regulate the types of things produced between different countries. but, upgrading isn't working either.
[96-98] manufacturing value-added has increased far slower during the neoliberal era, as import substitution industrialization was abandoned for export-oriented industrialization, with lower value content.
Chapter 4: Southern Labor, Peripheral No Longer
[101-105] how has the global working class changed over time? where is it today? the vast majority (83%) of the global industrial workforce lives in southern countries, and their labor is more export-oriented than oriented to the domestic economy. the US has somewhat maintained its level of industrial employment due to declining wages and use of migrant workers.
[105-108] the evidence is clear that underdevelopment is a permanent feature of southern economies, not a stage that they'll inevitably pass through. Europe's development relied on external infusions of capital like slavery and genocide - options not available to southern economies. economic theory that predicted equalization of factor prices between companies (the hecksher-olin-samuelson thesis) has not occurred.
[108-109] how is stages theory incorrect? the same process that produced European capitalist take-off or divergence produced southern/peripheral poverty and underdevelopment. the arrival of capitalism in southern economies produced a surplus population without a means to absorb it, just like occurred in Europe during the rise of capitalism. the difference is that European surplus populations were absorbed via settler colonialism and genocide, options not available to anyone else.
[124-126] a major feature of export-oriented industrialization has been the incorporation of young women into wage labor. women now are anywhere from 1/3 oto 1/2 of the manufacturing labor force in developing countries, and this can approach 9/10ths in export processing zones. this has happened across the board, in "conservative" societies and elsewhere. many women actually see wage labor as a way to escape home life. low/precarious wages for men also drive women's participation in the economy as wage laborers. very similar dynamic to England in Marx's time.
[126-130] why women? they're treated worse and paid less, and segregated into lower-wage (or unwaged), labor intensive occupations. since women are defined as housewives first and their labor is always seen as supplementary to their husband's. their increasing presence in manufacturing undercuts this, however.
industries are also feminized and de-feminized depending on how privileged the work is. better work generally goes to men.
the gender pay gap is also dramatic, as is the gendered gap between skilled and unskilled labor.
[130-132] "without recognizing the exploitative, antagonistic nature of the capital-labor relation, it is impossible to understand why capitalists have an interest in maintaining gender segregation and discrimination."
the incorporation of women's labor into capitalist production has different consequences depending on where it happens. in imperialist countries it tends to increase the value of women's labor power by reducing the free reproductive labor available in the home. in oppressed nations, reproductive costs are frequently borne by the extended family and informal economy, and capitalism relies on this.
Chapter 5: Global Wage Trends in the Neoliberal Era
[133] there are several difficulties involved in comparing wages between countries:
- the cheapness of labor power is not the only force driving investment in production in low wage/oppressed countries. cheap nature, low safety regulations and reproduction costs which are borne by unwaged, informal labor are also critical. all of these seem to be related to labor power though.
- wage data is irregularly reported and typically only covers the formal sector
- wages in *different currencies are not easy to compare right off the bat
[134] the smaller an economy is relative to the US, the more that an exchanged dollar can purchase. 30 cents converted into Bangladeshi takas buys what a dollar would buy in New York.
[135-140] global wage data for specific occupations in specific countries has been collected for almost a century. but this data is poorly reported and limited in scope, often only covering formal employment in urban areas. it can be cleaned up but isn't ideal.
the creation of purchasing power parity indexes introduces another layer of possible errors. the basket of goods used has to be very carefully designed across countries. it is susceptible to mismeasurement in three major ways:
- infrequent benchmarking: the methodology, estimates, baskets etc change over time.
- substitution bias: if consumers substitute one cheaper good for another, this can show an unwarranted increase in PPP.
- the myth of the standard basket: PPP aggregates too much and ignores the differences between worker baskets and average baskets in the same country.
[140] good discussion of the $1/day poverty line being bullshit for a number of reasons.
[141-145] hard currencies (dollar, yen etc.) are always worth more in southern countries than northern ones, and southern firms always pay more for intermediate inputs produced by northern firms.
[145-148] the labor share of national income has declined in poor and rich countries during the neoliberal era. there are a whole lot of statistical tricks used to make this decline seem better than it really is.
[151-155] the decline in labor's income share is obvious, and a result of a dramatic change in the balance of class forces.
[155-157] labor's share is also more unequally distributed. high-skill workers have seen increased wages and low skilled workers have seen their share decline, even as a part of labor's share. the lower the GDP of the country, the higher the inequality. two types of inequality are observed - the bottom falling out of wages and the top shooting upward.
[157-160] absolute wage differentials have increased between rich and poor countries since the beginning of the neoliberal era. Smith directly compares textile workers wages north and south to show this.
[160-164] wages respond differently to crisis north and south. crises in southern countries drive wages down dramatically.
[164-166] bottom line: wages never converge
Chapter 6: The Purchasing Power Anomaly and the Productivity Paradox
[167] why does the purchasing power anomaly, discussed in chapter 5, even exist?
- restrictions on free movement of labor across borders.
- wide variations in the rate of exploitation, because of divergence of wages from productivity.
[168] efficient market theory would predict long-term purchasing power parity between currencies over time. this hardly holds for hard currencies and not at all for soft ones.
[169-171] north -> south PPP deviations are permanent, and this has been verified empirically by people trying to prove the usefulness of PPP. this gap is known as the "Penn effect" and there are two main responses/justifications for it:
- Balassa-Samuelson hypothesis: differences in labor productivity explain the divergence.
- Baghwati-Kravis-Lipsey model: relative differences in "factor endowments" account for it.
Smith argues both of these are tautological. he argues that Marx's concept of relative surplus population combined with the hard borders of northern nations explain the divergence much better. workers in oppressed countries are trapped and forced to compete with one another for fewer and fewer jobs.
[171-174] next up a discussion of productivity, which for capitalists and mainstream economics just means exchange value and profits. similarly, value added is the same as productivity, meaning any increase over the cost of inputs, however it happens, counts. use-values and exploitation don't factor into anything. the idea that value can be captured isn't explored.
[174-178] productivity statistics are highly unreliable, owing to this theoretical structure. offshoring can introduce cost savings that make a company appear more productive, even if more actual labor goes into a good. apple can make itself look more productive by removing workers from the denominator side of its productivity equation and still selling the same thing.
Smith discusses the Baumol effect - the fact that services rarely increase in productivity, but increases in industrial productivity drive down industrial employment, prices, and industry's contribution to GDP. this makes services seem more important and productive when the opposite is the case.
to set up his critique of productivity, Smith defines two forms of value - one being useful objects satisfying a human need, and another being money collected from the sale of a commodity above the cost of inputs. the definition of productivity that matters most to capitalists is the unit labor cost - the amount that needs to be paid in wages to get one unit of output.
[178-182] the argument that wages track relative productiveness underpins a lot of the justifications for globalization but is false. average unit labor costs - costs of labor per one additional unit of output - diverge wildly between rich + poor countries. this is based on data that already overestimates ULC's in developing countries.
multinationals typically impose their own productivity regimes in southern countries, reaping similar productivity but paying far less in wages there. more often, the productivity is higher and the workers are worked harder.
[182-186] unit labor cost as a concept is inadequate to really understand productivity, however. ULC's are just labor's share of GDP divided by the amount of workers. so low ULC would equal poverty by definition. it's also clear that labor varies wildly in price and productivity, and there is no clear link between the two.
Chapter 7: Global Labor Arbitrage: The Key Driver of the Globalization of Production
Smith moves on to build a value theory of imperialism. how do mainstream economists use labor arbitrage as a concept? how to marxists of different types use it? is any of it adequate?
[188-194] neoliberalism and strong borders give capitalists two ways to make money: moving production to low-wage countries whose industries and social safety nets have been wrecked, and allowing migrants to be exploited in northern countries. when immigration is restricted, the first way (via trade) predominates. this is arbitrage.
even mainstream economists recognize this. similar-skill workers are found in developing countries for 10-30% of US wages. they like to pretend that labor costs are only one factor among many that lead to offshoring (which is true, but none of the other factors look good either).
in general mainstream accounts pretend that low wages aren't the objective. under/unemployment becomes 'factor endowments'
[194-195] the hecksher-olin model assumes countries will use their most abundant factor most intensely, this explains nothing about how factors become abundant or scarce in the first place. it also assumes that products but not factors cross borders, and that all factors are fully utilized.
[196-198] turning to marxist value theory, Smith restates some things:
- the wage is the monetary expression of the value of labor power. the real wage is what can be bought with this money.
- value of labor power is the socially necessary labor time required to produce the basket of goods that constitutes the real wage.
- the rate of surplus value or exploitation is the ratio between the part of the day that pays for the basket and the part that is freely surrendered to the capitalist.
- absolute surplus value is extending the working day, and relative surplus value is lowering the value of labor power itself, by raising productivity in branches of production of wage-basket goods. another way to increase relative surplus value is to decrease consumption - paying wages below the value of labor power. the labor power/real wage basket is determined historically, by struggle.
[198] marxists have neglected labor arbitrage, generally. Smith makes the case that GLA is a more useful concept than others.
[199-206] goes after Wood and Harvey a bit. Amin and the MR school are positive exceptions to the way marxists have generally treated/discussed this theory.
[206-212] Smith identifies dependency theory as the only serious marxist attempt to grapple with the relationship between imperialism and value theory. what was dependency theory?
the Prebisch-Singer thesis: primary commodity exporters in the long run confront worse terms of trade with manufactured goods exporters. this cancels their comparative advantage. it was theorized that this resulted from the unequal structure of the world economy, where domestic industry in raw-material exporting countries can only be built if it is well-protected. this assumes capitalist development is the only possible kind.
this was the basis of import substitution industrialization that was pursued until the neoliberal era. this is the bourgeois-nationalist wing of dependency theory.
the marxist wing of dependency theory was more diverse and fragmented. Smith claims that this wing was too close to stalinism (he puts maoism as a subtype of stalinism here) and had an unfortunate rift with the Cuban revolution.
[212-216] stalin's emphasis on peaceful coexistence following ww2 and directing communist parties worldwide to downplay class struggle and opposition to imperialism was "treacherous." mao doesn't fare much better: "the Chinese revolution followed the inexorable logic of the class struggle, not the false logic of chairman mao." by contrast, cuba's example is different and much more positive.
[216-219] marini points to the essential nature of super-exploitation in the history of capitalism, separate from amin who chalks it up to monopoly or other value-negating processes. marini also emphasizes the increasing importance of absolute surplus value in value creation.
[219-223] criticism of marxist dependency theory from euro-marxists is mostly irrelevant. lol
[221] "the value and surplus-value generated by an hour of labor is wholly independent of its productivity and of the organic composition of the capital it is employed by." productivity and value aren't linked, and machinery only transfers previous values. is this what he means?
Chapter 8: Imperialism and the Law of Value
[224] how do we evaluate theory from previous eras?
- test the theory against subsequent evolution
- test it against other theories from the same time.
[225-230?] on lenin's 'Imperialism', smith notes that it was written before the present imperialist division of the world had really been established. lenin noticed things, like the existence of oppressor and oppressed nations, and inequality between proletarians, that marx had excluded from his analysis or not even noticed.
lenin did not make the leap to value theory in his discussion of imperialism. but his basic discussion of the nature of imperialism is still largely correct, even in a lot of its details, like the precise club of imperialist nations, which hasn't changed since his time. the reliance of imperialism on violence and war as a normal part of doing business is still accurate as well.
some critics have pointed out that lenin bases his discussion of imperialism on monopoly, finance capital and violence (or 'extra-economic factors'), not necessarily the normal law of value. this is fair - lenin's analysis of russian capitalist development was based on the categories of capital, but not his work on imperialism, even though some special features, like monopoly, are related to the concept of value through the process of super-exploitation.
lenin's emphasis on the export of capital as key to imperialism is complicated by contemporary arms-length value-chain arrangements. but lenin's point was that the wealth of imperialist capitalists is so large it needs more workers than are available domestically to convert it into capital and surplus value.
so, a synthesis of lenin with his emphasis on the division of the world into oppressor and oppressed naitons, and marxian concepts like the law of value, as developed in capital, is still necessary. smith now attempts this.
smith begins by talking about a couple of places where marx himself commented on international differences in wages, profits, and exploitation.
[233] first smith discusses marx's chapter in volume 1 on national difference in wages, where marx claims that higher wages may coexist with higher exploitation rates in some cases. this doesn't apply to contemporary north-south relations for several reasons:
- marx was discussing wages of workers in competing imperialist nations, not the dynamic we see today
- in marx's schema workers only consumed domestic goods and capitalists only used domestic labor power. obviously untrue today
- marx's example assumes capitalist in different countries compete by producing the same goods, when this is not the case today either.
higher wages in england, for instance, were made possibly by higher productivity in consumption goods (relative surplus value). today the value of labor power is lowered via imported goods and superexploitation.
[235] marx discusses international differences in the rate of profit again briefly in volume 3. different value compositions in production can produce different rates of profit and rates of surplus-value. this has to do with lower productivity in consumption goods production - not really what we're talking about either.
marx was treating the whole world as one nation, his level of abstraction and task were different. he assumed equality of workers and equalization of profit rates, but this has not borne out in practice.
[236] marx assumed wage divergences would be temporary and unimportant for his analysis, which was a fine assumption back then but doesn't work today.
moving on, Smith builds up his own theory.
[237] there are 3 forms of surplus value increase:
- lengthening the working day (absolute s/v)
- cheapening the value of labor power and lowering the wage (relative s/v)
- pushing the workers wage below the value of labor power (super-exploitation)
the third type has become widespread in southern economies.
[238] marx excluded the possibility of national variation in rates of profit, surplus value, and value of labor power, but we have to include it. the driving down of wages below the value of labor power is the key link between imperialism and value. it's also one of the many counter-vailing tendencies to the TFRP.
[241] marx mentions that firms can sometimes sell goods above their value, like in the case of the first firm to develop a new technology that allows them to produce something cheaper than everyone else while maintaining the same or only a slightly lower price. this allows the first-to-market producer to effectively capture value from lower-tech producers. when less-efficient or less advanced capitals disappear from the market, so does the value premium for the firm that had the advantage beforehand.
[241-242] to reiterate, "the value generated by productive workers in a given amount of time is independent of their productivity." in the example above, the worker producing in the firm with the new tech in a market where only that firm has the tech, produces more value than the same worker in the same process without the less-efficient capitals. once we grasp this all shall be revealed.
another example: microsoft workers who enable their company's monopoly in software - they don't produce anything more than other programmers do, they only appear productive because of their firm's rent-seeking behavior and extra-economic dominance of the market.
[246] skill, to counter an earlier explanation for wage differences, also doesn't enter into the calculations. to the extent that labor power with a higher value reflects the costs/time of production, its the same as unskilled.
[247] rates of exploitation and difference in wages are influenced by skill, or the time and cost embodied in more complex labor power, but this is not the explanation for divergence in wages between first and third world wages or rates of exploitation. on skill, marx mainly treated it as a phenomenon observed in a single capitalist economy, and predicted it would disappear owing to deskilling and mechanization and competition between workers.
on the subject of the law of the tendency of the rate of profit to fall, s/(c+v) tends to fall because 's' is limited by the length of the working day and 'c' grows relative to 'v.' there are many things that work against this, including transfer of value from branches of production with low organic composition to high composition. outsourcing, where c and especially v are forcibly depressed, results in huge profits.
[248] the impact of banking and finance is to sort out claims on surplus value. when those claims grow too elaborate or precarious, a crisis becomes possibly and some of these claims must be liquidated.
[249] to sum up, global labor arbitrage and outsourcing is the expression of the third form of surplus value expansion, the driving down of wages below the value of labor power.
Chapter 9: The GDP Illusion
[251] the 'hard numbers' on productivity, trade, value added and GDP are "fetishized categories that obscure at least as much as they reveal." how are the contributions of low-wage workers in oppressed countries undervalued? where does the outsourcing and wage arbitrage relationship show up in GDP and related figures?
first smith discusses what GDP is and why it's inadequate. then smith presents value-chain analysis as a more useful paradigm for measuring and understanding value and its transfer between countries.
[253] definition of GDP: "sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies." no accounting for depreciation of capital goods, pollution or other externalities.
measurement of GDP is done in three ways:
- input-output tables to calculate total value added
- calculating total expenditure minus expenditure on intermediate inputs.
- or total income of firms, households and government
GDP ultimately measures exchange value of commodities produced for the market. it obscures exploitation of labor by capital and of poor nations by rich nations.
[256] GNP vs GDP: GNP measures earnings of multinationals based in the country regardless of where those earnings come from. GDP keeps the profits in the country where they were generated, even if those profits will be repatriated. but profits move all the time.
[257] GDP assumes government services are equal to taxes and thus makes no net contribution to the national product - which is absurd (he doesn't elaborate why, at least not here)
GDP also excludes externalities, meaning poisoned water and air have no cost, which they clearly do. as an example he brings up China, where he claims 8-15% of GDP is lost because of pollution
[258-259] GDP has recently been modified to measure financial services, where risks taken by banks are added to national product. also recently, R+D used to be measured as a cost of business, but now it's counted as an investment, so software purchase is counted as investment rather than purchase of an intermediate good. all of these new ways of measuring GDP artificially inflate it.
[260-261] as an example of how absurd GDP is in an international context, he compares the GDP of Bermuda, which is mostly hedge funds, to the GDP of the Dominican Republic, where things are actually produced.
for example, a shoe that sells for $15 here only receives 30 cents in value from workers in the Dominican Republic. this is mostly because the wages are so low. if the wages were to decline even further, surplus value and exploitation would increase, but the apparent contribution of shoes to GDP would decline.
[262] GDP measures results of transactions in the marketplace, not production
[265-266] "values are not disaggregated prices, prices are transformed values." once we acknowledge, as he discussed earlier, that value created in one firm may be appropriated by another, understanding value flows and the misdirection represented by GDP figures is easy. 'value added' really means 'value captured' from the entire social capital, the total pile of value.
[266] formal discussion of the value chain concept. smith notes that even bourgeois financial literature is now discussing the implications of the globalization of production as it relates to value, price formation, corporate profitability etc. including how to manipulate it more effectively.
[267] a value chain is "the full range of activities that are required to bring a product or service from conception, through the different phases of production (including a combination of physical transformation and the input of various producer services), delivery to final consumers, and disposal after use"
[268] GVC (global value chain) analysis makes a distinction between producer-led chains, where production firms outsource labor-intensive tasks, and buyer-led chains, where retail firms buy finished products from arms-length firms. there is a spectrum between the two. typically GVC analysis rarely mentions or examines the north-south bifurcation in both types of chains.
[269] GVC theory never discusses value transfer as such or the consistent "condensation" of values created elsewhere as prices in northern countries.
[270] marx emphasizes that prices and values frequently diverge, and that value is routinely captured by individual capitals from others. the same concept applies to chains and the firms that participate in them. GVC theory assumes value can be leaked/exchanged between firms in the same chain, but not between chains. but that can happen too, all of it can and is captured.
[271] GVC theory also ignores intra-link distribution - the share between capital and labor in each link. this is due to what GVC was designed to accomplish - help capitalists in developing nations increase their share of value in the link they control.
[272] smith summarizes "the GDP illusion." there are three dimensions to the inaccuracy of GDP for measuring real economic activity.
- the inclusion of activities that produce no value in GDP calculations. security, administration and advertising for example.
- higher capital intensity in imperialist nations, lower surplus value and higher capture from circulation. smith cites a passage in Vol. 3 where marx makes the point that all capitalists take a part of total exploitation, not just the specific exploitation of their own workers.
- the most important GDP distortion comes from different rates of exploitation, north and south (ch. 7-8)
[274-277] a discussion of the influence of communications technology and transportation on globalization. eliminating nonproductive labor in finance (using software, for instance), shortening capital turn over time (shipping, logistics, containerization). smith claims that while these technologies have had a dramatic effect on the profit rate, there are no new ones on the horizon that would replicate the influence they have had. I feel like there has to be new shit though.
[277-278] summary of the chapter
Chapter 10: All Roads Lead Into the Crisis
this book came out in 2016.
[279] how does the shift and transformation of global production help us understand the next crisis?
[280] to start with, we have to see the roots of any capitalist crisis in production, not finance. expansion of debt and shift of production to low-wage countries just dayed another overproduction/accumulation crisis.
[282-283] the "Great Moderation" that preceded the 2007 crisis was marked by three things that actually laid the basis for the crisis, that were themselves linked to the global shift of production.
- low interest rates that encouraged debt accumulation. this was enabled by China and other low-wage countries recycling export earnings as loans to those same export destination countries. smith calls this "a Marshall Plan in reverse."
- low inflation was enabled by falling prices of goods produced in low-wage countries. deflation is actually a risk now.
- low volatility encouraged risk-taking behavior. no one would have packaged those insane pre-2007 derivatives in a context of high volatility (rapid changes in price). a billion dollars a day in funding the us deficit for over a decade (from China and other creditors) made this possible.
[284-286] what all imperialist governments are trying to avoid is a deflationary spiral, like what happened to Japan in the 80s, when its exports became uncompetitive because of changes in the dollar-yen exchange rate. when production was unprofitable, capital shifted into real estate speculation, triggering a banking crisis in 1990.
[286-290] the US trade deficit absorbed huge amounts of trade surplus from the rest of the world. this was caused by the relocation of production and recycling of export earnings into t-bills in imperialist countries, forestalling a crisis of overproduction.
[290-294] discussion of euro-marxist theories of the 2007 crisis. most marxists in this discussion ignore the shifts of production that have occurred in the last 30-40 years.
[297-301] evaluation of financialization as the primary cause of the crisis - smith is not impressed with this thesis, unsurprisingly. debt and finance-derived profits increased massively from 1980 to 2007. most analysis of the increase in importance of finance says very little about the production shifts discussed in this book. but they are linked. financialization is mostly important to the extent that it facilitates offshoring and repatriation of the profits. profits ultimately have to originate from the production and trade of real goods and services.
[301] "a detailed study of the autonomous role of finance in the global economy is beyond the scope of this investigation" where is this though
[301-310] how did the global south approach and leave the 2007 crisis? high growth, mounting debt and lowered exports and deflation. the crisis in the north is slowly percolating down to the south. high growth in southern countries was itself a product of declining profitability and interest rates in northern countries, and following the crisis, China's deficit spending propped up a significant amount of activity in other economies. high levels of investment in southern economies created dramatic debt levels. since 2014 investment has rushed back out of these same economies, possibly because of an impending increase in the US interest rate, but also because of lower profitability in these emerging markets.
[310-313] since the crisis austerity has been the main response from governments across the world, to prevent investors from withholding even more investment than is already the case. protectionism and trade wars are also on the horizon.
[313] there is no effective remaining option with which central banks can confront the next crisis.
[313-315] offshoring did save capitalism for 25 years following the 1970's crisis of stagflation, at the expense of massive debt, trade imbalances, and dramatically increased parasitism. quantitative easing and zero interest rates just kick the can down the road even further. at the same time, the proletariat has grown to its largest proportion yet.
[315]
together with their sisters and brothers in the imperialist countries, workers have the capacity, the mission and the destiny to dig a new hole, a grave in which to bury capitalism and bring an end to what Marx called "the pre-history of human society"