Economics of imperialism

this post also features in off-guardian

The most important book I’ve read in years is John Smith’s Imperialism in the Twenty-First Century: Globalization, Super-Exploitation and Capitalism’s Final Crisis. Here’s an abridged extract from its opening words:

The collapse of Rana Plaza, an eight-story building housing textile factories, a bank and shops in an industrial district north of Dhaka on 24 April 2013, killing 1133 garment workers and wounding 2500, was one of the worst workplace disasters in history. Workers’ grief, rage and demands for justice stirred sympathy and solidarity from working people around the world – and a frantic damage-limitation exercise by the giant corporations that rely on Bangladeshi factories yet deny responsibility for the atrocious wages, living and working conditions of those who produce all their stuff.

Adding to the sense of outrage is the fact that, the day before, cracks had opened in the building’s structure. An initial inspection resulted in its evacuation and a recommendation that it remain closed. Next morning a bank and shops on the ground floor obeyed this advice, but thousands of garment workers were ordered back to work on pain of dismissal.

When generators illegally installed on the top floor were started up the building collapsed. The screams of thousands trapped and crushed as concrete and machinery cascaded down unleashed a full-spectrum shockwave, amplified by the anguished howl of millions around the world. Consumers of clothes made in Bangladeshi factories were confronted by their connection to the people whose hands made their clothes, by their miserable existence on this earth. Like an x-ray beam, Rana Plaza lit up the global economy, throwing into sharp relief a fundamental fact about global capitalism normally kept out of sight and mind: its good health rests on extreme rates of exploitation of workers in the low-wage countries where production of consumer goods and intermediate inputs has been relocated. The attention of the world was drawn in particular to Bangladesh’s poverty wages, the lowest of any major exporter in the world, and death-trap factories – five months earlier a fire at nearby Tazreen Fashions killed 112 workers, trapped behind barred windows and locked doors while working long into the night – to the violent suppression of union rights and incestuous relations between factory owners, politicians, and police chiefs – no employer in Bangladesh’s garment industry has ever been convicted of an infringement of health and safety laws …

Garments are the quintessential example of a buyer-driven commodity chain, with global buyers deciding what is to be produced, where and at what price. Bangladesh’s garment industry distils the export-oriented industrialization strategy pursued by governments across the Global South. Said TUC General Secretary Frances O’Grady, “in the global race to the bottom on working conditions, the finishing line is Bangladesh.”

Starvation wages, death-trap factories and fetid slums in Bangladesh typify conditions for hundreds of millions of workers in the Global South, source of surplus value sustaining profits and unsustainable overconsumption in imperialist countries. Bangladesh is also in the front line of another consequence of capitalism’s reckless exploitation of living labor and nature: “climate change”, more accurately described as capitalist destruction of nature. Most of Bangladesh is low-lying. As sea levels rise and monsoons become more energetic, farmland is inundated with salt water, accelerating migration into the cities …

Rana Plaza not only shone a light on the pitiless exploitation of Bangladeshi workers. It lit up the hidden structure of global capitalism, revealing the extent to which the capital-labor relation has become a relation between Northern capital and Southern labor. The garment industry was first to shift production to low-wage countries, yet power and profits remain in the grip of firms in imperialist countries. This reality is different from the fantasies of neoliberalism’s apologists. Few dispute that Primark, M&S, Walmart and other retailers profit by exploiting Bangladeshi garment workers. Why else have they raced to outsource the production of their clothes to the lowest of low-wage countries? A moment’s thought reveals other beneficiaries: the commercial capitalists who own the buildings leased by these retailers, the myriad companies providing them with advertising, security, and other services; and also governments, which tax their profits and their employees’ wages and collect the VAT on every sale. Yet, according to trade and financial data, not one penny of US, European, and Japanese firms’ profits or governments’ tax revenues derive from the sweated labor of the workers who made their goods. The huge markups on production costs instead appear as “value-added” in the UK and other countries where these goods are consumed, with each item of clothing expanding the GDP of the country where it is consumed by far more than that of the country where it is produced. Only an economist could think there is nothing wrong about this!

That first chapter goes on to consider two other commodities, iPhones and coffee. These too are produced in the global south for consumption in the north. Though very different products, Smith’s teasing out of the socioeconomic relations they embed reveals their commonality. All are created under conditions of a super-exploitation which mainstream economics is at pains to conceal or obscure by a ‘value chain’ orthodoxy that would have us believe an iPhone made in China for $80 retails in the west for $800 not through exploitation but because the activities of shipping, advertising, packaging etc add $720 of value.

Imperialism in the Twenty-First Century is not the easiest of reads, despite Smith’s cogent and frequently witty style. I see three reasons for this. One is that it is empirically dense. While its engagement with a wealth of detail is what makes it so valuable, it demands close study. This is not a bedtime book.

The second reason is that its theoretical chapters confront, point by point, the arguments of the value-chainers and marginalists* to lance a blister of far-fetched assumption, tautology and what PG Wodehouse would call in-and-out running. All stem from the need to avoid the truth that manufacturing is outsourced southwards to exploit low wages premised on various factors, the most important being high unemployment. In taking on such arguments, Smith plants his political-economy feet squarely on terrain Marx opened up in Capital: a labour theory of value simple in its fundamentals but less so in the detail, particularly for an imperialist world order unknown to Marx and barely dawning in Lenin’s day. These theoretical exchanges, not just with mainstream apologists but errant marxists too, again do not make for light reading.

My third reason brings me closest to a criticism of Smith’s stupendous achievement. This book is a conversion from a Ph.D thesis and the fact shows here and there in overly complex and at times suboptimal structure. It would benefit from the kind of revisit an author cannot usefully make until reflective time has passed. Given the author’s knowledge, passion and writing skills, I see a case for a reworked version. One that simplifies: axing – never a pain-free editorial task – some of the more arcane point and counterpoint while retaining the supporting detail that makes it so important and remarkable a work; one that deserves the wider readership such a reworking would attract.

That said, underlying the book is a simple combination of circumstances we needn’t subscribe – as I in fact do – to any theory of value to grasp. When Europe industrialised in the nineteenth century, those displaced from the land were too numerous to be absorbed by manufacturing. This created labour supply-demand ratios very favourable to capital. (Marx and Engels wrote at length on capitalism’s need for a “reserve army of unemployed”.) But while holding down wage levels to boost profits, high levels of unemployment are potentially dangerous. Fortunately for the social order in Europe – less so for the indigenous victims of genocide in the Americas and Antipodes – a ‘new world’ was opening up to beckon industrious souls prepared to uproot and start afresh.

As early as the 1900s, with those migrations continuing apace, a few firms in the global north, led by the garment sector, were relocating production to the south, a trend increasing in both volume and sectoral spread well into the sixties and seventies. This restless search for higher profits via lower wages usually took the form of huge companies, based in the OECD countries, acquiring factories overseas. Recent decades, by contrast, have seen southwardly outsourced manufacturing replace, in the interests of arms-length distancing, such direct control. The shift begins slowly but accelerates in the nineties and noughties – as does value-chain ascendancy in economic ‘science’. But whether by direct ownership (mirroring the direct rule of colonialism) or outsourcing (in asymetric conditions that mirror the indirect rule of modern imperialism) the results are that two of the three conditions pertaining to nineteenth century Europe also apply in the global south, Asia in particular. (For reasons outside my scope Latin America is slightly, and Africa very, different.)

• Check: as in Europe, hundreds of millions of Asia’s small farmers and land labourers have been displaced.
• Check: as in Europe, their numbers are too high to find full employment in the city, a ‘reserve army’ exerting the same downward effect on wages.

Only on the third condition do we see a difference. Where the dispossessed of nineteenth century Europe looked in despair or hope to America and Canada, Australia and New Zealand, no such opportunities beckon for Asia’s landless and jobless. Ever stricter immigration controls – glaring exceptions to globalisation, and a planet wide equivalent of apartheid South Africa’s infamous Pass Laws – see to that.

Nations early to industrialise – the ‘little tigers’ of the Pacific Rim – saw rising living standards on the back of economic liberalisation and political repression. But as other economies shift to manufacturing, the benefits diminish. The IMF’s own data rebut its claims of a virtuous cycle of industrialisation and enrichment. Rather, the balance of supply and demand tilts every more decisively, with each new entry to the ‘value chain’ by a ‘developing’ nation, to favour northern capital while the south competes in a hunger game, its winners those most able to drive down wages, and trash safety and environmental standards. We condemn Bangladesh’s sweatshop owners, polluters, slum landlords and corrupt politicians but it is the north’s elites, aided by IMF and World Bank conditionality, who set the terms under which they operate. And wealthy as the local exploiters may be, theirs is the lesser share of the surplus value appropriated. Most of it flows – as shown by that $720 of ‘value added’ to an iPhone made in China for $80 – unwaveringly northward.

The upshot? Cheap consumables for the north, driving down the value of labour power there in ways we do  require an understanding of the law of value to appreciate, are one consequence; super profits for the various capitals another. Only slightly less obvious is the fact of welfare systems in the north – armaments too – premised on taxes accruing to this ‘global value chain’. Insofar as we access municipal libraries and parks, send our children to state schools and/or rely on tax funded health and social care, we are all beneficiaries of the global exploitation.

That doesn’t make us equal partners though. We may see the only other course as a levelling down; impoverishing the global north to improve conditions in the south. Yes, those of limited understanding, incapable of envisaging any alternative to capitalism, fear or profess to fear precisely that. But as Marx saw, where humanists like J S Mill did not, the chaos and misery of capitalism – chaos and misery we in the north will be less shielded from as capital increases its share vis a vis that of the state – originate not in its relations of wealth distribution but in those of wealth creation. Even at this late hour, with the threats – to peace, to natural environment, to welfare and social justice – posed by production for profit exacerbated by those of a crowded planet, a fairer and sustainable world is possible. Just not under capitalism.

All the more reason then for a slightly less daunting version of John Smith’s invaluable work.

* I’ll discuss ‘marginalism’, or theory of marginal utility, in a future post. For now it suffices that when economics abandoned the (imperfect) labour theories of value put forward by Adam Smith then David Ricardo – a politically driven abandonment that coincides, in Marx’s scathing view, with its shifting from science and the descriptive to apologetics and the normative – it banished all talk of an objectively grounded value in favour of one subjectively determined by the market and indistinguishable from price. Its conflation of the two more or less succeeded in hiding the fact of exploitation from those obliged to sell their labour, but by the same token debarred economics from seeing the orgins of profit, hence from understanding the fundamental laws of motion of its own discipline.