Globalization and the End of the Labor Aristocracy, Part 3

By Jayati Ghosh, Professor of Economics and Chairperson at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. This is Part 3 of a four-part article, published in the March/April 2017 special “Costs of Empire” issue of Dollars & Sense magazine. Parts 1 and 2 are available here and here, respectively.Cross posted from Triple Crisis

Structures of Global Production and Trade

It is often argued that the rise of new powers—especially China, but also India, Brazil and others—means that the concept of “imperialism” is no longer valid. Yet the imperialist phase of capitalism has always been characterised by the emergence of “new kids on the block,” some of which have gone on to become neighborhood bullies. At the time when Lenin wrote his famous pamphlet Imperialism: The Highest Stage of Capitalism, a century ago, the emergence of the United States as the dominant global power was far from evident. Lenin’s claim that, during the imperialist phase of capitalism, “the territorial division of the whole world among the biggest capitalist powers is completed” is the weakest link in his argument, and one which was belied almost immediately. The United States, which was then only a minor player compared to the major European powers, emerged to dominate the world scene from the second half of the 20th century on. The rise of Japan in the second half of the 20th century by no means signified a weakening of imperialist power generally; it merely necessitated a more complicated assessment of such power.

The recent emergence of China is being interpreted as a sign that the global economic landscape is completely transformed. It is true that the growing weight of China in world trade and investment has had major effects: China has become the biggest source of manufactured-goods imports for most countries, changed the terms of trade and volume of exports for many primary-product (agricultural and mineral raw materials) producing countries, and brought more countries into manufacturing value chains. It is true, also, that Chinese capital has become a significant player in the ongoing struggle for control over economic territory across the world.

Yet there are dangers of exaggerating its current significance. Even now, China accounts for less than 9% of global output (constant 2005 U.S. dollars, nominal exchange rates); its per capita GDP is less than half (around 45%) of the global average, and still just fraction of the average for the economies of the imperialist core. In relative terms, China remains a “poor” country. Many of the hyperbolic mainstream analyses and predictions with respect to China are eerily similar to the predictions for Japan in the 1970s, as an emerging giant soon to take over the role of global economic leadership from the United States.

A similar point can be made even more forcefully for other nations that have been ecstatically described as “emerging economies,” supposedly proving that forces of imperialism are no hindrance to the rise of developing countries. Taken together, however, the “BRICS” nations (Brazil, Russia, India, China, and South Africa) account for less than 15% of world GDP, even though their share of global population is just under 50%. Announcing these countries as new global powers is very premature, especially when global institutional structures are still very much tilted in favor of the established powers.

All this does not mean that there have been no changes in global economic and political power: there have been and will continue to be significant and even transformative changes. However, these changes in the relative positions of different countries on the economic and geopolitical ladder do not mean that the basic imperialistic tendencies that drive the global system have disappeared—indeed, they may even become more intense as the struggle for economic territory becomes more acute.

This is particularly evident in the global spread of multinational corporations and their new methods of functioning, particularly with the geographic disintegration of production. Technological changes—advances in shipping and container technology that dramatically reduced transport times and costs, as well as the information technology revolution that enabled the breakdown of production into specific tasks that could be geographically separated—have been critical to this process. Together, they made possible the emergence of global value chains, which are typically dominated by large multinational corporations, but involve networks of both competing and cooperating firms. The giant corporations are not necessarily in direct control of all operations. Indeed, the ability to transfer direct control over production—as well as the associated risks—to lower ends of the value chain is an important element in increasing their profitability. This adds a greater intensity to the exploitation that can be unleashed by such global firms, because they are less dependent upon workers and resources in any one location, can use competition between suppliers to push down their prices and conditions of production, and are less burdened by national regulations that might reduce their market power.

Smiling Curve of Exchange Values and Profits

This transformation has therefore given rise to what has been called the “Smiling Curve” of exchange values and profits. Value added and profits are concentrated in the pre-production (such as product design) and post-production (marketing and branding) phases of a value chain. These now provide immense economic rents to the global corporations that dominate them, due to the intellectual property monopolies these corporations enjoy. The case of Apple phones is now well known: the actual producers in China (both companies and workers) earn only about one-tenth of the final price of the good; the rest is taken by Apple for product design, marketing, and distribution. The producers of coffee beans across the developing world earn a tiny percentage of the price of coffee, in contrast to the high profits of a multinational chain like Starbucks. Small farmers and laborers growing cocoa beans earn next to nothing, compared to the leading sellers of chocolate, all of which are Northern companies. The economic rents associated with the pre- and post-production phases have been growing in recent years. Meanwhile, the production phase, from which workers and small producers mainly derive their incomes, is exposed to cutthroat competition between different production sites across the world, thanks to trade and investment liberalization. Therefore, incomes generated in this stage of the value chain are kept low.

The overall result is twofold. First, this has resulted in an increase in the supply of the “global” labor force (workers and small producers who are directly engaged in production of goods and services). Second, the power of corporations to capture rents—from control of knowledge, from oligopolistic/monopolistic market structures, or from the power of finance capital over state policy—has greatly increased. Overall, this has meant a dramatic increase in the bargaining power of capital relative to labor, which in turn has resulted in declining wage shares (as a percentage of national income) in both developed and developing countries.

Implications for Workers

These processes imply worsening material conditions, for most workers, in both the periphery and the core. Imperialism has generally weakened the capacity for autonomous development in the global South, and worsened economic conditions for workers and small producers there, so that is not altogether surprising. The growth of employment and wages in China is as a break from that pattern and an example of some benefits of global integration, at least for a subset of working people in the developing world. The beneficiaries, however, remain a minority of the workers in the global South. In other countries generally seen as “success stories” of globalization, like India, the economic realities for most people are much bleaker.

The more obvious—and potent—change that has resulted from this phase of global imperialism has been the decline of the labor aristocracy in the North. The opening of trade, and with it a global supply of labor, meant that imperialist-country capital was no longer as interested in maintaining a social contract with workers in the “home” country. Instead, it could use its greater bargaining power to push for ever-greater shares of national income everywhere it operated. This was further intensified by the greater power of mobile finance capital, which was also able to increase its share of income as well. In the advanced economies at the core of global capitalism, this process (which began in the United States in the 1990s) was greatly intensified during the global boom of the 2000s, when median workers’ wages stagnated and even declined in the global North, even as per capita incomes soared. The increase in incomes, therefore, was captured by stockholders, corporate executives, financial rentiers, etc.

The political fallout of this has now become glaringly evident. Increasing inequality, stagnant real incomes of working people, and the increasing material fragility of daily life have all contributed to a deep dissatisfaction among ordinary people in the rich countries. While even the poor among them are still far better off than the vast majority of people in the developing world, their own perceptions are quite different, and they increasingly see themselves as the victims of globalization.

NOTE: Parts of this article appeared in “The Creation of the New Imperialism: The Institutional Architecture,” Monthly Review, July 2015.