John Smith’s book is a powerful and searing indictment of the exploitation of billions of people in what used to be called the Third World and is now called the ‘emerging’ or ‘developing’ economies by mainstream economics (and is called ‘the South’ by Smith). But the book is much, much more than that. After years of research including a PhD thesis, John has made an important and original contribution to our understanding of modern imperialism, both theoretically and empirically. In this sense, his Imperialism is a complement to Tony Norfield’s The City, reviewed previously in this blog – or should I say Tony’s is a complement to John Smith’s. While Tony Norfield’s book shows the development of finance capital in the modern imperialist countries and the dominance of the financial powers of ‘the North’ (US and UK etc), John Smith shows how it is the ‘super-exploitation’ of wage workers in the ‘South’ that is the foundation of modern imperialism in the 21st century.
The book starts with some examples of how wage workers in the South are ‘super-exploited’ with wages below the value of labour power (Bangladesh textile workers):“The starvation wages, death-trap factories, and fetid slums in Bangladesh are representative of the conditions endured by hundreds of millions of working people throughout the Global South, the source of surplus value sustaining profits and feeding unsustainable overconsumption in imperialist countries” (p10).. and how the surplus-value created by these super-exploited workers is captured by the trans-national corporations and transferred through the ‘value-chain’ to the profits of the imperialist countries of the North (Apple i-phones and Foxconn). “The only part of Apple’s profits that appear to originate in China are those resulting from the sale of its products in that country. As in the case of the T-shirt made in Bangladesh, so with the latest electronic gadget, the flow of wealth from Chinese and other low wage workers sustaining the profits and prosperity of Northern firms and nations is rendered invisible in economic data and in the brains of the economists.” (p22).
Smith points out that “about 80 percent of global trade (in terms of gross exports) is linked to the international production networks of TNCs.” UNCTAD estimates that “about 60 percent of global trade . . . consists of trade in intermediate goods and services that are incorporated at various stages in the production process of goods and services for final consumption.”(p50). Smith argues that outsourcing has been a conscious strategy of capitalists, a powerful weapon against union organization, repressing wages and intensifying exploitation of workers at home, and has led above all to a huge expansion in the employment of workers in low-wage countries… “A striking feature of contemporary globalization is that a very large and growing proportion of the workforce in many global value chains is now located in developing economies. In a phrase, the centre of gravity of much of the world’s industrial production has shifted from the North to the South of the global economy.”, as Smith quotes Gary Gereffi.
It is Smith’s main contention that it is wages forced below the value of labour power that is the key characteristic of the profits of modern imperialist operations. It is not even financial hegemony (Norfield) and certainly not some form of ‘dispossession of capital and wealth’ (Harvey). “The capitalists’ lust for ultra-cheap labor-power is a fundamental determinant of the global shift of production.”
Smith exposes the neoclassical view that wages are low in the South because productivity is low there. This view, Smith points out, has “never been systematically criticized by heterodox and Marxist critics of neoliberalism… (and) contemporary Marxist scholarship,… with few but important exceptions…is astonishingly indifferent to and accepting of bourgeois economists’ argument that international wage differentials merely reflect international differences in labor productivity.” There is a deliberate attempt by neoclassical bourgeois theory to identify wage growth with the productivity of labour and many Marxists go along with this because they confuse use-values (the production of things and services) with their value (the prices of production). Instead, “wage differences are significantly affected by coercive suppression of labor mobility—in other words, by a factor that is, on the face of it, quite independent of productivity.” (p240).
But mainstream economic theory denies this reality. This leads to the idea that workers in China receive their ‘fair share’ in wages given their productivity level. Smith quotes Martin Wolf from his 2005 book, Why globalization works, lauding the benefits of globalisation (Wolf now forgets these perceived benefits of globalisation in his later works). “It is right to say that transnational companies exploit their Chinese workers in the hope of making profits. It is equally right to say that Chinese workers are exploiting transnationals in the (almost universally fulfilled) hope of obtaining higher pay, better training and more opportunities.” (Wolf).
In contrast to Wolf’s view, the huge low wage proletariat that has emerged in the last 30 years is the key to the profits of imperialism, transferred from the South to the North. Smith provides the evidence for this. In 2010, 79 percent, or 541 million, of the world’s industrial workers lived in “less developed regions,” up from 34 percent in 1950 and 53 percent in 1980, compared to the 145 million industrial workers, or 21 percent of the total, who in 2010 lived in the imperialist countries (p103). For workers in manufacturing industry, this shift is more dramatic still. Now 83 percent of the world’s manufacturing workforce lives and works in the nations of the Global South.
The world’s “economically active population” (EAP) grew from 1.9 billion in 1980 to 3.1 billion in 2006, a 63 percent increase. Almost all of this numerical growth has occurred in the “emerging nations,” now home to 84 percent of the global workforce,1.6 billion of whom worked for wages, the other one billion being small farmers and a multitude of people working in the infinitely variegated “informal economy.” (p113).
The global proletariat has never been larger in numbers and in its share of the total workforce. And yet the share of wages in domestic income has fallen, both in the South and North. According to the ILO, since the early 1990s the “share of domestic income that goes to labor … declined in nearly three-quarters of the 69 countries with available information.” The decline is generally more pronounced in emerging and developing countries than in advanced ones. The declines in labor’s share in emerging and developing economies were very steep—falling in Asia by around 20 percent between 1994 and 2010; moreover, “The pace of the decline accelerated in . . . recent years, with the wage share falling more than 11 percentage points between 2002 and 2006.”
As Smith says “The wages paid to workers in the South are affected by factors that have no bearing on or relevance to the productivity of these workers when at work, factors arising from conditions in the labor market and more general social structures and relations affecting the reproduction of labor-power, including the suppression of the free international movement of labor and the emergence of a vast relative surplus population in the Global South. This knocks a large hole in the tottering edifice of mainstream economics”.
This leads to one of Smith’s main theoretical points. Capitalism started with the exploitation of labour through absolute surplus value (a longer working day) and of course bringing more people into the workforce. Then as capitalism developed, as Marx showed for Britain in Capital, it was a rise in relative surplus value that dominated, namely labour-saving technology is introduced to reduce the value of labour power in the same working day. But now in the 21st century, Smith argues, the exploitation of the workers of the South is less through an expansion of absolute and relative surplus value and more through driving wages below the value of labour power (super-exploitation).
In Capital, Marx recognised this as being an important form of exploitation of labour, but argued that, even without it, capitalism could exploit labour power and capture surplus value. Marx considered that of the counteracting factors to the tendency of the rate to fall for capital, there was not just a rising rate of exploitation or falling costs of technology, or even increased foreign trade and financialisation of capital, but also the reduction in wages below the value of labour power (super exploitation). Marx ruled this factor out in his abstract analysis of the laws of motion of capital but: “Like many other things that might be brought in, it has nothing to do with the general analysis of capital, but has its place in an account of competition, which is not dealt with in this work. It is nonetheless one of the most important factors in stemming the tendency for the rate of profit to fall.” (p240).
But now, according to Smith, all three modes of exploitation of labour are operating, with the third being the most significant in the South, Smith argues, because the imperialist North finds this the best and easiest way to capture surplus value there. In Smith’s view, this development has been ignored, missed or confused by what he call the “Euro-Marxists” who argue that the workers of the North are more exploited than those in the south because they are more productive.
Smith reckons that this confusion arises because of the use of GDP and ‘value-added’ by mainstream economics and accepted mostly without question by Marxist economists. You see, gross domestic product (GDP) hides the fact that much of the value in, say, US GDP is not value created by American workers but is captured through multinational exploitation and transfer pricing from profits created from the exploitation of the workers of the South. GDP confuses value creating with value capture and so does not expose the exploitation of the South by the imperialist North: “GDP as a measure of the part of the global product that is captured or appropriated by a nation, not a measure of what it has produced domestically. The D in GDP, in other words, is a lie.” (p278).
Thus, according to Smith, Lenin’s famous analysis of imperialism one hundred years ago and now often dismissed as inadequate is still right. There are ‘oppressor nations’ and ‘oppressed nations’ and which is which is not determined by just financial power (Norfield) but also by the super-exploitation of the proletariat of the oppressed South on a systematic basis. Thus “On crucial questions—the exploitative character of relations between core and peripheral nations, the higher rate of exploitation in the latter, and the political centrality of the struggles in the Global South—the Marxist proponents of dependency theory were right and their orthodox critics wrong.” (p223).
But why has imperialism developed in such a way that exploitation now takes the form of super-exploitation? It’s partly that in countries with a fast-growing previously rural peasant workforce, authoritarian regimes in the South and powerful multi-nationals from the North were able to overcome the usual social limits on too low wages, working hours and conditions etc so that wages could be held below the value of labour power (the cost of the necessities of life). Also, Smith stresses the suppression of international mobility of labour by the North in contributing to this, as we see only too well in the current migration crisis in Europe.
And it is also a response to the changes (fall) in the profitability of capital in the Northern imperialist economies, particularly from the mid-1970s onwards. Neoliberal policies on wages, public services, trade unions in the North went with ‘globalisation’ of the South as capital in the major imperialist powers experienced a sharp fall in profitability. As my upcoming book, The Long Depression (out in May), will argue, something similar happened in the last period of imperialist expansion and ‘globalisation’ from the 1890s, leading to the export of capital to the South (Latin America, Asia) and growing imperialist rivalry for colonies and colonial profit that culminated in WW1.
It was this that was described by Lenin. But, as Smith quotes Andy Higginbottom, what was inadequate about Lenin’s analysis of the rise of imperialism as the highest stage of capitalism at the end of the 19th century, was not that exploitation is actually less in the South than the North or that there are not really oppressor and oppressed nations any more, but that “Lenin does not theorise imperialism with respect to the rising organic composition of capital or the tendency of the rate of profit to fall. . . . This theoretical incompleteness in the study of imperialism is atypical of Lenin, and stands in marked contrast with his own economic analyses of the development of capitalism on Russia, which are firmly based on the categories of Capital.” (p229).
Smith reckons that Marxist economists of the North in debating the role of Marx’s law of the tendency of the rate of profit to fall make no allowance for international variations in the rate of exploitation (s/v) as well as in the changes in the organic composition of capital (c/v). Well, it may be true that Marxist economists in this debate, like myself, have “ignore(d) the fact that a substantial part of the surplus-value that is captured by firms in imperialist countries and realised as profit was extracted from workers in low-wage countries”. (p248). But we debaters have not ignored overall movements in s/v. Indeed, one of the features of the post-1945 period is that the rate of surplus value has risen in the major economies while the rate of profit has fallen (on a secular basis). In my own work, I have shown this to be the case in the US (US rate of profit revisited) and also in recent work on a world rate of profit that included the economies of the South in the G20 nations like Brazil, Russia, China and India. Esteban Maito has done similar work with similar results (Maito, Esteban – The historical transience of capital. The downward tren in the rate of profit since XIX century).
We are not ignoring the movement in the overall rate of exploitation. Indeed what this work shows is that, although the level of rates of profit are higher in the South, they too have fallen despite rising and higher s/v, whether caused by absolute surplus value, relative surplus value or super exploitation. Here is my calculation of the rates of profit in G7 and BRIC economies over the last 60 years from my recent paper on the world rate of profit using the Penn World tables (Revisiting a world rate of profit June 2015).
Thus the law shows the limits to the long-term future of capital (and imperialism). Indeed, a new book by G Carchedi and myself (out later this year) collates the work of ‘non-Euro’ Marxist economists from around that shows the law of profitability identified by Marx operates just as much in the South as in the North.
Indeed, I am not sure that Smith has proved that ‘super-exploitation’ is the dominant characteristic of modern imperialism. As Smith shows, imperialism of the 19th century also relied on super-exploitation of the masses in the colonies (to the level of slavery) and that, in the industrialisation of imperialist countries like Britain in the late 18th and early 19th century, driving wages below the value of labour power was a powerful factor in the exploitation of labour (see Engels on The condition of the working-class in England).
For that matter, super-exploitation is visible in the imperialist economies too. ‘Zero-hour’ contracts, where workers are at the beck and call of employers at all hours for minimal pay, now affects two million workers in Britain. Across southern Europe, where youth unemployment rates are around 40-50%, young people are forced to live with their parents and earn pitiful amounts in low wage retail and leisure jobs. And the data show that poverty has risen for the bottom 10% of households since the 1980s in the North (including the US).
And the other side of the coin is that, alongside super-exploitation, there is also exploitation of the proletariat of the South through absolute surplus value and through the latest technology to save labour (relative surplus value) just as there was in the development of industrial capitalism in the 19th century onwards. Foxconn may super-exploit its workforce, but it also employs the latest technology. This is a feature of what Trotsky liked to call the combined and uneven development of capitalism in the imperialist epoch.
And it is in this debate on the relation between Marx’s law of profitability and the causes of economic crises that are now global under modern imperialism that I am not quite sure where Smith stands. He says, correctly I would say, that “Whether or not the rate of profit is increasing or declining, what matters is whether the total mass of surplus value is sufficient to reward all those with claims on it.” Yes, so the total mass of surplus value regularly gets insufficient due to Marx’s law operating. And when the mass of profit falls, it won’t be long for investment, employment and incomes to fall in a slump.
In his final chapter on the causes of crises, Smith firmly dismisses the idea that is prominent among mainstream and heterodox economics alike that the global financial crisis and the Great Recession were financial in origin. Alternatively, he suggests that the crisis was postponed by the shift to the South by imperialist combines because of ‘overproduction’ in the North. But the concept of ‘overproduction’ covers a multitude of sins. In Marx, overproduction of commodities is the result of over-accumulation of capital, but over-accumulation of capital is the result of falling profitability and profit (absolute over-accumulation).
As Smith so brilliantly shows, capital in the North restored much of the fall in its profitability suffered in the 1970s on the back of the super exploitation of the South: “surplus-value extracted from these new legions of poorly paid workers helped to dig the capitalism system out of its hole in the 1970s”. Increased debt, as Smith notes, added to the final crisis so that it took a financial form. As Smith says, “Exponentially increasing indebtedness succeeded in containing the overproduction crisis, but it has brought the global financial system to the point of collapse.” For this sentence, take the word ‘overproduction’ out and replace with ‘profitability’.
There may well be more room for imperialism to exploit the proletariat globally and so counteract falling profitability again, for a while. There are still reserve armies of labour from the rural areas in many countries to be drawn into globalised commodity production (and yes, often at below-value wages). But there are limits to the ability of imperialism to raise the rate of exploitation indefinitely, not least the struggle of this burgeoning proletariat in the South (and still substantial numbers in the North).
Marx’s law of profitability has not and will not be counteracted indefinitely even with super-exploitation. The law of profitability and the struggle of the global proletariat are imperialism’s Achilles heels.