Reviewed by Bill Jefferies
John Smith’s Imperialism in the Twenty-First Century was the Inaugural Winner of the Paul A. Baran – Paul M. Sweezy Memorial Prize. According to the back cover blurb at least, it is a “seminal examination” of the relationship between the core capitalist countries and the rest of the world in the age of neoliberal globalization.” It shows how modern day imperialism exploits oppressed nations through transfer pricing or what Smith calls “global labor arbitrage”. Output is produced at very low prices in the global “South” and then sold at much higher prices in the developed “imperialist” North. The value added is credited to the selling, not the producing nations, and so the transfer of wealth is hidden in official statistics. Explaining this is the “central task” (15) of the book.
Smith begins by tracing the production and consumption of three iconic global commodities, the T-shirt, iPhone and coffee. Smith considers that low wages in the South enabled imperialist governments to appropriate taxes from them and is to the benefit of the workers of the Northern countries. He quotes Tony Norfield “wages rates in Bangladesh are particularly low, but even the multiples of these seen in other poor countries point to the same conclusion: oppression of workers in the poorer countries is a direct economic benefit for the mass of people in the richer countries.” (14). Low wages make big mark ups to the tune of 700% for a football shirt, 718% polo shirt and 1800% Hermes shirt (15). The demands of monopsonies, dominant single purchasers like Walmart or Apple, mean that margins further down the supply chain are thin as there is fierce competition and the “fear of undercutting strong” (16). Smith illustrates this with the utterly disproportionate wage bill for Apple’s iPod where 13,920 US workers are paid $719 million while 12,250 Chinese workers are paid $19 million (28). The extent of value transfers in trade is concealed through double counting, that is the import and re-export of intermediate products, parts and supplies, this account for 28% of gross exports by value, or $5 trillion of the $19 trillion of global trade (43). It accounts for more than half of China’s exports (43). The development of these global trading networks has weakened labor and led to rising income inequality. Smith’s examination of them is very interesting and enlightening.
This has been offset somewhat as “falling prices of clothing, food and other articles of mass consumption protects consumption levels from falling wages and magnifies the effect of wage increases (45). Smith cites Broda and Romalis who claim that this “beneficial price effect can potentially more than offset the standard negative relative wage effect” (45). The purchasing power of wages rises even as their value falls, but he does not seem to notice that this contradicts his claim that wages are paid below the value of labour power.
Smith notes that in 2010, 79 percent, or 541 million, of the world’s industrial workers lived in “less developed regions”, up from 34% in 1950 and 53% in 1980. Compared to 145 million industrial workers, or 21 percent of the total, who in 2010 lived in the imperialist countries (101). Smith’s estimates of this shift grossly underestimates the scale of the real change. In 1980 China and the Soviet Bloc were not market economies. The transition of the centrally planned economies to the market, was the pre-requisite for globalisation and explains the scale of the transformation to the world economy that resulted from globalisation. It is missing from Smith’s analysis. Indeed Smith quotes IMF per capita GDP figures at the beginning of his piece from 1980 to 2014. These figures claim to show that the production of national income has become more concentrated in the Global North during this period, but they are wrong. There was no national income produced in the centrally planned economies, as “market production defines GDP” (254). The IMF figures do not account for the transition of these non-capitalist economies to the market, so they misrepresent the expansion of national income outside of its traditional Western heartlands.
Smith points out that the shift of production to the global South has undermined industry in the global North, such that “Mexico had overtaken Canada to become the source of 48 percent more automotive value-added than the United States’ northern neighbour – a striking indication of how the global economic crisis has accelerated the southward shift of production” (48), but the shift of production to the South, was not a consequence of global economic crisis, but occurred during the heyday of globalisation. If anything this trend has slowed since the recession of 2008. Smith points out the expansion of employment in dedicated Export Zones. Asia has 900+ zones which employed 53 million workers, 40 million in China and 3.25 million in Bangladesh (55). This explains the growth of manufacturing and trade in the South. Services in contrast are “inherently labor-intensive and cannot easily be mechanized, resulting in what appears to be stagnant or even falling levels of labor productivity in the service sector (64)”.
Smith contests the notion that higher wages reflect higher productivity and that foreign direct investment (FDI) flows are dominated by the Global North. He quotes Alex Callinicos, who expresses this view, claiming that FDI flows are “indicative of the judgments of relative profitability made by those controlling internationally mobile capital: these continue massively to favour the advanced economies” (72). Smith points out that most FDI in the North is mergers and acquisitions, not investment in new capacity but changes in titles of ownership. FDI in greenfield sites is overwhelming directed at the emerging markets, 2003 to 2014 $5.9 trillion was invested in developing economies compared to $3.3 trillion developed (73). The ability to limit technology transfers means that, although China’s is now dominant in some sectors overall Smith considers, “China’s manufacturing is no more a threat to the supremacy of US TNCs [transnational corporations] than are the maquiladoras along the U.S. –Mexican border” (84). As prices are cheaper in developing economies, and as investment from revenues raised in an economy is hard to measure, this certainly understates the scale of the mismatch. Rates of return for FDI are twice as higher in developing countries as in imperialist countries (78). This is a welcome correction to the emphasis of Smith’s “Euro-Marxists”, who continue to emphasise the importance of the West over the South, as if nothing had changed with globalisation.
Smith quotes Deepak Nayyar to claim that “since 1970 international migration has slowed to a trickle because of draconian immigration laws or restrictive consular practices” (109). Smith states that this assessment “flatly contradict(s) widespread perceptions in imperialist countries, fanned by xenophobic politicians and mass media, of an explosive growth in their numbers” (109). He continues “the true picture is more nuanced” (110) as a “total of 64.2 million migrants from Southern nations lived in imperialist nations more than double the 28.6 million who had migrated north by 1990” (110). Former Comecon nations that are not included in Smiths category of “South” accounted for a further 13.5 million migrants to Europe by 2013 and 2.3 million to the USA” (111), making a total of around 80 million migrants, a number much larger than a “trickle”.
Smith provides a sophisticated critique of purchasing price parity (PPP) measures, discussing both their strengths and weaknesses, and making some pointed observations about the myth of the standard basket of goods. He points out how profits are concealed as labor income or wages, through executive remuneration and sports-star pay, this conceals the impact of income inequality on per capita wage estimates and means that average living standards can overestimate the wages of the poor and hides “the reality of stagnant or falling wages received by many average and low paid workers” (134). But this reality is asserted rather than proven. Smith has no alternative sources of empirical data to prove that wages have been falling. Certainly PPP measures may not adequately measure changes in living standards for the poor, but that does not mean that their living standards have been falling. Indeed this is probably not true. The physical quantity of stuff that the workers wage can pay for has increased, even while its value, the cost of reproduction of labour power has fallen. Calories per capita have risen, life expectancy has increased, literacy rates grown, infant mortality has fallen, consumption of hi-tech gadgets, clothes and transport has increased. Smith claims that “necessary labor is not reduced through the application of new technology” (238), consequently if the value of wages is falling then wages must be falling too. This is the “third element reducing wages below the value of labour power” (239) “forcing down the value of labor power” such that “the third form of surplus value increase is now the increasingly predominant form the capital labor relation” (250), but rising productivity means that the purchasing power of wages has risen even while inequality has increased. This material improvement in the living standards of workers is the principle objective reason for the decline in class struggle.
Smith examines how the rate of surplus value has increased under globalisation, and follows Felipe and Kumar in explaining that “unit labor costs calculated with aggregate data are no more than the economy’s labor share in total output multiplied by a price effect” (182), this underpins the “rate of surplus value otherwise known as rate of exploitation” (196). Smith takes no account of the turnover time of capital that differentiates the rate of surplus value from the annual rate of surplus value. Unit labor costs when aggregated will reveal the proportion of value added paid in wages, but this is much lower than the rate of surplus value, as this must be deflated by the turnover time of capital. The annual rate of surplus value is therefore, much higher than the rate of surplus value, and as turnover times have accelerated during globalisation, so the difference has widened.
Global labor arbitrage is Smith’s alternative term for unequal exchange. It shows how value is transferred from low cost producers at the bottom of the value chain to the top of it. Smith asserts that this concept is “more useful and concrete than any of the core concepts so far developed by value chain analysts” (198). But is it more useful and concrete than unequal exchange? Smith has an interesting discussion of the debate around dependency theory, assessing the work of Amin, Wood, Harvey, Brenner, and the dependency theorists. The discussion jumps around, which makes it hard to follow, with some repetition. Essentially Smith argues that Euro Marxists have underestimated or ignored the hidden value transfers in trade, and in so doing, underestimated the key foundation of modern imperialism. He discusses Lenin’s book Imperialism criticising it for not applying Marxist categories. He notes that the “export of capital” a key component of Lenin’s definition of finance capital has been “replaced by transfer pricing, use of agents, sub-contractors etc.” (233). Monopolies do not primarily export capital to extract super-profits but use unequal exchange in trade. This is Smith’s central argument and is well made. He nonetheless concludes that we “need new theory that combines economic essence monopoly with political essence oppressed and oppressor nations” (233), but he does not say what the new theory is.
Smith asserts that “commodity” i.e. raw materials exporters, “suffer deteriorating terms of trade with manufactured goods exporting rich nations” and that this “severely reduces or cancels altogether the benefits of comparative advantage for primary commodity exporting countries” in so doing “perpetuating their underdevelopment and widening the gap with developed countries”. This fact provides an unassailable empirical basis for theories of unequal exchange, a core component of dependency theory” (208). If this is the empirical basis for his theory it is far from unassailable. Terms of trade have shifted with the rise and fall of raw materials prices, which soared between 2000 and 2008. The rich nations are no longer the major exporters of manufactured goods, but maintain their dominance through transfer pricing, agents and sub-contractors. Smith has a point but over-generalises it.
The book concludes with Smith’s analysis of “Capitalism’s Final Crisis”. He claims that “with the imperialist economies now heading into prolonged stagnation or worse, the crisis of overproduction that last reared its head in the 1970s is now set to return” (203). Indeed “the unfolding global crisis … is still in its early stages, will endure for decades, is inescapable, and inevitably leads to war and revolutions” (279). This is manifested in a capitalist “investment strike” which is “real, it is massive, it predates the crisis, and it has widened since the crisis” (293). Smith’s argument rests on relatively low levels of investment as a proportion of GDP in the developed economies. But is this a global investment strike? Not on any sensible assessment. Levels of investment are similar to those of the 1950s. The reasons they have fallen is a consequence of two factors, the cheapening cost of machinery, which has fallen in real terms by around a quarter since the mid-1990s, and the shift towards services in the Western economies. Service industries have a lower composition of capital than manufacturing and so require less investment. In China, which invests more than the US and Europe combined, investment remains very high, even if it has fallen slightly from its peaks. Smith attempts to bolster this assertion with the claim that “the interest rate is the cost of money capital … it is related to the broadest definition of the rate of profit: the ratio between the total mass of surplus value and the total quantity of capital. Its descent to historically low levels is therefore a sign of deepening crisis of profitability, which is a different way of saying a crisis of capitalism” (285). But the interest rate has no necessary relationship with the rate of profit. As the interest rate is the price of money, so it is affected by the supply of money, the abundance of profits. If there is a relationship then low interest rates imply abundant money and so high rates of profit. Smith may claim that “the global economic crisis is far from over, and is now set to engulf the entire developing world”(301) and that “the eruption in 2007” was “the deepest and most profound crisis in capitalism’s history” (310) and that “from here then, all roads lead to crisis” (315). This is a triumph of hyperbole over experience.
The central argument of Smith’s book is that value is siphoned from “Southern” nations to the “West” through unequal exchange or “labor arbitrage” hidden in value chains. His analysis of this process is strong and convincing, but the power of this message is undermined by other elements of the book discussed above.
22 April 2016