Smith charges Harvey and Brenner, among others, with underestimating that the “highly competitive low-cost producers” (Brenner) was a result of the drive of firms in the imperialist economies to cut costs by replacing relatively expensive domestic labor with cheap labor from the South. Underestimated, moreover, is the fact that overcapacity in the labor-intensive production processes of the South helped the imperialist economies to contain the tendency toward overproduction insofar as production costs in low-wage countries in the South were reduced to the point where international markets could continue to grow and high profit margins could be maintained.
It would also have to be taken into account that the different value of labor power and the differences in the productivity of labor in the various countries cannot be summarized as a single phenomenon, but represent two different dimensions of the imperialist capital-labor relationship and must therefore be separated from each other, because otherwise one introduces marginalist notions of productivity and reduces wage differentials to differences in productivity. Rather, the .value of labor power is much lower in the global South and therefore the rate of surplus value is much higher than in the imperialist countries.
Smith summarizes again at this point: On the one hand, it is necessary to consider global labor arbitrage, and on the other hand, the existence of a massive global reserve army that makes this world system of extreme exploitation possible. Labor arbitrage involves the exploitation of lower wages abroad, especially in poor countries. So it is an unequal exchange process. It is this super-exploitation that is behind much of the expansion of production in the Global South. The fact that this has been the basis for the rapid economic growth of some emerging economies most notably China does not change the reality that enormous imperial rents have been created for multinational corporations and capital at the center of the system.
That exploitation now takes the form of super-exploitation is, according to Smith, in part because in countries with a rapidly growing, formerly peasant labor force, authoritarian regimes in the South and powerful multinational corporations from the North have been able to overcome the usual social limits on excessively low wages, working hours and conditions, etc., so that wages could be kept below the value of labor power (the cost of the necessities of life). In addition, Smith emphasizes that the North’s suppression of international labor mobility also contributed.
Thus, by shifting the production of certain goods to less developed and emerging countries, the cost of producing them is reduced precisely because wages there remain exceptionally low. The inexhaustible dynamism of cheap labor is thus, according to Smith, the key factor in the shift of production to the global South. It is also facilitated by the decomposition of the production process into individual operations through the introduction of new technologies. Many of these operations can be performed by non-specialized labor. And developments in transportation and communications make it possible for the entire production process to be distributed among a larger number of countries.
The objection to Smith here, on a general level, is that what matters to capital is not primarily the expansion of the market for consumer goods, and hence the level of wages, but primarily the expansion of productive and financial capital valorization, and therefore the money-capital circuits as a whole must also be examined on an international scale.
Certainly, super-exploitation is also not the only dominant feature of modern imperialism. As Smith himself shows, 19th century imperialism also relied on the super-exploitation of the masses in the colonies (to the point of slavery), and he shows that in the industrialization of imperialist countries such as Britain in the late 18th and early 19th centuries, the reduction of wages below the value of labor was a powerful factor in the exploitation of labor.
Moreover, super-exploitation is also visible in imperialist economies; think of zero-hour contracts, where workers are available around the clock at a minimal wage. Across southern Europe, where youth unemployment is 40-50%, young people are forced to live with their parents and earn pitiful sums in low-wage jobs in retail and leisure industries. And the data also show that poverty for the bottom 10% of households in the North (including the U.S.) has increased since the 1980s.
The theory of super-exploitation is not based on the assumption of a single global value of labor. The notion of a single global value of labor power negates the difference between the national and international dimensions. On the other hand, if one accepts the argument that there are as many labor values as there are nations, then super-exploitation could simply be defined as national rates of exploitation that are higher than the global average. Ultimately, multinational corporations shift production to where the rate of profit is higher than where it is lower, thereby making greater profits.
Smith also takes issue with the theories of Bettelheim and Amin. Charles Bettelheim, for example, in his critique of Arghiri Emmanuel’s Unequal Exchange, argued that the more the productive forces are developed, the more the proletarians are exploited. Low wages correspond to certain socioeconomic structures with a low level of development of the productive forces and a low organic composition of capital. However, they are ultimately determined by the overall structure of each specific social formation. For Bettelheim, the term “exploitation” refers to certain class relations of production that relate to a specific social structure in the context of each specific country.
Samir Amin tries to justify the theory of unequal exchange with the help of his theory of accumulation on a global scale. According to this theory, the polarization of wage levels that characterizes the global capitalist system arose from the different types of development followed by the metropolis and the periphery. This implied the recognition that wages are not an “independent variable.” The high wages are the result of the development model followed in the center, the model of “auto-centric” development. Correspondingly, the low wages of the periphery are the result of the model of “extraverted” capital accumulation and development imposed on the periphery by imperialism. In other words, unequal exchange is not so much a cause as an effect of Third World deformation and underdevelopment. Thus, according to Amin, in an auto-centric system, the simultaneous existence, close interdependence, and parallel development of the sector producing goods for mass consumption and the sector producing capital goods is assumed. For this reason, he concludes, accumulation requires a constant expansion of the internal market and, therefore, of wages, on which the expansion of the market for consumer goods depends. In contrast, development on the periphery does not require expansion of the internal market and hence of wages because the system is extraverted. Thus, while in the context of metropolis-periphery theories of imperialism a singular value of labor power is assumed to be equal to its global value, according to Amin two different prices are charged for labor power, one above value and the other below. The polarization of wages then gives rise to unequal exchange according to the scheme formulated by Emmanuel. Bettelheim had opposed the theory of the international value of labor power underlying Amin’s analysis: “The law of value […] tends [… ] to reproduce the specific conditions of reproduction of each of the various social formations, which means that the level of wages ‘proper’ to each social formation cannot be determined by the ‘world level of the development of the productive forces’ (which, in a world system composed of various and opposed social formations, is merely a false abstraction), but that it is fundamentally linked to the specific combination of productive forces and relations of production. “
Since this debate first raged, the neoliberal era and its decisive transformation of the globalization of production, has for Smith fatally undermined the argument of the Marxist critics of dependency theory. It cannot be seriously argued for Smith that the global shift of production to low-wage countries is of peripheral importance.
The thoroughly Marxist argument that higher productivity in the North also means that higher wages are consistent with higher rates of surplus value is constrained for Smith by a simple fact: As we already know from labels, the consumer goods consumed by workers in the North are no longer produced exclusively or mainly in the North; they are produced to an ever greater extent by low-wage workers in the global South. Their productivity, their wages, essentially determine the value of the basket of consumer goods that reproduce the labor force in imperialist countries. Again, Smith narrows the question of capital accumulation to the consumer goods sector.
Smith goes on to write, here against his own intention, that the value and surplus value produced by an hour’s labor is completely independent of its productivity and the organic composition of the capital by which it would be employed. This must be contradicted. Assuming the constancy of real wages, total labor time, and commodity sales, every increase in productivity leads to a decrease in the value of commodities per unit of product and to an increase in the rate of surplus value. At the same time, however, the problem of the surplus-value mass must be taken into account. In this context, the surplus value mass incorporated in the individual commodity is subject to two opposite tendencies as a result of the increase in productivity: On the one hand, it decreases in proportion to the general decrease in the value of the individual commodity; on the other hand, it increases in proportion to the increase in the share of surplus value in the total value of the individual commodity. The surplus value produced by individual capital results from the multiplication of the surplus value incorporated in the individual commodity by the material volume of production, which can increase enormously despite a low input of living labor, consequently also the total value mass of capital.
In his argument with Ernest Mandel, Smith once again discusses the importance of unequal exchange for modern imperialism. In his book Late Capitalism, Mandel attempts to develop a theory of unequal exchange that does not result from higher rates of exploitation in dependent, semi-colonial nations. To be sure, Mandel recognizes that surplus profits arise when it is possible to push the price paid for labor power to a level below its social value, or, what is the same, when it is possible to buy labor power in countries where its value (average price) is lower than its value (average price) is in the country where the commodity is sold more expensively. Later, he speaks of “great international differences in the value and price of the commodity labor power,” which gives the impression that the issue is a higher rate of surplus value in the underdeveloped country. Yet Mandel held the strictly orthodox view that there is “a lower rate of surplus value in underdeveloped countries” than in imperialist countries, with all his results coming from very different organic compositions of capital. What Mandel wanted to show was that transfers of value associated with unequal exchange result only from differences in organic composition, just as between different branches of production within countries.
In his book Rethinking Imperialism, Milios/Sotiropolous pose the important question of how to explain the fact that the percentage of international capital movements flowing to the global South still remains relatively small compared to the respective shares flowing within developed capitalist countries. Moreover, the emerging economies that attract foreign direct investment and other forms of capital investment at a high rate are characterized by processes of rapid economic development (China in the current historical period, countries of Southeast Asia such as Taiwan and South Korea in the 1980s and 1990s). These are countries that are succeeding in narrowing or, in some cases, closing the development gap between themselves and more advanced countries. This empirical evidence not only puts into perspective what can be called Smith’s super-exploitation approach, but also the capital surplus approach of classical imperialism theories, which has been preserved in modern approaches. Finally, it also challenges the main hypothesis of the “unequal exchange” approach, namely, that there is a tendency toward a uniform rate of profit in the world economy. It is worth recalling at this point that (a) in industrialized countries, according to the capital surplus approach, the volume of capital destined for accumulation increases rapidly, while investment opportunities shrink, so that capital must be exported, while (b) according to the extra-profits or super-exploitation approach, low-developed low-wage countries become a source of extra profits by lowering the cost price of industrial products, so that these countries are more likely to attract international capital movements.
The reality, however, is more nuanced in that most FDI still takes place between developed countries themselves or between them and emerging economies. In any case, the comparatively low participation of developing countries in global flows of direct investment at least refutes the thesis of some center-periphery theories, namely that the development of capitalist industrialized countries originates in Third World countries.
Not only does it betray an ignorance of the conditions for the extended reproduction of capital, but it also contradicts the empirical data on the industrialization of the countries of the periphery, which show that industrialization there was primarily linked to the domestic market. Thus, contrary to the assumptions of the theories of the periphery, the industrialization of the Third World proceeds mainly in relation to the internal market as an endogenous process of capitalist accumulation. The dynamics and extent of this process depends on the particular social formation and is determined by it primarily on the basis of the internal correlation of class forces, social relations of domination, etc. The improvement of the competitive position of certain countries in the international market is connected with the development of the class struggle in them, i.e. with the degree of penetration of the capital relation, the increase of the share of surplus value, etc. Only under such conditions is it possible for the level of wages to become a factor in international competition.
Since the end of the 19th century, a number of “agricultural” countries (mainly in Europe) joined the ranks of the advanced capitalist countries through a radical reorganization of their social and productive structures. At the same time, there was a profound change in the international balance of power among the imperialist countries, both economically and politically. If the share of foreign investment in the less developed countries remains at a low level, it is because the productivity of labor and, above all, from the point of view of capital, the rate of profit in these countries remains much lower than in the “center.”
Smith, on the other hand, thinks that Marxist economists, in their discussion of the role of Marx’s law of the tendency of the rate of profit to fall, pay too little attention to the international fluctuations in the rate of surplus value and to the changes in the organic composition of capital (c/v). It ignores the fact that a substantial part of the surplus value realized as profit by firms in imperialist countries is extracted from workers in low-wage countries. In fact, the level of profit rates in the South was once higher, but has also fallen again despite rising and higher surplus value rates.
One of the effects of the change in the functioning of competition in the world market is to allow (among other causes) a reproduction of the differences in the rate of profit and the productivity of labor between different countries: the elimination of extra profits through the mechanisms of exchange rates reduces competitive pressures and allows the reproduction of different national rates of profit. It is important to note that the “cross-investment” between the developed industrial countries, with the continued marginalization of the poor countries, has not completely disappeared. Capital movements to the poor countries of the global South remain manageable because, contrary to the assertion of the theory of unequal exchange, the rate of profit in these countries remains at low levels internationally, and the theory of unequal exchange presupposes an oversimplified scheme of international specialization that envisions two absolutely distinct groups of countries, each producing goods that the other cannot competitively produce. In reality, developing countries import and export goods of all kinds to and from developed countries, albeit to varying degrees (UNCTAD, ibid.).
The export of capital from a country with higher labor productivity to a country with lower labor productivity has two consequences: On the one hand, the accumulation process in the capital-importing country is accelerated, which generally re-enforces the tendency of the aggregate rate of profit to contract in that country. On the other hand, the repatriation of part of the profits to the capital-exporting country leads to an increase in the rate of profit in that country. This, in effect, leads to a reduction in the differences between the total profit rate of the more developed capital-exporting country and the profit rate of the less developed industrialized country that imports capital. We should keep in mind that this is a process that affects only the developed capitalist countries and emerging economies. In contrast, the least developed countries continue to play a marginal role in international capital movements and thus in the international tendency to equalize national rates of profit. We should also bear in mind that this international tendency to equalize the rate of profit is in all cases a much weaker process than the corresponding process (elaboration of a general rate of profit) within a unified social formation. It would be objected to Smith that it is not only the low wages in the less developed countries, but also the productivity of labor and the profitability of investment (the rate of profit in a country), as determined by total production and social relations, which, in turn, decide the direction of international trade and capital flows. Moreover, the organization of each social national capital at the level of its own nation-state, expressed, among other things, in the existence of a specific national currency for each country (the absence of a single international currency for all countries), as well as the persistence of protectionist economic policies that restrict international trade, preclude the formation of international prices of production and, therefore, the formation of an international general rate of profit at the level of the world market. The rate of profit therefore varies from country to country and is subject to a process of equalization only among the developed capitalist countries on the basis of constantly growing volumes of international investment. This process is reinforced by the rapid growth of the globalized financial sphere. The underdeveloped countries, on the other hand, are on the lower rungs of the international hierarchy of profit rates, due to the weakness of capital’s control over pre-capitalist and pre-industrial social relations, on the one hand, and over the working classes, on the other, resulting in consequently low productivity of labor in these countries. The underdeveloped countries are therefore weakly integrated into international trade and only marginally involved in the movement of capital.
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Foto: Bernhard Weber