One reason why transnational corporations increasingly prefer to externalize their business activities to independent firms is that this forces them into intense competition with each other, which is then an effective way to depress wages and intensify labor. Another incentive to “deverticalize,” that is, to move from a vertical parent-subsidiary relationship to a horizontal contractual relationship between formally equal partners, is to abdicate direct responsibility for pollution, poverty wages, and union suppression. Smith cites the example of Coca Cola in Colombia, the center of the Latin American soft drink empire, where the food workers’ union, SinalTrainal, accuses the company’s management of collaborating with death squads that have murdered nine union members and leaders and forced many others into exile since 1990. 80% of Coca-Cola’s workforce is now made up of non-union temporary workers, and wages for these individuals are only a quarter as high as the wages earned by their unionized counterparts.
Smith points out that today many of the higher profits generated by outsourcing are not invested in production, but are used to leverage assets through stock buyback programs or are invested in financial markets to generate speculative profits, furthering the financialization of imperialist economies. In summary, Smith identifies four reasons why outsourcing firms might prefer an “arm’s-length” relationship with their low-wage suppliers over direct investment: 1) Foreign investors often pay higher wages than domestic firms. 2) People shift responsibility for all sorts of processes to companies in non-developed countries. 3) Transferring risks. 4) Avoiding direct investment in favor of what UNCTAD calls a “non-equity mode,” which in turn frees up funds for large corporations to invest in financial markets or to finance acquisitions and share buybacks.
A striking feature of the imperialist world economy is that Northern firms compete not with Southern firms but with other Northern firms, including for who can outsource production to low-wage countries most quickly and effectively. Meanwhile, countries in the South are competing fiercely with each other to maintain their market position. Apple competes with Samsung, but not with FoxConn or Taiwan Semiconductor Manufacturing Company (TSMC) and its other suppliers. The imperialist firms’ relationship with their suppliers is therefore complementary, not competitive, even if it is structured very unequally. Smith states that China is not a threat to Japan’s core industries at the moment; on the contrary, outsourcing labor-intensive manufacturing tasks to China has benefited many Japanese firms. However, that could change.
But even in the apparel sector, where the global shift of production to low-wage countries is most advanced, low-cost producers have not completely disappeared from imperialist countries, and residual competition with firms in low-wage countries remains Finally, we must expect increasing competition between imperialist firms and firms in China, South Korea, and Taiwan and elsewhere that are beginning to compete with Western firms for strategic and/or higher-value products. A prime example is China’s rapid rise in the production of solar cells and wind turbines. Another example is the rise of Chinese civil engineering groups, which now regularly undercut their European and North American competitors in bidding for railroad, port and power plant construction.
There is a level of complexity in world trade and capital exports that means that richer countries are the main exporters of the more complex products, while poorer countries are the main exporters of the less complex products. This also means that poorer countries’ exports consist primarily of products that come from labor-intensive production processes, which in turn can mean that the benefits of increased export volume are more than offset by losses due to lower export prices.
Smith goes on to mention “upgrading,” the gaining of a greater share of the total value of the finished good by switching to higher value-added production processes. Absolute upgrading occurs when “value added per worker employed” rises faster than the value of exports; if value added per worker rises less than one-quarter as fast as exports, then no upgrading occurs. The value of exports, in turn, rises faster than domestic value added per worker when there is an increase in the import composition of those exports or diminishing returns. Smith points out that in a 1999 sample of thirty developing countries from three continents, not a single country achieved absolute upgrading, and only nine of the thirty countries experienced weak upgrading.
In the next chapter, Smith notes a growth in the world proletariat since the 1980s. This quantitative growth is indicative of a qualitative change, insofar as the industrial workers of the global South are now also much more integrated into the world economy. The IMF attempts to capture this qualitative change by constructing an “export-weighted global labor force,” indicated by the growing ratio of exports to GDP. Since processed exports from the South grew more than twice as fast as gross domestic product in the 25 years before the 2007 financial crisis, the IMF calculates that the “effective global labor force” quadrupled between 1980 and 2003. Thus, while the industrial working class of the global South has experienced spectacular growth since 1980, its share of the total workforce of the global South has been much more modest; it rose from 14.5% in 1980 to 16.1% in 1990, to 19.1% in 2000, and to 23.1% in 2010 (by comparison, the industrial share of employment in imperialist nations fell from 37.1% in 1980 to 33.2% in 1990, to 27.2% in 2000, and to 22.5% in 2010).
The world’s “economically active population” grew from 1.9 billion in 1980 to 3.1 billion in 2006 and is now 3.5 billion. This was by no means solely the result of global population growth, but a consequence of the deepening of global capital accumulation and markets. Almost all of the numerical growth in the labor force has occurred in emerging markets, which now account for 84% of the global labor force. 1.6 billion people work for various forms of wages, largely precarious, and more than a billion are small farmers and, most importantly, a large number of people working in the highly fragmented “informal economy.”
For Smith, the vast low-wage proletariat that has emerged in the global South over the past 30 years is key to understanding the movement of profits in imperialist countries. In 2010, 79% 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 the 145 million industrial workers or 21% of the total population living in imperialist countries in 2010. For workers in manufacturing, this shift is even more dramatic. Today, 83% of the world’s industrial workforce lives and works in countries of the Global South.
There are analogies here to the rural exodus and the growth of the urban working class in Europe in the 19th and 20th centuries, but there are also important differences, probably the most far-reaching and significant of which is that the free movement of workers across oceans that characterized the 19th century has become increasingly subject to restrictions. Between 1850 and 1920, there were few restrictions on the mobility of people across national borders-passports were rarely needed and immigrants easily obtained citizenship-about 70 million people emigrated from Europe, 36 million of them to the United States, 6.6 million to Canada, 5.7 million to Argentina, and 5.6 million to Brazil. They settled on land that had been cleared by the genocide of indigenous civilizations. Now, if the same proportion of people had emigrated from the Global South since World War II that left Europe between 1850 and 1920, 800 million people would have moved north, increasing the total population of more developed countries by 70%. But instead, only 0.8% of the labor force migrated from developing countries to work in developed countries. A powerful argument against the rampant racism and xenophobia that is again rampant in Western populations today.
The European urban-industrial revolutions were thus unable to absorb the entire supply of displaced rural labor, and mass emigration was a dynamic safety valve that prevented the rise of mega-cities in Europe. Today, by contrast, surplus workers from the global South face unprecedented obstacles in emigrating to rich countries in the global North.
And yet, the picture is more nuanced. In 2013, for example, a total of 64.2 million migrants from southern nations were living in imperialist nations, more than double the 28.6 million who had migrated to the North by 1990. In the process, a large portion of the highly skilled labor force from the South joined the “brain drain” in the North and was able to integrate. For virtually all countries of origin from the global South, the emigration rate of high-skilled workers exceeds the overall emigration rate. Thus, while the emigration of low-skilled workers has a rather small impact on the enormous labor surplus of the Global South, the migration of high-skilled workers harms the South’s health and education systems and its aspirations for sovereignty and social development.
Instead of migrating, the surplus population of the Global South has concentrated in “planets of slums,” as Mike Davis has documented in his book of the same name, where hundreds of millions of people live in total squalor. It is only partly attributable to a permanent and massive reserve army of labor; a large part works as a surplus proletariat without any connection to official labor markets in the informal economies. The spectacular growth of urban slums is also a result of the depth of the rural crisis. As Mike Davis notes, urbanization in the global South continues its breakneck pace, despite falling real wages, rising prices, and skyrocketing urban unemployment.
Theorie Communiste (TC) today speaks of three zones in the capitalist world market: 1) The hyperzones of capital with high levels of functioning in labor markets and places of production (finance, technology and research). 2) Secondary zones with intermediate industries and technologies (logistics and communication). 3) Crisis zones of informational industries with low-paying work or zones where no work is done at all. While capital production is unified across the zones, this is not at all true for the reproduction of labor. In the first zone, high-paying wage labor with private risk protection meets work in which certain aspects of Fordism are preserved, while other workers struggle with precarious conditions. In the second zone, precarious, low-paid work is the norm, mixed with islands of contract-paid work, migration, and lack of social risk protection. In the third zone, the survival of the proletariat depends on humanitarian aid, illegal trafficking and mafia structures, agriculture, but also small communities. This must be understood as a volatile and porous process, permeated by constant migrations of the proletariat and restructuring by capital.
The informal sector in the economy was first defined by the ILO in 1972 and, according to this definition, includes all activities that are “unrecognized, unregistered, unprotected, or unregulated by the authorities.” The informal economy is not regulated by the state insofar as there is no taxation, workplace inspection, etc. Informal workers are not recognized by law and therefore receive no legal or social protection and are unable to enforce contracts. While the state is not entirely absent, it has retreated to primitive forms, to coercion and parasitism. Moreover, the informal economy fosters state corruption, replacing taxes with bribes and protection money, and the rule of law with cooperation between police and gang leaders to maintain control over slum neighborhoods and protect market monopolies. Economic elites and state authorities in southern countries actively promote the expansion of the informal economy, and do so in conjunction with their efforts to make the formal economy more flexible.
The informal sector, especially small businesses, accounts for a larger share of output and employment than was thought in the 1950s and 1960s. For example, Smith notes with Mike Davis, since the 1980s, employment in the informal sector has grown two to five times faster than employment in the formal sector, establishing pure survivalism as the primary new mode of living in the majority of cities in the global South. What is truly modern, then, is not universal progress toward prosperity and the rule of law, but an accelerated descent into informality, precarity, and pure superfluity. Instead of upward mobility, for part of humanity there is only a downward staircase by which laid-off formal sector workers and laid-off public employees descend into the informal economy, and not only in the global South. This trend has picked up speed in imperialist countries as well, and has received a huge new push since the 2007 financial crisis. For Smith, the growth of the informal economy not only coincided with the onset of neoliberal globalization, but was spawned by it through a rapid transition from import protection and state regulation to the new export-oriented laissez-faire regime. As the ILO notes, “it is now widely recognized that the stabilization and structural adjustment policies of the 1980s and 1990s, which led to growing poverty, unemployment, and underemployment in many countries, contributed to the spread of the informal economy.”
In this context, flexibility and informality are closely related. The condition of informal labor allows capitalists to cut costs and increase flexibility, including through forced overtime, extended layoffs, and the absence of regulations and legal protections, transferring risks and the costs of adjusting to demand to workers. Smith points to increasing flexibility in the manufacturing industry, the goal of which is to enable shorter production runs.
Mike Davis writes, “Of course, some of the informal proletariat is a silent labor reservoir for the formal economy, and numerous studies have powerfully demonstrated how deeply the subcontracting networks of Wal-Mart and other large corporations reach into the squalor of the colonias and chawls. Similarly, a continuum rather than a sharp boundary exists between the world of formal work, increasingly reduced to casual jobs, and the abysses of the informal sector. Yet, at the end of the day, the majority of the slum-dwelling poor are completely homeless in the contemporary international economy.”
Finally, Smith, though without elaborating, points to the surplus population in the global South. For example, while official unemployment rates are very high, they hide the true extent of people living at or below the subsistence level without any means of earning a living. These dispossessed working people are, on the one hand, peasants who would flock back to the countryside in their millions if farmland and cheap credit were available to them there, and, on the other hand, the unemployed who vegetate in the slums or engage in fragmented work. Mike Davis writes: “… three or four people share a job that could just as easily be done by one, market women sit for hours in front of small piles of fruit or vegetables, barbers and shoeshine boys squat on the sidewalk all day just to serve a handful of customers, little boys jump repeatedly into the middle of moving traffic to sell tissues, clean car windows, offer magazines or single cigarettes, construction workers wait every morning and often in vain hoping for work. “
Without going into the discussion in greater detail here, Marx already brought into play the concept of the relative surplus population. On the one hand, he speaks of the industrial reserve army, which is in or out of production depending on how capital accumulation is going, as a cyclical phenomenon. But Marx also believes in a long-term tendency toward its growth, measured in terms of the total labor population. Now, if this reserve army grows in the long run, a part of it must be expelled altogether and disappear from the official labor market, thus can no longer be used as variable capital.
In general, it is true that workers are made redundant by greater technological development in one sector, but they can find employment in new sectors. However, the current development in China in particular shows that the most advanced production processes are also used in these new sectors, so that they absorb less labor than with old production processes, and they also lead to further labor-saving technologies, as in the computer industry, whose use helps to save labor in other sectors. Today, for example, the rise of some emerging economies is based not only on cheap labor, as Smith often assumes, but also on modern technology, so that the productive absorption of labor is lower than the high growth rates in China, for example, would suggest. And this also leads to the emergence of a surplus population.
So then the Bangladesh figures clearly show that participation in global value chains has not prevented a large expansion of the relative surplus population in Bangladesh. An ILO survey of the Bangladesh labor market found that “the percentage of workers in informal employment increased from 76.2% in 1999-00 to 87.5% in 2010. ” This reveals the double oppression of women workers: 92.3% of women workers were informally employed in 2010, compared to 85.5% of men.
In recent decades, a new global proletariat has emerged that, on the one hand, tends to homogenize in terms of political deconstitution and lowering of wages, but on the other hand, is spatially and socially fragmented by legal forms, exact wage levels and distribution of production sites. This shows above all, as a sub-proletariat to be added, the surplus population that has emerged above all in the global South, which can no longer be employed as variable capital and falls out of wage-labor relations altogether (but is partially reintegrated into monetary circuits through microcredit). These complex processes of economic, political and social change at the global level result in the fusion of two fundamental antagonisms: Because today neither free trade nor the mercantilist and protectionist policies currently implemented by parts of the ruling classes can even begin to solve the economic problems, the antagonisms both between capital and labor and between periphery and centers will increase in intensity. In the process, internal and external colonization now pervades all territories worldwide; the West has its South (through HartzIV, migrants, the unemployed and the poor), and the South has its West (through zones of high-tech production and comprador elites).
The new form of imperialism is based on an implicit pact between the financial capital of the leading countries and the economies of the emerging countries. While the latter gain access to commodity markets in the West and receive a flood of direct investment from the large multinationals, the former have entered into agreements (TRIPS, Gatt, GATS) to protect the patents and property rights of domestic companies, create markets for services, and open foreign markets to their own corporate controls. Emerging economies have been able to take advantage of competitive costs in wages, producing mainly “low-tech” consumer goods with imported technologies, then exporting them to the core capitalist countries and mercilessly fighting the weaker firms there. But they are now also increasingly investing in research, which, however, still relies mainly on creative imitation and adaptation, but is also intended to promote those innovations that help reduce the technological gap with the high-tech core countries. In key industries such as robotics, IT, space, aviation and maritime travel, renewable energies and electromobility, China aims to catch up technologically with the core Western countries by 2035. Moreover, Chinese companies have increased labor productivity while still keeping labor costs low. We are now seeing the emergence of hypercapitalized centers in the emerging markets and peripheries, while “third world zones” are emerging in the metropolises of the North and, moreover, the wage shares and working conditions of workers are deteriorating there.