Labor-Value Commodity Chains

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Contextual Citation

"The labor-value chains framework, empirically operationalized through the examination of unit labor costs, thus allows us to see that, behind the complexities of global commodity chains, exploitation persists." (https://monthlyreview.org/2019/07/01/labor-value-commodity-chains/)


Description

by Intan Suwandi:

"My analysis begins with a framework of global commodity chains that puts labor at the center of its formulation. The framework is called labor-value commodity chains, or labor-value chains for short. Unlike mainstream theories on this subject, this framework takes into account the questions of power, class, and control—questions that must be addressed if we want to bring the exploitation/expropriation that occurs in global commodity chains out into the open. It is crucial that the theoretical and methodological analysis of labor-value chains developed here incorporates a calculation of cross-national variation in unit labor costs in manufacturing. The measurement of unit labor costs—typically presented as the average cost of labor per unit of real output, or the ratio of total hourly compensation to output per hour worked—combines labor productivity with wage costs (the price of labor), in a manner closely related to Marx’s theory of exploitation. Lower unit labor costs point to a higher rate of exploitation in production, and vice versa. The failure of some Marxist theorists, such as Charles Bettelheim (and, more recently, Claudio Katz) to understand this fundamental relation has caused enormous confusion, leading Bettelheim to conclude, independent of these empirical relations, that the rate of exploitation is always higher in the more developed country simply because it is more developed.

In this sense, the labor-value chains framework is a means to embed global exploitation within the framework of the labor theory of value. The maximization of gross profit margins through the reduction of unit costs is the goal of capitalists, and this “sets in motion a continuing search for new methods of production, new sources of labor, new ways of organizing the labor process.” The reduction of unit costs, most importantly, depends on “the portion of total unit costs that derives from the labor input, i.e., the unit labor cost.” This in turn depends on two factors integral to Marx’s concept of exploitation: the price (wage) of labor power and labor productivity. The concept of unit labor costs, in this sense, is an operationalization of the rate of exploitation, which considers not only the question of wages but also the question of productivity.

The labor-value chains framework, empirically operationalized through the examination of unit labor costs, thus allows us to see that, behind the complexities of global commodity chains, exploitation persists. Global capital (that is, multinational corporations) engage in the search for low unit labor costs around the globe to accrue higher profit margins and overall profits. Data on unit labor costs show that countries with the highest participation in labor-value chains—the top three being China, India, and Indonesia—also have very low unit labor costs. This means that not only are wages low in these countries, but productivity is high. The global organization of labor-value chains, then, is a means to extract surplus value through the exploitation of workers in the global South." (https://monthlyreview.org/2019/07/01/labor-value-commodity-chains/)


Discussion

How exactly does this extraction happen?

by Intan Suwandi:

"But how exactly does this extraction happen? It is difficult to find current analyses in the field that provide a more or less complete picture of how global commodity chains work. On the one hand, there are excellent works that utilize global commodity-chain or global value-chain (GCC/GVC) frameworks and examine firms and how value is added (read: captured) from suppliers in the global South. But most of them are not concerned with the question of labor exploitation—some of them even represent the view of capital, suggesting that corporations in the North grab the opportunity to extract the surplus value “offered” by the global South. On the other hand, there are also many excellent works in social sciences that provide detailed examinations of how workers are treated in the factories that assemble goods for multinational companies. But these works usually omit the connection between the control of the labor process and the intricate power relations that govern the commodity chains in a way that can bring out the specific mechanisms in which control is exerted through different actors within the chains.

Hence, it is necessary to address both the macro aspects of labor-value chains and the mesolevel aspects, namely, the processes that occur at the firm level. The macro aspects help us understand how imperialistic relationships between the global North and the South are perpetuated through exploitation and expropriation of the latter by the former. At the mesolevel, these relationships involve the process in which multinationals exert control over their dependent suppliers, and how such unequal relationships among companies then affect the other end of the unequal power relations—that is, those between the employers and the workers at the firm. Relying on works on systemic rationalization and flexible production, as well as empirical investigations at the point of production, it is possible to connect the labor-value chains framework to particular cases, as in my own research, where I conducted observations and interviews at two Indonesian suppliers. What this shows is how dominant companies (giant multinationals) within the chains extract surplus value through various mechanisms of control, both in terms of controlling the production processes of their dependent suppliers and in terms of controlling the labor process of workers employed by these suppliers. Their goal here is to make sure that unit labor costs are stably low, even in cases where wage costs are increasing (such as the increase in minimum wage issued through governmental policies). Control mechanisms are instituted to allow global capital to maintain a low unit labor cost by making sure that productivity can be increased.

In the end, these observations suggest that labor-value chains, as a part of the restructuring of the world economy driven by the imperative of capital accumulation, are imperialistic in their characteristics: the very reality captured by the concept of the global labor arbitrage within global finance. Labor-value chains involve a form of unequal exchange based on a worldwide hierarchy of wages, in which global capital (firms headquartered in the global North) captures value from the South through the over- or superexploitation of the labor of workers who manufacture the goods. In essence, more labor is obtained for less. Giant oligopolistic multinationals take advantage of differential unit labor costs within an imperialist system of “world value”; they control much of the world market through their international operations, and the fact that capital can move much more freely than labor (its movement restricted by factors such as immigration policies) allows multinationals to take advantage of immense labor price differences on a global level. They thus possess more freedom to pursue higher profits through the substitution of higher-paid labor with low-paid labor globally.

This means that, far from moving toward transnationalization, the processes that occur in labor-value chains point to the fact that capital accumulation processes are inseparable from the unequal relations among nation-states. They therefore reflect the much higher rates of exploitation imposed on workers in the global South, with the state still serving as an instrument and locus of capital accumulation. Indeed, the complexities of global commodity chains highlighted in the mainstream discussion of the subject often disguise the structural relationship of underdevelopment, whereby the export of capital, as Paul Baran and Sweezy observe, “far from being an outlet for domestically generated surplus, is a most efficient device for transferring surplus generated abroad to the investing country.”

The concept of labor-value chains, then, is a theoretical and empirical device with which to look at this issue from a global South perspective, that is, to reveal the exploitative relations that hide behind the veil of globalized production." (https://monthlyreview.org/2019/07/01/labor-value-commodity-chains/)


Laying the Groundwork for the Labor-Value Commodity Chains Framework

by Intan Suwandi:

"The labor-value commodity chains framework is an analysis of global commodity chains that incorporates the main point that was missed by its predecessors: an examination of the extraction of surplus from the global South within a Marxist perspective. I argue that this is the most useful means with which to analyze the processes of globalized production, since this approach allows us to see the power relations between capital and labor that underlie our present-day world economy.64


To develop this framework, it is necessary to examine the following and include in the formulation of the theory:

(1) the development of monopoly capitalism dominated today by multinational oligopolies with considerable global reach and wielding significant monopoly power, as discussed above; as well as

(2) the process of profiting from international wage differentials through the global labor arbitrage, taking advantage of the much lower unit labor costs in emerging economies.


While the former is especially powerful in helping us to examine the current stage of capitalism with strategic positions still held by multinational corporations, the latter is a useful lens precisely because it looks directly through the eyes of capital. The global labor arbitrage is a creation of capital. The term itself is widely used in corporate-financial analyses. Although other more nebulous terms, such as low-cost country strategy, abbreviated as LCCS, are also sometimes adopted in order to rationalize (in the Weberian sense) the inequalities that characterize the globalization of production, treating them as mere market phenomena. For example, the global labor arbitrage is frequently presented as corporations’ “new imperatives of cost control,” which are necessary to deal with unfortunate macroeconomic factors such as excess supply and the lack of pricing leverage.

Nevertheless, the concept of the global labor arbitrage is significant, since “arbitrage” in financial terms means precisely taking advantage of different prices for the same productive factor or asset. Moreover, though arbitrage in neoclassical economic theory is supposed to generate equality in market prices (the so-called law of one price), it is well understood by all economic actors that this does not apply to labor internationally, and that the global labor arbitrage is rooted in structural factors in capitalist world economy that generate very different prices for labor in the global South and the global North, and hence very different rates of labor exploitation.

Thus, when analyzed with a little “Marxist twist,” the mainstream examination of the global labor arbitrage often reveals the power dimensions of the globalized production processes—as recently shown by Smith in his 2016 book Imperialism in the Twenty-First Century, as well as in a 2012 study by Foster and Robert McChesney, The Endless Crisis. In this perspective, special attention needs to be given to the labor theory of value to allow us to see who actually benefits and captures value in a global commodity or value chain, and how they get these benefits through practices such as the arm’s length contracts that characterize the global labor arbitrage.

An examination of unit labor costs (as mentioned above, a measurement that can appropriately combine productivity with wage costs in a way that relates to Marx’s theory of exploitation) reveals that participation in global labor-value chains does not necessarily benefit global South labor. Instead, the benefits go to the global North corporations, which were able to maintain their low-cost production, even amid the Great Financial Crisis of 2009. There is a great discrepancy both in wages and in unit labor costs among countries in the global North and global South, and this fact allows us to unmask the exploitation, both in absolute and relative terms, of workers in the global South." (https://monthlyreview.org/2019/07/01/labor-value-commodity-chains/)

Source

* Article: Labor-Value Commodity Chains. The Hidden Abode of Global Production. by Intan Suwandi. Monthly Review, 2019, Volume 71, Issue 3 (July-August 2019)

URL = https://monthlyreview.org/2019/07/01/labor-value-commodity-chains/