“Extract Product from Low Wage Workers” – Morgan Stanley Economist

This entry is part 4 of 7 in the series GDP Illusion

4.

The Cup of Coffee

Those who cultivate and harvest the coffee receive less than 2 percent of its final retail price

Our picture is completed by the addition of a third iconic global commodity—the cup of coffee. Perhaps you have one clasped in one hand as you read this—don’t spill any on your T-shirt or smart phone! Coffee is remarkable in that, alone of major internationally traded agricultural commodities, none of it, apart from small quantities grown in Hawaii, is grown in imperialist countries, and for this reason it has not been subject to trade-distorting agricultural subsidies such as those affecting cotton and sugar. Yet the world’s coffee farmers have fared as bad, if not worse, than other primary commodity producers.

Most of the world’s coffee is grown on small family farms, providing employment worldwide to 25 million coffee-farmers and their families, while two U.S. and two European firms (Sara Lee, Kraft, Nestlé, and Procter & Gamble) dominate the global coffee trade. Those who cultivate and harvest the coffee receive less than 2 percent of its final retail price.18 In 2009, according to the International Coffee Organization, the roasting, marketing, and sale of coffee added $31 billion to the GDP of the nine most important coffee-importing nations—more than twice the total export earnings that year of all coffee-producing nations.

Starbucks

all of Starbuck’s and Caffè Nero’s profits appear to arise from their own marketing, branding, and retailing genius, and not a penny can be traced to the impoverished coffee farmers who handpick the “fresh cherries.”

In common with other global commodities, the portion of the price of a cup of coffee that is counted as value added within the coffee-drinking countries has steadily risen over time—in the United Kingdom, to take the most spectacular example, between 1975 and 1989 coffee’s import price averaged 43 percent of the retail price; between 2000 and 2009 the average was just 14 percent.19

Just as, according to the economists and accountants, not one cent of Apple’s profits come from Chinese workers, and just as H&M’s bottom line owes nothing to superexploited Bangladeshi workers, so do all of Starbuck’s and Caffè Nero’s profits appear to arise from their own marketing, branding, and retailing genius, and not a penny can be traced to the impoverished coffee farmers who handpick the “fresh cherries.” In all of our three archetypical global commodities, gross profits, i.e., the difference between their cost of production and their retail price, are far in excess of 50 percent, flattering not only northern firms’ profits but also their nations’ GDPs.20

Not Just China

manufacturing exports

manufactured exports provided 50 percent or more of export growth between 1990 and 2004 for another forty “emerging nations”

We complete this section by briefly looking at the wider transformations which smartphones, T-shirts, and cups of coffee epitomize. China’s astonishing rise as a major manufacturing exporter is renowned, but manufactured exports provided 50 percent or more of export growth between 1990 and 2004 for another forty “emerging nations” that have a combined population twice the size of China’s. Of these nations, twenty-three of them—home to 76 percent of the entire population of the global South, and including eight of the ten most populous southern nations—received more than half of their export earnings from manufactured goods in 2004.21

In addition, many other smaller nations have made a brave effort to reorient their economies to the export of manufactures, playing host to manufacturing enclaves that exert a powerful and distorting influence on their national economies. While industrial development in the global South may be very unevenly distributed, it is nevertheless very widespread, as is indicated by the proliferation of export processing zones (EPZs). In 2006, the latest year for which there are statistics, more than 63 million workers, most of them women—almost triple the EPZ workforce of a decade earlier—were employed in 2,700 EPZs in more than 130 countries,22 producing goods mainly for final consumption in Triad markets.23

sweatshop labour

“liberating” hundreds of millions of workers and farmers from their ties to the land or their jobs in protected national industries

By “liberating” hundreds of millions of workers and farmers from their ties to the land or their jobs in protected national industries, neoliberal globalization has stimulated the expansion in southern nations of a vast pool of superexploitable labor. U.S., European, and Japanese firms have vigorously responded by shifting production on a massive scale to low-wage countries, either through foreign direct investment (FDI) or through arm’s length contractual relations with independent suppliers. The resulting outsourcing phenomenon has transformed the imperialist economies, accelerating the declining weight of industrial production in their GDPs. Most significantly it has transformed the global working class: in just three decades, the South’s industrial workforce has moved from numerical parity with the “industrialized countries” to now constituting 80 percent of the global total. According to Gary Gereffi, 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.”24

As the editors of Monthly Review stated in 2004, “Multinational capital is thus able to take advantage of global asymmetries to create more vicious forms of competition between pools of labor that are geographically immobile and thus unable to coalesce.”25 Central to these “global asymmetries” is the suppression of the free movement of labor across borders, something that is accomplished by the permanent mobilization of a massive political and military force which is in turn part of a wider infrastructure of racism and national oppression. These impede labor’s coalescence as an international movement and they interact with a hugely increased supply of labor in southern nations to produce a dramatic widening of international wage differentials, vastly exceeding price differences in all other global markets.

The resulting steep wage gradient between northern and southern economies provides two different ways for northern capitalists to increase profits: (1) by expanding exploitation of low-paid labor throughout the relocation of production processes to low-wage countries; or (2) by the superexploitation of low-wage migrant workers “at home.” The IMF’s World Economic Outlook 2007 makes this connection quite precisely, noting that the “global pool of labor can be accessed by advanced economies through imports and immigration,” and observing that trade “is the more important and faster-expanding channel, in large part because immigration remains very restricted in many countries.”26 Stephen Roach, a senior economist at Morgan Stanley, brought this driving force of neoliberal globalization into unusually sharp focus: “in an era of excess supply, companies lack pricing leverage as never before. As such, businesses must be unrelenting in their search for new efficiencies…offshore outsourcing that extracts product from relatively low-wage workers in the developing world has become an increasingly urgent survival tactic for companies in the developed economies.”27

(Continued …)

From : Value Added versus Value Capture by John Smith

Courtesy : Monthly Review

The GDP Illusion

John Smith

Value Added versus Value Capture

by John Smith

John Smith teaches political economy, human rights, and genocide studies at Kingston University in London. His forthcoming book on imperialism and globalization will be published by Monthly Review Press.

The GDP Illusion

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