The World Produces – US, EU, Japan Eat

This entry is part 5 of 7 in the series GDP Illusion


Not Just Wages

Despite decades of wage stagnation in the United States and of wage increases in China, the ratio between the two, adjusted for purchasing power parity, remain extremely large. One study, based on data from China’s National Bureau of Statistics, estimated the difference in 2009 to be around 16-to-1, rising to 37-to-1 if prevailing exchange rates are used to make the comparison—and it is these that matter to U.S., European, and Japanese firms weighing whether to outsource their production.28 Wages vary widely between different parts of China, between migrant and domiciled workers, and between state-owned and private firms. These and other distortions make comparison difficult, and the ratios given here are indicative.

But ultra-low wages are not the only factor attracting profit-hungry western firms. They are also attracted by the flexibility of the workers and the intensity with which they can be worked. Charles Duhigg and Keith Bradsher, in a widely quoted New York Times study, provide a vivid illustration:

One former executive described how [Apple Inc.] relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight. A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day. 29

High rates of flexibility and intensity of labor in the global South cast serious doubt on the notion that low southern wages reflect low southern productivity. When we consider wage differentials along with factors such as the conditions, duration, and intensity of labor, as well as the paucity of the “social wage,” it is irrefutable that higher rates of exploitation pertain in countries such as China, Bangladesh, and Mexico than in the United States, Spain, or Germany. To put this another way, Chinese, Bangladeshi, and Mexican workers receive in their wages a smaller portion of the wealth they have generated than do workers in the imperialist countries.

Part Two: The GDP Illusion

In each of the three global commodities examined above, the gadget-maker (Apple), the giant retailer (H&M), and the café chain (Starbuck’s) have outsourced all or most of the production to independent suppliers, with whom they maintain an “arm’s length,” contractual relationship. Their connection with the workers and farmers who produce their goods is therefore indirect, in contrast to the case of FDI. In this form of the globalized capital/labor relationship, the profit flows—from transnational corporations’ subsidiaries to parent firms—are at least partially visible, showing up in the data as repatriated profits. By contrast, there are no visible flows of profits from arm’s-length suppliers to their northern customers. Therefore, according to economic data and mainstream economic theory, the workers employed by Foxconn and the myriad of other “arm’s length” firms in other low-wage countries, producing cheap intermediate inputs and consumer goods for western markets, make no contribution whatsoever to the profits of Dell and Apple, nor of the related service industries that provide their premises and retail their goods.

It is well known that the standard Mercator projection of the three-dimensional surface of planet Earth into the two-dimensional frame of a map stretches the northern hemisphere and shrinks the tropics. Standard data on GDP and trade flows produce a similar effect, diminishing the global South’s contribution to global wealth and exaggerating that of the imperialist countries. To see how this is done it must be remembered that, despite its claim to be a measure of “product,” GDP and trade data measure the results of transactions in the marketplace. Yet nothing is produced in markets, the world of the exchange of money and titles of ownership; production takes place elsewhere, behind high walls, on private property, in production processes.

Values are created in production processes and captured in markets and have a prior and separate existence from the prices finally realized when they are sold. Yet these values “seem not just to be realised only in circulation but actually to arise from it,” an illusion that gives rise to the central fallacy underlying standard interpretations of economic data: the conflation of value with price.30 This matter will be returned to shortly; here it is only necessary to note that it is impossible to analyse the global economy without using data on GDP and trade, yet every time we uncritically cite this data we open the door to the core fallacies of neoclassical economics which these data project. To analyse the global economy we must decontaminate this data, or rather the concepts we use to interpret them.

(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

Series Navigation<< “Extract Product from Low Wage Workers” – Morgan Stanley EconomistMaking Things or Clipping Coupons – Which Adds Value? >>

Permanent link to this article:

Leave a Reply

Your email address will not be published.

%d bloggers like this:
Read more:
News and Views : Private Education Mafia Humiliates Little Girls

Here, in this particular case , the school is gonna bail itself out of the case by bribing the police...

IT Companies denies human rights – Layoff Killings

On the one hand, Companies do not comply with existing laws in order to fire their employees. At the same...