Making Things or Clipping Coupons – Which Adds Value?

This entry is part 6 of 7 in the series GDP Illusion

6.

GDP—Some Paradoxes and Peculiarities

Before we lay out the theoretical basis for overturning standard interpretations of GDP and trade data, we must first consider some of the paradoxes and anomalies that make this radical break necessary. As we have seen from our three global commodities, when a consumer buys a gadget, an item of clothing, or imported foodstuffs only a small fraction of its final selling price will appear in the GDP of the country where it was produced, while the greater part of it appears in the GDP of the country where it is consumed. Only an economist could think there is nothing wrong with this!

Bermuda

in 2007 the nation with the highest per capita GDP—that is, whose citizens are supposedly the most productive on earth—was Bermuda

Another even more startling example of the paradoxes produced by GDP statistics is that in 2007 the nation with the highest per capita GDP—that is, whose citizens are supposedly the most productive on earth—was Bermuda. This island tax haven leapt above Luxembourg to become the world’s number one when hedge funds needed a new home following the destruction of the World Trade Center in September 2001. Bermuda was given a further boost by Hurricane Katrina, which sparked a global rise in insurance premiums and a flight of hot money into the world’s reinsurance industry—of which Bermuda is one of the most important centres. Despite ranking as, size-for-size, the world’s most productive nation, virtually the only productive activity taking place in Bermuda is the production of cocktails in beach bars and the provision of other high-end tourist services.31

Meanwhile, 1,600 kilometers south-by-southwest of Bermuda lies another island nation, the Dominican Republic, where 154,000 workers toil for a pittance in fifty-seven export processing zones, producing shoes and clothing mainly for the North American market.32 Its GDP, on a per capita basis, is just 8 percent of Bermuda’s when measured in PPP (purchasing power parity) dollars, or 3 percent at market exchange rates; in 2007 it languished ninety-seven places below Bermuda in the CIA World Factbook’s global league table of per capita GDP. Yet which country, Bermuda or the Dominican Republic, makes a greater contribution to global wealth?

Dominican Republic

the Dominican Republic, where 154,000 workers toil for a pittance in fifty-seven export processing zones, producing shoes and clothing mainly for the North American market.

The comparison between Bermuda and the Dominican Republic is a special case, challenging us to recognize that the “financial services” that Bermuda “exports” are nonproduction activities that consist of teeming and lading wealth produced in countries like the Dominican Republic. If “GDP per capita” was a true measure of the actual contribution of hedge fund traders and workers in Caribbean shoe factories to social wealth, then their relative position would surely be reversed. We can get closer still to seeing through the GDP Illusion by considering an interesting paradox: What happens when intensifying competition with China and other footwear and hosiery producers for access to the shelves of stores like Wal-Mart and Top Shop forces the Dominican Republic’s employers to reduce wages? Assuming that this increased competition results from China’s lower wages rather than from more advanced production techniques (in other words, assuming that the socially necessary labor time required to produce these commodities is unaltered), lower real wages signify an increased rate of exploitation and a higher rate of surplus value.

The fall in the price of shoes signifies that only a portion of the surplus value resulting from the increased exploitation of shoe workers appears in the profits of their employers. The remainder is a contribution to total surplus value (shared between capitals and supporting profit of all kinds), and to consumers, supporting their consumption levels.

labour productivity

Statistics on “labor productivity” are, therefore, as contaminated as those on GDP and trade.

A reduction in the real wage in the Dominican Republic therefore means that its living labor becomes more important as a source of surplus value and profits. GDP and trade data, however, lead us to the very opposite conclusion: falling real wages in the Dominican Republic allow the prices of its export products to also fall, and with them the apparent contribution of the Dominican Republic to global wealth and profits. And the same goes for measures of the Dominican T-shirt makers’ productivity, too. Falling prices received for outputs directly translate into what is counted as falling value added per worker, the standard measure of productivity. These workers make the same amount of shoes before and for less money, making them more “productive of capital” than before, yet value-added data report a decline in their productivity. Statistics on “labor productivity” are, therefore, as contaminated as those on GDP and trade.

Indeed, the key to understanding global capitalism lies in what we mean by “the productivity of labor” and how we measure it. Economists and statisticians achieve their numerical measurements by computing value added per worker, but Marxist political economy has a very different starting point: while the mainstream concept of productivity rests on the conflation of price and value, thereby abolishing the complex relation between the two, for Marxist political economy “productivity” is a contradictory unity, embodying what Marx counted among the greatest of his discoveries, “the two-fold character of labour, according to whether it is expressed in use value or exchange value.”33

(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<< The World Produces – US, EU, Japan EatGlobalized Production increases Globalized Inequality >>

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