Globalized Production increases Globalized Inequality

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


“Valued Added”—or Value Captured?

The paradoxes discussed here, and the global commodities dissected earlier, suggest that uncritical acceptance of trade and GDP data leads to a distorted picture of the relative contributions of the imperialist countries and the global South to global wealth. To see why this is so we must look more closely at GDP; it is, essentially, the sum of the “value added” generated by each firm within a nation. The key concept within GDP is therefore value added. Value added is defined as the difference between the prices paid for all inputs and the prices received for all outputs.34

According to this core neoclassical concept, the amount by which the price of outputs exceeds the price of inputs is automatically and exactly equal to the value that it has generated in its own production process, and cannot leak to other firms or be captured from them. Seen through the neoclassical lens, production is not only a black box, where all we know is the price paid for the inputs and the price received for the outputs; it is also hermetically sealed from all other black boxes, in that no value can be transferred or redistributed between them as a result of the competition for profits. Marxist political economy rejects this absurdity and advances a radically different conception: value added is really value captured. It measures the share of total economy-wide value added that is captured by a firm, and does not in any way correspond to the value created by the living labor employed within that individual firm. Indeed, Marxist value theory maintains that many firms supposedly generating value added are engaged in nonproduction activities like finance and administration that produce no value at all.

GDP is frequently criticized for what it leaves out of its calculation of “domestic product”—so-called “externalities,” e.g., pollution, the depletion of non-renewable resources, and the destruction of traditional societies; as well as for where it draws the “production boundary,” excluding all those productive activities that take place outside of the commodity economy, especially household labor. Yet GDP as a concept has never been systematically criticized for what it claims to measure, not even by Marxist and other heterodox critics of the mainstream. Part of the answer lies in the fact that marginalist and Marxist value theory coincides at one point: while Marxist value theory reveals that the individual prices received for the sale of commodities systematically diverge from the values created in their production, at the aggregate level all these individual divergences cancel out. In the aggregate, total value is equal to total price.35

If, within a national economy, value produced by one firm (i.e., one production process) can condense in the prices paid for commodities produced in other firms, then it is irrefutable that, especially in the era of globalized production, this also occurs between firms in different countries and continents. In other words, as David Harvey once surmised, “the geographical production of surplus value [may] diverge from its geographical distribution.”36 To the extent that it does, GDP departs ever further from being an objective, more-or-less accurate approximation of a nation’s product (indeed, it never was), and is instead a veil that conceals the increasingly parasitic and exploitative relation between northern capitals and southern living labor—in other words the imperialist character of the global capitalist economy.


Commenting on the ADB report cited earlier, Financial Times columnist Gillian Tett said the “challenge for economists is…profound. In the old days, they typically measured the output of an economy by watching where goods were ‘made’; but which country should claim the ‘value’ for an iPhone (or an Italian suit or an American Girl doll)? Where does the real ‘output’ come, in a world where companies can shift profits around?”37 The real question, however, is not just where the “real output” comes from but also where it goes to, who generates this wealth, and who appropriates it.

The GDP Illusion at least partly explains why dominant paradigms see the global South as peripheral and its contribution to global wealth of minor importance, despite the ubiquity of the products issuing from its mines, plantations, and sweat shops; and despite the fact that southern living labor are the creators of much or most of our clothes and electronic gadgets, of the flowers on our table, of the food in our fridge, and even of the fridge itself.

Labor’s share of GDP within a country is not directly and simply related to the prevailing rate of exploitation in that country, since a large component of “GDP” in the imperialist nations represents the proceeds of exploited southern labor.

As our three global commodities reveal in microcosm, the globalization of production is at the same time the globalization of the capital/labor relation. The main driver of this great transformation is capital’s insatiable quest for low wages and high rates of exploitation. Its main result is the heightened dependence of capitalists and capitalism in the imperialist countries on the proceeds of exploitation of nature and living labor in the global South. The imperialist division of the world that was a precondition for capitalism is now internal to it.38 Neoliberal globalization therefore signifies the emergence of the fully evolved imperialist form of capitalism.

Finally, the critique of concepts and statistics outlined here has major implications for our understanding of the global crisis. This global crisis is “financial” only in form and appearance. It marks the reappearance of a systemic crisis which the outsourcing phenomenon itself was a response to: replacing higher-paid domestic labor with low-paid southern workers helped support profits, consumption levels, and reduced inflation in the United States, Europe, and Japan. Along with the expansion of debt, outsourcing was crucial to the imperialist economies’ escape from the crises of the 1970s. Furthermore, outsourcing is deeply implicated in many ways in the return of systemic crisis. Giving a central place to the sphere of production in the analysis of the global crisis, a task preoccupying many Marxist economists, requires accounting for the enormous transformations that have occurred within this sphere in the past three decades of neoliberal globalization.

And this requires that we dispel the GDP Illusion.


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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