export-oriented industrialization has not provided enough jobs to absorb the growth of the workforce, obliging so many to migrate in search of work, will be considered in chapter 4.
Outsourcing and the Reproduction of Labor-Power in Imperialist Nations
Neoliberal globalization has transformed the production of all commodities, including labor-power, as more and more of the manufactured consumer goods that reproduce labor-power in imperialist countries are produced by super-exploited workers in low-wage nations. The globalization of production processes impacts workers in imperialist nations in two fundamental ways. Outsourcing enables capitalists to replace higher-paid domestic labor with low-wage Southern labor, exposing workers in imperialist nations to direct competition with similarly skilled but much lower paid workers in Southern nations, while falling prices of clothing, food, and other articles of mass consumption protects consumption levels from falling wages and magnifies the effect of wage increases. The IMF’s World Economic Outlook 2007 attempted to weigh these two effects, concluding: “Although the labor share [of GDP] went down, globalization of labor as manifested in cheaper imports in advanced economies has increased the ‘size of the pie’ to be shared among all citizens, resulting in a net gain in total workers’ compensation in real terms.”20 In other words, cost savings resulting from outsourcing are shared with workers in imperialist countries. This is both an economic imperative and a conscious strategy of the employing class and their political representatives that is crucial to maintaining domestic class peace. Wage repression at home, rather than abroad, would reduce demand and unleash latent recessionary forces. Competition in markets for workers’ consumer goods forces some of the cost reductions resulting from greater use of low-wage labor to be passed on to them.
Perhaps the most in-depth research into this effect was conducted by two Chicago professors, Christian Broda and John Romalis, who established a “concordance” between two giant databases, one tracking the quantities and price movements between 1994 and 2005 of hundreds of thousands of different goods consumed by 55,000 U.S. households, the other of imports classified into 16,800 different product categories. Their central conclusion: “While the expansion of trade with low wage countries triggers a fall in relative wages for the unskilled in the United States, it also leads to a fall in the price of goods that are heavily consumed by the poor. We show that this beneficial price effect can potentially more than offset the standard negative relative wage effect.” They calculate that China by itself accounted for four-fifths of the total inflation-lowering effect of cheap imports, its share of total U.S. imports having risen during the decade from 6 to 17 percent, and that “the rise of Chinese trade … alone can offset around a third of the rise in official inequality we have seen over this period.”21
The conclusion to be drawn from this brief survey is that the globalization of the production of intermediate inputs and final goods on the one hand and the globalization of the production of labor-power on the other are two dimensions of the outsourcing phenomenon. They produce contradictory effects and interact in complex ways. They must be studied both separately and together. The increasingly global character of the social relations of production and the increasing interdependence between workers in different countries and continents objectively strengthens the international working class and hastens its emergence as a class “for itself” as well as “in itself,” struggling to establish its supremacy; yet, to counter this, capitalists increasingly lean on and utilize imperialist divisions to practice divide-and-rule, to force workers in imperialist countries into increasingly direct competition with workers in low-wage countries, while using the cheap imports produced by super-exploited Southern labor to encourage selfishness and consumerism and to undermine solidarity.
THE GLOBALIZATION OF PRODUCTION PROCESSES
In the early stages of the Industrial Revolution, before the widespread introduction of power machinery, the various stages in the processing of raw materials into final goods typically took place within a single factory, often supported by armies of homeworkers working up raw materials for final processing. Waves of mechanization over the next hundred years spurred concentration and specialization, fostering the growth within national borders of more complex production networks. For most of these two centuries international trade consisted of raw materials and final goods. Neoliberal globalization, by extending the links in the chain of production and value-creation across national borders, has profoundly transformed this picture. As William Milberg noted in a study for the ILO, “Because of the globalization of production, industrialization today is different from the final goods, export-led process of just 20 years ago.”22 The big difference, “the defining manifestation of globalized production,” no less, is “the rise in intermediate goods in overall international trade, whether it is done within firms as a result of foreign direct investment or through arm’s length subcontracting.” This does not mean, however, that outsourcing can be reduced to trade in the intermediate inputs—our concept must also include the export of finished goods from low-wage countries to firms and consumers in imperialist countries.
Mainstream theory has ill equipped International Financial Institutions such as the IMF and World Bank to conceptualize and measure the outsourcing phenomenon. As late as 2007 the IMF estimated that “offshoring intensity,” defined as the “share of offshored inputs in gross output,” has “increased only moderately since the early 1980s. The share of offshored inputs in gross output ranges from 12 percent in the Netherlands to about 2–3 percent in the United States and Japan.”23 Yet this definition omits the export of intermediate inputs to low-wage nations for final assembly. It also excludes finished goods destined for use as inputs by Northern firms, including computers and other electronic goods, and it excludes finished goods destined for consumption by workers.24 According to the IMF’s definition, none of the three global commodities I examined in chapter 1 would count toward the offshoring intensity of the nations whose firms and citizens supply final demand. The result is an absurdly low estimate of the extent and pace of the globalization of production processes. Particularly risible is the IMF’s estimate of the offshoring intensity of Japanese manufacturing. Japan’s signature form of outsourcing is known as “triangular trade,” in which “Japanese firms headquartered in Japan produce certain high-tech parts in Japan, ship them to factories in East Asian nations for labor-intensive stages of production including assembly and then ship the final products to Western markets or back to Japan.”25 This pattern evolved after the 1985 Plaza Accord, when Japanese manufacturers responded to sharply declining competitiveness resulting from appreciation of the yen by offshoring labor-intensive production processes to neighboring low-wage countries,26 often referred to as the “hollowing out” of Japanese industry. Yet the IMF calculates Japan’s offshoring intensity to be a negligible 2–3 percent.
Another defect of the IMF’s approach is that it takes no account of where these imported inputs come from. It discovers a more or less stable ratio of imported inputs to total inputs, but this conceals a big swing toward lower-cost suppliers in low-wage countries. Three OECD researchers reported that “while intermediate imports into the OECD as a whole from China and the ASEAN have risen sharply (as a share of total manufacturing imports), this has been offset by reductions in intermediate imports from other countries”—“other countries” being other rich nations in the OECD.27 The U.S. auto industry, which imports more than 25 percent of its inputs, more than any other industrial sector, provides a clear example of this.28 The OECD’s Trade in Value Added (TiVA) database reveals that in 1995 the U.S. auto industry imported four times as much automotive value-added from Canada as from Mexico, just 10 percent more in 2005, and by 2009, the latest year for which data is available, Mexico had overtaken Canada to become the source of 48 percent more automotive value-added than the United States’ northern neighbor—a striking indication of how the global economic crisis has accelerated the southward shift of production.29 The shift would be even more pronounced but for the odd behavior of non-U.S. auto companies that have set themselves up in the
