disappear, it also obliterates the classical distinction between productive and non-productive labor. If every price is by definition a value, then any activity that results in a sale is by definition productive. “To the practical economist … if it is sold, or could be sold, then it is defined as production. Thus—within orthodox accounts—commodity traders, private guards, and even private armies are all deemed to be producers of social output, because someone is paying for their services.”76
A distinction between productive and non-productive labor exists in all modes of production and is not specific to commodity exchange in general, let alone to capitalism. What is specific to capitalism is that this distinction is veiled by universal commodification, and by the capitalists’ new criterion for productivity, profitability.
It may be asked, are not these non-productive activities providing “common goods” necessary for the reproduction of society? Shaikh and Tonak provide a cogent response: “To say that these labors indirectly result in the creation of this wealth is only another way of saying that they are necessary. Consumption also indirectly results in production, as production indirectly results in consumption. But this hardly obviates the need for distinguishing between the two.”77 To see the veracity of this argument, consider an economy made up of laborers and security guards.78 The laborers produce all of the goods that both they and the security guards need to live on; the security guards provide a “common good,” security. It is plain that the higher the ratio of security guards to laborers, all other things being equal, the lower the total product, and it is therefore logical to regard this economic activity as unproductive labor, a form of social consumption. Once this distinction is established for one category of economic activity, the door is opened for more additions to the list. Suppose, for instance, our imaginary community finds it necessary to allocate part of its social labor to weighing and recording the output of the production workers, and that the only available means of doing this is to carve the data into stone tablets, a slow process requiring many hours of labor. Their labor is non-productive in exactly the same way as it is of the security guards. These stones do not add to social wealth, they are merely representations of the wealth created by production labor. Were a technological advance to replace chisel and stone with pen and paper, much of this nonproduction labor could be released for production, thereby increasing total social wealth, or redeployed as security guards, resulting in no change to social wealth. Designation of security and administrative functions as nonproduction activities does not at all imply that they are unnecessary—in our simple model, both the security guards and the stone-carvers perform necessary functions.
In this simple model, as in reality, the social wealth that is consumed by the nonproduction laborers derives from the surplus labor of the production laborers, that is, the labor they perform in excess of what is required to replace their own consumption, what Marx calls necessary labor. Just as with the distinction between productive and non-productive labor, the division of the working day or week into surplus labor time and necessary labor time exists in all modes of production—for example, serfs working three days on the manor lord’s land and three days on their own. In its capitalist form, surplus labor results from extending the workday beyond the time needed to replace the value of the basket of goods for which they exchange their wage—what Karl Marx called necessary labor time. In the Marxist framework, the ratio of surplus labor to necessary labor, or “the rate of surplus value” is synonymous with the rate of exploitation.
It might be asked: If workers in finance, advertising, security, etc., produce no value, how can they be exploited? So long as workers are obliged to work for longer than the labor-time needed to produce their basket of consumption goods, they are exploited. This is independent of the specific way their labor is employed and of whether they are employed in production, circulation, or administration. For present purposes, we can assume that all these workers endure the (nationally prevailing) rate of exploitation in common with production labor.
Nonproduction sectors are sustained by part of the surplus value extracted in production; the values consumed by them subtract from what is available for realization as profit in all its forms. The rate of surplus value can be ramped up, for instance by holding down wages, and yet the rate of profit may still decline. The more that social labor is employed non-productively, in commerce, finance, security, legal services, etc.—exactly what has been happening on an accelerated scale in the imperialist economies during the neoliberal era—the greater the downward pressure on profits and the greater the imperative to compensate for this by intensifying the exploitation of productively employed workers. The growing weight of services in imperialist economies is therefore as much the cause of the outsourcing pressure as it is the consequence of it.
Services and the Productivity Paradox
This brief survey of the role of services in the outsourcing of production concludes by summarizing the paradoxical effects of services outsourcing on measures of labor productivity in industry. First, we must note that many service tasks are inherently labor-intensive and cannot easily be mechanized, resulting in what appears to be stagnant or even falling levels of labor productivity in the service sector. Thus Katharine Abraham, a leading authority in the field of national accounts, reports that, in the United States,
labor productivity in the services industries … actually declined over the two decades from 1977 through 1997…. Among the individual service industries showing declines in labor productivity were educational services and health services, as well as auto repair, legal services and personal services. Construction was another problem industry, with the implied labor productivity falling by 1 percent per year over the entire 20-year period.79
In contrast, “the rate of productivity growth in U.S. manufacturing increased in the mid-1990s, greatly outpacing that in the services sector and accounting for most of the overall productivity growth in the U.S. economy,”80 releasing labor for redeployment to service jobs or to the reservoir of unemployed, resulting in a relative decline in manufacturing’s contribution to GDP and in an even faster decline in manufacturing employment as a share of total employment.81 This points to the first of a series of paradoxes that we must note for further study: the more rapidly that labor productivity advances in industry, the more important industry becomes in sustaining the rest of the economy and society. But at the same time, this means the more rapidly industry’s share of GDP and of total employment diminishes, an effect that gives rise to all kinds of nonsense about “post-industrial society.”
But the paradoxes arising from the tendency of productivity in industry to advance faster than in services do not stop here. Intensification of the labor process through brutal speed-ups and the introduction of labor-saving technology have undoubtedly made their contribution to productivity advances in industry, but some of the apparent increase in labor productivity in manufacturing is due to firms in this sector externalizing service tasks. When an industrial firm contracts out labor-intensive services such as cleaning, catering, etc., the productivity of its remaining employees increases, according to the conventional and most widely used measure of productivity. This occurs even if nothing about their work may have changed, and is the simple result of the firm’s unchanged output now being divided by a smaller workforce. The trend in this direction accounts for a part of industry’s rise in productivity and exaggerates the decline of industry’s reported share of the total workforce. If an industrial firm contracts out service provision to a firm that employs cheap labor in another country the apparent gains in productivity in the industrial firm’s productivity are even larger, since labor has not only been outsourced, its price has been slashed, reducing the cost of this input and therefore boosting the numerator in the formula for productivity (the firm’s value added) while reducing the denominator, the size of the directly employed workforce. As Susan Houseman found, “Services offshoring, which is likely to be significantly underestimated and associated with significant labor cost savings, accounts for a surprisingly large share of recent manufacturing multifactor productivity growth.”82 Thus, she argues, “to the extent that offshoring is an important source of measured productivity
