Ideas & Debates
A Race Towards the Abyss: Labor and Capital Competition in a Globalized Market
The internationalization of production has redefined the terms of global competition. Global Value Chains perpetuate the North-South divide and create a unified global labor market.
May 24, 2017
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Since Marxists produced their “classics” on imperialism in the beginning of the 20th century, numerous works have discussed an evolving capitalist competition–and with it the law of value–in the imperialist epoch. It is a multifaceted question, as it is necessary to consider the internationalization of production involving sweeping transformations in recent decades. Here we tackle a central aspect of this theme today, the asymmetric structure of the world market and the segmented competition generated by the establishment of global value chains. It is an issue that strongly impacts the conditions of the working class all around the world.
On the basis of John Smith’s recent book Imperialism in the Twenty-First Century, we discussed  the importance of Global Value Chains (GVCs) that have formed as a result of the restructuring of production, which large corporations have promoted with increasing intensity since the 1970s. While the internationalization of production has deepened and worldwide flows of commerce and capital have increased, competition has not necessarily developed evenly in all of these fields.
The last decades have seen the marked substitution of goods produced in the most developed capitalist economies for goods produced in less developed nations. This movement, established by the largest corporations through both Foreign Direct Investment (FDI) and the setting up of worldwide networks of diversified suppliers, has in many cases led to a situation where these multinationals perform only a tiny portion of the production process in the countries where they are located. This tendency can be seen not only in low valueadded goods, but also in high value products such as electronics and information technology .
It would be wrong to draw the conclusion from the above that emerging economies are winning the competitive battle against the richest economies. In the best of cases, this is only a half-truth, as the advantages that these emerging economies offer– primarily low costs in labor– make them more attractive as a destination for the resources of multinational companies. But in the strict sense, there is no competition between the firms of the imperialist economies and those in the rest of the world that have primarily developed as intermediate suppliers for these multinationals. Neither is there competition between the imperialist powers of the Global North and the economies of the Global South.
Let’s look at some examples to illustrate this point. Apple competes with technological giants Samsung and Nokia. On the other hand, emerging companies that are gaining ground in the production sector– such as FoxConn or the Taiwan Semiconductor Manufacturing Company (TSMC)–do not compete directly with these multinational corporations but are instead integrated into their value chains as suppliers.
In notebooks, Dell competes with HP, Lenovo (the Chinese giant that bought IBM’s computer division in 2005 to position itself as a leader), Asus and Acer from Taiwan; but none of these companies compete with the Chinese Compal, Wistron and FoxConn. In textiles, the largest brands contend amongst themselves for the main world markets but do not compete with the firms in countries such as Bangladesh that abundantly supply them. The same relationship can be found in all fields of production.
This bring us to an important conclusion: the large multinational companies that dominate access to the main markets compete with each other in their respective sectors, while they establish a complementary relationship, that is, a relationship of non-competition, with other capitals within the sector that are integrated as their suppliers.
The imperialist economies, which today are the source of more than 80 percent of the world’s foreign direct investment (World Investment Report 2015), are the base for corporations that primarily compete among themselves, excluding the firms of the “emerging” economies. Despite the fact that the latter have made progress with the development of some players who are beginning to have global reach, the presence of these “emerging” economies within this competition remains secondary .
In 2010, Richard Herd of the Organization for Economic Cooperation and Development (OECD) stated that the ability to assemble Japanese products in China gave these Japanese firms “a new lease on life,” and that “if you look at Chinese exports and Japanese exports, they are not competing; they are complementary.”
His conclusion was that “at the moment, China is not a threat to Japan’s core industries.”  A similar analysis was made by think-tanks in the European Union.
A study of the LICOS Centre at the University of Leuven (Belgium), observed that “the possibility of offshoring the more laborintensive production and assembly activities to China provides an opportunity to our own companies to survive and grow in an increasingly competitive environment.”  They conclude that “...our direct competitors in the tasks that we have a comparative advantage are not located in China, but continue to be the usual suspects: the United States, Western Europe and a handful of highincome East Asian economies.” 
This should not make us overlook the areas in which there is strong competition between the capitals of the richest economies and the rest of the world. The clearest example is the automotive industry, which is going through a major restructuring with countries such as Mexico among the main destinations for relocations, while many of the factories in the richest economies struggle to survive.
More importantly, the dominant pattern of complementariness and subordination that the corporations of the imperialist powers have established over the rest of the world in most cases runs into a stark limit. The emergence of firms in strategic high value-added sectors located in China, South Korea, Taiwan, and India, for example, presents a challenge to this domination. China, in particular, is becoming increasingly competitive in some of the most dynamic areas of technological development. Yet even with the strength of the Chinese state behind this development, the results being achieved are at best disparate. These are relatively exceptional cases within an overall trend in the opposite direction, but they are nevertheless of great importance because of their impact on global economic relations.
Asymmetric market structures
In a work published by the International Labour Organization (ILO), Gary Gereffi described the existence of “... the fundamental asymmetry in the organization of the global economy between more and less developed nations. To a great extent, the concentrated higher value-added portion of the value chain is located in developed countries, while the lower value-added portion of the value chain is in developing economies.” 
The strategy of export-based growth, which after the success of the Asian Tigers in the 1970s became the model to emulate, was feverishly promoted by the development agencies of various multilateral organizations through an agenda of liberalization and the opening of markets to attract capital.
However, this strategy has done little else except stimulate a frantic competition to offer the best conditions to multinational capital. A United Nations Conference on Trade and Development (UNCTAD) document recognizes the risk that “the simultaneous drive in a great number of developing countries, including in particular those with a large economy, to export such dynamic products [technology intensive products such as computers and semiconductors] may cause the benefits of any increased volume of exports to be more than offset by losses due to lower export prices." 
So on the one hand, the attempt by numerous countries to replicate “successful” development strategies has increased competition by offering multinational companies the best conditions for the establishment of investments and the organization of global supply networks. Yet on the other, multinational groups have taken advantage of these possibilities in order to preserve what Raphael Kaplinsky describes as their “fierce oligopsony,” a market of few buyers, allowing them to control prices and working conditions. 
As other global value change scholars suggest: “The asymmetry of market structures in global production networks, with oligopoly firms in lead positions and competition among first- and certainly second-tier suppliers, has meant intense pressure on suppliers who, in seeking to maintain markups, must keep wages low and resist improvements in labor standards that might lead to a shift in the supply process to another firm or country.” 
From a Marxist analysis, Ernesto Screpanti argues in his book Global Imperialism and the Great Crisis, that the countries of the Global South are nearly all penalized “by the technological gap with the dominant countries, and by their structural differences of labor productivity.” 
Multinationals will only invest in these countries if their wages are low enough to ensure low labor costs. So, it is sufficiently depressed wage levels that allow firms to achieve competitiveness in labor costs per unit of product despite the lower levels of productivity.
Since a large industrial reserve army is an essential condition for the maintenance of low wages, Screpanti notes, “in these countries unemployment and underemployment are rife.”  As the author concludes, this type of specialization of production and its associated income distribution do “nothing to favor investment in human capital or to develop a culture of innovation, and consequently cannot help reduce the technological gap.” 
One of the benefits that global capital has obtained from the last decades of restructuring is the intensified competition among the countries of the Global South which aspire to attract multinationals through the continued undermining of the conditions of their labor force.
The other side of this process, which is no less important–yet has been overlooked by John Smith and others–is the ability to force
international competition onto the labor force of imperialist nations, something which is increasingly being incorporated within global arbitrage (profiting off market price imbalances).
As Screpanti points out: “Goods exported by these countries [the Global South] to the North compete with goods produced at higher costs by local firms, which are induced to react by offshoring and relocating investments. This reduces industrial employment in advanced countries and weakens trade unions, so that real wages stagnate here too and exploitation increases. What’s more, to counter the outflow of capital and attract foreign direct investments themselves, the governments of advanced countries are prompted to cut taxes on businesses and wealth. Then, to avoid excessive increases in budget deficits and public debts, they increase taxation on wages or they reduce public spending, so that workers are hit by a further reduction in their overall income and social rights.” 
What we see here is an important innovation that is characteristic of the offensive that capital began in the 1980s in an effort to wipe out the conquests that workers had achieved in different countries, many of which still remain in the imperialist economies.
In his famous book Imperialism, the Highest Stage of Capitalism, Lenin analyzed how the super-exploitation of the periphery allowed the imperialist powers to incorporate the trade unions and ensure the privileged conditions of a labor aristocracy.
However, the changes in the way that the exploitation of the periphery is carried out now means that imperialism “...does not generate significant labor aristocracies in the Global North. The increasing surplus value extracted from the Global South flows only into the pockets of the big capitalists, thus contributing to increasing income inequalities even in the Global North. By placing the workers of every country in the world in competition with those of all other countries, commercial discipline exacerbates the exploitation of workers worldwide.” 
In this way, the same movement that propelled the opening of new areas for the accumulation of capital and the reduction of production costs, thus fueling an improvement in margins, was at the same time a lever for deteriorating workplace conditions in imperialist countries. 
All of this is, of course, part of a new tendency underway. Imperialist states continue to have greater access to resources as well as greater financial capacity, fueled by the appropriation of a part of the world’s surplus value. These inequitable economic relationships allow imperialist nations to partially contain some of the effects of these new conditions.
The greater access to resources that the imperialist states have, and the greater financial capacity of their economies, which is fed by the appropriation of a part of the world’s surplus value that their capital gets, are all elements that continue to allow them to partially contain some of the effects of these new conditions.
With regards to global social capital, today’s capitalist world is characterized by a marked hierarchy, within which competition develops in a segmented fashion. This does not mean that this competition is less intense. In fact, the last few decades have been characterized by an increased opening up of markets, which has intensified competition. But this competition is not universal.
It is instead between a few tens of thousands of large corporations largely based in imperial economies contending for a greater part of the surplus value torn from the world’s workers; and on the other hand, the many other capitalists, primarily from the Global South, who are competing to integrate themselves in a subordinate fashion into the production chains. Ultimately, these exclusive competitions result in a cooperative relationship against labor that has allowed multinationals to maximize their share of the benefits, while further reducing their costs and risks. The illusion of reaching an elusive level of development, advanced by the bourgeoisies of dependent and semicolonial capitalist countries, reveals itself as an unattainable utopia.
As far as labor conditions are concerned, we can see that the increasing integration of global competition, can truly be described as a race to the bottom, or to be more eloquent, a race towards the abyss. The flipside is that class conflict has also been globalized, creating the potential to move labor struggles towards unprecedented unification. This is one of the many new possibilities for workers’ action in these times of internationalized production.
Translated by Sean Robertson
1. See “Open Veins of the Global South”, Ideas de Izquierda (IdZ) Number 28, April 2016.
2. Esteban Mercatante, “Los BRICS y el mundo emergente, ¿respiro o futuro foco de nuevas tensiones globales?” (BRICS and the Emerging World: respite or future focus of new global tensions?), Meridiano. Revista de Geografía (Meridian. Journal of Geography) No. 2, 2013.
3. Esteban Mercatante, “Capitalismo siglo XXI: un mundo menos plano que nunca” (Twenty- First Century Capitalism: a world more uneven than ever), Ideas de Izquierda (IdZ) Number 14, October 2014.
4. Michiyo Nakamoto, “Asia: Displacement activity”, Financial Times, August 22, 2010.
5. Ari Van Assche, Chang Hong and Veerle Slootmaekers, “China’s International Competitiveness: Reassessing the Evidence”, LICOS Discussion Paper Series 205 / 2008.
7. Gary Gereffi, “The New Offshoring of Jobs and Global Development”, ILO Social Policy Lectures, 2005, p. 40.
8. Jörg Mayer, Arunas Butkevicius and Ali Kadri, “Dynamic Products in World Exports”, Discussion Papers 159, United Nations Conference on Trade and Development (UNCTAD), 2002.
9. Raphael Kaplinsky, “Globalization, Poverty and Inequality: Between a Rock and a Hard Place,” Cambridge, Polity, 2005, p. 230.
10. William Milberg and Rudi von Arnim, “U.S. Offshoring: Implications for Economic Growth and Income Distribution”, Schwartz Center for Economic Policy Analysis (SCEPA) Working Paper, 2006-3.
11. Ernesto Screpanti, “Global Imperialism and the Great Crisis: The Uncertain Future of Capitalism,” New York, Monthly Review Press, 2014, p. 63.
13. ibid., p. 77.
14. ibid., p. 80.
16. For an overview of the working class in some of the rich economies see Celeste Murillo and Juan Andrés Gallardo, “Fast Food Nation”, Ideas de Izquierda (IdZ) Number 4, October 2013 and Oskar Huber, “La ‘cooperación social’ alemana: modelo exitoso para el capital” (German ‘Social Cooperation’: a Successful Model for Capital), Ideas de Izquierda (IdZ) Number 23, September 2015.