Global Capitalism Requires a
Global Socialist Strategy
In February 1972, Nixon went to China. While American bombers laid waste to the Vietnamese countryside with defoliants and explosive ordnance, killing and maiming inhabitants by the millions, Richard Nixon arrived in Beijing, where flashbulbs popped on the tarmac, and a giddy American press corps – already primed to call this ‘the week that changed the world’ – was ecstatic. An avowed anti-communist, Nixon – the first US president ever to visit the People’s Republic – had crossed the Pacific to extend a historic offer. Officially, it was a gesture of peace. The US and China were not friends, but cordial acquaintances. A crisis in the global North necessitated a spatial solution to the global South.
With the global financial and monetary system of Bretton Woods deteriorating in the 1960s, US monetary imperialism underwent a major transformation. First, by suspending the gold convertibility of the dollar in 1971, US Federal Reserve Chair Paul Volcker removed the cap on America’s balance of payments. In an ingenious reversion, instead of acting as the world’s creditor (drawing on its now-depleted gold reserves), the US would become its chief debtor. By greasing the wheels of commerce, and the palms of politics, with a flood of American treasury bonds, it would remain the world economy’s ‘indispensable nation’, still capable of exercising outsized authority – but now through a more elastic financial instrument. The US reserved the right to threaten war should anyone try to call in the tab. But instead of underwriting reconstruction in Europe, it would use this liquidity to perfuse the late-industrialising nations – and in that regard, China, with its great reserves of labour, held the most potential.
Nixon’s warm embrace had thawed party doctrine enough to allow for the rehabilitation of figures such as Deng Xiaoping, a party elder whose pragmatic approach to economics – striving to harness capitalism – had seen him relegated to anonymous factory work. In the coming years, Deng would, after some jockeying, succeed Mao Zedong as a paramount leader and proceed to institute sweeping reforms, opening China up to flows of international learning, technology and – most importantly – capital. The ensuing boom in manufacturing saw China become the new ‘workshop of the world’, replacing the US. Meanwhile, America – the single biggest market for Chinese goods – would undergo a complementary transition, as its own capital-light industries gave way to services and leveraged consumption.*
The most salient of Deng’s reforms was the creation of special economic zones, or SEZs, first in the south-east of the country, in Guangdong and Fujian provinces, and then dotted up the coast and inland, as Beijing conferred the new status on several major ports and provincial capitals. This experimental designation – the brainchild of Xi Zhongxun, father of Xi Jinping and the then governor of Guangdong – allowed for relaxed regulatory regimes and the lifting of tariffs, with the aim of stimulating, but not revolutionising, the economy. Originally conceived as a quick way to stem the outflow of Guangdong Chinese into neighbouring Hong Kong, where wages and living standards were much higher, SEZs supercharged the local economy. Soon, the designation became a means of creating boom towns by fiat.
The first SEZ, Shenzhen, had been a sleepy fishing village just north of Hong Kong, with a population of about 30,000 in 1979 – the size of Beloit, Wisconsin. By 2018, only forty years later, it had grown into an administrative area with over 20 million residents – the size of metropolitan New York City. Beijing accommodated the vast sums of FDI (foreign direct investment) pouring into China by encouraging internal migration to the SEZs and channelling new tax revenues into infrastructure (especially transport networks) to keep down capital costs. This willingness to invest in infrastructure while suspending labour, trade and environmental regulation dovetailed nicely with China’s natural advantages in raw materials and workforce size and nourished a manufacturing revolution, which transformed the country into an export powerhouse.
This process – the fall of the so-called Bamboo Curtain – is usually described in triumphalist terms by free marketeers who laud the successful ‘integration’ of China into the world economy and the emergence of a domestic bourgeoisie. But such talk obscures the devil’s bargain at the heart of it all, since it is the Chinese Communist Party (CCP) that steered this course and remains at the helm. Under Mao and his central planning regime, which used lessons gleaned from early Soviet history, the economy had been designed to achieve wage parity and maximum employment, preventing the emergence of a real market for labour.
But under Deng, the ‘iron rice bowl’ (public sector jobs guaranteeing steady pay and benefits) began to shrink as structural unemployment and worker competition were gradually reintroduced. In due time, it seemed that the CCP was organising workers solely for the sake of capital – that is, to produce the labour market conditions necessary to attract more FDI. In terms of GDP, this new tactic was a wild success: the economy grew at some 10 per cent per annum – the fastest pace in recorded history. By the late 2000s, Chinese GDP had surpassed Japan’s and China had become the world’s second-largest economy.
The majority of early FDI, however, came not from the West, but from the Han diaspora in Taiwan, Hong Kong, Macau and Singapore, whose special privileges allowed its members – and select firms in Malaysia and South Korea – to form what became known as ‘dragon multinationals’. These firms grew rapidly and became gravity wells for outsourced production, especially in the most labour-intensive sectors. Bulk purchasing orders flooded in from Western clothing brands.
The mass shift in global production towards China and other emerging economies transformed distribution and consumption by creating GVCs (global value chains), allowing transnational firms to capture substantially larger surpluses. These new profits were derived from the difference in ‘markup’ caused by ‘global labour arbitrage’, or international unequal exchange relation. And so, as unit labour costs in China dropped, the cost advantages of production there grew. It was the economic crisis in the advanced capitalist world that allowed ostensibly political conflicts to be put aside.
Monopoly and monopsony in the GVC
A firm is said to have a monopoly when it is the sole seller of a good in a market. Similarly, an oligopoly is a market dominated by a limited number of sellers. A monopsony, however, is the inverse of a monopoly, meaning a market with a single buyer. And, oligopsony, by extension, is the inverse of an oligopoly, meaning a market with only a limited number of buyers. Therefore, the degree of monopoly is the relative degree of oligopoly in a market and the degree of monopsony is the relative degree of oligopsony in the value chain. Oligopoly and oligopsony both describe markets with imperfect competition, that is, a stark asymmetry in the balance between buyers and sellers. It follows from this that the degree of monopoly (the ratio of sellers to buyers) in a market is the inverse of the degree of monopsony (the ratio of buyers to sellers).
A higher degree of monopsony power (DMP) necessarily leads to a higher share in value obtained by global buyers (well-known brands and retailers). The spatial specificities of production, combined with changes in the distribution of value, lead to consolidation and change in DMP. When the balance of competitive forces resolves temporarily into a symbiotic state, the spatial fixes used by buyers (capital flight) are exhausted, thus lowering DMP. This change, in turn, provides suppliers with more bargaining power. Capitalistic competition, therefore, produces oligopolies at either end of the supply chain, leading to crises of profitability and attempts at new ‘fixes’. In the 1970s, the fix was spatial (globalisation); today, it arrives through the organisational and/or technological route.
This argument can be traced back to Adam Smith, who posited an inverse relationship between profit and capital stock caused by intensified competition and consequent innovation. Rudolf Hilferding also argued that in certain specific historical conditions, competition could hinder long-term accumulation. The claim here is therefore twofold. First, labour-intensive sectors (such as garments, footwear, toys, furniture, etc.) that employ much of the global industrial working class are defined by the logic of competition, which moves them inexorably in the direction of consolidation, thereby reducing the monopsonistic power of buyers. Second, changes in the value chain are reflected in the bargaining power of workers.
The working conditions in the most labour-intensive industries cannot be understood without reference to the composition of capital at the level of the value chain. These value chains (namely footwear and garments) remain vertically disintegrated, buyer-driven and technologically underdeveloped. The emergence of value chains in these sectors has intensified a global ‘race to the bottom’, magnifying the asymmetry of power between suppliers and buyers through the maintenance of a high degree of control by global ‘buyers’.
Globalised brands exercise monopsony power over producers through their ability to select from a large pool of outside firms for almost every phase of the value chain – textiles, production, transport, processing, warehousing, and so on. Suppliers unable to reach the price demanded by these transnational brands risk the loss of orders or even closure. This dependence has left manufacturers in a state of perpetual instability, unable to muster the capital necessary to escape the orbit of brand power and pursue their own development, and with the possibility of losing a purchasing contract an inexorable existential threat. The result is that workers in these sectors have the lowest bargaining power of any industrial sector.
The immediate consequence of the COVID-19 pandemic was falling demand and growing instability in the supply chain. The result was the bankruptcy of smaller suppliers whose margins were thin even at the best of times. Larger suppliers increased their market share at the expense of these smaller firms, expanding horizontally and vertically, and helping to initiate the process of investment in technology, which increased barriers to entry to new firms. This reduced the degree of monopsony in the global value chain.
Take the garment sector in Bangladesh, which is an industrial one-trick pony. Eighty-four per cent of its export revenue comprises readymade garments which workers, mostly women, churn out chiefly for Western markets. However, since the COVID-19 pandemic, global demand has plummeted, brands and retailers have cut and run and factories have shut down, laying off a million garment workers – a quarter of the country’s garment workforce.
On 27 May, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the country’s largest trade group for garment factory owners, wrote to British billionaire Philip Day’s Edinburgh Woollen Mill (EWM), which owns brands such as Jaegar and Peacocks, demanding that the group pay for clothes shipped prior to 25 March and threatening to blacklist the company. BGMEA president Rubana Huq suggested that targeting EWM was only the beginning. The move was unprecedented in the history of the sector and reveals larger processes of change in global industrial capitalism.
Workers and socialist strategy
Employment relations can in part be explained by the conflicts between capital and labour. Labour is, after all, the only living and subjective factor in production. In Marxian terms, labour is an employer’s ‘variable capital’ – variable in that it is elastic: the degree of exploitation involved (and, therefore, profitability) can be increased by cutting pay, extending the workday or intensifying the workday.
As outlined above, deregulation led to a higher degree of monopsony (high ratio of suppliers to buyers). Thus, as competition increased at the bottom of the supply chain, factory owners were under constant pressure to produce more for less. Those who could somehow keep pace would be rewarded with big contracts. Those who could not would go under. As trade barriers to Latin America, South and South-East Asia and most importantly China withered away, transnational competition intensified, turning local regulations into hindrances and productivity into a religion. In these circumstances, where other variables were effectively controlled by the absence of capital reserves at the point of production, a factory’s survival came down to what could be wrung from workers at the least expense.
Just as deregulation intensified competition at the bottom of the supply chain, it also brought down the price a buyer was willing to pay a supplier for the production of a commodity. Over time, fewer firms were able to produce that product for the price demanded by buyers, which winnowed the number of suppliers in the supply chain. The resulting falling monopsony power increased the value captured by these now more consolidated firms. Consolidation increases the surviving suppliers’ share of value, which expands access to finance, facilitates self-investment and raises entry barriers.
Labourers employed in the ‘key nodes’ of globally integrated production systems possess greater bargaining power (workplace bargaining power) vis-à-vis capital, which can affect the entire value chain and production network. However, subcontracting and ‘vertical disintegration’ were introduced to erode that power. Spatially and organisationally flexible production systems are therefore a tool for controlling labour costs by constraining labour’s power. And while the cynical but savvy exploitation of uneven development led to a system of world production centred on the global North, it appears that the next stage of development is already on the horizon. The year 2010 was the first in which the economies of the global South accounted for half of all FDI inflows. This, coupled with the year-on-year increase in FDI outflows from those same economies – the 2011 UNCTAD report notes that ‘emerging economies are the new FDI powerhouses’, and that most outflows stayed within the global South – indicates their growing significance as sites of production and consumption, and as sources of investment.
Industrial workers have low bargaining power where surpluses are limited, and production is diffuse and isolated from consumption. Deregulation and increased competition, however, have created more centralised industries within historically labour-intensive sectors. Oligopolistic power translates into higher profits, which are being stretched with finance and invested in labour-saving technologies. However, when buyer DMP falls, suppliers ascend, giving workers the high ground. Indeed, with the onset of the coronavirus crisis, we are witnessing the consequences of years of overreach by brands and of the growth, consolidation and organisation of suppliers in the apparel industry. We now see fewer and fewer suppliers dominating specific sectors of production.
In the 1970s, capital globalised in order to confront its crisis of profitability. It sought new terrains of profitability in China, Bangladesh and across the global South. Today, capital seeks a new means to fix its now global crisis. The strategy of stageism, of accelerating the conditions of capitalism to arrive at socialism, died in 1953. It’s clear that socialism will not arrive from above, but must be built from below. The COVID-19 pandemic is making visible many of capitalism’s abstractions. The new conditions of increasingly fortified states, national chauvinism and the uneven distribution of global capitalism require an extra-parliamentary and extra-national strategy. This strategy necessitates a predictive analysis of a highly integrated global production process, including mapping the logics that shape its contours, identifying its key chokepoints and nodes, and building links between workers and their organisations to maximise their disruptive power.
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* This arrangement tends to lock in austerity/underconsumption for Chinese workers, since it is based on the precondition of low-wage, labour-intensive industry. However, beyond low-wage/high-wage dichotomies, there is also a pattern in the neoliberal global order of ‘producer-savers’ (that is, Germany and China) and ‘consumer-debtors’ (the US).