John Bellamy Foster, Robert W. McChesney, and R. Jamil Jonna: The Global Reserve Army of Labor and the New Imperialism

The Global Reserve Army of Labor and the New Imperialism
by John Bellamy Foster, Robert W. McChesney, and R. Jamil Jonna
Monthly Review

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Global Labor Arbitrage

The pursuit of “an ever extended market” Marx contended, is an “inner necessity” of the capitalist mode of production.35 This inner necessity took on a new significance, however, with the rise of monopoly capitalism in the late nineteenth and early twentieth centuries. The emergence of multinational corporations, first in the giant oil companies and a handful of other firms in the early twentieth century, and then becoming a much more general phenomenon in the post-Second World War years, was a product of the concentration and centralization of capital on a world scale; but equally involved the transformation of world labor and production.

It was the increasing multinational corporate dominance over the world economy, in fact, that led to the modern concept of “globalization,” which arose in the early 1970s as economists, particularly those on the left, tried to understand the way in which the giant firms were reorganizing world production and labor conditions.36 This was clearly evident by the early 1970s—not only in Hymer’s work, but also in Richard Barnet and Ronald Müller’s influential 1974 work, Global Reach, in which they argued: “The rise of the global corporation represents the globalization of oligopoly capitalism.” This was “the culmination of a process of concentration and internationalization that has put the world economy under the substantial control of a few hundred business enterprises which do not compete with one another according to the traditional rules of the market.” Moreover, the implications for labor were enormous. Explaining how oligopolistic rivalry now meant searching for the lowest unit labor costs worldwide, Barnet and Müller argued that this had generated “the ‘runaway shop’ which becomes the ‘export platform’ in an underdeveloped country,” and which had become a necessity of business for U.S. companies, just like their European and Japanese competitors.37

Over the past half century, these global oligopolies have been offshoring whole sectors of production from the rich/high-wage to the poor/low-wage countries, transforming global labor conditions in their search for global low-cost position, and in a divide and rule approach to world labor. Leading U.S. multinationals, such as General Electric, Exxon, Chevron, Ford, General Motors, Proctor and Gamble, IBM, Hewlett Packard, United Technologies, Johnson and Johnson, Alcoa, Kraft, and Coca Cola now employ more workers abroad than they do in the United States—even without considering the vast number of workers they employ through subcontractors. Some major corporations, such as Nike and Reebok, rely on third world subcontractors for 100 percent of their production workforce—with domestic employees confined simply to managerial, product development, marketing, and distribution activities.38 The result has been the proletarianization, often under precarious conditions, of much of the population of the underdeveloped countries, working in massive export zones under conditions dictated by foreign multinationals.

Two realities dominate labor at the world level today. One is global labor arbitrage or the system of imperial rent. The other is the existence of a massive global reserve army, which makes this world system of extreme exploitation possible. “Labour arbitrage” is defined quite simply by The Economist as “taking advantage of lower wages abroad, especially in poor countries.” It is thus an unequal exchange process in which one country, as Marx said, is able to “cheat” another due to the much higher exploitation of labor in the poorer country.39 A study of production in China’s industrialized Pearl River Delta region (encompassing Guangzhou, Shenzhen, and Hong Kong) found in 2005 that some workers were compelled to work up to sixteen hours continuously, and that corporal punishment was routinely employed as a means of worker discipline. Some 200 million Chinese are said to work in hazardous conditions, claiming over a 100,000 lives a year.40

It is such superexploitation that lies behind much of the expansion of production in the global South.41 The fact that this has been the basis of rapid economic growth for some emerging economies does not alter the reality that it has generated enormous imperial rents for multinational corporations and capital at the center of the system. As labor economist Charles Whalen has written, “The prime motivation behind offshoring is the desire to reduce labor costs…a U.S.-based factory worker hired for $21 an hour can be replaced by a Chinese factory worker who is paid 64 cents an hour…. The main reason offshoring is happening now is because it can.”42

How this system of global labor arbitrage occurs by way of global supply chains, however, is enormously complex. Dell, the PC assembler, purchases some 4,500 parts from 300 different suppliers in multiple countries around the world.43 As the Asian Development Bank Institute indicated in a 2010 study of iPhone production: “It is almost impossible [today] to define clearly where a manufactured product is made in the global market. This is why on the back of iPhones one can read ‘Designed by Apple in California, Assembled in China.’” Although both statements on the back of the iPhones are literally correct, neither answers the question of where the real production takes place. Apple does not itself manufacture the iPhone. Rather the actual manufacture (that is, everything but its software and design) takes place primarily outside the United States. The production of iPhone parts and components is carried out principally by eight corporations (Toshiba, Samsung, Infineon, Broadcom, Numonyx, Murata, Dialog Semiconductor, and Cirrus Logic), which are located in Japan, South Korea, Germany, and the United States. All of the major parts and components of the iPhone are then shipped to the Shenzhen, China plants of Foxconn (a company headquartered in Taipei) for assembly and export to the United States.

Apple’s enormous, complex global supply chain for iPod production is aimed at obtaining the lowest unit labor costs (taking into consideration labor costs, technology, etc.), appropriate for each component, with the final assembly taking place in China, where production occurs on a massive scale, under enormous intensity, and with ultra-low wages. In Foxconn’s Longhu, Shenzhen factory 300,000 to 400,000 workers eat, work, and sleep under horrendous conditions, with workers, who are compelled to do rapid hand movements for long hours for months on end, finding themselves twitching constantly at night. Foxconn workers in 2009 were paid the minimum monthly wage in Shenzhen, or about 83 cents an hour. (Overall in China in 2008 manufacturing workers were paid $1.36 an hour, according to U.S. Bureau of Labor Statistics data.)

Despite the massive labor input of Chinese workers in assembling the final product, their low pay means that their work only amounts to 3.6 percent of the total manufacturing cost (shipping price) of the iPhone. The overall profit margin on iPhones in 2009 was 64 percent. If iPhones were assembled in the United States—assuming labor costs ten times that in China, equal productivity, and constant component costs—Apple would still have an ample profit margin, but it would drop from 64 percent to 50 percent. In effect, Apple makes 22 percent of its profit margin on iPhone production from the much higher rate of exploitation of Chinese labor.

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