Imperialism in the Twenty-First Century. John Smith

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 United States to win a share of the U.S. market. As a study for the World Bank noted, “Political sensitivity … explains why Japanese, German, and Korean automakers in North America have not concentrated their production in Mexico, despite lower operating costs and a free trade agreement with the United States,” while the United States’ own auto giants, who are evidently less patriotic than U.S. consumers, relocate more and more of their production to the other side of the Rio Grande.³⁰

      An alternative and widely used way to estimate the magnitude of outsourcing is to measure the share of intra-firm trade in overall international trade. This is the antithesis of the IMF’s approach, since it captures both intermediate inputs and finished goods, but it has no place for the increasingly important arm’s-length relations between Northern firms and their Southern suppliers.³¹ Peter Dicken comments that “unfortunately there are no comprehensive and reliable statistics on intra-firm trade. The ballpark figure is that approximately one-third of total world trade is intra-firm although … that could well be a substantial underestimate.”³² Princeton economists Gene Grossman and Esteban Rossi-Hansberg are more helpful, reporting that, “in 2005, related party [i.e. intra-firm] trade accounted for 47 percent of U.S. imports…. This fraction has risen only modestly since 1992, when it was already 45 percent.”³³ This modest rise, however, conceals a dramatic reorientation of this trade toward low-wage economies: “Imports from related parties [i.e. subsidiaries] accounted for 27 percent of total U.S. imports from Korea in 1992, and 11 percent of total U.S. imports from China. By 2005, these figures had risen to 58 percent and 26 percent, respectively.”

      Reviewing these attempts to quantify production outsourcing, William Milberg has pointed out that “most attempts to measure the magnitude of the phenomenon of vertical disintegration have captured only parts of the process. Some analysts focus on intra-firm imports and others on the import of intermediate goods whether these are intra-firm or arm’s-length.”³⁴ However, the total outsourcing picture is captured by one set of comprehensive and readily available data—manufactured exports from low-wage nations to imperialist nations as a whole. Milberg and Winkler, in a study of the impact of the crisis on global production networks, explain the simple, powerful logic behind this approach:

      Standard offshoring measures capture only trade inputs … [yet] much of the import activity in global supply chains is in fully finished goods. In fact, the purpose of corporate offshoring, whether at arm’s length or through foreign subsidiaries, is precisely to allow the corporation to focus on its “core competence,” while leaving other aspects of the process, often including production, to others. Many “manufacturing” firms now do not manufacture anything at all. They provide product and brand design, marketing, supply chain logistics, and financial management services. Thus, an alternative proxy for offshoring may simply be imports from developing countries.³⁵

      According to this broad measure of goods offshoring, “developing-country imports constitute over half of total imports by Japan (68 percent) and the United States (54 percent), while the European countries range from 23 percent in the United Kingdom to only 13 percent in Denmark.”³⁶ This must be qualified