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Who benefits from lower ‘Third World’ wages?

We conclude our series refuting the view that workers in the developed capitalist parts of the world exploit workers living in the ‘Third World’.

Third Worldist ‘anti-imperialism’ basically contends that the interests of workers in the Global North are objectively aligned with the capitalists there in seeking to perpetuate the ‘super-exploitation’ of the Global South. Allegedly, this super-exploitation has the effect of raising these workers above the status of an exploited class by enabling them, via a process of ‘unequal exchange’, to receive the full value of their labour contribution.

As Jason Hickel explains:

‘It was the Egyptian economist Samir Amin – a well-known critic of neo-colonialism – who first articulated this argument in the 1970s. He noticed that that if we look at the labour that goes into producing goods for trade between the south and north, we see that workers in the south are paid much less than their northern counterparts – even when adjusted for productivity or units of output per hour. This means that when the north buys goods from the south, they pay far less than those goods would otherwise be worth. In other words, the north effectively siphons uncompensated value out of the south’ (Guardian, 18 May 2017).

While this explanation might seem superficially plausible, there is an intrinsic problem (as we saw last month) with trying to quantify the magnitude of this global transfer of value – let alone quantify the extent to which workers, as opposed to capitalists, in the north allegedly benefit from this transfer – due to value being based on the elusive notion of ‘abstract labour’. Hence the use of price as a surrogate measure. But while the sum of all values must equate with the sum of all prices, for any given commodity, value and price must necessarily diverge under conditions of disequilibrium resulting from the continual adjustment of supply and demand to each other.

Take the commodity, labour power – the skills the worker sells to the capitalist. Its price is the wage that worker receives. However, this transaction is conditional upon the capitalist expecting to make a profit by employing the worker. A business is not a charity. It is not concerned with the wellbeing of its workforce as such. Competition between businesses pushes such sentiments aside and imposes on all the overriding need to secure a profit.

Without profit the business risks being bankrupted. This is as true in the Global North as in the Global South and it is surely significant that the overwhelming bulk of capital – even foreign direct investment – originating in the North is invested there and not in the South. That wouldn’t happen without the prospect of profit.

Profit is the money form of the economic surplus the worker produces in exchange for a wage. She produces more value than she receives in her wage. Hence she is ‘exploited’. It doesn’t matter whether she is ‘well paid’ or not. Whether she can ‘purchase the product of ten hours of another worker’s labour through one hour of her own’ as Zac Cope puts it, is simply not relevant (Divided World Divided Class: Global Political Economy and the Stratification of Labour Under Capitalism, 2012, p.173) Her means of purchasing that product – her wage – is conditional upon her producing a surplus for her employer in the first instance and, thus, being exploited.

Wage levels and the rate of exploitation

What determines the ‘rate of exploitation’ cannot simply be inferred from the level of wages paid to workers; it must take into account, also, their productivity. Paradoxically, higher paid workers can be subject to a higher rate of exploitation if the ratio of the surplus they produce compared to the size of their wage packet is higher than in the case of a low-paid worker. However, this can change if you reduce the wages of the low-paid worker thereby increasing his rate of exploitation.

Commentators, like John Smith, argue that depressing wages below their value in the Global South – super-exploitation – is now the primary mechanism under capitalism for increasing the rate of exploitation (Imperialism in the Twenty-First Century, 2016). Capital is highly mobile today while labour, hemmed in by national borders, is relatively immobile. This obstructs the equalisation of international wage rates (but not the equalisation of profit rates whereby surplus value is siphoned out of the Global South). Multinational corporations can play one poor country off against another in their quest for lower production costs while a corrupt ‘comprador bourgeoisie’ running these countries assists in this race to the bottom by imposing political repression and banning trade unions.

This argument has merit but, still, we cannot overlook differential rates of productivity. According to Hickel:

‘Southern workers are probably at least as productive since these days many of them work in foreign-owned factories (think of Apple’s iPad factories with highly efficient technology and rigid Taylorist rules, designed to extract as much as possible from every movement).’

Clearly, this is just cherry-picking. The vast majority of Southern workers don’t work in foreign-owned factories. Some do and, doubtless, productivity in these cases matches Western levels. But you have to look at the situation across the country as a whole to get a more realistic picture.

Even in an emerging industrial powerhouse like India, the formal sector accounts for only 10 percent of the workforce, the rest working in the informal sector. Globally ‘a staggering 2 billion workers are in informal employment, accounting for three in five (61 per cent) of the world’s workforce’ (ILO, World Employment Social Outlook: Trends 2019).

These are overwhelmingly concentrated in the Global South. Given the paucity of formal sector jobs and the lack of unemployment benefits, workers here often have little option but to eke out a living in the low-paid informal sector. This is characterised by rampant ‘underemployment’ and relatively inefficient small-scale ‘involutionary’ forms of activity.

There is some truth in Hickel’s claim that ‘wages are not somehow naturally low in the south – they have been made low by design. Wages are an effect of power’. But his explanation is incomplete. The bargaining power of those workers is, in turn, undermined by the depressing effect on wages caused by mass unemployment and, even more, underemployment, which is much more pronounced in the South.

The much larger ‘industrial reserve army’ also helps to explain the persistence of generally more labour-intensive forms of production there and, by extension, the significantly lower per capita productivity. According to the ILO there is a strong correlation between output per worker and international variations in wage rates (bit.ly/2OhfIK2).

Indeed, Marx himself maintained that ‘The more productive one country is relative to another in the world market, the higher will be its wages as compared with the other’ (Theories of Surplus Value, Ch. 8). Key to this is raising the ‘organic composition of capital’ via mechanisation thereby bringing about a fall in the rate of profit.

Ironically, Cope himself contends that ‘the capitalist system has been able to maintain itself in recent decades’ only because, among other things, ‘industrialisation of large parts of the Third World have ensured the entry of millions of (super-)exploited workers into the global workforce. This has undoubtedly raised the rate of profit by reducing the rate of growth of the organic composition of capital’ (ibid p.201). So he is effectively conceding that production there is more labour-intensive and we can assume this means less productive in per capita terms.

There is a further point to consider. As we saw earlier, part of Cope’s argument rests on the claim that most Northern workers are ‘unproductive’ in the sense that they do not produce, but are financed out of, surplus value. But what of the Global South? While some workers in the small formal sector could be classed as unproductive – for example state employees – in the much larger informal sector the predominant form of labour – 70 percent in sub-Saharan Africa – is ‘self-employment and unpaid family work’. Strictly speaking, this does not constitute productive labour either since it does not involve what Marx called the ‘exchange of capital for labour’ which is a precondition for such labour being considered ‘productive’.

However, to reiterate – being ‘unproductive’ does not mean not being exploited. ‘Being exploited’ does not depend on you being directly involved in producing surplus value but rather on your functional contribution to a wider system of surplus extraction.

Furthermore, even if 80 percent of the world’s productive labour is ‘performed in the Third World by workers earning less than 10% of the wages of First World workers’, as Cope claims, one should bear in mind that at least 80 percent of the world’s population lives in the Third World anyway.

As for workers there earning less than 10 percent of the wages of First World workers we need to relate this to international differences in price levels. In this regard, the position of Third Worldists comes across as muddled.

On the one hand, we find Cope suggesting that workers in the Global North benefit from the ultra-cheap prices for goods produced by super-exploited workers in the Global South; on the other we are told by him that ‘as soon as these goods enter into imperialist-country markets, their prices are multiplied several fold, sometimes by as much as 1,000%’(p. 159). This is because the capitalists there can ‘afford’ to pay their workers higher wages to buy these goods which presumably means they are making a profit by employing them.

Who benefits from lower import prices?

Wages, being the price of labour power, will tend to adjust to changes in the prices of other commodities. Cheapening the price of imports into the North by intensifying the exploitation of Southern workers will not materially benefit workers in the North. Actually, if anything, it has induced capitalists to outsource production to the South and close down factories in the North at the expense of northern workers.

Like water finding its own level wages will ultimately tend to gravitate towards the value of labour power. Marx’s observations on the early nineteenth-century struggle to repeal the Corn Laws which restricted food imports to boost domestic prices are pertinent here:

‘The English workers have very well understood the significance of the struggle between the landlords and the industrial capitalists. They know very well that the price of bread was to be reduced in order to reduce wages, and that industrial profit would rise by as much as rent fell’ (bit.ly/2LvHt0p).

While it is undeniable that there are marked differences in wage rates between the North and South there are some suggestions that the gap may be closing. A report in the Economist noted that while wage growth in the advanced countries has been slight or stagnant: ‘The crucial change that has taken place over the past decade or so is that wages in low-cost countries have soared’ (19 January 2013). Ironically this has encouraged a limited ‘reshoring’ of manufacturing back to the US where wage stagnation has made US manufacturing slightly more competitive.

Of course, we are still quite a long way off from the ‘equalisation of international wage rates’ but current developments seem to be tending in that direction. In Asia, for example, wages have been growing annually nearly ten times faster than in the world’s richest nations (Nikkei Asian Review, 28 November 2018).

Moreover, if you apply ‘purchasing power parity’ exchange rates to reflect the varying costs of buying an identical basket of goods in different countries, the gap between rich and poor countries narrows considerably. Cope himself notes that ‘according to calculations based on data compiled by the Union Bank of Switzerland, OECD wages have an average 3.4 times more purchasing power than non-OECD wages’ (p.163).

This is far less than the cited ratio of 1:11. This difference can be adequately explained in terms of factors already discussed such as differential productivity rates. But compared to the difference in purchasing power between capitalists and workers everywhere in the world, it is pretty negligible.

It is this fundamental class division that the proponents of Third Worldist ‘anti-imperialism’ wilfully obscure in their pointless pursuit of a reactionary nationalist agenda in an age of global capitalism.


One Reply to “Who benefits from lower ‘Third World’ wages?”

  1. Great article, Robin. Thank-you.

    One thing which I’ve noticed, which I think tends to be overlooked, is that the price of labour power usually fluctuates with supply and demand around its value. The value of the labour power the employer buys is determined by the amount of socially necessary labour time embodied in developing whatever skill is being sold by the worker. If the labour power involves very little time in educational institutions or apprenticeships etc., the value will be lower i.e. its costs of reproduction will be less, hence its price or wage will be less, if supply and demand for it is more or less in balance. However, if the labour power or skill is not in demand or is over supplied in the labour market, there would be a downward pressure on price, no matter what its value, and many who had the skill would not be able to sell it, resulting in unemployed e.g. philosophers. These workers might have to sell some other sort of skill, e.g. hamburger flipping in order to make a living.

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