How Imperialism Works Today

— Mel Rothenberg

Imperialism in the Twenty-First Century
Globalization, Super-Exploitation, and Capitalism’s Final Crisis
By John Smith
Monthly Review Press, 2016, 382 pages, $24 paper.

THE FIRST 25 years of the 20th century saw an extremely rich output of analysis by Marxist thinkers on imperialism. With the rise of an imperialism based on capitalism, the resulting conflict among the leading capitalist states, which resulted in the carnage of World War I and its profound impact on the workers movement, imperialism became the central international phenomena confronting Marxist political forces.

The writings on imperialism of Hilferding, Kautsky, Bukharin, Luxemburg and particularly Lenin, influenced by the non-Marxist but profound analysis of Hobson, were the deepest, most original and most influential intellectual product of Marxism of the 20th century.*

In the second quarter of the twentieth century, the major focus of Marxist intellectual work turned to analyzing the dynamics and prospects of expanding the Russian revolution, and later the meaning and implications of the rise of Fascism and World War II.

There were few Marxist thinkers in the interwar period of the stature of the early 20th century Marxists. I can think of only two, Gramsci and Lukacs — and their concerns turned to the politics of European culture, rather than the international focus that drove the earlier Marxist thinkers.

With the end of World War II, the rising anti-colonial struggles, the Cold War, and the U.S.-led international capitalist bloc became the major intellectual and political preoccupations for Marxists. These topics had obvious links with imperialism, and anti-imperialist rhetoric became a staple of left organizing.

Much insightful exposure and analysis of U.S. imperialism by Marxists was produced in the last half of the twentieth century. Little of it, however, had the universal character, the originality, or the depth and linkage to basic Marxist categories of the classical work.

Dependency Theory vs. Monopoly Capital

The deepest Marxist work on the general political economy of contemporary capitalism that appeared in the postwar era was the book of Paul Sweezy and Paul Baran, Monopoly Capital. The most interesting and influential work on imperialism, growing out of the anti-colonial movement, was that of the dependency theorists, only a few of whom such as Samir Amin, Arghiri Emmanuel and Andre Gunder Frank were Marxists.

The dependency school claimed that the former colonies referred to as the Third World were held in state of underdevelopment, i.e. lack of industrial development and poverty, because of “unequal exchange” — that is, their products of raw materials were exchanged below their value for the industrial goods of the advanced capitalist world.

This unequal exchange was acknowledged by international trade economists as the Prebisch-Singer dilemma, but never really explained by mainstream economists.

In the final decades of the 20th centuries dependency theory was considered discredited with the rise to intellectual dominance of neoliberalism, the end of formal colonialism and the industrialization of China, Korea, Brazil and to some extent India. (An excellent Marxist critique and comparison of the Monopoly Capital versus the Unequal Exchange perspective can be found in the Bill Dunn article in the July 2017 issue of Science and Society.)

With the collapse of the Soviet bloc and the rise to dominance of neoliberalism, followed by the current discrediting of neoliberalism under the impact of seemingly unending international economic crises, the global situation has been fundamentally altered and hopefully serious intellectual work on imperialism will once again be taken up by Marxists.

The lengthy book of John Smith under review here is possibly a harbinger of the 21st century in this direction. Smith is in the unequal exchange tradition, although he is appreciative of the contributions of the theory of Monopoly Capital exponents.

Fundamental Concepts and Arbitrage

The great virtue of Smith’s treatment of imperialism is that from the beginning he bases his analysis on fundamental Marxist concepts.

The first phenomenon he investigates and details in Chapter 1 is the “super-exploitation” of labor in the Third World, more precisely designated as the neocolonies. He explicates this by analyzing global commodity production and the phenomenon of outsourcing in Chapters 2 and 3.

The rest of the book is summarized by Smith himself:

“The most important fact revealed by our analysis of three global commodities is the centrality of vast international wage differentials in driving and shaping the global transformation of production during the neoliberal era. Chapters 2-6 analyze different dimensions of this, creating the basis for the development of a theoretical concept of it in chapters 7 and 8, in which international wage differentials are seen as a surface manifestation and distorted reflection of international differences in the degree of exploitation.

“Chapter 7, 'Global Labor Arbitrage: Key Driver of the Globalization of Production,' considers attempts by mainstream economists to understand the significance of wage driven production outsourcing. Finding these to be at best purely descriptive, we turn to contemporary Marxist scholarship, finding these, with few but important exceptions, to be astonishingly indifferent to and accepting of bourgeois economists’ argument that international wage differentials merely reflect international differences in labor productivity.

“The remainder of chapter 7 continues the quest for a concept of international differences in the rate of exploitation by visiting the debate on 'dependency' that accompanied the anticolonial national liberation movements of the 1960s and 1970s, while chapter 8, 'Imperialism and the Law of Value,' completes the quest by testing the ability of Marx’s theory of value to explain the ancient and modern reality of super-exploitation. (37)

Chapter 9 on “The GDP illusion,” while correct, is less central than Smith’s main argument and less interesting or original. Chapter 10 lays out his conclusions about the current international political/economic crises of capitalism, rooted he contends in the specific forms of labor exploitation defining contemporary imperialism.

He examines different analysis both by Marxist and non-Marxist economists but finds them inadequate, since by ignoring “global labor arbitrage” — the trend of changing the location of production to lower wages without changing hours worked or the value of the constant capital employed — they fail to capture the precise nature of the contemporary reality and its historic roots. He argues strongly and convincingly that there is no way out except through Socialism or Barbarism.

It should be clear from this summary that Smith is tackling some of the deepest and most difficult issues for a Marxist theory of imperialism. Obviously a short review can’t give a detailed summary or critique of his arguments.

I think his approach, focusing on Global Labor Arbitrage, a term invented in 2003 by Stephen S. Roach, an excellent economist working for Morgan Stanley, is fundamentally correct. To quote Smith, “Arbitrage, as used by economists, is the reaping of profits from market imperfections that result in different prices for the same product or asset.” (349)

However, there are important points that are questionable. I will touch on what I consider Smith’s best points and some serious differences we have.

Labor, Values and Prices

First, a word about Marxist fundamentals. In Marxist theory most necessities for sustaining life are the product of human labor, and these necessities have a specific value measured by the quantity of labor necessary for their production.

Capitalist production takes the form of generalized commodity production, goods produced for exchange in various types of markets where values govern the terms of exchange, i.e. the prices. Values, however, are not the same as prices but are usually correlated with them.

This is a key point to be developed. Markets have existed since the beginning of settled agricultural society, but capitalism is unique in treating certain necessities for production as commodities that are not themselves actual commodities because they are not produced.

The main examples of these are labor power, natural resources and money, which are treated as commodities to be exchanged in specially constructed markets. But the problem of rationally assigning value to these pseudo-commodities remains unsolvable under capitalism and leads to fundamental contradictions.

The most serious problem is treating labor power as a commodity, whose value is measured by the value of the real commodities needed to sustain life (hence to reproduce labor power) and which is reflected in wages.

The problem is that (i) the phrase “sustain life” is very imprecise, and (ii) wages reflect social, historic and cultural conditions, including family structure, beyond meeting bare physical necessities. In fact, the value of goods and services needed to sustain life are determined at any given time by the class struggle.

Strictly speaking, while labor power has a price and is the source of value, it has no value in itself because it is not truly a commodity. In particular the value created by labor, which reflects labor time, is precise and relatively stable while the attributed value of labor power as a commodity is fluid, contested and imprecise — and the thirst for profits that drives capitalist production lacks economic justification or rationality.

The fundamental notion introduced by Marx is the notion of exploitation, which formalizes that the value produced by labor is greater than the price of labor power as a commodity, and this difference explains surplus value and profit.

The total value T of the value of the product of a particular capitalist enterprise or an entire industry divides into three parts. V, the part that goes to the workers as wages, is what Marx called “variable capital.” C,  “constant capital,” is the value of the raw materials, machinery and produced resources such as electricity, fuel used up in the production process. S is the “surplus value” that goes to the capitalist owners and is the source of profits.

The rate of profit is defined as S/(C+V), while the rate of exploitation is E=S/V. S+V is the value created by the labor of the workers in the given industry, while C+V is the cost in value terms to the capitalist of the entire product T=S+V+C. Thus the difference between the value of the product, that is the labor time embedded, and the cost in value terms of producing it, is S.

The difference among various capitalist enterprises or industries in their rates of profit, due to the particular balance of labor and capital they employ, along with the capitalist drive to maximize profit, drives a wedge between values and prices, the actual terms of exchange.

Prices adjust away from values toward equalizing money rates of profit. Moreover, this lust for maximum rate of profit can and does drive down the wages, and thus the share of the value created by labor going to the worker. This is the phenomenon of super-exploitation, where the rate of profit and the rate of exploitation are increased.

It is Smith’s attention to and detailed examination of these fundamentals as driving contemporary Imperialism that give his analysis depth and power.

In particular, his focus on and detailing of super-exploitation of labor in the neo-colonies by transnational corporations mainly headquartered in the advanced capitalist centers, particularly concentrated in the United States, gives perhaps the best current explanation of the dynamics, and contradictions of contemporary capitalism.

His deepest and most theoretically elaborated chapter, Chapter 8, “Imperialism and the Law of Value,” focuses on Lenin’s views as expressed in Imperialism; the Highest Stage of Capitalism, which Smith rightly regards as the most important 20th century Marxist analysis. He defends the framework of Lenin’s analysis, while taking account of important political/economic changes from the beginning of the 20th century, against the anti-Leninism of contemporary influential Marxists, Ellen Wood and David Harvey.

Smith claims that Lenin’s analysis can be completed by introducing labor arbitrage as a fundamental method of surplus value expansion.

Marx had clarified two fundamental methods of expanding exploitation in the same workplace or industry: (i) keeping the constant capital C used and the hours worked fixed while decreasing wages, or (ii) increasing the hours worked while keeping the variable and constant capital fixed.

Labor arbitrage is a third basic method, which focuses on international production. Smith relies heavily on Andy Higginbottom’s analysis in ”The System of Accumulation in South Africa; Theories of Imperialism and Capital” (http://www.iippe.org/wiki/images/e/ee/CONF_SOA_Higginbottom.pdf).
This chapter is the most rich and interesting in the book, but too lengthy and complex to be adequately summarized in this short review.

Problems and Weaknesses

While I find his analysis here basically convincing, there are some weaknesses. The most significant is that Smith sometimes fails to distinguish clearly value from price, and this is particularly important when he fails to distinguish the variable capital, the amount of the value produced going to the workers, from the value of the commodities consumed by the worker, i.e. the real wage.

He polemicizes against the view that differences in wages reflect differences in productivity of labor, which he correctly characterizes as bourgeois economics, even though some Marxists have used differences in labor productivity in arguing against the relevance of super-exploitation in explaining wage differences between western and neocolonial workers.

Smith is correct to emphasize that increasing productivity of labor, if anything, decreases the price of labor power as a commodity and certainly doesn’t account for the difference of real wages between the advanced capitalist world and the neo-colonies.

Smith characterizes contemporary imperialism as based on super-exploitation via labor arbitrage because in the neo-colonies, wages for the same work are lower than in the advanced countries. He compares the value created by a barber or bus driver in Bangladesh with one in Belgium, which is the same, as is the labor productivity, but the price is very different.

This is true, but a bus ride or haircut in Bangladesh is not exchangeable with one in Belgium. Not being tradable in a common market, this difference in price does not in itself signal an incoherence or contradiction in imperialism — as would different prices for the same model automobile assembled in Bangladesh as one assembled in Belgium intended for the same market with the same parts and same amount of labor time.

Smith’s reasoning is flawed here because he regards the difference between price and value as always due to super-exploitation, which here he ascribes to global labor arbitrage. In fact, as argued above, the difference between price and value, due to different compositions of labor and capital in different industries, is intrinsic in capitalism even without super-exploitation.

It is certainly true that imperialism is driven by the need of capitalists to sustain and if possible increase the rate of surplus value, which is the same as the rate of exploitation, and that labor arbitrage is a basic tool for doing so. But the technological revolution as well as the vast swelling of the financial sector, which both tend to increase the rate of exploitation. are also basic tools and Smith tends to downplay their significance in driving contemporary imperialism.

Further, as pointed out by the more traditionalist Marxian economist Michael Roberts, in his generally positive blog review (https://thenextrecession.wordpress.com/2016/03/07/imperialism-and-super-exploitation/t), Smith ignores the tendency of the rate of profit to fall in discussing the dynamics of contemporary imperialism, leading to a kind of frozen and unchanging picture.

What is positive in Smith, the analysis of imperialism in terms of the basic Marxist relations of production, is dealt with too narrowly. Further, this can lead to incorrect political conclusions.

Who Benefits from Imperialism?

In Smith’s picture the real victims of imperialism are the workers in the neo-colonies. The workers in the capitalist centers benefit from a much lower level of exploitation. This includes benefits based on the impoverishment of neo-colonial workers, for example, access to cheap consumer goods manufactured by neo-colonial workers.

Now there is certainly some truth to this, but the political conclusion from totally embracing this view is that no significant anti-imperialist domestic movement can be based on our working class.

From a broader social and political perspective, however, imperialism disarms the domestic working class in the class struggle by depressing their wages because they are thrown in competition for work with workers in the neo-colonies.

Further, any domestic anti-imperialist movement not rooted in the working class, such as the anti-imperialist movements in the western world of the 1960s and 1970s, will have short staying power.

Mistakenly characterizing workers in the advanced zones as beneficiaries of imperialism is to hand to the fascists and semi-fascists such as Donald Trump a weapon to mobilize workers to defend imperialism.

To sum up, despite a lack of clarity on some important points Imperialism in the Twenty–First Century is an important theoretical contribution to understanding contemporary Imperialism. I think it is essential reading for any Marxist.

* This is a book review, not a scholarly article. To give a bibliography of the basic works, or detailed references of the authors cited throughout, or to attempt to summarize their views would be to burden the reader and this reviewer. The classical work referred to above is referenced in Wikipedia under ‘Theories of Imperialism.” The more contemporary work cited is indexed in the book under review or in Wikipedia under the author’s name.

November-December 2017, ATC 191

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