Imperialism in the Twenty-First Century. John Smith
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subtract from what is available for realization as profit in all its forms. The rate of surplus value can be ramped up, for instance by holding down wages, and yet the rate of profit may still decline. The more that social labor is employed non-productively, in commerce, finance, security, legal services, etc.—exactly what has been happening on an accelerated scale in the imperialist economies during the neoliberal era—the greater the downward pressure on profits and the greater the imperative to compensate for this by intensifying the exploitation of productively employed workers. The growing weight of services in imperialist economies is therefore as much the cause of the outsourcing pressure as it is the consequence of it.
Services and the Productivity Paradox
This brief survey of the role of services in the outsourcing of production concludes by summarizing the paradoxical effects of services outsourcing on measures of labor productivity in industry. First, we must note that many service tasks are inherently labor-intensive and cannot easily be mechanized, resulting in what appears to be stagnant or even falling levels of labor productivity in the service sector. Thus Katharine Abraham, a leading authority in the field of national accounts, reports that, in the United States,
labor productivity in the services industries … actually declined over the two decades from 1977 through 1997…. Among the individual service industries showing declines in labor productivity were educational services and health services, as well as auto repair, legal services and personal services. Construction was another problem industry, with the implied labor productivity falling by 1 percent per year over the entire 20-year period.79
In contrast, “the rate of productivity growth in U.S. manufacturing increased in the mid-1990s, greatly outpacing that in the services sector and accounting for most of the overall productivity growth in the U.S. economy,”80 releasing labor for redeployment to service jobs or to the reservoir of unemployed, resulting in a relative decline in manufacturing’s contribution to GDP and in an even faster decline in manufacturing employment as a share of total employment.81 This points to the first of a series of paradoxes that we must note for further study: the more rapidly that labor productivity advances in industry, the more important industry becomes in sustaining the rest of the economy and society. But at the same time, this means the more rapidly industry’s share of GDP and of total employment diminishes, an effect that gives rise to all kinds of nonsense about “post-industrial society.”
But the paradoxes arising from the tendency of productivity in industry to advance faster than in services do not stop here. Intensification of the labor process through brutal speed-ups and the introduction of labor-saving technology have undoubtedly made their contribution to productivity advances in industry, but some of the apparent increase in labor productivity in manufacturing is due to firms in this sector externalizing service tasks. When an industrial firm contracts out labor-intensive services such as cleaning, catering, etc., the productivity of its remaining employees increases, according to the conventional and most widely used measure of productivity. This occurs even if nothing about their work may have changed, and is the simple result of the firm’s unchanged output now being divided by a smaller workforce. The trend in this direction accounts for a part of industry’s rise in productivity and exaggerates the decline of industry’s reported share of the total workforce. If an industrial firm contracts out service provision to a firm that employs cheap labor in another country the apparent gains in productivity in the industrial firm’s productivity are even larger, since labor has not only been outsourced, its price has been slashed, reducing the cost of this input and therefore boosting the numerator in the formula for productivity (the firm’s value added) while reducing the denominator, the size of the directly employed workforce. As Susan Houseman found, “Services offshoring, which is likely to be significantly underestimated and associated with significant labor cost savings, accounts for a surprisingly large share of recent manufacturing multifactor productivity growth.”82 Thus, she argues, “to the extent that offshoring is an important source of measured productivity growth in the economy, productivity statistics will, in part, be capturing cost savings or gains to trade but not improvements in the output of American labor.”83 Houseman believes this solves “one of the great puzzles of the American economy in recent years … the fact that large productivity gains have not broadly benefited workers in the form of higher wages … productivity improvements that result from offshoring may largely measure cost savings, not improvements to output per hour worked by American labor.”84 The important point here is that Houseman’s argument applies just as much to the outsourcing of low value-added production tasks as it does to the outsourcing of services.
Three years before Houseman published her paper, Morgan Stanley economist Stephen Roach made the same point: “In the case of the United States … offshore outsourcing of jobs [is] the functional equivalent of ‘imported productivity,’ as the global labor arbitrage substitutes foreign labor content for domestic labor input. In my view, that could well go a long way in explaining the latest chapter of America’s fabled productivity saga.”85 Where Houseman and Roach are wrong is in thinking that this solves the “productivity paradox,” which they narrowly define as the divergence between wages and productivity in U.S. industry, thereby calling into question something that is an article of faith for these bourgeois economists, namely the direct relation between wages and productivity. On the contrary, the paradoxical effects of outsourcing on measures of productivity are merely superficial and relatively trivial consequences of the profoundly contradictory nature of labor productivity in capitalist society, which can be defined either as the physical quantity of useful goods (use-value, in Marxist parlance) created by workers in a given time or as the quantity of money they generate for their employer. In different ways, each chapter of this book tries to cast empirical and theoretical light on this most important of questions, and it will be given special attention in chapter 6.
TO SUMMARIZE THE FINDINGS OF THIS CHAPTER, export-oriented industrialization is extremely widespread throughout the Global South. It is just as true that this industrialization is extremely uneven, and is highly concentrated in some countries and some regions within those countries. The Global South has made significant progress in implementing the export-oriented industrialization strategy urged on them by imperialist governments, international financial institutions (IFIs), and mainstream academics. The large majority of the roughly five billion inhabitants of the Global South now live in countries where manufacturing exports—mainly to the imperialist economies—form more than a half of their total exports.
Outsourcing has been a conscious strategy of capitalists, a powerful weapon against union organization, repressing wages and intensifying exploitation of workers at home, and has led above all to a huge expansion in the employment of workers in low-wage countries. The wage gradient between imperialist and developing nations also generates migration of low-wage workers in the opposite direction. Outsourcing and migration should therefore be seen as aspects of the same process, driven by the efforts of capitalists to profit from divisions among workers and from the huge wage differentials these divisions give rise to.
It is widely insinuated that if large parts of the Global South remain mired in extreme poverty it is because of the failure of many Southern economies to successfully integrate into world markets, “integration” meaning that if they have no natural resources, they must export more manufactured goods. Evidence presented in this chapter, and in chapters to come, indicates that, with few exceptions, those poor nations that have found success in reconfiguring their economies in line with neoliberal prescriptions have succeeded only in joining a race to the bottom.
The Two Forms of the Outsourcing Relationship
Production outsourcing takes two basic forms: foreign direct investment (FDI), where the production process is moved overseas but kept in-house, and arm’s-length outsourcing, when a firm outsources part or all of the production process to an independent supplier, independent in the sense that