The Wages of Exploitation

Originally published August 8, 1983

LAST SUMMER I wrote a couple of columns questioning the Atari Democrats notion that we should write off our “sunset” industries (automobiles, steel, textiles, what have you), where we’re losing dominance in even our own market, and concentrate on some “sunrise” industries to be invented by a commission of unemployed economists. You will be astonished to hear that in spite of those pieces, the notion is still around. Now, the unstated premise of the Atari Democrats’ notion is the belief that protectionism is unthinkable in the modern world. We learned this in those high school courses on Problems of American Democracy we took instead of history. Even President Reagan learned it. In this year’s Economic Report he said, “I am committed … to preventing the enactment of protectionist policies in the United States.”

I am pained to suggest that President Reagan is wrong once again. In explanation, I am going to start with what the consequences of American protectionism might be for the rest of the world, particularly for what are euphemistically called Less Developed Countries, or LDCs. It is, make no mistake, the LDCs that would ultimately be most seriously affected by a rebirth of protectionism. Most of the talk now is about Japan, but that is merely because most businessmen and most business commentators don’t remember yesterday and can’t imagine that tomorrow may be different from today. It was only yesterday (let us remember) that the Germans were the Wundermenschen. The VW bug had bitten off a piece of the American market long before Toyota mastered the pronunciation of Corolla, Everyone had a Leica before Cheryl Tiegs taught us to prefer Olympus. The cognoscenti turned up their noses at Avery Fisher’s consoles and rushed to get the latest components from Telefunken. German productivity was proverbial.

But now all that is forgotten. The Germans are having a depression just like us, and the Japanese are selling cars and cameras all over Europe. VW is losing money hand over fist, and Telefunken is on the verge of bankruptcy.

A moderately reflective person might wonder whether what happened to the United States, and then to Germany, might not one day happen to Japan. As a matter of fact, it is already happening. The Japanese are writing off their textile industry and are manufacturing electronic components in Singapore and South Korea, just like the rest of us. Aha! says standard economics, this will benefit the Japanese. The benefit will come from lower consumer prices, and the Japanese who lose their jobs to Koreans will turn their hand to things the Koreans want but can’t make. That is the way standard economics thinks things work, and next month we’ll consider why they don’t work that way.

For the present, let’s step back a bit. The factors of production, we learned from standard economics, are land, capital, labor, and perhaps technology. Which of these factors do the multinationals seek in strange strands? Not technology, certainly, and not land, especially if they’re doing their seeking in Singapore. Not capital, either, though a sheik here or there may have more than he can think what to do with. No, the factor sought is labor.

Well, everybody knows that. Asian girls, especially young ones, have remarkably nimble fingers and are wiry and strong and able to work long hours, and they’re smart and eager to learn. Moreover, they’re fresh from the bush or the slums and never saw regular pay before and so are easily pleased. They don’t fuss about safety regulations or health insurance or sex discrimination or any of that stuff. Nor is this so bad as it may sound to us liberals, because these people are in for a tough life any way you look at it, and work in an electronics sweatshop is a lot better than their alternatives, and that is true even without mentioning prostitution.

Overworked and exploited though they may seem by our standards, these girls may have been chosen by destiny to use their nimble fingers to scratch out the first painful steps toward the establishment of a middle class in their underdeveloped lands. Such steps were not easy in the 19th-century Northern Hemisphere, and there is no reason to expect them to be easy in the 21st-century Southern Hemisphere. And unless the steps are taken, the LDCs will continue to be at the mercy of imperialist or neoirnperialist powers. This is the standard view of the situation-hard-nosed, perhaps a bit regretful, but above all forward looking.

Now, I will contend that neither standard economics nor Marxian economics understands what is wrong with imperialism. The thing about imperialism, I propose, is that it is extractive. It extracts the produce of mines and of agriculture, and it pays for these products whatever the market will bear[1]. Sometimes the market will bear a lot, mostly it won’t. Some American farmers are old enough to remember how it was in the days before price supports;  that’s the way it is now and always has been with LDC producers of copper and bauxite, cocoa and bananas and sisal. If you’re puzzled by this performance of the market, you will find it beautifully explained in the works of John Kenneth Galbraith, particularly Chapter VIII of Economics and the Public Purpose. Meanwhile you can rely on the avouchment of your own eyes that somehow prosperity has not come to Guatemala or Guinea or Bangladesh.

It is obvious enough that imperialism extracts the minerals of the earth and the fertility of the fields and ships them abroad. What it does to the factor of land, it also does to the factor of labor. The only reason for employing LDC labor is that it’s cheap. It’s far away and not always very efficient, and usually in need of an embarrassingly brutal dictator to keep it in line. But it is cheap.

Its cheapness is revealed by what it is exchanged for. When the labor of an LDC is used to manufacture products for export to the developed countries, the LDC earns foreign exchange that it spends in the developed countries on what it wants or needs – often on food it once produced itself – until seduced into maximizing exports. To understand what such an exchange means, we can compare the average hourly wage in the LDCs with that in the industrialized world. The precise numbers of course vary from place to place, but a ratio of one to five won’t overstate the differential and will do for purposes of illustration. This requires the LDCs to exchange five hours of their labor for one hour of our labor. The produce of the four-hour labor difference is in effect extracted, no less than the produce of their land was (and still is) extracted.

It is important to understand that this is not a situation of temporary unfairness, or of an imbalance that will be righted even in Keynes’ famous long run. What is extracted is gone forever. The situation, furthermore, has grown steadily worse in our time, much to the bewilderment of everyone who had great hopes for the results of liberation.

WHY HAVEN’T the newly liberated colonies been able to duplicate the success of the U.S. following its freedom? Wasn’t our position right up to World War I just like that of the LDCs? Didn’t we need and use British and European capital, just as the other former colonies need and use the multinationals’ capital today?

No, and again no. We used British and European capital, all right, and for the most part they were handsomely rewarded, but we used it first to build our infrastructure – canals, then railroads, eventually even street railroads. And we were inevitably the ones to employ that infrastructure; there was no way that benefit could be extracted. When foreign capital went into steel and soap and thread and chemicals, those products were for our own market; their benefits were not extracted, either. An interesting short book with a long title published last year, European Direct Investment in the USA before World War I by Peter J. Buckley and Brian R. Roberts, is able to discuss all the details of its subject without once considering the possibility that Europeans invested in the U.S. to manufacture for their own consumption. A sign that our development was not extractive is the fact that throughout the period in question – and indeed until very recently-our wage scales were the highest in the world. (That used to be a proud boast.)

In contrast, when GE manufactures plastic-frame irons in Singapore or Atari makes mind-boggling games in Taiwan, the irons and games do not stay in the underdeveloped world. They are shipped out, and with them is effectively extracted the wage differential between the underdeveloped world and the developed world.

The United States was able to escape similar domination by Britain and Europe in the 19th century mainly because of the sheer size of the country. A chronic shortage of labor kept wage scales relatively high, and a large internal market encouraged the use of foreign capital to produce goods for our domestic demand rather than for export. To duplicate the U.S. performance, the LDCs must duplicate the conditions. This won’t come naturally; they will have to be driven to it. Nevertheless, their objective should be to use their labor to produce what they themselves need. They should be manufacturing equipment for an equivalent of the Rural Electrification Administration. They should be developing trade within the LDC world and reducing their trade with the industrial world. The LDCs will always lose in trading with the industrial world (though a few of their citizens may become filthy rich); by trading among themselves they can pull themselves up by their bootstraps, just as we did a century ago.

Such quasi- internal trade would require cooperation on a scale that appears implausible. But the industrialized world-particularly, as I’ve said, the United States – could enforce such cooperation on the LDCs by the simple expedient of denying their manufactures unlimited access to our market. If GE could not sell its Singapore-produced irons in the U.S., it would find it necessary either to produce something else in Singapore, or to pass up the opportunity to employ its capital there in a highly profitable way. Even if it opted for the latter solution and pulled out, the Singapore economy would be, literally and figuratively, healthier.

The proposal to deny unlimited access to our market goes against everything we used to be taught. It also goes against what the publicists for big business continue to teach us. It is, however, merely an extension of the anthropologists’ commonplace that subsistence farming is better for peasants than is a one-crop plantation system. In my next column, I will take up more fully how a change might be implemented, as well as what its effect would be on us.

[1] Editor’s note:  Those who knew the author, and his wife Lucile H. Brockway, my parents, know that these ideas were discussed between them and that she published a ground breaking book, “Science and Colonial Expansion” in 1979, four years before this article appeared, that makes these points, and others, at length from an anthropological perspective.  The two of them were quite a pair….


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