How "Value Chains" Conceal Unequal Exchange

Critics of "dependency" or other left theories of imperialism often point out that, in monetary terms, North-South trade is less important than North-North trade. But this perception of "importance" is an illusion created by what economists call value chains. Mineral and agricultural raw materials are the foundation of all commodity production, but most of the exchange value of final products (whether we're talking about coffee beans or iron ore) is "added" in the the refining, manufacturing, transport and retail stages of production. The further up the "value chain" you go, from mines and farms to car lots and grocery aisles, the more concentrated ownership becomes. An estimated third of all world trade is actually "intra-firm trade," trade between branches of the same TNC, and this allows them to "sell" primary commodities and semi-finished goods below world market prices. Although data are hard to find, most analysts estimate that an even higher proportion of North-South trade is intra-firm; this further reduces the "importance" of Southern inputs in monetary terms, but not in physical ones.

If you look at North-South trade in physical terms, it is actually more "important" than North-North trade. In this essay, Stefan Giljum and Nina Eisenmenge show some very interesting things:

-EU imports from OECD countries [e.g., the North] are roughly equivalent in monetary value to all those from the non-OECD [e.g., the South and East]. But in physical terms (in millions of tons) those from the non-OECD are about twice those from the OECD.

-EU imports from Africa are much less than those from Asia in monetary value, but those from Africa are greater than those from Asia, and close to those from the OECD, in physical weight. This is as clear an illustration as any of the misleading discrepancy between the physical importance of raw materials to the production process (which is absolute) and their market value vis a vis manufactured goods (which is much less).

-Perhaps most strikingly of all, while total EU exports and imports are roughly balanced in monetary value, EU exports are less than a third of imports in terms of physical weight.

As Giljim and Eisenmenger put it:

"The figure [on p. 12] clearly illustrates the significant structural differences of the external trade relations in monetary and physical terms, respectively. While the monetary trade is more or less balanced (apart from a small deficit with Asian countries), the physical trade is characterized by a large trade surplus with all other world regions (including the non-EU OECD countries). This is mainly due to the high import of fossil fuels (around 60% of all imports in terms of weight) and abiotic raw materials and semimanufactured products (together around 20% of all imports). The EU serves as a net exporter of crops and animal products to Africa, Asia and the former USSR and Eastern Europe. As physical amounts are much smaller than imports in the two categories mentioned above, however, they do not compensate the physical deficit. More than two thirds of physical imports originate in countries outside the OECD region, whereas OECD countries are a larger share of EU exports. On the average, EU-15 exports have a four times higher value than imports. With regard to trade relations with Southern regions, such as Africa and Latin America, one ton of EU exports embodies a value ten times higher than one ton of EU imports (Giljum and Hubacek, 2001)." [emphasis added]

They also show that Southern countries for which we have statistics have a net trade deficit in physical terms--an illustration of the draining of resources.

So the "value chain" creates an illusion of trade reciprocity, where in fact there is net appropriation of resources by one side. The politically determined hierarchy of economic values, which allows this unequal exchange to take place, was created during the colonial-mercantilist epoch. Britain's trade surplus required both monetary and physical trade deficits in the colonies. The flagship sector of the Industrial Revolution, the cotton textile industry in Lancashire and Manchester, would not have existed if it weren't for the artificially depressed prices for raw cotton picked by Afro-American slaves, and, later, Indian khatedars and Egyptian fedayeen. As Joseph Inikori writes of slave production the 17th-18th century:

"Subsisting partly on the provisions from the small plots they stretched themselves to work in their leisure time, their labor cost to the slaveholders was below subsistence cost. Hence, because of the cheapness of their labor and the scale of production they made possible, prices of the American commodities fell sharply over time in Europe. Products, such as tobacco and sugar, moved from being luxuries for the rich to every day consumption goods for the masses in rural and urban areas. The falling prices of raw materials, such as cotton and dyestuffs, contributed greatly to the development of industries producing for mass consumer markets." [emphasis added]

So the debate on "capitalism and slavery" or "industry and empire" is misleading insofar as it represents the importance of colonial inputs to metropolitan industry in monetary terms alone. There might be "free trade" between peasants in a village market, but not between colony and metropolis within the same empire, or subsidiaries and headquarters within the same multinational.

Endless Growth Requires Endless Theft

Since WWII, the supposed lodestar of “development” has been the closing of the economic gap between the former imperial metropoles of Europe, the US and Japan, and the newly independent countries of Asia, Africa and Latin America. Almost all the places in the South that have “closed the gap” in that time are Pacific Asian countries that underwent export-driven industrialization under protectionist governments. While urbanization continues at full speed in the rest of the South, industrialization is concentrated in a few Asian and Latin American enclaves, most of them dominated by Northern investors.

Much of the industrialization in Brazil, Mexico and China is better understood as relocation of OECD investment capital than as independent economic development. The OECD countries are still home to 85% of the world’s multinational corporations. But 50% of all U.S.-owned manufacturing takes place outside the U.S., and 40-50% of manufactured goods and services imports to the US and EU are made by offshore US and EU subsidiaries. That is why UNIDO reports that: “Manufactured exports have grown faster than MVA [manufacturing value-added] in every region, reflecting the internationalization of industry. Developing countries again performed better than industrialized countries in both manufacturing growth and exports. By 1998 they had raised their share of world manufactured exports by 8 percentage points (compared with about 2 points for MVA). [emphasis added] Despite this “internationalization of production,” the North still averages around 70% of output in most sectors of value-added manufacturing.

Internationalization of ownership has not occurred apace with internationalization of production. This is why the industrialization of Pacific Asian countries could only occur in rough proportion to the deindustrialization of the U.S. “rust belt,” British cities like Manchester, Germany’s Ruhr valley, and (most dramatically) the Soviet Union, i.e. about 15% of global market share. The truth is, the ratio of industrialized to non-industrialized areas of the Earth has stayed pretty constant since WWII, but the parts have been rearranged. With the ecological crises facing us, it is becoming apparent that industrialization cannot be generalized across the surface of the planet, because its technologies and institutions require increasing inputs of natural resources in a finite world. It can only be concentrated in metropolitan areas home to a fifth of the world's people, and this concentration necessitates its sparse distribution across Africa, Asia and Latin America.

The problem of "development" is less the lack of industrialization in the South than the unsustainable level of it in the North and its satellite offshoring platforms. Industrial economies are increasingly being recognized as dissipative structures, importing order (minerals, grains, migrant labor) and exporting disorder (carbon dioxide emissions, toxic waste, mine tailings). It is impossible for all parts of the world economy to “grow” simultaneously. At a certain point, market saturation, declining ratios of land to labor, and the exhaustion of mineral, timber, fisheries and other resources make it possible for some parts to “grow” only at the expense of other parts. “Growth” becomes theft, and the system becomes a zero-sum game. It can be argued that England reached this point in the late 18th century, and that the U.S., Germany and Japan did in the late 19th century. Each externalized the problem of growth limitations through interrelated processes of imperialism and industrialization. (The argument that the industrialization of South Korea, Taiwan and now coastal China has been “in proportion” to the partial deindustrialization of the West has an earlier parallel. If Paul Bairoch’s figures are right, the deindustrialization of China and India in the 19th century was roughly in proportion to the industrialization of Europe. A near reversal in shares of world manufacturing output took place between East and West between 1750 and 1950.)