Imperialism and Unequal Exchange

[ecopolecon]

This is an essay re-posted from my blog, so forgive the length. It's about how unequal exchange is concealed by value chains (http://en.wikipedia.org/wiki/Value_chain).

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 the final product (whether we're talking about coffee beans or iron ore) is "added" in the the refining, manufacturing, transport and retail stages of production. These stages, even more than the "primary" stages of growing crops or extracing minerals, are monopolized by TNCs and state-owned companies. An estimated third of all world trade (http://www.swlearning.com/pdfs/chapter/0030313996_10.PDF) is "intra-firm trade," or trade between branches of the same TNC, and this allows them to "sell" raw materials and semi-finished goods to themselves 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 (http://www.msnusers.com/ecopolecon/Documents/resource%20flows.pdf), Stefan Giljum and Nina Eisenmenge show some really 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 way less).

-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 the EU (and this is just as true of N. America and Japan).

The hierarchy of economic values which allows this unequal exchange to take place is basically a product of the colonial-mercantilist epoch. Britain's 19th century trade surplus in manufacturing 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 black, and, later, Indian khatedars and Egyptian fedayeen.

Joseph Inikori (http://www.waado.org/nigerdelta/Documents/Slavery/SlaveryandDevelopment-Inikori.html) points out about 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.

[Die Neue Zeit]

Interesting that you bring up value chains, because much of business analysis revolves around "adding value" to the value chain.


An estimated third of all world trade is "intra-firm trade," or trade between branches of the same TNC, and this allows them to "sell" raw materials and semi-finished goods to themselves below world market prices.

In business-speak, it's called "transfer pricing" (http://en.wikipedia.org/wiki/Transfer_pricing) - the key here is to pay the least tax, thus "adding value" to the value chain.

My only concern with what you've brought up is that you may be inadvertently shifting the imperialist analysis from that of capital movement (Lenin) back to that of goods movement (Luxemburg's argument about imperialist powers dumping their goods in the periphery).

[syndicat]

The problem with this line of argument is that it assumes an economic equivalence between, say, a ton of iron ore or grain, and a ton of TVs or cars. But if you're trying to track economic exploitation, you have to look at the economic value, not the tonnage. A ton of grain isn't equal in economic value to a ton of TVs.

A better way to look at unequal exchange is in terms of bargaining power. If you have a huge mass of subsistence peasants, barely surviving, and their coffee or grain is bought by some huge multinational firm, the inequality in bargaining power is huge. Their bargaining power is so great that the big corporations, based in the core countries, can suck up the productivity gains from investment in social production in 3rd world agriculture.

Similarly, consider the bargaining power in borrowing. The world's capital is highly concentrated in the core countries, and the 3rd world is relatively starved of capital, so the financial institutions of the North can exact high interest rates, and they have the IMF and World Bank and WTO institutions to force the debtors to pay their loans, thus enabling the financial centers of the north to suck out all the profits to the north.

Although all of this is true, most of the actual profit obtained by corporations and banks centered in the core countries is generated within the core countries, not from the 3rd world. Most investment is within the core countries, not in the 3rd world.

And showing that tonnages are greater in 3rd world to core country trade is greater doesn't refute this because you'd have to assume that economic value is equated to weight, which in fact it isn't.

[ecopolecon]

My only concern with what you've brought up is that you may be inadvertently shifting the imperialist analysis from that of capital movement (Lenin) back to that of goods movement (Luxemburg's argument about imperialist powers dumping their goods in the periphery).

I don't think we have to choose between looking at flows of capital and flows of goods. My point is that, to understand the unequal distribution of ecological costs of production between North and South (mine tailings, soil erosion, the effects of climate change), we should supplement the Leninist perspective with a thermodynamic or physical one. If we shift our criteria from market values to the metabolic inputs of the production process itself (without which there would be no commodities), we can see how the low market value of raw materials conceals their central importance to industry in the OECD and its major export platforms (East Asia, Mexico, Brazil).

For example, Africa has 99 percent of the world's chrome resources, 85 percent of its platinum, 70 percent of its tantalite, 68 percent of its cobalt, and 54 percent of its gold. But the importance of these and many African strategic minerals are misrepresented by market prices.

To put it in crude terms: yes, most "core" foreign investment is going to other parts of the "core" or to the "semi-periphery." But the whole system would grind to a halt without raw materials and foodstuffs from the "periphery" (i.e., the non-industrialized parts of the South). You can see this from the massive tonnage of imports from the periphery (a crude measurement, but indicative of the scale of absorbtion), or from looking at inputs in the extractive and food industries.

This raises an important question for socialists: whether advanced industrialism requires an imperial core-periphery dynamic, even under if it is under socialist auspices. Compare the Soviet Union (which had to loot its own extractive peripheries) and Cuba (which is far more self-sufficient because it's agrarian).

Syndicat, you're absolutely right that a ton of raw materials and a ton of manufactures aren't economic equivalents--but that's my point! Industrial capitalism requires a negative correlation between the level of "exergy" (http://en.wikipedia.org/wiki/Exergy) (or thermodynamic order) in a given commodity, and its market price, because manufacturing dissipates energy and produces waste/entropy at the same time as it "adds value." Again, this might seem unimportant from an economic perspective, but from an ecological or physical one it's crucial to seeing unequal exchange, IMO. Here I'm following economic anthropologist Alf Hornborg, who points out (http://www.outstitute.org/download/AlfHornborg/UnequalExchange.pdf):

"[T]here is a kind of inverse relation between productive potential and price that follows with logical necessity from the juxtaposition of the Second Law of Thermodynamics and the social institution of market exchange. We know that energy is not so much “invested” as it is dissipated in a production process (Georgescu-Roegen 1971). Finished products must represent an increase in entropy compared to the resources from which they were produced, yet they must be priced higher. If we consider, longitudinally, the transformation of a given set of natural resources into an industrial product, [the amount of energy dissipated in production] will correlate positively with ‘utility’ or price, but objectively speaking, the amount of available energy will be negatively correlated with price. As utility or price increases, there will be less of the original, available energy (or what Georgescu-Roegen and others have referred to as ‘negative entropy’) left. This means that industrial centers exporting high-utility commodities will automatically gain access to ever greater amounts of available energy from their hinterlands. The more energy they have dissipated today, the more “new” energy they will be able to buy—and dissipate—tomorrow. Although most of this transfer of available energy to industrial sectors is dissipated in production, and a small share returned to their hinterlands in the form of industrial products, a significant part of it is indeed “invested” in an expanding, industrial infrastructure in core areas of the world system. A self-reinforcing logic involving economies of scale in industry and the geographical constraints of resource extraction (cf. Bunker 1985) will continuously augment this process of accumulation and the unequal exchange of energy and entropy on which it is founded. [emphasis added]

[Die Neue Zeit]

^^^ On the one hand, my concern has been allayed somewhat. On the other hand, I'll have to read your post in greater detail and do some supplementary research (since you've lost me :( ).

Perhaps you could link this to my thread on "permanent primitive accumulation."