Multinational profiteering

Karl Marx had left the problem of invested surplus value unresolved, but Rosa Luxemburg concluded that “the accumulation of capital” was a process of expropriation, first locally by enclosing the commons, then by land theft and genocide around the planet, and finally by granting credit to developing nations and extorting interest. Luxemburg was writing a century ago, when colonial expansion was at its summit. And yet, the collapse of colonialism after WW2 did not end capitalist accumulation, which actually accelerated.

Marx reasoned that the value supplied to the market equalled c+v+s, where c was the used up means of production, or constant capital: inputs of raw or unfinished materials and energy, and the ware and redundancy of machines and buildings; v was the wages of labour, or variable capital: take home incomes and taxes, insurances et cetera; and s was the tribute to property, or surplus value: rents, interest, corporate and commercial profits, and more taxes, insurances et cetera. Having considered a third department for luxury consumption, Marx finally simplified his model to department I producing the means of production and department II producing the means of consumption.

Department I 4000c + 1000v + 1000s = 6000 (means of production)

Department II 2000c + 500v + 500s = 3000 (means of consumption)

This model of simple reproduction without growth shows how the added value (1500v + 1500s) equals the value to be consumed, and the used up investments (4000c + 2000c) equal the new ones produced. It reflects 19^th century capitalism. Since then the proportion of means of production to means of consumption in developed economies has been inverted and more, with as much 75% of the value realised going to consumption.

For capital to accumulate, surplus value must be invested instead of being consumed, so some means of consumption must somehow be transformed into means of production. How can the end produce of department II increase the end produce of department I? Some can go to increasing the amount of labour (v), if it is appropriate, but an increase in department I’s means of production (c) must come either from those of department II, or from outside the system. The first case is a closed circuit that requires a very centralised authoritarian government, because reducing the means of production destined to department II results in less means of consumption for everyone. And continually favouring department I pauperises department II. The second case depends on imperialist laissez faire to exchange means of consumption for means of production on external markets. It is basically a belligerent process (markets are conquered), but it allows both departments to develop simultaneously. The crudest form of this exchange is guns for minerals, but it exists in numerous other guises where more or less finished products are exchanged for ones that are less so. More added value is exported than is imported, and the corresponding consumption takes place elsewhere. This kind of accumulation can only be practised by a few nations at a time and is detrimental to their trading partners, who exchange means of production for means of consumption, who consume their capital instead of capitalising their consumption. The unilateral exchange of added value is the principal method for accumulating capital and has enriched all the developed nations. It is now benefiting the developing nations, who have reversed the flow of added value in their favour by importing factories, as well as raw materials, and exporting their produce.

Outsourcing parts of department II was a quest for low-paid disciplined labour, but it brought about a new phase in capitalist expansion. The industrial nations had developed by exporting consumer goods and importing raw materials. Both departments operated inside imperial boundaries, protected by tariffs and armies. With spreading independence from colonial rule, those sectors of department I involved in producing raw materials were the first to be expatriated. This did not modify the flow of added value, but it inaugurated the multinational corporation. Then the fall of the USSR, the end of the Cold War and China joining the OMC gave an opening for capitalist expansion into an immense new domain. As it had been in the past, China was the focus of attention. Its myriads of potential customers would revive demand on stagnant clogged-up Western markets. China had developed the fundamentals of industrialisation that are education, coal and steel, cement, energy, communications and military, with the aid of the USSR and then on its own after their split in 1960. And, having followed the same path as its neighbour (the first case given above), China was equally unable to develop its department II. The basic means of production were there, but the passage to means of consumption needed private initiatives and the stimulus of social success. It also needed advanced technology to catch up with the world. The Chinese knew of course that it is better to receive fishing-tackle than fish, and better still to make the tackle. They opened up to joint ventures, supplying energy, buildings and infrastructures to receive the foreign production processes and a literate, disciplined low-cost labour force. What may have been conceived as an entry to the Chinese consumer market, turned out to be an outsourcing of consumer production for the home market.

The models of exchanges between departments I and II used by Marx are closed systems. His description of capitalism was to go from the general to the particular, but politics, illness and death prevented its completion. Also he lived in a time of empires, when trade between imperial nations was quite restricted. However, these exchanges were partly international even then, and became increasingly so after WW2 with the numerous national liberations from colonialism, and again since the end of the Cold War. As the colonies had largely served as sources of raw materials for European industries, parts of department I were outsourced by international events. This turned out to be as advantageous as and less costly than colonial dominion. Consumption was transformed into investments as before, and locals replaced colonials as consumers. Outsourcing department II was different. It meant transforming investments into consumption without producing the final added value, so that more came back than went out. This was not apparent at first as the demand for investments revived department I and the outflow of value dominated the return. But then the tide turned and demand for department I passed from capital investment to capital renewal with local know-how, and the value of previous investments came back with value added by outside labour. The multinational corporations who had often seen this happen before, when consumer goods flooded markets and destroyed local productions in the undeveloped world, advised (ordered?) the same solution for the developed nations: let them eat debt!

1. An investment that goes into the production process either transmits its value or acquires more value. Consumption is consumed and its value must be produced again. Dividing them into two distinct departments is unrealistic because of all the overlaps, where the same products (e.g. cars) can be either investments or consumption. However, Marx’s model gives a general idea. There are also investments involving no transformations and little or no added value, which are buying to sell for a profit and lending at interest.