Trade and capital accumulation

Throughout history foreign trade has enriched merchants and the nations they traded from. It consists basically in moving goods from where they are abundant to where they are rare, and doing the same on the return journey. This sometimes needs intermediary stages and exchanges, and the classic example is the North Atlantic triangular trade, when cheap factory goods were shipped from Western Europe to West Africa and exchanged for slaves, who were shipped to the Caribbean and exchanged for sugar, which was shipped back to Europe. The general rule was to get back more value than had been laid out. And, though crossing oceans, deserts and mountains were dangerous enough to incur losses, though home demand might fail and devaluate stocks, fortunes were made and duly squandered.

Buying to sell is about obtaining more value out of the two successive transactions. But during the 18^th century, value began to be perceived as capital, and value as such could therefore be either invested or consumed. Though not immediately apparent, this meant that the ideal for foreign trade was to export consumption and import investments. The English cotton trade gave the example: import raw cotton, card, spin and weave it, add value and profit, and export it for even more raw cotton. And so the steam driven machines in England ruined India’s manual artisans. And even Indian cotton growers were abandoned when plantations in the US adopted cotton as their cash crop, making the transport shorter, safer and cheaper.

Trading consumption for investments around the world has enriched the nations that have practiced it. Profit, or surplus value, that part of production for which there is no equivalent demand, could be sent abroad and its value would come back as an investment, often as raw materials, guns for oil. However, the process supposes that there are winners and losers. The nation that exchanges its “surplus” consumption for investments expands it production and accumulates capital, whereas the nation that exchanges its investments for consumption does not. In the first case, capitalists can make large profits, as that share of production is sold abroad and does not depend on the home market. In the second case, local production must compete with the imported consumption and inevitably wanes, while the nature and distribution of these imports is a cause of government corruption.

Unfair trading was the principle of colonial empires. But the cost of maintaining colonial administration and order was then transferred to the cost of maintaining a subservient local ruler and a semblance of independent governance. The imported consumption that had provided colonialists with a European lifestyle was kept going by the local elites, and the flow of raw materials to the ex-colonial metropolis was not interrupted. This has enriched the industrial nations, and left their client nations undeveloped and dependent. However, some nations did manage to industrialise. Taiwan and South Korea were on the front line of the Cold War, which insured Western finance and markets. And then, along came China.

When the People’s Republic was proclaimed in 1949, China was in disarray after a couple of centuries fighting European, American and Japanese invaders, followed by a protracted civil war. The new regime had support from the USSR, which resulted in some transfers of technology and numerous Chinese students going to Soviet Union and Eastern European universities. But Stalin’s death in 1953 and the ensuing criticism of his politics and the personality cult around his person provoked a rift between the two allies - Mao Zedong’s own cult of Great Helmsman was just dawning – and by 1960 all relations were severed. For about a decade China was isolated from the rest of the world, with the exceptions of neighbouring North Korea and distant Albania. But then Nixon visited Mao in 1972, Mao died in 1976 and Deng Xiaoping came back to power in 1978.

China had nothing to sell but its labour, and it went about doing that with a vengeance. Applying the proven principle, it exported consumption and imported investments on such a vast scale that it became the planet’s workshop. This may have been Deng’s master plan, or it more probably was the logic of profit capitalism when it gets its way. China has massively accumulated capital. It has exported consumption and imported some raw materials, plus a lot of factories and technology. Or, more precisely, half factories, with the other halves owned by businesses that were outsourcing their production from North America, Japan and Western Europe. But the world market could not absorb these infinitely expanding amounts of Chinese consumer goods. So China has had to confront the problem faced by profit capitalism everywhere: the fact that profits have no corresponding demand and can only realise their value with credit (See previous posting). The Chinese are now as deeply in debt as the rest of the developed world and their exports have peaked. The global economic motor is about to stall, and there are no alternatives in sight.