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The Economics of Modern Imperialism

In: Historical Materialism
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  • 1 Professor Emeritus, Department of Economics and Econometrics, University of Amsterdam, Amsterdam, The Netherlands
  • | 2 Independent Researcher
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Abstract

This work focuses exclusively on the modern economic aspects of imperialism. We define it as a persistent and long-term net appropriation of surplus value by the high-technology imperialist countries from the low-technology dominated countries. This process is placed within the secular tendential fall in profitability, not only in the imperialist countries but also in the dominated ones. We identify four channels through which surplus value flows to the imperialist countries: currency seigniorage; income flows from capital investments; unequal exchange through trade; and changes in exchange rates.

We pay particular attention to the theorisation and quantification of international UE and of exchange-rate movements. Concerning UE, we extend Marx’s transformation procedure to the international setting. We use two variables in the analysis of UE: the organic composition of capital and the rate of exploitation, and we measure which of these two variables is more important in contributing to UE transfers. We research a time span longer than in any previous study. We also introduce the distinction between narrow and broad unequal exchange according to whether two countries are assumed to trade only with each other or also with the rest of the world.

As for the analysis of the exchange rates as a channel for appropriation of international surplus value, we reject conventional approaches because they are rooted in equilibrium theory. We find very strong empirical evidence that exchange rates tend towards the point at which the productivities are equalised. This is only a tendency because this equalisation is inherently incompatible with the nature of imperialism.

Finally, given its topicality, we apply our analysis to the relation between the US and China and find that China is not an imperialist country according to our definition and data.

Abstract

This work focuses exclusively on the modern economic aspects of imperialism. We define it as a persistent and long-term net appropriation of surplus value by the high-technology imperialist countries from the low-technology dominated countries. This process is placed within the secular tendential fall in profitability, not only in the imperialist countries but also in the dominated ones. We identify four channels through which surplus value flows to the imperialist countries: currency seigniorage; income flows from capital investments; unequal exchange through trade; and changes in exchange rates.

We pay particular attention to the theorisation and quantification of international UE and of exchange-rate movements. Concerning UE, we extend Marx’s transformation procedure to the international setting. We use two variables in the analysis of UE: the organic composition of capital and the rate of exploitation, and we measure which of these two variables is more important in contributing to UE transfers. We research a time span longer than in any previous study. We also introduce the distinction between narrow and broad unequal exchange according to whether two countries are assumed to trade only with each other or also with the rest of the world.

As for the analysis of the exchange rates as a channel for appropriation of international surplus value, we reject conventional approaches because they are rooted in equilibrium theory. We find very strong empirical evidence that exchange rates tend towards the point at which the productivities are equalised. This is only a tendency because this equalisation is inherently incompatible with the nature of imperialism.

Finally, given its topicality, we apply our analysis to the relation between the US and China and find that China is not an imperialist country according to our definition and data.

1 Introduction

This work does not aim at submitting a general or complete theory of imperialism. Nor is it a review or assessment of present and past debates on imperialism.1 Nor does it aim at providing an exhaustive coverage of all the relevant issues. The aspects of modern imperialism dealt with here are far from being comprehensive. Our focus is on some key new economic and financial traits of modern imperialism with special emphasis on the relations between the imperialist and the dominated countries through the prism of Marx’s labour theory of value.

Our stress on modern imperialism does not deny the persistent existence of colonialism. Colonialism and modern imperialism do not exclude each other. Colonialism is the appropriation of natural resources, military occupation, the direct state control of colonies and the stealing by the imperialist countries of commodities not produced capitalistically. But colonialism contains in itself the germs of modern imperialism. This is the appropriation by capitals in the imperialist countries of the surplus value produced by capitals in the colonies through the trade of the commodities with high technological content produced in the imperialist countries for the capitalistically produced raw materials or industrial goods produced with lower technological content in the dominated countries. The result is unequal exchange (henceforth, UE), the appropriation of international surplus value through international trade. This modern form of appropriation of international surplus value is not absent in colonialism. But it is not the most important one. Modern imperialism penetrates and develops within colonialism until it becomes the dominant form. Under modern imperialism, technology has become the new battlefield.

The above could be misinterpreted as economism. But this charge would be unwarranted. We focus on the economy’s determining features, which make possible the existence of other extremely important, but determined traits, like military and political domination, as well as cultural and ideological pre-eminence.2 These other features are not simply added to the economic ones in order to obtain a more complete picture. Their interrelation is dialectical. Particularly important, military and ideological supremacy is not simply an appendage of economic power. Rather, economic power is determinant because it is the condition of existence of the military and ideological power and the latter is determined because it is the condition of reproduction (or supersession) of the former. Military, political and ideological power, even if determined by superior technology and economic power, is essential for economic power’s reproduction.3

2 The Wider Context

The production and appropriation of international surplus value should be framed within the context of the post-WWII tendential long-term fall in world profitability. This fall affects both the imperialist countries (henceforth, IC) and the dominated countries (henceforth, DC) even if in different measures.4

Official statistics focus on GDP rather than on profitability figures. Nevertheless, they are telling. They show the tendential fall of the world GDP growth rate (Figure 1).

Figure 1
Figure 1

G20 countries’ annual real GDP growth, 1950–2019 (%)

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

Source: Penn World Tables 10.0, author’s calculations. Please note that all calculations for the Figures are explained in Appendixes 1 and 2

The falling rate of GDP growth for the G20 countries is puzzling to conventional macroeconomics. Usually, the culprit is found in falling consumer spending and investment growth. But this in turn must be explained. A further step back in the explanation focuses on changes in ‘consumer confidence’ and in ‘animal spirits’. But these too must be explained. In the end, conventional macroeconomics’ attempts to explain the falling rate of growth of GDP are nothing more than clutching at straws.

Not so in Marx’s theory. In it, the key variable is the rate of profit. Put in its most general terms, if total assets grow, due to the labour-shedding nature of new technologies, employment grows less (or even falls) than the growth in total assets. Since only labour produces value and surplus value, less surplus value is generated relative to total investments. The rate of profit falls and less capital is invested. Thus, the rate of change of the GDP falls. This is not a linear movement, it is the tendency. There are also many counter-tendencies, especially the rising rate of surplus value. But empirical research shows that the latter cannot hold back the former (Figure 2).

Figure 2
Figure 2

G20 rate of profit (%)

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

Source: Penn World Tables 10.0, authors’ calculations

The slowdown in real GDP growth is particularly notable for the imperialist bloc of countries (Figure 3).5

Figure 3
Figure 3

Annual real GDP growth in imperialist bloc (%)

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

Source: Penn World Tables 10.0, authors’ calculations

This slowing trend in real GDP growth is matched by the secular decline in the profitability of capital in the imperialist bloc (Figure 4).

Figure 4
Figure 4

Imperialist bloc rate of profit (%)

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

Source: Penn World Tables 10.0, authors’ calculations

The pie is growing ever more slowly. In the wake of this long-run persistent economic deterioration in both output growth and profitability, the imperialist countries are like hungry wolves, which when the game gets scarcer, not only take an extra chunk out of the weaker prey, but also increasingly cut each other’s throats.

The inflow of surplus value into the imperialist countries from the rest of the world has helped to slow down the deterioration in output growth and profitability, but has not reversed it. The imperialist countries get a larger share of the shrinking quantity of surplus value at the cost of the dominated countries. But this larger share can reverse the fall in profitability only to the point at which this fall resumes. Nevertheless, the imperialist appropriation of surplus value through unequal exchange in trade (see below) is an important counter-tendency to the decreasing growth of surplus value in the imperialist countries.6

Thus, our task is not simply to document the thirst for surplus value of the so-called ‘global North’, but rather to explain this increasing thirst in terms of the progressive drying-up of the source of surplus value in the imperialist nations. These countries, to quench their thirst for profits, tap increasingly into the fountain of the dominated countries.

Marx focused mainly on the falling rate of profit within a nation. Within it, the national rate of profit falls because sectors compete by introducing labour-saving and productivity-increasing new technologies, thus raising the organic composition of capital (OCC henceforth). We aim at extending Marx’s analysis and applying it to international trade and investment between the imperialist and the dominated bloc. We consider explicitly the different rates of surplus value as one of the two basic determinants of UE.

Our empirical research reveals the specificity of the law of profitability under imperialism. The downward movement in profitability is due to the fact that (a) both blocs’ rates of profit fall; (b) the dominated countries’ profitability is persistently above that of the imperialist ones because of their lower OCC; and (c) the dominated countries’ profitability, while persistently higher than in the imperialist countries, falls more than in the imperialist bloc.

Since 1974, the rate of profit of the imperialist (G7) bloc has fallen by 20%, but the higher rate of the dominated bloc has fallen by 32%. This leads to a convergence of the two blocs’ profit rates over time (Figure 5).

Figure 5
Figure 5

Rate of profit in imperialist and dominated blocs (%)

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

Source: Penn World Tables 10.0, authors’ calculations

Development economics argues for a convergence upward, i.e., that the ‘under-developed’ or ‘emerging market’ economies approach the level of wealth of the ‘developed’ ones. As Figure 5 shows, the two blocs do converge, but downwards in profitability. In spite of the different pace at which the rate of profit tends to fall in the imperialist and the dominated countries, the cause is the same, namely the inability of the counter-tendencies, especially of the increase in the rate of surplus value, to counter sufficiently the rise in the OCC, as Marx’s law of profitability argues.7

3 Measuring Productivity

In the Marxist analysis of modern capitalism and thus in this work, the focus is on competition through technological development. Capitals compete basically by introducing new techniques, which are incorporated into new means of production, or non-financial assets. New techniques on the one hand shed labour so that less value and surplus-value is produced. On the other hand, due to greater productivity, less labour produces a bigger output of use values. New technologies are both labour-shedding and productivity-increasing. The primary role of technological competition holds both within and between nations.

But between nations there is a new actor on the scene: the different countries’ rates of exploitation. Here Marx introduces an important difference. While within a nation we can assume a tendential equalisation of the different sectors’ rates of exploitation, ‘On the universal market … the integral parts are the individual countries. The average intensity of labour changes from country to country; here it is greater, there less. These national averages form a scale, whose unit of measure is the average unit of universal labour.’8 So, if countries are considered, what counts is the average intensity, etc. of labour within each country. These national averages form a scale and thus do not aggregate in an international average because the factors that make possible the formation of an average within a country (labour’s freedom of movement, trade unions, etc.) are inoperative across national boundaries. There is no tendential equalisation of the rates of surplus value in the universal economy. This bears directly on the notion of productivity.

Productivity is usually defined as GDP per unit of labour. This is unsuitable for our purposes. The numerator (GDP) can rise both because more advanced technologies increase the quantity of use values per unit of labour and because of an increase in the rate of exploitation, i.e., by raising the length of the working day and the intensity of labour. But only the former measures productivity. The latter measures exploitation. This is stressed by Marx: the productivity of labour ‘is expressed in the relative extent of the means of production that one worker … turns into products’.9 There is no mention of the effect of exploitation on output.

So, assets must replace GDP in the numerator of the productivity ratio. This is the ratio of the mass of assets per unit of labour. This is what Marx calls the technical composition of capital (henceforth, TCC). Since new technologies are productivity-increasing but labour-shedding, the TCC tends to grow.

However, if assets are considered as use values, the productivity ratio cannot be quantified: use values are by definition non-quantitative and non- commensurable. For the TCC to be quantified, assets must be expressed in value and thus money terms. Then the productivity ratio is the price of assets divided by labour units, as in Figure 6.

Figure 6
Figure 6

Technical composition of capital in the imperialist and dominated blocs, $bn per employee

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

Source: Penn World Tables 10.0, authors’ calculations

The imperialist bloc has a consistently much higher productivity than the dominated bloc and the gap has tendentially widened from 1950 up to the 2007–8 crisis, at which point the TCC has started to rise faster in the dominated bloc. The narrowing of the gap from 2008 has probably to do with the fact that around that time China’s investments in fixed new capital (and thus in assets with a higher TCC) started to close the gap with those of the US (see Figure 24 below).

Productivity ratios can be compared both within and between sectors. But they are meaningful only if they indicate profitability. This applies only within sectors where the outputs of capitals with different productivities sell at tendentially the same price. Then the higher productivity capitals sell to other sectors a higher output than that of the lower productive capitals at the same price. The former make higher profits at the expense of the latter. The same does not apply to inter-branch competition. Now it is the rates of profit that are tendentially equalised, not prices. But for the rates of profit to be computed, labour units must be expressed as wages. Then the productivity ratio is the ratio of assets prices (value) to wages. This is the value composition of capital. It follows that the value composition of capital is determined by, but is not equal to, the TCC. Marx calls the value composition of capital as determined by the TCC the organic composition of capital (henceforth, OCC). The TCC and the OCC differ because usually changes in the value of assets do not reflect (are not equal to) changes in the mass of assets. The same applies to the value and quantity of the labour power employed. Nevertheless, the OCC, since it is determined by the TCC through the value composition, is the measure of the productivity of labour when different sectors or nations are compared. However, the OCC is not a full measure of profitability because, as we shall see below, profitability is determined also by the rate of exploitation.

The OCC of the IC has been consistently higher than that of the DC (Figure 7). Since 1970, the IC OCC has risen 50% while the OCC of the DC has risen 20%. Up to the early 2000s, the DC OCC was closing the gap with the IC. But after that there was a significant decline in most DC countries (excepting China).

Figure 7
Figure 7

The organic composition of capital in the imperialist and dominated blocs

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

Source: Penn World Tables 10.1, authors’ calculations

Indeed, Figure 8 corrects the widespread opinion that wages rates in the DC s have followed a downward tendential line. Not only did they start to rise from the early 1960s; they rose faster than IC wage rates from the early 2000s.

Figure 8
Figure 8

Ratio of average wages of dominated bloc to imperialist bloc

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

Source: Penn World Tables 10.0, authors’ calculations

4 Defining Imperialism

Economic imperialism is in the first instance the appropriation of surplus value by high technology companies from low technology companies in different countries. So, the imperialist countries can be defined as those countries with a persistently higher number of high technology companies and thus with persistently higher national average OCC. Their average technological development is persistently higher than the national average of other countries. The latter are thus technologically and economically dominated.

Before we analyse some of the various methods of transfer of surplus value from the dominated economies to the imperialist ones, let us reconsider Lenin’s notion of economic imperialism, as summed up in five well-known points from his 1917 work. They are:

  1. The concentration of production and capital, developed to such a high stage that it has created monopolies, which play a decisive role in economic life.

  2. The merging of bank capital with industrial capital and the creation, on the basis of this ‘finance capital’, of a ‘financial oligarchy’.

  3. The export of capital, which has become extremely important, as distinguished from the export of commodities.

  4. The formation of international capitalist monopolies, which share the world among themselves.

  5. The territorial division of the whole world among the greatest capitalist powers is completed.

These are characteristic features of modern imperialism defined by Lenin and they are still relevant in 2021.10 However, a list of features does not constitute a theory. Lenin’s five points should be subsumed under a unifying theoretical frame from which they can be derived. In our view, economic imperialism is a system of international social relations basically founded on long-term technological differentials in which the high technology, high productivity imperialist countries (and thus with higher OCCs) persistently capture in a variety of ways the surplus value generated in the low-technology and low-OCC dominated countries. Persistent unequal levels of technology are the necessary condition for the persistent appropriation of surplus value. We stress ‘basically’ because as we shall see below there is another great source of loss of surplus value by the DC, namely their higher rate of exploitation, but which is also determined by the OCC differentials.

On this basis, we can define two blocs: the bloc of the imperialist high technology countries (henceforth, HTC) with a persistently higher average OCC and lower average rate of surplus value, and the bloc of the dominated low technology countries (LTC) with a high average rate of surplus value and a persistently lower average OCC. The OCC differentials and rates of surplus value differentials determine the appropriation of surplus value (as shown in sections 6 and 7 below) by the imperialist countries not as an accidental occurrence or for short-term periods, but for long, multi-decennial periods. Even so, this is not an immutable situation. A country can change from a non-imperialist or dominated status to an imperialist position and vice versa (e.g., Japan in the late nineteenth century). But these changes not only can take decennia to happen. Also, and most important, they do not change the unidirectional flow of surplus value between the two blocs, irrespective of their changing composition.

As pointed out above, within both the LTC s and HTC s, there are low and high technology companies. If the profit rates are equalised among countries, countries with a predominance of high technology companies and average lower rates of exploitation cause a net inflow of surplus value into their country (or bloc). Conversely, countries with a predominance of low technology and average higher rate of exploitation cause a net outflow of surplus value from their countries (or bloc). As Akkermans reports, ‘47 of the 50 [trans-national corporations – G.C. and M.R.] are located in core countries, and 24 in the top core country, the USA.’11

Due to their technological superiority, some countries are hegemonic or leading in the sense that they impose their policies (economic or otherwise) both on other imperialist countries and on countries of the dominated bloc in order to pursue their own interests. This is accepted by other imperialist countries because in fostering their own economic interests, the hegemonic countries foster the interests of the bourgeoisie also in the other countries within that bloc, even if in a contradictory way. Marx spoke of the capitalists as ‘hostile brothers’.12 The US is the hegemonic country within its bloc and Germany within the European Union. In the EU, one common bond is the euro, which is advantageous both to German and to the other European countries’ capitals and disadvantageous for labour. The hegemonic imperialist countries become regional powers and gain spheres of political influence within their blocs.

Economic blocs complicate the flow of value. Value flows among (a) hegemonic and non-hegemonic imperialist countries, (b) among imperialist and dominated countries and (c) among dominated countries. This complex movement results in the flow of value between blocs. Outsourcing complicates this picture further. Companies, usually high technology companies, can commission segments of their production process (from the design, to the production and to the delivery of the finished product) to firms in foreign countries, possibly in other blocs. Due to their higher technology, the outsourcing companies can appropriate surplus value from the foreign suppliers. But this international value-chain does not bring about any substantial change in the nature of imperialism.

5 Evidence for Our Definition

Let us now consider the empirical evidence. First the official data. They are not value quantities, yet they are telling. Conforming to our analysis, we would expect the imperialist countries to have net cross-border inflows of income and for non-imperialist countries to have net outflows over time. The IMF defines ‘primary income flows’ in a country’s balance of payments as the net cross-border flows of rent, bank interest and financial-asset returns (as well as workers’ remittances). This provides a partial but important picture of the level and direction of ‘tribute’ flows.13

We define the imperialist countries as the G7 and the dominated countries as the rest of the G20. The imperialist G7 countries run a persistent and rising annual net primary income surplus that reached over half a trillion dollars in 2019, or 14% of G7 GDP (Figure 9). That’s a sizeable contribution to the surplus value of the G7 economies.

In contrast, the DC countries are leaking large amounts of net primary income – up to nearly $250bn a year (Figure 10). Even the strongest of the so- called emerging economies are forced to remain in a dominated role – paying out much more than they receive in primary income. And the trend is worsening.

Figure 9
Figure 9

Net primary income flows to G7 imperialist countries $bn, % of G7 GDP

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

Source: IMF international financial statistics, authors’ calculations, see Appendix 1
Figure 10
Figure 10

Annual net primary outflows from dominated bloc ($bn)

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

Source: IMF international financial s tatistics, authors’ calculations, see Appendix 1

Another measure of persistent imperialist domination is the stock of foreign investment. The G7 imperialist countries’ stock of investment abroad has persistently outstripped such investment by the larger dominated economies. If China were excluded, the gap would be even larger (Figure 11).

Figure 11
Figure 11

Outward foreign direct investment stock ($trn)

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

Source: UNCTAD, authors’ calculations, see Appendix 1

Another important source of value appropriation is seigniorage. It is the privilege accruing to the countries whose currency is the international one, most notably the US. The typical case is the US dollar. A substantial quantity of US dollars is used by other countries as (a) international reserves, (b) money circulating within those countries and (c) a means of payment on the international markets. US imperialism is able to appropriate surplus value thanks to the international use of the dollar, which has become the international currency of trade, investment, and store of value.14 Value (imported foreign commodities) is exchanged for a representation of value (dollars) which is not converted for the imports of US products value. This is international seigniorage (where the state makes a profit from its monopoly in the issuance of a currency).

The US balance of trade is permanently negative. A consistently negative trade balance is something only the country (the US) whose currency is the international currency (the US dollar) can afford. This explains why for about half a century, from the early 1970s, the US trade balance has been constantly negative. From 1993, the deficit rose to a peak deficit of $770 billion in 2006, or 5.6% of GDP, and was still near $700 billion in 2020 (Figure 12).

Figure 12
Figure 12

US trade balance (USD bn and % of GDP)

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

Source: FRED, BOPGSTB series

This explains why there is a net demand for dollars from the rest of the world.15 Dollar net transfers rose to a peak of $66 billion in 2014 (Figure 13).

Figure 13
Figure 13

Net transfer of US dollar notes to rest of world ($bn)

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

Source: Louwerse 2017

At present the euro is the only possible challenger to the dollar’s dominance in seigniorage. But so far that has proved illusory, as more than two-thirds of all FX reserves globally are still held in dollars (Figure 14).

Figure 14
Figure 14

Currency share of global FX reserves (%)

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

Source: IMF COFER (<https://data.imf.org/regular.aspx?key=41175>)

Whether and when the Chinese renminbi will emerge as a real challenger to the US dollar is a matter of debate. But this is unlikely to happen as long as the US retains its technological superiority together with its absolute military predominance.

6 Unequal Exchange through Trade

Unequal exchange (henceforth UE) is another important way that imperialism appropriates international surplus value through international trade.16 We rely on Marx’s transformation procedure to theorise and compute UE. Its guiding principle is the difference between value before realisation, or unrealised value, and value after realisation, or realised value. The unrealised value is the value contained when the commodity exits the production process before sale. But it is also the value that, having been realised through sale, is sold again either on the national or on the international market. Unrealised value becomes realised each time the commodity is sold because each time it is sold, surplus value is lost/gained. For example, in Table 1.

IMG000015

Table 1

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

In a given period, each sector produces a certain output (200a and 100b) with a certain value (120A and 140B). As long as that output is not sold, this is unrealised value. At the end of the period, the two sectors sell their output to each other and realise the value of their products. But this is not the value contained. If that were the case, sector A would not have sufficient purchasing power to buy 100b and sector B would have an excess of purchasing power. Exchange at value contained would make trade impossible. So, both sectors have to sell at an average value (price) of 130. This is the production price (henceforth, PP, which is based on the average rate of profit on the capital invested). UE is the surplus value tendentially realised, because it is the difference between the surplus realised on the basis of the tendential equalisation of the profit rates, and the surplus value before realisation (sale). In Table 1, 130 − 120 = + 10 for sector A and 130–140 = −10 for sector B. The positive or negative UE depends on the height of the OCC. The high OCC sector (A) gains surplus value from the low OCC sector (B) because the latter produces more surplus value, a part of which, upon redistribution, is gained by the former.

A glance at Table 1 shows that UE is not exploitation. Exploitation is a relation between capital and labour, between surplus value and variable capital. UE is a relation between capitals, namely the appropriation of surplus value when the high OCC capitals trade with the low OCC capitals.

UE hinges critically on the formation of an average rate of profit (ARP). The formation of the ARP is disputed. The first objection is that the formation of an ARP is supposedly incompatible with monopolistic reality.17 But first, monopolies are an exception; what impedes free competition are oligopolies. The argument then is that oligopolies ward off competition through barriers to capital entry because of the sheer size of capital investments needed for the development and application of new technologies. Large investments are thus unavailable to ‘free competition’ capitals. Note that ‘free competition’ as used here has nothing to do with its neo-classical meaning; rather, it refers to those sectors of the economy where capitals can compete with each other, but cannot compete with oligopolies because of insurmountable economic barriers. Thus, supposedly, oligopolies prevent the emergence of a one international profit rate, one for the oligopolistic and the other for non-oligopolistic sectors. So, it could be argued that there emerge two ARP s.

The first objection is that oligopolies do engage in technological innovation. This is the opposite of the commonly held view that oligopolies slow down the introduction of innovations.18 If a monopoly applies a productivity-increasing new technology, its greater output is exchanged for the output of other monopolies with a lower OCC. Then a transfer of value takes place from the latter to the former, just as in the non-monopolistic sectors. Moreover, oligopolies invest in each other’s activity (as in conglomerates). An average rate of profit arises within the oligopolistic sector.

So, it could be argued that within a country there are two tendencies towards two national average profit rates, one for each of the two sectors (the oligopolistic and the competitive). Supposedly, this would undermine Marx’s theory. But this conclusion changes if countries are considered not in isolation, but as elements of the international economy. For Marx ‘on the universal market the integral parts are the individual countries’. The profitability determining the transfer of surplus value necessary for the formation of an international ARP is the profitability of the whole country, the average of the profitability of all capitals within a country, whether monopolistic or not. All capitals, both monopolistic and non-monopolistic, contribute to the inter-country transfer of surplus value and thus to the formation of a national average rate of profit which is an aliquot part of the international ARP. So, from the perspective of the ‘universal market’, in each country there emerges one ARP.19

The second objection to UE questions whether the ARP is a real quantity or simply a statistical average devoid of economic substance. In the latter case, it could not be argued that the transfers of surplus value (UE) computed on the basis of the ARP are real. If empirical observation, it is held, does not show a convergence towards an empirically observable average, then this is proof that there is no such (real) average. Only the scatters are real and ARP is imagined, unreal.20

This empiricist view is alien to Marx. Suppose we can observe only capitals with no average profitability. Does the average exist, is it real? The answer depends upon whether we hold a static view or a dynamic one. In the former case, the average can be computed, but it has no real, economic meaning. This seems to be the (implicit) assumption behind the critique. But reality is not static: ‘all that is solid melts into air’.21 If reality is considered dynamically, as constantly changing, it is clear that due to capitals’ competition, the different rates of profit constantly overtake each other and in so doing create an average (something that becomes more evident the higher the speed of the overtaking), whether that average is represented by a specific capital or not.

The international UE is an application of the procedure above to the international economy. But there are differences. Now countries replace sectors. Their output must be sold on the international market. The value (GDP) is realised national value because it is the sum of the surplus value realised by all the sectors in each country through the reciprocal sale of their products. But it is also the unrealised international surplus value as long as it is not sold on the international market. At the moment of sale on the international market, the surplus value contained in the GDP is redistributed into an international ARP. Then the international production prices are the values tendentially realised due to the international equalisation of the national rates of profit. The difference between the international production prices (international realised surplus value) and the national GDP s (internationally unrealised surplus value) is the international UE. There is nothing mysterious about the GDP being the realised national value, but unrealised international value. It is a matter of the scope of the analysis, i.e., whether the scope is intra- or international.

UE should not be confused with the deficit or surplus of the trade balance. In Table 1 above, let us substitute sector A with the US and sector B with China. In the case of narrow UE, both the US and China export at a price of 130 and import at a price of 130. The balance of trade is in equilibrium. Yet the US books a positive UE and China a negative one. This result is of great significance for the relation between these two economic giants, as we shall see in section 9 below.

There are other features specific to the formation of the international UE. To begin with, the effects of the rate of surplus value on the production and redistribution of international surplus value. Within a nation it can be assumed that the sectors’ rates of exploitation are equalised into an average rate. But this assumption should be modified if nations are compared. Each nation has its own rate of exploitation, i.e., surplus value divided by variable capital. In symbols, S’ = S/V. We call this the unadjusted S’. We hold that S’ should be adjusted by UE.

The reason is as follows. Take a negative UE. It is surplus value lost by national capital through trade. Thus, the surplus value extracted from labour is S + UE, the surplus value remaining to the national capitals plus the surplus value lost to foreign capital. Alternatively, if UE is positive, UE must be subtracted from surplus value accruing to that capital to find the surplus value before international appropriation, i.e., extracted from the national labour force. So, the surplus value actually expropriated from labour is S ± UE and the adjusted rate of surplus value is S’ = (S ± UE)/V. It follows that exploitation is underestimated in the countries with negative UE (the DC) and overestimated in the countries with a positive UE (the IC). To assess the relative weight of the adjusted S’ versus that of the OCC in the formation of UE, we use the principle that if the OCC differentials are greater than the S’ differentials, the former contribute more to the flow of value, and vice versa.

Finally, we calculate UE in two ways, which we distinguish as UE based on narrow bilateral trade (narrow UE for short) and UE based on broad bilateral trade (broad UE). In the narrow UE, the assumption is that two countries trade only with each other. This assumption is unrealistic, but it is useful if we focus only on the relation between two countries. In the broad UE, we apply the more realistic assumption that the two countries trade also with all other countries. Appendix 2 shows how UE is computed in each of these two cases.

Let us now consider some alternative views of UE. Cockshott holds that UE is not a redistribution of surplus value through international trade, but the creation of surplus value.22 For example: ‘A ton of US maize contains a lot less labour than a ton of Mexican maize. But once imported to Mexico the US maize sells at the same price under Nafta as the domestic variety’. The effect is that ‘one hour by a US farmer creates more value than one hour by a Mexican one’. Not so, in our view. If a ton of US maize requires less labour than a ton of Mexican maize, the quantity of US labour that has gone into a ton of maize does not change just because it is exported. Once exported, the US maize counts as more value than the value required for its production because – if the US and the Mexican maize are sold at the same price – the US agricultural capitalist appropriates through UE a share of the surplus value generated in the production of the Mexican maize.

Kohler identifies UE in the exchange-rate mechanism and measures it as the difference between the GDP valued at PPP (purchasing power parity) and at current exchange rates.23 In the PPP approach, the same basket of goods is identified in all countries. They can be aggregated in the goods making up the GDP. Consider a limited example: the US and Colombia. One computes how many commodities US$1 can buy in the US and how many pesos are needed to buy the same commodities produced in Colombia. Suppose an American spends $1 on a bundle of commodities A produced in the US. If a Colombian spends 4.64 pesos to purchase the same A in Colombia, the PPP ratio is $1 = 4.64 pesos. Suppose now that the actual exchange rate (ER) is $1 = 5.52 pesos. An American who exchanges $1 for 5.52 pesos and spends them in Colombia can purchase more Colombian commodities. The measure of this difference is the exchange rate deviation, d, which is ER/PPP. In the example above, d = 5.52/4.64 = 1.23. Then, T = X*d − X where T is unequal exchange and X is the volume of exports from a low-wage country to high-wage countries.

Let us consider Kohler’s T more closely. In the example above, if XR is $1 = pesos 4.64, in terms of Kohler’s approach there is equal exchange. If the peso is devalued to $1 = pesos 9.28, the holder of $1 can purchase 2A in Colombia. One A is lost by Colombia and gained by the US. This is unequal exchange.

The first thing to be remarked is that T is a measure of value without a theory. If XR does not move towards the PPP, then its movement is random. If it does move towards the PPP, then no reason is provided for this movement. In both cases there is no theory of T. But even as a theoretically empty way to measure UE, T fails. The reason is that T is due to prices in the LTC being lower than in the HTC. However, prices delinked from values do not indicate positive or negative UE. In the example above, the exchange ratio $1 = pesos 4.64 would indicate equal exchange. But if $1 represents 1 hour of labour in the US and pesos 4.64 represents ½ hours in Colombia and if the XR is $1 = pesos 4.64, then there is equal exchange in terms of prices but negative UE for the US in terms of value. Nothing can be said of the UE because of the missing link between prices and values.

One could choose to disregard the value dimension. Then money prices represent use values. However, use values are by definition different and thus incommensurable. If money represents use value, it cannot make them equal and commensurable. Quantities must be homogeneous before money can express that homogeneity and commensurability. The choice of the labour theory of value is not a matter of preference. It is simply a matter of formal logic.24

Emmanuel’s UE rests on the thesis that, ‘The capitals invested can themselves be equalised, yet the transfer of value from one country to another will take place nonetheless’.25 This transfer of value, or UE, is caused by ‘the institutionally determined wage levels (“rates of surplus value”) in the presence of an internationally equalised rate of profit’.26 In the discussion that followed the publication of Emmanuel’s works, it became customary to distinguish between ‘broad UE’ – due to differences in the OCC – and ‘narrow UE’ – due to differences in wages and rates of exploitation.27 Supposedly, the equalisation of the rates of profit occurs on the basis of the different OCC, and different wage levels modify it.

Table 2
Table 2

Emmanuel UE

Citation: Historical Materialism 29, 4 (2021) ; 10.1163/1569206X-12341959

Emmanuel submits the following example as in Table 2, where K is the total capital invested and c is the constant capital (value) actually used.

B has a higher OCC (12.0) than A (2.4). So B should gain surplus value from A. Yet it has a negative UE (−40). This seems to contradict Marx’s thesis that UE is determined by different OCC.

Emmanuel makes a methodological error. Marx presupposes the equality of the RSV because he considers different sectors within a country. But this hypothesis should be dropped within the context of the international economy, as Marx himself states. Then the different wage levels must enter the equalisation of the profit rates together with the different OCC. They do not modify the ARP; they contribute to its formation. Country B loses surplus value even if its OCC is higher because Marx’s assumption has been expanded to the case in which the RSV s are different. If the RSV s are equalised, the low OCC country loses and the high OCC country gains surplus value, as in Marx.28 B’s higher productivity is not sufficient for it to gain a higher profitability.29 Profitability depends on both productivity and exploitation. Then the question is which one weighs more in determining UE. In Table 2, B’s RSV is higher (500%) than A’s (20%). So B loses surplus value to A on this account while gaining surplus value to its higher OCC. On balance, what B loses due to its higher RSV is more than what it gains due to its higher OCC. Indeed, the ratio between the two RSV is 25, which is higher than the ratio between the two OCC, which is 5. Wage and surplus-value differentials do not contradict Marx’s equalisation procedure, they complement it.

Another way to compute UE is through the Input-Output analysis. These tables have the advantage of identifying which sectors within different countries are responsible for a positive or a negative transfer of value. From this perspective, this method is not alternative but complementary to ours. However, the input-output tables do not compute prices on the basis of the equalisation of the profit rates and thus of the production prices derived from such an equalisation. Yet this is an essential step before the market prices can be accounted for. Instead, these tables depict and analyse the dependence of one industry or nation on the others through a set of linear equations connecting market prices only.

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