Global Capitalism as Enslaving the Third World
The concept of the multinational exploitation of the third world is a large and complicated issue. This paper will attempt to summarize the main ideas in this debate, both the view of comparative advantage and the rationality of the international division of labor, and the basic position of those who think the third world is exploited by the MNC and the market that they operate within. The issue over global capitalism and its exploitation of the third world has been one of the most important issues on the world stage since African decolonization beginning in the 1950s.
This paper will argue that the developing world, through their multi-national corporations (MNCs), does exploit the third world, but this conclusion is a guarded one. This is so because there is a great responsibility on the third world state in guarding and fostering economic competitiveness among its workers and local capitalists. While it is true that exploitation is the norm for the MNCs, exploitation is also a stock in trade of the third world state. Firstly, however, the idea of exploitation must be understood.
For Karl Marx, this was a rather technical term: exploitation meant that the laborer in industrial capitalism is paid far less then the value of his work. The difference between the value of his work and the value of his wages is the technical definition of “profit. ” Hence, for a capitalist to turn a profit, the capitalist must pay the worker less than he is worth in terms of the value of his work, hence, for profit to be made, the worker must be exploited (Marx, 1848/1964, also Bradshaw, 1991). The same principle can be applied to the “international division of labor.
” In order for MNCs to turn a profit on the world stage, the MNC must extract raw materials from the host country, and, using local, cheap labor, turn that into a commodity that can either be resold to the host population, or sold to the home country of the MNC. Either way, the third would country or region is exploited in a analogous way to Marx’s definition: the raw material and local labor is bought cheap, and the product itself is resold at a profit, that is, a higher price than the value of the labor or raw materials. The third world provides the labor and raw materials, and the MNC gets the value of the goods.
This is the general idea behind the concept of third world exploitation. One of the best scholarly works on this process is the (1975) article by Dieter Senghaas. This work seeks to reject the much older concept of comparative advantage and rather, see the structural linkage between the above described division of labor and the host economy. The idea of comparative advantage is well known and intuitive: countries should specialize in what they can do best, even if it means to dismantle other areas of expertise relative to the world market.
The basic ideas is that the “global market” is best served by an international division of labor where countries and regions specialize in what they do best, given the available raw materials, climate and basic disposition of the labor force. Now, while this is commonplace in establishment economics, it ignores the structural influences of such a division of labor. As a matter of course, these structural problems that develop over the long term in the international division of labor is called dependency, but that school is for another time (cf.
Wallerstein (1966) as well on these basic structural issues, also cf. Smyth for a list of third world complains on these terms). In Senghaas’ case, he thinks he can isolate the major structural factors, over the long term, in the international division of labor theorized by comparative advantage and the neo-liberal approach to international economics. These arguments are central to this paper, and hence, will be treated at length: (A) The structural development of the third world economy under international capitalism can be described as export oriented production.
This is the case for both MNC investment and local capital. (B) Early, on, the question of import substitution becomes important, where the state attempts to shut out the MNC and replace it with local capital. As of today, the IMF and other international agencies will not lend to states who practice import substitution. This does not last, and hence, the domestic industries based around mass consumer goods production stagnates or disappears.
(C) The domestic economy stagnates given the purely export, market orientation of the economy. This is especially the case with domestic agriculture, which stagnates when the sate and the MNCs encourage export-led growth. (D) at the same time, the defeat of import substitution policies (often in the name of comparative advantage) leads to the stagnation of the local capital market in consumer goods, the main structural consequence of the defeat of import substitution and the intrusion of MNCs. (Senghaas, 1975).
Senghaas calls these the “traits of periphery capitalism,” and is based around the idea that the structural consequences of global free trade and the intrusion of the MNCs into a host economy destabilizes both local capital formation (that is, light industry for local markets) and, most importantly, local, domestic agriculture, that is not geared for export. Hence, the debate seems to be between that of the utilitarian idea of the comparativists, where efficiency in the use of resources is paramount and hence, the benefit is to the consumer, and that of, for lack of a better term, the radicals, for whom the MNC is a destructive force.
The question for the radical is not efficiency but the structural distortions that are introduced into the host country through MNC investment, an investment which implies the host countries’ involvement in some form of free trade regime with the developed world. These are all forms of exploitation that the third world complains are part and parcel of the global reign of free trade. The argument here is basically that comparative advantage is only an advantage for who controls both the MNC and the global regime itself.
The MNC demands that it have access to local resources and local labor at low cost, and then sells the product back to them at a high value added, and hence, pockets the proceeds. There is a substantial argument, however, against the above idea, and three major pieces of work will be used to defend it. The argument is that the MNC invasion since World War II has been a boon to the third world, and that the MNC has assisted the third world in myriad says. Thomas Sowell, the most prominent Black-American conservative, wrote a brief article (2002) in the conservative weekly, Human Events, denying that the MNC exploits the third world.
He argues his point this way. MNCs pay better than local capitalists, first of all. Secondly, that the MNC provides jobs and incomes that the third world cannot do without, and lastly, that MNC investment boosts labor productivity, which, in general, is a fraction of the American productivity per worker. Of course, the counter argument is that since the MNC outperforms local capitalism, it has destroyed the local capitalist’s power to pay mor in the first place.
The famed British economist Peter Bauer also denies the essentially predatory role fo the MNC. In his (1980) book Equality, The Third World and Economic Delusion, he makes the argument that the third world, of itself, does not have the power to industrialize or to introduce labor saving techniques. Only the local investment for the MNC has the ability to introduce these things. Further, that the connection with western markets made possible by MNC penetration is central to exploiting local resources and making money.
At the same time, Bauer argues that these specializations, such as Cocoa in Africa, copper in Chile, or coffee in Latin America were discovered and exploited by westerners, not locals. In other words, that these industries were crated by the MNC, not the local population (Bauer, 1980). Bauer uses the example of Ghana to illustrate his point: Ghana, prior to decolonization, was a wealthy country, aimed at supplying the west with cocoa. While this inidustry was created by Europeans, it enriched many natives and gave Ghana is “comparative advantage.
” However, after decolonization, Ghana was taken over by Nkruma, who made the exploitation of the third world by MNCs and western states the centerpiece of his rule. He taxed and regulated the cocoa industry to such an extent that it eventually collapsed. Hence, it is Nkurma who impoverished Ghana, not the British or the British-created cocoa industry. But this brings this essay to its final piece. Peter Evans (1989) places the blame for third world poverty on the state policies of the developing world, not the MNC.
For Evans, the third world state can take one of two courses (generally). The first is the predatory course, a course described by Bauer above. This predatory course is when the state develops, it takes more and more productive surplus under its control as “non-productive rents. ” An example of a “non-productive rent” is in Zaire’s banana industry: under President Mobutu Seso Seko, for a local to be a part of the banana industry, he had to pay a substantial sum to the state to get a licence, and continued to be taxed heavily while in business.
Hence, the industry was distorted not by the MNC, but by the state. At the same time, he points to South Korea, where the rentier state was rejected in favor of state policies that encouraged and fostered entrepreneurship that cooperated with rather than fought the MNCs. The comparative results are not difficult to see: South Korea is now a first world country, while Zaire is strictly fourth world. Hence, it is the state that is the exploiter, not the MNC. In conclusion, the debate here is about what the MNC (and the global market that the MNC is a part of) can bring to the third world.
Those that hold that the MNC is exploitative usually point to the value added properties of goods sold in the third world that both destroy native industries as well as exploit local resources, since the goods themselves are sold for more than the value of the resources and labor, with the profits going tot he MNC, not localities. Hence, the host country sees its own industry destroyed and natural resources plundered for the benefit of the wealthy. The local economy is scarred and distorted, with its local potential being taken back to the dominant states rather than being invested locally.
On the other hand, the neo-liberal view is that the MNC brings industry, efficiency and high wages to countries that could not provide this for themselves. Hence, the MNC is not an exploiter, but if any one is, the local state and strongmen are, who manipulate the local economies in the interest of their own pockets, hence destroying what profit is available. Rather than leave these local economies in the hands of strongmen or politicians, the MNC puts these resources to good use, and pays their labor far higher than they could otherwise earn.
Hence, the rational conclusion is that third world states take control over local resources, but making sure that their rentier status is kept to a minimum. Given the above, it seems that third world states need to do two things: consider MNC investment as a development aid, while giving aid themselves to the elements of the economy that are distorted via MNC intrusion, local agriculture and mass produced consumer goods. One needs to bide one’s time until the local capital formations are such that the third world state can compete successfully with the MNC, as was done in Korea and Taiwan.
This means that the state needs to be a strong one, strong enough to control local strongmen and underground figures in the interest of the proper mobilization of the surplus. Bibliography: Bauer, Peter. (1980) Equality, the Third World, and Economic Delusion. Routledge. Bradshaw, York (1991). Foreign Debt Expansion, the IMF and the Regional Variation in Third World Poverty. ISQ 35, 251-272 Evans, Peter (1989) Predatory, Developmental and Other Approaches: A Comparative Political Economy Perspective in the Third World State. Sociological Forum 4, 561-587 Marx, Karl. (1848/1963) Early Writings. Trans TM Bottomore.
McGraw-Hill. Senghaas, Dieter (1975) Multinational Corporations and the Third World: On the Problem of the Further Integration of the Periphery into the Given Structure of the International Economic System. Journal of Peace Research 12, 257-274. Smyth, Douglas (1977) The Global Economy and the Third World: Coalition or Cleavage? World Politics 29, 584-609 Sowell, Thomas. (September, 17, 2002) “The Truth about Third World Economic Exploitation. ” Human Events, np. Thacker, Strom. (1999) The High Politics of IMF Lending. World Politics 52, 38-75. Wallerstein, Immanuel. (1966) The Modern World-system. Academic P
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