Imperialism in the Twenty-First Century. John Smith

put it, “Economic development has increasingly become synonymous with ‘economic upgrading’ within global production networks.”⁸³ In other words, adoption of the export-oriented industrialization strategy is an insufficient condition for the attainment of development. But if overcrowding has stranded the EOI elevator in the basement, the upgrading elevator, which has a much smaller capacity, suffers even bigger problems. Before we examine the evidence for this and consider its implications, we should note the major problem that the upgrading imperative poses for mainstream economic theory: upgrading contradicts dominant models of international trade, which stress that, rather than trying to do things that they presently cannot do, countries should concentrate on what they are able to do best and employ the resources they are most generously endowed with, that is, they should exercise their “comparative advantage.” Milberg and Winkler add,

      The general perspective of upgrading is anathema to traditional theories of trade based on comparative advantage. The notion of economic upgrading is largely about gaining competitiveness in higher value-added processes, a strategy that may conflict with the dictates of the principle of comparative advantage in which an “optimal” pattern of trade may call for countries remaining specialized in low value-added goods.⁸⁴

      The implication is that “traditional theories of trade”, that is, the modern variants of the theory of comparative advantage that occupy a sacrosanct place in mainstream economic theory, are useless as a guide to nations seeking development. (Mainstream trade theory will be discussed in later chapters.) Milberg and Winkler propose that “absolute upgrading” occurs when “value added per worker engaged” rises faster than the value of exports; “weak upgrading” when it rises, but more slowly than exports, and if value added per worker rose less than a quarter as fast as exports, no upgrading is taking place. The logic of this approach is that there are two possible conditions that might cause the value of exports to rise faster than domestic value added per worker: a rise in the import composition of those exports, or an increase in the size of the workforce producing them. In the first case, the shrinking domestic contribution to the value of exports is symptomatic of race-to-the-bottom competition; in the second case the developing country is doing more of the same thing but with diminishing returns. In their sample of thirty developing countries drawn from three continents, not one achieved absolute upgrading and just nine of the thirty countries experienced “weak upgrading.”⁸⁵

      Milberg and Winkler see this as “a contemporary version of the Prebisch-Singer dilemma,”⁸⁶ in other words, a repetition of the deteriorating terms of trade suffered by the South’s traditional primary exports over much of the twentieth century, now as then blighting hopes of development and depriving producers of the fruits of their labor.⁸⁷ Thus they argue that “the export-led growth strategy adopted by most developing countries following the debt crisis in the 1980s (in place of the previous strategy of import substitution industrialization) has suffered from a ‘fallacy of composition’ problem…. The result can be a disproportionately small rise in value added, implying minimal economic upgrading.”⁸⁸ Their conclusions are apt, as is their tinge of scorn for the failure of analysts to challenge the hyperbole and false promises of the proponents of neoliberal reforms: “There is a need for a theory of ‘downgrading.’ Our cross-country results are consistent with many findings that most countries and sectors are not experiencing upgrading by acceptable definitions. Since these instances predominate, it would be useful to theorize this rather than simply label them as instances where upgrading does not occur.”⁸⁹ A “theory of downgrading,” that is, a new version of dependency theory, is precisely what the present work is seeking to develop.

       SLOW GROWTH IN THE SOUTH’S SHARE OF GLOBAL MANUFACTURING VALUE ADDED

      Manufacturing value added (MVA) is often only a small fraction of the value of Southern manufactured exports and has been growing much more slowly than employment, trade, or just about any other measure of globalization.⁹⁰ Had the IMF used this measure in place of gross exports, instead of reporting the dynamic growth of the globally integrated Southern workforce, it would have had the embarrassing task of explaining why this growth has been so lackluster.

      The long-running decline in MVA’s share of GDP in imperialist nations is widely interpreted to mean a corresponding decline in the importance of manufacturing production, giving rise to notions of a transition to a “post-industrial society” or a “knowledge economy,” notions that are Eurocentric in that industry hasn’t diminished, it has moved, out of sight and out of mind, and reflect the petit-bourgeois social milieu of their proponents, far distant from the sphere of production. Industry’s real contribution to GDP is far greater than the statistics appear to show, since it is the source of the value consumed by non-productive sectors of the economy and misread as their contribution to GDP. Indeed, once we dispense with crude physicalist definitions of industry and services, and reclassify so-called service tasks intrinsic to the production process as “industry,” industry is then, by definition, the source of all value, and therefore of all value added, in an economy.

      Two factors account for the apparent decline of industry’s contribution to GDP: the substitution of workers by machines resulting in the rising productivity of industrial labor, and the substitution of higher-paid domestic workers with low-wage workers in poor countries. The latter is analyzed in depth in this book. Considering by itself the effect of the introduction of labor-saving technology, advancing productivity means industry supports an ever-more complex society with fewer workers—yet this shows up in standard economic data as a decline in industry’s importance, leading to the simplistic and misleading notion that we now live in a “post-industrial society.”

      The World Bank’s World Development Indicators provide data on MVA growth (for 1990 and 2002) and on growth in export of manufactures (for 1990 and 2004) for 55 low- and middle-income nations and 16 high-income’ nations.⁹¹ Manufactured exports from the 55 low-wage nations increased by 329 percent between 1990 and 2004 (434 percent if China is included), while their combined MVA grew by just 46.3 percent.⁹² During this decade and a half of intense globalization, the 16 high-income nations increased their exports of manufactures by 127.4 percent, while their combined MVA grew by 14.2 percent, and by just 1 percent if the United States is omitted—the United States’ 40.6 percent growth in MVA accounted for nearly all of the MVA growth of high-income nations, boosting its share of all 71 nations’ MVA from 29 percent to 34 percent.

      AS THE PORTION OF GDP CONTRIBUTED by manufacturing has declined in imperialist economies so it has increased in many Southern nations, yet the leap in the South’s share of global manufacturing trade is not reflected in its share of global MVA, which has increased by a much smaller amount.⁹³ The continuing global shift in production is indicated by WDI data reporting that between 1996 and 2005 high-income nations’ share in global MVA declined from 80 percent to 74 percent, with the share of low- and middle-income nations rising from 20 percent to 26 percent. Given the qualitative advances in the globalization of production this is, to some extent, to be expected. It also reflects the shrinking share of the value of the final product that is captured by the Southern producer. Thus, in 1990, the MVA of the 55 low- and middle-income nations was 1.8 times the value of its exports of manufactures; by 2002 this had fallen sharply, to 0.6. This major decline has three main components: the demise of ISI-protected industry, increased imported value-added content of exports, and deteriorating terms of trade (falls in relative prices) of manufactured exports.

      Mexico offers the most extreme example of booming manufactured exports and bombing MVA. Boosted by membership of the NAFTA free trade area with the United States and Canada and by the collapse of the peso in 1994, which made Mexican labor even cheaper, between 1990 and 1998 Mexico’s manufactured exports increased nearly tenfold, yet total value-added in its manufacturing sector increased by barely 50 percent and its share of world MVA actually fell. High-income nations present a mirror image: their ratio of MVA to manufactured exports doubled, from par in 1990 to 2.0 in 2002. As UNCTAD has pointed out, “in relative terms, industrial countries appear to be trading less but earning more in manufacturing activity.”⁹⁴

      Despite the enormous increase in the global south’s manufactured exports from 1980 onwards, the rate of growth of MVA in these nations slowed