It can now sound naive to suggest that the biggest profits from any product should be found at or near the place where it is produced (the world’s richest countries might then be in Africa, for example). But that was always the case in traditional societies and the tendency is by no means passé. It still applies, very emphatically, to the work of top-echelon barristers, management consultants, surgeons, artists and financial advisers. It is still the case to some extent where labor still has strong negotiating power. But as one descends the gradients of power the reward-to-labor ratio goes into reverse and the big amounts migrate as far as they possibly can from the point of production.
The great French medievalist Fernand Braudel established that distance was ‘a constant indicator of wealth and success’ in the first capitalist economies.29 In the Venetian sugar trade of the 15th century ‘production was never the sector in which fortunes were made’.30
[A] kilo of pepper, worth one or two grammes of silver at the point of production in the Indies, would fetch 10 to 14 grammes in Alexandria, 14 to 18 in Venice, and 20 to 30 in the consumer countries of Europe. Long-distance trade… was based on the price differences between two markets very far apart, with supply and demand in complete ignorance of each other.31
For comparison, at the time of the Foxconn suicides in 2010, workers making Apple iPhones and similar products received a basic wage of $130 per month: about one 31,000th of the annual salary of Apple’s then-CEO, the late Steve Jobs (an estimated $48 million32). This was actually a relatively modest differential by electronics industry standards, because Foxconn and Apple were at least paying the minimum wage at the time, and Steve Jobs was only taking a nominal salary from Apple of one dollar a year (most of his income came from his shares in The Walt Disney Company).
In terms of where the bulk of the profit went, a Silicon Valley research company estimated in 2010 (by taking an iPhone 4 apart) that only $6.54 of its $600 retail price ended up at the point of assembly in Shenzhen: just over one per cent. The rest went to materials and components suppliers ($187.51), ‘miscellaneous’ ($45.95) and profit ($360, 60 per cent of the total).
What the latest analysis shows is that the smallest part of Apple’s costs are here in Shenzhen, where assembly-line workers snap together things like microchips from Germany and Korea, American-made chips that pull in Wi-Fi or cellphone signals, a touch-screen module from Taiwan and more than 100 other components.33
The components, whatever their nominal country of origin, are also made under a similar or harsher regime so, here too, a tiny fraction of their value ends up in the places where human labor is involved, which might be in one of the poorer regions of China, Indonesia, the Philippines or Mexico. To reiterate: this is the analysis for a relatively ethically produced product. The norm is much more extreme for other electronics products, and for other industries. An analyst of the global garment industry, Pietra Rivoli, commented to the authors of the article quoted above that ‘the value goes to where the knowledge is’: a dynamic that began with capitalism itself.
In contrast to the situation in the great empires of the East and South, the great fortunes of Europe’s late medieval and early modern period were also made ‘where the knowledge was’, and power politics ensured that it remained as far from the point of production as possible.
KNOWLEDGE-BASED WEALTH
We talk today of ‘the market economy’ as if we mean a single thing that we all understand but, in his groundbreaking work on global economic history, Braudel pointed out that the term covers two very different things.34 It refers to a market in the traditional sense, still found all over the world, where everyone can see everything that’s on offer, who’s offering it and what they want for it, and where terms, quality and sometimes even prices are regulated in a way that everyone understands. But it also refers to a capitalist market where the only people who have that information, and the means to get it, are the capitalists themselves. The name of the game is to get as much of that knowledge as possible, while keeping it from anyone else.
Our conventional fiction is that market knowledge is available, instantly, to everyone, so that we can all immediately take our custom to whoever offers the best value, driving out inferior quality and boosting high quality as we do so. Braudel’s examination of the ledger books and letters of the first great capitalists – the powerful Venetian, Florentine, German and Dutch merchants of the late Middle Ages – reveals what a fiction that has always been. These men were true entrepreneurs in the modern sense. They could be literally staking their entire wealth on the accuracy of the information they had; every scrap was valuable and guarded jealously (so these documents were kept in strongboxes, along with bullion and jewels). The biggest money was in overseas deals, where privileged knowledge could be exploited most, so merchants had good reasons for persuading the state to protect their trade and enforce compliance.
This panopticon-like ‘knowledge economy’ was unknown in many of the world’s other advanced economies until much later and then introduced only through force (massive force, in India and China). The sociologist Maria Mies has described how, in Burma, markets were run by women when the British arrived in 1824. The markets were well-regulated, open affairs that couldn’t easily be manipulated. The women who ran them also had their own parallel information networks and power structures that counterbalanced those of male society. This was apparently not macho enough for Imperial tastes. Britain’s methods for bringing Burma into the modern world involved conscripting Burmese men and teaching them harsh, military virtues, and putting women in their place through a ‘housewifization’ policy.35
The ‘knowledge-based inequality’ described by Braudel only arises when a merchant elite can rely on having privileged access to market information. European merchants were the first ones who could build businesses, industries and economies this way. They, uniquely, could increasingly count on state support to enforce their positions, and this was possible because medieval European states were relatively small and weak, and therefore easily dominated by pressure groups. New technologies emerging at that time (especially firearms and ocean-going ships) allowed these hitherto insignificant states to launch themselves on the world stage.
The Belgian historian Eric Mielants argues that capitalism is precisely what happens when a merchant elite takes over a state’s judicial and military apparatus, and deploys it to protect itself against risk, at the expense of other groups. Abroad, the state’s ships could be increasingly relied on to protect and monopolize trade routes and, nearer to home, the state’s power could be used to define who had access to justice and who didn’t:
Burghers, for instance, could not be tried outside their own city and were not to be imprisoned outside city walls, nor could any non-citizen testify against a citizen.36
The city became a ‘power container’, to use Mielants’ term. ‘Up to ca 1500 the city states were the “power containers” that made this… underdevelopment possible; after 1500, the emerging nation states performed this function.’37 The local countryside became an ‘exploitable periphery’ from which surpluses were extracted up to and beyond the capacity of the people to sustain themselves, or of the land to renew itself.
This was done by direct taxes and the creation of indebtedness, as well as by monopolies and laws controlling labor. The modern parallels are striking. Another medievalist, Peter Spufford, pointed out in 1988 that this was a colonial relationship in miniature:
In the 1280s the countryside of Pistoia supported a tax burden six times as high as that paid by the city. This excessive tax burden was only part of the sucking-dry of the contado by the city at this period. In Tuscany, payments from the countryside to the city greatly exceeded payments from the city to the country. The countryside fell into a state of endemic debt to the city. Repeated and continuous loans from the city to the countryside, and the purchase of rent-charges on the countryside by city-dwellers, only made the situation worse. Contadini were compelled to concentrate on cash crops rather than their own needs, and a cycle of