5) Foreign Trade
Foreign trade reduces the value of wage goods, thereby reducing the value of labour-power and increasing relative surplus value. It also reduces the value of constant capital, thereby increasing the rate of profit. Also because foreign trade permits production to be carried on on a larger scale, it facilitates economies of scale, which also raise the rate of profit. At the same time, by facilitating a higher rate of accumulation, it also thereby intensifies those forces which reduce the rate of profit by raising the organic composition of capital.
Marx then asks whether a higher rate of profit for capitals invested in foreign trade can lift the average rate of profit. There are two aspects to this. Firstly, there is capital invested in the home market that produces commodities sold on the world market in competition with those produced in less developed economies. Secondly, there is that capital invested actually in the less developed economy.
As set out previously, in the first case, the labour employed in the developed economy stands in relation to that of the less developed economy as complex stands to simple labour. An hour of the former can produce the equivalent of many hours of the latter. In addition, even though the wages of the former may be many times of the latter, the rate of surplus value in the former is higher, so that the amount of surplus value produced is significantly higher.
“Capitals invested in foreign trade can yield a higher rate of profit, because, in the first place, there is competition with commodities produced in other countries with inferior production facilities, so that the more advanced country sells its goods above their value even though cheaper than the competing countries. In so far as the labour of the more advanced country is here realised as labour of a higher specific weight, the rate of profit rises, because labour which has not been paid as being of a higher quality is sold as such. The same may obtain in relation to the country, to which commodities are exported and to that from which commodities are imported; namely, the latter may offer more materialised labour in kind than it receives, and yet thereby receive commodities cheaper than it could produce them. Just as a manufacturer who employs a new invention before it becomes generally used, undersells his competitors and yet sells his commodity above its individual value, that is, realises the specifically higher productiveness of the labour he employs as surplus-labour.” (p 238)
Suppose the labour in a developed economy is ten times as productive as the same labour in a less developed economy, producing say textiles. If both work a 10 hour day, it will then be the same as if the worker in the developed economy worked a 100 hour day. The product of their labour would be the equivalent of 100 hours of the latter. Moreover, if the former only needs to work for 4 hours during the day to reproduce their labour-power, but the latter must work 8 hours, because of lower productivity in the latter economy, the former will then produce 96 hours of surplus value compared to the latter who will produce just 2!
As Marx set out, in Capital 1, this is why, although European textile workers wages were 50% less than those in the UK, British textiles continued to be cheaper on the world market, and yet British profits were higher, because British textile workers were far more productive due to having the backing of more capital. When the productivity of labour in developed economies is then compared with that in the less developed economies, this explains why the rate and mass of profit in the former is much larger than in the latter, despite living standards in the latter being appallingly low. It is why capital tends to be exported to other developed economies rather than to less developed economies.
It only becomes profitable to export industrial capital to less developed economies when it can be employed in capital intensive industries that enjoy the same levels of productivity as in the developed economies but with the added benefit of much lower wages. Even then, as Marx describes, it is social productivity that is important, so even if productivity is high in some particular industry, this may not be enough, unless the country also has a developed infrastructure, transport and communications etc.
Capitals actually invested in the colonies might earn a higher rate of profit, Marx says,
“...due to backward development, and likewise the exploitation of labour, because of the use of slaves, coolies, etc.” (p 238)
but this rather contradicts the first argument. Moreover, as Marx analysed in Capital I, the use of slaves is very inefficient because they tend to be less productive etc.
However, the main point is, do these profits participate in the formation of an average rate of profit, if they are returned home. Marx says there is no reason why they should not. It would only be the existence of monopolies such as the East India Company, which prevented capital being invested overseas, where it was more profitable, that would stand in the way of such averaging.
“There is so much less reason for it, since these spheres of investment of capital are subject to the laws of free competition.” (p 238)
This is the reason why, with the advent of Imperialism proper, in the 20th century, when industrial capital achieves hegemony over money and merchant capital, the US, as main representative of this industrial capital seeks to sweep away the old colonial empires and associated monopolies, and thereby to open up these economies to investment by industrial capital.
“We have thus seen in a general way that the same influences which produce a tendency in the general rate of profit to fall, also call forth counter-effects, which hamper, retard, and partly paralyse this fall. The latter do not do away with the law, but impair its effect. Otherwise, it would not be the fall of the general rate of profit, but rather its relative slowness, that would be incomprehensible. Thus, the law acts only as a tendency. And it is only under certain circumstances and only after long periods that its effects become strikingly pronounced.” (p 239)
It is the rise in social productivity which cheapens individual commodities, but which also raises the organic composition of capital. To the extent that the commodities that comprise the constant capital are cheapened, the rate of profit increases, because the value of the variable capital, and therefore, the surplus value, rises relative to the constant capital.
To the extent the organic composition of capital rises, because increases in productivity imply changes in the technical composition, this reduces the rate of profit. Both tendencies are inextricably linked one to the other, because both are a result of changes in the social productivity of labour. Marx says,
“The fact that the newly added living labour contained in the individual commodities, which taken together make up the product of capital, decreases in relation to the materials they contain and the means of labour consumed by them; the fact, therefore, that an ever-decreasing quantity of additional living labour is materialised in them, because their production requires less labour with the development of the social productiveness — this fact does not affect the ratio, in which the living labour contained in the commodities breaks up into paid and unpaid labour.” (p 239)
This is true only to the extent that this rise in the social productivity of labour does not reduce the value of wage goods, and therefore, the value of labour-power. This is almost impossible. Even where it is the value of constant capital that is reduced, this constant capital is always either directly or indirectly used in the production of wage goods. If the value of constant capital falls, the value of wage goods will fall, and if the value of wage goods fall, the rate of surplus value will rise.
“Although the total quantity of additional living labour contained in the commodities decreases, the unpaid portion increases in relation to the paid portion, either by an absolute or a relative shrinking of the paid portion; for the same mode of production which reduces the total quantity of additional living labour in a commodity is accompanied by a rise in the absolute and relative surplus-value. The tendency of the rate of profit to fall is bound up with a tendency of the rate of surplus-value to rise, hence with a tendency for the rate of labour exploitation to rise.” (p 239-40)
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