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Here’s What Workers of the Global South Endure to Create Corporate Wealth

The cheaper the wages of the workers in the Global South, the greater the gross profit margins of corporations.

A view of an employee dormitory equipped with a suicide-prevention net is seen in Foxconn Technology Group's industrial complex on October 16, 2010, in Shenzhen of Guangdong Province, China.

In recent decades, as U.S. corporations shipped millions of jobs overseas to save money on wages, GM, H&M, Apple and dozens of other companies established elaborate supply chains in Asia, Mexico and Latin America, where workers earn pennies per hour. These chains are geographically expansive networks organized by foreign companies to produce semi-finished goods in different places before final assembly for huge global corporations.

Abuses abound. One typical example: An Indonesian factory that supplied the Japanese multinational behind the clothing brand Uniqlo abruptly closed, leaving workers with unpaid wages and unpaid severance. Intan Suwandi, the author of the recently published book Value Chains, told Truthout that there have been similar cases involving Nike, Adidas, H&M and Walmart in Cambodia and Honduras. A Chinese factory that supplied PUMA abused its workers and paid starvation wages, while workers in India’s home garment sector are as young as 10 years old, working for companies that supply the U.S. and European Union.

Suwandi also cites reports of a Chinese factory that produces computer products, such as keyboards and printer cases, for Hewlett-Packard, Dell, Lenovo, Microsoft and IBM. The factory applied a “long list of draconian disciplinary measures, and fines were used to control every movement and almost every second of the workers’ lives.” She also mentions a Chinese factory that produces parts for Ford, where, among many violations, seriously injured workers were “fired after a year or two.”

And then there’s Foxconn, the Taiwanese company that assembles iPhones for Apple and products for Dell, Nokia, Hewlitt-Packard and Sony. It employs roughly 400,000 people at its Shenzhen factory, paying 83 cents an hour, under conditions so deplorable that in one six-month period in 2010, 13 workers jumped from the factory building, at least 10 to their deaths, while later, 150 threatened to kill themselves thus. Meanwhile, in 2012, a fire in a garment factory in Dhaka, Bangladesh, that supplied Walmart and Sears, killed 112 workers.

Value Chains argues that economic imperialism is alive and well and being practiced in the Global South by corporations from the North. Although in recent years some leftists have argued that with the hollowing out of the Global North’s manufacturing base, economic imperialism ended, Suwandi disputes this. Her book mentions the GM commodity chain, which, as former GM director of sustainability David Tulauskas notes, includes “20,000 suppliers that provide us parts that go onto our vehicles. We buy from them approximately 200,000 individual items, spending about $100 billion. We operate in 30 countries. We sell those products in 125 countries.” Those suppliers, Suwandi explains, are scattered in Brazil, China and Mexico. Wages are kept low through direct investments and “arm’s lengths contracts.”

Value Chains devotes many pages to these contracts, which are a form of subcontracting without equity involvement. In these contracts, multinationals outsource production to suppliers mostly in the global South through contract relationships. As a result, the complex network of labor-value chains conceals how profits are extracted from workers by making it almost impossible to trace profits back to those workers. This is largely due to the arm’s length contracts.

Suwandi cites John Smith’s Imperialism in the Twenty-First Century in order to demonstrate how much wealth transnational western corporations extract from workers in the Global South: “Apple subcontracts the production of the component parts of its iPhones to a number of countries, with Foxconn subcontracting the final assembly in China. Due … to low-end wages … Apple’s gross profit margin on its iPhone 4 in 2010 was found to be 59 percent of the final sales price.” For each iPhone 4, retailing at $549, Smith writes, only $10 went to labor costs in China.

Cheap labor in the Global South means that multinational capital only has to pay a few cents an hour for work which creates much more value than that, Suwandi explains. Corporations disguise this value capture by attributing it to marketing, distribution and design activities in the Global North. Of course, it helps that that’s where the products are sold, with high markups on production cost. This obfuscates GDP. Take Apple’s iPhones:

Only 1.8 percent goes to labor costs in China, only that amount is recorded in China’s GDP, while a large percentage is recorded in the GDP of the country where Apple is headquartered — the United States — even when none of the production processes happened here…. The country where the iPhone was produced receives in its GDP only a small proportion of the final sales price. Meanwhile the larger part shows up in the GDP of the country where it is consumed…. So that’s why the profits that multinationals get are very difficult to trace back to the workers in the Global South.

Suwandi emails that global labor value chains (or “global commodity chains,” “global value chains,” or “global supply chains”) link people, tools and activities to deliver goods and services to the market. Her book argues that multinational corporations headquartered in the Global North control these chains completely, in every detail, even though they don’t own them. She explains that each chain consists of various nodes (each node signifies a specific production process) with different businesses involved in these different production processes. Take a pair of Nike sneakers: Several nodes are involved where semi-finished parts of the final product are made in various factories located in different countries. The raw materials are also acquired from different countries. If final assembly occurs in a factory in Vietnam, the sneakers will be labeled “made in Vietnam.”

The top three countries participating in labor value chains are China, India and Indonesia, where, according to Value Chains, wages are low and productivity is high. These labor value chains “are imperialistic in their characteristics,” because “capital accumulation processes are inseparable from the unequal relations among nation states.” The global labor force is concentrated in the South: With 541 million industrial workers there in 2010, compared to 145 million in the North, the idea that the commodity chain system is imperialist in nature makes sense. Indeed, Value Chains argues that globalized production is a new form of economic imperialism that transfers wealth from South to North. This does not preclude, however, the creation of local billionaires in China and India, who reap immense profits from their own transnational corporations. And where does all that profit go? “Huge quantities of this loot,” Value Chains reports, “captured from peripheral economies in the global South end up in the ‘treasure islands’ of the Caribbean, where trillions of dollars of money capital are now deposited.”

All this pelf, of course, comes directly out of workers’ hides. The cheaper the wages of the workers in the Global South, the greater the gross profit margins. Moreover, Suwandi explains, “Multinationals exercise a high degree of control within these labor-value chains, even when they only engage in contractual relationships with their suppliers.”

Value Chains examines two Indonesian firms, pseudonymously labeled Java Film and Star Inc., which often have the same customers for the plastic wrappers they produce. These firms do not use sweatshops, partly because they do not identify as “labor intensive.” But that’s one of Suwandi’s points: Exploitation does not necessarily involve blatantly abusive practices. She observes that multinationals control their suppliers’ production to the smallest detail, determining their suppliers’ profit margins, by increasing exploitation of the suppliers’ workers, usually through increased productivity, but also sometimes by depriving workers of their rights, or through violence, abuse and law-breaking.

Making production more economical and increasing productivity involve two processes, according to Value Chains – “systemic rationalization and flexible production.” Suwandi explains that capital wants production to be flexible enough to accommodate market fluctuations, “without paying the price … this burden is in the end placed upon workers through enhancing exploitation.” Engaging in arm’s length contracts itself exemplifies both processes. Systemic rationalization, according to Value Chains, refers “to the technological and organizational changes by corporations that began in the 1970s … [with] its focus on the rise of decentralized production throughout the globe.” (The ‘70s was the decade when neoliberalism and the union busting it entailed really got going. It’s when corporations “modernized.”) Flexible production — according to Lean and Mean by Bennett Harrison, which Value Chains quotes — involves “lean production, downsizing, outsourcing and the growing importance of spatially extensive production networks governed by powerful core firms and their strategic allies.”

Correction: This article has been updated to reflect that Intan Suwandi did not interview David Tulauskas; that interview was conducted by Alyssa Danigelis. The quotes about the Chinese factories controlling every second of the workers’ lives were not Suwandi’s, but came from published reports which have been added.

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