Why world polarisation between rich and poor societies keeps deepening

Red Ant – July 9, 2020
By Sam King

The contemporary world economy has become more highly integrated than ever before. Supply chains for complex products can sometimes span dozens of countries. Yet the benefits from this global production system still fall mostly to the capitalist rulers of just a handful of rich, imperialist countries. As a result of their monopolistic position in global production and world trade the imperialist societies have secured levels of wealth, income and social development immensely higher than all other countries – the so called “Third World”.

That the division of states and societies into these two basic types characterises modern capitalism is an obvious fact revealed by even minimal investigation. A good place to start is following the money. Production in a capitalist system is for profit -- which is realised, measured and stored as money. The money income of all countries can be, and is, converted into world money: US dollars (USD). Therefore, if we look at the average USD income (i.e. Gross Domestic Product – GDP) in each of the two types of societies, this gives us the broadest possible index of income and level of socio-economic development. Measuring per person means we take the average income of every worker, capitalist and everybody else.

Figure 1 Source: data.worldbank.org 2020

Figure one shows that the largest imperialist and Third World societies have not drawn closer together, but further apart since at least as far back as 1960. The large relatively well developed Third World countries such as China, Brazil, Russia, Mexico and Turkey in 2018, all had average income between $9,000 and $10,000 USD per person. In the United States, average income was over $60,000; Australia was $58,000; Germany $48,000 and so on – that is five to six times as much and growing, including with China!

If we were to extend figure one to encompass all countries, as has been done here, an almost identical picture emerges. There are a few rich countries, many poor countries but almost no countries in between – not even many small ones. Almost every country in the world either makes into the rich, imperialist club, or else it is forced far down, into the Third World.

There are only 14 middle-income countries. The largest, with a population of 34 million people, is Saudi Arabia. If we add all 14 together, they make up just 1.4% of the world’s population. Just 13.6% percent of people live in 32 rich, imperialist territories and everybody else – that is 85% of humanity – live in some 148 Third World states. Average per capita income in the imperialist world in 2017 was $44,392, while in the Third World it was just $4,446 – one tenth! A detailed account is here.[1]

We could draw a similar picture of world polarisation looking at other measures, such as wealth, consumption, mortality, literacy or even perhaps the degree of democratic rights given to working people. Another telling index that tends to reflect all of these things is overall migration. Net migration is overwhelmingly from poor to rich countries and not the other way because life is generally easier, safer and more comfortable in the rich world. No significant number of Australians migrate to Indonesia, North Americans to Colombia nor Western Europeans to the East for a simple reason: while those societies may be interesting and the lands beautiful, it is extremely difficult to live a dignified life on a basic wage almost anywhere in the world outside the imperialist societies.

Denying the global divide

World polarisation may be an obvious fact, yet there are very few people inside the imperialist societies who are sufficiently aware of it. In part this is because the reality is denied and hidden by an army of academics, economists and even some people who describe themselves as socialist but in practice adapt to the dominant world view that is perpetuated by the ruling class within the imperialist societies. The best known “socialist” denier is David Harvey – Distinguished Professor at the City University of New York. Harvey has long denied imperialism is a relevant category for analysing the contemporary world system and even made the unsubstantiated claim in his 2014 book Seventeen Contradictions and the End of Capitalism, that wealth is now transferred from “West” to “East”. For Harvey imperialism did not rank even among the top seventeen contradictions of contemporary capitalism.

However, arguments denying world polarisation do not originate in the socialist movement but from major capitalist propaganda outlets. The New York Times, Washington Post, the Australian Broadcasting Corporation and much of the capitalist media has for years waged a campaign aimed at convincing us China is a threat to the continued dominance of the existing imperialist societies. Meanwhile, official “multilateral” organisations, especially the World Bank and their associated research bodies attempt to present the capitalist world economy as successfully rescuing increasing millions from poverty in the so-called “emerging markets” – i.e. the Third World.

One common way to deflect attention from the huge gap between rich and poor countries is through selective and misleading statistics. It is popular for example to compare different countries’ Gross Domestic Product in aggregate. But this tells us little about the level of development of a given society. For example, India – where a large part of the world population lives – must, given its size, also produce quite a lot. In 2018 its GDP was over $2.7 trillion. By Comparison Australian GDP was only USD $1.4 trillion. Of course it would be absurd to conclude that India is more developed than Australia given it has a population over 50 times greater. The comparisons of US and Chinese aggregate GDP are also ridiculous as a measure of development -- the Chinese population is over four times the size of the US.

Another popular diversion is so called Purchasing Power Parity “dollars” (PPP). This is a purely statistical construct. There is no such thing as a PPP dollar that you can get your hands on or use to purchase something. The idea is that because prices are different in different countries the PPP measure can compare real living standards across countries. But many of the assumptions used by the teams of economists who calculate the index are ridiculous. It’s only possible to calculate such an index by assuming the very different things sold in different societies are the same. For example should we say that two bedroom dwellings in Melbourne and Kinshasa are equally valuable or even similar things – especially when we consider not just the buildings and fittings but also their surroundings? PPP is popular with the World Bank and other “multilateral” institutions that de-emphasise the global divide and routinely make spurious claims about the capitalist system’s supposed progress in bringing people out of poverty. To give a flavour of this, the World Bank, for example, categorises India as a “lower middle income country” even though per capita income there in 2018 was just $2,010!

Easily the most influential idea diverting attention from world polarisation is the view that China is catching up and that the US and other currently rich countries are rapidly losing their economic and technical supremacy to supposedly irresistible competition from Chinese producers.

As shown in figure 1, China has not caught up in terms of its dollar income per person. Even since 1980 the gap between China and the imperialist world has not closed but widened. Yet perceptions around Chinese development are so entrenched that many readers may assume the situation is now rapidly changing, making all such historical and current data irrelevant to understanding the future of the imperialist system.

For China to move from its current position – that of a relatively well developed Third World country with similar income to Brazil, Mexico and Russia – towards any actual challenge to imperialist domination over the world economy, Chinese capital would need to wrest control of the highest types of production processes – i.e. those that are most technically sophisticated.

Imperialist monopoly capital

Modern imperialism dominates not through the production of shoes, toys, PCs, keyboards or even standard cars. It dominates through its monopolistic control of science and technology. This allows it to monopolise the highest, most technically complex and most valuable aspects within the overall production process as well as the highest labour productivity techniques. Despite the massive campaign of capitalist media propaganda telling us the very opposite – this dominance is not challenged by Chinese capital. See here and here.

A collective global monopoly over scientific development and its application to productive technology is what ensures the continuing dominance of all the existing imperialist states. This allows capitalist groups in these countries to dominate the production of difficult and complex goods or services. These are then sold on the world market at prices high enough to achieve profit rates above the world average rate of profit.

Scientific and technological monopoly also allows imperialist countries to produce, using relatively little labour, immense volumes of standard goods and services – such as iron ore, generic plastics or cheap consumer items. Standard goods, by definition, cannot be sold at relatively high prices. That they are “standard” or “undifferentiated” means they are neither much different from a competitor’s product, nor difficult to produce; can be produced by many other capitalist producers and therefore are subject to intense price competition which keeps their prices low.

Profit rates above the world average, therefore, can be achieved when selling undifferentiated commodities where imperialist countries produce these commodities using less labour time (and therefore at lower cost) than Third World competitors producing similar goods. In this case the imperialist monopoly on technology is not applied to producing more sophisticated products, rather more sophisticated methods of producing standard products.

Both methods of obtaining profit rates above the world average derive from the ongoing imperialist monopoly on “highest labour productivity” as both result in the ability to produce either high- or low-tech commodities using less labour than is required by the average capitalist producer worldwide.

Third World non-monopoly capital

Most high-technology goods either cannot be produced in the Third World at all – or not in most parts of it. Or where they can be, production may be achieved by devoting such colossal scientific resource and labour time that the venture is not profitable. Third World societies’ inability to efficiently produce many things that are needed for their own production and consumption – such as microchips or other high-tech parts – means they are forced to buy these from the imperialist producers and forced to pay the monopoly prices asked.

The monopoly products are bought using dollars, but to get dollars, Third World societies must produce and sell on the international market whatever they can. Unless they possess exceptional natural resources, Third World capitalists generally produce standard or undifferentiated commodities. However, unlike in the imperialist economies, to produce these goods or services they must expend at least the average amount of labour time in their production and therefore incur relatively high production costs.

Third World capitalists must sell their standard commodities on the world market. However being the bearers of “standard”, “undifferentiated” commodities means they cannot usually mark-up prices. What occurs is that competition with other Third World producers forces them to set prices at such a level that allows them (on average) to achieve the rate of profit of other Third World capital – the average rate of profit for non-monopoly, Third World capital.

As Third World capitalists are excluded from the monopolised, high-tech lines of production, they are necessarily crowded into the standard lines. This intensifies price competition for standard commodities and pushes prices down further ensuring that the average non-monopoly rate of profit is substantially lower than that of monopoly capital.

Monopoly competition and rate of profit

At the same time it is not only Third World non-monopoly capital that competes among itself. Imperialist monopoly capital also competes with other imperialist monopoly capital. This brings about the formation of an average monopoly rate of profit. However, owing to its globally dominant position, the competition among monopoly capital does not bring the monopoly profit rate down to the world average – i.e. to the average of both monopoly and non-monopoly capital. Rather, monopoly capital’s ability to appropriate value from the non-monopoly producers ensures the monopoly profit rate sits comfortably above non-monopoly profits. Hence, overall, we see the development of not one but two average rates of profit, one above and the other below the world average. The (high) average rate of profit for the imperialist monopoly and a second (low) average rate for Third World non-monopoly capital.

Table 1 gives the average return on assets of the 15 largest non-financial corporations based in the imperialist “core” societies compared with that of the 15 largest corporations from the Third World in 2017. It shows that profit rates on this measure are almost twice as high for the imperialist state based corporations.

Table 1

Marx had already shown how competition between capitals brings about an average rate of profit. The impact of capitalism’s monopoly stage – imperialism – is to produce not one profit rate but two.

However, Marx’s law of value does not only apply to the competition within each of the two groups, it also determines the distribution of profits between them. The size of the gap between average monopoly and non-monopoly profit rates is determined ultimately by the size of the gap between labour productivity in the imperialist and Third World societies. For example, if a non-monopoly capital produces something that can easily be substituted using highly mechanised production facilities in the imperialist countries, they will be forced to cut prices to stay afloat. Where non-monopoly producers cannot be easily replaced, they may have a relative freedom to raise prices for a period -- however they remain at the mercy of technical changes in the production process.

Monopolistic globalisation in the neo-liberal period

Direct competition between monopoly and non-monopoly capital in production takes the general form of Third World capitalists with access to cheap labour versus imperialist based capital commanding higher labour productivity. Which of the two is more competitive depends on what is being produced.

In certain basic labour processes – such as sewing a T-shirt – it is difficult or impractical for capitalists to mechanise or otherwise increase productivity. Hence, when a basic job has to be done by hand or by a simple, established machine process, there is usually no meaningful difference in labour productivity between First and Third World capitals: an Indonesian worker can just as well, or better, sew T-shirts than an Australian or US worker. In this case the Third World producers can and do out-compete and bankrupt almost any capital that attempts to produce T-shirts by paying First World wages. That is why most T-shirt production and much else has long since shifted to the Third World.

On the other hand where a process is mechanised, the attraction of cheap labour, a principal reason for locating production in the Third World is removed. Further, what is new technology today, eventually becomes a more well-known, “standard” production process over time (unless it is superseded). During the neoliberal period, this occurred in many previously high-technology areas, such as personal computers, TVs and other electrical goods. Today the same seems to be extending to standard petrol cars. This means that, beyond T-shirts and toys, a whole range of goods are now produced in the Third World that used to be high technology (and price), giving the false impression to Harvey and others, that technological prowess is shifting to the Third World.

In addition, often it is not entire products or production processes that have been “offshored” to the Third World. Imperialist based multinational corporations (MNCs) maintain control of the production of the highest end components of any given item – such as the glass for touch screens, microchips, the production of high-end productive equipment, management of supply chains and so on.

The problem for Third World capitalists has been that no sooner does a particular production process fall within their grasp, that same process loses its monopoly character – by definition. It thereby also loses its monopoly price.

In the 1970s it was commonly argued that Third World countries received low prices for their exports because they tended to export agricultural products and minerals and import manufactured items. Yet from the 1980s and 1990s an increasing proportion of manufactured goods were exported from Asia, Mexico and elsewhere to the imperialist countries. This change coincided precisely with a dramatic long-term fall in the terms of trade for Asian manufacturing countries.

Imperialist dominance

In his classical account, Imperialism: The Highest Stage of Capitalism, Vladimir Lenin refers not only to monopoly capital but he also argues that monopoly capital cannot exist alone but rather necessarily gives rise to something else. As Lenin puts it:

“Not in every branch of industry are there large-scale enterprises”
“monopoly which is created in certain branches of industry, increases and intensifies the anarchy inherent in capitalist production as a whole”

“monopolies, which have grown out of free competition, do not eliminate the latter, but exist over it and alongside of it, and thereby give rise to a number of very acute, intense antagonisms, frictions and conflicts.”

-- Lenin, Imperialism, Chapters one and seven.

However, in Lenin’s era the category of non-monopoly capital was not fully developed either in practice or theory. At that time, the economic form that existed alongside monopoly capital, and was exploited by it, was not typically non-monopoly capital but pre-capitalist producers.

Yet capitalist social relations have developed and expanded rapidly since Lenin’s time. Today pre-capitalist production remains an important category within the imperialist world economy. However the dominant type of non-monopoly production has long since become capitalist. This is especially so in the most developed Third World societies.

During the neoliberal wave of globalisation non-monopoly capital – was systematically expanded and developed in Third World countries, mostly in collaboration with monopoly capital. This has particularly been the case in China.

The overall benefits accruing to imperialism from this latest expansion of the world division of labour have been immense. It is true that individual, weaker sections of First World capital have lost out to Third World competition, in particular from China. Because the ruling classes in the imperialist states have refused to provide alternative jobs for workers and communities affected by this, it has caused immense suffering among sections of the working class in the imperialist societies. This fact allows demagogic politicians such as Trump to falsely claim that China is to blame for the suffering of US workers. Yet the strongest sections of US capital have benefited from the very same phenomenon and increased their domination as a result of it.

Where the production of shoes, TVs and other consumer goods has been moved to cheap labour economies, their cost of production has been radically reduced. This has allowed the capitalist ruling classes inside the imperialist states to hold down wages because workers could obtain cheaper consumption goods. By cheapening their wage bill via a whole series of attacks, but underpinned by cheap imports, imperialist capital has enormously boosted its profitability and thereby its ability to invest in furthering and intensifying their domination of the more lucrative higher-tech production processes in which they now increasingly specialise.

From the point of view of imperialist monopoly capital, it has been far more efficient to allow low-end production, to be “lost” to the Third World. If US capital can produce with one hour’s labour a microchip that is sold for enough money to buy running shoes that take Third World workers five hours to produce, that gives them a massive benefit (regardless if the shoe factory is owned by US capital, Australian capital or Chinese). Without this unequal-exchange of labour time, imperialist capital would be forced to spend an extra 4 hours labour to put shoes on the same number of workers’ feet; it would suffer a dramatic decline in its rate of profit.

The massive expansion of manufacturing in the Third World, particularly in China, has drawn hundreds of millions of new workers into the global labour force. These are all contributing to the total surplus value produced by world capital (i.e. world labour) as a whole. This expansion of world labour was coupled with the cheapening of average labour costs – both by increasing the portion of work done cheaply in the Third World and by using this to drive down First World wages.

Such is the real story of the relative stability and profitability of monopoly capital in the neoliberal period. It is not that imperialist finance began to drain value from “industrial” capital as Harvey and others postulated. Rather, the massive and systematic expansion of the Third World labour force available to capital, in particular in China but also Eastern Europe and elsewhere, underwrote the growth and profits for all types of capital. Yet the lion’s share of this increase was secured by the imperialist monopolies due to their monopoly over science, technology and thereby labour productivity; and their resulting monopolistic position in world trade.

The contours of this polarised world division of labour are organically reproduced through the process of monopolistic competition on the world market: high-tech, high value and high labour productivity increasingly concentrates in the monopoly capitalist societies; while cheap labour carrying out standard labour processes becomes the specialty of the non-monopoly capitalism – the Third World.

The polarised division of labour corresponds to polarisation in the power and profitability of capital and its division into two camps. This is what explains the global polarisation of the income and social development in the two worlds: The imperialist First World and the Third World.

If the underlying social basis of the current world polarisation is understood, it is also apparent that the global divide is not merely a historical legacy of the colonial period. Rather, the continuing division of world capital into monopoly and non-monopoly camps stands as the objective social basis ensuring the world will remain polarised into rich and poor societies so long as capitalism remains. Put simply, non-monopoly capital – an inferior and exploited category of capital – is the necessary accompaniment of monopoly capital. It is therefore a permanent feature of capitalism’s imperialist stage.

Source: https://red-ant.org/2020/07/09/why-world-polarisation-between-rich-and-poor-societies-keeps-deepening/