Adam Smith in Beijing II

Based on data on growth rates of capital intensity, physical capital per worker, and labor with respect to the constant capital of the second half of the 20th century (approximately from the 60s to the 90s), it is possible to realize that East Asia (including China) indeed has an expansive phase of expanded reproduction, the highest of all world market regions, and that it achieves constant capital growth rates above those of the rest of the world, but simultaneously with high rates of human capital or labor in general, also the highest in the world. This is very different from the 'central' or 'metropolitan' countries of the West, which increase their investment in constant capital over variable (over labor), further increasing the organic composition, and therefore, intensifying the fall in rate of profit, but focusing on the reduction of wages, labor flexibility, layoffs, etc (cuts in production costs in general). This empirically demonstrates our thesis of an accumulation and expanded reproduction based on the exploitation of labor, or based on the productivity of labor (as they’re defined in volume I of Capital): a production that is based on reducing the price of labor as a way of extracting more surplus value (increasing the exploitation of labor: mainly through absolute surplus value and wage reductions), and a production that is based on reducing necessary labor time compared to surplus labor, through innovation (relative surplus value). The inversion of these two types of production in the world market seems to be identical to the inversion between the West and East Asia, helping to explain the rise of East Asia against the Triad, or the BRICS countries against the classic European, American and Japanese superpowers. 

Furthermore, the data on variable capital seem to indicate that we are not talking about any type of labor productivity in East Asia, but rather a reduction in necessary labor time in relationship with surplus labor that goes hand in hand with high growth in the labor component or variable capital. This makes the production more similar to what was done in the Triad during the post-war boom, and explains why international capitals have inverted the relationship and left western soil to produce in East Asia and the Pacific. Of all the regions in the world, the one that most resembles the pattern of capitalist expansion of the first half of the 20th century, at least in this aspect, is East Asia, and it is precisely that aspect that serves as a counter-tendency to the drop in the rate of profit: the increase in variable capital, simultaneous or parallel to the increase in constant capital, offsets the increase in organic composition; it also allows a scenario similar to the optimal accumulation rate instead of the maximum accumulation rate that Mandel mentioned precisely in the transitions from 'peripheral' or backward countries to industrialized countries: the optimal accumulation rate allows an absolute and relative increase in profits, and is based on the reduction of constant capital against variable, against the increase of the organic composition. The countries of East Asia and the Pacific have invested in constant capital much more than the other regions, but they have also invested in human capital much more than the others. It is similar to the scenario (also discussed by Mandel) of the increase in the labor factor during the post-war boom as a counter-tendency to the increase in organic composition: this expansive phase of investment in constant capital paralleled an increase in employment, which created the conditions to compensate or offset the increase in organic composition. For international capital, the application of an optimal accumulation rate has meant the possibility of continuing with the expanded reproduction of capital that happened during the post-war boom, only this time in East Asia instead of the Triad. 

Hence, our thesis has to be relatively modified: it is not only the higher profit rate in the 'peripheries' which allows a comparative difference to the accumulation rates, but the optimal accumulation rate allows an expansionistscenario for extended reproduction: allows an increase in the rate of accumulation for innovation, gross capital formation and investment not only in capital but in labor. This explains why the industrialization of countries such as Mexico or South America, despite happening through the internationalization of the division of labor, does not produce the same effect as those of South Korea, Taiwan, Singapore and Hong Kong; or why it does not have the same effect in those four nations, compared to Thailand, Indonesia, the Philippines or the Mekong countries. It is only in those latter countries that the mix of an accumulation rate with a greater range of possibility of growth occurs (where the profit rate is still not lower than the accumulation rate), and where there is an optimal accumulation rate that it has precisely as characteristics to counteract the increase in organic composition, and allow innovation and investment. The type of production based on the rate of exploitation of labor (in the reduction of the price of labor) does not allow investment, although it allows the parallel innovation of constant capital. It contracts or stops extended reproduction, while the type of production based on labor productivity (the reduction of necessary labor time) encourages it. 

In the same way, the Triad has not abandoned the capital-intensive processes, since it continues its investment in constant capital. And at the same time, East Asia could be said to be labor intensive compared to the international market precisely because of its high human capital factor. The difference is that in the Triad innovation occurs in the context of production and investment cuts, and in the context of a much higher or increasing labor exploitation rate: the reduction in the price of labor predominates over the reduction of necessary labor against surplus labor, even if they are mixed. In the same way, it is possible to argue that East Asia, with its lower labor prices in the international market and the high density of labor force, also relies on intensive aspects of work, but through the exploitation of a higher mass of labor. Hence the importance of capitalism in the Triad being expanded reproduction in contraction, and the expanded reproduction of East Asia in expansion: both regions invest in constant capital, but only one of them increases its rate of accumulation (Asia), while the Western and Japanese Triad contracts it. Both have a high rate of exploitation of labor, but only one in the context of increased reproduction, and another through an amplified atrophied reproduction.

This explains (following Lipietz) why Western neoliberalism equals unemployment, labor market flexibilization and not internal labor processes, and diminished real wages, and neoliberalism in East Asia has more the face of flexibilization of internal processes (the "just in time" of Japanese toyotism) but not the labor market, cheap labor and absolute extension of working hours. It explains why the taylorist industrialization of many Latin American or African countries cannot be compared with the neo-Fordist industrialization of East Asia. All the peripheral countries had a constant capital so backward that it would have allowed a leap in the unequal and combined development, and move on to an industrialization like that of the Asian Tigers and others (or South Asia: India, Pakistan, Bangladesh, Sri Lanka, etc - that even had better growth rates than the Asian Tigers themselves in the 50s-). But not all regions had the same configuration of simultaneous investment in constant and variable capital: they concentrated on constant industrial capital only, through direct foreign investment, import substitution, etc, and although this raised productivity (it did so in Latin America), it did not at the level of East Asia to a higher degree, or South Asia to a lesser degree. For that reason, it was necessary to compensate or offset human capital against the increase of organic composition, which is precisely the characteristic that we find in East Asia as being superior, and granting them much higher productivity levels (output per hour of work) to those of the rest of the world (even superior than the industrial superpowers). The increase in human capital, capital intensity, and so on in East Asia are all higher globally, even in the face of large US, European, and Japanese industrial centers (average growth rates of capital intensity of 2.4 per cent in East Asia versus 0.36 from the United States and 1.34 in the rest of the industrialized countries for the period from 1960 to 1994, growth rates of output per worker of 4.2 in East Asia compared to 2.3 in the industrial countries, and percentages of importance of work with respect to tangible capital between the ranges of 15% to 25% in the Asian Tigers and only around 2% and 5% in the industrialized countries - here and here - ). Already here in the past, from XX century itself, its the inversion in the world market by which we arrive at the current situation: an East of Asia that becomes the center and the world power in the industrial production of the world market, and not the Triad.

Production based on the exploitation of labor and production based on the productivity of labor, are two ways of producing different from each other, which explains the difference between superpowers and ‘dependent’ countries: before the internationalization of the division of labor with the multinational and outsourcing/offshoring of the second half of the 20th century, and during the post-war boom with the highest growth rates in the history of capitalism, for the mainly Western powers of the world (but also among them Japan) it was more advantageous to operate through the reduction of necessary labor time and capital-intensive processes, because they reduce the nominal price of products and increase their value at the same time; it became faster to produce the same amount of products in less time, and at the same time, these were cheaper per unit. The extraction of surplus value is twofold: both by the reduction of necessary labor against surplus labor, and by the competitiveness of the products in the market that could be sold cheaper and get a greater profit. On the other hand, the backward and dependent 'peripheral' countries had to produce with cheap constant capital and cheap labor, with the only productive advantage being that the investment in capital was lower or cheaper (but also more backward), and that the labor price was cheaper. In short: in the powers the constant capital increased the value mainly through relative surplus value, while in the peripheries the constant capital was so backward that it prevented the extraction of value, and this was based mainly on absolute surplus value through the reduction in the price of labor or the extension of working hours, etc. 

From another point of view, things were more contradictory: intensive production in capital increases the organic composition, and reduces the rate of profit progressively, while intensive production in labor is the opposite: it has a higher profit rate; Western and Japanese powers exploited mainly through innovation, but better rates of profit were obtained in peripheral backwardness. These characteristics served as counter-tendencies that made one or another region lucrative in relative terms. But there was a characteristic of the production of the post-war boom very particular in the western powers and Japan: the increase of the organic composition that produces the fall of the rate of profit was largely offseted by a high absolute and relative quantity of human capital or labor force (according to the data of Mandel and the social democracy of the first half of the twentieth century, the increase in employment parallel to the increase in constant capital was unparalleled: the expansion of the Fordist industry implied an increase in organic composition, and at the same time, its counter-tendency through the increase of the labor force). The constant capital increased, but variable capital also increased, compensating then the increase of the other, and allowing to avoid the fall of the rate of profit. It could be said then that this is a triply beneficial mode of exploitation and production, in comparison with the Third-World production of that time: extracting value by the reduction of necessary labor against surplus labor, the reduction of the unit price of the products, and the compensation through the increase of the work force. It is in every sense, an enlarged reproduction in full swing, the highest productive ascent of modern capitalism. 

But this changed with the beginning of the fall of the rate of profit at the end of the 60s and that would explode more properly with the crisis of 1973/74. The unstoppable increase of the organic composition of capital through innovation and the investment in constant capital, produces a greater counterbalance of capital over labor, and the compensation of variable capital over the constant is finished : they no longer increase constant and variable capital in a way parallel and simultaneous, but the constant capital exceeds the variable, and there is a gap between the rate of profit and the rate of accumulation. During a certain period (following Grossman) the fall in the rate of profit does not prevent the profit from continuing to exceed the rate of accumulation, but it does so less and less, and there comes a time when the rate of profit exceeds that threshold, and extended reproduction begins to recede. From an expanding capitalism, we turn to the capitalism of cutting production costs, and precisely initiates the deindustrialization of the West and the industrialization of the rest of the world, including East Asia. And it is the moment in which one begins to operate not only by the reduction of necessary labor time against surplus labor, but through the reduction of the price of labor (through diverse forms: from layoffs to labor flexibilization, etc). Which in turn, ironically, accelerates the increase in organic composition, and sharpens the fall in the rate of profit even more, forcing a reduction in the price of labor and an increase in the rate exploitation of much greater dimensions, and so on. Just as the reduction of necessary labor time against surplus labor time increased the extraction of surplus value but at the same time increased the organic composition that reduced profit, the reduction of the price of labor that increases the extraction of surplus value, at the same time increases the organic composition that reduces profit. Only that one is typical of an expanding capitalism, and the other of a retreating capitalism: the increase in the rate of accumulation implies an advance and increase in extended reproduction, while its reduction implies its regression.

 

This situation was markedly different from what existed in the peripheries of the world: there was also a fall in the rate of profit, but with a much lower rate of accumulation due to cheap constant capital and cheap labor. For international capital, this opened an opportunity to continue the process of reproduction, but this time, in the 'peripheries'. The fall in the rate of profit broke out and began its long decline to this day, just at the time of transition from monopoly capitalism to the third industrial revolution: automation and cybernetics allowed the internationalization of the division of labor, and the birth of the multinational. And what the data on East Asia show, is that in addition to the higher rate of profit in the peripheries for its constant low capital, now the possibility of an enlarged reproduction was opened that, of all the regions of the Third World, the one which had more characteristics similar to those of the 'central' countries of the West and Japan, were the countries of East Asia and the Pacific. Not only similar, but, as we said, they surpassed even the 'central' or 'metropolitan' countries.