Why global value chains should be called global poverty chains

Global value chains (GVCs) “boost incomes, create better jobs and reduce poverty,” according to the World Bank. Since the collapse of the Eastern Bloc in 1991 and the reintegration of China into the global economy, world trade has become increasingly organized through GVCs. For example, the components and inputs for Apple’s iPhone, an icon of contemporary capitalist globalization, are made by millions of workers in over fifty countries.

Transnational corporations (TNCs) — labeled “lead firms” in the academic literature — established GVCs as part of their competitive strategies, outsourcing existing work or starting up new activities in countries where labor costs were cheap. State managers across the Global South increasingly gave up on establishing integrated domestic industries and sought instead to enter GVCs as component suppliers. Today, over four hundred fifty million workers are employed in GVC industries.

Many prominent figures suggest that these systems of production and distribution represent radically new development opportunities. As the former secretary general of the Organisation for Economic Co-operation and Development (OECD), Ángel Gurría, claimed:

Everyone can benefit from global value chains . . . encouraging the development of and participation in global value chains is the road to more jobs and sustainable growth for our economies.

The academic Gary Gereffi, the intellectual father of GVC analysis, asserts that development across the Global South requires supplier firms “linking up with the most significant lead firm in the industry.”

In reality, GVCs are a great boon for some of the world’s biggest companies, but not for their workers. It would be more accurate to describe many GVCs as global poverty chains.

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Ha-Joon Chang has exposed the fallacies of neoliberalism

Korean economist Ha-Joon Chang is a brilliant, best-selling critic of neoliberal orthodoxy. But Chang stops far short of taking the necessary next step: questioning the capitalist system itself.

Ha-Joon Chang is a rarity in the contemporary world: an economics professor who is highly critical of the neoliberal free-market orthodoxy, advocates progressive social change, writes and speaks accessibly, and is very, very popular.

Chang’s books have sold millions of copies, and he is a regular contributor to mainstream media outlets. According to Chang himself, his aim is not simply to challenge free-market orthodoxy, but also to support, through his work, the kind of “active economic citizenship” that will demand “the right courses of action from those in decision-making positions.”

While socialists can learn a lot from Ha-Joon Chang’s work, we also need to read it critically and identify some of the gaps in his thinking. Chang’s self-professed aspiration is to promote an alternative form of capitalism, but our goal should be to develop an alternative to capitalism.

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World Development under Monopoly Capitalism

Photo: do bicycles come from? Source: WDR2020, Figure 1.1, pp. 16.

One of the main effects (I will not say purposes) of orthodox traditional economics was…a plan for explaining to the privileged class that their position was morally right and was necessary for the welfare of society.

—Joan Robinson1

The recent period of globalization—following the collapse of the Eastern bloc and the reintegration of China into the world economy—is one where global value chains have become the dominant organizational form of capitalism. From low to high tech, basic consumer goods to heavy capital equipment, food to services, goods are now produced across many countries, integrated through global value chains. According to the International Labour Organization, between 1995 and 2013 the number of people employed in global value chains rose from 296 to 453 million, amounting to one in five jobs in the global economy.2 We are living in a global value chain world.3

The big question is whether this global value chain world is contributing to, or detracting from, real human development. Is it establishing a more equal, less exploitative, less poverty-ridden world? Which political economic frameworks are best placed to illuminate and explain the workings of this world?

Recent critical scholarship has applied monopoly capital concepts and categories to the analysis of global value chains. John Bellamy Foster and others have illuminated how global value chains represent the latest form of monopoly capital on a world scale.4 John Smith shows how surplus-value transfer and capture—from workers in poorer countries to lead firms in northern countries—is portrayed by mainstream economists as “value added” by those firms.5 Intan Suwandi analyzes how global value chains are enabled by, and also intensify, differential rates of worldwide labor exploitation.6

Mainstream advocates of global value chain-based development tend to ignore such critical analyses, and continue to preach the benefits of global value chain integration by drawing on examples and data that support their claims. However, it says much about the anti-developmental dynamics generated by global value chains when a World Bank report advocating global value chain-based development actually provides data that supports the analyses of the aforementioned critical authors.

Here, we interrogate the data used and the claims made in the World Bank’s World Development Report 2020, titled Trading for Development in the Age of Global Value Chains (WDR2020, or “the report”).7 While the report portrays global value chains as contributing to poor countries’ development through job creation, poverty alleviation, and economic growth, we reveal how its data shows the opposite.8

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The Struggle for Development

This post is adapted from the preface for the newly published Turkish edition of The Struggle for Development, first published in 2017. The original edition aimed to root development thinking and practice in the analysis of class relations, and intellectual and political support for labouring class struggles. Turkey is experiencing numerous social struggles that illuminate the relevance of the arguments in this book. It is my hope that this book contributes to illuminating the social, developmental, value of these struggles.

Collective struggles by labouring class communities – in and beyond the workplace – have the capacity to generate real human developmental gains for these communities. Consequently, these struggles and the labouring classes that pursue them, should be considered as developmental.  

The majority of development thinking across the political spectrum – whether theoretically or policy focussed – tends to downplay labouring classes, their struggles and the gains they generate.  Rather, such struggles are usually ignored or are portrayed as obstacles to development, because they do not adhere to dominant capitalist notions of development. 

Capitalist notions and strategies of development take many forms, and can be thought of as existing along a spectrum – from more market-led/neoliberal, to more state-directed forms. In this book I argue that, despite notable differences, these forms of development represent varieties of capital-centred development. Here capital accumulation is prioritised as the basis of economic and human development. As I show in this book, both market led and state led forms of development are based upon the assumption that labouring classes represent an objective input into the development process, rather than a subjective agent of development. This assumption legitimates labour exploitation and repression for the greater ‘good’ of capital accumulation.  

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Understanding development in a Global Value Chain World: Comparative Advantage or Monopoly Capital Theory?

By Benjamin Selwyn and Dara Leyden

The recent period of globalisation – following the collapse of the Eastern bloc and the integration of China into the world economy – is in essence the period of global value chains (GVCs). From low to high-tech, basic consumer goods to heavy capital equipment, food to services, goods are now produced across many countries, integrated through GVCs.

The big question in development studies is whether this globalised reconfiguration of production is contributing to, or detracting from, real human development? Is it establishing a more equal, less exploitative, less poverty-ridden world? To understand these complex dynamics, scholars rely on economic theories. These theories must be relevant to the GVC-world and equipped to tackle these pertinent questions.

In 2020 the World Bank published its World Development Report Trading for Development in the Age of Global Value Chains (WDR2020, or ‘the Report’) to address these questions. It confidently proclaimed that ‘GVCs boost incomes, create better jobs and reduce poverty’ (WDR2020: 3). Given the World Bank’s promotion of neoliberal globalisation, this conclusion is unsurprising.

However, before accepting the Report’s claims at face value, we should reflect on the findings of Robert Wade (2002: 220). These annual World Bank reports serve as “both a research-based document and a political document…. the Bank’s flagship message must reflect back the ideological preference of key constituencies and not offend them too much, but the message must also be backed by empirical evidence and made to look technical”.

When globalisation is booming it may be possible for the report’s liberal bias to appear to complement its data. However, the GVC world has generated such inequalities that the dissonance between the report’s liberal bias and its own data is stretched to breaking point.

Drawing on our recently published article, this blog post uses the Report’s own data to undermine its core claims. It shows that the GVC world enhances the dominance of transnational corporations (TNCs), concentrates wealth, represses the incomes of supplier firms in developing countries, and creates many bad jobs – with deleterious outcomes for workers.

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