International Division of Labor

International division of labor Kean Fan Lim School of Geography University of Nottingham, UK keanfan.lim@nottingham.ac.uk Pre-publication version; forthcoming in: Wiley-Association of American Geographers International Encyclopedia of Geography: People, the Earth, Environment, and Technology Abstract: International division of labor refers to a conception of economic production as intrinsically transnational; of the interdependence between economic production and geographically-differentiated labor power in the first instance. ‘Old’ and ‘new’ versions of the concept abound: the ‘old’ international division refers to the Ricardian view that labor power enjoys comparative advantage based on finished products; the ‘new’ international division defines comparative advantages on the basis of tasks and processes. The new international division of labor was caused in large part by the crisis of Fordism, a process much researched by economic geographers. Empirical findings demonstrate a more complex process of transformation: the international division of labor was shaped by as much by changes in firm cultures and new politico-developmental objectives in developing countries as they were by the vertical distintegration in and relocation of production process by firms based originally in industrialized economies. Main text: For much of the 18th to mid-20th century, commodity production within the global economy took on distinct geographic patterns. Manufactured goods and producer services were largely built and assembled in industrialised economies such as the UK, France and the Netherlands. Many of these products were traded with other industrialised economies and surpluses were sold to non-industrialised economies, many of them colonies. Raw materials and agricultural products were in turn extracted from these non-industrialized economies, forming a phenomenon known as the ‘old’ international division of labor. The very notion of ‘international division’ exemplifies an a priori conception of economic production and consumption as intrinsically transnational. It exemplifies, specifically, an a priori conception of labor power interdependence between different parts of the world. This interdependence changed during the mid- to late-1970s as firms in industrialized economies embarked on vertical disintegration and relocated production processes – particularly labour-intensive manufacturing – to developing economies. In a highly-impactful book, The New International Division of Labor, the German social scientists Folker Fröbel, Jurgen Heinrichs, and Otto Kreye (1980) outline key tenets of this process, now widelyknown as the “new international division of labor” (hereafter NIDL). To Fröbel et al (1980: 45), NIDL is a tendency which a) undermines the traditional bisection of the world into a few industrialised countries on one hand, and a great majority of developing countries integrated into the world economy solely as raw material producers on the other, and b) compels the increasing subdivision of manufacturing processes into a number of partial operations at different industrial sites throughout the world From a longue durée perspective of world economic history, NIDL is not considered exactly novel. As the renown economic historian Andre Gunder Frank (1977: 2096) puts it, the accelerated and profound transformation in the international division of labour (and of the production and work processes) during the 1970s re-expresses a cyclical crisis of profit 1 realization in the same way that earlier crises precipitated changes in the production process. However, there were at least three ‘new’ features that distinguished NIDL from earlier historical changes in the international division of labor: a) The geographical extent of the ‘division’ was much wider since the mid-1970s, with manufacturing activities spreading to Central and Latin America; East and Southeast Asia; and parts of Africa. b) The intensity and range of transnational economic activities increased as more multinational corporations (MNCs) were formed in the 1970s compared to a century ago. This phenomenon is largely attributed to improvements in ‘space shrinking’ transport and communications technologies, which enhanced coordination of production and distribution processes by corporate headquarters, as well as MNCs’ ability to raise financial capital through expanding capital markets in the industrialised world following the collapse of the Bretton Woods monetary system in the early 1970s (Murray, 1971; Aglietta, 1982). As Emmanuel (1975: 36) puts it, there exists by the mid-1970s “a relative mobility of [financial] capital, sufficient to give rise to a tendency for the world-wide equalization of the rate of profit, and a relative immobility of labour allowing considerable predetermined disparities in the wage rates of various countries.” c) A massive and growing pool of low- or unskilled labourers became available for employment in many parts of the world, in part an outcome of improving agricultural technologies, in part due to weak or failed domestic industrialisation. To Harvey ([1982]1999: 436, emphasis-in-original), “[b]eneath all of the nuanced shifts in the international division of labour, in technology and organization and in the distribution of productive forces, lies a basic Marxian proposition: the accumulation of capital is increase of the proletariat”. Put another way, NIDL is correlated positively with the expansion of wage-laborers at the global scale. The emergence of NIDL is intertwined with the crisis of Fordism. A regime of accumulation commonly known as Fordism was first implemented in the US and then expanded in varying degrees to western Europe, Canada and Australia. This regime is characterized by the mass production and consumption of standardized goods, high wages and relatively fixed currency exchange rates which facilitated international trade. To keep in place the Fordist socioeconomic structure, labour unions fought to keep wages high and growing, which would putatively translate in expanded consumption as well as stable fiscal revenues for the state, while the state took responsibility for providing collective goods such as domestic infrastructure, healthcare, education as well as overseeing stable fiscal and monetary policies. By the mid-1970s, it became apparent that the Fordist regime was becoming increasingly strained as profit rates declined. Large corporations in those economies consequently began exploring production and market opportunities elsewhere around the world. This phenomenon corresponded with FDI-friendly or import-substitution policies in previously-unthought of ‘host’ destinations in Latin America, Southeast Asia and, with perhaps the largest global impact, China. The emergence of an ‘internationalized’ credit system and the growing intricacy of firms’ organizational structures and production strategies played important supporting roles that consequently changed spatial divisions of labor since the 1980s: the offshoring of production engendered modern-day transnational corporations (TNCs) and global production networks, while the markets for labour power and finished products were expanded beyond the Fordist heartlands. Economic geographers were quick to analyse the causes and differentiated geographical impacts of NIDL. Initial research probed the causes of NIDL by placing firms’ strategies in the context of the ‘Fordist’ structural crisis in the so-called ‘core’ group of industrialised economies (cf. discussion of core-periphery dynamics in Wallerstein, 1974). Quite what triggered such systemic distress remains moot: the primary issue is whether demand- or supply-side factors, or a combination of both, contributed to the dismantlement of Fordism. 2 To Doreen Massey (1978), market contraction was a major trigger of growing deindustrialisation within several major industrial sectors in the UK. This in turn highlighted the limits of trade- and labour-market protectionism that undergirded the Fordist system. Once product markets began to open, the onslaught of competition – much of which emerged from firms within other ‘core’ economies, notably Germany and Japan – caused many domestic firms to explore alternative production methods/strategies to remain in business. Alain Lipietz (1982a: 36, emphasis-in-original) construes this supply-side factor as a major reason which led to NIDL: “Unlike the thirties crisis, however, it is essentially due not to the tendency of supply to exceed popular demand, but to the fact that insufficient surplusvalue results from a growing mass of invested capital. For capital in general (not, of course, for each individual capitalist), the problem is not so much to find markets as to drive up the rate of exploitation. And that has been the case since the late sixties.” The underlying issue, however, was more intricate than simple cost-reduction or increased exploitation. To Schoenberger (1988a: 261), the nature of interfirm competition during the Fordist era planted the seeds for NIDL: “uncontrolled product competition is incompatible with Fordist production techniques” that were astute at churning out standardized models in huge numbers to capture economies-of-scale, a hallmark of the Fordist era. Similarly, “excessive price competition is incompatible with maintaining the mass-consumption base. In general, the system relies on the maintenance of an orderly oligopoly that will support stability in terms both of products and of prices while competition is channelled into such areas as superficial product differentiation, advertising, and distribution.” (Ibid.) The effect, as Schoenberger (1997: 224, emphasis added) shows, was in fact so significant as to trigger a “cultural crisis of the firm”, wherein an “entire ensemble of material practices, social relations, and ways of thinking, and the material and social assets tied up in them, were invalidated.” From this perspective, NIDL precipitated industrialised economies’ variegated adoption of industrial deregulation: with more open markets and increasing competition, the Fordist accumulation system could not cope. Whilst not a prescribed policy panacea, NIDL was the result of this nascent shift in economic governance. Perhaps more crucially, firms’ strategies to develop transnational production networks are intimately connected to concrete state policies within multiple economies that created fresh conditions for capital to flow internationally. Empirical research has demonstrated that developing countries were not passive actors in shaping TNCs’ location strategies, nor were their industrialization strategies predicated on an ecumenical blueprint sourced from the ‘centre’; the wholesale imitation of Fordism, notably the establishment of high wages for semi- or low-skilled workers, did not occur at all. New markets also emerged outside the ‘centre’, first in the so-called ‘newly industrialising’ economies like South Korea and Taiwan, and then in emerging economies such as China, India, Russia, Brazil and Mexico. Even within the ‘core’, common markets were formed in what is now known as the European Union (EU) and North American Free Trade Area (NAFTA). Further complicating the calculations of TNCs are bilateral free trade agreements between developed and developing economies (e.g. the US-Chile Free Trade Agreement). These findings provided a much needed refinement to the NIDL thesis, which is often critiqued to be describe a unidirectional and mechanistic transfer of labor-intensive, lower-order economic activities from industrialised countries to developing countries in order to achieve cost savings; they show how the international division of labor is as much driven by place-specific political objectives as it is by the profit motive. SEE ALSO: post-Fordism; core-periphery; global production networks; multinational corporations; capitalist states REFERENCES 3 Emmanuel, A. (1975) “Unequal Exchange Revisited” IDS Discussion Paper No. 77, University of Sussex, UK. Frank, A. G. (1977) “Review: New International Division of Labour?” Economic and Political Weekly 12 (51): 2093-2096. Fröbel, F., Heinrich, J. and Kreye, O. (1980) The New International Division of Labor. Cambridge: Cambridge University Press. Harvey, D., [1982]1999. The Limits to Capital (New Edition). London & NewYork: Verso. Lipietz, A. (1982a) “Toward global Fordism” New Left Review 132: 33-47. Massey, D. (1978a) “Capital and Locational Change: The UK Electrical Engineering and Electronics Industries” Review of Radical Political Economics 10(3): 39-54. Schoenberger E. (1988a) “From Fordism to flexible accumulation: technology, competitive strategies and international location" Environment and Planning D: Society and Space 6: 245-262. Schoenberger, E. (1997). The cultural crisis of the firm. Blackwells. OxfordSchoenbergerThe cultural crisis of the firm1997. Wallerstein, I. (1974) The Modern World System New York: Academic Press. FURTHER READINGS Lipietz, A. (1985) ‘New Tendencies in the International Division of Labour: Regimes of Accumulation and Modes of Regulation’ in A.J. Scott and M. Storper (eds.) Production, Work, Territory: The Geographical Anatomy of Industrial Capitalism Hemel Hempstead, Herts.: George Allen and Unwin, pp. 16-40. Massey, D. (1978) “Capital and Locational Change: The UK Electrical Engineering and Electronics Industries” Review of Radical Political Economics 10(3): 39-54. Schoenberger, E. (1988b) ‘Multinational Corporations and the New International Division of Labor: A Critical Appraisal’ International Regional Science Review 11(2): 105-119. 4