Anti-Capitalist Chronicles: The State of the US and Chinese Economies

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[S1 E22]

Prof. Harvey continues his discussion of rate and mass of surplus value. He argues that the emergence of the Equalization of the Rate of Profit (ERP) in the 1980s has been responsible for the transfer of value from labor-intensive to capital-intensive modes of production. Knowledge has become a valuable commodity that can be bought and sold in the market.

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Transcript has been edited for clarity.

This is David Harvey, and you’re listening to the Anti-Capitalist Chronicles, a podcast that looks at capitalism through a Marxist lens. This podcast is made possible by Democracy at Work.

I want now to talk more about the state of our current economy, but to do it against the background of this relationship, which I think is important, of value transfers that occur under a free market economy, and through the equalization of the rate of profit. Now, the argument I’ve been making, then, is that the equalization of the rate of profit is the problem, not the market. That when Hayek and Friedman and all the rest of it talked about the perfection of the market and lauded it, Marx actually goes along with it and kind of says, you know, the market is a radical lever or leveler, and a cynic. It actually contains within it possibilities of equality and all the rest of it. So that Marx is not opposed to the market per se; Marx is not opposed to free trade through the market. What he is opposed to is the equalization of the rate of profit because, through the equalization of the rate of profit, we start to see the accumulation of wealth within certain metropolitan regions and certain centers of the global economy, and an accumulation of wealth that promotes an even greater accumulation of wealth over time. And therefore what we get is a greater, greater levels of inequality through this equalization of the rate of profit.

Now the equalization of the rate of profit has the effects it does because of this contrast between capital intensity and labor intensity. And that contrast, it seems to me, is something that needs to be brought under control, and the way that it can be brought under control is by having the free movement of technological capacities and powers. Now, it is, I think, very interesting historically to see how the United States looked at the transfer of technological understandings and technological skills from one part of the world to another from the 1950s onwards. And from the 1950s onwards, the United States was terribly, terribly concerned about China and the threat that Chinese communism and Soviet communism was going to pose to the US domination in the world.

So, one of the things that the US set up was a policy of containment, and that policy of containment was about trying to support the revitalization of the Japanese economy, trying to support the South Korean economy, the Taiwanese economy, Hong Kong, and Singapore. Because then what you would have is a circle, an arc, of rich nations, which was surrounding China. Now the interesting thing during this period was the United States did not put up any barrier to technology transfer to those countries. In fact, technology transfer was pretty open. And therefore, Japan could take technologies from the United States, could develop those technologies in its own way, so that we started to get the technological wizardry of the Japanese.

The same thing happened to the South Koreans. Same thing happened to Taiwan, as the United States was effectively allowing those countries free access to technological information. And that free access, of course, allowed those countries to develop. So, if you look at all of the countries and ask yourself the question: Why was it that those Asian countries became, went from sort of low-income to middle-income to upper-middle-income countries over this 40-year period? Well, it has a lot to do with the way in which the United States did not try to prevent any kind of technology transfer.

Now along come the Chinese, and they are looking at the development trajectory of Japan and Singapore and all the rest of it, and they start off with labor-intensive forms of industrialization. Huge labor force, which was to be mobilized, and was mobilized, and of course within 20 years, China became, in effect, the workshop of the world, producing a vast array of goods, which were largely created through labor-intensive forms of production.

But a number of things have happened since then. The crisis of 2007/2008 undermined the export of those goods to many parts of the world, and therefore China had to start to think about making something different. It had to think about developing its own internal market and the like, and at the same time, the effects of the one-child policy in China (which had been rigorously enforced from 1960s onwards), that one-child policy meant that the surpluses of labor, which had been there in the 1980s and 1990s were drying up. And you're beginning to get an aging population. And so you suddenly find that the labor surpluses, which had been the foundation of labor-intensive industrialization, are no longer there. Wages in China started to rise up. A lot of political unrest and working people in China, and of course, you have the Tiananmen Square episode and the like. And the Chinese, I think, understood that if they were going to maintain power, they had to actually try to buy off the support of large segments of the population by developing an internal form of consumerism and develop an alternative economic base.

And so they wanted to make this same transition that Japan had made earlier, and South Korea made—that is, to move from labor-intensive forms of production to capital-intensive forms of production through technology. Now, this is where the United States came in, started to complain bitterly about the way in which China had appropriated technological skills and technological ideas, and therefore thought that technology transfer had to stop, which of course is radically different from what I already indicated was the policy towards Japan and Taiwan and all the rest of it.

So China now has one of the superior forms of artificial intelligence. It has built companies over a 10-year period—like Huawei for example—which had hardly any standing before 2010, but has surged as being one of the most sophisticated telecommunications with 5G technology and all the rest of it. So the United States is blocking, trying to block Huawei, is trying to prevent China moving to this capital-intensive construction. My own view of this is, I don't think the United States has a chance in hell of actually stopping the Chinese doing this. On the other hand, what it can do is to start to utilize its powers to try to throw monkey wrenches into what the Chinese are doing. And this creates, I think, a lot of potential friction, and potential dangers, it seems to me, in terms of geopolitical rivalry and how China is beginning to operate in the rest of the world.

Meanwhile, China has surpluses of capital and is starting to export those surpluses of capital. So if you look at a map of Chinese capital exports, it goes from almost nothing to a huge amount of movement of capital out, particularly into Africa, but also into other areas. I mean, one of the things that the Chinese did was to start to acquire technology companies in North America, technology companies in Europe, and use the acquisition of those technology companies to transfer intellectual property rights to China. And of course, China had these rules about foreign investors when they came in. They could only come in if they partnered with the Chinese company and shared technology. So there's no question that China has been appropriating technological expertise from the West, at the same time as it's been developing its own capacities, to develop his own technological expertise. And I think that actually right now, China's own capacities in this area are dominant, and the kind of the phase of technology transfer is largely over.

So this is the situation in which we find ourselves in, a kind of very interesting economic situation in which, if all economies start to become technology rich, if there is a flattening out of the technological world, then the continued transfer of value from labor-intensive economies to capital-intensive economies is going to be undermined. And that will be particularly the case if there is a revival of capital controls. And it is interesting that the one country that survived the crisis earlier of 1997, [19]98 in East and Southeast Asia was Malaysia. And Malaysia survived it by introducing capital controls, which everybody said would never work. But they did work.

And the one country that has not opened up to free capital flow is, of course, China. So China has actually resisted the equalization of the rate of profit and in fact, within China, the profit rate doesn't really matter so much as the mass matters. Because you're working with state-owned companies, because the state-owned enterprises have a different structure to them and are less concerned with profitability because they can always be propped up by the state-owned banks, we now find that the Chinese situation is very different from the rest of the world, that they have still a level of protection of their own economy, which doesn't exist elsewhere because although China has signed onto the WTO, it was given a grace period in which to adjust and it's managed to sort of play around by saying, well, we've opened up but now we haven't opened up. So there's a lot of this going on.

So here we have a situation in which the United States, geopolitically, is trying to prevent China from moving towards technological- and capital-intensive modes of production, and in so doing, it is invoking intellectual property rights as being one of the big issues that is absolutely critical to the World Trade Organization structure. Now, what this says is intellectual property rights is actually enclosing the global commons and turning something which should be open to all—that is, knowledge and understanding—into a form of property, which then you need a license to utilize.

Now, in the past, it's interesting, you see, capital has never survived very well on intellectual property rights. Some of the richest times of innovation under capitalism have been at times when patent laws were not really very significant or important; people went ahead and innovated and did what they did. And yes indeed, those who did the innovations very frequently got no benefit from them, but the innovations were there, and the innovations for everyone to use. But right now there's an attempt to create intellectual property rights over almost everything, to the point where knowledge is becoming a commodity which can be bought and sold and traded on the market.

Now imagine a situation in which every time you refer to say Newton's Theory of Gravitation, you had to pay a license fee to… I don't know…the Newton Foundation. I mean, this is a crazy kind of situation that the US is pushing right now, which is trying to protect its hegemony by preventing the free flow of knowledge and the free flow of understandings. And given what the nature of the attractions which exist, we find that it's not only knowledge, but also the people who have the knowledge who are being caught up in this.

Right now, if you look at the United States, where did NASA get all of its scientists from? Well, it took all of the German rocket scientists after World War Two. What happened with the collapse of the Soviet Union? Well, the collapse of the Soviet Union—all of those very sophisticated mathematicians and understandings—migrated to the United States. And so they've now come here. The United States has been sort of importing sophisticated software engineers from India. In other words, and even a country like Britain, which has a pretty good university structure, when people become very, very much involved in these technological innovations, they find themselves lured to Silicon Valley or somewhere like that. So that actually we have what we call brain drains, if you like, where the world's intelligence is being increasingly put into one part of the world. And the US has been the lead of doing that, and it's doing, I think, a very pretty good job of it.

The one place where it is being done also very fast is, of course, China. And China has certain advantages in this. First off, you have a huge market in China, and that huge market can allow artificial intelligence and many of the other techniques which are being used to be tested out in ways which is very difficult to do elsewhere. Secondly, the regulatory regime in China is less concerned about individual rights and all the rest of it—though we have seen, I think, in recent times how easy it's been really for capital and politically, if you like as well, to avert, you know, privacy laws almost entirely and get tremendous amount of knowledge about what everybody is doing from their credit-card use and these smart-data kind of operations are all around us.

So we have this situation where technology transfer is going to be, it seems to me, a big issue over the next few years. And how it works out is going to have, I think, an incredibly important role to play in economic development and the nature of the capitalist beast because to the degree that the United States succeeds in, if you like, suppressing and repressing technological capacities in other parts of the world, you're likely to see a monopolization of that knowledge, and the monopolization of that knowledge is not going to allow for free forms of growth. And what we're now headed into is a technological impasse, where the technological innovations are there and they're being made, but they cannot be applied—and freely applied—because there is this barrier which is being set up to technological, and the application of technological innovation, by this system of intellectual property rights, which the United States is trying to insist upon.

My own view of this is that technology should be open. It should be open to all, and we should do as much as we can to try to equalize technological capacities and powers throughout the world. And this one interesting case of this, which I think is useful to look at. I mentioned earlier that what we're seeing in the world is the growth of metropolitan areas, which are very sophisticated technologically, very sophisticated in terms of their educational structures and their talents and all the rest of it, and that increasingly we're seeing economic development concentrated in the metropoles around the world (like it'll be Shanghai, or it'll be Vancouver, or it'll be, you know, Melbourne or wherever). So we're seeing this concentration in metropolitan areas, and the result of that is that many second-tier cities and rural areas are becoming technological deserts. I think you would find this would be true in the United States. I mean, the technological capacities and powers available to you in, say Central Ohio, are radically different from those which you have in San Francisco. So, one of the ways in which we should start to think about this is a policy push to try to make technologies available to these remote and rather more impoverished rural regions to get past what I mentioned last time, which is the Myrdal principle of circular and cumulative causation, in which rich regions get rich and poor regions get left behind.

Now, this situation is one that I think we're going to see attacked in China itself. Now President Xi—I was surprised to find this. Apparently, during the Cultural Revolution, he lived in one of the poorest villages in the whole of China, and he was there for six or seven years from 16 years on outward. So, he's very well aware of the conditions of rural poverty in China, which are pretty horrendous. And recently, he returned to that village and gave a speech there, in which he basically said it was on his agenda that rural poverty and disadvantage should be abolished within the next, you know, two or three years. And to that end, he proposed that all graduating members of the party should go to these poor areas to try to teach the adequate technologies. Now when this happened, people kind of wondered whether this was a sort of a return to the Mao principle that you send students and people to the countryside in order to learn the wisdom of the peasantry—but no, this is the other way around. This is taking the technologies of the metropolitan areas and trying to instantiate them in these rural areas so that people can, with the technological advantages, can begin to build an alternative economy which is going actually bring themselves out of poverty. So it's not about donating something; it's about trying to pull people out of, by giving people the instruments by which they can actually themselves come out of poverty, again, by developing a technological base for laggard regions and poorer regions.

Now, this again seems to me to be a very important idea and to the degree that is being implemented in China, I think we should watch very carefully to see what happens. Because if you look at the state of those economies, which have in a way been plundered and left desolate by capital—and the two examples I would look at would be, say Greece and Puerto Rico—what you would find is that talented people in those economies have nowhere to go, so they move out. So, the talented people of Greece, you know, after the crisis started after 2011 and so, have migrated out all over Europe, and talented people from Puerto Rico have also migrated out. And what we should be thinking about is, okay how to actually take areas like Greece and Puerto Rico and instead of sort of pretending they're just sort of you know, any old economies, they're low productivity, they therefore, to the degree that they're producing any value, are finding that value being extracted to the metropolitan areas and elsewhere. You can't support them by financial aid because if you give financial aid to poor regions, typically what happens is the poor regions spend the financial aid on goods and services which are coming from the metropole, so in fact donating in something to the poorer areas actually ends up back in the pockets of the rich and the rich region.

So financial aid never works, but what would work would be a program in which you really try to sort of flatten out the technological disparities which underpin the distinction between capital-intensive and labor-intensive, or high-productivity versus low-productivity, economies. So, this is, it seems to me to be the main problem which we need to look at, and in the very near future.

In addition to that, of course, there is the general issue of what is going to happen to the global capitalist economy. There are all kinds of stresses and strains evident; it is very, very strange that interest rates are being pushed down at a moment when actually, theoretically, you would think they should be going in the other direction. So, there are many issues I think in the capitalist economy, but I don't have time to go into all of those here, so they will crop up in later discussions. But right now, I think it's very important to look at this whole kind of question of labor intensity and capital intensity as two forms of the economy. Think about the way in which they're being deployed right now and think about the question of technology transfer because the technological mix is a crucial piece of the story as to what differentiates capital-intensive from labor-intensive economies. And what's happening with that on the global stage is very much a contested area right now. So when we see Huawei being suppressed and sanctions being put, and all those kinds of things, by the US, the US fighting with China over intellectual property rights, with a fearsome way, I think that what you have to understand is what lies behind it is that advantage which flows to the United States from maintaining itself as the capital-intensive economy and not allowing other economies to become parallel in intensity with it. It did allow that to happen for geopolitical reasons with Japan and South Korea and Taiwan, but it's not allowing it anymore and it's hanging on to its privileges by this whole kind of corralling of intellectual property rights, which seems to me to be about enclosing the global commons, of the knowledge structures that humanity has available to it, and turning them into commodities which are controlled by basically the US.

Thank you for joining me today. You've been listening to David Harvey's Anti-capitalist Chronicles, a Democracy at Work production. A special thank you to the wonderful Patreon community for supporting this project.


Transcript by Kate Mcgreevy
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Showing 2 comments

  • Thomas Jamison
    commented 2019-09-09 15:38:57 -0400
    In certain circles one often hears the racist notion that the Chinese are not as smart as Americans because they don’t invent things by and large. More to the point is that China has no patent rights system, so in China one can only really make money by copying things that sell rather than risking the time, effort and funds to invent new things of great value.

    There is a necessary compromise between those that invent and those that manufacture something without inventing it. One might accuse the very accomplished and well respected professor of living in a white tower on this one, but it is certainly true in American that many inventors never really get the value of the patents for items they create but which are, by contract with the inventor, owned by their corporate masters.
  • Douglas Eaker
    commented 2019-09-04 07:11:43 -0400
    Professor Harvey thank you for your contributions, you are making us all better every day. In your most recent post, how far do you want to go in sharing IP? I am part of a startup that has invested close to $1M in patent and development costs, and I would not want to share and lose my technology to the public domain. Can you address this during your next session, and you could use japan, Taiwan and Korea as examples, what technologies were shared in the public domain?

    Thank you again, Doug Eaker

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