"Protection Networks and Commodity Chains

in the Capitalist World-Economy"*

 

by Immanuel Wallerstein

© Immanuel Wallerstein

( immanuel.wallerstein@yale.edu)

           

                                                                                                                                                           

The primary feature of almost every commodity chain is that it crosses national frontiers. Indeed, when Terence Hopkins and I launched the concept in the 1970s, our original primary purpose was to show that most production within the capitalist world-eco­nomy that placed items for consump­tion on the market was the re­sult of a long chain that did in fact cross frontiers, and that this had been so throughout the entire his­tory of the capitalist world-economy from the long sixteenth cen­tury to today. This was as opposed to the idea that most such chains were entirely encap­sulated within national boundaries.1

There is one inevitable consequence of this simple fact. All chains are, as a result, subject to interference by state author­i­ties because states have the sovereign right within the inter­state system to establish rules about what crosses their fron­tiers. They may permit or for­bid crossing of persons, merchan­dise, or capital in general. They may distinguish between the crossings that com­e from or go to particular countries. They may set limits to amounts that may cross frontiers. They may charge fees on goods (usually called tariffs) that cross frontiers. They may pressure other governments to make conditions that are in the interests of the state placing the pressure, or in the interests of particular producers in the country of the state placing the pressure.

If a state makes no conditions whatsoever on the crossing of its frontiers, we say that it is observing laissez-faire or per­mitting free trade. If they do make conditions, we say that they are engaged in protec­tion­ism. There is probably no state that has ever been entirely open and made no conditions whatsoever. And there have been only a few states who have ever closed their fron­­tiers almost entirely, and then only for limited periods. So the ac­tual practice of states lies somewhere in-between these two hypothetical positions. We can talk of frontiers that are rela­tive­ly open and frontiers that are rel­a­tively closed or protec­ted.

We also know that there are ideologies of free trade and of protectionism, that is, that there are intellectuals who preach the virtues of each, and there are states who formally accept some of these ideological statements and act on them, and also as­sert that their foreign policy is to encourage other states in one direction or the other. This matter is today the major sub­ject of the debates within the World Trade Organization (WTO).

What I would like to explore with you is who has been most likely to take one ideological position or the other, and what is the consequence for producers of states acting on one ideological po­sition or the other.

It is clear that, in a perfectly free market - one in which no state ever makes rules about the rights of producers to sell products as they wish, and where they wish - those producers of any given product who can, for whatever reason, produce it at the lowest total cost at the locus of proposed sale will be able to pro­pose a lower price than their competitors, and thus presumably be more likely to attract buyers. So, in a perfectly free market, there are, at any given moment, winners and losers among the pro­ducers. And those who would lose consistently would eventually be forced out of business.

However, it is crucial to remember that no producer is, or ever has been, primarily interested in being more competitive than others producing the same item, that is, producing the item at lower total cost than all others. Producers are interested ra­ther in maximizing profit, which depends on the differential be­tween the price at which they can sell the item and the total cost of its production. Producers who are not competitive in terms of the cost of production can still be, and quite often are, those who garner the most profit. This depends on their be­ing able to ob­tain relative monopolies, either in the world mar­ket or in par­ticular local markets. And these relative mono­polies are depen­dent on state actions of various kinds. Capital accumu­la­tion is not about free enterprise but about monopolies.

Furthermore, we know that buyers do not always purchase the item that is priced lowest, even if we hold quality constant. A buyer may pre­fer his customary seller, for what are often erro­ne­ously defined as economically irrational reasons. Actually, buy­ers may be subordinating short-term advantage ­to middle-term advan­tages - for example, greater reliability of a particular sell­er, or unwillingness to be at the long-run mercy of the par­ticular seller who offers the lowest price. But if the price diffe­ren­tial is sig­nifi­cant, most buyers will give way over time to short-term economic self-interest, and the "efficient" seller of the moment will win out. This is indeed the main ideological ar­gument for laissez-faire, that it benefits the buy­er.

In general, the so-called efficient producers obviously fa­vor open frontiers and put their political weight within coun­tries to get governments to do what they can to achieve this. In­deed, whole countries may find that, overall, open frontiers fa­vor the inte­rests of at least the majority of their producers, and hence decide to push for free trade. We see this, at the pre­s­ent time, in the general policy of the U.S. government which ar­gues in fa­vor of free trade in multiple arenas - in the WTO, in regional trade pacts like NAFTA, and bilateral­ly with individual states.

The problem, as the U.S. government presently realizes, is that other countries may have "comparative advantage" (to use the Ricardian concept) in certain goods, and expect the United States, or any country to which they might open their fron­tiers, to reciprocate by opening its frontiers in turn for the goods of the other countries. To take the most obvious examples, many coun­­­tries in the South can today produce many agricultural prod­ucts and many varieties of textiles at lower cost than U.S., or for that matter west European, producers.

Were the U.S. (and western Europe) to permit the import with­­out conditions of these products, the result would be that ag­­ricultural and textile producers in the U.S. and western Europe would find it difficult, sometimes impossible, to compete in the home market, and would therefore go out of business or at least be forced to reduce production. And this would hurt not only the owners of these production units but those employed in them. As a conse­quence, there result considerable politi­cal pres­sure on the U.S. and western European governments not to open their frontiers in this way, or at least to limit seriously the degree to which they open them.

But, in this case, we are faced with a situation in which the U.S. and western Europe (more generically, the countries of the North) would be asking the countries of the South to open their frontiers without adequate reciprocity. And, even given the dis­proportionate political power of the states of the North and those of the South, the latter tend to be very resistant to such a lop­sided arrangement, which is quite understandable.

If there are barriers to crossing borders, there are ways to get around them - for example, by transferring the location of a key part of the commodity chain within the frontiers of the tar­get country of final sale. Another way is to launder parts of the chain (in the same way that one launders money) so that they ap­pear to be products of one country when they are in fact products of anoth­er, and in that way circumvent laws that require that a cer­tain percentage of the final product be produced in the coun­try of final sale, or at least in a restricted list of countries.

Because there are so many ways to play games with commodity chains, we have situations in which one set of producers in a country of final sale wants laws that are directly contrary to those preferred by another set of producers. The political pres­sures at this point go in opposite directions. In addition, to the extent that there are significant electoral contests in a giv­en country, pressure from the workers within production units can play an important political role, and these pressures too of course can also go in opposite directions.

In addition, as is obvious, wherever there is a commodity chain, it is possible for units of the chain to be linked to each other under the aegis of a single owner. This is called vertical integration and has a number of advantages. In the first place, it guarantees supply between the lower (or earlier) unit and the higher unit in the chain. This may occasionally be crucial in situations of un­certain supply, wheth­er because of scarcity or because of poten­tial political con­straints. In the second place, it may enable a given producer to obtain a quasi-monopoly at some point in the commodity chain and hence guarantee that the owner of this nexus can obtain a parti­cu­larly large share of the over­all surplus val­ue generated within a chain.


In the third place, and perhaps most importantly, it may en­able a producer to minimize tax transfers to particular states by playing games with the sales price of items going between two el­e­ments in the chain, both of which are owned by the same company, but loca­ted in different political jurisdictions. In the continu­al struggle between states and their need for tax revenues and pro­ducers and their desire to reduce their tax burden, the trans-national na­ture of the commodity chain is one of the best weapons at the dis­posal of the producers. I would go so far as to say that, with­out it, the likelihood of serious accumulation of capi­tal would be radically reduced.

In consequence, one cannot make sense of decisions by parti­cular producers in a commodity chain without first taking into ac­count the geopolitical situation, the worldwide struggles of social movements, and the fluctuations in the governing geocultu­ral norms. Take, for example, one of the clichés of the 1980s which is still regularly reproduced: TINA - there is no alterna­tive, that is, no alternative in the face of a new phenomenon called "globalization." This is, of course, on its face, utter nonsense. There are always al­ternatives. Indeed, this last state­ment - there are always alternatives - is one of the few so­cio­logical assertions that seems to me self-evident. Furth­er­more, as I have long argued, what is called globalization is in no way new, if by new one means something that is less than fifty years old (Wallerstein 2000).

Let us therefore analyze what we mean by TINA. It was a slo­gan launched by Mrs. Thatcher and reflecting an ideological push of certain countries and capitalist forces to persuade intellec­tuals, media, social movements, and ultimately governments to abandon their previous belief in developmentalism. Developmenta­lism, a doctrine propagated by almost everyone in the period 1950-1970, is the belief that all countries can "develop" and at­tain the standard of living of the presently richest countries by appropriate government action. This doctrine was as absurd as the neo-liberal slogan of TINA (Wallerstein 1988). I do not intend here to trace the history of the two successive rhetorical traps (see Wallerstein 2005). I merely wish to underscore the degree to which what is rhetoric has had a great impact on actual govern­men­­tal decisions, and this in turn has had a great impact on the practices and decisions of actual producers in actual commodity chains.

In the gamut of possibilities for governments to choose be­tween the extremes of total protectionism and total openness of frontiers, developmentalism pushed governments towards the pro­tectionist option and globalization towards the openness option. Of course, we have to distinguish among states, since states in the North and those in the South made, had to make, different choices within the framework of each of the rhetorics. Nor can we leave out the pressures exerted by the geopolitics of military confrontation. It is quite clear that the United States tolerated many protectionist decisions of western Europe, of Japan, South Korea, and Taiwan as part of its effort to strengthen its politi­cal and military position within the framework of something we call the Cold War. And of course, the Soviet Union did the same with its allies.

The same remains true in the framework of what since 9/11 has been called the "war on terror." In 2005, the United States government has placed much pressure on western Europe not to lift the arms ban on China, and not to sell certain items to Iran, to take the most obvious examples. Considerations of competitiveness in the relevant commodity chains were entirely ignored, as they were in the massive expenditures of the U.S. government in Iraq. In the global economy of 2005, such pressures account for a great deal more of the value added, and its distortions, than anything that has to do with TINA.

Then there is the small question of currency rates of ex­change. The price of U.S. goods in the world market are funda­men­tally affected by the state of the U.S. dollar, a function in turn of budgetary decisions of the U.S. government, both the ex­ecutive and legislative branches. And these budgetary decisions are dictated by a whole series of considerations, one of the least of which is maximizing the competitiveness of U.S. produ­cers. While in theory, the rates of exchange of any currency are determined by world market condi­tions, who believes in such a fairy tale? They are determined by political power, and the jost­ling that goes on constantly is de­ci­ded by real power. No doubt the power is exercised in part in terms of creating favorable eco­­nomic benefits in the middle run, but first of all only in part, and secondly with only middling prospects of success.

Remember also the small issue of environmentalism. There are first of all some strong aspects of the environment that con­strain the market, in the short run, in the middle run, in the long run. Climate, for example. As a result, we have governments making decisions as to whether they should or should not increase costs to producers (by taxation or, by requiring them to interna­lize certain costs). And different governments, as we know, are making different decisions. These decisions are affected by the pressures of producers but also by those of social movements, and even of consumers. This has abso­lutely nothing to do with compet­i­tiveness, in the simple sense that the ecological problems we are encountering are in part, probably in large part, the result of producers seeking to maxi­mize their profits by ignoring the ecological damage they have been causing. The Kyoto Accords may have far more impact on the ability of given firms to succeed in the market than instituting the latest improvement in organiza­tional management. But the producers do not directly decide on the measures incorporated in the Kyoto Accords.

There is much discussion these days of the fact that workers in the North are claiming unfair loss of jobs as a result of the poorer working conditions in the countries of the South, condi­tions that enable producers in the South to pay lower wages. They often call for worldwide labor standards or worldwide wage mini­mums. They assume that such measures would increase the costs to producers in the South, thus making them less competitive, and hence allowing producers in the North to continue to employ their present work forces. This is perhaps analytically correct. And it may even be morally or politically justified or wise or desir­able. The point however is that it has nothing to do with TINA, or with competitiveness in some absolute sense. These are politi­cal positions, exercised via the states. And they are justly called protectionism.

The alternative of protectionism is one that virtually every government in the world today is currently exercising. The only ones who exercise it minimally are those who are too weak politi­c­ally to exercise it. Of course, there is protectionism and pro­tectionism, as there is free trade and free trade. But we get no­where in our political analyses by accepting the slogans. And we get nowhere in our analyses of the world-economy if we fail to in­clude such central issues. The Federal Reserve Bank of the Uni­ted States claims to make its crucial decisions on the basis of the real underlying trends of the economy. So do the OPEC oil min­isters. But it is they, as much as anyone, who are creating many of the so-called real underlying trends. And they do so in terms of some narrow self-interest that constitute political op­tions.

Studying commodity chains is for the political economist something like observing the operations of the human body by means of multiple tests for the physician or looking through the Hubble telescope for the cosmologist. We are measuring indi­rectly and imperfectly a total phenomenon that we cannot see directly no matter what we do. The point however is to figure out how this total phenomenon operates, what are its rules, what are its trends, what are its coming and inevitable disequilibria and bi­furcations. It requires imagination and audacity along with rig­or and patience. The only thing we have to fear is looking too nar­rowly.

 

 

                                                                BIBLIOGRAPHY

Hopkins, Terence.K. & Wallerstein, Immanuel (1977). "Patterns of Development of the Modern World-System," Review, I, 2, 11-145.

 

--- (1986). "Commod­ity Chains in the World-Economy Prior to 1800," Review, X, 1, Summer 1986, 157-170.

 

--- (1994). "Commodity Chains: Construct and Re­search," in G. Ge­reffi & M. Korzeniewicz, ed., Commodity Chains and Global Capitalism, Westport, CT: Praeger, 1994, 17-20

 

Review (2000). Spe­cial issue on "Commodity Chains in the World-Economy, 1590-1790," XXIII, 1.

 

Wallerstein, Immanuel (1988). "Development: Lodestar or Illu­sion?" Economic and Political Weekly, XXIII, 39, Sept. 24, 1988, 2017-2023.

 

--- (2000). "Globalization or the Age of Tran­sition? A Long-term View of the Trajectory of the World-Sys­tem," International Sociology, XV, 2, June, 249-265,

 

--- (2005). "After Develeopmentalsim and Globalization, What?" Social Forces, LXXXIII, 3, March.

 

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*  Paper given at conference, "Global Networks: Interdis­ci­plinary Perspectives on Commodity Chains," May 13-14, 2005, Yale University.

1  The original discussion is to be found within the frame­work of a research program of the Fernand Braudel Center (Hopkins & Wall­erstein, 1977). For subsequent statements, see Hopkins & Waller­stein (1986, 1994) and the special issue of Review (2000).