ACCORDING to Donald Trump it is time for a reverse relocation of manufacturing from the Global South to the US. He expressed his anguish to Apple CEO Tim Cook for the plan to extend operations in India. US now needs manufacturing because by relocating low value-added assembling, they would be able to provide jobs to average Americans who badly need them. Apple employs 3 lakh workers in China and 60,000 in India. If these facilities are relocated, US could straight away create about 3.5 lakhs new jobs! But jobs do not move according to Trump’s wishes as companies would weigh their gains and losses in taking such decisions. The critical point is that US was the manufacturing powerhouse of the world during the Second World War. Over the decades of financial globalisation US experienced de-industrialisation and emerged as the financial centre of the world. The surpluses accumulated by exploiting cheap labour of countries such as India, China, Philippines, Malaysia, Bangladesh are parked in dollar denominated assets and US financiers made huge profits out of asset inflation.

The dollar denominated assets are considered safe assets since dollar is the reserve currency and therefore states and corporates of the developing countries rely on these assets. US took advantage of financial profits and could maintain huge trade deficits. But these profits didn’t create jobs for the US citizens and therefore inequality between the elites and the working class increased significantly and assurance for jobs became the most attractive electoral promise behind Donald Trump’s victory. Trump tried to impose tariff to make imports costlier, but such a strategy works when there are competing domestic manufacturers who could produce substitutes. In absence of substitutes, it is the American buyer who must pay higher prices because of the tariffs although without any addition of jobs. Undoubtedly there is an incentive to relocate production facilities from any tariffed country to the US as high tariffs can be avoided if the manufacturer produces at the US. However, this decision will depend on concrete cost-benefit analyses rather than on rhetorics of ‘economic nationalism’.

COST OF RELOCATION

From shoes, leather bags, garments to iPad, iPhone and laptops products are made using components and tasks produced in different countries. This is what externalisation of production means and the TNCs who are at the apex of the value chain might not be producing anything but organising the detailed production chain laid across multiple countries and regions.

The Apple 1000$ iPhone includes components and tasks involving roughly more than a dozen countries. In this total value of 1000$, the major share that is 450$ is bagged by Apple for research, software and design development. The second biggest component of 150$ goes to Taiwanese chip manufacturers followed by South Korea accounting 90$ for screen and memory chip, Japan 85$ for camera systems. Another 80$ goes to American component manufacturers and 45$ to Germany, Vietnam and Malaysia for some small components used in the phone. India and China receive only 30$ per unit which is only 3 per cent of the total value. This job is primarily labour intensive, involves large number of workers but as share of total value added in the entire chain, this job receives the lowest share.

This is not at all surprising. The most labour-intensive jobs are in countries where labour is cheap and that is the economies of scope created through globalisation. This is the way global capital gets access to the global reserve army of labour and make profits through labour arbitrage. More countries such as China, India, Vietnam, and Bangladesh compete to grab this lowest share of the value chain, the more Apple gets the opportunity to reducing the cost of manufacturing. But now Trump wants this labour-intensive assembly work brought back to the US.

Imagine that Apple closes its operation in India and relocates it to the US. This might create additional 60,000 jobs in the US. But for a company the decision to relocate is not driven by nationalist rhetoric rather it depends on hard cost calculations. First, is it realistic to assume that the skill and organisational efficiency that the workers of India and China have accumulated over the years would be easily replicable by the US workers? It is not always true that activities that require direct human engagement are necessarily low skilled. They may fetch lower wages but that is because of the low average wage of these countries compared to advanced economies and not because of low productivity.

Samir Amin in his debate with Charles Bettelheim has shown many years back that wage difference between the Global South and North cannot be entirely explained by productivity differentials. In fact, in most exporting industries the workers in developing countries work with technologies close to the global frontier involving high productivities but receive a fraction of the wages compared to similarly placed jobs in advanced economies. A worker in the assembly line in India receives a wage of $230 a month and if it is relocated to cities such as California, the minimum monthly wage turns out to be close to $2900 which is about 12.6 times the Indian wage. This would raise the cost of assembly from currently $30 to $378. If the entire increase in cost is absorbed by Apple, the return per iPhone would come down from $450 to $102. Otherwise, if the profit remains unchanged the price of iPhone should increase from $1000 to $1348 an increase of price by about 35 per cent.

EQUALISATION OF MISERY

The relocation of production that happened in the past three decades was not meant to create jobs in the developing countries. By taking advantage of liberalisation policies, global capital got access to cheap labour of the South and employment was only incidental to this larger process of capital accumulation. It can be shown that this relocation didn’t happen in all industries. It was undertaken as a strategy particularly in sectors and activities where elasticity of substitution of labour by capital is relatively low. In sectors where labour can be easily replaceable by machines, industries became capital intensive in the Global North. Since financialiSation also resulted in relative cheapening of capital, this substitution of labour by capital became easier. Labour had been replaced by machines and robots and no relocation happened in these sectors. In tasks and sectors where this substitution turned out to be uneconomic, facilities were shifted to the Global South.

Now the reversal is difficult since it will hurt profits of companies. But in any case, one option can be made preferable simply by altering and stifling alternative options. Companies chose to relocate production because that largely reduced the production costs. But if tariffs are imposed on imports or additional taxes are levied on products of companies who do not opt to relocate, then relocation might appear as a ‘rational choice’. This is nothing but weaponisation of tariffs and taxes. The most important question however is the following: Will American workers agree to work at much lower wage than their minimum wages and longer hours of work as it happens in export processing zones of developing countries? In fact, this is not a reversal of jobs from the GLobal South to the North but a forcible undervaluation of labour that takes advantage of the misery of the working class in both the hemispheres. For US workers this altering of arrangement requires a drastic fall of wages which they have to accept to embrace relocation. On the other hand, workers in the Global South would be losing jobs due to relocation.

In fact, manufacturing across the world is moving towards automation with increasing uses of robots. Dark industries and supermarkets are now run by robots. Developed countries and their working class achieved a level of rights and entitlements and a higher standard of living through the course of their technological, social and cultural development as well as through struggles for rights. Now there is a call for a reversal, of going backwards by importing the norms of sweatshops and precarity to the advanced economies.

It is the unequal distribution of income and wealth that restricts the demand for goods and services, it is the unequal distribution of productivity gains that make development and diffusion of technology uneven across the world, it is the freedom of capital and unfreedom of mobility of labour that retains the huge wage gaps and now it is the call for downward equalisation of wages and rights. It is not by improving wages, working conditions and rights that the workers of the world would be equal but by equalising their misery and precarity!