The Political Economy of Flexible Accumulation: Part One

Writing in 1989, David Harvey proposed a concept of “flexible accumulation” to express the changes in the capitalist world since the 1970s, given the increasing circulation of capital across national boundaries while at the same time corporations were consolidating production of commodities in low-waged economies abroad (especially south-east Asia). [The Condition of Postmodernity: An Enquiry into the Origins of Cultural Change, Blackwell, 1989]

He connects this with the shift from Fordism – manufacturing centered in large, vertically-integrated factories – to a decentralized process involving assembly of components sourced from geographically dispersed suppliers, integrated by new financial instruments and markets. In the field of labor relations, this has been accompanied by a shift to short-term contracts and a low-wage economy, with a special role for a small cadre of elite workers.

The geographical dispersion of manufacturing is only possible with the extended reach of financial capital. Harvey points out that much of the geographical and temporal flexibility of capital accumulation has been achieved through “the rise of highly sophisticated systems of financial coordination on a global scale.” [1989:194]

Flexible accumulation “rests on flexibility with respect to labour processes, labour markets, products, and patterns of consumption,” writes Harvey. “It is characterized by the emergence of entirely new sectors of production, new ways of providing financial services, new markets, and, above all, greatly intensified rates of commercial, technological, and organizational innovation.” [1989:147]

The advantage of Harvey’s concept is that it focuses on the overall process of capital circulation, rather than manufacturing or the financial aspects of global exchange, making it more comprehensive than the concept of globalization. Attention can then be given to the enhanced importance of marketing and distribution that is necessary to complete the circuit of commodity exchange.

The changing structure of manufacturing, made possible by technological and logistical advances, has empowered retail capital to dominate markets and hence control the process of realizing surplus value, accumulating capital at a relatively higher rate. This is different from the classical pattern of capital accumulation, where the manufacturer is able to take the surplus value realized from the sale of commodities and reinvest in new means of production, even higher wages. Through a series of binding contracts, retailers are able to minimize the surplus value retained by the manufacturer.

A paper published by The Research Institute of the Finnish Economy in 2011 found that “value capture is increasingly detached from cross-border flows of physical goods. It is rather in-house and market services as well as various forms of intangible assets that com­mand the lion’s share of value added (and thus income and profits earned). Even if final as­sembly has largely moved offshore, the developed countries continue to capture most of the value added generated globally.”

A retailer, for example, will order large quantities of a commodity and attach stringent supply conditions. The low profit margin for the supplier necessitates volume production, which creates a dependency on its high-volume customers. In addition, the lead company can threaten to switch to a competitor if its price points are not met. Since the supplier has already heavily invested in fixed-capital machinery etc., such a threat has power because it would cut the manufacturer off from access to the circulation of capital and make it impossible to realize the value locked up in depreciating equipment.

“Capturing sizable shares of the actual consumer markets for products, large retailers gain commanding positions to structure and organize suppliers for the products they sell. Conventional thinking describes retailers as middlemen, the passive conduit between manufacturers and consumers. The retail revolution, however, has made retailers proactive agents in designing products, organizing suppliers, and even shaping consumers’ behavior. As brand-name merchandiser Apple Computers did for the iPod, retailers often create whole new markets – on both the consumer and the supplier side.” [The Market Makers: How Retailers are Reshaping the Global Economy, eds. Hamilton G.G., Petrovic M., Senauer B., Oxford 2011:10]

Apple uses its strong branding and loyal consumer base to sell commodities above their value, increasing its profit rate substantially. Even though it only produces 15 percent of all smartphones, it takes 94 percent of the entire industry’s profits. By selling iPhones at a premium price it achieves high margins on each unit: Samsung’s average selling price was $180 per phone using similar components (thus reflecting the socially necessary cost to produce), while Apple’s was $670. In addition, an annual update cycle accelerates turnover time in consumption through disposability.

At its US facilities the company develops a closely-connected strategy of product and software design, branding, and marketing, differentiating itself from competitors by an emphasis on elegant aesthetics combined with user-friendliness and seamless connectivity. However, its goal is to generate the greatest possible profit per commodity. It deals with stagnating sales of a product line by moving it upmarket into higher price brackets, rather than cutting prices in the hope of achieving a greater volume of sales.

After initiating a production cycle through expending capital on design, Apple is able to set in motion a workforce of up to 700,000 in SE Asia and China to manufacture components and carry out assembly. The component manufacturers bring together tooling and labor for large-scale production runs before final assembly at another location; shipping direct to the customer or store is coordinated through the internet-based Apple Store and international shipping by companies like FedEx. In this way fixed capital expenditure is outsourced to the supplier companies, while Apple disperses production of components so that foreign rivals cannot duplicate its design, and uses nonstandard components to make their commodities harder to imitate. The system of supply chain management is set up to minimize capital tied up in inventory and reduce production turnover time.

Apple didn’t invent this system, but took what others had pioneered and perfected it. However, despite its close control over production, Apple’s high level of capital accumulation (revenues in 2011 greater than the combined state budgets of Michigan, New Jersey and Massachusetts) is achieved through its appeal to consumers, giving it a commanding role in the conversion of its commodities into money – through the exclusivity and “coolness” of its brand, the physical and virtual Apple Stores, and through deals to distribute iPhones through wireless carriers. While competitors like Dell or Samsung are struggling with low profit margins, it has succeeded by achieving a monopoly in a particular market sector.

Harvey points out that “New technologies have empowered certain privileged layers, at the same time as alternative production and labour control systems open up the way to high remuneration of technical, managerial, and entrepreneurial skills. The trend, further exaggerated by the shift to services and the enlargement of ‘the cultural mass’, has been to increasing inequalities of income.” [1989:192] Despite its carefully cultivated image of a “humanistic” company, Apple’s contribution to increasing inequalities of income is shown in the fact that the average wage of an Apple Store employee in the US is around $15 per hour ($20 for an Apple genius), workers assembling iPhones in China earn less than $2 per hour, while CEO Tim Cook made $1.4 million in 2012.

In part two we will discuss the way the drive of retailers for monopoly control of markets is exemplified by the rise of


1 Comment

Filed under apple, capital circulation, david harvey, flexible accumulation, political economy, Uncategorized

One response to “The Political Economy of Flexible Accumulation: Part One

  1. Jim Cook

    Hope it’s not too late Colonel. As you say,”technical and logistical advances” as someone, maybe even David Harvey (?), has pointed out, our global economy is only possible through containerization and computers – the latter to track the former. There are, as ever, some problems, contradictions even, in the process as, for instance, if suppliers have little profit they will have little capital to reinvest though clearly debt will suffice for a while, including that of the Chinese and other states.
    The other ‘gap’ in the process is of course consumers with money: there may be more Chinese, Bengali and African consumers but I’m sure there are no plans for them to have the disposable income that Europeans and north Americans used to have and for the latter – debt again.
    But as the elites continue to gather up their treasures, at least they don’t have to worry about taxes any more.

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