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The Collapse of the Centre: Is Brexit a Disaster or an Opportunity for Labour?

The British political class – a uniquely inbred Oxbridge clique – is in turmoil after the result of the Brexit vote, and is now engaging in a mutual backstabbing that makes Game of Thrones look tame by comparison. However, despite its disorientation, the entire establishment across party lines is clear on one thing, and only one thing: Jeremy Corbyn should not be leader of the Labour party. Its political reflex is to hold him responsible for this disruption of the status quo.

Apart from around 40 MPs, Labour’s parliamentarians are closely tied to former leader Blair’s embrace of neoliberalism that was at the root of the party’s abandonment of the working class in the former industrial and mining areas. There is now the possibility of a split between the parliamentary wing and Labour’s membership, which wants to restore its social democratic orientation. It has this in common with much of the public, even when distorted by a nationalist perspective – the Brexiters’ slogan of more money for the NHS (which they immediately reneged on) was one of the popular drivers of the vote.

Corbyn is a symbol of a social democratic alternative to neoliberal austerity, although his voice was drowned out by the shrill claims and counter-claims of the Cameron-Johnson campaigns. He is still capable of uniting Brexiters and Remainers who want to acknowledge the misery piled up in the abandoned areas of much of England and Wales that had been ignored by the political elite. The vote gave an opportunity to the people living in those areas who felt disenfranchised to show their hostility to the political apparatus; many assumed their vote would not count and that Remain would carry the day simply because it was supported by the establishment.

Gary Younge commented: “If remain had won, we would already have returned to pretending that everything was carrying on just fine. Those people who have been forgotten would have stayed forgotten; those communities that have been abandoned would have stayed invisible to all but those who live in them. To insist that they will now suffer most ignores the fact that unless something had changed, they were going to suffer anyway. … For the last 15 years, governments and the press have stoked fears about whether British culture could withstand the integration of Muslims – of whom 70% voted for remain – when they should have been worried about how to integrate the white working class into the British economy. Brexit didn’t create these problems. It exposed them and will certainly make them worse.”

The referendum itself was inherently divisive, as Patrick Cockburn points out. “This is always the way with referenda on important issues: they make irreversible decisions, but they do so at a high political cost by excluding compromise between contending parties with deeply held opinions that they are not going to abandon on the day after the poll, regardless of who wins or loses. … The Remain camp thought they could win the vote by relentlessly emphasising the economic risks of leaving the EU, though the real danger is political rather than economic as a populist right is empowered with little idea of what it should do with that power.”

The influx of immigrants from Eastern Europe escaping poverty in their own countries has been taken advantage of by unscrupulous labour agencies and landlords to force down wage rates and jack up rents in various parts of Britain. But this is not unique to the UK; it exacerbates a trend seen throughout Europe. Servaas Storm, an economics professor at Delft University, comments: “Almost everywhere in the E.U. — as in Britain — there is a polarization of the income distribution into a large number of low-income households and a much smaller number of very rich, while the middle classes have shrunk. There is a segmentation of employment into low-wage, unprotected and precarious jobs, mostly in low-tech services, and high-wage and protected jobs in high-tech manufacturing, finance, legal services and government. … The massive social protests in France against the modernization of labour laws — newspeak for a reduction in the strength of French job-protection laws and social security in general — by the ‘socialist’ Hollande government illustrate the point: The systemic dismantling of worker protection in the name of cutting wage costs and improving unit-labour cost competitiveness will certainly increase job insecurity, employment precariousness, and inequality without any further macroeconomic benefits.”

UMass professor Richard Wolff explains: “A government, voted in by the French working class, a socialist government … pushed through a labor reform law which basically does everything that the employers in France could have dreamed for a president to do. … the newspapers are filled with spectacles of helmeted police being sent by a socialist government to beat the very people that put that government into office. And if anything were more clearly a sign of the collapse of what the very word socialism meant, as well as the collapse of conventional politics, it’s being acted out on the streets of Paris. … You’re seeing everywhere that the traditional, old, capitalist-maintaining center-left, center-right, is dissolving. And the polarization is the new issue on the horizon. It is surprising the old elites, but that’s really only a sign of how out of touch those governing elites have become …”

The parliamentary Labour party’s attempted coup to unseat Corbyn is another sign of how out of touch it is with the membership. Constituency activists have renewed demands for MP reselection in the event of another general election. Labour party member Dan Iles pointed out: “I believe Corbyn persuaded 60% of Labour’s supporters to vote remain because he didn’t ignore people’s concerns with the EU. By admitting that the EU is not without its faults and then demanding that we should stay in to reform it (from the left) he was able to bypass the binary claims of the two main referendum campaigns. People voted leave because they felt abandoned by politics and scared about immigration. These structural issues haven’t just appeared in the last nine months of Corbyn’s leadership. But I think many felt his defence of immigration and his determination to turn the debate towards austerity was refreshing at a time when the leave campaign was openly whipping up racism and xenophobia.”

UPDATE: David Graeber makes a relevant comment in the Guardian: “If the opposition to Jeremy Corbyn for the past nine months has been so fierce, and so bitter, it is because his existence as head of a major political party is an assault on the very notion that politics should be primarily about the personal qualities of politicians. … the Corbyn project is first and foremost to make the party a voice for social movements once again, dedicated to popular democracy (as trades unions themselves once were). … While one side effectively accuses him of refusing to play the demagogue during the Brexit debate, for the other, his insistence on treating the public as responsible adults was the quintessence of the ‘new kind of politics’ they wished to see.”

The Brexit campaign was always a dispute between factions of the Tory elite, neither of which were serious about the possibility of a Leave victory, meaning that there is no plan for disengaging from Europe. With all the criticism of Farage’s open racism, it has been forgotten that Cameron and Theresa May stoked nativism by imposing English language and income tests on new immigrants, a policy targeted at Middle Eastern refugees. Britain has never had a positive approach to cultural assimilation like the US does. It puts responsibility onto immigrants to somehow integrate themselves into the system.

While the media is fixated on British parliamentary politics, the vote is having major international repercussions, not least within Europe itself, because of the fragility and interconnectedness of the global economy. The Economist notes that the London financial industry could be in big trouble: “It thrives on the EU’s ‘passport’ rules, under which banks, asset managers and other financial firms in one member state may serve customers in the other 27 without setting up local operations. … In the run-up to the vote TheCityUK, a trade body that opposed Brexit, boasted that London had around 70% of the market for euro-denominated interest-rate derivatives, 90% of European prime brokerage (assisting hedge funds with trading) and more besides.”

Will the inevitable diminution of the City of London’s financial clout also lead to a weakening of its political influence? This is Labour’s opportunity: the first task of a Labour government independent of EU regulations should be to take control of capital movements and pump money into kick-starting manufacturing in regionally depressed economies. Corbyn supporters have plenty of policies they could be campaigning on to unite workers whose jobs have been outsourced with immigrants who would fight for a living wage.

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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 Amazon.com.

UPDATE: The latest iPhone X, has an increased contribution from Chinese companies to its overall value. However, Apple still retains 60% of the sale price. “The bill of materials of the iPhone X is estimated at $409.25, of which the Chinese firms jointly contribute $104, about 25.4%. Chinese value-added in the iPhone X is dramatically higher than the $6.5 captured in the iPhone 3G. The retail price of the iPhone X is $1,000; the Chinese firms together gain 10.4% of the total value added of every iPhone X sold on the global market.”

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