costs in the global South takes the
form of subcontracting or the non-
equity modes of production. Much
of it occurs in the form of more
traditional foreign direct investment
by multinationals. In 2013 alone,
U.S. receipts from investments
abroad in foreign companies,
equities, bonds, etc., amounted to
$773.4 billion, while U.S. payments
on its liabilities from investments
that foreigners made in the United
States added up to only $564.9
billion, resulting in a net gain of
some $209 billion (equal to about
35 percent of total U.S. net private
domestic investment for that year).
This only accelerated problems of
surplus capital absorption. As
Baran and Sweezy wrote in 1966
in Monopoly Capital, “foreign
investment, far from being an outlet
for domestically generated surplus,
is a most efficient device for
transferring surplus generated
abroad to the investing country.
Under these circumstances it is, of
course, obvious that foreign
investment aggravates rather than
helps to solve the surplus
absorption problem.”
Other factors as well enter into
the transfer of value from
developing countries, including
capital flight from the global South
estimated at more than a $1.7
trillion dollars in 2012. Indeed,
every single form of financial
transaction between the global
North and South includes an
element of what Marx called “profit
upon expropriation” or simple
robbery, reflecting the uneven
power relations. As Norfield writes,
finance “is a way for rich countries
to draw income from the rest of the
world economy.” A 2015 report by
the Centre for Applied Economics
of the Norwegian School of
Economics and the United States-
based Global Financial Integrity
estimates that net resource
transfers, many of them illicit, from
developing countries (independent
of the hidden transfers associated
12
with unequal exchange) amounted
to $2 trillion in 2012 alone—rising
to $3 trillion if estimates of same-
invoice faking are included.
A number of studies have been
carried out to estimate the extent
of the hidden value transfers due
to unequal exchange relations
between global South and North,
whereby the latter gets “more
labour in exchange for less.” One
approach, pioneered by Canadian
economist Gernot Köhler, utilized
purchasing power parity (PPP) data
to show how labor incorporated
into export products from the global
South—given the difference
between nominal and real
exchange rates—failed to reflect
what that labor would be worth in
terms of local purchasing power in
the emerging economy. In the
words of Jason Hickel in The Divide:
Köhler’s method is to calculate the
difference between nominal
exchange rates and real exchange
rates (i.e. corrected for purchasing
power) for goods traded. For
example, imagine a nominal
exchange rate between the US
dollar and the Indian rupee of 1:50.
Now imagine that India sends
R1,000 worth of goods to the US,
and receives $20 in return. That
would be a perfectly equal
exchange. Or at least so it would
appear. The problem is that the
nominal exchange rate isn’t exactly
accurate. In India, R50 can buy
much more than the equivalent of
$1 worth of goods. For instance,
perhaps it can buy closer to $2
worth. So the real exchange rate,
in terms of purchasing power, is
1:25. This means that when India
sent R1,000 worth of goods to the
US, it was really the equivalent of
sending $40 worth, in terms of the
value that R1,000 could buy in
India. And yet India received only
$20 in return, which in real terms
is worth only R500. In other words,
because of the distortion between
real and nominal exchange rates,
India sent $20 (R500) more than it
received. One way to think of this
is that India’s export goods are
worth more than the price they
receive on the world market.
Another way is that India’s labour
is underpaid relative to the value
that it produces.
Köhler ’s empirical results,
relying on PPP, could thus be seen
as a rough measure of the transfer
of value generated in the South
(non-Organization for Economic
Cooperation and Development
[OECD]) countries, but credited to
the North (OECD) countries, via
what economists call unequal
exchange. In this way, he was able
to estimate that such value
transfers in 1995 alone amounted
to $1.75 trillion, representing
losses equivalent to almost a
quarter of total non-OECD
GDP. Although such empirical
estimates are open to question in
a number of respects, there can be
little doubt about the underlying
reality or the order of magnitude
of the “imperialist rent.”
As John Smith argues, “the
vast S-N flows of value” associated
with unequal exchange are
“rendered invisible in statistics on
GDP, trade, and financial flows”
precisely because the value
generated in the South is
“captured” in the North. All sources
of income, whether wages, profits,
rent, or interest, arising from the
enormous gross profit margins on
Southern production are simply
booked as value-added in the
global North, contributing to
Northern GDP.
The huge profits from
outsourcing and other means of
global value capture further
exacerbate problems of surplus
capital absorption. Much of this
imperialist rent ends up in tax
havens and becomes a means of
amassing financial wealth
concentrated in a small number of
corporations and wealthy indivi-
duals, while largely disconnected
from the ongoing and increasingly
Class Struggle