Ravi Bhandari (The Corporatocracy and the Global Crisis) : " The global oligopolies that at present dominate the world economy , are fully financialized. Actually we can not speak of a pure "financial sector" (banks, insurance companies, etc.) by one side and a "productive sector" on the other . The global corporatocracy, composed by a few industrial and financial giant oligopolies, control the technology, the natural resources, the finance, the communications, and the information all over the planet." ... " Many analysts talk about an allegedly separated artificial, negative "financial capitalism" and of a supposed positive "real capitalism", creator and producer of real use. But it is the two side of the same coin. The same oligopolies have large industrial corporations and large financial institutions".
Offshoring and outsourcing
Offshoring: the production process is divided into head office and branches or subsidiaries in other countries, which for statistical and accounting purposes are "foreign direct investment". The hierarchy of a vertically integrated production chain (parent, subsidiaries), guarantees the control by the corporation. Offshoring, but seeking to reduce costs, implies a certain extent of the cost structure, working conditions, environmental responsibilities, etc. , And the obligation to stay in the "formal sector" of the economy.
Outsourcing: when a company breaks the production process and outsources to one or more independent suppliers, maintaining effective control over the overall production process. In this case, the advantages in terms of "responsibility" and cost are obvious. The corporation is evading the labor and environmental misdeeds of their contracted outsources that no longer need to stay in the "formal sector" of the economy. Outsourcing has the handicap of the loss of direct control over key segments of the business productive structure.
Unlike offshoring, outsourcing eliminates the line "foreign direct investment" and eliminates capital flows in the form of "profits repatriation " (which should be declared). The profits (monopoly rents) are caught manipulating the prices of inputs and outputs, that is to say the "added value " of the value chain, in favor of the dominant corporation. Profits, "appear" mostly on certain links in the chain, conveniently located in tax havens. The firm "emerges" at will and convenience the profits it want to declare (social responsibility).
According to the restricted conventional definition, only the first type of company is a "transnational corporation" . In practice, the most powerful transnational corporations have outsourced most of its operations. A more appropriate to the reality definition of multinational corporation would be what economist Peter Dicken defines as "a firm that has the power to coordinate and control business operations in more than one country, even without the ownership of them".
Offshoring or outsourcing?
The question, obviously, is the risk of "loss of control" over a completely disintegrated production line. A revolution in China ( or an indefinite general strike), for example, would possible mean the operational collapse of a large number of transnational companies, given the almost total dependence on the providers installed in that country. Even a minor conflict as could be a strike at a single company like Foxconn, which works for most electronics brands, could mean the collapse of the entire industry.
During the early stages of neoliberal globalization, monopolies feared the loss of control and preferred offshoring, but with increasing its concentration and strengthened monopoly/monopsony positions, the externalizing option, more efficient and greedy in terms of profits catches, but more risky in terms of systemic risk, has been imposing to actually become the dominant choice.
Although American industrial relocation continues to grow, outsourcing has taken the lead, so that it represents more than three-fourths of the China-US trade.
Boeing builds its modern Boeing 785 Dreamliner by outsourcing 90% of the aircraft value, only retaining the final assembly plant in Everett, Washington.
Coca -Cola, for example, does not own or operate any bottling plant in Colombia. No related accounting linkage exist with outsourced bottling plants, all under franchise, with the American brand. Coca-Cola has outsourced not only commercial risk and responsibility for pollution, but also the violent exploitation of its 10,000 workers on temporary contracts, for $80/month , no holidays, pensions, insurance, ... and even without the right to murmur (9 unionists murdered by death squads) . There are no profits to "repatriate". Coca -Cola monopoly rents capture their payments via patents, commodities and franchises. Thus the "value added" springs "commercially " in the Coca-Cola matrix source while Colombian Coca-Cola sources dry at the same time.
Suppliers communalization (bottom up monopolies)
Once constituted a seller oligopoly (GM, Ford, Chrysler, Toyota, Honda and Nissan), total market control permits them to act as oligopsony with its s. These suppliers , faced with a single buyer, are forced to reduce to the minimum their operating costs. Unbridled competition between them quickly removes the least efficient and most companies can only survive based on paltry wages and economies of scale, in turn becoming monopolies (bottom up monopolies) . That is, appears a real communalization of suppliers so that all dealer oligopoly firms acquire their components and parts from a single supplier.
GM, Ford, Chrysler, Toyota, Honda and Nissan have as "just in time" suppliers a few supplier firms (monopoly suppliers) and , although the vehicles look different and have different names, most of their pieces come from three possible factories: Collins & Aikman or Medaldyne or Yuwei Plastics and Harware Product Company.
Acer Inc., Amazon.com, Apple Inc., Cisco, Dell, Gateway, Hewlett-Packard, Intel, Microsoft, Motorola, Nintendo, Nokia, Samsung, Sony, Toshiba and Vizio, are dependent either on Foxconn, or KYE, or Meital Plastics and Electronics, to assemble all their products.
The "efficient" providers communalization represents a serious systemic risk. If any of the big buying firms fails, the common supplier to the entire oligopoly can also be dragged into bankruptcy given the narrow margins within it works. When following the collapse of Leheman Brothers in 2008, Chrysler and General Motors were technically bankrupt, Ford, its theoretical seasoned "competitor", claimed the U.S. Congress aid to rescue "rivals " (sic!). Allan Mulally, CEO of Ford, explained that "the auto industry is totally interdependent with respect to our supply base with a common outbuilding over 90%". That mean that he acknowledged that the U.S. automotive oligopoly operations of GM, Ford and Chryslers were fused in 90% and the collapse of two of them would mean the collapse of their common suppliers and therefore also the Ford collapse.
Total Outsourcing: "Fabless" Companies
The first experiments were conducted in the ICT sector, the most susceptible to disintegration. Before the 1980s, the semiconductor industry was vertically integrated. The companies ran their own semiconductor manufacturing factories and developed their own technological processes for the production of its chips. Installation, performance tests and repair service, were also integrated into the chain.
After the first experiments of total outsourcing of the manufacturing process ( fab-less) in 1994, the "Fabless Semiconductor Association" (FSA) association was established to "promote the "fabless business model" globally and in practice, organize operational control framework based on oligopsony power of partners.
The power of monopoly control
At present, many large "industrial" corporations do not manufacture at all, they have become fab-less companies, retaining only the segments of brand design, marketing, distribution and financial management. As many of these services are also being outsourced as well, there are many companies that practically do nothing: neither made nor repair or design or investigate anything ( fab less/made less), absolutely hollow monopoly firms that divert most of their huge profits into the sphere of leverage and financial engineering, the field of mergers and acquisitions (absorbing any shadow of competition), feeding the boilers financialization.There has been a total subjugation of the real economy to the financial sphere that controls and feeds the monopolization of all sectors.
The global value chain asymmetry
Robert Feenstra and Gordon Hanson: " The asymmetry of market structures in global production networks, with oligopolistic firms in leadership positions and extreme competition among the suppliers of second and third level , is a strong pressure on these suppliers , the try to maintain certain profit margins should keep wages low and labor resist any improvements that could lead to a change in the supply process to another company or country. "
According to neoliberal economists, globalization means the growing subdivision of the production processes in a long "value chain" in which the participant factors of production receive their rewards according to their productivity.
These neoliberal economists are shameless ensuring that "labor productivity" does not depend on the contracting company but on the geographic location of the work force. That is, two twins workers performing identical tasks employees of two exactly alike subsidiaries companies of the same multinational but located in different countries would record different productivities (charging different salaries) as the country is located in the South (low productivity, low salary) or in the North (high wage, high productivity).
The likely reality that they pretend to hide is that current global value structures are increasingly asymmetric: the headquarters of large corporations capture most of the "value" (monopoly rent) while the rest of the value chain (outsourced), facing the monopsony power of the multinational buyer, is forced to suicidal competence to access the crumbs left by the matrix company.
As in the case of the Information Technology sector, oligopsony power (single buyer) of a small and exclusive group of multinational companies (Apple, Sony, HP, Motorola, Dell, Cisco, ...) subject its subcontractors (Foxconn, Solectron, Jabil, Celestica, Sanmina, Flextronics), without any possibility of contracting with other alternative customers, to draconian conditions that they must impact on their employees and subcontractors.
The intense competition among suppliers and vendors in the wrong end of the global value chain, and the fierce global buyers oligopsony, rob the producers the fruit of their work, swelling the accounts and the value of financial assets held by a small caste well positioned at the opposite end of the value chain.
The connection between outsourcing and Financialization
In mainstream economic literature, these two processes, curiously parallel in time are analyzed as if they are completely unrelated and have nothing to do with each other.
However, they are two phenomena that are not only contemporary and influence each other, but are closely connected internally. The growing " financialization " is the other side of the outsourcing industry and related capital flows. One could not exist without the other, and vice versa.
It is the global value chains asymmetry what can divert the huge capital flows captured by monopolies from the sphere of production into the sphere of intermediation and financial speculation, feeding in turn monopoly concentration (mergers and acquisitions) and therefore the progress of outsourcing.
They were the large transnational corporations who built the financial offshore centers and international money markets to facilitate its global operations. The globalization of production played a major role in international financial integration.
One consequence of outsourcing has been the development of a structural deficit between the U.S. and China (and other low-cost industrialized countries). Multinationals are interested in holding down the exchange rates of their export platforms and holding up them in the consumer countries. China and other exporting countries, controlled by transnational monopolies, are " forced" to put their growing foreign exchange reserves in U.S. treasury bonds, though not generating any return. This keeps interest rates low despite the huge debt.
With interest rates so low:
a) European and North American consumers, with down wages, chose to finance their consumption by borrowing.
b ) the bank expanded its business in search of higher returns in exchange for assuming more and more risk.
c ) appeared sophisticated alternative financial products and derivatives, outside the banking circuit, so that anyone with ample funds could act as a bank, with assets including "mortgage" derivatives holdings, holdings credit card derivatives holdings, students credit accounts derivatives holdings, interest rate derivatives holdings, foreign exchange rates derivatives holdings, and so on and so on.
More on the subject : John Smith: Imperialism and the globalisation of production
