What The Hell America!

Amsden was born in New York City and studied economics at Cornell University as an undergraduate before completing a PhD in the discipline at the London School of Economics (LSE) in 1971. From the LSE, she had a distinguished career at some of her discipline’s most august institutions: a stint at the Organization for Economic Co-operation and Development (OECD) followed by positions at UCLA, Columbia, Harvard, the New School, and MIT, her last post before her early death in 2012, aged just sixty-nine.

Power — an almost undiscussed phenomena within economics — was central to her analysis of the world. “I’m usually driven by injustice or hypocrisy rather than by a two-sector model,” she said in 2008, referring to the dominant approach of viewing society’s key interests groups as households and businesses. Born in 1943, the anti-imperialism of the postwar left played a greater role in shaping her outlook than her discipline’s dogmas. Like many members of her generation, she protested the United States’ war on Vietnam throughout the 1960s. She had little patience for the idea that the West had brought modernity to the Rest: hostility toward the British Empire animated much of her historical writing and she never tired of castigating the United States for attempting to establish a world economy favorable to its firms.

Duncan Foley, emeritus professor of economics at the New School and a former colleague of Amsden in the late 1970s and 1980s, described her as working within the tradition of “non-Stalinist Marxism” and the “non-dogmatic political left.” As Foley recalls, theory was for Amsden “a guide, or a compass, to look at and explain the world” rather than a scripture to be slavishly followed.

The subject of her PhD was the British colonial state’s role in structuring the Kenyan labor market. The colonial administration, her thesis showed, used coercive means to force African farmers to work for British farms rather than themselves. It seized land and prohibited Africans from cultivating cash crops that might compete with British farmers while imposing taxes on these constrained producers.

These ideas fed into her 2007 monograph, Escape from Empire: The Developing World’s Journey through Heaven and Hell. The British Empire was, she quipped, a domain in which the “sun never sets . . . and wages never rise.”

Central to her analysis of capitalist development was a set of Marxist assumptions. Chief among these was the concept of surplus value, which explains how capital exploits labor. Surplus value denotes the difference between the value of workers’ wages and the value of what they produce. Firms, she observed, aim to increase their appropriation of surplus value by increasing the rate of labor exploitation.

If they succeed in doing so faster than other competing firms, they can use their greater profits to invest in productivity-enhancing technologies to further their competitiveness. Over time such dynamics shape the structure of a nation’s market. Firms that prove themselves capable of extracting more value from labor increasingly come to dominate in the sectors of the economy in which they are competing.

Finding a way to increase the productivity of domestic firms was therefore crucial to economic development. Amsden showed how one of the keys to late industrialization is for states to establish a virtuous circle between capital and labor in which high rates of surplus value are extracted from workers and re-invested in modern technologies. In a 1981 paper, “An international comparison of the rate of surplus value in manufacturing industry,” she produced an analysis of the rate of surplus value in different countries, which read like an updated version of Karl Marx’s Capital:

The magnitude of the rate of surplus value depends on the length of the working day… the level of productivity, and the struggle over wages. The more developed the productive forces, the less time needed to produce the wage goods required for the reproduction of the working class and the higher surplus value.

The conclusion that she drew from this was that capitalist development was a Janus-faced phenomenon because it relied on the suppression of labor.

The extraordinarily high rates of surplus value in countries which are now described as semi-industrialized may be hypothesized to stem from a combination of advanced technology and wage levels that are still abysmal.

In her 1990 New Left Review article “Third World Industrialization: ‘Global Fordism’ or a New Model?” Amsden used these insights to explain South Korea’s rapid development.

High profits in Korea’s mass-production industries have been derived not merely from investments in machinery and modern work methods (what Marx calls “relative surplus-value extraction”. . .) but also from the world’s longest working week (what Marx calls “absolute surplus-value extraction”) . . .

Here, too, an analytic clarity, eased by a Marxist realism about the fact of exploitation, led Amsden to adopt a less sanguine view of progress than many in her profession. Cheap labor was, she argued,

the anchor of late industrialization . . . . The discipline of labor by the state lies at the heart of all late industrialization . . . . Labor repression is the basis of late industrialization everywhere . . . .

The identification of how cheap labor and labor repression underpins late industrialization is a vital insight. It should, perhaps, be remembered as “Amsden’s law of late industrialization.” While early in her academic career she deployed Marxist thinking to understand capitalist development, Amsden rose to prominence as a theorist of the statist political economy, which had emerged in Asia.

In Asia’s Next Giant, Amsden noted that what distinguished more from less successful cases of late industrialization was not the embrace of the market — as argued for by liberal political economy — but economic planning organized through an industrial policy. Effective industrial policy was determined by states’ ability to impose discipline on business. From the 1960s onward, the South Korean state used five-year plans to transform a largely agrarian economy into one dominated by heavy industrial and then advanced technology.

This was no accident produced by the invisible hand of the market. South Korea’s elites deliberately distorted market prices to facilitate late industrialization. Amsden set herself to understand how these elites, by “picking winners” and presiding over what she called “reciprocal control mechanisms,” produced economic growth by flouting all of the rules advocated by free marketeers.

The significance of this success is hard to overstate. In 1960, South Korea had a similar per capita income to Honduras while by the 1990s observers labeled it one of the increasingly wealthy and powerful “Tiger” economies of East Asia. Classic mechanism of infant industry protection, crucial to the development of the United States in the nineteenth century, including tariffs to protect domestic firms from more advanced competition and export subsidies to enhance firm’s competitiveness in international markets, were crucial. While many post-colonial states protected their nascent industries following their political independence, South Korea did so distinctly:

In other countries, in Turkey and India for example, subsidies have been dispensed primarily as giveaways. In Korea the “wrong” prices have been right because government discipline over business has enabled subsidies and protection to be less than elsewhere and more effective.

The state worked closely with, and imposed its objectives upon, the Chaebol — diversified business groups that dominated key economic sectors. Famous Chaebols include Hyundai Heavy Industries group, comprising thirty-six affiliates engaged in shipbuilding, heavy industries, robotics and engineering, and the Samsung group, comprising around sixty affiliates engaged in electronics, semiconductors, and IT.

The South Korean state’s use of reciprocal control mechanisms compelled protected firms to meet performance targets — such as increased productivity, higher export volumes, and greater international competitiveness — on pain of losing state support. Firms that received subsidies had to become internationally competitive:

The sternest discipline imposed by the Korean government on virtually all large size firms, no matter how politically well connected related to export targets. There was constant pressure from government bureaucrats on corporate leaders to sell more abroad.

If firms did not export after a specified period of state largesse, their funds were cut off, and they were even expropriated by the state. For example, few people today have heard of Taihan group, an early South Korean electronics producer. When it failed to expand, the government transferred its ownership to the now world-famous Daewoo Electronics.

The state’s manipulation of market prices facilitated, rather than dampened, capital accumulation:

Insofar as the state in late industrialization has intervened to establish multiple prices in the same market, the state cannot be said to have gotten relative prices “right” as dictated by supply and demand. In fact, the state in late industrialization has set relative prices deliberately “wrong” in order to create profitable investment opportunities.

South Korea’s policymakers used yearly negotiated price controls to curb monopoly power. The state set low prices for industrial inputs such as electricity, steel, chemicals, gas, and synthetic fibers to benefitted protected firms. Paying less for key inputs enabled the latter to plow more of their revenues into research and development.

The South Korean state owned and controlled all commercial banks, effectively determining which firms received finance and under what conditions. It used capital controls to prevent capital flight. It curbed the latter by laws, including one in the 1960s, which specified that any nonpermitted export of over $1 million would be punished by a minimum of ten years in jail, or even the death sentence.

As part of the neoliberal agenda from the 1980s onward, many developing country states turned away from their prior infant industry protection strategies and embraced free market ideology.  In Escape from Empire, Amsden castigated the United States, World Bank, and later the World Trade Organization (WTO), for promoting free market policies that constrained developing countries’ ability to deploy industrial policy.

In reality, however, as Amsden herself observed, developing states with sufficient political savvy could still work within WTO rules to channel subsidies to favored firms by deploying industrial policies allowed by the WTO to rich countries. State support for new businesses through investments in science and technological innovation, to facilitate regional equality and environmental improvement are all legal under WTO rules. The star student within the cohort of developing nations was China which operated within WTO rules to deploy industrial policy in new ways.

The Chinese state’s ability to channel finance into selected industries and to pick winners echoes the strategies pursued by the South Korean state. Industries such as mining and energy production are controlled by the state and provide cheap inputs to China’s increasingly globally competitive firms. The state specifies sectors in which FDI is prohibited, restricted, or encouraged while encouraging joint ventures to facilitate technology transfer.

An example of a global “winner” is digital communications giant, Huawei. Established in 1987, by 2012 it had overtaken Ericsson to become the world’s biggest telecommunications equipment manufacturer. Its rise, comparable to that of the South Korean Chaebols between the 1960s and 1980s, has been supported by state-backed companies, such as Semiconductor Manufacturing International Corporation, which produces cutting-edge computer chips.

The lynchpin of China’s late industrialization, however, are the low wages and labor repression that have established the largest workforce in world history. Average working hours have increased significantly since the 1970s. For example, at Huawei and other high-tech companies a seventy-two-hour workweek — twelve hours a day, six days a week — is the norm. As China’s firms have pursued technological advances, their ability to squeeze more out of workers for the same labor input has increased.

The Chinese state has also commodified many goods and services — abolishing secure lifetime employment, marketizing child-care provision, and eliminating most price controls on food. These measures increase pressure on workers to work longer hours for meager pay.

Amsden’s early observations about increasing the rate of surplus value — through combining long working days with advanced technologies — is particularly relevant to contemporary China. The Chinese working class, relative to the value they produce, is cheap, highly disciplined, and increasingly highly skilled, and the state has used it to attract foreign investment, induce technological transfer, and generate rapid economic growth.

Both China and South Korea revealed a tension running through Amsden’s work. On the one hand, her account of the real mechanisms underlying development served as a devastating critique of free market ideology. But this development had as its dark underside the exploitation of labor, which she showed was the basis of late industrialization everywhere.

But there are reasons to think that this tension may be resolvable. The lesson to be drawn from Amsden’s work is that the state can use its coercive powers to shape the economic behavior of firms. This could work to serve pro-labor ends, just as well as it can ensure increases in productivity. However, as with all political action, what is required is a coalition of forces capable of shaping the actions of elites. With a Republican right more committed to corporate welfare than industrial policy, such a prospect seems hard to imagine. But the great strength of Amsden’s work is to show that it could, perhaps, be possible.