Commodity Production

Trade involving material goods that have commodity-like characteristics has grown enormously during the last third of a century. The merchant capitalists of two hundred years ago traded in cotton, tea, tobacco, spices, wheat, sugar, rum, coal, coffee, rice, and many salts and ores. These commodities, largely the product of an agricultural economy, were bought and sold with little or no qualitative differentiation across a market that was transoceanic in scope. Such commodities were fungible, that is, virtually identical in all essential respects regardless of who grew, processed, or sold them. Their price tended toward a universal mean, even if shortages and gluts sometimes generated sharp price fluctuations.

Today, commodity trade is still important, with farm products equally fungible and with copper, iron ore, crude oil, scrap iron, and waste paper behaving in much the same manner as the agricultural bounty of two centuries ago. But two phenomena have transformed far more than food stuffs or raw materials into the overabundance of everyday products with which we are so familiar. The first is the historic tendency for the rare, the expensive, and the coveted to transform itself into the commonplace. Marx observed that we take even the most trivial commodity and turn it into a fetish. What he missed was the other side of the story; how our hunt for the exotic turns luxury into bland commodity. When the sixteenth-century Spanish conquistadores arrived in Veracruz, Mexico, they could not believe the heady aroma the local Totonac people derived from their orchids. Today, that once-prized spice is “plain vanilla,” an inexpensive and universally available food additive either made in the lab or shipped in bulk from Madagascar.Footnote ⁴

But for the story of contemporary merchant capitalism, an even more important phenomenon leading to the growth of commodity production is the sophistication of modern manufacturing techniques—computer design, instant information updates, specialized yet flexible machine tools, and, of course, mass production—which has transformed dozens of complicated devices that were once specialty items or the product of skilled labor into fungible commodities manufactured in huge quantities by unskilled workers. Silicon chips, hard drives, computer monitors, as well as athletic shoes, sports equipment, toys, most apparel items, flat screen TVs, and even musical instruments, have undergone a process of commoditization, as these goods have lost those qualities which once differentiated them or made their manufacture unique, costly, and difficult. When the mobile phone was first introduced in the early 1980s it was a specialty item largely used by the military, the police, and the sort of executive who flew around in a private jet. Today ninety percent of all adults living in Europe and the United States own or have access to a cell phone. There are 500 million in China alone and in 2007 more than 1.2 billion were manufactured worldwide.Footnote ⁵ The cell phone is a complicated device, but it is now assembled by the teenage offspring of impoverished rural families, a labor force not unlike that which once made shoes and wove cloth in Fall River and Lowell two hundred years ago.

Indeed, when in 2005 I visited the Yue Yen factory complex in Guangdong Province, the stream of young women pouring through the factory gates seemed very like a Lewis Hine photo come to life. They were building relatively low-tech sneakers for Nike, but the stream of untutored young working women would have looked much the same, regardless of the product they produced. In 2006, 80.5 percent of all the baby carriages, toys, games, and sporting goods sold in the United States were produced in China. Likewise, Americans imported almost three-quarters of their footwear from that country. But even when it came to more sophisticated products, like automatic data processing machinery or optical readers, more than half of those sold in the United States were built in China, largely by a workforce that was young, female, and unskilled.Footnote ⁶

Manufacturers do not like this slide into commoditization, even as they propel it along by moving production to low-wage countries or slashing the cost of fabrication and assembly. So companies like Nike, Nokia, Mattel, and Apple try to forestall commoditization by spending huge sums to “brand” their product, or continuously invent new ones. But over the long haul this is a losing proposition. The brands become mere advertising signatures. And companies like Wal-Mart, deploying enormous bulk-buying pressures, make that transition from distinctive product to mass-market commodity as rapid and inexorable as possible. Wal-Mart, for example, played a key role in debasing brands like Levi Strauss blue jeans, Schwinn Bicycles, and Rubber Maid kitchen products.Footnote ⁷ For consumers this is not a bad thing, but as we will see, it has very large consequences for both manufacturers and laborers around the world.

The commoditization of so much high-tech production has come as a rather unpleasant surprise. Thirty years ago, when the Massachusetts Institute of Technology (MIT) scholars Charles Sabel and Michael Piore published The Second Industrial Divide: Prospects for Prosperity, they foresaw a new era of journeyman production. The computer, they wrote, is rather like an artisan's tool, which amplifies and extends the creative talent and social power of the user. The products of the world would therefore become increasingly specialized and unique, implying the need for a vast army of skilled and autonomous artisan producers. Instead of mass production, the world was entering a new era of flexible production, which promised both working-class power and a new prosperity. In his study of the “Third Italy” that comprised the metal-fabricating workshops of Emilia-Romagna, among other industrial districts, Sabel famously found a “high-technology cottage industry” that spawned innovation, good wages, and relative social equality among thousands of small producers.Footnote ⁸ The work of historians Phil Scranton and Jonathan Zeitlin explored this idea in an historical context, finding in the workshops of late nineteenth-century Philadelphia, Cincinnati, and Providence a world of batch production, skilled labor, and high value commerce. Some of this academic work entered the popular discourse via the writings of Robert Reich, Thomas Friedman, and all those who thought the enhancement and reproduction of human capital the key to a world of variegated products and autonomous working men and women.Footnote ⁹

There are, of course, dozens of varieties of cell phones and other electronic products, not to mention the thousands of branded toys, shoes, and pieces of clothing that are today available in every discount store. But these highly-differentiated products are nevertheless commodities whose mode of production, distribution, and pricing resemble nineteenth century products like cotton and sugar far more than they do the machine tools, the aviation equipment, or complex rugs and weavings celebrated by those historians and policy entrepreneurs who once thought the twenty-first century would witness a rebirth of artisan creativity linked to a decentralized system of computerized manufacture. We have seen the disaggregation of the vertically integrated corporation, both in terms of manufacturing and services, but if this departure from the model once celebrated by Alfred Chandler has been materially advanced by near-instantaneous communications and much cheaper transport, it has hardly served to empower a new generation of techno-savvy artisans or independent entrepreneurs. Instead, recent technological, organizational, and regulatory innovations have generated conditions that have led to the reinvigoration of Taylorite production on a world-wide scale, evident in the proliferation of highly-supervised call centers, sweat-shop-like factories, and closely-monitored offices. Footnote ¹⁰

Supply-Chain Power

The second most important feature of merchant capitalism, 200 years ago as well as today, is found in the realm of power, both economic and political. The revival of commodity production has not generated a “flat world” of open markets in which producers and consumers compete on equal terms. Instead, we live in a world of rigid, hierarchical “supply chains” organized and controlled by the retailers of North America and Europe. More than half of all the containers and half the value of the trade that moves from East Asia to Los Angeles, Newark, Felixstowe (United Kingdom), Rotterdam, and Hamburg are destined for the shelves of Wal-Mart, Tesco, Carrefour, Target, and the like. These merchants control the supply chain, they squeeze their commodity-producing vendors, and they shift production from one venue to another with ease and economy. Their contemporary dominance depends upon the return of commodity production, even if these fungible products largely emerge from the manufacturing plant rather than the agricultural plantation. Just as nineteenth-century cotton houses could switch their source of supply from Mississippi to India or Egypt, so too can cell phones, sweat shirts, and tennis shoes find their manufacturing home in Honduras, the Pearl River Delta, Ho Chi Minh City, or Bangladesh.Footnote ¹¹

The phrase “supply chain” is of recent derivation. The historical sociologist Emmanuel Wallerstein had first developed the idea of a “commodity chain” in the 1970s as part of his world systems schema. The “commodity chain” concept, wrote Wallerstein, “refers to a network of labor and production processes whose end result is a finished commodity.” In contrast to the dominant analytical paradigm of most economists, which merely traced economic flows between states, Wallerstein and his collaborators started with the final production operation (i.e., shipbuilding or food processing) and moved sequentially backward through the trading and production chain in order to understand the international division of labor and key sites of capitalist power and privilege throughout the geographically dispersed production chain.Footnote ¹²

Most in business had never heard of Wallerstein, but in the 1980s consulting firms like Bain and Company coined the phrase “value chain management” or “supplier rationalization” to describe how large companies, often retailers and branded manufacturers, purchased components and materials from foreign vendors and transformed them into saleable goods. Industrial relations scholars Frederick Abernathy and John Dunlop also used a similar phrase, “commodity channels,” as recently as 1999 to describe the way apparel moved from Asian and Central American suppliers to North American retailers. In the twenty-first century, however, the artful “supply chain,” with its sense of hard linkages and buyer—not producer—driven dominance, has become the pervasive terminology, both among executives in the field and scholars in the academy.Footnote ¹³

“Supply chain” was an unknown phrase in antebellum America, but the power and prestige that adhered to those who stood at the center of the commercial world is well known. In the years before the American Civil War, the seaboard elite was almost exclusively mercantile, engaged in shipping, warehousing, or financing commodities that flowed into Boston, New York, and Philadelphia, not to mention London, Liverpool, and Bordeaux, from the great commodity-producing regions of the world. Manufacture was of little consequence; in terms of both social status and political-economic influence, antebellum manufactures depended upon the good offices, the financing, and the distribution channels controlled by the Vanderbilts, the Cabots, the Barrings, and other great trading houses. As Glen Porter and Harold Livesay put it in their comprehensive study, Merchants and Manufacturers: Studies in the Changing Structure of 19^th Century Marketing:

For more than two centuries after the initial English settlements in what was to … become the United States, our business civilization lay in the hands of … independent merchants. Their power derived from their strategic position in all … the crossroads of commerce, at the nexus between producer and consumer. When … they surrendered their place of leadership, first to the men who built the great … manufacturing firms and then to their corporate heirs, they did so in large part as a … result of having lost that strategic position.Footnote ¹⁴

Of course, that surrender had a name and even a date: Appomattox and the bloody war years that came just before it. As Sven Beckert has shown in his now-classic American Historical Review essay “Emancipation and Empire,” the world-wide cotton famine that came after the Confederate capture of Fort Sumter proved a body blow to the merchant capitalists of New York and Liverpool, while the Northern victory in the war itself had enormous consequences for the cotton trade, for late nineteenth century European imperialism, for the transformation of labor regimes from the Carolinas to Calcutta, and for the growth of state power in either its imperial, its nationalistic, or its regulatory forms.Footnote ¹⁵ Along with the industrial revolution itself, the American Civil War may well have been the most consequential event in the history of nineteenth-century capitalism.

Before the war the alliance of merchant capital and the commodity-producing American South was firm. The most consequential merchants of antebellum America were those who rendered their services to King Cotton. They were for free trade and low tariffs, and opponents of most federal efforts to protect domestic manufacturing or generate the revenue for the “internal improvements”—we'd call it infrastructure today—so vital to the prosperity of the great trans-Appalachian interior. The great merchant houses of New York and New England were often allies of the Southern cause who believed the abolition of slavery would destroy the commercial civilization that their own power and prosperity exemplified. Thus the Lehman Brothers, who got their start as cotton brokers in Montgomery, Alabama and New York, may have been liberal Jewish émigrés from Germany, but when it came to the cotton economy they were Confederate partisans who ran the Yankee blockade and sold rebel bonds to London bankers.Footnote ¹⁶

The Civil War ended the reign of these merchants and their Southern confederates. The commercial aristocracy of Boston, Newport, and New York looked down on the Gilded Age iron masters, meatpackers, and railroad barons as ill-mannered nouveau-riche. But their cultured disdain really expressed the resentment of an old elite whose power was in decline. The rise of the new manufacturing enterprises during the late nineteenth century represented a profound transformation in the character of American capitalism, felt not only in the mills, mines, and workshops of Philadelphia and Pittsburg, but also along the tentacles of trade and commerce that moved the new abundance from factory to household. The great consumer products corporations that emerged in the late nineteenth century, firms like Protector & Gamble, Armour, Swift, American Tobacco, Kodak, Cambell's Soup, Quaker Oats, Munsingwear, and H.J. Heinz, did not merely command far more revenue and employ far more workers than the old merchant traders. They captured for themselves many of the economic functions and profit possibilities that were once the exclusive province of the antebellum jobbers and wholesalers.

For more than a century, from roughly 1880 to 1980 the manufacturing enterprise stood at the commanding heights of the U.S. economy's production/distribution nexus. The government sometimes challenged the more egregious oligopolies, and a few big merchants like Sears and A & P exerted sufficient leverage to actually bargain on prices, but for the most part the mass production firms administered their price schedule so as to insure continuous production and a healthy profit. General Motors wanted a twenty percent pretax return on investment, and for more than half of the twentieth century it got it, through the boom of the late 1920s, the Depression, the Second World War, and on through the first three postwar decades. U.S. Steel, which Andrew Carnegie and J. P. Morgan had created as the defacto price umbrella for the nation's most basic industry, used an elaborate system of freight surcharges—Pittsburgh Plus—to sustain the valuation of its capital-intensive mills and mines in Pennsylvania and Ohio. Henry Ford proved shameless, and pioneering, in his exploitation of the dealer network his firm had built, which is why Detroit's franchised dealers, many substantial businessmen in their own right, felt themselves in chronic battle with the motor city for most of the twentieth century.Footnote ¹⁷ Even the manufactures of food items and light consumer goods, like Hartz Mountain, Gillette, P&G, 3M, Hershey, Kraft, and Coca Cola conducted themselves in an imperious manner when they stocked the shelves of the regional grocery and drug chains that sold their wares.Footnote ¹⁸ And these consumer-goods manufactures had a vocal, politically powerful ally among the small town merchants, who from the 1920s on demanded “retail price maintenance” laws to curb the power of the chain stores and eliminate the nefarious discount chiselers who had begun to pop up in the less desirable sections of some big cities. Footnote ¹⁹

The manufacturers destroyed or absorbed as many merchant functions as they could. For example, G. F. Swift and Company became the largest meatpacking firm in the world by deploying the two great technological innovations of the nineteenth century—the railroads and the telegraph. This allowed Swift to ship millions of head of cattle to Chicago, where highly efficient disassembly lines made saleable everything except the squeal. It also led to the destruction of a whole network of preexisting wholesale butchers and regional slaughter houses. The change was both cultural as well as technological, because Swift, followed by the other big Chicago meatpacking firms, had to convince consumers that refrigerated beef and pork, traveling up to 1,500 miles by rail, was not just cheaper but as wholesome and flavorful as that slaughtered across town by skilled butchers. By 1899 the revolution was complete. Swift alone had established nearly 200 branch houses that, carefully monitoring the local trade, “pulled” product out of Chicago. Except for New York City, which maintained a thriving kosher meat industry, local slaughtering was history.Footnote ²⁰

The emergence of the branded product—Ivory Soap, Parker Pens, Wrigley's Spearmint Gum, even the canned Swift ham—and the fixed prices that normally accompanied such packaged goods, also eroded the market-making capacity of the wholesalers. It forged a durable connection between millions of far-flung customers and the products marketed by a specific, multibranded producer. Manufacturers therefore began to develop their own highly complex distribution networks, their own salesmen and “drummers,” their own systems of credit, advertising, research, and in some instances their own network of retail stores. But even when the manufacturer still used traditional distribution channels, the branding and advertising of a distinctive mass-produced product gave to the manufacturer the marketing leverage with which to reap large profits within the nation's distribution system. “To the manufacturer who advertises,” wrote the pioneering ad man Earnest Elmo Calkins in 1905, “it makes no difference what jobber or what commission man buys his goods. All of them will have to buy them in the end.”Footnote ²¹

High tariffs were central to this manufacturing dominated regime. They were a nineteenth century version of what today we would call “industrial policy.” They were the most important source of governmental revenue until the rise of the income tax just before the First World War. They nurtured and protected innovative, technologically-advanced American industries like steel, machine tools, optical devices, chemicals, and electrical products; and these high tariffs provided the ideological rationale for the linkage between working class living standards and rapid industrialization.Footnote ²² For the Republican Party, now victorious after the American Civil War, high tariffs were the bond it forged with an ever-restive class of laborers courted on the one hand by the Democrats and on the other by Socialist and Single Tax radicals who sought a direct attack on the privileges of capital itself. The fact that employers benefited handsomely from trade barriers did not undermine this faith, for most Republican politicians believed, mistakenly or not, that employers would share their profits with operatives. By barring competition with what they saw as the sweatshops of aristocratic Europe, protectionists hoped to eliminate the basis for rancor among producers.Footnote ²³

Whatever its virtues, the tariff alone could not resolve bloody industrial disputes at the Pittsburgh rail yards in 1877, Haymarket Square in 1886, Homestead in 1892, the Colorado coal fields in 1914, or South Chicago on Memorial Day 1937. In response, the Democrats began to experiment with construction of a new kind of social compact early in the twentieth century. Still free traders, by and large, the Democrats linked that economic doctrine to labor protections, first for women and children, and then in the 1930s directly to political initiatives that would help create the kind of organized working class that might challenge capital for a more equitable division of income while at the same time accommodating the free trade regime still supported by Southern commodity producers and by the merchant houses of New York, now often transformed into the Wall Street global bankers and traders who have long kept at least one foot inside the Democratic Party.Footnote ²⁴ And of course, the fact that international trade during the era from 1914 to 1941 stood at something close to its twentieth century nadir did much to advance this project.

But this era is over. Free trade abroad and social protections at home no longer constitute a politically coherent ideology. The collapse of the New Deal order and the manufacturing infrastructure upon which it rested, has many sources.Footnote ²⁵ The rise of big box retailing is not usually counted high on that multifaceted list, but it deserved to be there. The commoditization of an increasing array of what were once distinctive manufactured products has weakened the market power of all manufacturers, great and small; and the growth of retail dominated global supply chains, made possible by the telecommunications revolution and the innovations in container shipping, have sent domestic American manufacturing into a tailspin, to be replaced by the contract producers who are utterly dependent on the big retailers for survival. Deployment of the bar code gave retailers the upper hand, over manufacturers and wholesalers, when it came to an intimate knowledge of product sales, customers, and pricing; and the global container revolution gave retailers the capacity to take advantage of this new sales knowledge by contracting, even for time-sensitive products, where labor was cheap and manufacturing eager to do their bidding. Like the merchant capitalists of the antebellum era in both the United States and Europe, contemporary retailers have a global reach in a world of few trade restrictions. Tesco, Wal-Mart, Carrefour, Target, Home Depot, and other retailers dominate the Pacific Rim container trade, command every link in their vast supply chain, and exercise de facto management of the manufacturing enterprises from which they source in Central America and East Asia.Footnote ²⁶

In The Retail Revolution: How Wal-Mart Created a Brave New World of Business, I take a look at a small Arkansas shirt manufacturer, Ferris Fashions of Brinkley, to see how all this worked in microcosm.Footnote ²⁷ In 1984 Arkansas Governor Bill Clinton learned that Phillips-Van Heusen was moving its production offshore to meet demands from Sears and Penney for lower prices. Arkansas had been hit hard by the recession of the early 1980s, which wiped out more than 1.6 million blue collar jobs nationwide. At Brinkley, a small manufacturing and cotton processing town deep in the heart of the Mississippi delta, ninety jobs, held by a workforce largely composed of African-American women, were at stake. So Clinton got on the phone to David Glass, then head of Wal-Mart stores, and asked for help. The governor wanted to know if the Bentonville merchant could send some business to the locally owned firm.

Sam Walton immediately called up Ferris Burroughs, the owner and manager, and invited him to Bentonville to see if his plant could be converted to produce a shirt that Wal-Mart had heretofore imported from abroad. Thus, in early 1985 Ferris Fashions signed a contract for production of nearly a quarter of a million cotton flannel shirts. Clinton helped get the company a $300,000 economic development loan and Walton touted Ferris Fashions as a prime example of a product and a firm that could “Bring it Home to the USA.” At a press conference announcing the Ferris Fashions deal, Clinton pronounced Wal-Mart's Buy American program “an act of patriotism and it makes good economic sense in the long run.”Footnote ²⁸

But Ferris Fashions was now Wal-Mart's creature. “The problem is I have no access to markets other than Wal-Mart,” admitted Burroughs. The big retailer designed the shirts, sold them under its “American Edition” label, found a Taiwanese supplier from which it purchased the flannel in huge bulk, and bought the entire factory output.Footnote ²⁹ Employment soon rose to 350, but the jobs were poorly paid, without health insurance, and often subject to chaotic and inequitable piece rate variations. Wal-Mart's pressure for lower production costs never slackened. Pointedly, the company continued to import from Turkey, Pakistan, and Kenya a nearly identical shirt sporting Wal-Mart's “Ozark Trail” label.

Workers felt the squeeze as well. When Ferris Fashions workers signed up with the Amalgamated Clothing and Textile Workers Union in 1990, Ferris Burroughs told them “to stop messing around with the union” because Sam Walton “wouldn't buy union goods;” otherwise he would turn the plant into “a chicken coop.” Ferris Fashions kept making Wal-Mart shirts but unionism, higher wages, or stable jobs never made their appearance in Brinkley. Since the company was entirely dependent on Wal-Mart for the vast majority of its sales, it had neither the money nor the freedom to develop new products or diversify its customers. Thus when consumer demand for its distinctive plaid product declined after the turn of the millennium, the company's fortunes plunged. Employment declined to about 100 by the time Ferris Burroughs shuttered the plant in October 2005. The factory quickly became derelict, a companion to the abandoned stores and gas stations that lined Brinkley's desolate main street.Footnote ³⁰

The Ferris Fashion experience has been replicated thousands of times. Since 2001 when China entered the World Trade Organization, the United States has shuttered 42,400 factories, including 36 percent of factories that employed more than 1,000 workers. Manufacturing employment dropped to 11.7 million in late 2009, a loss of 32 percent of all such jobs since 2000. The last time we had fewer than 12 million people working in the manufacturing sector was 1941.Footnote ³¹

Today, America's biggest volume export via ocean container is waste paper, with the largest U.S. exporter not even an American company but a Chinese processor of paper products that filled 211,300 containers of waste paper and shipped them to Hong Kong and other South China ports. By comparison Wal-Mart imported 720,000 containers of manufactured produces from overseas factories into the United States, followed by Target with 435,000 and Home Depot with 365,300 containers.Footnote ³² So when it comes to a large slice of production, both domestic and global, the merchant capitalists of our day are now firmly in control: The supply chain metaphor is a good one because it makes clear that commerce is not analogous to a free flowing river, but rather is structured by a set of binding linkages embodying control, mastery, and subordination.

All this has been exacerbated by the powerful role contemporary merchant capitalists are playing in the world of international finance. Merchants have long been a handmaiden to the rise of banking and the power of finance capital. In the eighteenth and early nineteenth centuries successful traders and jobbers, who had long been extending credit to planters and other producers, sometimes transformed their firms into banks or more specialized financial institutions. The sons of the German cloth merchant Johann Baring set up a London trading company and founded Baring Brothers. Likewise, the house of J.P. Morgan had its origins in a Boston-based firm that was one of the largest dry goods importing and jobbing houses in the country. And Brown Brothers Harriman traced its origins to one James Brown, an Irish-born linen merchant who had migrated to Baltimore in 1800.Footnote ³³ Today there is little evidence that firms like Wal-Mart or Home Depot are looking for ways to turn themselves into investment banks, although they are indeed anxious to change state banking regulations in order to open consumer finance operations in many of their thousands of retail outlets.Footnote ³⁴

However, this does not mean that the rise of the big-box retailers has not had an important impact on finance, both domestic and international. Although Wal-Mart and other mass retailers have helped depress wages and benefits among the fifteen million who are directly employed in the retail sector, they have also been proponents of cheap and easy credit, a combination that did sustain consumer purchasing power for several years, but also helped lay the basis for the financial crisis of 2008–2009. And along these same lines, the big retailers favor a strong dollar relative to the yuan and the currencies of other nations from which they source their imports. In the contemporary debate over what steps the United States can take to persuade China to revalue its currency, the Retail Industry Leaders Association has been a powerful advocate of the status quo. This will keep the cheap imports flowing, even as it depresses U.S. manufacturing employment and contributes to an overreliance on Chinese government funding of the American budget deficit.Footnote ³⁵

Labor's Fate

The return of merchant capitalism has dramatically expanded the number of workers who produce goods and services that stand at the center of this new world trading regime, even as the standard of living, legal status, and citizenship of those same workers are increasingly brought into question. In both the antebellum era and today, merchant capitalists preside over production regimes that put constant pressure on the livelihoods and working conditions of those who grow, assemble, and ship the crops and products that stand at the base of the supply chains they command. There are two reasons for this. First, because such commodities are fungible, merchants search the globe for the cheapest source, and when they find it they squeeze the prices, profits, and labor costs of those who supply them, always holding in reserve the threat that production might shift to a more favorable clime or country. In the nineteenth century cheap wheat from the American Midwest impoverished the peasantry of Eastern Europe; today the vast expansion of the worldwide labor market after the demise of Communism has also greatly enhanced commodity manufacturing possibilities around the globe.

And second, because merchant capitalists avoid the legal, and as far as possible the moral, responsibility for the status of the labor that creates their wealth, they find it more politically and economically convenient than even the most brutal manufacturing master to turn a blind eye to the conditions under which production takes place at the base of their global supply chains. Although these supply chains are highly integrated in a functional sense, legal responsibility is radically attenuated. The experience of the United Fruit Company, a global enterprise that symbolized the imperial ambitions of the vertically-integrated conglomerate, is a case in point. By 1960 United Fruit owned vast plantations and directly employed tens of thousands of workers in Central America. But the rise of worker militancy and nationalist sentiment in many of these countries, as well as increasing criticism within the United States, persuaded corporate managers to offload their Latin properties, transforming the base of their supply chain into a set of independent local growers and contract producers. United Fruit, which soon became but one unit of United Brands, became a marketing company, which in the words of historian Marcelo Bucheli “conspicuously dismantled” its own banana empire “largely to ensure itself a continued place on the top of the banana world.”Footnote ³⁶

The same disaggregation process took place in manufacturing a few decades later. In the 1990s, reports the sociologist and supply chain theorist Gary Gereffi, nearly all major North American product-level electronic firms, and several important European companies as well, made the decision to get out of manufacturing, or rather to purchase from a relative handful of huge contract manufacturers the components and products that would later achieve a distinctive branded character as they passed through their supply chains. “The key insight,” concluded Gereffi, “is that coordination and control of global-scale production systems, despite their complexity, can be achieved without direct ownership.”Footnote ³⁷ Given this kind of hands-off arrangement, Apple, Nokia, Hewlett Packard or any other branded “manufacturer” never faced much in the way of moral condemnation or legal liability when an epidemic of suicides, which outside observers and inside workers blamed on low pay and poor working conditions, swept through Foxconn's flagship manufacturing complex at Longhua, near Shenzhen, where 300,000, mainly migrants, worked during the spring and summer of 2010. Sometimes described as a “labor camp,” Foxconn's Longhua facility employed but one-third of the company's entire Asian workforce. As in all its factories, labor rights are few, security omnipresent, and Taylorite production methods the norm. Workers wear uniforms color-coded by their department. Every factory building and dormitory has security checkpoints with guards standing by twenty-four hours a day.Footnote ³⁸

Unlike their antebellum sisters and brothers, these South China migrant workers are “free” in the sense that they can quit their employment at any time. But like so many commodity-producing agricultural laborers in the post-emancipation decades, their rights on the job and their rights as citizens are harshly constrained. Indeed, merchant capitalism, then and now, favors the reproduction of a system of labor that trends, not only toward exploitation and sweatshop conditions, but to legal and administrative structures that depart from the free labor ideal. In this kind of regime workers do not command the rights of speech, assembly, travel, unionization, and political participation that we think of as hallmarks of working-class progress during the era when industrial capitalism held sway.

The most extreme forms of debt peonage characteristic of the years before the Second World War no longer exist, but contemporary merchant capitalists nevertheless rely on a set of labor markets that are embedded within authoritarian polities—in Vietnam, Bangladesh, Honduras, Guatemala, and China—that deprive workers of important attributes of what in the era of the Civil War and after we called “free labor.”

All this is visible in coastal China, now the world workshop from which Wal-Mart and the other merchant capitalists of our day derive the bulk of their commodity-like products. The workforce in Guangdong, like that of the other coastal provinces, is overwhelmingly composed of migrants from inland villages. In the tens of millions they have migrated there to escape the poverty and oppression of rural life as well as to earn the cash now essential to survive in a China in which the old welfare state, the iron rice bowl, has been virtually abandoned. Therefore, many older sisters work long hours so that they can send home money to pay for the education of their younger brothers or for the support of aging parents.

The men work in construction and the women in export manufacture and commerce. Factory wages are low—about $100 a month—but far higher than in agriculture, and they are rising fairly quickly because of the labor shortage generated by the export boom in toys, garments, shoes, and electronic devices. But as in apartheid South Africa or along the employment pathways carved by so many Mexican workers in the United States, these millions of migrants are still essentially stateless. Because their official residence remains the home village, migrant workers in coastal China do not have access to social services or adequate housing so long as they are without residence permits. Under Chinese law, the hukou, or population registration system, links citizenship to birthplace, so local governments in the crowded coastal provenances have turned their backs on the needs of most migrant workers. Instead, they work and reside on the sufferance of their employer, which often holds their identity papers until they complete their labor “contract.” This is why so many factories throw up huge dormitories, some housing eight or twelve workers to a room, where residence is dependent upon employment at the enterprise next door. Moreover, because workers lack classification as gongren, or proletariat, both state and factory often ignore the labor laws. A contract labor law, enacted in 2008, has offered many of these workers important job-rights and social protections, but it is not self-enforcing, and among the major export manufacturers, opposition remains intense. Moreover, because affordable housing is limited for those who work in that production sector, most remain temporary migrants in the coastal regions.Footnote ³⁹

None of these people work directly for Wal-Mart, Target, or the other big retailers who require the production of such a continuous stream of consumer durables. They are employees of the thousands of firms who contract with the big retailer and its rivals. No one knows how many companies or how many workers supply Wal-Mart with the products that fill its shelves because no one really knows or can know the extent of the vast subcontracting system that stands at the heart of the sweatshops universe that fills the production end of the Wal-Mart supply chain. Every supply chain consists of a series of subordinate entities whose prices, production schedules, and labor costs are put under relentless pressure by the firm or institution that is the ultimate buyer of the product.Footnote ⁴⁰ Indeed, this is the essence of “sweatshop” production, which derives its historic, derogatory meaning from the “sweater,” the Victorian-era middleman, who took advantage of the poverty and unemployment endemic in London's East End to subcontract garment cutting and sewing to scores of desperate families, many of whom were migrants to the British metropolis from a countryside where tenants and farm hands had been dispossessed by the new international trade in wheat and wool.Footnote ⁴¹

The Future

What forces exist today that might counter or ameliorate the hegemony now exercised by the merchant capitalists of our time? Most obviously, the wave of worker militancy that has swept through many of China's factories may well transform the financial and political calculations of those executives who have for almost a generation depended upon that country as a cheap source of manufacturing labor. High-profile strikes at Honda, Toyota, and other workplaces have represented just the most visible tip of an iceberg of working-class economic aspiration and democratic discontent. Each year the Chinese government reports more than 100,000 “mass incidents” involving workers, peasants, and other citizens protesting against local elites who have seized their land, corrupted municipal government, or created intolerable working conditions at their workplace. All this has led to a near doubling of real wages in Chinese manufacturing districts during the last decade, a phenomenon that parallels Bejing's sometime effort to expand the Chinese domestic market.Footnote ⁴²

Thus, as labor costs rise in South China, the merchant capitalists of Europe and North America have been compelled to find new sources of supply. Indeed Wal-Mart and other retailers are now in the process of moving much production to Bangladesh, Vietnam, and the interior districts of China, where a lower-wage workforce is still plentiful. And Foxconn is investing billions in a set of Brazilian factories to fulfill the world's insatiable demand for more iPhones and iPads. Moreover, if the dollar continues to decline in value against the yuan and other currencies, much more sourcing will be returned to the United States where stagnant wages and high levels of unemployment have made American labor far more “competitive.” But, of course, if such a shift in the global supply chain does take place, should all else remain equal, this geographical switch hardly implies a substantial reduction in the power or a change in the character of merchant capitalism itself.Footnote ⁴³

A more significant transformation, put forward by some geographers, sociologists, and economists, is that retail dominance of the global supply chains is but a temporary phenomenon and that the manufacturers will shortly reassert their pricing power and their capacity to offer higher wages and better working conditions. There is evidence that this might be taking place in East Asia where Flextronics, the manufacturer of a huge proportion of all computer and TV components, with 100,000 workers in Shenzen, also employs some 10,000 engineers. Likewise Yue Yen Industrial, with 250,000 shoe workers in East Asia and fifteen percent of the global market in athletic shoes, may well brand its own products and compete directly with Nike and Reebok instead of being their silent, subordinate supply house. The rise in the value of the Chinese currency may aid in this rebalancing of power within the supply chain.Footnote ⁴⁴

Of course, power for manufacturing executives does not necessarily translate into power or better conditions for the workers who labor at the far end of the supply chain. Today numerous non-governmental organizations exist that monitor, expose, berate, and measure the working conditions and environmental standards that exist in the factories from which Wal-Mart and other retailers source their product. Human Rights Watch, the Fair Labor Association, the Workers Rights Consortium, and the numerous Hong Kong-based groups keep the pressure on Wal-Mart, Nike, Disney, and Target. In response, Wal-Mart and all the other retailers have developed their own sometimes quite elaborate codes of social responsibility. The effectiveness of these internal monitoring arrangements is subject to considerable debate. In general they have some impact at the margins but make no fundamental transformations in the way Wal-Mart goes about purchasing its goods or in the way its contractors go about producing them.Footnote ⁴⁵

Indeed, the very existence and prominence of these human rights organizations is a tribute to the hegemonic power of the world constructed by the merchant capitalists of our day. In the heyday of American Fordism, most critiques of the social impact of industrial capitalism were directed toward the key manufacturing enterprises, largely by trade unions and the government, but sometimes by organized consumers as well. It is a tribute to and indication of the shift in the structure of world capitalism, that we now direct our concern toward the brands and retailers that today stand at the apex of their global supply chains. The power lies there because no set of states, unions, or rival economic institutions has had either the will or the wherewithal to stand athwart them. As in the years before the Civil War, states are weak and the labor movement even less potent. In such circumstances the world's first human rights Non-Governmental Organization (NGO), the British Anti-Slavery Society, came to play an outsized role in curbing the excesses that flowed from the merchant capital regime. And like today's NGOs, it deployed the weapons of the weak: investigation, exposure, moral suasion, and boycott.Footnote ⁴⁶ Similar groups, on both sides of the Atlantic, including the Consumer's League and the National Association for the Advancement of Colored People (NAACP), would later utilize many of these same approaches. They are not doomed to failure, but their leverage is slight. A more robust set of levers is necessary. Is a reregulation of the world trading system a possibility? Can any world body assign to an identifiable corporate entity the actual legal and financial responsibility for the millions of workers who labor within the great supply chains that constitute the sinews of global design, production, and distribution? These queries are beyond the scope of this article, but perhaps this historical look backward may have given us some sense of the magnitude of the task ahead.