Monopsony Capitalism brings competition into the centre of industrial organisation theory and shows how labour is an agent in the power struggle, finds Orlando Hill
Competition in mainstream economics is seen as a function of the number and size of price-taking firms; the greater the number of firms the more competitive the market. Market structures are presented as a spectrum. On one end is a perfectly competitive market structure with large numbers of firms and no barriers to entry; on the other end is a monopoly where the market is dominated by one firm and competition ceases to exist. In the middle you have a market dominated by a small number of large interdependent firms referred to as an oligopoly.
Market structures can also be considered as a function of the number of buyers. The larger the number of buyers the more competitive the market. A single buyer (monopsony) or a small number of buyers (oligopsony) have the market power to put downward pressure on the price of their suppliers. The large number of suppliers enter a bidding war to win the contract with the buyer. The greater the power the buyer has, the greater the degree of monopsony power (DMP).
Classical authors such as Smith, Ricardo, Marx, and later Schumpeter see competition as central to the development of capitalism. Competition is a turbulent, messy, and dynamic process where rival firms compete unceasingly among each other for greater market share. This process results in a constant restructuring of markets as firms merge and migrate in the pursuit of profits, and the power shifts from the supplier to the buyer and back again.
Competition puts firms at the same stage of production against each other, as it does also firms at different stages of the supply chain in their attempt to cut costs. It puts capital against capital, capital against labour, and labour against labour. Competition under capitalism is a war of all against all for a maximum possible share of social wealth.
Kumar in his book succeeds in bringing competition into industrial organisation theory. By doing so he puts power as the motor of market dynamics, and through the process of competition a constant change in who holds power.
Competition leads to a constant change in the organic composition of capital. As firms compete against each other, they invest in labour saving technology as a means of intensifying the extraction of surplus value, the unpaid share of wealth produced by labour. Since value is produced by the interaction of labour with nature, the smaller ratio of labour to machinery and technology (dead labour) the smaller the percentage of surplus value extracted overall, i.e. the smaller ratio of profit. That is why according to Marx under capitalism there is a tendency to a fall in the rate of profit. Capitalism needs to expand and seek new markets in the attempt to overcome this fall in the rate of profit.
Competition and the power of labour
Kumar sees labour not as a passive object in this war of all against all, but as an agent that influences the composition of power. Labour has structural and associational power. Structural power is the objective fact that labour is located where value is produced. If workers withhold their labour, value ceases to be produced, profit cannot be made, and workers can extract concessions from employers.
Associational power is subjective and refers to trade-union density, and the ability of workers to create links of solidarity with other trade unions and other sectors of the social movement. There is a dialectic association between associational and structural power. Weakening of structural power often leads to a weakening of associational power. Weak associational power can make structural power ineffective.
Kumar focuses on the garment and footwear sectors to explore the changing composition of power between retailers and suppliers, and between capital and labour, to examine whether the age of sweatshops is in its twilight. The garment industry is considered a starter sector in the sense that it kicks off industrialisation and economic development. The competition among firms leads to concentration of capital and ultimately monopoly power.
Monopoly cannot be understood as the power of a sole seller, which is extremely rare, but as a phase of capitalist development in which large firms limit the entry of new firms by using their economies of scale and scope. Smaller firms are unable to compete with the larger firms and end up being destroyed or taken over. This phenomenon can be observed in the garment and footwear industry where big brands dominate. However, by concentrating production, monopolies increase the structural and associational powers of labour, creating conditions for workers to win concessions from their employers, consequently reducing profit margins.
Strategies of capitalists
Firms adopt two strategies to claw back the lost profit margins; spatial (geographical) and organisational fixes. They outsource their production to companies located in countries where workers are less organised and have fewer rights. By outsourcing they gain monopsony power. The famous brands such as GAP use their DMP to force their suppliers to reduce their prices. As a result, the extraction of surplus value moves up the supply chain, reducing the structural power workers have. Workers in countries such as Bangladesh, China or India who take industrial action are faced with the threat of the firm shutting down. As capital investment is low, the garment industry can easily be moved to wherever labour costs are lower.
The large number of small suppliers compete among themselves for the contracts from the multinational brands. This competition leads to a concentration of capital, reducing the number of sellers. This can be seen in the rise of Yue Yuen in China and the Arvind Group in India. Both are large capital holding suppliers to large brands such as Nike, Adidas, and GAP. Both started as small supplier-end firms confined to low-value functions. Both firms have developed economies of scale which allow them to reduce their average cost making it impossible for smaller firms to compete. They have also integrated vertically allowing them to offer a full package which embraces the full length of the supply chain, production, finance, marketing, and retail. The buyer-driven supply chain gives way to a buyer-producer symbiosis. The big brands’ DMP is lessened. The capture of surplus value moves back down the supply chain, from the retail to production consequently increasing workers’ structural power. This increase in workers’ bargaining power has transformed China into the ‘epicentre of world labour unrest’ (p.97).
The difference now is that the oligopsony (the buyers) face an oligopoly (the suppliers) with nowhere to go. Competition has created a centralised industry, with a few mega-firms in a few locations. Buyers have become more dependent on the suppliers, and consequently increasing workers’ structural power. As workers evolve their strategy and increase their associational power it does raise, as Kumar argues, the possibility of the sweatshop being reduced to historical memory.
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Orlando was born in Brazil and was involved in the successful struggle for democracy in the late 1970s and 80s in that country. He teaches A level Economics. He is a member of the NEU, Counterfire and Stop the War.
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