The Peruvian Mining Industry

Growth, Stagnation, And Crisis

Elizabeth W Dore

• Publisher: Taylor & Francis
• Year: 2019
• Print ISBN: 9780367310240
• eBook ISBN: 9781000304350
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book examines patterns of growth, stagnation, and crisis in the Peruvian mining industry in twentieth century, presenting an assessment of the nature of some internal constraints which prevents mining companies in Peru from responding to price incentives and increased demand for their products.

CHAPTER ONE
The Barriers to Capitalist Expansion in Underdeveloped Countries

Within the unorthodox development literature there are two broad approaches to understanding the causes of underdevelopment¹ One school of thought maintains that inequality in levels of development among countries is caused primarily by inequities in international exchange. This framework has become known as dependency theory. While it may appear that authors within this school have quite different positions, they all subscribe to one fundamental tenet: that underdevelopment is caused by the extraction of a surplus product from backward countries.² Differences within the dependency literature focus on the mechanism of surplus extraction. Many writers who use the framework of dependency theory argue that underdeveloped countries lose access to their "surplus" through unequal terms of trade.³ Other theorists of dependency specify that the inequality of the exchange relationship is caused by wage differentials between high and low income countries. Another current within the dependency literature focuses on profit remittances as the form of surplus extraction. Notwithstanding the variety of explanations of how surplus is extracted from underdeveloped countries, all dependency theorists maintain that underdevelopment is caused by international exchange.

The second approach to analyzing underdevelopment locates the barriers to economic development in the particular nature of traditional social relations of production and in the class structures that characterize underdeveloped countries.⁴ Authors who hold this position analyze the process of the historical transformation of a country in order to understand how precapitalist social relations of production restrain economic growth. Scholars in this tradition examine the forms of access to land, labor, and tools. This allows them to analyze how the nature of these particular structures constrain the reorganization of the labor process and the introduction of technical improvements, which condition economic development. This second theoretical position is concerned with understanding why and how class relations change; specifically how capitalist relations of production develop. Integral to this framework is an analysis of the precise forms of the export of capital from the advanced capitalist countries to the backward countries, and of how the export of capital affects the transformation of class relations in underdeveloped countries.⁵

This chapter presents a critique of dependency theory. It focuses on those authors who have made important contributions to the development of the theory. The chapter concludes with a theoretical discussion of the barriers to economic development that emerge from the nature of precapitalist social relations of production. Particular attention is given to those obstacles to growth that have been critical to the development of the Peruvian mining industry: the nature of the labor force, the role of wages, and productivity.

Surplus Extraction as the Cause of Underdevelopment

By far the most prevalent explanation of the causes of inequality in the level of development among countries is that surplus is extracted from backward countries and is appropriated and subsequently used in the advanced countries.⁶ To analyze this view, emphasis here will be on the work of Paul Baran and Andre Gunder Frank, because of their clarity of exposition and consistent use of this explanatory thesis. It may be argued that these writers are out-of-date. I disagree. To this day the arguments of Baran and Frank are very influential, and their views are accepted by many scholars and policymakers concerned with understanding the causes of underdevelopment.

In the work of Baran and Frank the appropriation of the surplus product has a twofold consequence. The backward country is impoverished because it loses access to "its" surplus, and the advanced country is enriched by appropriating this surplus product.⁷ Inherent in this position is the argument that the surplus product extracted from the backward countries is crucial to the expansion of capital, and therefore to the maintenance of the capitalist system in the advanced countries. Baran argues that the surplus generated in underdeveloped countries is appropriated by the capitalist classes of the advanced countries, and is a major source of their profits.⁸

All dependency writers agree with Baran that this extraction-appropriation process is fundamental to the survival of capitalism in the advanced countries. However, some scholars who share this general perspective offer a different explanation of how the surplus extracted from developing countries is used in the advanced countries. For instance, Ruy Mauro Marini argues that the extracted surplus is appropriated by the working class in the imperialist countries. As such, the appropriation of surplus generated in underdeveloped countries serves to greatly weaken, if not eliminate, the class struggle in the advanced countries.⁹

Although within the dependency literature there is no consensus on which classes in the advanced capitalist countries are the direct beneficiaries of the surplus product that is extracted from underdeveloped countries, on a more fundamental issue there is total accord. Dependency theorists all agree that growth in the advanced industrial countries in large part is generated by the surplus that is extracted from the Third World, rather than by the exploitation of the working classes in the advanced countries.

According to the arguments of Frank and Baran exploitation is a relationship between countries, not between classes. This analysis suggests that under capitalism, exploitation occurs in the process of exchange, not in the process of production. Given this formulation, it follows consistently that to understand the causes of underdevelopment there is no need to analyze relations in production, nor the nature of the production process. Within this argument production itself becomes irrelevant to the analysis of underdevelopment, as all of the critical relations are located in exchange. Therefore, faithful to the logic of their position, Baran and Frank devote little attention to the production process in their explanation of the barriers to economic growth.

The next step in the logical progression of the surplus extraction thesis is that the essence of capitalism is trade. If exchange relations are primary, and exploitation occurs in exchange, then trade becomes the defining characteristic of capitalism. The extension of this argument is that, where there is exchange there is capitalism and it is through trade that capitalism expands. While this view is implicit in the writings of Baran, it has become a theoretical tenet of the arguments of many of his leading followers such as Frank, Paul Sweezy, and Immanuel Wallerstein.¹⁰

Notwithstanding its popularity, the dependency argument is fundamentally flawed. Exploitation is a relationship between classes, not between countries. Under capitalism exploitation occurs in the process of production, not in exchange. Above all, the essence of capitalism is the particular form in which labor power and the means of production are united in the production process. The essence of capitalism is not the exchange of products.

Equating capitalism with exchange demonstrates a misunderstanding of the nature of capitalism, for capitalism is not merely exchange. Exchange itself is compatible with many different modes of production.¹¹ Capitalism is unique in that the reproduction of society occurs through exchange, and thus requires the general circulation of products as commodities. In capitalism the direct producers have been separated from the means of production. Therefore, they are compelled to exchange their capacity to work, their labor power, in order to purchase the products they need for survival. The same process that "frees" the direct producers from the land, tools, and animals, also sets free these same means of production to be exchanged against capital. Therefore, the essence of capitalism is not the existence of exchange, but the fact that exchange has become so widespread that not only are labor power and the means of production exchanged, but they must be exchanged before they can be united in the production process.

Under capitalism, exploitation is the appropriation by the capitalist class of the surplus labor time of the working class. In capitalist relations exploitation occurs in the process of production, and is concealed by the wage. While it appears that workers are paid for the total number of hours they work, they are not. In essence the wage reflects the value of labor power, or the cost of the commodities that workers normally consume. However, in capitalist economies only a portion of the working day under capitalism must be devoted to the production of the value of these commodities, the means of subsistence. For the remainder of the working day the working class labors for free for the capitalist class. This unpaid labor is the source of profits under capitalism.

The formulation of Baran and Frank, focusing as it does on the movement of a surplus product among countries and on exchange relations, overlooks the specific nature of both capitalist and precapitalist modes of production. Their method does not call for an analysis of the circuit of capital; of the particular dynamics of how a surplus product is produced and appropriated. Moreover, it does not address the fundamental issue of how social relations of production affect the development of the forces of production, and condition economic growth.¹² This leads Baran, Frank, and others who adopt this method, to lose sight of the historical specificity of the capitalist mode of production.

If the extraction of a surplus product from one country and its appropriation by another country is the cause of underdevelopment, if capitalism is trade, and if the particular characteristics of the social relations of production are ignored, then capitalism itself becomes irrelevant to the analysis. Capitalism becomes an unnecessary fifth wheel in a discussion of only polemical significance. If the analysis of the causes of underdevelopment fails to consider the nature of the social relations of production and its influence upon the development of the forces of production, we are left with little explanation of economic stagnation other than the plunder of one geographical region by another. In other words, the theory of underdevelopment constructed by Baran and Frank is not unique to the capitalist epoch. The domination and looting of one area for the enrichment of a class of expropriators in another geographical area has been a characteristic of virtually all historical periods.

The logical and inevitable conclusion from Baran's and Frank's arguments is that the nature of class relations and the particular dynamics of capitalism have little to do with underdevelopment in the world today. If their theory is correct, the causes of differences in economic growth among countries have varied little throughout history. However, this is not the case. The uneven development of the productive forces among countries is primarily caused by fundamental differences in the nature of social relations of production. Each unique form of social relations embodies particular barriers to the expansion of production. While it is advisable to exercise caution when generalizing about precapitalist social relations, these forms tend to be characterized by a relative inflexibility in the production process. Under precapitalist social relations laborers gain access to the means of production through a great variety of relationships which are not primarily economic; but overtly social, political, and religious. These relations tend to restrain the reorganization of the production process, the introduction of technical change, and the expansion of production.

Capitalism is progressive in that it tends to break down these particular constraints. Under capitalism social relations appear to be purely economic in character. Money becomes a claim on wealth in general, and laborers and the means of production are united only through the advance of capital. In consequence, capitalists have considerable flexibility and can reorganize the production process in order to increase productivity and profits. Most important, capitalists are compelled to reorganize the production process, increase productivity, and raise profits; or they are eliminated in the competitive struggle among capitals, it is this process of competition that ensures the expansion of production under capitalism. An understanding of these fundamental differences between capitalist and precapitalist societies, and an analysis of how particular social relations of production condition economic growth, is the starting point of an analysis of the causes of the development and the underdevelopment of specific countries.

However, Baran, Frank, and dependency theorists in general, do not take into consideration the particular nature of modes of production, be they precapitalist or capitalist, in analyzing the causes of economic development. In their theories the characteristics of the social relations of production are of scant significance, and development of the forces of production is determined by exchange relations; in particular by exchange among countries.

Surplus Extraction via Monopoly Capital

Although the theory of underdevelopment of Baran and Frank rests upon the extraction of surplus products from backward countries and appropriation by the developed countries, they devote little attention to how this transfer is effected. Their writings do not incorporate a conceptualization or an investigation of the mechanisms of surplus extraction. The reader is left to infer what these processes might be. Nevertheless, the theory of monopoly capital, closely akin to dependency theory, provides an explicit formulation of the mechanisms of surplus extraction through profit remittances and monopoly.¹³ The theory of monopoly capital is predicated on the assumption that companies based in advanced capitalist countries that invest in backward countries subsequently repatriate a large part of their profits. Therefore, the theory postulates that profit repatriation becomes a barrier to the accumulation of capital in underdeveloped countries and results in economic stagnation.

There is a logical inconsistency in this argument as it is generally presented.¹⁴ Most, if not all, dependency theorists maintain that the rate of profit is higher in underdeveloped countries as a result of some form of super-exploitation. Furthermore, they argue that it is this higher rate of profit that attracts investments from developed countries. If this is true, it would be reasonable to expect a high rate of reinvestment in backward countries as companies take advantage of higher profit rates; not a net outflow of capital. In order to argue that there is a continual extraction of surplus via profit remittances, the theory must incorporate an explanation of why companies do not continue to pursue high profit rates, and instead repatriate their earnings. The concept of monopoly capital endeavors to provide this theoretical justification.

The theory of monopoly capital is based on the hypothesis that the essential laws of motion of capitalism are fundamentally altered with monopoly capital. Most important competition is eliminated. Therefore, there is no necessity for technical change nor drive to increase productivity. The theory of monopoly capital posits the negation of the entire process that involves the continual development of the productive forces under capitalism.¹⁵ This theory is implicit in the argument that surplus extraction is the cause of underdevelopment and, as such, Is an essential element in the logic of dependency. Within the framework of dependency theory foreign companies investing in underdeveloped countries are monopolistic. They enter backward countries, destroy local competitors, and then protect their markets. By eliminating competition these firms are able to secure their markets without the necessity of investing either in technical improvements or in expanding production. Therefore, as there is no pressure for accumulation and further development of these hapless branches of production is stifled. Furthermore, since their monopoly position removes the compulsion to invest, these foreign companies remit their profits—extract the surplus.¹⁶

Finally, according to the theory of monopoly capital cum dependency, these foreign firms are able to reap large profits through monopoly pricing. In the logical extension of this argument, the rate of profit and the level of total profits is without limit since price is indeterminate. Prices are no longer directly related to the value of the product, but are set arbitrarily by all-powerful monopolies. By virtue of their monopoly power, these firms prevent other companies from investing in this particular branch of production in the underdeveloped country, and from taking advantage of the high profit rates. In dependency theory it is this process that blocks the development of the productive forces and results in "dependent" or "distorted" capitalism.

This, however, is an erroneous view of monopoly. For it equates competition exclusively with the number of firms in a single product market. Moreover, it perceives competition under capitalism as restricted to the struggle over market shares. In reality this is but one aspect of capitalist competition. Capitalism is characterized by many forms of competition: between capital and labor over the conditions of exploitation, among capitalists over labor power, and by competition among capitalists throughout the economy to take advantage of high rates of profit in different branches of industry. This last form of competition implies the movement of capital from one productive sector to another. This process tends to equalize the rate of profit throughout an economy and promotes generalized economic growth.

Competition is inherent in capitalism. Rather than being eliminated, competition intensifies as capitalism develops. In the early stage of capitalism, the period of manufacture, the primitive development of credit institutions is a barrier to the movement of capital among productive sectors. In this stage competition primarily is confined within separate branches of production. However, as capitalism develops these obstacles to the movement of capital are overcome. In advanced capitalism competition is no longer constrained within separate industries. In the contemporary era while capitalism continues to be characterized by the competition of companies within one branch of industry to conquer the market, the movement of capitals from one branch of industry to another is foremost in the competitive struggle among firms. Driven by the need to increase profits, capitals invade sectors of the economy characterized by higher rates of profit.¹⁷

Without the conceptual foundations of the theory of monopoly capital, the mechanism of perpetual profit remittances as the form of surplus extraction and as the cause of underdevelopment becomes highly pr...

Table of contents

• Cover
• Half Title
• Series Page
• Title
• Copyright
• Dedication
• Contents
• LIST OF PHOTOGRAPHS AND MAPS
• LIST OF TABLES
• LIST OF FIGURES
• LIST OF APPENDIXES
• ACKNOWLEDGMENTS
• INTRODUCTION: Mining in the Context of Underdevelopment
• CHAPTER ONE: The Barriers to Capitalist Expansion in Underdeveloped Countries
• CHAPTER TWO: A Comparative Analysis of the Peruvian Mining Industry and the International Metals Market
• CHAPTER THREE: The Transformation of Highland Society and the Historical Roots of Industrial Mining
• CHAPTER FOUR: Consolidation of the Mining Industry and the Emergence of a Free Wage Labor Force
• CHAPTER FIVE: Restructuring Ownership and Transformation of the Labor Process
• CHAPTER SIX: Nationalizations and Their Aftermath
• APPENDIXES
• NOTES
• STATISTICAL SOURCES
• GENERAL BIBLIOGRAPHY
• INDEX