Hegemony in the Global Factory

HEGEMONY IN THE GLOBAL FACTORY: POWER, IDEOLOGY, AND VALUE IN GLOBAL PRODUCTION NETWORKS

DAVID L. LEVY University of Massachusetts, Boston 100 Morrissey Blvd. Boston, MA 02125

INTRODUCTION

The recent wave of media attention to “offshoring” has focused on a widespread concern that a new demon is threatening a wide range of jobs in Western industrialized economies (Bernstein, 2004; Swann, 2004). The latest wave of offshoring appears to be unprecedented in a number of respects. It increasingly affects workers in service sectors as well as highly skilled professions such as software engineering. The new offshoring threatens middle-class, professional and high-income workers in the way that earlier waves undermined blue-collar jobs in manufacturing. The core driver of this recent form of offshore sourcing is the increasing organizational and technological capacity of companies to separate and coordinate a network of dispersed organizational units performing a linked set of activities. The emerging global telecommunications infrastructure affords a dramatic increase in capacity and function at sharply lower costs, and has reduced the transaction costs of coordinating far-flung operations. The new offshoring does not affect any sector in particular; rather, it affects specific tasks in a ‘value- chain’. It is leading to a micro-division of labor in which workers can be geographically separated from the production process (Carnoy & Castells, 2001). Arguably as a result, conventional sector-based theories of comparative advantage are losing their traction. The response from most economists and management experts is to claim that offshoring represents an extension of existing forms of international production and trade rather than a more radical restructuring. The magazine The Economist has been in the forefront of discursively linking offshore sourcing to the broader ideology of free trade. In articles and editorials, it portrays globalization as a benign continuation of progressive trends embodying political and economic liberalism that promise prosperity, technological progress, and the alleviation of poverty in rich and poor countries alike (Starr, 2004). This paper develops a more critical perspective on international management and production. A conceptual framework is developed that draws from the literature on global commodity chains and global production networks (GPNs), as well as from neo-Gramscian approaches to international governance. The paper proposes that GPNs can be conceived as geographically dispersed global factories, in which various actors struggle for influence and profits. The concept of hegemony in this global factory suggests the contingent stability that GPNs can achieve when economic, technological, discursive, and organizational elements are aligned. This approach emphasizes power relations rather than efficiency within production networks, and provides a framework for analyzing the linkages of these networks to broader institutions of power, such as multilateral financial and trade organizations and their associated neoliberal ideologies. Compared with existing analyses of production networks and value chains, the framework proposed here views GPNs as political arenas engaging a wider array of actors, and encompassing a more multi-dimensional and multi-level approach to power relations. From this perspective, the expansion of GPNs can be viewed as a process of Taylorisation at the international level, as outsourced activities are routinized and commoditized despite their growing sophistication and complexity.

Toward a Critical Analysis of International Production

In international management, the conventional approach to understanding offshore sourcing revolves around Michael Porter’s conception of the ‘value chain’ as a linked set of economic activities that ‘add value’ at every stage of production (Porter, 1990). MNCs are viewed as efficiency-enhancing agents, the organizational incarnations of more abstract economic forces. The legitimacy of MNCs, and of the field of international business more broadly, is thus closely tied to the broader ideology of free trade and neoliberal discourse promoting the benefits of privatization and globalization. Emblematic of this approach is a recent series of articles published in the influential journal of the management consulting firm McKinsey. Agrawal and Farrell (2003) argue that “companies move their business services offshore because they can make more money—which means that wealth is created for the United States as well as for the country receiving the jobs.” The article exemplifies the discourse surrounding offshoring, free trade, and globalization more generally. Wealth transfer is equated with wealth creation, corporate interests are conflated with those of society as a whole, and the process is portrayed as natural and inevitable, leading to prosperity for industrialized and developing countries alike. This simplistic equation of corporate profits and national wealth is misplaced even on narrow economic grounds, and is profoundly ideological in its universalization of corporate interests. According to Agrawal and Farrell’s analysis, lower wage costs constitute “by far the greatest source of value creation for the US economy.” One does not need advanced training in economics to understand that reducing wages, by itself, does not ‘create value’ or increase national income; it simply transfers income from workers to shareholders. Here we develop a framework for understanding international production that enables a more critical perspective on how offshore sourcing shifts relationships of power and engages with particular ideological constructions. An essential starting point is Stephen Hymer’s groundbreaking theoretical work (Hymer, 1972, 1976). Building on the insight that firm-specific assets afford MNCs significant market power in oligopolistic industries, Hymer developed a radical perspective on the global political economy, in which inequality in the international division of labor was related to monopolistic corporate control of key technologies, brands, and distribution networks (Hymer, 1979). This emphasis on market failure and the power rather than efficiency of MNCs undergirded more critical macro-perspectives on trade and investment in international political economy. By the late-1970s, astute observers called attention to a new trend, the separation and geographic dispersion of manufacturing activities within a particular sector (Frobel, Heinrichs, & Kreye, 1977). Gereffi extended and revitalized this stream with his work on global commodity chains (GCCs), which are "sets of interorganizational networks clustered around one commodity or product, linking households, enterprises, and states to one another within the world-economy” (Gereffi & Korzeniewicz, 1994: 2). GCC analysis draws from, yet subverts, the insights of strategic management theory, which attribute industry and firm level profitability to sources of market power and unique sets of capabilities (Barney, 1991; Eisenhardt & Martin, 2000; Porter, 1980, 1985; Teece, Pisano, & Shuen, 1997). In the tradition of Stephen Hymer, GCC analysis recovers the latent critical potential in the field of strategic management in its emphasis on the close relationship between market power, ‘value added’, and economic rent. GCC analysis has provided a series of rich case studies of the dynamics by which firms attempt to build and defend such capabilities and market barriers in the face of relentless pressures from competitors to erode market power and commoditize products and services (Bair & Gereffi, 2003; Kaplinsky, 2000). These dynamics are located in the context of the spatial structure of production and the power relations among the constituent actors. A number of economic geographers have extended the GCC framework, using the term ‘Global Production Networks’ (Henderson et al., 2002: 444). The GPN framework is intended to address several limitations perceived in GCC analysis. It examines the linkages that GPNs create not just across economic space, but also across social and institutional contexts, at national, regional, and sometimes sub-national levels. It attempts to address the dynamics and path- dependencies of production networks, such as those deriving from the institutionalization of power arrangements. It also pays more attention to the strategic autonomy of firms in creating innovative forms and thus reshaping production networks. The studies spawned by the GPN framework to date, however, are in practice very similar to those generated using GCC analysis. Much of the discussion concerns market power exercised by firms, and consequent rents earned, due to their technological and marketing expertise, and their skills in coordinating complex production networks. Little attention is paid to the broader political and discursive structures in which production networks are embedded. As a result, relationships between actors in GPNs and international institutions, such as the World Trade Organization, tend to be neglected. Neo- Gramscian approaches to international relations offer a useful way to extend and enrich the GPN framework. Neo-Gramscian approaches in international relations have been proposed in recent years to understand stability and contestation within broader structures of the global political economy. An ‘historical bloc’, in Gramscian terms, exercises hegemony through the coercive and bureaucratic authority of the state, dominance in the economic realm, and the consensual legitimacy of civil society. An historical bloc possesses two closely related dimensions; first, it refers to the alliances among various actors comprising the bloc, and second, it relates to the specific alignment of material, organizational, and discursive formations that stabilize and reproduce relations of production and meaning. An historical bloc is ‘hegemonic’ when a dominant group achieves a relatively stable alliance, due the synchronization of its various elements. Sklair (1998) describes a “transnational capitalist class”, composed of senior managers, professionals, academics, and state officials linked in a loose alliance within a global production system and sharing a common ideology about the benefits of this system (Murphy, 1998; Robinson, 1996). Gill (1995: 400) uses the term “transnational historical bloc” to describe this formation. The dominant ideology of the transnational elite, according to Gill (1995: 401), embodies a "neoliberal discourse of governance that stresses the efficiency, welfare, and freedom of the market, and self-actualisation through the process of consumption." This ideology is buttressed by panoptic surveillance mechanisms that impose financial discipline on states, companies, and individuals. Cox (1987) describes the growth and coordination at a global level of economic structures, neoliberal and consumerist ideologies, and a set of political institutions such as the World Trade Organization, which promulgate rules and orchestrate and align interests. The existing literature on GPNs takes a rather narrow view of governance, one that is focused on coordination and control of economic activities within the production network itself. The nature of GPNs can be better understood in the context of the emergence of a transnational capitalist class and the rise of neoliberal ideology. Markets, production systems, and technologies are inherently embedded in these broader structures (Callon, 1998), yet are also constitutive of them. For example, the patterns of international production in the clothing industry are conditioned by trade rules provided by multilateral institutions such as the World Trade Organization. The imminent demise of the MFA, a longstanding anomaly in a governance system committed to free trade, can be attributed, at least in part, to the growing dependency of powerful Western MNCs such as The Gap on dispersed textile and clothing GPNs. Sell (2002) has amply documented the leading role of MNCs in the software, entertainment, and pharmaceutical industries in drafting of accords for Trade Related aspects of Intellectual Property Rights (TRIPS), under the auspices of the WTO. It is only within the context of these institutions, rules and discourses that we can understand the market and political power of companies in GPNs.

Hegemony in the Global Factory

GPNs need to be conceived not just as arenas for bargaining among firms over the division of profits, but also as sites of contestation among a broader range of actors, including environmental groups challenging production technologies, human rights groups pressing for improved labor standards, and feminist groups addressing the gendered division of labor. GPNs very often represent the intersection of production activities with social and political issues that are related to specific sectors. For example, patterns of production and innovation in fossil-fuel related sectors are conditioned by societal contestation over the regulation of greenhouse gas emissions associated with climate change (Levy & Kolk, 2002). The production and processing of genetically modified foods, crops, and pharmaceuticals is likewise embedded within a contested issue arena (Andrée, 2004). A GPN is thus more of a political-economic production system than a chain of value-adding activities. The conceptual innovation offered here is to conceive of a GPN as an extended factory, and to consider the nature of hegemony in such a network. Hegemony in a GPN refers to a state of relatively stable governance based on an alliance of dominant players and an alignment of political, economic, and ideological forces. For example, contemporary patterns of production and consumption associated with the fossil fuel industry are sustained in the context of a balance of forces among firms, environmentalist groups, and regulatory authorities responsible for the environment and energy (Levy, 2003). Within the economic dimension of the system, firms ‘cooperate’ as long as their business models can sustain profitability, in the context of a particular range of fuel prices and transportation technologies. These business models, in turn, are embedded within a series of power structures at several levels; within the industry’s supply chain, in relation to potential entrants and labor (Bair & Gereffi, 2003); at the national level, which provides a context of regulatory constraints as well as subsidies; and at the international level, in relation to multilateral institutions such as the Kyoto Protocol. Environmentalists might attempt to challenge these structures, but confront resource constraints as well as adverse ideological terrain. Companies attempting to disrupt the existing system by attempting to develop renewable energy and low-emission technologies face substantial market barriers to entry and lack political influence. The resilience of the existing system is secured, in part, by the failure of low-emission technologies such as fuel cells to ‘cooperate’, in the language of actor-network theory (Callon, 1987), in terms of technological and cost parameters. The dominance of existing technologies, and consumer reluctance to use energy efficient forms of transportation are also embedded within particular discursive frameworks (Bijker, Hughes, & Pinch, 1987; Garud & Karnoe, 2000; Levy & Rothenberg, 2002). GPNs are also shaped by contestation at various levels, reflecting the contingency and instability of hegemonic formations. These dynamics are illustrated by the response of clothing companies to pressure from labor and human rights groups to promulgate and enforce codes of conduct for their subcontractors in developing countries. Such codes form part of the system of global governance of the sector, legitimizing the claims of labor advocates, providing advantages for the larger, more efficient subcontractors, and influencing locational decisions of lead companies. These codes and standards are elements of the rise of non-state actors in systems of global governance (Cutler, Haufler, & Porter, 1999; Higgott, Underhill, & Bieler, 1999), and reflect a trend toward the privatization of governance, a trend that provides firms a greater role, while simultaneously creating more space for non-governmental organizations (NGOs). The contestation over the shape of GPN governance structures and processes illuminates Gramsci’s analysis of strategy and power in hegemonic systems. Gramsci used the term ‘war of position’ to describe a long-term strategy by subordinate groups, coordinated across multiple bases of power, to gain legitimacy and influence. Dominant groups facing demands for change might be pressured to pursue a strategy of 'passive revolution', entailing extensive concessions in an effort to preserve the essential elements of the system. In the context of the clothing sector, student activist and labor groups have been largely successful in the struggle to make brand- name manufacturers take some responsibility for labor conditions in their subcontractors and to draft codes of conduct (van Tulder & Kolk, 2003). This concession, however reluctantly granted, has shifted the ground of contestation toward the nature and extent of monitoring and enforcement mechanisms. Activist groups have found accounting firms to be an unlikely ally in this latest phase, as these firms are seeking to expand their auditing business. Most anti- sweatshop groups, however, have acceded to industry pressure to omit from codes of conduct demands for a ‘living wage’. Monitoring and enforcement mechanisms are also weak. In effect, the codes function to shore up the hegemonic position of industry within an historical bloc that includes NGOs and universities, providing legitimacy and relieving pressure for more substantial change. Groups calling for more radical transformation of GPNs, such as Students Against Sweatshops, have effectively been marginalized. Labor process theory grew out of an early application of Gramscian ‘micro-politics’, to consider the political dimensions of managerial strategies to secure labor’s cooperation at the workplace. The intricacy of these strategies, combining technical and ideological elements with surveillance and disciplinary techniques (Barker, 1993; Braverman, 1974; Edwards, 1979; Smith & Thompson, 1998), suggests the challenge of securing hegemony in the workplace in Western industrialized countries, in which norms and discourses of democratic participation and human rights, in conjunction with ideologies of consumerism, prosperity and opportunity, place some constraints on workers’ willingness to submit to long hours for poor pay and conditions. Stretching production networks across national, economic, and political boundaries introduces more degrees of freedom and permits strategies that can reduce some of the contradictions and tensions in a purely national hegemonic system. The balance of forces in the national political economies of countries such as Indonesia and China, for example, might lean more toward coercion than consent, and thus require fewer concessions to labor and less elaborate forms of workplace control. Where Lash and Urry (1994) saw a widespread decline in the cultural and political significance of the traditional labor process, a GPN framework suggests that consumption of high-priced brands and production by low- wage labor are intrinsically linked. In doing so, they create a complex of homogenizing and differentiating forces. Activist groups attempt to exacerbate tensions in GPNs and undermine the legitimacy of MNCs by highlighting contradictions across regions (Kostova & Zaheer, 1999). Changes in the technical and organizational sphere underlie the recent trend toward outsourcing. The mobility of GPN activities is closely related to the commoditization and standardization of sets of production activities, facilitating their separation and remote coordination. This trend has significant import in terms of shifting power relations among actors in a GPN. The introduction of Taylorism into the workplace in the early twentieth century entailed the routinization of work practices, raising productivity but shifting control to management and eroding the market power of labor (Braverman, 1974). The expansion of GPNs creates a similar dynamic at an international scale, as lead firms establish product and process standards and specifications for other network participants. The pressure to simplify and routinize organizational linkages within the network tends to commoditize the outsourced activities (Ernst, 2003; Kaplinsky, 2000; Levy, 1997), a process which buttresses the hegemonic position of lead firms as well as industrialized countries in GPNs. At the same time, the micro- division of labor and mobility of production at the activity level reduces the bargaining power of all workers, skilled and unskilled alike.

Conclusions

This paper has attempted a critical reconceptualization of international production by linking the analysis of global production networks with a neo-Gramscian approach. The result is a framework that provides insight into the nature of power and hegemony in a ‘global factory’, encompassing the dynamics of contestation and stability as actors employ economic, discursive, and organizational strategies within networks of production activities. The rise of manufacturing capabilities in developing countries at once presents a new source of productive resources and a threat to the monopolistic power of Western MNCs. A combination of market, organizational and technological strategies enables MNCs to access these remote resources and integrate them into GPNs, while simultaneously commoditizing the outsourced activities, reducing their countervailing bargaining power. Concurrent with the erosion of manufacturing as a source of high-margin operations, Western MNCs and states have collaborated in orchestrating the strengthening of international intellectual property rights regimes, shoring up the rents associated with branding, copyright and patents in industries as diverse as entertainment, apparel software, and pharmaceuticals. The concept of ‘value-added’ is thus inextricably bound up with market power, which needs to be set in the context of broader cultural and political institutions that constitute the social value of brands, legitimate and enforce intellectual property rights, and govern patterns of production and trade. Indeed, the terms ‘value chain’ and ‘value-added’ provide discursive legitimacy for structures and processes that are perhaps more accurately described as ‘value appropriation’.

REFERENCES AVAILABLE FROM THE AUTHOR