How global trade networks exploit workers in developing nations

Global value chains are complex networks that facilitate the capitalist globalisation of production by siting low-priced labour-intensive production processes in less developed countries and highly-priced processes in the Global North.

They have been a dominant form of trade for the past three decades, and look set to continue despite starting to face challenges, ironically from the centre of capitalism itself.

Theft of value

Chart 1: Wages, value and price formation along the global production chain

The chart above shows two contrasting curves.

The ‘smiling curve’ shows how prices are assigned by lead firms in the Global North, which set up and control the value chains. It shows how global value chain production processes carried out in the North such as design, research and development, and marketing, advertising and sales are assigned very high prices (value added), and manufacturing the lowest price.

This arrangement translates into starvation wages for labour in the South and fabulous profits for corporations of the North.

The other curve is based on the labour theory of value which sees labour as the sole producer of value, and thereby assigns the highest value addition to manufacturing. This contradiction in the assignment of price is the primary fault line in global value chains.

To illustrate, a buyer firm in the UK buys T-shirts produced in a garment factory in Bangladesh for £1 a garment. It then retails them to consumers in the UK for £20 each.

Labour in Bangladesh contributes the bulk of the surplus value but receives a fraction of the £1 paid by capital in the North to the Bangladeshi businessman (who incidentally is also grossly shortchanged by the global value chain system).

Ironically, a value of £19, most of which is not domestically produced, would be reflected in the gross domestic product (GDP) of the UK.

Meanwhile, only £1 would appear in the GDP of Bangladesh where the T-shirt was entirely manufactured.

This theft of value by the Global North is euphemistically termed ‘value capture’. Over the past 30 years of global value chains, imagine the massive flow of value from developing countries to the Global North.

The design of global value chains assures unabated capitalist accumulation from the exploitation of the resources of poorer countries.

Benefits of participation

The World Bank promoted global value chains to developing countries as a model for attracting industrial capital and for upgrading indigenous technological capabilities. This was supposed to happen through the transfer of technology, and of skills through exposure to multinational companies in the production networks.

Participation in global value chains has undoubtedly led to a steep rise in industrialisation in countries of the Global South. Their share of global manufactured exports rose from 5% in the pre-globalisation period to 30% by 2000.

Chart 2: Global industrial workforce

There has been an enormous growth of industrial employment in developing countries.

In 1950, 34% of the world’s industrial workers lived in less developed countries, rising to 53% in 1980 and to 79% in 2010.

Several developing economies have had moderate to impressive economic growth, infrastructure development and poverty reduction through their participation in global value chains.

The benefits of globalisation, however, come at a huge cost to labour, the environment and humanity.

Realities of capitalist globalisation

Labour worldwide has paid a high price, with labour in the North enduring job losses and a decline in living standards.

Meanwhile, labour in the South took over the jobs but as virtual slaves of  capital in the North.

Indeed, global value chains have opened up vast employment opportunities in less developed countries but at dirt-cheap wages.

The degree of exploitation is horrific. In 2012 the textile industry accounted for 45% of all industrial employment in Bangladesh yet only contributed 5% of its national income.

This is in contrast to the 25% contributed by the remaining 55% of industrial employment.

Extremely low prices are paid by firms in the North to suppliers of commodities manufactured in developing countries.

These suppliers are forced to compete among themselves, resorting to extreme cost-cutting to win cheaply priced contracts offered by multinational companies.

Cost-cutting by suppliers inevitably leads to starvation wages and modern slavery conditions of work, such as long work hours stretching beyond legal limits and unpaid work.

The contractualisation of permanent jobs, which takes away job security, has become common.

Then there is the informal work done mainly by women in the confines of the home, where work is extracted at a pittance from entire families without any social protection.

Workers’ lives, their health and safety, are severely compromised due to cost-cutting by supplier firms squeezed by buyer firms.

Some examples:

‒ 1,134 garment workers were killed in the 2013 Rana Plaza building collapse in Savar, Bangladesh because the local suppliers continued operating their factories despite the building being certified unsafe after cracks appeared.

‒ Logistics companies in Malaysia routinely postpone spending on vehicle maintenance, using tyres that are not roadworthy, thus putting at risk the lives of lorry drivers and road users.

‒ Migrant workers from the region hired to work in Malaysia regularly endure months and months of non-payment of wages, wage theft, long work hours and overcrowded living conditions.

Environmental laws are not complied with due to cost-cutting by local suppliers and lax enforcement, resulting in adverse environmental consequences such as air and water pollution.

But environmental degradation in the South seems to be an externality that doesn’t appear in the accounting of firms in the North.

Export-led globalisation over the years has made the economies of developing countries dependent on the Global North. These countries have become vulnerable to policy changes in buying countries, as has been abundantly clear in the jittery reaction of governments that have been reduced to beggars appealing against US President Donald Trump’s tariff hikes.

Contrary to World Bank promises, there has been stunting of technological capacity, with developing countries just borrowing and using technologies developed in the advanced countries.

Developing countries have been entrapped in regional free trade agreements that, while tying the hands of governments, strengthen multinational companies. This is done through laws on capital transfer, patents and legal protection through the investor-state dispute settlement regimes.

Developing countries have lost a lot of control over their own economies.

The way out

We live in a dystopian world today, where massive wealth produced in developing countries is sucked up by companies in the North through a system of trade that is given legitimacy by institutions such as the International Monetary Fund (IMF) and World Bank.

The greater mass of humanity lead wretched lives, working long hours, enduring oppressive working conditions, and receiving wages that are a minute fraction of the wealth they create.

Their physical and mental health and wellbeing are violated by this system, which is also destroying the planet with its uncontrolled growth imperative.

The dystopia globalisation has led us to is neither normal nor human, and needs to be rejected.

An alternative globalisation needs to be advanced, one built on solidarity. The emphasis has to be on the development of a more equal and humane society, and respect for and preservation of the planet.

This alternative will require developing countries to adopt a new framework where the South is economically and technologically independent of the imperialist North.

In line with this, the current export-led industrialisation of developing countries should be gradually replaced with import substitution, and the development of R&D and technology prioritised.

Countries of the Global South could develop regional markets like Asean, which has a total population of 680 million people – double that of the US – and gradually pivot away from the markets of the Global North.

Who will lead this transformation? Will Brics with its yet undefined ideology place people and the planet before profits?

What is certain is that people’s movements have a major role to play, by setting aside differences, and coming up with a left pro-people globalisation, and actively advance it to alternative international formations.

From a paper presented at the Socialism Conference 2025 in Kuala Lumpur.

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