Underdevelopment in Peru: A Profile of Peripheral Capitalism 1032266589, 9781032266589

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Underdevelopment in Peru

At a time when Peru continues to reel from the impact of Covid-19 and the eruption of corruption scandals involving five former presidents, this book analyzes the persistence and the structural underpinnings of underdevelopment in Peru. During the commodities boom of 2004–2011, Peru experienced strong levels of economic growth, bringing poverty down and increasing the middleclass population. In the Covid-19 pandemic, however, the severe lack of structural economic and social improvements has been exposed. With the arrival of the pandemic, hospitals collapsed, oxygen supplies dwindled, and informality rose, with dire consequences for the vulnerable, and for those already working on subsistence wages. Delving into the history of the country, Jan Lust outlines the structural problems that came about following Peru’s post-colonial entrance into the world economy and the subsequent neoliberal extractive development model adopted in the 1990s. Only by understanding Peru’s specific political, economic, and social conditions can a path towards development be found. This book will be of interest to researchers working within politics, economics, critical development studies, and Latin American studies. Jan Lust has a PhD in Development Studies. He is Researcher and Professor at the Postgraduate School of the University Ricardo Palma in Peru and forms part of the Board of Directors of this University’s Research Centre. He is the author of Lucha revolucionaria. Perú, 1958–1967, a book on the history of revolutionary struggle in Peru in the 1960s, and of Capitalism, Class and Revolution in Peru, 1980–2016, a book that analyzes the political, economic, and social reasons why the Peruvian socialist left has not been able to carry out its revolutionary project of social transformation. His academic interests encompass international political economy, Peruvian political, economic, and social development, labor issues, class, social movements, and guerrilla struggle.

Routledge Critical Development Studies Series Editors

Henry Veltmeyer is co-chair of the Critical Development Studies (CDS) network, is Senior Research Professor at the Universidad Autónoma de Zacatecas, Mexico, and Professor Emeritus of International Development Studies (IDS) at Saint Mary’s University, Canada. Paul Bowles is Professor of Economics and International Studies at UNBC, Canada. Elisa van Wayenberge is Lecturer in Economics at SOAS University of London, UK. The global crisis, coming at the end of three decades of uneven capitalist development and neoliberal globalization that have devastated the economies and societies of people across the world, especially in the developing societies of the global south, cries out for a more critical, proactive approach to the study of international development. The challenge of creating and disseminating such an approach, to provide the study of international development with a critical edge, is the project of a global network of activist development scholars concerned and engaged in using their research and writings to help effect transformative social change that might lead to a better world. This series will provide a forum and outlet for the publication of books in the broad interdisciplinary field of critical development studies – to generate new knowledge that can be used to promote transformative change and alternative development. The editors of the series welcome the submission of original manuscripts that focus on issues of concern to the growing worldwide community of activist scholars in this field. To submit proposals, please contact the Development Studies Editor, Helena Hurd ([email protected]). 12 The Essential Guide to Critical Development Studies (2nd Ed) Edited by Henry Veltmeyer and Paul Bowles 13 From Extractivism to Sustainability Scenarios and Lessons from Latin America Edited by Henry Veltmeyer and Arturo Ezquerro-Cañete 14 Underdevelopment in Peru A Profile of Peripheral Capitalism Jan Lust For more information about this series, please visit: www.routledge.com/Routledge-CriticalDevelopment-Studies/book-series/RCDS

Underdevelopment in Peru A Profile of Peripheral Capitalism

Jan Lust

First published 2024 by Routledge 4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2024 Jan Lust The right of Jan Lust to be identified as author of this work has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-032-26658-9 (hbk) ISBN: 978-1-032-26689-3 (pbk) ISBN: 978-1-003-28945-6 (ebk) DOI: 10.4324/9781003289456 Typeset in Sabon by codeMantra

Contents

Acknowledgments List of abbreviations List of tables List of figures

ix xi xiii xvii

Introduction

1

1

Capital and peripheral economic development 1.1 The international character of capitalism 10 1.2 The pyramid of the international division of labor 17 1.3 Extractive development models in Latin America 23 1.4 The global chains of exploitation 28 1.5 Conclusions 34 References 37

9

2

The peripheral capitalist development of Peru 2.1 Dependent capitalist economic development 43 2.2 Productive heterogeneity and economic dualism 51 2.3 Marginality and the CSE 57 2.4 The dependent capitalist state: a theoretical framework 60 2.5 Conclusions 64 References 67

42

3

Peru in the world economy 3.1 Peru and the international division of labor 74 3.2 Peru’s participation in global value chains 80 3.3 The advanced economy and the capitalist subsistence economy in Peru 85 3.4 Conclusions 89 References 91

73

vi Contents 4

The business structure of capitalist development 4.1 Concentration and centralization of capital 96 4.2 Transnational and big (national) extractive, financial, and communication capital in Peru 97 4.3 The function of small and micro businesses in the Peruvian economy 102 4.4 Profit rate, the organic composition of capital, and profit outflow 106 4.5 Conclusions 109 References 111

95

5

The social class structure 5.1 Class and class structure 116 5.2 International division of labor and the class structure 119 5.3 A broad outline of the Peruvian class structure 121 5.3.1 The bourgeoisie 122 5.3.2 The middle class 123 5.3.3 The proletariat 126 5.3.4 The peasantry 129 5.4 Class analysis 130 5.5 Conclusions 133 References 135

116

6

Labor 6.1 Labor precarity 140 6.1.1 Definition and characteristics of precarious labor 141 6.1.2 The precariat 142 6.2 Labor conditions in micro businesses 144 6.2.1 Type of contract 146 6.2.2 Bonuses 147 6.2.3 Pension fund 147 6.2.4 Weekly working hours 149 6.2.5 Remuneration 149 6.2.6 The situation on the work floor 150 6.3 Educational levels 151 6.4 Chains of exploitation 153 6.4.1 The relationship between the AE and the CSE 155 6.5 Conclusions 157 References 160

139

Contents  vii 7

Social segmentation 7.1 Economic structure and superstructure 166 7.2 Development 167 7.3 Education 168 7.4 Consumption 171 7.5 Healthcare insurance 175 7.6 Conclusions 176 References 178

165

8

The state 8.1 The economic model and economic policies of underdevelopment 180 8.2 State capture 184 8.3 The practice of a peripheral state: a weak state 188 8.4 The Left and the Right 192 8.5 Conclusions 195 References 196

180

9

Covid-19: the state, the economy, and the people 9.1 The structural causes for the expansion of Covid-19 200 9.2 The State’s measures against the expansion of the virus 201 9.3 Class virus instead of a democratic virus 203 9.4 Conclusions 208 References 210

199

10 Conclusions Appendices Appendix 2.1 Total Factor Productivity level at current PPPs (USA = 1) Appendix 3.1 Terms of trade and real GDP growth rates, 1980–2019 Appendix 4.1 The calculation of the rate of profit and the organic composition of capital Appendix 6.1 Educational Levels 2004–2019 (in percentages of total educational level) Index

211

71 93 114 163 217

Acknowledgments

This book is product of years of study, analysis, reflection, and discussion. My work on the revolutionary struggle in Peru in the 1960s; my doctoral studies on Peruvian capitalist development and class struggle turned into a book on capitalism, class, and revolution in Peru in the decades of the 1980s, 1990s, and the 2000s; and my research on the Peruvian middle class and the labor conditions in micro companies, my papers on the Peruvian extractive development model, the structure of its economy, labor precariousness in Peru’s micro businesses, revolutionary social transformation, local development, class struggle and also the coronavirus, among others, heavily contributed to this book by helping to mature my ideas. In this book, everything seems to come together. My studies and publications, the preparation of my classes for undergraduate students of economics and sociology, discussions with students and colleagues, my talks, and conferences on Peru in national and international contexts, and my political work with Peruvian and foreign comrades are embodied in this work. Many friends, colleagues, and comrades have contributed to this book or the ideas that are presented in this volume on the persistence of underdevelopment in Peru. I can name many, and definitively I will forget more. Therefore, I will mention only one. I thank Carolina, the love of my life, for her strength, support, passion, love, and comradeship in all these years that we have been together, loving, discussing, and fighting for a Peru without exploitation, oppression, racism, discrimination, and sexism.

Abbreviations

AE APEIM CSE EAP ECLAC FDI GDP GNI ICU IMF INEI NSE OCC OECD UN UNCTAD WB WHO WTO

Advanced Economy Asociación Peruana de Empresas de Inteligencia de Mercados (Peruvian Association of Market Intelligence Companies) Capitalist Subsistence Economy Economic Active Population Economic Commission for Latin America and the Caribbean Foreign Direct Investments Gross Domestic Product Gross National Income Intensive Care Unit International Monetary Fund Instituto Nacional de Estadística e Informatica (National Institute of Statistics and Informatics) Niveles socioeconómicas (Socioeconomic Levels) Organic Composition of Capital Organisation for Economic Co-operation and Development United Nations United Nations Conference on Trade and Development World Bank World Health Organization World Trade Organization

Tables

1.1

Gross National Income per capita and the three principal export goods and weight in the export basket, according to regions, 2019 1.2 Export and import value of services in current prices, according to regions, 2019 (in US$) 1.3 Gross National Income per capita and the three principal export products and weight in export basket for 12 countries in 2019 1.4 Ranking of the biggest 50 companies the world in 2021 (market capitalization) 1.5 The 50 biggest mining companies in the world (market capitalization, end 2021) 1.6 Inward FDI in natural resources (hydrocarbons, mining, agriculture) in Latin America and the Caribbean: 2008–2019 (in millions of US$) 2.1 Balance of FDI as a contribution to capital, according to economic sectors, 1997–2020 (in millions of US$) 2.2 Total factor productivity level at current PPPs (USA=1) 2.3 Overall rate of underemployment and rate of underemployment based on income, 2001–2020 2.4 Ranking of 35 selected countries of patent applications (abroad and resident), 2019 2.5a Labor productivity according to economic sectors in soles, 2007–2013 2.5b Labor productivity according to economic sectors in soles, 2014–2020 3.1 Export structure, 1980–2019 (in percentages) 3.2 Economic growth of China and Peru’s export growth: 2000–2019 3.3 Export value by company structure, 2011–2019 3.4 Unit labor costs in US$ per hour, 1980–2019 3.5 Weight of Peruvian exported manufactures according to technological intensity, as a percentage of technology “based” manufactures, 1980–2019

19 19 20 22 24 28 47 48 50 53 55 55 75 77 83 84 85

xiv Tables 3.6 3.7 4.1 4.2 4.3 5.1 5.2 6.1 6.2 6.3 6.4 6.5 6.6

6.7 7.1 7.2 7.3 7.4

Number of private formal companies according to sales, 2012–2019 Ranking of selected countries according to the rate of complexity, 1995–2019 Number and position of mining, petroleum, and gas companies in the top ten of the biggest corporations, according to sales, presented by América Economía, 2000–2019 Occupied EAP according to economic sectors and branches in percentages of total occupied EAP, 2007–2020 The surplus of workers to operate the development model in place in percentage of the occupied EAP, 2008–2020 Division of the proletariat in manual and mental labor performing individuals, 2004–2019 (as a percentage of total proletariat) Division of manual and mental labor performing individuals in micro businesses, 2004–2019 The occupied EAP that receives a remuneration below the poverty line (in percentage of total occupied EAP) Type of contract of workers (main occupation) in companies that employ one to ten individuals: 2004–2019 (as a percentage of all workers in micro-enterprises) Reception of bonuses for national holidays and Christmas by workers in companies that employ one to ten individuals: 2004–2019 (as a percentage of all workers in micro-enterprises) Affiliated to a pension system by workers in companies that employ one to ten individuals: 2004–2019 (as a percentage of all workers in micro-enterprises) Weekly hours worked by workers (main occupation) in enterprises employing one to ten individuals: 2004–2019 (as a percentage of all workers in microenterprises) Minimum nominal wage level of the main occupation of workers in companies that employ one to ten individuals, including the independent worker, 2004–2019 (as a percentage of all workers paid in micro-enterprises) Selected educational levels: 2004–2019 (in percentages) Average number of years of education of the population of 25 years and older, according to area of residence and natural region, 2002–2019 Educational levels attained according to areas of residence of the population of 25 years and older, 2002–2019 Distribution of individuals according to NSE (in percentages), 2013–2020 Distribution of family income according to NSE (in soles), 2013–2020

86 87 100 105 106 128 128 146 147 148 148 149

150 152 169 170 173 173

Tables  xv 7.5 7.6 7.7 7.8 8.1 8.2 9.1

Weight of selected expenditures of families as a percentage of total expenditures according to NSE (in percentages), 2013–2020 Available selected goods and services in homes of families according to NSE (in percentages), 2013–2020 Percentage of individuals not affiliated to a healthcare insurance according to NSE, 2013–2020 Access of families to selected basic necessities according to NSE, 2013–2020 Tax income and non-tax income as a percentage of current income of the Peruvian Central Government The contribution of a selected group of taxes to total tax income in the years between 2000 and 2021 The average rate of individuals that labor in companies that employ one to five individuals and own-account workers as a percentage of the occupied EAP, and the percentage of Covid-19 infected individuals, according to corresponding districts in Metropolitan Lima in the period 2020–2021

173 174 175 176 189 190

205

Figures

1.1 1.2 1.3 1.4 1.5 1.6 3.1 3.2 3.3 3.4 3.5 3.6 3.7 4.1 4.2 4.3 4.4 9.1

World exports of merchandise, 1971–2019 (in current US$) Total number of Regional Trade Agreements Notifications, 1958–2021 World rate of profit (G 20 countries), 1950–2010 FDI Net Inflows (Balance of Payments), 1971–2019 (in current US$) Exports of primary products as share of total exports for Latin America & the Caribbean, 1980–2020 Export of manufactures, developing to developed regions, 1995–2020 FDI flows (in millions of US$) and Real GDP growth rates, 1995–2019 Terms of trade and international prices of copper and gold, 2012–2019 Terms of trade, 1950–2019 Terms of trade and Real GDP growth rates, 1980–2019 Export intermediate goods as a percentage of total exports of goods, 1992–2019 Export of manufacturing goods as a percentage of total exports of goods, 1992–2019 Rate of complexity of Peru, 1998–2020 Profit rate, 1980–2019 Organic composition of capital, 1980–2019 Surplus value, 1980–2019 (in millions of US$ 2017) Outflow of utilities of the private sector and financial account of the private sector (in millions of US$) Rate of unemployment in Metropolitan Lima

12 13 14 14 26 33 78 79 79 80 81 81 87 107 107 108 109 208

Introduction

Introduction When we started with the elaboration of this book, Peru had a progressive oriented political government. As a matter of fact, it was for the first time in its republican history that the country had a declared left-wing president. The 2021 presidential elections had been won by Pedro Castillo with an extremely slight difference of around 45,000 votes. The liberal and conservative candidate Keiko Fujimori was beaten. The victory of the Left in the last presidential elections did not come as a surprise. What might have been surprising, however, was the radical character of the left candidate who won the elections. In his Governmental Plan, the newly chosen president proposed a Second Agrarian Reform. Small peasants and peasant communities would receive structural governmental support. An extra tax would have to be paid by transnational mining capital in the case of super profits and the fiscal stability pacts would be renegotiated. Access to nationally produced gas for all Peruvians would be guaranteed and national production would be protected against unfair foreign competition. Also, a referendum would be organized to consult the population if it would like to change the country’s constitution (Peru Libre, 2021). Although since the implementation of neoliberalism in the 1990s the political Left had weakened enormously and had not been able to put the political Right and capital really with their backs against the wall, the electoral successes starting from the presidential elections of 2011 are remarkable. The 2011 elections were won by the nationalist candidate Ollanta Humala. Backed by the Left, he succeeded to beat Keiko Fujimori, daughter of the imprisoned former president Alberto Fujimori. Without any real political organizational insertion in the population as expressed in the presence of party committees in popular districts, in the 2016 presidential elections, the Left succeeded to obtain about 20% of the valid vote. The electoral success of the political Left in the 2021 presidential elections is principally the result of the fact that it has been able to capture the vote of the unsatisfied masses. The current neoliberal extractive development model, in place since the beginning of the 1990s, did not fulfill their socioeconomic DOI: 10.4324/9781003289456-1

2 Introduction perspectives anymore. In 2011, the poverty rate stood at 27.8%. In 2021, this was still 25.8%. The rates of underemployment were, respectively, 51.1% and 47.4%.1 In 2010, the Gini index in 2010 was 45.5. Ten years later, the Index had slightly reduced to 43.8.2 It appears that the corruption scandals of the last five years and the fact that individuals who are living in the popular districts have been the principal economically, socially, and sanitarily affected population by Covid-19, were the triggers for the oppressed and exploited majority to turn their back, for the first time since the 1990s, to the proposals of the political Right. Unfulfilled promises and a State that was not able to guarantee welfare for all, contributed to the choice of the majority of the population to put, apparently, their hope on a radical transformation of the State and the economy. Data show that in six of the seven poorest regions, Castillo won the big majority of the votes. In the remaining region, he lost only with a slight difference.3 In December 2022, the political situation radically changed. Although in the period July 2021–December 2022 the political Right had made it almost impossible for President Castillo to govern, it was Castillo himself who put an end to his presidency. Various attempts of the political Right to impeach Castillo had failed. However, in the morning of December 7, in a message to the nation, Castillo proposed to dissolve the parliament, to establish an emergency cabinet, and to call for new parliamentary elections. The new parliament should elaborate a new constitution. The intention to dissolve the parliament was considered an auto-coup. The right-wing majority in parliament, accompanied by members of the former governing party Perú Libre, reacted by successfully impeaching Castillo. At the moment of writing, Castillo is imprisoned, accused of rebellion. The impeachment of Castillo led to massive and continuous protests in the southern regions of the country (Puno, Ayacucho, Andahuaylas, and Cusco), causing dozens of deaths by police repression. In January 2023, the protests expanded to all regions. Starting from a few days before the first national protest day on 19 January 2023, Peru’s capital city Lima became one of the principal centers of the class struggle, led by regional defense platforms, principally from the South. The political crisis that was started by Castillo’s supposed auto-coup in December 2022, prolonged as his former vice-president Dina Boluarte had not been able to pacify the South. The violent repression of the protest deepened and expanded the crisis. Various ministers resigned and various countries in Latin America denounced the brutal repression of the protest. At the moment of writing (January-February 2023), in Lima and in the regions, on a daily basis, protests are organized and the death rate is rising. The protesters want the actual president to resign, general elections in 2023, and a Constituent Assembly. The problems for president Boluarte and parliament are increasing as national polls indicate that the big majority of the population demand the resignation of the president, general elections in 2023, and a Constituent Assembly.4 Peruvian society is becoming militarized and ungovernable. One of the principal mining companies is planning to stop production as roads are blocked.5

Introduction  3 The persistence of underdevelopment In this book, we argue that the persistence and structural character of underdevelopment in Peru is principally the product of the country’s role in the international division of labor. Underdevelopment can be defined as the absence of sustainable inclusive economic development. Sustainable inclusive economic development can be defined as an economic development that not only is environmentally friendly but is also based on the direct political, economic, social, and cultural interests of the large majority of the population and structurally elevates the political, economic, social, and cultural consciousness of the currently exploited and oppressed majorities. Sustainable inclusive economic development depends on the creative capacities of the population. The insertion of Peru in the world economy since colonial times, has caused an economic structure and mode of development that does not permit to advance economically and socially. Furthermore, not only the apparent division of the Peruvian economy into an advanced economy (AE) and a capitalist subsistence economy (CSE) forms a constraint for economic, political, and social progress but also the character of the Peruvian State and the country’s class structure. The tenacity of underdevelopment seems to give the impression that Peru is a country without future for the big majority of its population. The many promises of the current neoliberal extractive development model such as an increase of foreign investments, economic growth, and a bigger middle class really did happen. However, the model did not succeed in structurally elevating the welfare of the masses. This can easily be understood as the welfare of the rich is product of the exploitation and the oppression of the working masses, leading to their relative and absolute poverty. There are no recipes for turning an underdeveloped capitalist country into an advanced capitalist nation. Political, economic, social, and cultural differences between countries, between North and South, between North and North, and between South and South, make a general recipe of no use. Although there are structural conditions that impede, in general terms, the development of the underdeveloped nations, it is the comprehension of the concrete workings, politically, economically, and socially, of these conditions in every particular country, that may help to design a concrete program that contributes, in this case of Peru, to advance towards development. Objectives of the book and theoretical framework This book pretends to provide a political, economic, and social analysis of the persistence of underdevelopment in Peru. Starting from the international character of capitalism, the particularities of peripheral capitalist development, and the role of Peru in the globalized capitalist world economy, we discuss how these economic factors (or economic base) are interrelated to Peru’s business structure, class structure, state apparatuses, and the social segmentation of society.

4 Introduction We show that the persistence of underdevelopment in Peru is based on a broad range of interrelated, political, economic, and social factors, national and international. This means that a solution to the problem of underdevelopment cannot be solved by economic and social support measures. The solution is a revolutionary social transformation. The revolutionary social transformation of a capitalist society is the complete transformation of all aspects of social life. The concept of revolutionary social transformation might be considered similar to systematic change; however, we believe that a revolutionary social transformation is irreversible and takes a considerable time to ‘mature’ after a systematic change has occurred. A systematic change is reversible. An understanding of the fundamental causes of underdevelopment is the start of a process that may lead to the eradication of underdevelopment. On the basis of this knowledge, we can begin designing short-term, mediumterm, and long-term policies. However, we must underline that these policies cannot be reduced to the national sphere. Development economists consider that the causes of underdevelopment can be found in the economic and social structure of the underdeveloped countries. Although they criticize these structures, they do not seem to relate these structures to their functionality for the worldwide capitalist system. Development economists criticize the international division of labor or the role of the periphery in the globally functioning capitalist system; however, instead of broadening and deepening their scope of criticism to the workings of capitalism itself, they tend to propose policies that help the underdeveloped countries to better adapt to the international division of labor imposed by the countries at the center of the world capitalist system. The state should provide the political, economic, and social conditions for ‘adequate’ capitalist development or to further the capitalist development of the underdeveloped societies. The data on Peru show that neoliberal capitalist development has not provided welfare for all. The neoliberal extractivist development model in place can definitively be criticized as a model that will not generate a form of capitalism that, supposedly, benefits all citizens (Furtado, 1980; Rostow, 1961; Lewis, 1955; Prebisch, 1950). We believe that Marxist dependency theory and Marxist political economy are crucial for getting a full understanding of the structural reasons for underdevelopment. Marxist dependency theory helps to comprehend the workings of imperialism and the relations between the Metropolis and the periphery. However, it has a lot of difficulty explaining the structural and endogenous character of underdevelopment in formerly colonialized countries. The recipes developed in the 1950s and 1960s to pass from underdevelopment to development have turned out to be disastrous. Not only the implemented policies of import substitution caused severe economic problems, but the failure of industrialization also produced a political and social space for neoliberal policies.

Introduction  5 Marxist political economy sheds light on the dynamics of the accumulation of capital and the interrelations between the economic base and the superstructure. All elements that compose the superstructure react upon each other and upon the economic base. The labor theory of value helps to understand processes of labor exploitation and labor oppression. It contributes to the comprehension of the general development of the class struggle as it determines the surplus value produced and appropriated. It is also the point of departure for the analysis of capital movements in search for the highest profit rate. Marxist political economy in cooperation with Marxist dependency theory provides a clear vision of the workings of the dependent capitalist state. As we will explain in Chapter 2, the economic base of the dependent capitalist state is the international markets. The dependent capitalist state needs to make the national base fit the international base. Sources of the book For the elaboration of this book, we have used multiple sources. Of course, the data bases of the Peruvian National Institute of Statistics and Informatics (INEI, for its acronym in Spanish), the Peruvian Central Bank, and the Ministry of Production were our prime sources. We also made use of the data bases of the United Nations Conference on Trade and Development (UNCTAD), the World Trade Organization (WTO), the World Bank (WB), the Economic Commission for Latin America and the Caribbean (ECLAC), the United Nations (UN), the University of Groningen, and Harvard University. In addition, organizations such as visualcapitalist.com, mining.com, investinperu.pe, the Peruvian Association of Market Intelligence Companies (APEIM), the World Intellectual Property Organization, the Observatory of Economic Complexity, and the magazine América Economía, provided valuable information. Academic literature, books, and journals, in English and in Spanish, principally contributed to the analysis of the data extracted from the mentioned sources above. They were also important informants regarding the location of the necessary data. Chapter 6 of this book is dedicated to the question of labor, especially the labor conditions in Peruvian micro businesses. Apart from the statistical data provided by the INEI and information extracted from academic literature, we have also used information on labor conditions from our interviews with a variety of workers in micro businesses (11 workers interviewed), four ownaccount workers, and two microbusiness owners in the confection industry. Structure of the book This book is structured according to our theoretical framework, i.e., Marxist political economy and Marxist dependency theory. We consider that economic development in Peru is determined by capital’s objective to accumulate

6 Introduction capital. The hegemonic fraction of capital is transnational extractive capital. Hence, this book starts with the international character of capitalism. Society’s economic base (social relations of production) determines in the last instance the development and organization of the country’s superstructure (state, ideology, culture). For this reason, Chapters 1–5 are dedicated to economic development and the country’s class structure. Chapters 6–8 discuss labor issues, the social segmentation of society, and the character of the Peruvian State. In Chapter 9, the analysis of the effects of the expansion of the coronavirus in society in the period 2020–2021 shows how the international base, the national base, the country’s superstructure, and Peru’s economic model are interrelated. Chapter 1 presents a general theoretical and analytical framework for the analysis of the persistence and structural character of underdevelopment in Peru. It forms the basis for our understanding of the structure and development of the Peruvian economy, the character of the State and the policies that have been implemented since, at least, the 1990s, and the structure of Peruvian society. We start with an analysis of the international character of capitalism. Then, we turn to the international division of labor. We argue that the world economy can be organized on the basis of what we call the pyramid of the international division of labor. In the third section, we discuss the role of the extraction of natural resources for economic development. This chapter closes with an analysis of what we have denominated as the global chains of exploitation. We describe how the developing countries are inserted in globalization through the provision of cheap labor, i.e., through their participation in the production of intermediate and manufacturing goods or through their participation in global value chains. The theoretical basis for the understanding of the particularity of capitalist economic development in the Latin American periphery of globalized capitalist development and of Peru in particular is presented in Chapter 2. First, we outline the characteristics of what is known as dependent capitalist economic development with special emphasis on the dominant role of the extractive sectors in the peripheral economies and the incorporation of these economies in globalized value chains. Next, we discuss the structure of peripheral societies and the question of marginality. In relation to this last concept, we examine the issue of informality, the industrial reserve army, and super-exploitation. In the last section, a theoretical framework of the dependent capitalist state is presented. In Chapter 3, we discuss Peru’s insertion in the globalized capitalist world. We start with an examination of the country’s role as a provider of mineral resources for economic development in the advanced capitalist countries and China. Subsequently, we take a look at Peru’s insertion in global value chains. In the third section, we show how these roles in the globalized capitalist world economy are expressed in the division of the Peruvian economy into an AE and a CSE. Chapter 4 provides a close view of how Peru’s functions in the globalized capitalist world economy are expressed in its business structure. The different

Introduction  7 types of micro companies are defined, the interrelationships (interrelated dependencies) between the AE and the CSE are outlined, and the functionality of the CSE for the Peruvian economy as a whole is discussed, among others their importance for outsourcing activities. We conclude this chapter with an analysis of the Peruvian profit rate and the problem of capital outflow. Peru’s class structure is presented in Chapter 5. We demonstrate how the country’s functions in the international division of labor not only have an economic internal expression but also find their manifestation in the country’s class structure. After a theoretical discussion on class and class structure within the Marxist tradition, we examine the determining factors of the Peruvian class structure, and we present the country’s class structure. This chapter ends with a class analysis of the country’s economic development. The objective conditions of capitalist development are related to Peru’s class structure. In Chapter 6, we discuss the structural character of labor precariousness in Peru. We study the concept of labor precarity, we examine what has been called the precariat, we review the labor conditions in microbusinesses, we discuss the educational level of the Peruvian population and, in particular, the educational level of workers in micro enterprises, and we analyze the chains of exploitation between the companies in the AE and the CSE. Chapter 7 studies how the division of the Peruvian economy into an AE and a CSE finds its social manifestation in processes of social segmentation. Educational levels, consumption patterns, and access to health insurance are expressions of social segmentation. After a discussion on the relationship between the state’s economic base and the superstructure, and the question of development, we delve into the educational levels and the average number of years of education of the country’s population of 25 years or older, we examine the consumption differences between individuals who pertain to the AE and the CSE, and the access to health insurance. In Chapter 8, we basically apply our theorization on the dependent capitalist state presented in Chapter 2 on the implemented policies. Peru’s commercial policies, labor policies, the tax system, the educational system, and the policies to maintain or to eradicate informality are discussed. We start this chapter with an examination of the economic policies implemented by the Peruvian governments since the 1960s and a discussion of the concept of state capture. The question of state capture is of importance because it may shed light on the power and influence of capital on the Peruvian state apparatuses. It also provides an approach to understand, in general terms, the functioning of the State in society. This chapter closes with a review of the political Left and the political Right. Starting from an analysis of the Castillo government, we argue that the overall political and social weakness of the Left is the prime cause for the continuity of the underdevelopment model in place. The Right is strong because the Left is weak. The effects of Covid-19 on the State, the economy, and the population are discussed in Chapter 9. We examine the structural causes of the expansion of the virus, the State’s measure against the spread of the virus and demonstrate

8 Introduction that Covid-19 is a class virus. Informal workers or individuals employed in microbusinesses have a higher probability to get infected by Covid-19 than individuals who have formal labor contracts and are employed in small, medium-sized, and big companies. Chapter 10 is dedicated to our general conclusions, based on the conclusions of every individual chapter of this book. The structure and superstructure of Peruvian society needs to change drastically in order to provide welfare for its entire population. We hope that the data provided, the information created, and the analysis developed, are converted into tools for class struggle by raising the class consciousness of the population. The topics in this book are definitively not new. However, many people only have a segmented knowledge about the matters we develop in this work. Many may be aware of the political, economic, and social issues presented in this volume but, first, do not succeed to interrelate these questions at the most concrete level. Second, they are not able to relate the multiple concrete realities at a higher abstract level. It is exactly the relation between the concrete realities of the international and national economic structure and superstructure that are crucial for identifying the principal enemy of the population: Capital. Lima, 1 February 2023 Notes 1 Source: https://webapp.inei.gob.pe:8443/sirtod-series/ (consulted 16/01/2023). 2 Source: https://data.worldbank.org/indicator/SI.POV.GINI?locations=PE (consulted 16/01/2023). 3 Source: https://resultadoshistorico.onpe.gob.pe/SEP2021/EleccionesPresidenciales/ RePres/P/200000 (consulted 16/01/2023). 4 Source: https://rpp.pe/peru/actualidad/encuesta-iep-el-73-de-la-poblacion-estaa-favor-de-que-las-elecciones-generales-se-realicen-este-ano-noticia-1463054 ­(consulted 01/02/2023). 5 Source: https://rpp.pe/economia/economia/protestas-en-peru-las-bambas-paralizaria­ en-febrero-noticia-1463181 (consulted 01/02/2023).

References Furtado, Carlos (1980), La economía latinoamericana. Formación histórica y problemas contemporáneos, México, Siglo Veintiuno Editores, S.A. Lewis, Arthur W. (1955), Teoría del desarrollo económico, Mexico / Bogota, Fondo de Cultura Económica. Peru Libre (2021), “Pedro Castillo Presidente. Plan de Gobierno. Perú al bicentenario sin corrupción”, in https://perulibre.pe/plan-bicentenario.pdf (consulted 16/01/2023). Prebisch, Raúl (1950), “The Economic Development of Latin America and its principal problems”, in http://www.rrojasdatabank.info/prebisch_theec-development.pdf (consulted 15/01/2023). Rostow, Walt Whitman (1961), Las etapas del crecimiento económico. Un manifiesto no comunista, Mexico / Buenos Aires, Fondo de Cultura Económica.

1

Capital and peripheral economic development

Introduction Capitalism is a political, economic, and social world system. The expansion of capital, crossing the borders of its native countries, is part of the nature of capital. The necessity to accumulate and the competition between individual capitalists are the principal drivers of capitals’ expansion, first within the national borders, later crossing the frontiers, converting capitalism in a global system. In this chapter, we provide a general theoretical and analytical framework for the analysis of the persistence and structural character of underdevelopment in Peru. It forms the basis for our understanding of the structure and development of the Peruvian economy, the character of the State and the policies that have been implemented since, at least, the 1990s, and the structure of Peruvian society. We argue that the persistence of underdevelopment in Peru is tightly related to the international dynamics of capital, translated into imperialism, globalization, domination, and dependency. This chapter is organized in five sections. We start with an analysis of the international character of capitalism. The returning problems of the realization of surplus value and questions of accumulation, competition, and productivity are related to the development of world exports and the signing of regional free trade agreements, foreign direct investments (FDI), and the world profit rate. A special part is dedicated to the concept of globalization. The second section studies the international division of labor. We argue that the world economy can be organized on the basis of what we call the pyramid of the international division of labor, i.e., the functional distribution of countries according to their assigned role in the globalized capitalist world economy. This pyramid is expressed in the development models that are in place in the Global South and the global chains of exploitation that are product of the processes of restructuration of capital that started to be implemented in the 1970s and 1980s. This second section relates Gross National Income (GNI) per capita to the principal export goods. It is demonstrated that raw materials exporting countries have a lower per capita income than countries that produce high-valued services. DOI: 10.4324/9781003289456-2

10  Capital and peripheral economic development Section three discusses the importance of the extraction of natural resources for economic development and its relationship with the principal capital groups in Latin America, FDI in resource extraction, and the importance of primary products in total exports. These questions are not new for Latin America as since colonial times, the continent has been forced to supply the dominant countries with the resources that are fundamental for capitalist development in the currently advanced capitalist countries. The fourth section delves into the question of the global chains of exploitation. We describe how the developing countries are inserted in globalization through the provision of cheap labor, i.e. through the production of intermediate and manufacturing goods or through its participation in global value chains. Special attention is given to subcontracting and outsourcing, and the roots of the changes that were implemented in the organization of productive processes. As a matter of fact, the chains of exploitation (or value chains) are expressed, among others, in the interconnection between worldwide organized processes of subcontracting. In the last section, we present our conclusions. 1.1 The international character of capitalism Capitalism was born international. As Marx (1973: 264) argues, the tendency of capital to accumulate to drive to expand and to produce surplus value on an extended scale […] is law for capitalist production, imposed by incessant revolutions in the methods of production themselves, by the depreciation of existing capital always bound up with them, by the general competitive struggle and the need to improve production and expand its scale merely as a means of self-preservation and under penalty of ruin. The market must, therefore, be continually extended, so that its interrelations and the conditions regulating them assume more and more the form of a natural law working independently of the producer and become ever more uncontrollable. The internal contradiction seeks to resolve itself through expansion of the outlying field of production. But the more productiveness develops, the more it finds itself at variance with the narrow basis on which the conditions of consumption rest.1 Luxemburg (1951: 358) writes that from the very beginning, the forms and laws of capitalist production aim to comprise the entire globe as a store of productive forces. Capital, impelled to appropriate productive forces for purposes of exploitation, ransacks the whole world, it procures its means of production from all the corners of the earth, seizing them, if necessary by force, from all levels of civilization and from all levels and from all forms of society.

Capital and peripheral economic development  11 In the Communist Manifesto, Marx and Engels (1980: 49) wrote that “the need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere, establishing connections everywhere”. Luxemburg (2013) writes in her Introduction to Political Economy: But the constant and ceaseless progress of technology is a necessity for capitalism, a condition of its very existence. Competition between individual entrepreneurs, forces each of them to produce their product as cheaply as possible, i.e. with the greatest saving on human labor. And if any one capitalist introduces a new and improved process into his own factory, this competition forces all other entrepreneurs in the same branch of production to improve their technology in the same way, so as not to be driven from the field, i.e. the commodity market. […] The technical transformation of all industry, not only in production itself but also in means of communication, is an incessant phenomenon, a vital law of capitalist commodity production. In this first section, we orderly develop from a Marxist point of view, step by step, the inherent necessity of capital to geographically expand itself. Furthermore, we argue that globalization is a phase in the general tendency of capital to internationalize or to cross the borders of its native country. Historically, globalization appears to be a completely new international economic phenomenon. Conceptually, essentially, it is not. The objective of capital is accumulation. For accumulation to occur, the capitalist needs to appropriate the surplus value that is embodied in the commodities. Surplus value can be defined as non-paid labor. This is labor-time that has been expended after labor-power has been reproduced. Surplus value is called profit when it is realized, i.e., when the commodities are sold. The competition between individual capitalists to realize the value that is embodied in their commodities, or to get their commodities sold, leads these capitalists to develop (innovate) means of production and implement production methods to increase productivity. This not only helps to cheapen their own commodities but also enables the individual capitalist to appropriate value that has been produced elsewhere through the workings of the price mechanism.2 The appropriation of value, produced in the periphery, by transnational capital, is a characteristic of capitalist world trade. The counterpart of productivity increase is the decrease of value that is embodied in every single commodity that is produced by the individual capitalist. This obliges the capitalist to increase production. The capitalist is able to appropriate more surplus value when he or she sells more commodities than before the increase of productivity. However, as all capitalists tend to do the same, at a certain moment the general increase of production leads to overproduction as the supply of commodities structurally exceeds the demand for

12  Capital and peripheral economic development commodities. As Marx (n.d.: 346–347) explains, the overproduction crisis does not break out because relatively too little had been produced of the commodities consumed by the workers or too little of those consumed by the capitalists, but because too much of both had been produced — not too much for consumption, but too much to retain the correct relation between consumption and realization; too much for realization. The realization problem of value is a first motive for capital to internationalize. To assure the realization of the produced value and surplus value on an expanded scale, capital must enlarge the market for its goods and services. The “extension of the market constitutes the absolute law of capitalist development” (Amin, 1979: 199, 565). Bellamy Foster, McChesney and Jonna (2011) argue that “for today’s oligopolistic multinationals, global expansion is understood to be an imperative for accumulation, and hence survival. If one major corporation moves into a new market, its rivals have to follow quickly, or risk being shut out”. In Figure 1.1, we present the development of the world exports of merchandise. Its almost permanent increase evidences the importance of the international markets for the realization of value. The role of the states to promote world trade is clearly shown in Figure 1.2. The number of regional trade agreements shows a rising trend. The correlation with the development of world exports is overtly clear. Capital has a permanent drive to search for investment opportunities and the highest rates of profitability. In capitalism, as Marx pointed out, the 25000000

20000000

15000000

10000000

5000000

1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

0

Figure 1.1 World exports of merchandise, 1971–2019 (in current US$) Source: United Nations Conference on Trade and Development. https://unctadstat.unctad.org/ wds/TableViewer/tableView.aspx (consulted 06/01/2021).

Capital and peripheral economic development  13 700 600 500 400 300 200

100

2021

2018

2015

2012

2009

2006

2003

2000

1997

1994

1991

1988

1985

1982

1979

1976

1973

1970

1967

1964

1961

1958

0

Figure 1.2 Total number of Regional Trade Agreements Notifications, 1958–2021 Source: World Trade Organization. http://rtais.wto.org/UI/charts.aspx# (consulted 06/01/2022).

average rate of profit tends to fall, i.e., society’s profit rate tends to diminish. The rate of profit is the relation between surplus value and total capital invested. The profit rate can be described as follows: s = surplus value v = variable capital c = constant capital p = profit rate p = s / (c + v)3 In Figure 1.3, we present the development of the profit rate of the Group 20 countries, as elaborated by Michael Roberts, for the period 1950–2010.4 Since the start of the world crisis at the beginning of the 1970s, the profit rate does not recuperate the profit rates of the 1950s and 1960s. It is the start of a long declining trend. Capital needs to find an outlet for capital that cannot be properly invested in its country of origin, i.e., that cannot generate the average rate of profit (Mandel, 1975: 66, 70–71; Marx, 1973: 274–275; Magdoff, 1969: 42). Capital needs to be invested to accumulate. If in the native country expansion possibilities are exhausted, it needs to look over the borders (Magdoff, 1969: 42). This process of internationalization is also induced by the higher profit rate that might be generated abroad (Janvry & Garramón, 1977: 35; Marx, 1973: 274–275; Magdoff, 1969: 229; Lenin, 1961: 742). According to Bellamy, McChesney and Jonna (2011a), this drive “to go outside of and beyond its historical field of operations” and the “strength of this compulsion is the greater the more monopolistic the firm and the greater the amount

14  Capital and peripheral economic development

Figure 1.3 World rate of profit (G 20 countries), 1950–2010 3.5E+12 3E+12 2.5E+12 2E+12 1.5E+12 1E+12

5E+11

1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

0

Figure 1.4 FDI Net Inflows (Balance of Payments), 1971–2019 (in current US$) Source: World Bank. https://databank.worldbank.org/indicator/BN.KLT.DINV.CD/1ff4a498/ Popular-Indicators# (consulted 06/01/2022).

of surplus value it disposes over and wishes to capitalize”. The search for investment possibilities and profitability is a second motivation of capital to internationalize. In Figure 1.4, we present the development of FDI net inflows in the years between 1971 and 2019. Although FDI is not rising permanently, the trend is positive. The periods of reductions in FDI flows are years of worldwide recessions.

Capital and peripheral economic development  15 A reduction of the average rate of profit is definitively not something that capitalists want to see happening. However, the profit rate is not always and, in all times, falling. There are at least five causes that might counter the tendency of the average profit rate to fall: (i) the cheapening of elements of constant capital; (ii) the increasing intensity of exploitation; (iii) the depressing of wages below their value; (iv) the pressure on wages caused by relative overpopulation; (v) the increase of fictitious capital; and (vi) the cheapening of raw materials that are imported from abroad (Sweezy, 1977: 110–113; Marx, 1973: 252–260). The struggle against the fall of the profit rate is a third motive for the internationalization of capital. The increase of the world market might assure the free and cheap flow of natural resources, the import of cheap food, and the provision of a cheap labor-force. A reduction of the costs of living because of the import of cheap food from abroad, reduces the labor-time socially necessary to reproduce the worker of the importing country. As a consequence, the capitalist may lower the wages, i.e., without this affecting the reproduction of the labor-force. In this way, the relative surplus value increases because the worker still expends the same number of hours, however, the hours that he or she works for its own reproduction is diminished (Janvry & Garramón, 1977: 36; Marx, 1973: 258–259; Magdoff, 1969: 43–44). The internationalization of capital is a natural characteristic of capital. The internationalization of the world economy follows the internationalization of capital. Capital is the dynamic force that leads the internationalization of the world economy. It implies the development and implementation of international policies that favor the interests of capital in all parts of the world, the internationalization of the exploitation of the labor-force, and processes of pro-capitalist cultural homogenization. Globalization is not the same as the internationalization of the world economy. Globalization is the current expression of the general tendency of capital to internationalize. Historically, globalization is a new phase in the internationalization of capital. Conceptually, essentially, it is not.5 As a matter of fact, Nayyar (2006: 84–85) argues that the first phase of globalization in the late nineteenth century was characterized by an integration of markets through an exchange of goods which was facilitated by the movement of capital and labour across national boundaries. This was associated with a simple vertical division of labour between countries in the world economy. The second phase of globalization is characterized by an integration of production with linkages that are wider and deeper, except for the near absence of labour movements. It is reflected not only in the movement of goods, services, capital, technology, information, and ideas, but also in the organization of economic activities across national boundaries. This is associated with a more complex — part horizontal and part vertical — division of labour between the industrialized countries and a few developing countries in the world economy.

16  Capital and peripheral economic development According to Ianni (1997: 6), globalization implies that the capitalist mode of production turns global. The whole national economy, everything in it (markets, productive forces, and the reproduction of capital, among others), turns into a “province of the global economy”. When comparing previous epochs of capitalist development, Robinson (2010: 25) concludes that in the current period of globalization nation-states were not only externally linked by markets but also started to be integrated at the production level. Ianni (1997: 32–33) calls this integration process the emergence of a global factory. The production forces are geographically dispersed, but united through the production process. Production relations are global production relations. Hence, the internationalization of capital is at the same time a process of the formation of global capital (Ianni, 1997: 41). Globalization, together with the implementation of neoliberalism, has been the answer of capital to the worldwide crisis of the 1970s. It took measures that would enable it (i) to restore profitability, i.e., to stop the profit rate from falling; (ii) to increase its markets in order to ‘solve’ the overproduction crisis; and (iii) to expand investment possibilities around the globe.6 According to Petras and Veltmeyer (2013: 9), capital in the advanced capitalist countries, in cooperation with the national governments, tried to resolve the systemic crisis of capitalist production by (1) modifying the relationship of capital to labour, advancing the former and weakening the latter; (2) incorporation of new production technologies and a new regime of accumulation / labour regulation [postfordism]; (3)  relocating overseas labour-intensive lines of industrial production, creating, a new international division of labour; and, above all (4) a policy of structural adjustment and neoliberal globalization, in the construction of a ‘new world order’ in which the forces of capitalist development would be released from the regulatory constraints of the welfare-development state.7 ­ The new phase in the internationalization of capital was facilitated by the abolishment of capital controls, the worldwide privatization of state-owned companies, the liberalization of the markets, favorable tax regimes for the companies, the rapid technological development of the means of communication, principally the Internet, and the reduction of worldwide transportation costs. Monetarism replaced Keynesianism as the point of departure for the development of economic policies in the principal advanced capitalist countries. Furthermore, the collapse of what were called the socialist states in Eastern Europe and the former Soviet Union and, consequently, the ideological hegemony of the market ideology, provided the political, economic, and social opportunities for companies to develop a global instead of a, more or less, limited western capitalist perspective. The increased internationalization of capital and the increased interdependency of nations and production processes can be evidenced by increased

Capital and peripheral economic development  17 trade, increased trade agreements, and increased FDI, among others. As is visualized in Figure 1.1, starting from the end of the 1980s, world exports show a clear upward tendency. The number of regional trade agreements began to increase structurally since the beginning of the 1990s. In the period 1973–2000, worldwide FDI increased tremendously. According to Engel (2003: 176), in 1973, these investments were valued around US$208.3 billion. In 1990, FDI had grown to US$1721.5 billion and in 1995, they were lifted to US$2854.9 billion. In 2000, FDI tripled to US$6086.4 billion. As is shown in Figure 1.3, it is since the mid-1980s that FDI shows a positive trend. Hence, as argued by Robinson (2010: 15), neoliberal globalization “opened the floodgate to massive transnational capital movements and the meteoric spread of transnational corporations”. 1.2 The pyramid of the international division of labor The development of capitalism is the development of oppression and exploitation, of domination and subordination, of wars and revolutions. It is, in the end, the development of class struggle. Individuals were oppressed, exploited, and robbed from their means of subsistence or means of production. Countries were looted and their people massacred. People initiated wars of independence and began a ferocious struggle against the homemade and homegrown oppressors and exploiters. New nations were built, and people tried to find ways to obtain welfare for all. The history of world capitalism is also the history of the international division of labor. This history expresses, primarily, the development of the world’s economic powers, the needs of their people, and, above all, of their companies. In mainstream economics, the international division of labor refers to the specialization of the different countries in the production of determined commodities. It is considered that countries should specialize in the production of those commodities in which they have what is considered a comparative and/or competitive advantage. The international division of labor is presented as a historically neutral result of natural and economic processes. Peru, for example, should specialize in the production of copper because it has lots of this natural resource. The Netherlands should focus itself on transport and trade because of its geographical location and its historically grown trade experiences. What’s interesting about the structure of the international division of labor is the fact that it corresponds with the international structure of income per capita. A country that, principally, produces technology has a higher income per capita than a country that produces minerals (without processing). Also, countries that have, in general terms, a positive service balance have a higher income per capita than countries that are principally importing services. In the case of the providers of natural resources or what have been called underdeveloped countries, we should consider that not all have exactly the same function in the globalized capitalist world (Bambirra, 1972). Not only

18  Capital and peripheral economic development politics and economics influence this role but also historical, social, and ­cultural factors. The international division of labor is not a static situation, and it is not historically neutral. It is a historically grown situation and in a continuous process of development. It is product of class struggle. In general terms, countries that have been colonialized are low-income countries, are exporters of natural resources, and play a subordinated role in global value chains. The former oppressor countries are nowadays advanced capitalist countries, high income countries, and produce high value-added products.8 They lead the global value chains. The current international division of labor not only takes economically the form of a pyramid but it is also politically, economically, and socially a pyramid. At the top are located the advanced capitalist countries. These nations “produce” technology, transport, communication, and finance. The United States, Belgium, France, and also China form part of this level. In the middle, we locate countries that mainly function as factories for transnational companies such as India, Malaysia, and China. At the third level, we find the mass of countries that principally provide the raw materials for the countries at the second and first level of the pyramid. Not only Peru and Colombia are located at this level but also, again, China. Hence, the pyramid is not rigid or fixed, but fluent and can change. It should be added, furthermore, that countries that have more complex production processes (“rich countries”) are higher ranked than countries with low levels of complexity (“poor countries”) (Smith, 2016: 91). In Table 1.1, we present the GNI per capita and the three principal export goods and their weight in the export basket, according to regions, in 2019. As can be observed, the historically advanced capitalist countries (North America and Europe) have the highest income per capita and are key producers of capital goods. Although the region of East Asia & Pacific has a markedly lower income per capita than the aforementioned two regions, this is definitively a high value-added producing region as it includes countries such as China, Japan and South Korea. Regions that are key raw materials exporters are low-income regions. The fact that Latin America & Caribbean are also important exporters of capital goods has definitively contributed to the fact that the income per capita is relatively near to the level of the Middle East & North Africa, and the East Asia & Pacific regions. In Table 1.1, we did not include data regarding the export and the import of services. In order to get the full picture, in Table 1.2 we present the data on the export and import of services. The trade of services is in full compliance with what we have called the pyramid of the international division of labor. The two regions with the highest levels of income per capita can be found at the top of the pyramid (net exporters of services). The East Asia & Pacific region, although it includes Japan and South Korea, is principally located at the second level of the pyramid as it also includes countries such as Indonesia, China, Malaysia, Cambodia, and Vietnam, i.e., the ‘factories of transnational capital’.

Capital and peripheral economic development  19 Table 1.1 Gross National Income per capita and the three principal export goods and weight in the export basket, according to regions, 2019 Regions

Income per Three principal export products capitaa

North America

64,548

Europe & Central Asia East Asia & Pacific Middle East & North Africa Latin America & Caribbean Sub-Saharan Africa

37,530 18,516 16,953 16,467 3,801

Capital goods (29.24%) Consumer goods (36.93%) Capital goods (44.52%) Consumer goods (29,34%) Raw materials (30.06%) Raw materials (43.64%)

Consumer goods Intermediate (26.33%) goods (19.79%) Capital goods Intermediate (28.40%) goods (22.50%) Consumer goods Intermediate (29,76%) goods (17.80%) Raw materials Intermediate (23.28%) goods (15.24%) Capital goods Consumer goods (26.07%) (21.82%) Intermediate Consumer goods goods (32.44%) (17.07%)

Sources: https://databank.worldbank.org/data/download/GNIPC.pdf and https://wits.worldbank.org/CountryProfile/es/Country/NAC/Year/2019/TradeFlow/EXPIMP/Partner/all/Product/ Total (consulted 16/01/2022). a

Gross National Income per capita, Purchasing Power Parity (international dollars).

Table 1.2 Export and import value of services in current prices, according to regions, 2019 (in US$) Regions

Export value of services

Import value of services

Net value service balance

North America

982,427,530, 710,655,050, 271,772,480, 562.45 468.01 094.44 Europe & Central 3,008,611, 2,687,489, 321,122, 535,060 Asia 952,398.07 417,329.01 East Asia & Pacific 1,316,955, 1,530,320, –213,365, 104,674.57 273,164.13 168,489.56 Middle East & xxx xxx xxx North Africaa Latin America & 203,465,220,042.00 247,708,124,537.46 –44,242,904,495.46 Caribbean Sub-Saharan Africa 74,107,283,769.40 136,997,881,159.77 –62,890,597,390.37 Source: https://wits.worldbank.org/countrystats.aspx?lang=es (consulted 17/01/2022). a

There is not data available.

In Table 1.1, we showed the principal export goods according to regions and in Table 1.2, we presented the export and import values of services. These data confirm our conceptualization of the current international division of labor. Of course, when we look at every country in particular, some results do not necessarily appear to confirm our point of view in the first instance. However, a much closer look at these data definitively does prove

20  Capital and peripheral economic development our argument. In Table 1.3, data are presented on the GNI per capita and the three principal export products and their weight in the export basket for 12 countries in 2019.

Table 1.3 Gross National Income per capita and the three principal export products and weight in export basket for 12 countries in 2019 Countries Canada (Norte America) Estados Unidos (Norte America Belgium (Europe & Central Asia) Russian Federation (Europe & Central Asia) Australia (East Asia & Pacific) Indonesia (East Asia & Pacific) Algeriab (Middle East & North Africa) Qatar (Middle East & North Africa) Brazil (Latin America & Caribbean) Colombia (Latin America & Caribbean) Angolac (SubSaharan Africa) Senegal (SubSaharan Africa)

Income Three principal export productsb per capitaa 51,140 Consumer goods Raw materials Intermediate goods (26.93%) (26.46%) (23.93%) 66,080 Capital goods Consumer goods Intermediate goods (32.15%) (26.17%) (18.87%) 57,050 Consumer goods Intermediate Capital goods (42.19%) goods (34.49%) (16.12%) 28,270 Raw materials (38.64)

Consumer goods Intermediate goods (22.84%) (20.71%)

51,680 Raw materials (57.38%)

Intermediate goods (13.81)

Capital goods (4.74%)

11,970 Consumer goods Intermediate Raw materials (37.69%) goods (30.38%) (22.25%) 11,720 Raw materials (36.56%)

Consumer goods Intermediate goods (59.29) (4.05%)

91,670 Consumer goods Raw materials (68.83%) (17.47%)

Capital goods (0.29%)

14,890 Raw materials (49.83%)

Intermediate Capital goods goods (25.27%) (12.68%)

15,510 Raw materials (56.19%)

Consumer goods Intermediate goods (23.31%) (17.58%)

6,380 Raw materials (89.91%)

Consumer goods Capital goods (5.44%) (3.70%)

3,470 Intermediate goods (38.51%)

Consumer goods Raw materials (34.06%) (24.32%)

Sources: https://databank.worldbank.org/data/download/GNIPC.pdf (consulted 16/01/2022) and https://wits.worldbank.org/country-indicator.aspx?lang=es (consulted 16/01/2022). a b c

Gross National Income per capita, Purchasing Power Parity (international dollars). Data for 2017. Data for 2018.

Capital and peripheral economic development  21 Table 1.3 indicates that raw materials are key export goods of Canada, Australia, and the Russian Federation. However, these three countries are not low-income countries. The principal reason for this ‘particular’ situation, as pointed out by Amin (1979: 352), is that the production of these raw materials is integrated in an “auto-centered industrial structure”. Trade between the advanced capitalist countries is mainly between themselves and, for this reason, there is no unequal trade (relatively similar evolution of remunerations) and there are no effects of terms of trade differences.9 Another issue that might come up, added to and also in relation to the mentioned two factors that explain cases that apparently do not comply with our arguments, is the question of the broad variety of goods that form part of the goods categories capital goods, intermediate goods, and consumer goods. Consumer goods might be, in the case of Senegal, food, plants, and animal products, or fuels in the case of Qatar. The evolution of the international division of labor in the period of what we call advanced capitalist development can be divided in four phases. The first phase started in 1880 and ended in 1945. The export of raw materials and agricultural products by dependent countries was the result of the exchange of commodities for manufactured articles and specialized knowledge of the most advanced regions of the world. What are called developed countries, provided manufactured products to the underdeveloped or non-industrialized world, and invested in mining, banking, and commerce, among others. In the period 1945–1970, import-substitution processes (light industry) were executed in countries at the periphery of world capitalism. The periphery was supplied by the advanced capitalist countries. Apart from the development of light industries, the dependent countries remained suppliers of raw materials and agricultural products. The countries in the center of the system dominated manufacturing, finance, transport, and communication. In the years between 1970 and 1990, the international division of labor was characterized by changes in its structure due to salary differences. Complete production units were transferred to low-wage countries, with an abundance of low-skilled labor. The dependent countries remained, principally, suppliers of commodities, and the advanced capitalist countries concentrated themselves on finance, transport, and communication. The current phase of the international division of labor differentiates with the third phase in the sense that production in low-wage countries is combined with the use of sophisticated technologies by its labor-force. Furthermore, a global factory has emerged that connects labor-power between different geographically areas. The pyramid of the international division of labor shows that the end of colonial oppression did not mean the end of economic oppression and exploitation by the advanced capitalist countries. The only thing that changed was the executer of oppression and exploitation. From their inception in world economic processes, underdeveloped countries have been, principally, providers of raw materials.

22  Capital and peripheral economic development The international division of labor appears to show us a division of the world in countries according to their contribution to the world economy or their insertion in the globalized capitalist world. However, it is not the division of countries but the division of companies according to the national origins of these companies that expresses the international division of labor. Companies trade with each other. Many times this is inter-company trade, between the branch offices in different of the same mother company. In order to find out the most important countries, or the countries that are located at the first level of the international division of labor, one only has to take a look at the ranking of the biggest countries in the world. In Table 1.4, the ranking is presented of the biggest 50 companies in the world in 2021, according to market capitalization. When we take the ranking in Table 1.4 into consideration, it may not come as a surprise that multilateral institutions such as the World Bank (WB), the International Monetary Fund (IMF), the United Nations Table 1.4 Ranking of the biggest 50 companies the world in 2021 (market capitalization) No. Company

Country

No. Company

Country

1 2 3 4 5 6 7 8 9

Apple Saudi Aramco Microsoft Amazon Alphabet Facebook Tencent Tesla Alibaba

United States Saudi Arabia United States United States United States United States China United States China

26 27 28 29 30 31 32 33 34

Switzerland China United States Switzerland United States Netherlands Japan United States United States

10 11 12 13 14 15 16 17 18 19

Berkshire Hathaway TSMC VISA JP Morgan Chase Johnson & Johnson Samsung Kweichow Mouta Walmart Mastercard United Health

United States Taiwan United States United States United States South Korea China United States United States United States

35 36 37 38 39 40 41 42 43 44

20 21 22 23 24 25

LVMH Moet Hennesy Walt Disney Bank of America Proctor & Gamble Nividia Corp Home Depot

France United States United States United States United States United States

45 46 47 48 49 50

Nestle Ind & Comm BK PayPal Roche Intel ASML Toyota ComCast Verizon Communications Exxon Mobil Netflix Adobe Coca-Cola Meituan Ping An Cisco Systems AT &T L’Oreal China Construction Bank Abbot Labs Novartis Nike Oracle Pfizer Chevron

United States United States United States United States China China United States United States France China United States Switzerland United States United States United States United States

Source: https://www.visualcapitalist.com/the-biggest-companies-in-the-world-in-2021/ (consulted 14/01/2022).

Capital and peripheral economic development  23 Conference on Trade and Development (UNCTAD), and, of course, the World Trade Organization (WTO), located at the center of the capitalist world, all contribute to the continuity of the current structure of the international division of labor. These institutions were developed and set up in the advanced capitalist countries. As such, they defend and develop the interests of the dominant class in the world. They insist that the countries at the second and third levels of the pyramid of the international division of labor maintain their economies open and strengthen and deepen the exportorientation of their development and economic growth models. Models that stimulate internal demand and industrialization are not relevant for these institutions as this is not of interest to the globally functioning principal companies in the world, all located at the first level of the pyramid of the international division of labor. Or only when this industrialization is led by transnational capital as, in a certain manner, was the case in the years of Import Substitution Industrialization (ISI) in the 1950s. 1.3 Extractive development models in Latin America Extractive development models or economic growth based on the extraction of natural resources are not something new in Latin America. Between the XV and XIX century, “extractive imperialism” has been one of the principal economic strategies of the politically and economically dominant nations (Veltmeyer, 2021).10 The extraction of natural resources was fundamental for the capitalist development of what later has become known as the Global North (Acosta, 2013: 63). Natural resource extraction strategies became part of the proper capitalist development strategies (Veltmeyer, 2021). Economic strategies based on the extraction of natural resources have always served the interests of imperialist countries, nationalist governments, multinational companies (or transnational corporations), and/or national capital. Although governments implemented import-substitution strategies and developed and executed industrialization programs or other projects that pointed to the development of major added-value production processes, the extraction of natural resources has never been eradicated in the political, economic, and social life of the dominated countries. Extractivism forms an integral part of the history of Latin America (Acosta, 2013: 63; Burchardt, 2016: 56). Extractivism is not a specific capitalist economic strategy. It neatly fits within processes of capital accumulation. According to Veltmeyer (2021), extractivism refers to an investment strategy by foreign capital in the acquisition of land or the extraction of natural resources for the purpose of export and in order to generate a surplus that can be used as a source of profit or as income that can be invested productively or used to finance public spending—poverty reduction programs, in the cases of progressive governments.

24  Capital and peripheral economic development Acosta (2013: 62) considers the term when referring to “those activities that remove large quantities of natural resources that are not processed (or only processed to a little degree), especially for export”. The extraction of natural resources has been historically a very lucrative business. The profits that can be obtained by investments in natural resources extraction and the export of these resources have attracted transnational mining capital. In the case of Peru, the extraction of minerals has been, and still is, a foreign affair. Foreign mining capital is effectively dominating the extraction of mineral resources that are located in the underdeveloped part of the world. In Table 1.5, we present the 50 biggest mining companies in the world. As can be observed, Table 1.5 The 50 biggest mining companies in the world (market capitalization, end 2021) No.

Company

Country

No. Company

Country

1

BHP Group

Australia

26

Canada

2 3 4 5 6

Rio Tinto Vale Glencore Freeport-McMoRan Anglo American

First Quantum Minerals Teck Resources Mosaic Newcrest Mining SQM South32 Shandong Gold Mining Agnico Eagle ICL Group Jiangxi Copper Coal India Alrosa Impala Platinum China Molybdenum Kirkland Lake Gold Cleveland-Clifts Boliden

China

Japan

Kazakhstan Mexico South Africa

Australia Brazil Switzerland United States United Kingdom Newmont Goldcorp United States

27 28 29 30 31

Southern Copper Norilsk Nickel Fortescue Metals Nutrien Zijin Mining Barrick Gold Anglo American Platinum Albemarle Franco-Nevada China Northern Rare Earth Group Tianqi Lithium

United States Russia Australia Canada China Canada South Africa

33 34 35 36 37 38 39

United States Canada China

40 41 42

China

43

Saudi Arabia Russia Canada

44 45 46

22 23 24

Ma’aden Polyus Wheaton Precious Metals Shaanxi Coal Yanzhou Coal Antofagaste

Sumitomo Metal Mining Ivanhoe Mines Gold Fields Kumba Iron Ore

47 48 49

Kazatomprom Fresnillo Sibanye Stillwater

25

Vedante

China China United Kingdom India

50

AngloGold Ashanti South Africa

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

32

Canada United States Australia Chile Australia

Canada Israel China India Russia South Africa China Canada United States Sweden

Canada South Africa South Africa

Source: https://www.mining.com/top-50-biggest-mining-companies/ (consulted 20/01/2022).

Capital and peripheral economic development  25 the very big majority of these companies are originally from countries that are located at the first level of the international division of labor. Although productive processes to extract natural resources have been historically a very lucrative business, the commodification of nature, in itself, is intrinsically related to the objective of accumulation of capital because in capitalism what matters is not the production of use values but exchange values. In the last instance, it does not matter what is produced, but if it can be sold. Marx (n.d.: 313) noted: Hence the great civilizing influence of capital; its production of a stage of society in comparison to which all earlier ones appear as mere local developments of humanity and as nature-idolatry. For the first time, nature becomes purely an object for humankind, purely a matter of utility; ceases to be recognized as a power for itself; and the theoretical discovery of its autonomous laws appears merely as a ruse so as to subjugate it under human needs, whether as an object of consumption or as a means of production. In accord with this tendency, capital drives beyond national barriers and prejudices as much as beyond nature worship, as well as all traditional, confined, complacent, encrusted satisfactions of present needs, and reproductions of old ways of life. It is destructive towards all of this, and constantly revolutionizes it, tearing down all the barriers which hem in the development of the forces of production, the expansion of needs, the all-sided development of production, and the exploitation and exchange of natural and mental forces. In Figure 1.5, data are presented on the development of the exports of primary products as a share of total exports for Latin America & the Caribbean in the years between 1980 and 2020. The figure clearly points out the key importance of these exports in total exports and the structural character of this significance. A drastic reduction of the exports of primary products has considerable effects on economic development. The capitalist productive apparatus is not, by nature and structure, neutral. It serves the accumulation of capital and the unlimited expansion of the market (Löwy, 2007). It leads inevitably to the destruction of the ecological equilibriums of the planet “which are completely incompatible with the infernal cycles of capital” (Löwy & González, 2011). According to Löwy (2004), capitalism has two general contradictions. The first, as pointed out by Marx, is between the productive forces and the relations of production. In other words, the development and the socialization of the productive forces contradict the private ownership of the means of production. The second contradiction is between the productive forces and the conditions of production (including the workforce, urban space, and nature). As capital is forced to develop its productive forces in order to be able to compete in the world market, it tends to destroy the conditions for its own reproduction.

26  Capital and peripheral economic development 90.0 80.0 70.0

60.0 50.0 40.0 30.0 20.0 10.0 2020

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

0.0

Figure 1.5 Exports of primary products as share of total exports for Latin America & the Caribbean, 1980–2020 Source: https://statistics.cepal.org/portal/cepalstat/dashboard.html?theme=2&lang=en (consulted 20/01/2022).

For instance, by elevating the rates of exploitation, capital might ‘kill’ labor and by using more and more energy it contributes to the depletion of the very natural reserves that it desperately needs.11 As we explained in the previous section, most of the former colonized countries with abundant natural resources are located at the third level of the pyramid of the international division of labor. Hence, that the governments of these countries have developed and implemented economic models based on the extraction of natural resources is more than logical. These models may have what might be called a “conservative” or “progressive” character. In the case of a “progressive” character, they have been called neo-extractive development models instead of just “extractive” development models. Countries such as Bolivia, Ecuador, and Venezuela promoted neo-extractive development models. Peruvian and Colombian regimes favored extractivist development models. A neo-extractive development model is, according to Svampa (2020), a model based on the overexploitation of increasingly scarce, largely nonrenewable natural goods, as well as the expansion of exploitation frontiers into territories previously considered unproductive from the point of view of view of capital. It is characterized by the orientation to the export of primary goods on a large scale, including hydrocarbons (gas and oil), metals and minerals (copper, gold, silver, tin, bauxite, zinc, among others), as well as products linked to the new agrarian paradigm (soybean, African palm, sugar cane).

Capital and peripheral economic development  27 Svampa’s definition of neoextractivism seems not to differ a lot from the definition of extractivism. However, neoextractivism is principally used to characterize those left-wing oriented governments in the first two decades of the 21st century that favored development strategies based on the investment and export of primary goods. Transnational corporations, in cooperation with progressive governments, extracted the natural resources in the benefit of the companies and the left-wing oriented regimes. In order to guarantee the benefits, governments proceeded to nationalize the resources, to reform tax systems, and to review the contracts with extractive companies. These policies were developed and implemented with the objective to increase development and welfare for the population. The neo-extractive development models gave birth or were the expression of the rebirth of the developmental state (Burchardt, 2016: 57–58).12 According to Svampa (2013: 128), the “progressive governments have accepted the international division that has marked the continent since colonial times in spite of their emphatic discursive rhetoric that demands economic autonomy and postulate the establishment of political Latin American sphere”. In the period 2000–2010, South America has been object of large investments by international extractive capital. In 2007, 149 transnational mining corporations counted for 60% of the “total value at the mining state of all non-energy minerals produced” (UNCTAD, 2007: 108–109). Since 1994, Latin America has received the largest investments in mining exploration. According to data for 2011, it attracted a yearly average of around 26% of the worldwide budget (Metals Economics Group, 2011: 4–5). At the beginning of the 1990s, it received approximately 12% of global investment in mining. Five years later, this grew to 28%, and in 2009, this was raised to approximately 30% (Bebbington, 2009: 15; De Echave, 2009: 105). The share of extractive industries in world inward FDI was on the rise since 2000 (UNCTAD, 2007: 100). Since 2005, the extractive sector started to be, worldwide, one of the most profitable sectors to invest in (UNCTAD, 2007: 89). The terms of trade of the minerals exporting countries dramatically improved during the commodities boom that lasted from 2005 to 2011. The boom was caused by economic growth in China and India, and the credit boom in Europe and the United States (Parodi Trece, 2014: 221, 255–256). The boom of the extractivist industries in the first decade of the 21st century fits exactly within the nature of capitalism. The necessity of capital to expand increases the demand placed on nature which generates “ecological degradation and pollution in a finite world” (Clark & Bellamy Foster, 2010: 145). It is precisely this nature of capital that produces disastrous effects on the environment. In Table 1.6, we present inward FDI in natural resources in Latin America and the Caribbean for the years between 2008 and 2019. The reduction of the share of FDI in natural resources in the period 2015–2018 is principally caused by the end of the commodities boom. These shares are comparable

28  Capital and peripheral economic development Table 1.6 Inward FDI in natural resources (hydrocarbons, mining, agriculture) in Latin America and the Caribbean: 2008–2019 (in millions of US$) Year

Total Inward FDI (TIF)

Natural Resources Inward FDI (NRIF)

Share NRIF in TIF (%)

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

113.263 7.3053 126.562 113.125.7 178.051 200.160.9 187.797.4 175.936.9 151.271 129.950 132.603.1 127.409

29.628 20.160 37.468 34.237 46.336 45.204 30.094 27.210 17.986 17.012 18.728 27.210

26.20 27.60 29.60 30.20 26.00 22.60 26.00 15.50 11.90 13.10 14.10 21.40

Source: ECLAC (2021: 73–74).

with the years between 2000 and 2008 when the share of inward FDI in natural resources was between 15% and 18% (ECLAC, 2009: 27). The level of FDI in the “boom period” and the “slump period” underline the key importance of the extraction of natural resources for economic development in Latin America and the Caribbean. The commodities boom in the first decade of the 21st century is reinforcing the role of Latin America as principally an exporter of raw materials and is consolidating, as well as intensifying, its historical role in the international division of labor.13 As the prices of primary commodities are determined by international markets, in the offices of transnational capital in the imperialist countries, Latin America is condemned to the visible hand of economic shocks, fluctuations, and speculative capital flows. Pegg (2006: 378) argues that the cyclical nature of the commodity prices and the lack of diversification make Latin America “unusually vulnerable to economic shocks”. The commodities boom in the first ten years of the new millennium was for an important part due to the demand of China (World Bank, 2011a: 8–9). As a matter of fact, according to the World Bank (2011b: 22), the robust growth in Latin America is an “important measure of its connections to China, both directly (via trade and increasingly also Foreign Direct Investment [FDI] channels) and indirectly (mainly via China’s impact on the international prices of commodities)”. 1.4 The global chains of exploitation The decade of the 1970s has triggered events that still have an enormous impact on the socioeconomic situation of the mass of the world population. The crisis helped to release political and economic forces and put into

Capital and peripheral economic development  29 operation processes whose significance would become evident in the 1980s and 1990s. The world economic crisis that unfolded in these years (the end of the “Golden Age of capitalism”) was caused by the inherent contradictions of the capitalist system. The fall of the profit rate (Duménil & Lévy, 2005: 15) manifested itself in an overproduction crisis. Saxe-Fernández & Núñez Rodríguez (2001: 100) relate the decrease of the rate of profit to the growth and broadened productive capacities. Indeed, although the economic power of the United States relatively declined as Europe and Japan recovered, the ‘return’ of European and Japanese capital caused an increase of the worldwide organic composition of capital (OCC) that led to a fall of the rate of profit that could not be offset by increased profits.14 The use of inflation as a mechanism to increase the transfer of produced value from the exploited and oppressed classes to capital was getting ‘inflated’ as it started to prejudice financial institutions. According to Maddison (1982: 161), in the period 1950–1973, the average annual growth rate of consumer prices of 16 capitalist countries was 4.1%. In the years between 1973 and 1979, it had grown to 9.5%.15 As a consequence, while in the previous period, Kolko (1988: 189) explains, the real interest rate was almost zero, in the 1970s it became negative. The economic crisis of the 1970s was multiform. Although it was caused by the decline of the profit rate and was expressed in an overproduction crisis, it was also a fiscal crisis and a debt crisis (Kolko, 1988: 19, 26–27, 29, 34–35). Economic slowdown caused an increase of unemployment (and diminishing governmental income). Governments had to resort to the financial sector to cover their expenses. The crisis was the beginning of big reforms in productive processes, i.e., the restructuring processes of international capital. To get out of the crisis, it was considered that measures had to be taken that would help raise the rate of profit. Not only there was thought about the restructuring of labor processes but also of increasing the possibilities of private investment inside and outside national borders. Kolko (1988: 32) argues that at the end of the 1970s capital answered to the problem of profitability by building new industrial capacity outside the member countries of the Organisation for Economic Co-operation and Development (OECD). It rationalized existing capacity, it “shuffled assets with mergers and acquisitions” and it expanded in the service sector. Petras and Veltmeyer (2013: 9) describe the response of capital as follows. In 1973, at the height of an apparent crisis of overproduction, characterized by cutthroat competition, saturated markets for manufactured goods, stagflation, sluggish productivity and falling profits, the capitalist class in the most advanced countries in the imperial world order, including the CEOs of its capitalist enterprises and the States in their service, abandoned the Bretton Woods system that had served them

30  Capital and peripheral economic development so well. To be more precise, they sought to renovate it, to resolve the systemic crisis of capitalist production by (1) modifying the relationship of capital to labour, advancing the former and weakening the latter; (2) incorporation of new production technologies and a new regime of accumulation / labour regulation [postfordism]; (3) relocating overseas labour-intensive lines of industrial production, creating, a new international division of labour; and, above all (4) a policy of structural adjustment and neoliberal globalization, in the construction of a ‘new world order’ in which the forces of capitalist development would be released from the regulatory constraints of the welfare-development state. Robinson (2010: 15) explains that the renewed power of capital in the 1980s and 1990s helped to bring about a change in the correlation of class forces. As capital was free to move, “a new capital-labor relation based on deunionization, flexible workers, and deregulated work conditions replaced the Fordist class compromise” of the previous decades. Subcontracting, outsourcing, and flexibilization, among others, were new forms of how the labor-capital relation was expressed. Although the increase of productivity and lower wage costs meant that profitability might be re-established, it also implied the renewal of the cycle towards economic crisis. Since the 1980s, subcontracting and outsourcing have been one of the main strategies of companies to reduce costs and to increase productivity. It also contributes to labor flexibility.16 Iranzo and De Paula Leite (2006: 268) define subcontracting as “all forms of contracting where there is no dependency or subordination relationship between the contracting party and the contracted party, or this responsibility is transferred to an intermediary. Hence, it can also be defined as outsourcing”. In addition, they tell us that subcontracting “has been strengthening at the same time that new modalities have been emerging, all of which are gradually replacing the traditional employment relationship, based on direct subordination”. According to Castillo Fernández and Sotelo Valencia (2013: 15), the crisis of the 1970s followed by restructuring processes, “led companies to outsource some of their management and production tasks to areas and countries with lower labor costs and standards, particularly countries with dependent economies”. There is a difference between subcontracting and outsourcing. Subcontracting has to do with the hiring of workers that belong to other companies.17 Outsourcing refers to the fact that the contracted workers are located in another place and/or in another company, that is, a company hires another company to carry out some productive, financial, or service tasks outside their own company (FeSMC-UGT, 2016: 2). Although in the 1980s subcontracting and outsourcing became a general practice of the companies, it should be remembered that it was already in use in the 19th century or, as Castillo Fernández and Sotelo Valencia (2013: 15) state, “since the beginning of capitalism”. It was used in the first phases of industrial capitalism and even in the first factories. The first subcontracting

Capital and peripheral economic development  31 processes were overcome to give way to a global development of capitalist production (Braverman, 1984: 79–82).18 As we mentioned, the reasons for subcontracting and outsourcing have to do with cost reduction. Wages and salaries are transferred to third parties, as are social benefit responsibilities (Castillo Fernández & Sotelo Valencia, 2013: 22; Iranzo & De Paula Leite, 2006: 272–273; Robles et al., 2001: 320, 326). The salaries and wages of subcontracted workers are lower than those of the company’s own personnel (Iranzo & De Paula Leite, 2006: 274). According to Smith, only those activities are outsourced that are labor intensive (Smith, 2016: 33–34). Outsourcing and subcontracting also reduce infrastructure and operating costs (Castillo Fernández & Sotelo Valencia, 2013: 17, 22) and make it possible to replace “expensive” permanent workers with indefinite contracts by people with temporary contracts (FeSMC-UGT, 2016: 3). The fear that jobs are subcontracted reduces wage demands and demands for improvements in working conditions (Iranzo & De Paula Leite, 2006: 273–274, 278). Furthermore, it helps to weaken trade unions and collective bargaining can be avoided (Iranzo & De Paula Leite, 2006: 273). Other reasons for outsourcing and subcontracting are the possibilities of coping with fluctuations in production. When at a determined moment demand exceeds a company’s capacity, outsourcing provides a quick fix to excess demand. Also “labor problems”, technical defects, and the fact that a company does not have the knowledge and operational capabilities (machines, etc.) to carry out certain activities may lead to subcontracting (Iranzo & De Paula Leite, 2006: 273; Robles et al., 2001: 320–321, 325). In their paper on outsourcing in Latin America, Castillo Fernández and Sotelo Valencia (2013: 16) explain why Latin America is one of the most attractive destinations for outsourcing. Much of Latin America is characterized by weak and flexible labor laws. The working class has limited power, and labor laws often permit long working hours, few limitations on the length of the shifts, short vacations, easy labor turnover, and substandard safety and employment conditions. Other factors that make Latin American countries attractive offshore locations are geographic proximity, low-cost energy, and cheap and abundant raw materials. The wage differential is not the only factor in determining offshore relocations, but it is one of the primary variables. According to the Harris Interactive Study, North American corporations use the following criteria to determine the viability of offshoring in Latin America: labor costs (69 per cent), technology and infrastructure (49 per cent), the availability of a qualified workforce (48 per cent), economic stability (44 per cent), and language dominance (41 per cent). The relocation of complete production processes was principally directed towards countries with major levels of labor flexibility that did not have

32  Capital and peripheral economic development independent unions and where the wages were extremely low (Smith, 2016: 24). This would help to reduce costs and to increase profits. In the course of the restructuring of productive processes, the “prerequisite” of low wages was coupled with levels of productivity differences (we might call this the outsourcing of more technology-intensive production processes) that would enable capital to get lower unit labor costs in the overseas productive centers than in their home countries. The capacity of transnational corporations to use the differences in unit labor costs can also be called global labor arbitrage (Suwandi, 2019: 53–63).19 The data presented by Suwandi in her book Value chains. The new economic imperialism demonstrate the “competitive strength” of the dominated countries or emerging economies in the language of mainstream economists. In the manufacturing sector in countries such as Mexico, India, Indonesia, and China, the unit labor costs are considerably lower than in the nations of the Global North such as the United Kingdom, Germany, and the United States (Suwandi, 2019: 60). Current global production processes are characterized by the segmentation (or dividing up) of the same production processes (Smith, 2016: 50–51). Hence, we speak about global value chains and globalized production networks (Smith, 2016: 35). The different parts of the production process are like nodes in a production chain. Or as the World Bank explains, a global value chain “consists of series of stages involved in producing a good or service, with each stage adding value and with at least two stages produced in different countries” (Zhenwei Qiang, Liu & Steenbergen, 2021: 32). The commodities that are product of these processes are called global commodities. The final commodity is composed of parts that have been produced in different countries around the globe. The globalized production networks are based on FDI20 and/or arm’s length trade. While since the inception of capitalism FDI has been a major instrument to increase the production and the appropriation of value (production processes are moved abroad), arm’s length trade is relatively new. In this case, the “lead firm” does not own any means of production or directly participates in the production processes of its suppliers. However, it definitively is indirectly controlling it. It appears that arm’s length trade is getting the overhand in the globalized production processes. According to Smith (2016: 81), there are a variety of advantages of arm’s length trade. In the first place, transnational companies tend to pay higher wages. Second, the outsourcing “lead firm” is not only transferring commercial risks but it also directly externalizes “responsibility for pollution, poverty wages, and suppression of trade unions”. The increased participation of the Global South in globalized production processes through global outsourcing, or their insertion in what has been called globalization, can be evidenced by the increase of the number of jobs related to global commodity chains (Suwandi, 2019: 49–50), the increase of intra-firm trade between the North and the South (Smith, 2016: 48), and the

Labour-intensive and resource-intensive manufactures High-skill and technology-intensive manufactures

Medium-skill and technology-intensive manufactures

Source: https://unctadstat.unctad.org/wds/ReportFolders/reportFolders.aspx (consulted 25/01/2022).

Low-skill and technology-intensive manufactures

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Total manufactured goods

Figure 1.6 Export of manufactures, developing to developed regions, 1995–2020

0

500000000

1E+09

1.5E+09

2E+09

2.5E+09

3E+09

Capital and peripheral economic development  33

34  Capital and peripheral economic development exports of intermediate products and manufactures. In Figure 1.6, we present the evolution of the export of manufactures from developing to developed regions in the years between 1995 and 2020. Figure 1.6 shows a clear upward trend of the export of manufactures from the developing to the developed world. We can also visualize a tendency of increased exports of medium and high-skilled manufactures and technologyintensive manufactures. The evolution of the exports of low-skilled and labor-intensive manufactures has become stagnant. Figure 1.6 proves the increasing importance of the periphery in worldwide productive processes through outsourcing. 1.5 Conclusions Capitalism is a world system. Competition urges private companies to increase productivity. In general, productivity growth is mainly the product of the use of more constant capital or the increased use of technologies that replace laborpower. The rise of the OCC has a negative effect on the profit rate. The internationalization of capital is an inherent feature of capitalism. Problems related to the realization of value and the possibilities to reduce costs are the main reasons for capital to cross the borders of their native countries. Competition and the consequences of rising productivity are directly related to the necessity of costs reduction and questions regarding the realization of value (overproduction). The struggle against the fall of the rate of profit increased the economic interdependence between nation-states. The international division of labor demonstrates that countries can be classified according to their principal function in the globalized capitalist world. The pyramid of the international division of labor is expressed in the income per capita, the export of services, and the location of the principal companies in the world, among others. The function in the world economy of what might be called the underdeveloped countries is historically related to the problem of extractivism. Extractivism, however, is not something different from the general capitalist processes of accumulation to turn everything into commodities. The use of extractivist development models as a panacea for economic and social progress is a general practice in Latin America. The principal exports products of the Latin American countries are primary products. Although there have been important intents to industrialize the underdeveloped world, most of the dominated and oppressed countries are employing an extractivist or neoextractivist development model. It is important to underline that transnational extractive capital is mainly a foreign affair. These companies belong to the first level of the pyramid of the international division of labor. The drive of capital to reduce costs, the search for profits, and the intentions to stop the profit rate from falling have a dynamic effect on the behavior of capital. It not only brought about what might be called

Capital and peripheral economic development  35 the financialization of the world economy but it also helped to restructure the world economy in the sense that, nowadays, worldwide production is organized in globalized production networks (global value chains). A complex production web has emerged that, through outsourcing, connect small businesses around the globe under the leadership of transnational capital, for the production and appropriation of value. Countries at the second and third level of the international division of labor are increasingly incorporated in these processes. Notes 1 Lenin (1974: 550): “What is important is that capitalism cannot exist and develop without constantly expanding the sphere of its domination, without colonizing new countries and drawing old non-capitalist countries into the whirlpool of world economy.” 2 The transfer of value from the less productive corporations to the more productive companies is the result of the differences in production prices. The less productive companies are more expensive than the more productive corporations. Under the condition that everything that is produced is being sold, while the less productive corporations need to ‘lower’ the value of their commodities, the more productive companies may ‘increase’ the value of their commodities, i.e., the price for the commodities produced by the less productive corporation gets below its value and the price for the commodities produced by the more productive corporation gets above its value. That is what Marx (1973: 66) called the law of competition. 3 Constant capital includes machines and raw materials, among others. Variable capital can be defined as wages and surplus value as potential profit to be realized. 4 The G20 countries are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, the Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States, and the European Union. 5 Nayyar (2006: 72–84) argues that globalization is not a new phenomenon as this, indeed, started in the last quarter of the 19th century. 6 See on this also Bello (2006: 1355) and Caputo Leiva (2012: 87). 7 The measures that were implemented to take care of the overproduction and profitability crisis seemed to have sorted their effects. According to data of Caputo Leiva (2012: 100), the rate of return (not to be confused with the Marxist concept of profit rate) for domestic non-financial corporations in the United States before taxes started to rise in the 1990s and continued until 2008. Panitch and Gindin (2012: 183) tell that the rate of return of US domestic non-financial corporations after tax began to rise again in 1982. Duménil and Lévy (2005: 15) state that in the 1980s, the profit rate increased in the main capitalist countries after the decline in the 1960s that lasted until the early 1980s. Roberts (2015) shows that the world profit rate, i.e., the profit rate of the G7 countries and the BRIC countries (Brazil, Russia, India, and China) was stabilized and even rose somewhat starting from the mid-1980s until the end of the 1990s. 8 See for a comparative analysis, Amin (1979: 206–209; 1976: 42). 9 Unequal trade can be defined as the exchange of commodities with different exchange values that, in the world market, are traded for the same price. The exchange values of commodities that are being produced by countries /firms that have a higher organic composition of capital (OCC) or use relatively more technologically advanced tools and machines than their competitors, produce less

36  Capital and peripheral economic development value but through the price system are able to appropriate more value. Marx (1959: 163): Capitals invested in foreign trade can yield a higher rate of profit, because, in the first place, there is competition with commodities produced in other countries with inferior production facilities, so that the more advanced country sells its goods above their value even though cheaper than the competing countries. In so far as the labour of the more advanced country is here realised as labour of a higher specific weight, the rate of profit rises, because labour which has not been paid as being of a higher quality is sold as such. The same may obtain in relation to the country, to which commodities are exported and to that from which commodities are imported; namely, the latter may offer more materialised labour in kind than it receives, and yet thereby receive commodities cheaper than it could produce them. Just as a manufacturer who employs a new invention before it becomes generally used, undersells his competitors and yet sells his commodity above its individual value, that is, realises the specifically higher productiveness of the labour he employs as surplus-labour.

10

11 12 13 14 15 16 17 18

Suwandi (2019: 156) defines unequal exchange or unequal trade as “the exchange of more labor for less”. The terms of trade are defined as the relation between the change of the value of exports and the change of the value of imports during a determined time period. When the increase of the value of exports is bigger than the increase of the value of imports, the terms of trade have improved. In Chapter 3, these concepts will be developed in more detail. According to Amin (1976: 98), the terms of trade are the “disguised form of unequal exchange”. “The export of raw materials from Latin America was driven by the growing power of international commercial capital and the soaring growth rates of worldwide economic output. The phase of colonial extractivism must therefore be seen as the other, i.e. the darkside of European capitalism” (Brand, Dietz & Lang, 2016: 137). See on the second contradiction also O’ Connor (2001: 200–203). See on concrete policies of neoextractivism, Peters (2016: 28–30). Latin American “dependence is reinforced by those upstream economic actors that control processing and marketing of final products derived from the minerals in question” (Bebbington et al., 2008: 6). See on the crisis and the profit rate: Glyn, Hughes, Lipietz and Singh et al. (1990: 82–83, 87, 92) and Panitch and Gindin (2012: 141). These countries were: (former) West-Germany, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Italy, Japan, Norway, Netherlands, United Kingdom, United States, Sweden, and Switzerland. Labor flexibility, as defined by De la Garza Toledo (2000: 162), “would be the ability of management to adjust employment, the use of the labor-force in the production process and wages, to the changing conditions of production”. Others call it insourcing (Slavnic, 2009: 14). Braverman (1984: 81–82): The early domestic and subcontracting systems represented a transitional form, a phase during which the capitalist had not yet assumed his essential role as manager in industrial capitalism, and control over the labor process; for this reason, it was incompatible with the global development of capitalist production and only survives in specialized instances. See on the historical aspects of outsourcing also Lenin (1974: 366, 377–378, 391, 404–407) and Smith (2016: 39–43).

Capital and peripheral economic development  37

38  Capital and peripheral economic development Brand Ulrich, Kristina Dietz & Miriam Lang (2016), “Neo-extractivism in Latin America. One side of a new phase of global capitalist dynamics”, Ciencia Política, vol. 11, no. 21, pp. 125–159. Braverman, Harry (1984), Trabajo y capital monopolista, Mexico, Editorial Nuestro Tiempo S.A. Burchardt, Hans-Jürgen (2016), “El neoextractivismo en el siglo XXI. Qué podemos aprender del siglo de desarrollo más reciente en América Latina”, in Hans-Jürgen Burchardt, Rafael Domínguez, Carlos Larrea & Stefan Peters (eds.), Nada dura para siempre. Perspectives del neoextractivismo en Ecuador tras el boom de las materias primas, Quito, Ediciones Abya-Yala, pp. 55–87. Caputo Leiva, Orlando (2012), “Crítica a la interpretación financiera de la crisis”, in Dídimo Castillo Fernández & Marco A. Gandásegui, Hijo (eds.), Estados Unidos. Más allá de la crisis, Mexico, Siglo Veintiuno Editores S.A de C.V. / Consejo Latinoamericano de Ciencias Sociales / Facultad de Ciencias Políticas y Sociales de la UAEM, pp. 81–111. Castillo Fernández & Adrián Sotelo Valencia (2013), “Outsourcing and the new labor precariousness in Latin America”, Latin American Perspectives, vol. 40, no. 5, pp. 14–26. Clark, Brett & John Bellamy Foster (2009), “Ecological imperialism and the global metabolic rift: Unequal exchange and the Guano / Nitrates trade”, International Journal of Competitive Sociology, vol. 50, no. 3–4, pp. 311–334. De Echave, José (2009), “Minería y conflictos sociales en el Perú”, in José de Echave, Raphael Hoetmer & Mario Palacios (eds.), Minería y territorio en el Perú. Conflictos, resistencias y propuestas en tiempos de globalización, Lima, Programa Democracia y Transformación Global / Confederación Nacional de Comunidades del Perú Afectadas por la Minería / CooperAcción / Fondo Editorial de la Facultad de Ciencias Sociales, Unidad de Postgrado UNMSM, pp. 105–129. De la Garza Toledo, Enrique (2000), “La flexibilidad de concepto del trabajo en América Latina”, in Enrique de la Garza Toledo (ed.), Tratado Latinoamericana de sociología del trabajo, Mexico, El Colegio de México / Facultad Latinoamericana de Ciencias Sociales / Universidad Autónoma Metropolitana / Fondo de Cultura Económica, pp. 148–178. Duménil, Gerard & Dominique Lévy (2005), “The neoliberal (counter) revolution”, in Alfredo Saad-Filho & Deborah Johnston (eds.), Neoliberalism. A critical reader, London / Ann Arbor, Pluto Press, pp. 9–19. Economic Commission for Latin America and the Caribbean (ECLAC) (2021), Foreign Direct Investment in Latin America and the Caribbean, 2021, Santiago, ECLAC. Economic Commission for Latin America and the Caribbean (ECLAC) (2009), Foreign Direct Investment in Latin America and the Caribbean, 2008, Santiago, ECLAC. Engel, Stephan (2003), Götterdämmerung über der »neuen Weltordnung«. Die Neuorganisation der internationalen Produktion, Gelsenkirchen, Verlag Neuer Weg. FeSMC-UGT (2016), “Empresas multiservicios, o cómo precarizar el empleo. Análisis de las empresas multiservicios 2016”, in http://www.cadenadesuministro.es/wpcontent/uploads/2016/07/Ana%CC%81lisis-Empresas-Multiservicios-2016.pdf (consulted 29/10/2018). Glyn, Andrew, Alan Hughes, Alain Lipietz & Ajit Singh (1990), “The rise and fall of the Golden Age”, in Stephen A. Marglin & Juliet B. Schor (eds.), The Golden Age of Capitalism. Reinterpreting the postwar experience, Oxford, Clarendon Press, pp. 39–125.

Capital and peripheral economic development  39 Ianni, Octavio (1997), Teorías de la globalización, Mexico, Siglo Veintuno Editores, S.A. de C.V. Iranzo, Consuelo & Marcia De Paula Leite (2006), “La subcontratación laboral en América Latina”, in Enrique de la Garza Toledo (ed.), Teorías sociales y estudios del trabajo: nuevos enfoques, México, Universidad Autónoma Metropolitana – Iztapalapa / Barcelona, Anthropos Editorial, pp. 268–288. Janvry de, Alain & Carlos Garramón (1977), “Laws of motion of capital in the center-periphery structure”, Review of Radical Political Economics, vol. 9, no. 2, pp. 29–38. Kolko, Joyce (1988), Restructuring the world economy, New York, Pantheon Books. Lenin, Vladimir Illich (1974), El desarrollo del capitalismo en Rusia, Barcelona, ­Editorial Ariel. Lenin, Vladimir Illich (1961), “El imperialismo, fase superior del capitalismo”, in V. I. Lenin (ed.), Obras Escogidas en tres tomos, 1, Moscow, Editorial Progreso, pp. 689–798. Löwy, Michael (2007), “Ecosocialismo, democracia y planificación”, in http://www. estudiosecologistas.org/docs/reflexion/Ecosocialismo/ecosocialismo_democracia. pdf (consulted 05/07/2014). Löwy, Michael (2004), “¿Qué es el ecosocialismo?”, in http://www.minea.gob.ve/ wp-content/uploads/2017/08/Qu%C3%A9-es-el-Ecosocialismo.pdf (consulted 05/07/2014). Löwy, Michael & Samuel González (2011), “Crisis ecológica y lucha política: la alternativa ecosocialista”, in http://www.ecoportal.net/Temas_Especiales/Politica/Crisis_ecologica_y_lucha_politica_la_alternativa_ecosocialista (consulted 05/07/2014). Luxemburg, Rosa (2013), The complete works of Rosa Luxemburg. Volume I: Economic Writings 1, edited by Peter Hudis, London, Verso (E-book). Luxemburg, Rosa (1951), The accumulation of capital, London, Routledge and Kegan Paul Ltd. Maddison, Angus (1982), Las fases del desarrollo capitalista. Una historia económica cuantitativa, Mexico, Fondo de Cultura Económica S.A. de C.V. Magdoff, Harry (1969), La era del imperialismo. Política económica internacional de Estados Unidos, Mexico, Editorial Nuestro Tiempo S.A. Mandel, Ernest (1975), Tratado de Economía Marxista Tomo II, Mexico, Ediciones Era S.A. Marx, Carlos & Friedrich Engels (1980), Manifiesto del partido comunista, Beijing, Ediciones en Lenguas Extranjeras. Marx, Carlos (1973), El Capital, Crítica de la Economía Política, Libro tercero, Buenos Aires, Editorial Cartago, SRL. Marx, Karl (1959), “Capital. A critique of political economy. Vol. III. The process of capitalist production as a whole”, in https://www.marxists.org/archive/marx/ works/download/pdf/Capital-Volume-III.pdf (consulted 29/12/2022). Marx, Karl (n.d.), Grundrisse der Kritik der politischen Ökonomie, Frankfurt / Wien, Europäische Verlaganstalt Frankfurt / Europa Verlag Wien. Metals Economics Group (2011), “Tendencies the exploración mundial 2011. Un informe especial del Metals Economics Group para la convención internacional del PDAC”. Versión en español preparada por el Centro de Estudios del Cobre y la Minería”, in http://www.metalseconomics.com/sites/default/files/uploads/PDFs/ wet2011spanish.pdf (consulted 23/06/2012).

40  Capital and peripheral economic development Nayyar, Deepak (2006), “Globalization and development in the long twentieth century”, in K. S. Jomo (ed.), Globalization under hegemony, Oxford, Oxford University Press, pp. 71–99. O’ Connor, James (2001), Causas naturales. Ensayos de marxismo ecológico, ­Mexico, Siglo Veintiuno Editores S.A. de C.V. Panitch, Leo & Sam Gindin (2012), The making of global capitalism. The political economy of American empire, London / Brooklyn, Verso Books. Parodi Trece, Carlos (2014), Perú 1995–2012. Cambios y continuidades, Lima, Universidad del Pacífico. Pegg, Scott (2006), “Mining and poverty reduction: Transforming rhetoric into reality”, Journal of Cleaner Production 14, Amsterdam, pp. 376–387. Peters, Stefan (2016), “Fin del ciclo: el neoextractivismo en Suramérica frente a la caída de los precios de las materias primas. Un análisis desde la teoría rentista”, in Hans-Jürgen Burchardt, Rafael Domínguez, Carlos Larrea & Stefan Peters (eds.), Nada dura para siempre. Perspectives del neoextractivismo en Ecuador tras el boom de las materias primas, Quito, Ediciones Abya-Yala, pp. 21–53. Petras, James & Henry Veltmeyer (2013), Social movements in Latin America. Neoliberalism and popular resistance, London, Palgrave Macmillan. Unedited version. Roberts, Michael (2015), “Revisiting a world rate of profit”, in https://thenextrecession.files.wordpress.com/2015/12/revisiting-a-world-rate-of-profit-june-2015.pdf (consulted 28/01/2016). Robinson, William I. (2010), Latin America and global capitalism. A critical globalization perspective, Baltimore, MD, The Johns Hopkins University Press. Robles, Miguel, Jaime Saavedra, Máximo Torero, Néstor Valdivia & Juan Chacaltana (2001), Estrategias y racionalidad de la pequeña empresa, Lima, Oficina Internacional del Trabajo. Saxe-Fernández, John & Omar Núñez Rodríguez (2001), “Globalización e imperialismo: la transferencia de excedentes de América Latina, in John Saxe-Fernández, James Petras, Henry Veltmeyer & Omar Núñez (eds.), Globalización, imperialismo y clase social, Buenos Aires / Mexico, Grupo Editorial Lumen Humanitas, pp. 87–165. Slavnic, Zoran (2009), “Informalization and political economy of restructuring”, Migración y Desarrollo, vol. 7, no. 13, pp. 5–24. Smith, John (2016), Imperialism in the twenty-first century. Globalization, superexploitation, and capitalism’s final crisis, New York, Monthly Review Press. Suwandi, Intan (2019), Value chains. The new economic imperialism, New York, Monthly Review Press. Svampa, Maristella (2020), “Neoextractivism and development”, in Henry Veltmeyer & Edgar Zayago Lau (eds.), Buen Vivir and the challenges to capitalism in Latin America, New York, Routledge. Unpublished version. Svampa, Maristella (2013), “Resource extractivism and alternatives: Latin American perspectives on development”, in Miriam Lang & Dunai Mokrani (eds.), Beyond development. Alternative visions from Latin America, Quito, Fundación Rosa Luxemburg, Amsterdam, Transnational Institute, pp. 117–144. Sweezy, Paul M. (1977), Teoría del desarrollo capitalista, Mexico, Fondo de Cultura Económica. UNCTAD (2007), “World Investment Report 2007. Transnational corporations, extractive industries and development”, New York / Geneva, United Nations, in http://unctad.org/en/docs/wir2007_en.pdf (06/07/2014).

Capital and peripheral economic development  41 Veltmeyer, Henry (2021), América Latina en la Vorágine de la Crisis. Extractivismos y Alternativas. Un ensayo de calas. Unpublished version. World Bank (2011a), “The World Bank Group in Extractive Industries. 2011 Annual Review”, Washington DC, in http://siteresources.worldbank.org/INTOGMC/ Resources/WBG_EI_Annual_Report_FY11_Final.pdf (consulted 16/09/2014). World Bank (2011b), “Latin America and the Caribbean’s Long-Term Growth. Made in China?”, Washington, DC, in http://siteresources.worldbank.org/LACEXT/ Resources/Annual_Meetings_Report_LCRCE_English_Sep17F2.pdf (consulted 16/09/2014). Zhenwei Qiang, Christine, Yan Liu & Victor Steenbergen (2021), An investment perspective on global value chains, Washington, DC, World Bank Group.

2

The peripheral capitalist development of Peru

Introduction This chapter provides the theoretical basis for the understanding of the particularity of capitalist economic development in the Latin American periphery of globalized capitalist development and of Peru in particular. We believe that for an understanding of development and underdevelopment in peripheral countries, we first have to start researching the economic basis of these societies. While in Chapter 1 we were focused on how the economies and the companies of the advanced capitalist countries determined economic development in the periphery, in this chapter we dig into the economic and political consequences of this relationship between the Global North and the Global South. This chapter is organized into five sections and one appendix. We start with a general outline of the characteristics of what is known as dependent capitalist economic development with special emphasis on the dominant role of the extractive sectors in the peripheral economies and the incorporation of these economies in globalized value chains. After having discussed the causes of dependent capitalist economic development, we demonstrate how this relationship of dependency is expressed within the country. We present 12 general characteristics of dependent capitalist economic development. Following our analysis of dependent capitalist economic development in Latin America, in the second section we discuss the general structure of these economies. As is well known, in the past, many peripheral societies were called dual economies. Currently, with the advancement of capitalism to all corners and social layers of society, it is difficult to continue to characterize these societies as dual economies. In section two, apart from the discussion on the question of duality of the peripheral economies, we explain the transfer of value caused by differences in the organic composition of capital (OCC) and the corresponding productivity differences and profit rate differences. We also study the issue of productive heterogeneity, we introduce the concepts of the advanced economy (AE) and the capitalist subsistence economy (CSE), we exam the relation between the AE and the CSE, and we present the contribution of the CSE to DOI: 10.4324/9781003289456-3

The peripheral capitalist development of Peru  43 Gross Domestic Product (GDP) and export value. We argue that although the Peruvian economy expresses itself as a dual capitalist economy, it is organically a unified whole. The third section looks into the problem of marginality in relation to our concept of the CSE. The CSE includes more economic actors than only what Quijano called the “marginal pole”. In relation to the concept of marginality, we examine the issue of informality, the industrial reserve army, and super-exploitation. The section four turns to the superstructure of Latin American societies, specifically the state apparatuses. We present our concept of the dependent capitalist state, we discuss on what it is based and how it was formed. The Peruvian State is a dependent capitalist state. It holds the general characteristics of the capitalist state and the characteristics that are product of its country’s role in the capitalist world system and the dependent character of its economy. The economic base of the dependent capitalist state is the international markets. The national state makes the national base fit the international base. In the last section, we present our conclusions. This chapter includes an appendix that provides data on total factor productivity for the period 1960– 2019 of an extended number of countries. 2.1 Dependent capitalist economic development Countries at the periphery of world capitalism are subordinated to the political and economic interests of the advanced capitalist countries. Their position in globally organized productive processes has been determined by imperialism. Peripheral countries form an integrating part of the capitalist world system as “they are formed in the context of its expansion”. In the last instance, it is world capitalist development that determines the development of underdeveloped countries (Bambirra, 1985: 9). Dependent capitalist development is a direct product of colonial oppression, exploitation, and domination. The imperialist practices of the dominant countries impeded a ‘natural’ and ‘homogenic’ political, economic, and social development of the dominated countries (Baran, 1964: 168, 189). Hence, a capitalist development as occurred in the current dominant capitalist countries was, structurally, politically, economically, and socially, impossible. In this sense, Dos Santos (1986: 307) explains that dependency is “a historical situation that shapes a certain structure of the world economy that favors the economic development of some countries over others in detriment of others and determines the development possibilities of the internal economies”. According to Quijano (2007: 16), the capitalist mode of production was “never completely, systematically and homogenously” transferred to the peripheral countries. What happened was that local production structures were “reorganized” in function of the necessities of the dominant countries. Domination “spawned” the structural dependency of the peripheral societies.

44  The peripheral capitalist development of Peru From their insertion in the world economy through imperialism, nowadays called globalization, the current dependent capitalist economies have been providers of natural resources (Dos Santos, 1986: 303–304) and a cheap labor-force for economic development in the dominant or oppressive countries. This function in the world economy, or the role of dependent countries in the international division of labor, is exactly the product of the relation of dependency between the dominant advanced capitalist countries and the periphery. As Dos Santos (1978: 49) argues, dependence is an intrinsic feature of the socioeconomic system of underdeveloped countries. The international situation is characterized by the existence of an increasing interdependence of national economies, worldwide under the hegemony of one or more dominant centers that transform this development in accumulation of wealth and power for themselves at the expense of the majorities in the world. This situation has an internal face in the dominated countries. This internal face is not a consequence of external factors, but it is its own way — the dependent mode — to participate in this process of development of the capitalist world economy. The dependence is therefore the specific mode of capitalist production in our countries. It is also the way our societies are structured. Dependence is the situation that conditions our development and gives it a specific way in the world context — of that of dependent capitalist development—.1 This development follows its own laws, conditioned by this situation that we have to discover in order to act consciously on our reality. (Dos Santos, 1978: 49)2 Peru’s function in the globalized capitalist world, or the role the underdeveloped countries play in the international division of labor in general, is not the consequence of its possession of abundant raw materials necessary for capitalist development in the Global North, but the historical result of having its proper (capitalist) development been cut off by colonial exploitation and oppression.3 The country entered the world capitalist arena without having capitalistically developed its own productive forces and processes and, as such, became subjected to the necessities of capital in the Global North (Cypher & Dietz, 2009: 89; Emmanuel, 1976: 24; Mandel, 1975: 76; Yepes del Castillo, 1972: 32–33; Frank, 1971; Baran, 1964: 167). The European invasion changed the production methods of pre-colonial times and made Peru to form part of the world economy (Contreras Carranza, 2021: 24; Thorp & Bertram, 1978: 3). Hence, it is also understandable that since then, the mining sector in Peru is dominated by foreign capital (Grupo Propuesta Ciudadana, 2014; 10; Torres Cuzcano, 2013: 38; FitzGerald 1981: 154, 157). Mining was the key for the country’s economic insertion in the world (Contreras Carranza, 2021: 67, 116).

The peripheral capitalist development of Peru  45 The role of the periphery in the international division of labor explains the structural character of the dependent relationship. Dependency is founded on the international division of labor that permits, in general terms, the industrial development of some countries and limits the same development for others. These last countries are subjugated by the conditions of growth induced by the centers of world domination (Dos Santos, 1986: 305). Hence, dependency is a “conditional situation”. This means that the economic development of a certain group of countries is “conditioned by the development and expansion of another economy”. The conditioned countries can only expand as a reflection of the expansion of exactly the countries that condition the expansion. The expansion itself “can act positively and /or negatively on its immediate development”. The conditioned countries cannot grow on their own (Dos Santos, 1986: 305). Economic growth (or slowdown) is primarily the consequence of increasing (or decreasing) demand for the country’s natural resources and rising (or reducing) commodity prices in international markets. To be providers of natural resources and cheap labor for capitalist economic development in the Global North, and the dependency of economic growth on the development of the demand abroad and commodity prices that are determined in the international markets, are the first two characteristics of dependent capitalist economic development. The dependent character expresses itself in the internal structure of the economy that reenforces the dependent character. As a matter of fact, “dependency conditions a certain internal structure that defines it in function of the structural possibilities of these national economies” (Dos Santos, 1986: 307). A clear example of how the dependent character of the Peruvian economy is expressed in the internal economic structure of a country is the case of its manufacturing sector, its non-tradable sectors, the direction of the inward international capital flows and its business structure. The contribution of the manufacturing sector to GDP is relatively small and the non-tradable sectors very big (the third and fourth characteristic of dependent capitalist economic development). In the years between 1980 and 2019, the contribution of the Peruvian manufacturing sector to GDP was small and even falling. This, however, is not a particular Peruvian phenomenon. In Colombia, Bolivia, and Brazil, among other countries, the same issue can be found.4 These are all countries dependent, for a large part, on their natural resources. Also in Malta, the Netherlands, New Zealand, and the United States, the contribution of the manufacturing sector is relatively small (World Bank, 2016: 108). What marks the difference between these two sets of countries is the fact that the second group (all nations pertaining to the Global North) largely compensates the limited contribution of their manufacturing sector with the production of tradable services. The services that are produced in Peru are principally non-tradable services. Hence, the services account of the country’s balance of payments structurally shows a

46  The peripheral capitalist development of Peru deficit. This external disequilibrium expresses the particularity of capitalist production in Peru (Figueroa, 1986: 86). The dominance of non-tradable sectors (electricity and water, construction, commerce, and most of the services) in GDP demonstrates that production is not focused on high value-added exportable goods and services. The relation between the international division of labor and Peru’s economic structure is fortified by international capital movements. Not only do these movements result in the country’s particular role in the international division of labor, but the division itself helps to shape, in turn, the particularities of these capital flows. FDI flows reveal that international capital has been mainly interested in the mining, hydrocarbon, and telecommunication sectors.5 This is a pattern that has been expressed in the argument that capital flows to underdeveloped countries specialize in the production for the world market or set up the infrastructure for this production (Mandel, 1975: 77). This is the fifth characteristic of dependent capitalist development. In Table 2.1, we present the balance of FDI as a contribution to capital, according to economic sectors, for the period 1997–2020. The sixth characteristic of dependent capitalist development is expressed in how the relationship between the country’s role in the international division of labor and international capital flows is reflected in the top of a nation’s business structure. According to data of the business magazine America Economia, the principal corporations that operate in Peru are business undertakings in the extractive sectors of the economy. Furthermore, while in the 1990s the top five of the largest corporations that operated in Peru were native, since 2000 foreign capital dominates the ranking of the top five of the biggest enterprises in the country (Lust, 2019a: 123, 125, 126). The seventh characteristic of dependent capitalist economic development is the dominant position of foreign capital in the countries of the periphery that makes the development of a class of homegrown entrepreneur’s very difficult (Furtado, 1971: 21–23). Increased presence of foreign capital makes it hard for a national bourgeoisie to mature and for a national and autonomous capitalist development to prosper (Dos Santos, 2020: 710). The prime function of peripheral countries to provide the natural resources and a cheap labor-force for productive processes in the center of world capitalist development reduces the necessities for the local political leaders or the elite to initiate national processes of technological development. The extractive rents help to maintain their privileges. Industrialization processes are not necessary for economic and social progress in the benefit of the elite and the main business leaders. Hence, in general, the productivity rates in the underdeveloped regions are lower than in the advanced capitalist countries. This is the eight characteristic of dependent capitalist economic development. In Table 2.2, data are presented on Total Factor Productivity for selected countries in the period 1960–2019. The differences between countries that pertain to the first (1), second (2), and third (3) levels of the international division of labor become visual (with some notable exceptions such as Chile). See Appendix 2.1 for an extended list of countries.

1,230.8 756.3 2,058.0 1,267.8 1,220.0 131.1 412.1 97.9 16.9 32.5 5.5 36.2 7.7 10.5 1.2

I. 1997

1,374.3 887.6 2,131.9 1,374.2 1,350.9 155.6 518.2 97.9 81.6 44.5 5.5 41.8 26.2 10.9 1.2

II. 1998 1,663.1 1,472.8 2,387.3 1,540.6 1,484.1 190.3 529.4 97.9 16.8 55.9 5.5 58.4 42.1 13.2 1.2

III. 1999 1,698.0 1,730.9 4,620.8 1,537.1 1,556.8 213.5 567.4 97.9 27.8 60.2 5.5 58.4 44.4 13.4 1.2

IV. 2000 1,703.1 2,218.5 4,400.0 1,625.7 1,719.1 360.8 588.6 157.9 40.8 70.6 5.5 58.4 44.4 24.1 1.2

V. 2001 1,706.7 2,024.5 4,702.5 1,626.3 2,432.0 407.2 587.4 207.9 133.5 70.6 5.5 58.4 44.4 23.3 1.2

VI. 2002

Source: https://www.investinperu.pe/es/invertir/estadisticas-generales (consulted 11/02/2022).

XII. Mining Finance Communication Energy Industry Services Commerce Petroleum Transport Construction Fishing Tourism Agriculture Housing Forestry

Sector 1,776.5 1,877.0 4,730.6 1,632.1 2,456.9 424.3 587.8 207.9 246.9 81.4 5.5 62.1 44.4 23.7 1.2

VII. 2003 2,016.3 1,898.6 4,343.5 1,647.8 2,375.3 431.1 609.4 207.9 248.4 86.1 10.0 62.1 44.4 24.8 1.2

VIII. 2004 2,069.2 2,216.3 3,721.1 1,647.8 2,295.0 442.8 607.4 207.9 265.2 95.2 14.5 63.2 44.4 25.1 1.2

IX. 2005

X. 2006 2,650.8 2,414.6 3,712.8 1,664.2 2,789.6 453.5 643.5 207.9 265.2 124.2 133.0 63.4 44.4 25.7 1.2

Table 2.1 Balance of FDI as a contribution to capital, according to economic sectors, 1997–2020 (in millions of US$)

2,747.7 2,480.8 3,784.4 1,673.0 2,808.6 481.3 652.7 233.2 265.2 163.9 163.0 63.5 44.8 25.7 1.2

XI. 2007

The peripheral capitalist development of Peru  47

48  The peripheral capitalist development of Peru Table 2.2 Total factor productivity level at current PPPs (USA=1) 1960 Brazil (3) Canada (1) Chile (3) China (2) Germany (1) Indonesia (2) Italy (1) Kenya (3) New Zealand (1) Norway (1) Paraguay (3) Peru (3) Tanzania (3) United States (1) Zimbabwe (3)

0.5636 0.9143 0.8204 0.4261 0.5802 0.5291 0.6444 0.3936 0.9341 0.6002 0.7213 0.5924

1970

0.7191 1.0668 0.9419 0.4679 0.6392 0.4523 0.903 0.4106 0.8949 0.6057 0.7304 0.7359 0.4803 1 1 0.6315 0.8079

1980

1990

2000

2010

2019

0.8331 1.0107 0.8161 0.3643 0.7809 0.6315 1.1896 0.511 0.7795 0.9525 0.8278 0.7953 0.4309 1 0.9021

0.6074 0.9504 0.6288 0.348 0.8224 0.6065 0.9904 0.5163 0.7764 0.858 0.6262 0.4622 0.2258 1 1.1896

0.6553 0.957 0.6365 0.3345 0.9827 0.4386 0.9623 0.3333 0.8525 1.2207 0.4524 0.3837 0.2564 1 0.445

0.6025 0.8476 0.7757 0.416 0.9235 0.4022 0.819 0.3305 0.8528 1.2294 0.6059 0.5354 0.3219 1 0.2967

0.5068 0.8389 0.7507 0.4005 0.9088 0.4449 0.7081 0.3541 0.8388 1.03 0.6163 0.446 0.3191 1 0.352

Source: https://febpwt.webhosting.rug.nl/Dmn/AggregateXs/PivotShow# (consulted 11/02/2022).

The reduced development of the productivity rates of countries that principally provide natural resources for productive processes in the Global North and the countries that serve as factories of transnational capital compared with nations at the first level of the international division of labor can be explained by their role in the globalized capitalist world and is expressed in the OCC of every country in particular (see below for a detailed explanation of this concept). The relatively low productivity levels of the underdeveloped countries are accompanied by sharp productivity differences within these nations and between economic sectors (Amin, 1979: 116). In the case of Peru, for instance, the general rates of productivity appear to be decreasing; however, this might not be the case for all economic sectors. It is to be expected that sectors such as mining, petroleum, finance, and communication (the sectors that receive most of FDI) have above national average productivity rates. Most of the different intents to industrialize the countries in Latin America have failed because the industrialization policies did not eradicate the dependent character of these economies. As a matter of fact, the implemented industrialization policies increased the dependent character of the Latin American economies. For instance, national production became increasingly dependent on the import of foreign supplies and, hence, on supply-side international recessions (Bethell, 1997: 119). Capital was imported by using the available national resources, or the necessary foreign means of production were financed by loans. FDI was increasing and directed towards the production of the substitutes of the manufacturing imports, and the profits were transferred out of the country (Bethell, 1997: 83; Fitzgerald, 1981: 54).6 Low income per capita did not

The peripheral capitalist development of Peru  49 help generate national liquid capital markets and the difficulties maintained to increase the internal markets (Furtado, 1971: 56–58).7 The implemented industrialization policies increased the dependent character of the Latin American economies and integrated these economies into productive processes of multinational companies (Furtado, 1971: 51–52).8 Another problem, in Peru, of what was called Import Substitution Industrialization (ISI) was that for the creation of an assembly industry, it not only needed to import the machines to be assembled but also the machines and tools to assemble. This increased the necessity for foreign currency (Contreras Carranza, 2021: 399). The key importance of the extractive sectors for economic development in the periphery has contributed to the idea that these economies are dual economies. It is definitively a fact that the principal economic sectors are dominated by international capital and some large national companies. High rates of productivity, large-scale capital investments, and a relatively highskilled labor-force characterize these sectors. The rest of the economy is occupied by small business ventures suffocating under low productivity rates and providing employment to the ‘superfluous’ manual, and most of the time low-skilled, labor-force. This is the ninth characteristic of dependent capitalist economic development. The tenth characteristic of dependent capitalist economic development is the fact that, in general terms, the productivity levels of national capital (composed of big, medium-sized, small, and micro companies) are lower than their principal competitors in the advanced capitalist countries. This forces these businesses to increase the rates of exploitation in order to maintain their profit margins, reaching the levels of super-exploitation. The limited availability and use of technologies in the periphery of world capitalist development and the lack of investments in human capital, leading to overall productivity rates that are lower than the world average (Furtado, 1965: 81) and causing reduced levels of competitivity, not only urges national capital to use practices of super-exploitation but it is also the basis for unequal trade (Marini, 1985: 38–40; Cardoso, 1974: 204). What are called underdeveloped countries, are permanently suffering a drain of wealth in their commercial relationships with the countries of the Global North as their terms of trade structurally deteriorate. This is the 11th characteristic of dependent capitalist development. The Peruvian internal market is very small. This can be evidenced by the large numbers of the Peruvian population that work in micro companies and earn a wage or salary at or near (below or above) the nominal minimum wage level. According to our estimates, in the period 2007–2019, average real income per capita was around 20% to 25% higher than the nominal minimum wage level (INEI, 2021a: 23; 2013: 23). Another indicator of the small size of the internal market is the rate of underemployment. This rate indicates the percentage of the Economic Active Population (EAP) that works less than 35 hours a week but who would like to work more hours but cannot find

50  The peripheral capitalist development of Peru employment, and the persons who work 35 hours or more a week but receive a wage below the real minimum wage level (Parodi Trece, 2014: 213ft57). In Table 2.3, data are presented on the overall rate of underemployment and underemployment based on income in the years between 2001 and 2020. The development of the internal market is conditioned by the development of the world economy. In other words, international boom and bust cycles determine the evolution of the internal market.9 Since 2004, the increase of Peru’s GDP and, consequently, the increase of the size of the internal market, are principally caused by the demand for the country’s mineral resources and FDI in the extractive sectors. Internal economic forces are too weak to increase, on their own account, the size of the internal market.10 The 12th characteristic of dependent capitalist economic development is the reduced size of the internal market. Most of the Peruvian companies definitively have an interest in the development of the internal market. The big majority of these businesses are very small and do not participate in international trade. However, the particularity of these corporations (low productivity, low wages) and price competition make it very difficult to increase the size of the internal market. It can be argued that these factors even cause a permanent reduction of the internal market. Table 2.3 Overall rate of underemployment and rate of underemployment based on income, 2001–2020 Year

Overall rate of underemployment

Rate of underemployment based on income

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

65.2 64.2 64.4 72.5 73.3 67.9 62.6 58.5 55.6 53.6 51.1 48.1 47.0 46.3 45.7 44.9 44.7 43.6 42.5 50.4

54.0 54.6 55.4 65.6 66.4 60.4 54.3 51.1 48.1 46.5 44.9 43.8 43.1 43.0 42.7 42.0 42.0 41.2 40.2 47.5

Source: http://webapp.inei.gob.pe:8080/sirtod-series/

The peripheral capitalist development of Peru  51 International capital and big national corporations are not very interested in the development of the Peruvian internal market. Their productive activities are principally determined by the world market (Fitzgerald, 1981: 197; Dobb, 1970: 42).11 Hence, it might be argued that the Peruvian internal market is an appendix of the markets in the advanced capitalist countries (Baran, 1964: 201). In this context, we might remember Cardoso (1979: 300) who argued that the internal markets of the dependent countries are not of strategic interest to international capital. Suwandi (2019: 156) argues that the “realization of value is primarily determined by the sales conditions in the North rather than in the South”. As the prime function of the country and its laborers is to provide the raw materials for international capital (or the Global North), there is no need for the dominant capitalist fractions in the world (including the dominant fractions of the bourgeoisie in Peru) to contribute to the development of the Peruvian internal market (for instance by increasing remuneration rates). It is only necessary that sufficient labor-power is available for the extraction of the country’s raw materials. Emmanuel (1979: 171) argues that the export of a big part of the surplus produced in countries such as Peru deprives these nations of the means to accumulate economic growth. According to Palma (1988: 37), the role of countries at the periphery of the world capitalist system in the international division of labor does not permit ‘sufficient’ accumulation to provide employment for all. Only those production sectors are stimulated that serve the interests of accumulation in the countries at the center of the capitalist world system. 2.2 Productive heterogeneity and economic dualism Capitalist societies tend to increase their technological knowledge and capacities because of the competition between companies to produce and appropriate surplus value. The conversion of surplus value in capital is called the accumulation of capital (Marx, 1970: 579). Capital is accumulated in order to produce new and more surplus value (Mandel, 1969a: 92). In case no surplus value is engendered, no capital is created, and capitalism enters in crisis. The accumulation of capital is the motor of capitalist development (Sweezy, 1977: 92). Or, as Marx (1970: 624) puts it: “With the accumulation of capital, therefore, the specifically capitalist mode of production develops, and with the capitalist mode of production the accumulation of capital”.12 The technological drive of companies is consequence of the necessity to increase productivity. When a company succeeds in increasing its productivity, its commodities become cheaper (lower unit costs), and it is able to increase the surplus value by appropriating the surplus value that is produced elsewhere. The increase of the use of technology and/or the increase of the use of every time more sophisticated technologies is expressed in the OCC. The OCC can be defined technically and in value terms. The value composition is determined by the relation between the value of constant and

52  The peripheral capitalist development of Peru variable capital. The technical composition is the relation between the mass of the means of production and the necessary labor-power to put these means in movement (Marx, 1973a: 587). The relation between constant and variable capital is expressed in the relation c/v. When the OCC rises, the value of constant capital that is being used in the production process has increased more rapidly than the value of variable capital. One of the reasons might be that machines have replaced labor-power. Corporations with a higher OCC than the average have a lower rate of profit than the average. The individual values of their commodities are lower than the average, i.e. less value is transferred to these commodities than to the ‘average commodities’. The corporations with a lower than the average OCC produce commodities with more value incorporated than companies with the average OCC (individual value > social value). They also have a higher rate of profit than the average. The average rate of profit in a specific branch is established on the basis of the relationship between all surplus value produced and all capital invested in this branch. The transfer of surplus value from the less productive corporations to the more productive companies, by maintaining differences in the OCC (Mandel, 1969a: 147–148, 149), defines the average rate of profit. The transfer of value from the less productive corporations to the more productive companies is the result of the differences in production prices.13 The less productive companies are more expensive than the more productive corporations. Under the condition that everything what is produced is being sold, while the less productive corporations need to ‘lower’ the value of their commodities, the more productive companies may ‘increase’ the value of their commodities, i.e. the price for the commodities produced by the less productive corporation gets below its value and the price for the commodities produced by the more productive corporation gets above its value.14 That is what Marx (1973b: 66) called the law of competition. So, the more productive, the less value it produces but more it can appropriate that is produced elsewhere.15 When it is considered that capitalist societies tend to increase the development and use of technology, expressed in increasing rates of productivity, it draws attention that this is not really the case in countries at the periphery of world capitalism. In Table 2.2 (and Appendix 2.1), we show the productivity differences between the countries in the periphery and the world capitalist center, and in Table 2.4, we present a list of 35 countries (peripheral and advanced capitalist countries) and their location in the ranking of patent applications in 2019. Research of Cimoli, Porcile, Primi and Vergara (2005: 14–16, 29, 39) shows that in the years between 1970 and 2000, the development of the knowledge disseminators sectors in industry in Latin America stayed behind when compared to countries such as the United States, Norway, Finland, Australia, Singapore, Republic of Korea, Malaysia, the Philippines, and

The peripheral capitalist development of Peru  53 Table 2.4 Ranking of 35 selected countries of patent applications (abroad and resident), 2019 Country

Ranking

China United States Japan Republic of Korea Netherlands India Canada Turkey Brazil Indonesia Mexico Ukraine Thailand Vietnam Argentina Egypt Hungary South Africa Malaysia Philippines Colombia Uzbekistan Pakistan Kenya Morocco Peru Latvia Republic of Moldova Cuba Bangladesh Mongolia Panama Bosnia and Herzegovina Jordan Jamaica

1 2 3 4 9 10 14 22 24 30 32 33 39 49 50 45 43 41 38 53 54 60 62 64 69 77 78 87 89 94 93 104 106 112 122

Source: World Intellectual Property Organization (2020).

Taiwan. In the case of Peru, we can even see an increase of the weight of the labor-intensive sectors in industry. The countries at the periphery of world capitalism do not only lack technological development that helps to increase productivity or capital and labor are not assigned to the economic sectors with the highest productivity rates that assure the highest rates of return but are also characterized by what is called productive heterogeneity. The existence of productive heterogeneity implies that the expansion of sectors that are complementary (and need each other to develop) are not, in

54  The peripheral capitalist development of Peru general, increasing or developing simultaneously. Hence, problems emerge regarding the coordination of investment decisions. By referring to the work of Anibal Pinto, Cimoli, Porcile, Primi and Vergara (2005: 11), it is explained that productive heterogeneity is expressed in the segmentation of production at three levels: (i) sectors that function with productivity levels comparable with the productivity rates in the advanced capitalist countries such as the export, industrial and service sectors; (ii) sectors with productivity rates that correspond with the national averages; and (iii) sectors that have inferior (primitive) rates of productivity. A reduction of productive heterogeneity is possible when the participation of the labor-force assigned to activities with low rates of productivity diminishes (Holland & Porcile, 2005: 51). Productive heterogeneity expresses itself, principally, in high rates of productivity differentials between sectors and in high rates of productivity differentials within sectors. 16 As a consequence, the increase of productivity in one sector does not lead to an increase of total production as interrelated sectors lag behind. Hence, an increase of productivity in one sector leads to a reduction of the labor-force in this sector because overall production in this sector does not increase. In the peripheral countries, a reduction of the use of labor in the formal sector implies an increase of the number of informal workers, characterized by low rates of productivity (Cimoli, Porcile, Primi & Vergara, 2005: 23–26). The persistence of a high percentage of informal workers in Peru is an indicator of productive heterogeneity.17 A study of Céspedes, Aquije, Sánchez and Vera-Tudela (2014: 20–21) has shown that significant productivity differences existed between economic sectors in Peru. Especially when mining, fishing, and agriculture are compared, we can observe marked differences. In Tables 2.5a and 2.5b, data are presented on the labor productivity in Peru, measured in the local currency (sol), according to economic sectors for the years between 2007 and 2020. As might be expected, the highest rate of productivity corresponds to mining and the lowest to agriculture and fishing. The differences are very large. The productivity rates for the manufacturing, construction, transport, and communication sectors do not radically differentiate between each other. This can be understood as these sectors use comparable levels of technology. The labor-intensive sectors, such as commerce, and restaurant and accommodation, lag far behind these sectors. The data in Tables 2.5a and 2.5b clearly demonstrate a high rate of productive heterogeneity.18 Productive heterogeneity in Peru is a structural issue. Data for the period 1961–1993 show that the lowest rate of productivity was always agriculture and the highest rate corresponded to the mining sector. Commerce and services had similar productivity rates, but most of the time markedly lower than electricity, industry, and construction. The rate of productivity of industry and construction was always substantially lower than electricity.19 Productive heterogeneity is strongly related to what is called economic dualism. According to Pinto (2016: 304), economic dualism is “identified”

The peripheral capitalist development of Peru  55 Table 2.5a Labor productivity according to economic sectors in soles, 2007–2013 Economic sectors

2007

2008

2009

2010

2011

2012

2013

Average total economy Agriculture and fishing Mining Manufacture Construction Commerce Transport and communication Restaurant and accommodation

19,125 20,934 21,351 24,289 27,344 28,816 30,650 4,620

5,562

6,009

6,601

7,681

7,960

8,756

224,546 30,136 23,816 11,910 23,797

194,954 31,823 27,614 14,168 25,348

206,382 31,090 29,481 14,136 28,021

252,024 34,794 33,615 16,081 30,604

278,181 37,968 34,215 18,588 33,181

255,900 40,053 38,387 19,717 37,263

276,281 42,105 39,572 20,572 40,738

8,956 10,021 10,624 11,573 13,556 15,271 17,549

Source: INEI (2021c: 151–153).

Table 2.5b Labor productivity according to economic sectors in soles, 2014–2020 Economic sectors

2014

Average total economy Agriculture and fishing Mining Manufacture Construction Commerce Transport and communication Restaurant and accommodation Other services

31,939 33,486 35,762 37,446 38,775 39,557 42,710 9,303 238,035 43,124 41,456 21,246 44,102

2015

2016

2017

2018

2019

2020

9,993 10,939 11,262 11,804 12,028 12,943 218,712 45,129 41,913 22,368 49,200

252,926 46,546 42,023 23,277 51,573

298,997 48,049 43,702 23,833 52,184

308,050 51,264 46,547 24,034 51,131

284,119 316,828 51,640 51,457 47,155 55,250 24,885 28,708 53,470 53,838

19,143 20,852 22,133 22,987 23,737 24,338 21,698 46,315 49,495 52,208 54,208 57,085 59,378 66,660

Source: INEI (2021c: 153–154).

with an “extreme and “abstract” case of the commodity exporting countries”. A distinction is made between the export economy and the rest of the economy. Both economies are “more or less completely separate[d]”. In addition, there is “no “irradiation” from the export locus towards the “hinterland”. The point of view of Barrat-Brown regarding economic dualism differs from Pinto. According to the author of The Economics of Imperialism, what is emerging in the underdeveloped countries is a form of dualism, not between a subsistence sector of agriculture within a feudal framework and a market industrial capitalist sector, but between a high profit / high wage international oligopolistic capitalist and a low profit / low

56  The peripheral capitalist development of Peru wage competitive local capitalist sector. Dualism need not mean that there are no ties between the two, nor only the flow of labour from agriculture into industry. Capital may move easily from the local to the international sector but not labour. (Barrat Brown, 1976: 276) In the context of the concept of economic dualism, Amin (1979: 349) explains that peripheral countries are not nationally integrated. It seems to be a loosely whole of economic sectors, branches, and foreign and national companies. The internal market is heavily segmented instead of integrated. The geographical areas of the principal export products have different growth and welfare rates than in other parts of the country.20 At the international level, however, the underdeveloped country is perfectly integrated. The segmentation of productive activities leads to a segmentation of income. The “hinterland” is not export-oriented, it has a low rate of productivity, and income is low (Pinto, 2016: 305). We do not think that peripheral countries can be considered dual economies. As Pinto (2016: 305) even argues, past industrialization processes have caused that the productive structure of these nations can be divided in “three broad strata”: the strata with extreme low productivity, the strata with the national average rate of productivity, and the “modern pole” with productivity rates similar to the advanced capitalist economies. We believe that many peripheral economies can be divided into an AE and a CSE. The AE (object of interest of transnational capital) might be defined as an economy of the principal private corporations, especially transnational corporations, the source of political and economic power in these countries and the location of relatively high-income consumer markets. The CSE can be defined as an “economy of micro-enterprises characterized by low levels of productivity and expressed in remuneration rates at or near (below or above) the minimum wage level” (Lust, 2019b: 782).21 As one of the functions of the CSE is to serve as a kind of social and economic safety net, this helps to understand why this economy has a very heterogenic production structure (a variety of levels of technological and human resources development, for instance, expressed in productivity differences). The AE and the CSE are both capitalist economies. This means that production is based on the private ownership of the social means of production and is driven by profit. Both sub-economies are monetarized, and the market is the principal distribution mechanism. Individuals who work in the AE or the CSE must sell their labor-power or the fruits of their labor. In both economies, individuals are salaried, selfemployed, and/or receive a remuneration based on a pre-established fixed amount of work, among others. However, in contrast to the AE, individuals in the CSE live at subsistence levels. The CSE is not a modern version of what is known as a subsistence economy. Although the economic surplus in the CSE is minimal and the

The peripheral capitalist development of Peru  57 economic activities employed are meant for the reproduction of survival, i.e., the companies in the CSE do not tend to reproduce themselves at enlarged scale, rather the CSE reproduces itself through the market and in relation to the AE. The CSE is an integral part of the Peruvian economy. Peru is not a dual economy where two sub-economies are economically and socially separated from each other and have structurally different modes of operation. Notwithstanding the fact that technological differences, differences in human capital development, and market structure distinctness point to two separately functioning sub-economies, the supposed dual nature of the Peruvian economy does not mean that they are functionally separated from each other to produce value. Peru may appear to be a dual economy, but it is essentially an organically unified whole, where both sub-economies are intimately tied and need each other for both production and reproduction. The “interconnectedness of global value chains organized by transnational corporations or the global chain of competing subcontracted corporations, principally micro businesses” (Lust, 2021: 325) assures the insertion of the CSE in the world economy, through the national advanced economy. Low production costs (especially the costs of labor-power) through processes of outsourcing in the CSE are of highly interest to companies in the AE as it helps to reduce production costs for the businesses in this economy. This situation appears to reproduce itself continuously as labor abundance in the CSE impedes major investments in capital as it is more profitable to use laborpower (Mattick, 1975: 248). Most Peruvian businesses fall within the category of micro companies and pertain to the CSE. Their contribution to total national production is small.22 For instance, in 2007, micro companies produced 5.9% of total production in the country, while medium-sized and big companies produced 85.3% (INEI, 2008: 37). In 2013, according to data of the Peruvian National Institute of Statistics and Informatics (INEI, for its accronym in Spanish), it was expected that the participation of micro companies in total annual sales would be 5.6%.23 Similarly, the contribution of micro businesses to total export value is negligible. In 2014, 35.6% of all exporting enterprises were micro companies. Their contribution to total export value was 0.5% (Ministerio de la Producción, 2017: 152, 155). In 2019, not much had changed. The contribution of micro companies to total export value was 1.6% and 34.6% of all exporting companies were micro enterprises. The contribution of the big companies to total export value was 95.6% (Ministerio de la Producción, 2021: 55). 2.3 Marginality and the CSE The discussion on productive heterogeneity and economic dualism is strongly related to the debates on Latin American social and economic reality. The concept that, in the 1970s, in relation to these questions started to emerge was marginality. It was especially Aníbal Quijano who began to develop this construct.

58  The peripheral capitalist development of Peru For this book, it is important to pay attention to the concept of marginality as our concept of the CSE includes the individuals that according to Quijano are part of what he denominated as the “marginal pole” (Quijano, 2014: 125–169). In his work “‘Polo marginal’ y ‘mano de obra marginal’”, individuals that ‘pertain’ to the marginal pole lack “stable access to the basic production resources”. They work with “residuals resources” and perform “residual activities”. Individuals at the marginal pole have a precarious relationship with the basic means of production. Between the marginal pole and the dominant sector of society exists a “indirect relation of domination”. The marginal pole is the most dominated and depressed level of the economic structure (Quijano, 2014: 140). The marginal pole is not an expression of a supposed dual character of the economy. Quijano (2014: 140–141) is opposed to this concept. He believes that the “central levels” and the “peripheral levels” form part of a historical process that produces these levels. Both levels belong to the same structure. Labor-power in the marginal pole is not comparable to Marx’s “industrial reserve army”. This labor-power is expelled from the dominant sector or monopolistic sector. This sector does not use or need these workers. These laborers are not a direct threat to those employed in the monopolistic sector as they do not have the capabilities to be employed in this sector. They are not even needed, as Quijano explains, in the competitive part of the economy (intermediate part) (Quijano, 2014: 158–162). The labor conditions of individuals who work in the marginal pole are precarious. The labor market is unstable, the income of the employed is unstable, and it might be expected that they do not have social rights related to the labor performed, such as paid holidays and social security (Quijano, 2007: 9). In his work “Redefinición de la dependencia y proceso de marginalización”, presented in a popular version that circulates on the Internet with the title “Dependencia y marginalidad. El concepto de polo marginal”, Quijano mentions some aspects of the marginal pole that differ from the CSE. We believe it important to identify these aspects as this will help to develop a clear understanding of the CSE. According to Quijano (2007: 9–11, 13), individuals at the marginal pole perform labor that is completely detached from the direct production of goods and, “hence the production of value”. The marginal pole “contains elements that for the mayor part is disconnected from a direct relation with the production function”. Between the marginal pole and the “dominant nucleus”, there only exists an indirect relation. As there is no relation of exploitation between both parts of the economy, there is no appropriation of surplus value by the “dominant nucleus”. The third identified difference regards the economic sector in which individuals at the marginal pole expend their labor-power. Quijano argues that they principally work in the service sector. Although the concept of marginality characterizes a major part of the Peruvian population and the working population in particular, we think, however, that the concept should include more than, in general, just the,

The peripheral capitalist development of Peru  59 more or less, ‘extreme’ informal or literally ‘marginal’ sector of the Peruvian economy. As a matter of fact, formally employed workers can face the same socioeconomic conditions as those employed in the informal sector. Our concept of the CSE includes all those individuals who practically labor in the “margins of society” or daily have to confront precarious labor conditions. Quijano’s marginal pole forms part of the CSE. Although the CSE is not the same as the informal sector, the major part of the informal economy is located in the CSE. Moreover, a country whose economy is divided into an AE and a CSE is also frequently characterized as a society with a large informal sector. Businesses in the CSE function as a safety net for all those individuals who have not been able to find employment in the AE. Hence, it might be argued that the Peruvian reserve army of labor not only encompasses the unemployed and the underemployed but all those individuals that are employed in the CSE.24 Countries at the periphery of the world capitalist system have a permanent surplus of workers that do not have other possibilities, other than to start small businesses. These business undertakings are characterized by a scarcity of capital and a high level of work intensity (Palma, 1988: 37). The number of individuals that labor in the informal economy is bigger than those individuals employed in the CSE. The reason for this difference is that informal workers do not necessarily have to face precarious labor conditions. Relatively wealthy individuals might be informal workers. Furthermore, the number of workers in the informal sector cannot exactly be determined. According to our estimations, Peru needs around 32.8% of the occupied EAP to “operate” the current development model.25 About 70% of the labor-force becomes superfluous and has no other opportunity than to start working on their own-account or hope to find employment in micro companies and to become part of the global chain of competing subcontracted corporations (see below). This number, however, might even be much higher as data on the distribution of microenterprises according to economic sectors show that micro business undertakings are overwhelmingly present in all economic sectors. In other words, the international division of labor not only leads to an enormous number of individuals that are not directly necessary for the functioning of the development model in place, but also to concentration. (Lust, 2021: 323) The large majority of the EAP labors in companies that employ one to nine persons. It is supposed, on the basis of the data of the Peruvian National Institute of Statistics and Informatics (INEI), that individuals who work in these companies earn a wage or salary around the nominal minimum wage level (see Chapter 6).

60  The peripheral capitalist development of Peru Individuals that are employed in companies that operate in the CSE receive a remuneration that appears to be insufficient to reproduce their labor-power. This is what is termed super-exploitation (Marini, 1985). Although precise information on the costs for the reproduction of labor-power is not available, based on data on the Peruvian poverty line, it can be concluded that a large number of individuals in the CSE are super-exploited. In 2019, the poverty line (the basket of basic foodstuffs) for a family of four stood at around US$ 224 (US$ 56 for every individual). The nominal minimum wage was US$ 278. Although this wage is sufficient to finance the monthly basket of basic foodstuffs for one person, it does not include other living costs such as housing rents, electricity, gas, water, transportation, and education. When we include more of these living costs, it becomes reasonable to conclude that the level of income is not enough to reproduce labor-power. The fact that around 70% of the Peruvian working population are informal and the majority of these appear to earn less than the nominal minimum wage, is also a substantive indicator that many individuals are super-exploited. Super-exploitation in countries at the periphery of world capitalist development is conditioned by their role in the international division of labor. As these countries are principally providers of the raw materials for capitalist development in the Global North, large industries producing high levels of aggregate value seem not to be necessary. The structure of the Peruvian economy is characterized by a “relatively low capacity to generate aggregate value” (Gonzales de Olarte, 2016: 208). Super-exploitation only becomes a reality in specific circumstances. In the case of Peru, super-exploitation is a reality for most of its working population because of (i) the weakness of the labor movement; (ii) the enormous number of low-skilled employees that compete for small temporary jobs; and (iii) the ferociousness of price competition between the large number of micro businesses. In addition, although the super-exploited individuals produce for ‘their’ own market and for the market of the AE, this does not impede ‘their’ companies to pay wages below the costs of the reproduction of their laborpower. The individual negative effect of super-exploitation, wages, and salaries that are too low to reproduce one’s own labor-power is ‘solved’ by the credit system and asset sharing, for example, renting space or having family members sharing one’s household, among others. 2.4 The dependent capitalist state: a theoretical framework The dependent capitalist state holds the general characteristics of the capitalist state and the characteristics that are products of its country’s role in the capitalist world system and the dependent character of its economy. While the general characteristics ensure the continuity of the capitalist character of the economy, the dependent characteristics, different for every dependent country in particular, assure the continuity of the dependent character of its economy.

The peripheral capitalist development of Peru  61 The capitalist state has the objective to guarantee the reproduction of the system. The policies and laws that are elaborated and implemented by its apparatuses are, in the first instance, at the benefit of the hegemonic sectors within the capitalist class. This first instance can only be realized when, in general terms, in the second instance, these are consciously or unconsciously, politically, ideologically, and culturally, supported by the non-hegemonic fractions of the capitalist class and, more importantly, by the subordinated classes. One of the tasks that derive from this necessity is the development of a political, social, and ideological system with an internal correcting mechanism that helps to keep the laboring classes allied to a system that survives and expands through the exploitation of their labor-power (Mandel, 1969b).26 However, the privatization of state functions might cause that, increasingly, the state cannot fully comply its role regarding the reproduction of the system. The objective to ensure the reproduction of the system implies that the capitalist state has an active role to play in the economy. The capitalist state takes care of productive processes that individual capitalists are not able to perform (Mandel, 1969b). The execution of these tasks is in the interest of capitalist society as a whole and the dominant sectors within the capitalist class in particular. The structure, the class composition, and the functioning of a capitalist state reflect the economic and social processes or the infrastructure that underlies it. The elaboration and execution of policies by the central capitalist state show a political-bureaucratic continuity because the leading cadres of the state apparatuses are socially, as a class fraction, and personally, committed to, and interested in, the overall continuity of the system (Ziemann & Lanzendorfer, 1977: 165; Miliband, 1976: 118–119). The dependent characteristics of the dependent capitalist state are the concrete expressions within the state apparatuses of the economic and social structure of a peripheral country. These characteristics emerge as a consequence of the fact that the dependent capitalist state not only needs to ensure the reproduction of the system in general but, more specifically, must contribute to the reproduction of the system in the center of world capitalism and the political, economic, and social relations between the center and the peripheral dependent capitalist state. The level of the dependent capitalist state’s autonomy is limited (Furtado, 1965: 224). The dependent capitalist state helps to reproduce the basic conditions for the functioning of the national capitalist system. It does not intend to contribute to the reproduction of the national system on an enlarged scale. Therefore, the state in dependent capitalist countries is not fundamentally interested in the eradication of labor precariousness, informality, and business practices of super-exploitation. It is in the interest of the Global North that this continues. However, as it has to secure the existence and the expansion of the world market in the national economy (Evers, 1987: 97), the dependent capitalist state develops and implements policies that are oriented

62  The peripheral capitalist development of Peru towards “the reproduction of both internally operating foreign capital and of national capital oriented on the world market” (Ziemann & Lanzendorfer, 1977: 161). The dependent characteristics have a historical origin. That is, the colonization of most of the currently known dependent capitalist countries impeded a natural evolutive capitalist development with its corresponding state apparatuses.27 In place, a state was imposed.28 After the independency wars these states were not reborn but maintained their original characteristics, i.e., serving the general interests of the advanced (capitalist) countries, representing a contradicting whole of fractions of the dominant national and international classes, and not inherently connected to ‘national economic and social processes’. Quijano (2007: 16) argues that the underdeveloped and dependent characteristics of the peripheral countries resulted in a local dominant class that could only perform its political power because of the convergence of its interests with the interests of what might be called the global dominant classes. Finally, as the state did not emerge from society and its contradicting class forces, but was imposed to society by external forces, this state is also a structurally weak state. The historical origin of the dependent characteristics of the capitalist state in the periphery of world capitalism and the objectives of the dependent capitalist state, not only explain the political and economic class content of the policies developed by the high state bureaucracy but also the social composition of this bureaucracy. The economic and social elite provides employees to perform the functions of the high state bureaucracy. This bureaucracy forms part of the elite, it defends the elite’s national and international economic interests, and it is the political, ideological, and social guarantee for the continuity of the system (Faletto, 1989: 79) and the political reign of the hegemonic capitalist class. The relation between the superstructure (the state) and the base (economic structure) in capitalist dependent countries is a particular relation. Before we proceed to explain this relation, we believe it is important to refer to what might be called the general relation between the superstructure and the base. For this, we return to Marx and Engels. Marx and Engels considered the relation between the economic base and the superstructure a dialectical relation. In his letter to Annenkov, Marx (1973c: 532) wrote: If you assume a given state of development of man’s productive faculties, you will have a corresponding form of commerce and consumption. If you assume given stages of development in production, commerce, or consumption, you will have a corresponding form of social constitution, a corresponding organisation, whether of the family, of the estates or of the classes—in a word, a corresponding civil society. If you assume this or that civil society, you will have this or that political system, which is but the official expression of civil society.

The peripheral capitalist development of Peru  63 In 1894, Engels wrote the following to Starkenburg: Political, juridical, philosophical, religious, literary, artistic, etc., development is based on economic development. But all these react upon one another and also upon the economic base. It is not that the economic position is the cause and alone active, while everything else only has a passive effect. There is, rather, interaction on the basis of the economic necessity, which ultimately always asserts itself. The state, for instance, exercises an influence by tariffs, free trade, good or bad fiscal system […] So it is not, as people try here and there conveniently to imagine, that the economic position produces an automatic effect. Men make their history themselves, only in given surroundings which condition it and on the basis of actual relations already existing, among which the economic relations, however much they may be influenced by the other political and ideological ones, are still ultimately the decisive ones, forming the red thread which runs through them and alone leads to understanding. In his letter to Bloch (1895b), Engels wrote: Hence if somebody twists this into saying that the economic element is the only determining one, he transforms that proposition into a meaningless, abstract, senseless phrase. The economic situation is the basis, but the various elements of the superstructure — political forms of the class struggle and its results, to wit: constitutions established by the victorious class after a successful battle, etc., juridical forms, and even the reflexes of all these actual struggles in the brains of the participants, political, juristic, philosophical theories, religious views and their further development into systems of dogmas— also exercise their influence upon the course of the historical struggles and in many cases preponderate in determining their form. There is an interaction of all these elements in which, amid all the endless host of accidents (that is, of things and events whose inner interconnection is so remote or so impossible of proof that we can regard it as non-existent, as negligible), the economic movement finally asserts itself as necessary. Otherwise, the application of the theory to any period of history would be easier than the solution of a simple equation of the first degree.29 In the case of dependent capitalist countries, the superstructure is principally determined by the international base. The national base is determined by the national superstructure (Evers, 1987: 87). In other words, the state in the dependent capitalist countries not only needs to assure that the national economic base is aligned to the international base but also needs to guarantee the existence of this national base or the “internal economic reproduction which is not guaranteed through the economic process” (Ziemann & Lanzendorfer, 1977: 161).

64  The peripheral capitalist development of Peru As the national superstructure is determined by its international base, the national superstructure conditions the development of the national base. To put it differently, the economic, technological, and social development of the national base is determined by the international base, mediated through the national superstructure. It is through the political, economic, and social intervention of the national superstructure that the international base determines the national base, and the capitalist mode of production, the capitalist production relations, and its ideology are established in all corners of society. The determination of the national base by the national superstructure implies that the national superstructure “is expected” to make the national base fit or suitable for the international base.30 2.5 Conclusions Dependent capitalist economic development is an integral part of worldwide capitalist economic development. It is not an appendix of advanced capitalist economic development, but it is a forming part of it. It depends on it, its development is conditioned by it, and it helps it to realize and expand it. The role of the periphery in the international division of labor explains the structural character of the dependent relationship. The relations of dependency between the Global North and the Global South are translated to the internal economic structure of dependent capitalist societies. They not only explain the extractive character of these economies and the economic power of transnational capital but also help us to sustain why the peripheral economies can be divided into an AE and a CSE. Dependent capitalist economic development is conscient capitalist economic development. The dependent capitalist state is not only mainly based on dependent capitalist economic development but it is also subject to the interests of the high bureaucracy and the political and economic interests of local political leaders. In other words, although the dependent characteristics of the dependent capitalist state are the concrete expressions within the state apparatuses of the economic and social structure of a peripheral country, they are also the expressions of political power in the country. Hence, the origin of the dependent characteristics of the capitalist state in the periphery of world capitalism and the objectives of the dependent capitalist state inform us about the political and economic class content of the policies developed by the high state bureaucracy and the social composition of this bureaucracy. The relationship between the Global North and the Global South reaches its highest level of dependency in the function of the dependent capitalist state apparatus to ensure the reproduction of the system in general, to contribute to the reproduction of the system in the center of world capitalism and the political, economic, and social relations between the center and the peripheral dependent capitalist state and to its role to make the national base fit the international base. The Peruvian national markets are an appendix of the international markets.

The peripheral capitalist development of Peru  65 Within progressive circles, it is acknowledged that the accumulation of capital is the motor of capitalist development. However, in the periphery of world capitalist development, technological progress is not key for accumulation processes. Countries at the periphery of world capitalism do not only lack technological development that helps to increase productivity but are also characterized by what is called productive heterogeneity. Productivity differences between and within economic sectors and branches impede a homogenic economic development of society. This situation is often used as an argument to sustain a supposed economic dualism within societies. Notwithstanding the fact that the concept of the CSE captures a considerable part of the economy such as those individuals living in marginality, to speak with Quijano, Peru is not a dual economy where two sub-economies are economically and socially separated from each other and have structurally different modes of operation. Notes 1 The conditions of underdevelopment “can only be understood from the point of view of the global development of the system” (Dos Santos, 1986: 308). 3 See on this also Contreras Carranza (2021: 95–96). 5 This appears to be a historical fact for a part of the Global South. Amin (1979: 212) explains, for example, that for peripheral countries, especially mining and oil countries, the mass of foreign investments is located in the export sectors and the rest in service activities related to exports.

7 See on the necessity of an increasing internal market, also Carbonetto Tortonessi and Carazo de Cabellos (1986: 40). 9 According to Gonzales de Olarte (2016: 151), in economies such as the Peruvian, internal demand is determined by external demand. The external demand for Peruvian commodities helps to increase national income.

11 Cueva (1983: 89) makes the interesting observation that a big part of the Latin American internal market is nothing more than the extension of the metropolitan market, i.e. the market of the countries of the North. According to Zermeño (1979: 63), the investments of foreign capital in Latin America before the era of monopoly capital did not have the objective to produce for the internal market.

66  The peripheral capitalist development of Peru









The peripheral capitalist development of Peru  67 reason,” as Hegel maintains. Rather, it is a product of society at a particular stage of development; it is the admission that this society has involved itself in insoluble self-contradiction and is cleft into irreconcilable antagonisms which it is powerless to exorcise. But in order that these antagonisms, classes with conflicting economic interests, shall not consume themselves and society in fruitless struggle, a power, apparently standing above society, has become necessary to moderate the conflict and keep it within the bounds of “order”; and this power, arisen out of society, but placing itself above it and increasingly alienating itself from it, is the state. 28 See for a comparative analysis on the emergence of the Turkish State, Agar (2022: 91–104). 29 See on this in relation to ideology, Therborn (1998: 32–34). 30 “In Latin America, on the other hand, the State intervenes in both spheres: in the economic sphere, since it acts to adjust the internal situation to the dynamics of change which, it may be recalled, is principally external and in the “social” sphere, since that is the one that legitimates and regulates the socio-political order” (Faletto, 1989: 78).

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The peripheral capitalist development of Peru  69 Grupo Propuesta Ciudadana (2014), “Vigilancia de las industrias extractivas. Reporte Nacional no. 18, Perú 2013”, in http://www.propuestaciudadana.org.pe/sites/default/ files/publicaciones/archivos/Reporte%20VIE%2018.pdf (consulted 15/02/2022). Holland, Márcio & Gabriel Porcile (2005), “Brecha tecnológica y crecimiento en América Latina”, in Mario Cimoli (ed.), Heterogeneidad estructural, asimetrías tecnológicas y crecimiento en América Latina, Santiago, Cepal, pp. 40–71. INEI (2021a), Evolución de la pobreza monetaria 2009–2020. Informe técnico, Lima, INEI. INEI (2021b), Perú. Compendio Estadístico 2021. Tomo 1, Lima, INEI. INEI (2021c), Producción y empleo informal en el Perú. Cuenta satélite de la economía informal 2007–2020, Lima, INEI. INEI (2013), Evolución de la pobreza monetaria 2007–2012. Informe técnico, Lima, INEI. INEI (2008), IV Censo Nacional Económico 2008. Perú: Características económicas de las micro y pequeñas empresas en el año 2007, Lima, INEI. Jiménez, Félix (2012), “Empleo y mercado interno en el modelo neoliberal: una nueva hipótesis sobre el subdesarrollo”, Lima, PUCP, Departamento de Economía, in http://files.pucp.edu.pe/departamento/economia/LDE-2012-01-03.pdf (consulted 15/02/2022). Lust, Jan (2021), “Structural labor precariousness in Peru”, Critical Sociology, vol. 47, no. 2, pp. 317–330. Lust, Jan (2019a), Capitalism, class and revolution in Peru, 1980–2016, Cham, ­Palgrave Macmillan. Lust, Jan (2019b), “The rise of a capitalist subsistence economy in Peru”, Third World Quarterly, vol. 40, no. 4, pp. 780–795. Mandel, Ernest (1976), Late capitalism, London, NLB. Mandel, Ernest (1975), Tratado de economía marxista. Tomo II, Mexico, Ediciones Era. Mandel, Ernest (1969a), Tratado de Economía Marxista Tomo I, Mexico, Ediciones Era S.A. Mandel, Ernest (1969b), “Marxist theory of the state”, in http://www.ernestmandel. org/en/works/txt/1969/marxist_theory_of_the_state.htm (consulted 20/10/2013). Marini, Ruy Mauro (1985), Dialéctica de la dependencia, México, Serie Popular Era / 22, Ediciones Era S.A. Marx, Carlos (1973a), El Capital, Crítica de la Economía Política, Libro primero, Buenos Aires, Editorial Cartago, SRL. Marx, Carlos (1973b), El Capital, Crítica de la Economía Política, Libro tercero, Buenos Aires, Editorial Cartago, SRL. Marx, Carlos (1973c), “Marx a Pavel Vasilievich Annenkov”, in Carlos Marx & Friedrich Engels, Obras Escogidas I, Moscow, Progress, pp. 531–542. Marx, Karl (1970), Capital. A critical analysis of capitalist production. Vol. 1 The process of capitalist production, New York, International Publishers Co., Inc. Mattick, Paul (1975), Marx y Keynes. Los límites de la economía mixta, México, Ediciones Era, S.A. Miliband, Ralph (1976), El Estado en la sociedad capitalista, México, Siglo Veintiuno Editores, S.A. Ministerio de la Producción (2021), Las MYPYME en cifras 2019, Lima, Ministerio de Producción. Ministerio de la Producción (2017), Las MYPYME en cifras 2015, Lima, Ministerio de Producción.

70  The peripheral capitalist development of Peru Palma, Diego (1988), La informalidad, lo popular y el cambio social, Lima, Desco. Parodi Trece, Carlos (2014), Perú 1995–2012. Cambios y continuidades, Lima, Universidad del Pacífico. Pinto, Aníbal (2016), “Nature and implications of the “structural heterogeneity” of Latin America”, in Ricardo Bielschowsky (ed.), ECLAC Thinking. Selected texts (1948–1998), Santiago, CEPAL, pp. 303–314. Poulantzas, Nicos (1980), Poder político y clases sociales en el estado capitalista, Mexico, Siglo Veintiuno Editores S.A. Quijano, Aníbal (2014), “‘Polo marginal’ y ‘mano de obra marginal’”, in Aníbal Quijano (ed.), Cuestiones y horizontes. Antología Esencial. De la dependencia histórico-estructural a la colonialidad /descolonialidad del poder, Buenos Aires, CLACSO, pp. 125–169. Quijano, Aníbal (2007), “Dependencia y marginalidad. El concepto de polo marginal”, in https://www.lahaine.org/amauta/b2-img/Quijanodependencia.pdf (consulted 20/02/2021). Ruiz Acosta, Miguel A. (2003), “Devastación y superexplotación de la fuerza de trabajo en el capitalismo periférico: una reflexión desde América Latina”, Razón y Revolución, no. 25, pp. 35–89. Smith, John (2016), Imperialism in the twenty-first century. Globalization, superexploitation, and capitalism’s final crisis, New York, Monthly Review Press. Suwandi, Intan (2019), Value Chains. The new economic imperialism, New York, Monthly Review Press. Sweezy, Paul M. (1977), Teoría del desarrollo capitalista, Mexico, Fondo de Cultura Económica. Therborn, Göran (1998), La ideología del poder y el poder de la ideología, Mexico, Siglo Veintiuno Editores S.A. de C.V. Thorp, Rosemary & Geoffrey Bertram (1978), Peru 1980–1977. Growth and policy in an open economy, London / Basingstoke, The Macmillan Press Ltd. Torres Cuzcano, Víctor (2013), Grupos económicos y bonanza minera en el Perú. El caso de cinco grupos mineros nacionales, Lima, CooperAcción. Weeks, John & Dore Elizabeth (1979), “International exchange and the cause of backwardness”, Latin American Perspectives, vol. 6, no. 2, pp. 62–87. World Bank (2016), “World Development Indicators 2016”, in https://openknowledge.worldbank.org/bitstream/handle/10986/23969/9781464806834.pdf (consulted 13/02/2022). World Bank (2010), “El mercado laboral durante el auge y caída”, in https://www2. congreso.gob.pe/sicr/cendocbib/con3_uibd.nsf/1F0C646F1E4BFFD00525786A007 31C2C/$FILE/El_Mercado_Laboral_Peruano_durante_auge_y_caida.pdf (consulted 23/11/2022). World Intellectual Property Organization (2020), World Intellectual Property ­Indicators 2020, Geneva, World Intellectual Property Organization. Yepes del Castillo, Ernesto (1972), Perú 1820–1920. Un siglo de desarrollo capitalista, Lima, Instituto de Estudios Peruanos and Campodonicoediciones. Zermeño, Sergio (1979), Imperialismo y desarrollo capitalista tardío, Mexico, Universidad Nacional Autónoma de México. Zieman, W. & M. Lanzendorfer (1977), “The state in peripheral societies”, Socialist Register, vol. 44, pp. 143–177.

Appendix 2.1 Total Factor Productivity level at current PPPs (USA = 1)

Angola Argentina Australia Austria Belgium Benin Bolivia Botswana Brazil Burkina Faso Burundi Cameroon Canada Central African Republic Chile China Colombia Ecuador Egypt Eswatini France Gabon Germany Indonesia Italy Ivory Coast Kenya Lesotho Mauritania Mauritius Morocco Mozambique Namibia

1960

1970

0.6705 0.7192 0.7405 0.6865

0.6729 0.8133 0.9287 0.9032

0.4386

0.3963 0.4109 0.7191 0.7177

0.5636

0.9143

0.45 1.0668

0.8204 0.4261 0.5295 0.6925 1.1429

0.9419 0.4679 0.5663 0.7231 1.6091

0.7184

0.902 1.1756 0.6392 0.4523 0.903 1.1203 0.4106

0.5802 0.5291 0.6444 0.3936 1.156 0.7888

1.3824 1.2307 0.5441 1.0113

1980

1990

2000

2010

2019

0.4278 0.651 0.8452 0.9057 1.1216 0.7072 0.4289 0.7027 0.8331 0.6772 0.2728 0.5319 1.0107 0.4021

0.3332 0.5762 0.81 0.8089 0.9805 0.3691 0.3843 0.9518 0.6074 0.4214 0.2935 0.5012 0.9504 0.4289

0.1424 0.7087 0.8395 0.9221 1.0809 0.3122 0.3522 0.7703 0.6553 0.4344 0.1613 0.4423 0.957 0.3751

0.3051 0.7775 0.8852 0.8334 0.9306 0.3519 0.4472 0.5851 0.6025 0.4525 0.1643 0.3696 0.8476 0.3457

0.3803 0.8122 0.8379 0.8037 0.8288 0.4311 0.4775 0.6228 0.5068 0.4293 0.1967 0.4419 0.8389 0.2127

0.8161 0.3643 0.8959 0.9265 1.1032 0.8385 1.0895 1.3286 0.7809 0.6315 1.1896 0.9122 0.511 0.3129 0.6683 1.4966 1.0548 0.438 0.9327

0.6288 0.348 0.6988 0.5879 0.9594 1.1984 1.0022 0.9151 0.8224 0.6065 0.9904 0.6535 0.5163 0.4043 0.5097 1.5102 0.786 0.356 0.6047

0.6365 0.3345 0.5336 0.4051 1.0205 0.9796 1.1453 0.6001 0.9827 0.4386 0.9623 0.627 0.3333 0.329 0.4387 1.1846 0.5555 0.4284 0.7824

0.7757 0.7507 0.416 0.4005 0.5875 0.6387 0.3973 0.4248 1.1292 1.1712 0.7492 0.631 0.9471 0.8881 0.4031 0.5772 0.9235 0.9088 0.4022 0.4449 0.819 0.7081 0.6517 0.8709 0.3305 0.3541 0.3217 0.32 0.3888 0.426 0.9618 1.2489 0.5303 0.517 0.449 0.2839 0.6372 0.6583 (Continued)

72  The peripheral capitalist development of Peru (Continued)

Netherlands New Zealand Niger Nigeria Norway Paraguay Peru Rwanda Senegal Sierra Leone South Africa Sudan Sweden Switzerland Tanzania Togo Tunisia United Kingdom United States Uruguay Venezuela Zambia Zimbabwe

1960

1970

1980

1990

2000

2010

2019

0.7718 0.9341

0.8797 0.8949

1.1375 0.7795

1.0027 0.7764

1.1914 0.8525

0.9609 0.8528

0.9147 0.8388

0.4287 0.5036 0.6057 0.7304 0.7359 0.555 0.803

0.2885 0.2392 0.858 0.6262 0.4622 0.4431 0.813 0.8549 0.7478 0.809 0.7186 0.8505 0.2258 0.3011 0.8901 0.8195

0.2368 0.176 1.2207 0.4524 0.3837 0.2533 0.5106 0.2413 0.7205 0.6103 0.8513 0.901 0.2564 0.2243 0.706 0.9089

0.2696 0.3953 1.2294 0.6059 0.5354 0.2869 0.4889 0.2871 0.6264 0.4577 0.8125 0.9136 0.3219 0.1669 0.6333 0.8072

0.2525 0.5146 1.03 0.6163 0.446 0.3068 0.4475 0.4323 0.543 0.6566 0.8125 0.9249 0.3191 0.2405 0.7663 0.7677

1 0.713 0.564 0.384 1.1896

1 0.6923 0.4903 0.2022 0.445

1 0.7295 0.5899 0.2967 0.2967

1 0.6934 0.0544 0.2556 0.352

0.7108

0.9435 0.7412

0.4491 0.7545 0.9525 0.8278 0.7953 0.5911 0.7611 0.9664 0.8849 0.9985 0.7765 0.9743 0.4309 0.4343 1.104 0.9282

1 1.0124 0.8552 0.3737 0.6315

1 1.003 1.0601 0.4325 0.8079

1 0.9334 0.7355 0.3897 0.9021

0.4511 0.6002 0.7213 0.5924

0.7057

0.862

0.6552 0.8511

0.8221 0.9021 0.4803

Source: https://febpwt.webhosting.rug.nl/Dmn/AggregateXs/PivotShow# (consulted 11/02/2022).

3

Peru in the world economy

Introduction In this chapter, we discuss Peru’s insertion in the globalized capitalist world. First, we examine the country’s role as a provider of mineral resources for economic development in the advanced capitalist countries of the Global North and China. We present a table on Peru’s export structure, and we relate China’s economic growth with Peruvian export growth. We also discuss how Peru depends on investments by transnational capital, correlating inward Foreign Direct Investments (FDI) flows with Peru’s economic growth rates. Furthermore, dependency is demonstrated by the development of the country’s terms of trade and the correlation between the country’s terms of trade and its real Gross Domestic Product (GDP) growth rates. Peru’s role in the international division of labor is not limited to the export of its natural resources; however, it is definitively its principal function. The country is also inserted in what are known as global value chains. It not only produces final manufacturing products but also intermediate goods. In the second section of this chapter, we study Peru’s participation in the mentioned global value chains. We show that the country is becoming less involved in these value chains. The weight of manufactures and intermediate goods in total exports value tends to fall. In addition, the manufactures that are exported are principally low technology intensive manufactures. In the third section, we assess how Peru’s two roles in the international division of labor are internally expressed into an advanced economy (AE) and a capitalist subsistence economy (CSE). The characteristics of both economies are described, and we argue that Peru is not a dual economy. Data on economic complexity are related to the production and exports of manufacturing and intermediate products. It is demonstrated that the rate of economic complexity is in accordance with the role of Peru in the international division of labor, its economic model, the country’s division in an AE and CSE, Peru’s organic composition of capital (OCC), and its productivity rate. This section closes with our argument that the general causes of economic crisis in the country are product of economic slowdown abroad, the

DOI: 10.4324/9781003289456-4

74  Peru in the world economy strategies, objectives, and problems of transnationally functioning companies and the possibilities to appropriate and accumulate capital in the country. In the last section, we present our conclusions. An appendix is included on Peru’s terms of trade and real GDP growth rates in the years between 1980 and 2019. 3.1 Peru and the international division of labor The principal role of Peru in the international division of labor is to provide natural resources, principally minerals, for economic development in the advanced capitalist countries and China. As argued in Chapter 1, the function of Peru in the globalized capitalist world system is a historically determined role. Its economic development model is based on its role in the international division of labor. The model is the political expression of Peru’s function in the globalized capitalist world. The secondary function of Peru in the international division of labor is to provide a cheap labor-force for the production of intermediate goods, i.e., to participate in global processes of outsourcing or global value chains. While the primary function is “fulfilled” by transnational companies, the secondary role is accomplished by micro, small, and medium-sized business undertakings. In Table 3.1, data are presented on the Peruvian export structure in the years between 1980 and 2019. The Peruvian export structure is nothing to be surprised by. Since colonial times, the country has been principally exporting its minerals. The production and export of minerals have always been key for economic development in Peru, although in some periods the country may have put emphasis on industrialization processes. In the period 1954–1979, the contribution fluctuated between 31% and 55.4%. Since 1960, the contribution of mining products to total exports shows an upward trend.1 In the years between 1980 and 2019, the contribution of mining products to total exports fluctuated between 40% and 62%. Both these percentages are themselves product of the evolution of the commodity prices and demand in the advanced capitalist countries and China. In 1982, the contribution of mining products to total exports was 40.6%. The international debt crisis at the beginning of the 1980s was the prime reason for this relatively low percentage. In 2007, mining products’ contribution to total exports was 62%. This was a clear result of the commodity boom and the demand of China in the second half of the first decade of the 21st century. The international financial crisis of 2008–2009 reduced the demand for the country’s commodities (slow economic growth in the Global North) and negatively affected the commodity prices. In 2011, the boom came to an end. The demand for the country’s commodities reduced, their prices decreased, and investments in mining exploration diminished (Cooperacción 2017: 10–11). According to Parodi Trece (2014: 337–338), slow economic growth in the advanced capitalist countries and India was the main cause for Peruvian exports to diminish.

Peru in the world economy  75 Table 3.1 Export structure, 1980–2019 (in percentages) Fishing Agricultural Mining Hydrocarbon Non-traditional Others products products products products products 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

4.9 4.2 6.8 2.6 5.1 4.2 8.4 8.2 13 12.4 10.5 13.3 12.1 17.2 17.6 14.3 15.4 16.5 7.1 9.9 13.7 13.2 11.7 9.0 8.6 7.5 5.6 5.2 5.8 6.2 5.3 4.6 4.9 4.0 4.4 4.2 3.4 3.9 3.9 4.0

5.8 5.2 6.7 6.8 6.5 7.6 13.2 6.7 6.3 6.8 5.3 6.0 3.1 2.5 5.6 6.3 5.1 6.9 5.6 4.6 3.6 3.0 2.8 2.5 2.5 1.9 2.4 1.6 2.2 2.3 2.7 3.6 2.3 1.8 2.1 2.1 2.4 1.8 1.6 1.6

46.9 46.4 40.6 53.6 44.9 41.9 42.7 46.9 46 45.6 45.1 45.2 50.9 43.5 44.5 47.6 45.2 40.0 47.8 49.4 46.3 45.6 49.4 51.6 55.6 56.4 61.8 62.0 58.4 60.9 61.2 59.4 57.9 55.5 52.0 55.1 58.8 60.7 58.9 59.1

19.6 21.2 21.5 17.9 19.6 21.1 9 10.1 6.1 6.2 7.9 5 5.5 5.4 3.6 4.3 6.0 5.5 4.0 4.1 5.5 5.6 5.8 6.8 5.0 8.8 7.6 8.2 8.6 7.1 8.6 9.8 10.5 12.2 11.5 6.7 6.0 7.4 8.2 6.2

21.4 21.1 22.8 18.3 22.7 24.1 25.4 26.8 27.7 28.2 30.1 29.3 27 30 27.5 26.3 27.0 30.0 34.2 30.8 29.4 31.1 29.2 28.8 27.2 24.6 22.2 22.5 24.4 22.9 21.5 21.9 23.6 25.8 29.5 31.7 29.1 25.8 27.0 28.8

1.4 1.9 1.6 0.8 1.2 1.1 1.3 1.3 0.9 0.8 1.1 1.2 1.4 1.4 1.2 1.1 1.3 1.1 1.4 1.1 1.5 1.6 1.2 1.3 1.0 0.8 0.4 0.4 0.6 0.6 0.7 0.7 0.7 0.6 0.4 0.3 0.3 0.3 0.4 0.3

Source: https://estadisticas.bcrp.gob.pe/estadisticas/series/anuales/exportaciones-por-grupo-deproductos-estructura-porcentual-a (consulted 06/03/2022).

The group of non-traditional products is principally referred to as products with higher levels of aggregate value than the traditional products (fishing, agriculture, mining, and hydrocarbon products). It is expected that some kind of industrial transformation has taken place during the production process. The

76  Peru in the world economy participation of non-traditional products in total exports in the years between 1980 and 2019 fluctuated between 21% and 29%. Only on seven occasions (years), it was 30% or a bit more. The data are clearly in accordance with Peru’s role in the international division of labor and shows that major value-added production processes are not of interest to national and international capital. The neoliberal development model implemented in the 1990s by the regime of Alberto Fujimori turned what are called Peru’s comparative and competitive advantages (the abundance of mineral resources and a cheap labor-force) in one of its economic development pillars. Hence, since then, the country has not left the investment agenda of transnational mining capital. In the years between 1990 and 1997, for instance, investment in mining exploration and exploitation grew by 2000% (World Bank, 2005: 20). In 2010, Peru received the most investments in mining exploration in Latin America and was third worldwide, after Canada and Australia (Panfichi & Coronel, 2011: 395).2 In Table 2.1 of Chapter 2, the crucial participation of the mining sector in total FDI flows is demonstrated. Peru’s insertion in the world economy through the export of its mineral resources and as a receptor of FDI in the mining sector naturally implies that the country is positively and negatively affected by worldwide economic progress and economic slump, and especially of its principal economic and commercial partners. The reduction of economic growth in China, for instance, the country’s principal commercial partner, diminishes Peru’s total export value and hampers economic growth because of the reduced demand for the country’s mining products. Dancourt (2016) has demonstrated that high economic growth in Peru is related to high commodity prices. A reduction of these prices contributes to recessions. Gonzales de Olarte (1986: 15) has shown that the short-term crises that have taken place in Peru in the period 1948–1985 have been ‘provoked’ by the reduction of the country’s export values. Economic recuperation, in general terms, went hand in hand with the improvement of the international prices of, among others, copper, zinc, and silver ores. Thorp and Bertram (1978: 4, 6) argue that the periods of greatest political stability (1895–1930) “corresponded to the long upswings of the export economy, whilst the years of political flux” (1882–1895, 1930–1948, and the end of the 1960s) “corresponded to periods in which the export economy had entered into crisis”. It is a known fact that in the period 2002–2012, the size of Peru’s economy almost doubled (International Monetary Fund, 2013: 5). This was mainly the effect of an increase of total export value, product of increased commodity prices, and foreign demand. Mining exports in the period 1990 to 2004 increased with 490% from 1.4 billion US$ to 6.9 billion US$ (Glave & Kuramoto, 2007: 139; De Echave, 2008: 79). In 2010, mining export value had risen to 21.7 billion US$ (Alayza & Gudynas, 2012: 199). In 2019, it had reached more than 28 billion US$.3 In the first decade of the 21st century, the production of minerals increased because of rising demand of China (World Bank, 2011a: 8–9; Glave &

Peru in the world economy  77 Kuramoto, 2007: 148). The World Bank (2011b: 22) even concluded that economic growth in Latin America was an “important measure of its connections to China, both directly (via trade and increasingly also Foreign Direct Investment [FDI] channels) and indirectly (mainly via China’s impact on the international prices of commodities)”. In 2013, refined copper, soya, petroleum, copper and copper concentrates, steel, and steel concentrates represented 80% of the total export value of Latin America to China. FDI of China in Latin America increased from 1,038 million US$ in 2003 to 1,048,000 million US$ in 2015 (Lee & Guo, 2017: 186, 197). In Table 3.2, data on China’s economic growth and Peru’s export growth are presented for the period 2000–2019. Table 3.2 does not pretend to establish a precise correlation between China’s economic growth and Peru’s export growth, although some kind of correlation does exist. For instance, the reduction of economic growth in China in 2011 to 2015 has had clear effects on Peruvian export growth: it reduced. Increasing economic growth in the years between 2001 and 2006/2007 relates to increasing export growth in Peru. Other effects of the development of the world economy on Peru’s economic performance pass through the channels of FDI and the commodity prices. A reduction of worldwide economic growth is translated into a decrease of FDI growth and diminishing commodity prices. Increasing commodity prices Table 3.2 Economic growth of China and Peru’s export growth: 2000–2019

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

China GDP growth rates at market prices (constant local currency) (%)

Export growth rate Peru (%)

8.5 8.3 9.1 10.0 10.1 11.4 12.7 14.2 9.7 9.4 10.6 9.6 7.9 7.8 7.4 7.0 6.8 6.9 6.8 6.0

14.2 1.0 9.8 17.8 40.9 35.6 37.2 17.9 10.4 −12.7 32.3 29.5 2.2 −9.6 −7.8 −12.9 7.8 22.5 8.0 −2,2

Sources: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=CN and https:// estadisticas.bcrp.gob.pe/estadisticas/series/ (consulted 05/03/2022).

78  Peru in the world economy augment the profitability of investments and might increase FDI. This increase of investments by mining capital furthers the dependency of the countries in the periphery of world capitalism. In Figure 3.1, we show the development of FDI flows and real GDP growth rates for the years between 1995 and 2019. The pattern of FDI flows and real GDP growth rates appears to be similar. This means that the evolution of FDI flows is expressed in the evolution of Peru’s real GDP real growth rates. The ups and downs of the prices of Peru’s principal commodities are reflected in the nation’s terms of trade. As mining minerals are the country’s top export products, the terms of trade reflect the international price development of Peru’s commodities. In Figure 3.2, we present the evolution of the international prices of copper and gold, and the terms of trade, for the years 2012 to 2019. In the case of the commodities boom that started to unfold in 2004 and ended in 2011, it seems that Prebisch’s argument on declining terms of trade in the periphery of world capitalism was finally surpassed. At least thirty years of economic development provided credence to the notion of deteriorating terms of trade as a structural source of Latin America’s dependent and failed development. […] Whereas the strategy of exporting primary commodities, adding no or little value to the product in the process, in previous decades was a virtual disaster because of the established deterioration in the terms of north-south trade, the same strategy in recent years have resulted in record growth rates and a bonanza of resource rents and windfall profits on sales. (Petras & Veltmeyer, 2009: 11) 14,000.00

10

12,000.00

8

10,000.00

6

8,000.00

4

6,000.00

2

4,000.00

0

2,000.00

-2 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

0.00

FDI flows (in millions of US$)

Real GDP growth rates

Figure 3.1 FDI flows (in millions of US$) and Real GDP growth rates, 1995–2019 Sources: https://www.investinperu.pe/es/clima/estadisticas-generales/inversion-extranjera and https://estadisticas.bcrp.gob.pe/estadisticas/series/ (consulted 05/03/2022).

Peru in the world economy  79 120

1800 1600

100

1400 1200

80

1000

60

800

40

600 400

20

200 0

2012

2013

2014

2015

Copper

Gold

2016

2017

2018

2019

0

Terms of trade

Figure 3.2 Terms of trade and international prices of copper and gold, 2012–2019 Source: https://estadisticas.bcrp.gob.pe/estadisticas/series/ (consulted 05/03/2022). 140 120 100

80 60 40 20

1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019

0

Figure 3.3 Terms of trade, 1950–2019 Source: https://estadisticas.bcrp.gob.pe/estadisticas/series/ (consulted 05/03/2022).

The falling terms of trade until the start of the commodities boom (2004) is presented in Figure 3.3. We demonstrated that the patterns of FDI and real GDP growth rates appear to be similar. With regard to the patterns of the terms trade and real GDP growth rates, this only seems to be the case since the start of the third millennium. This might not be of a surprise as commercial relations with China started to augment structurally. China is heavily interested in Peru’s mineral resources. Its increased participation in world trade has pushed

80  Peru in the world economy

Terms of trade

2018

2016

2014

2012

2010

2008

2006

-15 2004

0 2002

-10

2000

20

1998

-5

1996

40

1994

0

1992

60

1990

5

1988

80

1986

10

1982

100

1984

15

1980

120

Real GDP growth rates

Figure 3.4 Terms of trade and Real GDP growth rates, 1980–2019 Source: https://estadisticas.bcrp.gob.pe/estadisticas/series/ (consulted 05/03/2022).

world commodity prices. Before 2000, this relation cannot be established, or is, somewhat, erratic. In Figure 3.4, the development of the terms of trade and real GDP growth rates for the period 1980–2019 is presented. 3.2 Peru’s participation in global value chains In Chapter 1, we discussed the question of the global chains of exploitation in the context of what are called global value chains. It was explained that peripheral countries participate in global value chains through processes of outsourcing. In relation to this participation, a complementary role of Peru in the international division of labor is to function as a provider of cheap labor. In order to clearly determine the complementary role of Peru in the global capitalist system, it is key to delve into the development of the export of intermediate and manufacturing goods. An increasing participation of these goods in total exports is an indication of the importance of the country’s productive sectors in global value chains. In Figures 3.5 and 3.6, the export of intermediate goods as a percentage of total exports of goods and goods and the export of manufacturing goods as a percentage of total exports of goods in the years between 1992 and 2019 are presented (Figures 3.5 and 3.6). It is interesting to observe that it appears that Peru’s insertion in global value chains is reducing over time. Starting from the first years of the third millennium, the value of Peru’s export of intermediate goods as a percentage of the total export value is reducing. As was argued by Smith (2016), an indicator of a country’s growing insertion in global value chains is exactly the increasing export of intermediate goods. The reduction of the export of intermediate is definitively related with China becoming a member of the World Trade Organization in December 2001.

Peru in the world economy  81 70 60 50 40 30 20 10

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

0

Figure 3.5 Export intermediate goods as a percentage of total exports of goods, 1992–2019 Source: https://wits.worldbank.org/CountryProfile/es/Country/PER/StartYear/1992/EndYear/2019/ TradeFlow/Export/Indicator/XPRT-PRDCT-SHR/Partner/WLD/Product/UNCTAD-SoP2# (consulted 16/03/2022). * No data for 1993.

25

20

15

10

5

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

0

Figure 3.6 Export of manufacturing goods as a percentage of total exports of goods, 1992–2019 Source: https://wits.worldbank.org/CountryProfile/es/Country/PER/StartYear/1992/EndYear/2019/ TradeFlow/Export/Indicator/XPRT-PRDCT-SHR/Partner/WLD/Product/manuf# (consulted 16/03/2022).

82  Peru in the world economy The participation of countries in the global value chains is principally organized through outsourced productive activities. Micro and small businesses are key players in these processes. A considerable weight of the export of these companies in total export value points to an important role of these businesses in global value chains. In other words, the higher the contribution of these businesses to total export value, the more important their role in global value chains. In accordance with the data presented in Figures 3.5 and 3.6, in Table 3.3 data are presented on the export value by company structure for the years between 2011 and 2019. It seems that Peruvian companies are not really participating in the global value chains organized by transnational capital. In the case of the export of manufacturing goods, the same picture can be drawn as for the export of intermediate goods. Since 2001, the export of manufactures is structurally diminishing. In Peru, as elsewhere in capitalist countries, the reduction of export value is often being related to the question of production costs, especially labor costs. When these are ‘too high’, a country becomes less competitive and sees its exports reduced. In Table 3.4, the development of the unit labor costs of Peru, Indonesia, Mexico, and the United States in the years between 1980 and 2019 are presented. The development of the unit labor costs gives us some answers regarding the reasons for the reduction of the contribution of the intermediate goods and manufactures in Peru’s total export value. The country’s unit labor costs are lower than the unit labor costs in Mexico and the United States. In the case of the United States, this was to be expected. In general, Peruvian companies are not competing with United States’ companies. The products and markets are different. Although Peru and Mexico are important exporters of copper, they do not compete with each other on labor costs. Also, for agricultural products such as avocados, Peruvian farmers do not compete with Mexican farmers through labor costs. In the period 1980–2001, Peru’s unit labor costs have been falling. Starting from 2001, these began to increase. This development coincides with what we have seen happening regarding the contribution of intermediate goods and manufactures to total export value. Definitively a costs issue is what might lie behind the development of the mentioned products. In addition, we should consider that a low-wage country and known participant in global value chain such as Indonesia has seen its unit labor costs rising. Peru is becoming cheaper than Indonesia, but its major value-added exports are reducing its contribution to total export value. It appears that Peru is competing with Indonesia on unit labor costs. Cutthroat competition to “pimp their cheap labor to Northern ‘lead firms’” (Smith, 2016: 84). On the basis of the unit labor costs and considering the development of the contribution of intermediate goods and manufactures to total export value, we might expect that Peru is principally competing with what have been known as low-wage countries. These countries are also known for the export of low technology manufactures. However, the incredible diversified export development of China has shown that low-wage countries do not necessarily only export low technology manufactures (see also Chapter 1 on this). In Table 3.5, the weight of Peru’s exported manufactures according to

3.395 1.292 208 2.044 6.939

Number of companies

181 1.203 338 33.650 35.371

2.826 2.851 292 1.960 7.929

1.656 372 331 39.104 41.463

Value in millions of US$

2017

Value in millions of US$

2014

144 1.075 270 40.664 42.153

Number of companies

2.838 2.599 268 1.864 7.569

Value in millions of US$

2.743 2.547 337 2.209 7.836

Number of companies

2.636 2.365 291 2.058 7.350

Number of companies

2.805 2.806 288 1.893 7.792

Number of companies

479 434 952 45.547 47.412

Value in millions of US$

2018

156 906 313 29.612 30.986

Value in millions of US$

2015

173 1.246 418 40.180 42.017

Value in millions of US$

2012

2.774 2.619 319 2.313 8.025

Number of companies

2.536 2.375 294 2.073 7.278

Number of companies

2.763 2.800 282 1.932 7.777

Number of companies

684 1.012 283 43.383 45.363

Value in millions of US$

2019

151 899 267 32.990 34.307

Value in millions of US$

2016

239 1.294 296 36.655 38.483

Value in millions of US$

2013

Sources: Ministerio de la Producción (2012: 50–51; 2014: 36–37; 2017a: 152, 155; 2017b: 93–94; 2018: 129; 2019: 32; 2020: 54).

Micro companies Small companies Medium-sized companies Big companies Total

Micro companies Small companies Medium-sized companies Big companies Total

Micro companies Small companies Medium-sized companies Big companies Total

Number of companies

2011

Table 3.3 Export value by company structure, 2011–20194

Peru in the world economy  83

84  Peru in the world economy Table 3.4 Unit labor costs in US$ per hour, 1980–2019a Year

Peru

Indonesia

Mexico

United States

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

10.2912532 10.4804647 10.1666089 8.70314036 8.73796733 8.74194042 8.84390179 9.38113527 8.47855542 7.28781477 6.74995043 6.47382487 6.41997382 6.57450691 7.01424152 7.14509263 7.07278415 7.34957961 7.0325339 6.93626918 6.83005014 6.77651788 7.0082305 7.1693125 7.34558073 7.64142085 7.94819121 8.32084337 8.85772478 8.7574591 9.21041914 9.55264198 9.88516983 10.2673064 10.2868812 10.4060016 10.6764167 10.7489986 10.9734432 11.0497764

4.6152546 4.59451343 4.62588562 4.73355233 4.79946698 4.75484995 5.1718157 5.19846721 5.18074371 5.27300603 5.50452678 5.8816149 6.24918887 6.63907659 6.74326853 7.1304945 7.55221185 7.75951352 6.44810646 6.32440922 6.46246907 6.52969352 6.82673848 6.95729298 7.14821443 7.57687687 7.8772548 7.93887934 8.24461769 8.36923472 8.72672918 9.27198719 9.50843762 9.95778436 10.3585288 10.6979566 11.1304806 11.3547873 11.5388876 11.739626

22.5495353 23.7171916 22.7668621 21.6849786 21.5453161 21.0947091 19.6663181 19.3427267 18.9107948 18.9888637 19.2602825 19.5077522 19.6562908 19.919307 20.4013525 18.8059771 19.1458801 19.5170789 20.4232449 19.5211466 20.4336077 20.1469342 19.2597423 19.688211 19.9829641 20.3986805 21.0572775 21.3517555 20.6478664 20.6390085 19.6130159 20.1646735 20.2359435 20.1410568 20.6463963 20.7629658 20.9014074 21.0203141 20.9078813 20.4763689

39.2059496 40.0169001 40.0348798 41.1086525 41.9611402 42.6884045 43.6741675 43.8509764 44.457855 44.8926598 45.6579605 46.3759652 48.2551589 48.6374491 49.0727062 49.4253882 50.3710603 51.2770903 52.416326 53.9395022 55.298617 56.4954259 58.2270174 60.1883494 61.8167862 63.0788267 63.7047004 64.3757335 65.0946212 67.1051759 68.8186528 68.788725 69.0714527 69.44842 69.8968036 70.6021146 70.9294383 71.6385705 72.3910788 73.5849928

The unit labor costs (in hours) are calculated by dividing the real GDP at constant 2017 national prices (in mil. 2017 US$) by the number of persons engaged and the average annual hours worked by persons engaged. Source: https://www.rug.nl/ggdc/productivity/pwt/?lang=en (consulted 17/03/2022). a

technological intensity, as a percentage of technology “based” manufactures, for the period 1980–2019, is presented. Table 3.5 is demonstrating that Peru’s participation in global value chains is primordially reduced to low technology intensive manufactures. Hence, it

Peru in the world economy  85 Table 3.5 Weight of Peruvian exported manufactures according to technological intensity, as a percentage of technology “based” manufactures, 1980–2019 1980 1985 1990 1995 2000 2005 2010 2015 2019 Low technology intensive manufactures Medium technology intensive manufactures High technology intensive manufactures Total

74% 74% 83% 81% 80% 79% 69% 62% 62% 22% 25% 15% 15% 15% 17% 26% 33% 33% 4%

1%

2%

4%

5%

4%

4%

5%

5%

Sources: https://comtrade.un.org/data/ and https://unstats.un.org/wiki/download/attachments/ 79008899/Trade%20grouped%20by%20technology-intensiveness.pdf?api=v2 (consulted 19/03/ 2022).

is not of a surprise that according to data of the World Bank, in the period 1990–2018, Peru’s share in world manufacturing value added (MVA) has maintained low. In 1990, this was 0.1 and in 2018, this index had not changed. During these 28 years, the country has not been able to increase this index.5 Peru competes with other extremely low-wage countries. However, in the last 21 years, the country has been losing competitiveness as globally functioning capital is able to choose where to produce, putting pressure on the governments of dependent capitalist countries to reduce costs. Globally organized value chains are an extremely helpful tool to reduce costs and increase profits by transnational capital. The insertion in global value chains by Peruvian companies does not seem to be important. Peru is principally a provider of natural resources. This makes the ‘development picture’ for the country very bleak. Its laborforce is not even interesting enough for transnational capital to be massively exploited. Peru as a provider of a cheap labor-force for capitalist development abroad and accumulation by transnational capital is negligible, it appears. 3.3 The advanced economy and the capitalist subsistence economy in Peru In Chapter 2, we argued that the country’s role in the international division of labor is expressed in the nation’s business structure. International capital flows have determining effects on the country’s business structure design. FDI flows reveal that international capital has been mainly interested in the mining, hydrocarbon, and telecommunication sectors. The Peruvian business structure is characterized by the dominance of micro businesses and a relatively very small number of medium-sized and big companies. In Table 3.6, data are presented on the number of private formal companies according to sales in the period 2012–2019. Peru’s business structure forms the basis for our argument that the country’s economy can be divided into an advanced economy (AE) and a capitalist

86  Peru in the world economy Table 3.6 Number of private formal companies according to sales, 2012–2019

2012 2013 2014 2015 2016 2017 2018 2019

Micro companies

Small companies

Medium-sized and big companies

1,557,700 1,689,366 1,787,857 1,933,525 2,011,153 2,183,121 2,270,423 2,608,343

61,322 71,442 77,503 89,993 92,789 98,942 100,443 102,638

9,582 11,195 11,380 12,494 13,031 13,898 14,281 15,405

Source: Fuentes: INEI (2014: 15; 2015: 16; 2016: 18; 2017: 7; 2018: 21; 2019: 22; 2020: 20).

subsistence economy (CSE). The role of the nation in the international division of labor provides the structural basis for the economic division, although it cannot be concluded that Peru is a dual economy. The current business structure does not play a passive role. As a matter of fact, the same structure helps to maintain the division of the country in an AE and CSE. Big national companies and transnational corporations receive the bulk of FDI as they are the principal exporters and wealth appropriators. The internal market, as explained in Chapter 2, is very small and is not structurally expanding. Hence, economic growth stays centered in the country’s principal economic sectors such as mining, telecommunication, and finance. The division of the Peruvian economy in an AE and CSE finds its expression in the level of complexity of production in Peru. As the large majority of the Peruvian labor-force works in the CSE that principally produces for the internal market, the rate of complexity might be very low. Only in the AE we might visualize considerable levels of complexity, at least reaching the level of the Latin American average rate of production complexity. In Table 3.7, we present the ranking of selected countries according to their rate of complexity in the years between 1995 and 2019. Peru is very low ranked in this list of 135 countries (in 2019). It is even the third from below in Latin America. Only Bolivia and Venezuela have lower rates of complexity. However, Bolivia is climbing due to the decision of its government to start industrializing its natural resources (lithium, for instance). Peru’s position in the ranking is in accordance with the structural reduction of the export of intermediate and manufacturing products, and the prioritization of the production and the export of minerals for capitalist development abroad. The reduced rate of productivity and the dominance of the production of low technology intensive manufactures express the low rate of complexity. Furthermore, it must be added that Peru’s complexity rate is in line with the “hegemony” of micro and small companies in the country’s business structure. In Figure 3.7, we can visualize the development of the rate of complexity in Peru in the period 1998–2020. The rate has always been negative and

Peru in the world economy  87 shows a decreasing trend. This means that over time, the country is becoming less diversified and uses less technology for its productive processes (reduced sophisticated production processes). This is a structural problem. Table 3.7 Ranking of selected countries according to the rate of complexity, 1995–2019

Japan South Korea United Kingdom China Mexico Belgium Malaysia India Costa Rica Brazil Colombia Uruguay Indonesia Argentina Chile Peru Bolivia Venezuela Nigeria

1995

2000

2005

2010

2019

1 21 7 46 30 11 37 60 71 25 59 44 77 52 70 80 79 62 128

1 20 4 39 25 16 27 42 70 26 57 51 59 54 65 79 80 69 132

1 10 7 29 17 21 26 49 57 34 56 54 62 53 69 90 108 78 133

1 8 11 24 18 21 29 54 58 46 62 59 67 60 75 94 106 123 133

1 4 12 16 18 21 24 43 44 53 55 62 61 73 71 100 102 128 133

Source: https://atlas.cid.harvard.edu/rankings (consulted 28/03/2022).

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 -0.7

-0.8 -0.9 -1

Figure 3.7 Rate of complexity of Peru, 1998–2020 Source: https://oec.world/en/rankings/eci/hs6/hs96 (consulted 28/03/2022).

88  Peru in the world economy A reduced rate of complexity is also an expression of a low OCC rate. In Marxist terms, the OCC can be defined technically and in value terms. The value composition is determined by the relation between the value of constant and variable capital. The technical composition is the relation between the mass of the means of production and the necessary labor-power to put these means in movement (Marx, 1973a: 587). The relation between constant and variable capital is expressed in: c/v. When the organic composition of capital rises, the value of constant capital that is being used in the production process has increased more rapidly than the value of variable capital. One of the reasons might be that machines have replaced labor-power. An increase in the organic composition of capital normally implies an increase of productivity. The introduction of new technologies might lead to lower unit costs. As a consequence of the introduction of new technologies or more machinery, lesser new value is transferred to the commodities. When more technology or machines are used, it is expected that the rate of complexity increases. The relation between the rate of complexity and the OCC can also see itself expressed in the development of the rate of profit. An increase of the OCC (or the rate of complexity) might lead to a fall in the profit rate. Marx (1973b: 282): No capitalist ever voluntarily introduces a new method of production, no matter how much more productive it may be, and how much it may increase the rate of surplus value, so long as it reduces the rate of profit. Yet every such new method of production cheapens the commodities. Hence the capitalist sells them originally above their prices of production, or, perhaps, above their value. He pockets the difference between their costs of production and the market-prices of the same commodities produced at higher costs of production. He can do this, because the average labour-time required socially for the production of these latter commodities is higher than the labour-time required for the new methods of production. His method of production stands above the social average. But competition makes it general and subject to the general law. There follows a fall in the rate of profit — perhaps first in this sphere of production, and eventually it achieves a balance with the rest  — which is, therefore, wholly independent of the will of the capitalist. In Chapter 4, we analyze the development of the Peruvian profit rate. The division of the Peruvian economy in an AE and a CSE is not reduced to the production sphere. As a matter of fact, the Peruvian internal market can be divided into markets for the advanced economy and those that ‘pertain’ to the CSE. What might be denominated as the advanced market encompasses the external market (Baran, 1964: 201) and high-quality national markets. Micro businesses do not only relate to production processes and markets

Peru in the world economy  89 in the advanced economy but they also produce for their own low-income markets. The goods and services that are provided in these markets are of relatively low quality and help to maintain the reproduction of labor-power in the CSE at low costs for items such as clothing, furniture, transportation, and food. The extreme economic weakness of the big majority of the Peruvian businesses does not allow for a considerable contribution of these companies to the development of the country’s internal market. And when we understand that big national companies and transnational capital are not really interested in developing the internal market, it might be comprehended that economic crises in Peru are not overproduction crises. Peru is affected by overproduction crises in the global North in the sense that it reduces its export markets and diminishes FDI flows. Economic crises are also not caused by low levels of national effective demand or under-consumption. Most of the non-basic consumer goods are imported from abroad, except from textile products that are also produced in the country. Most Peruvian companies do not practice mass production and the big national and transnational companies are focused on the international markets. Economic crises are the consequence of economic problems in the global North in general and the reduction of the possibilities of international business to accumulate capital. This reduction is mainly the result of lower export prices and export volumes of the country’s minerals (the demand of international capital).6 The decreased possibility to profitably extract these resources leads transnational capital to stop producing within the country and to diminish its investments. It is exactly the role of the Peruvian State to help reverse the adversities of the effects of international crisis on the Peruvian economy. 3.4 Conclusions The Peruvian export structure has not radically changed since colonial times. Peru is principally an exporter of natural resources. Hence, its economic development heavily depends on the prices of its commodities in the international markets, foreign investments in the extractive sectors, and economic progress in the advanced capitalist countries and China. Transnational capital appears solely to be interested in the extractive sectors, finance, and communication. Major value-added production processes are not of interest to globally functioning corporations. The role of the country in what are called global value chains is limited. Not only the exports of its manufactures show a falling trend but also the exports of its intermediate products. In addition, Peru is exporting manufactures with a low-technological input. The country’s rate of complexity is negative. It seems that Peru is competing with low-wage countries. Its unit labor costs are currently located at the level of Indonesia, but this does not

90  Peru in the world economy seem to be interesting enough for transnational capital to massively exploit the country’s labor-force. Although we might conclude that Peru’s insertion in globalization is based on the export of its natural resources and its ‘participation’ in global value chains, the country’s mineral resources are fundamental for Peru to ‘profit’ from globalization. However, it is not the country or its people that ‘profit’ but transnational capital. Globally functioning companies are able to choose where to produce, putting pressure on the governments of dependent capitalist countries to reduce costs. Globally organized value chains are an extremely helpful tool to reduce costs and increase profits by transnational capital. The current development model is fully in compliance with the country’s roles in the international division of labor. This model was implemented in the 1990s and aimed to benefit from Peru’s historical comparative and competitive advantages. It is the role of Peru in the international division of labor, fastened and deepened by the development model in place, that has caused, and still causes, the country to be divided into an AE and a CSE. Peru is not a dual economy, but it is definitively segregated. Not only producer markets but also consumer markets are segregated. The AE receives FDI and has a rate of complexity in accordance with these rates in Latin America. The CSE labors the bulk of the Peruvian labor-force. They are employed in micro businesses, characterized by low rates of productivity and a complete lack of investments in technology and labor. The country’s overall rate of complexity and the OCC are low. The internal market is very small, and the development of productivity is stagnating. Transnational capital is not interested in the development of the internal market. Economic crises in Peru are caused, historically, by crises in the advanced capitalist countries. Currently, also economic slumps in China have strong negative economic impacts on Peru. Notes 1 Source: https://estadisticas.bcrp.gob.pe/estadisticas/series/anuales/resultados/PM ­ 05408BA-PM05409BA-PM05410BA-PM05411BA-PM05412BA-PM05413BAPM05414BA-PM05415BA/html/1922/2022/ (consulted 06/03/2022). 2 Petras and Veltmeyer (2014: 21) argue that especially since 2005 FDI have moved away from manufacturing and high-tech information-rich services towards the extraction of natural resources, both renewable and non-renewable, including fossil and biofuels for energy, precious metals and industrial minerals, as well as agrofood products and the ‘large-scale acquisition of land for the purpose of accessing these resources directly (as opposed to trading them)—or, in regard to the governments involved, the food and energy security needs of some countries”. 3 Source: https://estadisticas.bcrp.gob.pe/estadisticas/series/anuales/resultados/PM 05394BA/html/2019/2022/ (consulted 12/03/2022).

Peru in the world economy  91

92  Peru in the world economy Ministerio de la Producción (2019), Las MYPYME en cifras 2018, Lima, Ministerio de Producción. Ministerio de la Producción (2018), Las MYPYME en cifras 2017, Lima, Ministerio de Producción. Ministerio de la Producción (2017a), Las MYPYME en cifras 2015, Lima, Ministerio de Producción. Ministerio de la Producción (2017b), Las MYPYME en cifras 2016, Lima, Ministerio de Producción. Ministerio de la Producción (2014), Las MYPYME en cifras 2013, Lima, Ministerio de Producción. Ministerio de la Producción (2012), MIPYME 2012. Estadísticas de la micro, pequeña y mediana empresa, Lima, Ministerio de Producción. Panfichi, Aldo & Omar Coronel (2011), “Los conflictos hídricos en el Perú 2006– 2010: una lectura panorámica”, in Rutgerd Boelens, Leontien Cremers & Margreet Zwarteveen (eds.), Justicia Hídrica. Acumulación. conflicto y acción social, Lima, Justicia Hídrica / Instituto de Estudios Peruanos / Fondo Cultural PUCP, pp. 393–422. Parodi Trece, Carlos (2014), Perú 1995–2012. Cambios y continuidades, Lima, Universidad del Pacífico. Petras, James & Henry Veltmeyer (2014), Extractive imperialism in the Americas. Capitalism’s new frontier, Leiden / Boston, Brill. Petras, James. & Henry Veltmeyer (2009). What’s left in Latin America? Regime change in new times. Farnham (England) / Burlington (USA), Ashgate Publishing Limited / Ashgate Publishing Company. Smith, John (2016), Imperialism in the twenty-first century. Globalization, superexploitation, and capitalism’s final crisis, New York, Monthly Review Press. Thorp, Rosemary & Geoffrey Bertram (1978), Peru 1890–1977. Growth and policy in an open economy, London / Basingstoke, The Macmillan Press Ltd. World Bank (2011a), “The World Bank Group in Extractive Industries. 2011 Annual Review”, Washington, DC, in https://www.ifc.org/wps/wcm/connect/35ecb6b9ee52-4084-b90e-df7720c19065/WBG_Extractive_Industries_Annual_ Review_2010.pdf?MOD=AJPERES&CVID=ktAvk70 (consulted 02/03/2022). World Bank (2011b), “Latin America and the Caribbean’s Long-Term Growth. Made in China?”, Washington, DC, in https://openknowledge.worldbank.org/ bitstream/handle/10986/26674/774430WP0Annua00Box377297B00PUBLIC0. pdf?sequence=1&isAllowed=y (consulted 02/03/2022). World Bank (2005), “Wealth and sustainability: The environmental and social dimensions of the mining sector in Peru”, in https://web.worldbank.org/archive/ website01269/WEB/IMAGES/THEENVIR.PDF (consulted 12/04/23).

Appendix 3.1 Terms of trade and real GDP growth rates, 1980–2019

Year

Terms of trade

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

106.434841 94.3376411 88.9368932 94.0536417 89.6911577 84.8708197 74.0150908 73.889717 77.085105 72.061687 66.024325 63.0278898 61.4148615 55.1551519 55.8760457 59.9790264 57.8733227 61.6261664 59.4657222 55.7361274 55.0882224 54.8251126 58.8656335 60.0532703 68.4793138 72.6357101 94.3025105 100 88.1220269 85.7640028 103.789923 111.996814 108.784458 102.303273 96.7385702

GDP 5.9433354 5.55204181 −0.22272344 −10.4080858 3.60828654 2.06113207 9.42596236 9.72614643 −9.44127345 −12.3120414 −4.98256354 2.2192591 −0.54050912 5.24357701 12.3081634 7.41158427 2.79912575 6.47681591 −0.39167626 1.49479213 2.69435925 0.61783392 5.45370539 4.16488267 4.95828123 6.28520817 7.52877689 8.51845009 9.1265683 1.09582366 8.33245911 6.3271924 6.13972471 5.85251821 2.38215737 (Continued)

94  Peru in the world economy (Continued) Year

Terms of trade

2015 2016 2017 2018 2019

90.1441735 89.8818279 96.6423858 96.2718659 94.587714

GDP 3.25224477 3.95331872 2.51883544 3.97693572 2.15013139

Source: https://estadisticas.bcrp.gob.pe/estadisticas/series/ (consulted 05/03/2022).

4

The business structure of capitalist development

Introduction This chapter provides a close view of how Peru’s functions in the globalized capitalist world are expressed into its business structure. It starts with a review of some Marxist authors on the question of the concentration and centralization of capital. Then, it studies the presence of big (national) and transnational capital in Peru. It shows how these corporations are dominating the country’s principal economic and value-adding and appropriating sectors and branches such as the extractive sectors, finance, and communication. Special attention is given to the hegemonic role of extractivist capital. We look into its economic importance, its political power, and its influence over the state apparatuses. This section includes a description of the development of Peru’s business structure and national capital groups since the dictatorship of General Juan Velasco (1968–1975). In the following section, we examine the function of small and microbusinesses in the Peruvian economy. The mass of these companies is mainly active in the non-tradable sectors and provides a kind of social security network for all those individuals who cannot find employment in the advanced economy (AE). Outsourcing by big and globally performing businesses permit small and micro companies to form part of the nationally and globally organized value chains. The different types of micro companies are defined, the interrelationships (interrelated dependencies) between the AE and the capitalist subsistence economy (CSE) are outlined, and the functionality of the CSE for the Peruvian economy is discussed. In the next section, we turn to the issue of profitability. In accordance with the predictions of Marx, we show that the profit rate tends to fall, and the organic composition of capital (OCC) tends to rise. However, this increase is principally a product of investments in the AE. We also discuss the problem of capital outflows. If the mass of the profits appropriated by foreign capital would have been maintained and invested in the country, Peru might have been a nation that not solely depended on its natural resources for economic and social progress.

DOI: 10.4324/9781003289456-5

96  The business structure of capitalist development In the last section, we present our conclusions. This chapter includes an appendix on the calculation of the rate of profit and the OCC. 4.1 Concentration and centralization of capital Capital tends to concentrate and to centralize. This is not something of a prefabricated plan but follows from the laws of capitalist development (Mattick, 1974: 114–115). As Marx (1974: 20) explains, capital concentrates and centralizes as a consequence of the tendency of the average profit rate to fall (Marx, 1973: 261). The concentration of capital is a product of the accumulation of individual capitalists. The quantity of capital under their control makes an enlarged scale of production possible.1 Centralization can be defined as the “combining of capitals which are already in existence: […]” (Sweezy, 1977: 280). Processes of concentration and centralization do not, however, lead to the elimination of free competition (Lenin, 1961: 764). In his work, Imperialism, the highest stage of capitalism, Lenin (1961: 702) explained that at a certain moment in the process of concentration, the concentration of capital transforms in monopoly. The era of monopoly capitalism started at the beginning of the 20th century.2 In this period, bank capital became the dominant capitalist fraction in society. Monopolies emerged from the banks (Lenin, 1961: 723, 794). In the definition of Lenin, bank capital is not the same as finance capital. Lenin (1961: 764): “[…] finance capital is the bank capital of a few very big monopolist banks, merged with the capital of the monopolist associations of industrialists; […]”. Monopoly capital, according to Sweezy (1977: 313–314), causes various effects on the proper functioning of the capitalist system. These can be summed up as follows: 1 Prices of monopolized commodities are raised. 2 The equal profit rates of competitive capitalism are turned into a hierarchy of profit rates, highest in the most completely monopolized industries, lowest in the most competitive. 3 Small segments of surplus value are reduced, large segments increased. This raises the rate of accumulation and hence accentuates both the falling tendency of the average rate of profit and the tendency to under-consumption. 4 Investment in monopolized industries is choked off; capital crowds into the more competitive areas. The rate of profit which is relevant to investment decisions is therefore lowered. […] 5 The labor-saving bias of capitalist technology is enhanced, and the introduction of new techniques is so arranged as to minimize the need for new capital. 6 The costs of selling are raised and the distribution system is expanded beyond what is socially necessary.

The business structure of capitalist development  97 Lenin (1961: 764) defined imperialism as “the monopoly stage of capitalism”. This definition, according to the Russian revolutionary, would include what is most important. On the one hand finance capital, that is the bank capital of a few very big monopolist banks, merged with the capital of the monopolist associations of industrialists; and, on the other hand, the division of the world is the transition from a colonial policy which has extended without hindrance to territories unseized by any capitalist power, to a colonial policy of monopolist possession of the territory of the world, which has been completely divided up.3 Imperialism, according to Lenin (1961: 765), has the following five characteristics: 1 the concentration of production and capital has developed to such a high stage that it has created monopolies which play a decisive role in economic life; 2 the merging of bank capital with industrial capital, and the creation, on the basis of this “finance capital”, of a financial oligarchy; 3 the export of capital as distinguished from the export of commodities acquires exceptional importance; 4 the formation of international monopolist capitalist associations which share the world among themselves, and 5 the territorial division of the whole world among the biggest capitalist powers is completed. Imperialism is capitalism at that stage of development at which the dominance of monopolies and finance capital is established, in which the export of capital has acquired pronounced importance, in which the division of the world among the international trusts has begun and in which the division of all territories of the globe among the biggest capitalist powers has been completed. 4.2 Transnational and big (national) extractive, financial, and communication capital in Peru The historical role of Peru in the international division of labor is expressed in its economic structure, its export structure, and its business structure. As explained in Chapter 2, the Peruvian economy can be divided into an AE and a CSE. We discussed questions such as productive heterogeneity, economic dualism, productivity, and international capital flows. Chapter 3 was dedicated to the country’s export structure. The importance of mining and China for Peru’s export was analyzed and the development of the country’s terms of trade and FDI flows were analyzed. Also, the insertion of Peru’s microbusinesses in global value chains and the question of economic complexity were studied. In this and the following section, we look at the country’s business structure in relation to its role in the globalized capitalist world.

98  The business structure of capitalist development Since Peru’s forced insertion into the economic world system (or colonization) and later world capitalism, its economic development has been dominated by international capital groups. The attempt of the military under the leadership of General Juan Velasco (1968–1975) to industrialize the country gave a push to the emergence of big national Peruvian corporations. The interests of foreign capital were not really threatened. Foreign and local corporations were considered keys for the industrialization of the country (Bamat, 1983: 146). The necessity to have control over the economic course of the country induced the government to nationalize and/or to control key industries. In the period 1968–1975, the role of the State in the economy increased considerably. While in 1968 state-owned companies controlled 11% of total Gross Domestic Product (GDP), in 1975 this had increased to 21% (Fitzgerald, 1981: 167). The capitalist role of the State in basic industries was strengthened and international trade was starting to be controlled (Deniz, 1978: 72). In spite of Velasco’s nationalism, foreign capital maintained its importance and presence in the Peruvian economy (Cabieses & Otero, 1978: 61–69). For instance, total US FDI in the years between 1966 and 1971 kept growing, especially in the mining sector. While in 1966, US capital invested 548 million US$, in the years 1967, 1968, 1969, 1970, and 1971, this was 660, 692, 721, 688, and 674 million US$, respectively (Anaya Franco, 1975: 23–24). In 1973, foreign capital controlled 52.7% of the gross value produced by the 200 major industrial companies in the country, although down from 67.4% in 1969 (González Gómez, 1986: 244). The economic policies of the second Fernando Belaúnde government pointed to the transformation of the country into an economy based on the export of commodities (Burt, 2011: 70; Wise, 2010: 173; Crabtree, 2005: 49; Petras, Morley & Havens, 1983: 30) and the liberalization of the economy. Trade liberalization negatively affected local industry as imports increased. Foreign penetration, according to Wise (1986: 27), caused industry to operate only at 40% of its capacity at the end of the Belaúnde government. The role of the State in the economy was diminished through a privatization program of state-owned companies. Although Wise (2010: 178) argues that the results of the program were limited, after 1980, public investments in industry were reduced from 11% to 2% (Wise, 2010: 178–181). The first government led by Alan García (1985–1980) tried to make the country lesser dependent on economic developments abroad. It stimulated internal demand and hoped to increase the internal market. The government supported the Peruvian economic groups in the industrial sector. The failure of Garcia’s economic policies and the question of an uncontrollable hyperinflation in the last two years of his government caused the end of whatever economic experiment. Economic policies were starting to be based on what were called the comparative and competitive advantages of the Peruvian economy, i.e. the production and export of mining products were being favored and the investment in the mining sector was promoted.

The business structure of capitalist development  99 The Alberto Fujimori regime (1990–2000) introduced a radical form of neoliberalism. Private national and foreign investments became the motors for economic development (Parodi Trece, 2010: 298; Ruiz Caro, 2002: 22). Fujimori’s development model was based on the export of the country’s abundant mineral resources and a free and (relatively) unregulated functioning of the markets. Trade tariffs were diminished, the free movement of capital was guaranteed, the financial markets were liberalized, and public monopolies were abolished. The increase of FDI in the Fujimori years was mainly concentrated in the extractive sectors of the economy, industry, and finance. The privatized stateowned companies with the highest investment projections were those active in the mining, hydrocarbon, and telecommunication sectors (Ruiz Caro, 2002: 28–29). As a consequence of the liberalization measures, the national industry was considerably weakened. The focus on the export of the country’s commodities was translated into policies that benefitted large-scale agricultural producers (Crabtree, 2002: 143). The deregulation of the land market and the promotion of private investments in rural areas were key elements of Fujimori’s agricultural policy. The Land Law that was implemented in 1995 “provided property guarantees to titleholders, abolished the previous upper limits on personal landholding and allowed the State to sell land currently in public ownership” (Crabtree, 2002: 142). The consequence of these policies was the re-concentration of land in few hands (Eguren, 2014: 177–178). The governments after Fujimori, all followed the economic path designed by the neoliberal President Fujimori. Alejandro Toledo (2001–2006) further stimulated FDI (reinitiated privatization and concession processes) and vigorously worked on the implementation of free trade agreements. The second Alan García government (2006–2011) was heavily concentrated on the development of the extractive sectors, principally the mining sector. The Humala regime (2011–2016) continued were García left off and began to include projects to provide infrastructure for a more efficient flow of natural resources and the fiscal redistribution of wealth to social layers that were affected the most by this model. Finally, the governments of Pedro Pablo Kuczynski (2016–2018) and Martin Vizcarra (2018–2020) did not alter anything in the model that might have changed the country’s business structure. These regimes were too short of duration. The yearly rankings of the principal companies in Peru are a fine expression of the country’s role in the international division of labor. Its export structure provided similar evidence. In the case of its economic structure, it was demonstrated that the principal economic sectors were non-tradable sectors. The extractive sector was the principal sector for producing tradable goods. Data on the biggest companies according to sales show that mining, petroleum, and gas companies are among the mayor businesses in Peru. As a matter of fact, most of the companies in the top 10 of the yearly ranking of the biggest

100  The business structure of capitalist development 500 companies in Peru according to sales, presented by the journal America Economia, are companies in the mining, petroleum, and gas branches. The position in the rankings of the companies in the extractive sectors is heavily dependent on economic growth abroad, i.e., on the exports of their commodities. Mining products are the country’s principal commodities. Hence, it is to be expected that mining companies are heavily represented in the top 10 of the biggest corporations in Peru. In Table 4.1, data are presented on the number and position of mining, petroleum, and gas companies in the top 10 of the ranking of the 500 biggest corporations in the years between 2000 and 2019 according to sales. Table 4.1 Number and position of mining, petroleum, and gas companies in the top ten of the biggest corporations, according to sales, presented by América Economía, 2000–2019 Year

Number of mining, petroleum and gas companies in top 10

Position of mining, petroleum and gas companies in top 10

Number of mining companies in top 10

2000a 2001b 2002 2003c 2004c 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

3 4 xxx 4 3 6 6 7 7 6 6 6 5 6 5 4 4 4 5 5

2, 3, 4 1, 3, 4, 5 xxx 1, 3, 4, 5 1, 2, 4 1, 2, 3, 4, 5, 9 1, 2, 3, 4, 6, 10 1, 2, 3, 4, 6, 8, 10 1, 2, 3, 4, 6, 8, 10 1, 2, 4, 5, 6, 8 1, 2, 3, 4, 6,10 1, 2, 3, 4, 6, 7 1, 2, 3, 6, 9 1, 2, 4, 8, 9, 10 1, 2, 7, 8, 10 1, 5, 8, 9 2, 6, 7, 10 2, 6, 7, 10 1, 3, 5, 6, 8 1, 2, 5, 6, 9

2 2 xxx 3 2 4 4 4 4 4 4 4 3 2 2 2 2 2 3 2

Sources: América Economía, 27 de julio de 2000; América Economía, 2 de agosto de 2001; América Economía, 4–31 de julio de 2003; América Economía, 9–29 de julio de 2004; América Economía, 15 dejulio-18 de agosto de 2005; América Economía Perú, July 14–August 17, 2006, p. 173; América Economía Perú, October 2008, p. 76; América Economía Perú, July 2010, p. 116; América Economía Perú, July 2010, p. 156; América Economía Perú, July 2011, p. 158; América Economía Perú, July 2012, p. 108; América Economía Perú, July 2013, p. 112; América Economía Perú, July 2014, p. 154; América Economía Perú, July 2016, p. 140; América Economía Perú, July 2017, p. 134; América Economía Perú, July 2018, p. 136 https://www. americaeconomia.com/negocios-industrias/estas-son-las-500-mayores-empresas-del-peru-2020 (consulted 27/04/2022); https://www.americaeconomia.com/negocios-industrias/conozca-las500-empresas-mas-grandes-del-peru-2018 (consulted 27/04/2022). a b c

Only data are available on the six biggest corporations in Peru. Only data are available on the eight biggest corporations in Peru. Only data are available on the five biggest corporations in Peru.

The business structure of capitalist development  101 The history of the relations between capital and the Peruvian governments and the data on the biggest capital groups in Peru show that the power of the different capital fractions is transferred to the composition of the state apparatuses. The capitalist state is not a homogeneous entity but is composed of different classes and class fractions. As Poulantzas (1973) has pointed out, “the terrain of political domination is not occupied by the hegemonic class or fraction alone but by an ensemble of dominant classes or fractions”. According to Mandel (1969), “the state apparatus is not a homogeneous instrument. It involves a structure that rather closely corresponds to the structure of bourgeois society, with a hierarchy of classes and identical differences between them”. Zeitlin (1980: 26) argues that the (democratic) state is ordinarily an arena for struggle between special interests, spheres of influence, interest groups, and distinctive segments of the capitalist class itself, as well as between it and labor and other subordinate social elements. To this extent, the relative autonomy of the state derives from these plural intra-class conflicts, as well as from its place within class relations as a whole. In the specific case of the capitalist state at the periphery of world capitalism, the state apparatus is not only composed of the local dominant class fractions but also, according to Evers (1987: 81–82), of a fraction of the “external bourgeoisie”. The presence of different classes and fractions within the capitalist state does not mean, as explained by Poulantzas (1973), that the capitalist state is an ensemble of separate parts, expressing a ‘share-out’ of political power among the various classes and fractions. On the contrary, over and beyond the contradictions within the apparatuses, the capitalist state always expresses a specific internal unity, the unity of the power of the hegemonic class or fraction. The hegemonic fraction of the dominant class constitutes its economic interests in political interests “that represent the common general interest classes or fractions of the bloc in power” (Poulantzas, 1980: 175).4 The hegemonic class fraction within the capitalist state apparatus can be determined on the basis of an analysis of the power relations within this apparatus (Poulantzas, 1973), i.e., of an analysis of the bloc in power. The bloc in power constitutes a contradictory unity of the dominant classes or fractions, a unity dominated by the hegemonic class or fraction. The unity of the bloc in power is constituted under the aegis of the hegemonic class or fraction that politically polarizes the interests of other classes or fractions that are part of it. […] Political unity of the bloc in power under the aegis of the hegemonic class or fraction means, thus, a unity of

102  The business structure of capitalist development state power, in its connection with the specific interests of that class or fraction. (Poulantzas, 1980: 388–389) The hegemonic fraction in Peru is embodied by extractive capital. Together with the financial institutions and the telecommunication companies, they form the bloc in power. The bloc in power might be considered as the whole of capital groups that have succeeded to “capture the state”. The concept of state capture or political capture refers to the decisive influence of capital on the state. This influence plays a crucial role in the formulation and the execution of public policies at national, regional, and local levels that precisely defend and further the interests of the corporations. The executive power, the parliament, the judicial system, and the regulatory agencies, among others, all are subject to state capture or form the objective of “state captors”.5 One of the principal conditions for state capture to take place is exactly the political, economic, and financial power of the corporations to get access to policy makers. This access enables them to decisively ‘persuade’ these individuals to elaborate and execute policies that favor their interests. The strength of the corporations also permits business to directly place their representatives on politically determining positions within the state. We believe that the bloc in power is the expression of the politically and economically strongest capital groups. Since the inception of capitalism, the capitalist state served, in the last instance, the interests of capital. The fractions of capital that might have ‘captured’ the state can change, but the capture by capital does not. In Chapter 8, we discuss how the power of the hegemonic fraction of capital is expressed in public policies. 4.3 The function of small and micro businesses in the Peruvian economy The CSE is principally composed of micro businesses. These businesses can be divided into different categories. Villarán (1998: 157–159) makes a difference between two types of micro companies. One is called a subsistence micro business and the other is named a dynamic micro enterprise. The subsistence micro businesses are the biggest segment of all micro companies. They are characterized by low productivity and low income. It is the “basis of economic poverty” (Villarán, 1998: 158). Based on information of the Peruvian Central Bank, it is concluded that 70% of all small and micro companies are created for survival. These companies are characterized by low productivity, and production costs are higher than the income generated. As they accumulate capital, only for about 30% of all small and micro businesses might have a future (Villarán, 2000: 9). Fernández-Maldonado Mujica and Gálvez León (2008: 19) make use of more sophisticated categories to distinguish the different micro companies. According to these authors, one can classify micro enterprises into

The business structure of capitalist development  103 three categories. The first and most important one is the subsistence micro company. In these businesses, costs are higher than income. The second one is the micro companies with “simple” accumulation.6 According to mentioned authors, these enterprises succeed in covering their costs (production at break-even point). The smallest category is composed of micro companies that make a profit (Fernández-Maldonado Mujica & Gálvez León, 2008: 19–20).7 Hence, it might not be a surprise that around 70% of all newly created micro and small companies disappear within 1.5 years (Ávila Rosel & Sanchís Palacio, 2011: 168). Trejo Solarzano (2003: 33–34) adds a fourth category to the three already mentioned by Fernández-Maldonado Mujica and Gálvez León. Micro companies are defined as enterprises that employ between two and nine individuals. In category one, we can find the formally established micro companies that make a profit, that make use of qualified personal, and pay more than the minimum wage level (“good remuneration”). Categories two and three are micro companies of extended and simple accumulation. While in the category extended accumulation employees receive at least the official minimum wage, the companies use qualified personal and the businesses make a profit, in the category of simple accumulation the companies have a “weak capacity” to make a profit, and there is not so much use of qualified personal and when qualified employees are contracted the wages are insufficient. In category four, the subsistence micro companies are located. These enterprises do not make a profit and do not make use of qualified personal. In the case they hired qualified employees, these businesses are not able to pay the minimum wage level. The National Institute of Statistics and Informatics (INEI; for its acronym in Spanish) (INEI, 2008: 18) also divides micro companies in three categories. However, the definitions of the INEI are a little bit different from the ones used by Fernández-Maldonado Mujica and Gálvez León. The first one is the subsistence micro company. These businesses do not make profits, they are not able to contract personal, and they are dedicated to economic activities that do not require a certain transformation of supplies and materials and/or use very basic technologies. The second are the micro enterprises created out of necessities. These are family businesses that do not make a profit and only create selfemployment. The third are micro businesses that succeed to accumulate capital. Micro businesses are not reduced to a few economic sectors or branches. They form the majority of companies in every sector or branch. It might seem strange, but the very big majority of mining corporations, information and communication firms, and electricity, gas, and water companies, are micro businesses (Lust, 2019: 102–104). However, as we have demonstrated in previous chapters, their contribution to GDP and total exports is little. The clear and overall presence of micro companies in all economic sectors and branches helps to understand why Peru is not a dualistically organized economy. Micro businesses are closely linked to big national and transnational corporations. It is precisely the worldwide restructuration of business in the 1980s, coupled with what might be called processes of globalization, that have been two of the determining factors for the current structure of the Peruvian economy.

104  The business structure of capitalist development Companies in the CSE are functional for the development of the AE. Certain productive tasks are outsourced to the CSE, reducing costs in the AE. The CSE is a key provider of labor and materials (at low costs) for the AE. The companies in the CSE produce, in general terms, goods and services at lower costs than companies in the AE do. There are not even companies in the AE anymore that produce the same goods and provide the same services as companies in the CSE do, or only at a higher quality level. The CSE is the principal supplier of the goods and services for the reproduction of labor-power in the AE. As these products are produced at low costs, this production helps to reduce labor costs in the AE. The reduction of the labor costs or a relatively slow rise of these costs in the AE is caused by the reduction or the low rise of the reproduction costs of laborpower. These costs include the basic necessities of every individual employed. Labor costs differ because of, for instance, the differences in the level of skilled labor. It is precisely the cost reduction of the basic necessities that makes the CSE so important for the reduction of labor costs. A diminution of labor costs (or variable capital in Marxist terms, see Chapter 6 on labor) equals an increase of surplus value that might be appropriated by capital.8 It should be underlined that the rates of exploitation in the CSE are high because of the absence of labor rights and union representatives. In Peru, only in companies that employ 20 or more individuals, workers are allowed to create a union. Hence, measures to increase the productivity and the work intensity in the CSE are not so difficult to implement in the CSE. The CSE is definitively a source of profitability for the AE, not only for the production of goods and services that are destined for the reproduction of labor-power in the AE but also for the production of intermediate goods, produced for and delivered to the AE (see Chapter 1 on the question of outsourcing). In addition, it is not of a surprise that the wages in the CSE are lower than in the AE. Businesses in the CSE function as a safety net for all those individuals that have not been able to find employment in the AE. For this reason, it might be argued that the Peruvian reserve army of labor not only encompasses the unemployed and the underemployed but all those individuals that are employed in the CSE. Countries at the periphery of the world capitalist system have a permanent surplus of workers (or what has been denominated as a “natural rate of surplus”) that does not have other possibilities than to start small businesses. These business undertakings are characterized by a scarcity of capital and a high level of work intensity, as outlined by Palma (1988: 37). The ‘underdeveloped’ countries are also nations that only need a limited number of the Economic Active Population (EAP) to operate their economic models, principally outward-oriented models based on the extraction of mineral resources. In order for Peru to comply with its role in the international division of labor, it appears that a relatively small portion of its EAP is sufficient for the operation of the current economic model. In Table 4.2, we present data on the occupied EAP according to economic sectors and branches.

a

9.8%

4.7% 5.1% 6.8%

4.3%

2015

9.8%

4.8% 5.3% 6.8%

4.4%

2016

5.0% 4.9% 7.8%

4.2%

2018

9.8% 10.0%

5.1% 5.1% 7.2%

4.3%

2017

2019

2020

10.2%

5.4% 5.1% 7.4%

4.1%

8.4%

4.3% 4.4% 5.6%

4.1%

Other Services consist of the branches of electricity, gas and water, financial intermediation, social services and health activities. It also includes other activities of social and personal community services, and private homes with domestic service.

9.8%

4.6% 5.2% 6.9%

4.7% 5.3% 6.7% 9.9%

4.5%

2014

4.3%

2013

Source: http://webapp.inei.gob.pe:8080/sirtod-series/ (consulted 13/04/2022).

9.8%

4.6%

10.1% 10.4% 10.3% 10.1%

4.1% 5.3% 6.6%

4.2% 4.5% 5.8% 6.5%

4.0% 5.5% 6.2%

4.1% 5.3% 6.0%

4.3%

2012

4.5% 5.7% 6.5%

4.3%

3.9%

2011

27.0% 26.4% 25.2% 25.2% 24.2% 24.0% 24.2% 25.0% 24.8% 24.1% 24.2% 23.7% 31.6% 0.6% 0.6% 0.5% 0.6% 0.5% 0.6% 0.6% 0.6% 0.6% 0.6% 0.5% 0.6% 0.5% 1.2% 1.1% 1.2% 1.3% 1.3% 1.3% 1.2% 1.3% 1.2% 1.2% 1.1% 1.1% 0.9% 11.0% 10.6% 10.5% 10.1% 10.5% 10.1% 9.5% 9.4% 9.5% 9.4% 9.0% 8.9% 8.5% 4.6% 5.0% 5.6% 5.7% 5.9% 6.2% 6.4% 6.6% 6.2% 5.8% 6.0% 6.2% 6.3% 18.3% 18.1% 18.5% 18.2% 18.9% 19.2% 19.0% 18.2% 18.3% 18.8% 18.8% 19.1% 17.7% 8.0% 7.8% 7.9% 8.0% 7.7% 7.7% 8.0% 8.3% 8.4% 8.6% 8.5% 8.4% 7.7%

2010

Agriculture Fishing Mining Manufacture Construction Commerce Transport & Communication Public Administration Real Estate Education Hotels & Restaurants Other Services a

2009

2008

Branches/Year

Table 4.2 Occupied EAP according to economic sectors and branches in percentages of total occupied EAP, 2007–2020

The business structure of capitalist development  105

106  The business structure of capitalist development Table 4.3 The surplus of workers to operate the development model in place in percentage of the occupied EAP, 2008–2020 Year

Surplus of workers (in percentage)

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

71.5 70.9 71.0 70.7 70.8 71.5 71.3 71.2 70.9 71.0 71.3 71.1 74.5

Source: http://webapp.inei.gob.pe:8080/sirtod-series/ (consulted 13/04/2022).

Peru has not only a surplus of workers that cannot find employment in the AE, as evidenced by their occupation in micro businesses but also a surplus of workers when referring to the operation of the model. This surplus is around 70% of the occupied EAP (Lust, 2021: 323). This means that only 30% of the occupied EAP is necessary to operate the economic model in place. In Table 4.3, we present data regarding the percentage of the occupied EAP that is not necessarily needed (in the short run at least) to operate the model. These data are based on the employed in mining, transport & communication, public administration, education, and other services (electricity and finance, among others). Manufacture is not included as this economic sector is not effectively taking part (and in increasing importance) in global value chains (see Chapter 3). The data presented in Table 4.3 are curiously in accordance with the rate of informality and the educational level of the large majority of the EAP (see Chapter 6 for these data). We underline “curiously” as these data do not directly relate to the mentioned surplus. 4.4 Profit rate, the organic composition of capital, and profit outflow In accordance with Marx’s analysis of the development of capitalist economies and similar to the world rate of profit (Chapter 1), the Peruvian rate of profit tends to fall. In the years between 1985 and 1987, it increased due to grown possibilities of surplus value realization, stimulated by demand pushing governmental policies, and a reduction of the OCC. The small increase in the period 2005–2011 is mainly a product of rising commodity prices and increased demand of China for the country’s minerals (increased surplus value production and realization, in combination with a reduction of the OCC).9

The business structure of capitalist development  107 In Figures 4.1 and 4.2, the development of the Peruvian profit rate and the OCC in the years between 1980 and 2019 is presented. In appendix 4.1, more detail is provided on the calculation of the profit rate. The tendential rise of the OCC is a product of investments in technology and/or man-replacing machines, among others, in the AE. However, as the 25% 20% 15% 10% 5% 0%

Figure 4.1 Profit rate, 1980–2019 Source: https://febpwt.webhosting.rug.nl/Dmn/AggregateXs/PivotShow (consulted 18/04/2022).

9 8

7 6 5 4 3 2 1 0

Figure 4.2 Organic composition of capital, 1980–2019 Source: https://febpwt.webhosting.rug.nl/Dmn/AggregateXs/PivotShow (consulted 18/04/2022).

108  The business structure of capitalist development OCC can only be calculated for the whole economy, Figure 4.2 might be a lot steeper and more pronounced if we only would have looked at the AE. The large CSE has a damping effect on the development of the OCC. The fall of the rate of profit is definitively a permanent issue for capital to worry about. However, since the 1990s, the surplus value is showing a rising trend. Figure 4.3 presents the evolution of the surplus value for the period 1980–2018. The continuous increase of the surplus value might have been very beneficial for Peru if all these profits would have been kept in the country and reinvested. This has not been the case. The biggest corporations are principally foreign companies. They take their profits out of the country if sufficient capital has been invested for the adequate development of their operations. As a matter of fact, in the period 1980–2019, the accumulated outflow of utilities of the private sector has been larger than the accumulated net inflow of private capital (financial account of private sector). Data show that the accumulated profit outflow of the private sector is 10% higher than the accumulated private sector net capital inflows.10 The fact that the accumulated outflow of profits is higher than the accumulated total private net inflow of foreign capital implies that the overall rate of profit on invested capital is very high. It means that profits are paying for the investments by foreign capital. In other words, investment in Peru does not cost anything to foreign companies. In Figure 4.4, the evolution of the outflow of utilities of the private sector and the private capital net inflows is presented. It is interesting to observe that for large periods the yearly profit outflow is larger than the yearly private capital inflow (financial account private sector).

250000

200000

150000

100000

50000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

0

Figure 4.3 Surplus value, 1980–2019 (in millions of US$ 2017) Source: https://febpwt.webhosting.rug.nl/Dmn/AggregateXs/PivotShow (consulted 18/04/2022).

The business structure of capitalist development  109 18000 16000 14000

12000 10000 8000 6000 4000 2000 0 -2000 Ouflow of utilities

Financial account private sector

Figure 4.4 Outflow of utilities of the private sector and financial account of the private sector (in millions of US$) Sources: https://estadisticas.bcrp.gob.pe/estadisticas/series/anuales/resultados/PM05659BA/ html/1980/2019/ (consulted 27/04/2022) and https://estadisticas.bcrp.gob.pe/estadisticas/series/ anuales/resultados/PM05633BA/html/1980/2019/ (consulted 27/04/2022).

4.5 Conclusions Since colonial times, Peru’s economic development has been dominated by international capital. Although in the country’s history there have been intentions to initiate a more or less independent development path, truly political and economic independence was never achieved. The ‘revolutionary’ processes were too short and the history of independence too long in order to reach what might be called a second independence. Since the 1990s, Peru’s development model is in accordance with the role of the country in the international division of labor. It was believed that the country should profit from its historical natural competitive and comparative advantages. The Fujimori regime developed and implemented an economic model that was based on the extraction of the country’s natural resources. Investments of transnational capital were considered crucial. In full compliance with the model, Peru’s principal corporations are located in the extractive sectors of the economy, principally mining, petroleum, and gas companies. Extractive capital is the hegemonic class fraction within the dominant class. The Peruvian business structure is characterized by a small number of big national and transnational corporations and a large number of micro businesses. The majority of these very small business undertaking are subsistence micro companies. We can find them in all sectors and branches. They function as a kind of safety net for all those individuals who have not been able to find employment in the AE. For this reason, it can be argued that all workers that are employed in the CSE form part of Peru’s industrial reserve army, together with the unemployed and underemployed.

110  The business structure of capitalist development The clear division of the country’s business structure in big, transnational, and micro businesses does not mean that they are not related. As a matter of fact, big national and transnational companies and micro business need each other for reproduction. Micro companies are functional for the development of the big national and transnational companies, or businesses in the CSE are functional for enterprises in the AE. Peru is not a dual economy, even though it seems that it presents itself as such. The tendential fall of Peru’s profit rate is in accordance with the trends in other capitalist countries. Also, the development of its OCC is similar to what is happening in other capitalist states. The rise of the OCC is principally a product of increased investments in the AE (mainly in the mining, financial, and communication sectors). The fall of the profit rate can also be localized in the AE. The structural increase of the production and realization of surplus value since the beginning of the 1990s contrasts the development of the profit rate. However, the fact that, for large periods, the capital inflows were lower than the capital outflows seems to demonstrate that investments have been financed by the surplus value generated in the country. Notes 1 When a “growing proportion of the capital accumulated […] stems from the production and realization of surplus value outside the home country”, we can talk about international concentration (Mandel, 1976: 323). 2 “Thus, the principal stages in the history of monopolies are the following: (1) 1860–70, the highest stage, the apex of development of free competition; monopoly is in the barely discernible, embryonic stage. (2) After the crisis of 1873, a lengthy period of development of cartels; but they are still the exception. They are not yet durable. They are still a transitory phenomenon. (3) The boom at the end of the nineteenth century and the crisis of 1900–03. Cartels become one of the foundations of the whole of economic life. Capitalism has been transformed into imperialism” (Lenin, 1961: 706). 3 It should be stated that imperialism is not something new in the development of human society (Lenin, 1961: 759). It existed before capitalism. Hence, Lenin (1961: 764) talks about capitalist imperialism. 4 “Within the class, a specific segment may gain political ascendancy, thereby not only representing the class as a whole, but transforming its interests into class interests. In this sense, it becomes the dominant or ‘hegemonic’ segment of the class” (Zeitlin, 1980: 26). 5 The OECD (2017: 19, 23) makes a difference between state capture (capture of the central government, parliament) and regulatory capture (capture of a regulator). Both are part of what is called policy capture (“public decisions over laws, regulations or policies are consistently or repeatedly directed away from the public interest and towards the interests of a narrow interest group or person, by the intent and action of this group or person”). 6 See for these definitions also Herrera García (2011: 79–80). 7 According to Fernández-Maldonado Mujica and Gálvez León (2008: 19–20), these three categories represented, respectively, 70%, 26%, and 4% of all micro businesses.

The business structure of capitalist development  111





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112  The business structure of capitalist development FitzGerald, E. V. K. (1981), La economía política del Perú, 1956–1978. Desarrollo económico y reestructuración del capital, Lima, Instituto de Estudios Peruanos. Gamero, Julio, & Ulises Humala (2002), Empleo y microempresa en Lima metropolitana. Entre el desempleo y la sobrevivencia, Lima, Desco. González Gómez, Andrés (1986), Economía política de la crisis. Las contradicciones de la acumulación en el Perú, 1950–1975, Lima, Universidad Nacional Mayor de San Marcos, Facultad de Ciencias Económicas. Herrera García, Beatriz (2011), “Análisis estructural de las MYPEs y PYMES, Quipukamayo. Revista de la Facultad de Ciencias Contables, vol. 18, no. 35, pp. 69–89. INEI (2008), IV Censo Nacional Económico 2008. Perú: Características económicas de las micro y pequeñas empresas en el año 2007, Lima, INEI. Lenin, Vladimir Illich (1961), “El imperialismo, fase superior del capitalismo”, in V. I. Lenin, Obras Escogidas en tres tomos, 1, Moscow, Editorial Progreso, pp. 689–798. Lust, Jan (2021), “Structural labor precariousness in Peru”, Critical Sociology, vol. 47, no. 2, pp. 317–330 Lust, Jan (2019), Capitalism, class and revolution in Peru, 1980–2016, Cham, Palgrave Macmillan. Mandel, Ernest (1976), Late capitalism, London, NLB. Mandel, Ernest (1969), “Marxist theory of the state”, in http://www.ernestmandel. org/en/works/txt/1969/marxist_theory_of_the_state.htm (consulted 13/04/2022). Marx, Carlos (1974), El Capital. Critica de la economía política. Vol. III, México, Fondo de Cultura Económica. Marx, Carlos (1973), El Capital, Crítica de la Economía Política, Libro tercero, Buenos Aires, Editorial Cartago, SRL. Mattick, Paul (1974), “Marxismus und »Monopolkapital«”, in Paul Mattick, Kritik der Neomarxisten, Frankfurt am Main, Fisher Taschenbuch Verlag, pp. 106–131. OECD (2017), “Preventing policy capture: Integrity in public decision making”, OECD Public Governance Reviews, in http://www.keepeek.com/Digital-AssetManagement/oecd/governance/preventing-policy-capture_9789264065239-en#. WO5ytYg1_IU#page1 (consulted 11/04/2021). Palma, Diego (1988), La informalidad, lo popular y el cambio social, Lima, Desco. Parodi Trece, Carlos (2010), Perú 1960–2000. Políticas económicas y sociales en entornos cambiantes, Lima, Centro de la Investigación de la Universidad del Pacífico. Petras, James, Morris Morley & A. Eugene Havens (1983), “Peru: capitalist democracy in transition”, New Left Review, no. 142, pp. 30–53. Poulantzas, Nicos (1980), Poder político y clases sociales en el estado capitalista, Mexico, Siglo Veintiuno Editores S.A. Poulantzas, Nicos (1973), “On social classes”, New Left Review, no. 78. No pages, in archive of author. Roberts, Michael (2015), “Revisiting a world rate of profit”, in https://thenextrecession.files.wordpress.com/2015/12/revisiting-a-world-rate-of-profit-june-2015.pdf (consulted 20/04/2022). Ruiz Caro, Ariela (2002), El proceso de privatizaciones en el Perú durante el periodo 1991–2002, Santiago de Chile, Instituto Latinoamericano y del Caribe de Planificación Económica y Social (ILPES), Serie de Gestión Pública, no. 22, in https:// repositorio.cepal.org/bitstream/handle/11362/7273/1/S027489_es.pdf (consulted 13/04/2022).

The business structure of capitalist development  113 Sweezy, Paul M. (1977), Teoría del desarrollo capitalista, Mexico, Fondo de Cultura Económica. Trejos Solarzano, Juan Diego (2003), La microempresa en el Perú a inicios del siglo XXI: magnitud, importancia y características, Lima, IPES – Promoción del Desarrollo Sostenible. Villarán, Fernando (2000), “Las PYMEs en la estructura empresarial peruana”, in http:// www.decon.edu.uy/network/panama/VILLARAN.PDF (consulted 15/04/2022). Villarán, Fernando (1998), Riqueza popular. Pasión y gloria de la pequeña empresa, Lima, Ediciones del Congreso de la República del Perú. Wise, Carol (2010), Reinventando el Estado: estrategia económica y cambio institucional en el Perú, Lima, Universidad del Pacífico / Centro de Investigación. Wise, Carol (1986), “Economía política del Perú: rechazo a la receta ortodoxa”, Documento de Trabajo no. 15, Serie Economía Política no. 1, Lima, Instituto de Estudios Peruano, in http://repositorio.iep.org.pe/bitstream/handle/IEP/996/Wise_ Economia-politica-Peru.pdf?sequence=2&isAllowed=y (consulted 13/04/2022). Zeitlin, Maurice (1980), “On classes, class conflict, and the state: An introductory note”, in Maurice Zeitlin (ed.), Classes, class conflict, and the state. Empirical studies in class analysis, Cambridge, MA, Winthrop Publishers, Inc., pp. 1–37.

Appendix 4.1 The calculation of the rate of profit and the organic composition of capital

The rate of profit is the ratio of the surplus value to the total capital invested. The rate of profit can be described as follows: s = surplus value v = variable capital c = constant capital (fixed and circulating) p = profit rate p = s / (c + v) as a percentage The organic composition of capital (in value terms) is the ratio of constant capital to variable capital. This relationship is described as follows: v = variable capital c = constant capital (fixed and circulating) occ = organic composition of capital occ = c/v To calculate the rate of profit, we follow the example of Roberts (2015) in his article “Revisiting a world rate of profit”. Not only do we agree with Roberts on how to calculate the rate of profit but there is also data available to calculate the rate of profit for Peru using Roberts’ example. The rate of profit and the OCC are calculated based on the data provided by the Penn World Tables. These tables are developed by researchers at the University of California (Davis) and the Center for Growth and Development (Faculty of Economics) at the University of Groningen (The Netherlands). The World Penn Tables use the data found in the national accounts. The version 10.0 tables are a database with information related to income, inputs, production, prices, and productivity, among others, of 182 countries in the period between 1950 and 2019. The database helps to make international comparisons. The World Penn Tables are considered to be the most widely used data source for making macroeconomic comparisons between countries.

The business structure of capitalist development  115 It should be mentioned that the data we use do not represent the entire Peruvian economy. Given the very characteristics of the informal economy, only a part of it is included in the GDP. In addition, we must mention that the available data only allow to calculate the fixed constant capital.11 Therefore, the explanatory power of the calculated rate of profit and the OCC is relatively limited. In other words, the rate of profit and the OCC presented in this chapter are only approximations. The following variables are used: – Total Value: Real GDP at constant national prices (in millions of US$ 2017) – Variable Capital: Share of labor compensation in GDP at current national prices × real GDP at constant national prices (in millions of US$ 2017) – Constant Capital: Capital stock at constant national prices (in millions of US$ 2017) – Surplus value: Total Value – Variable Capital Surplus value: Real GDP at constant national prices (in millions of 2017 US$) – (Share of labor compensation in GDP at current national prices x Real GDP at constant national prices (in millions of 2017 US$)). Profit rate: Real GDP at constant national prices (in millions of US$ 2017) – Share of labor compensation in GDP at current national prices x Real GDP at constant national prices (in millions of US$ 2017) / Stock of capital at constant national prices (in millions of US$ 2017) + (Share of labor compensation in GDP at current national prices x real GDP at constant national prices (in millions of US$ 2017)). Organic composition of capital: Capital stock at constant national prices (in millions of US$ 2017) / Share of labor compensation in GDP at current national prices x Real GDP at constant national prices (in millions of US$ 2017).

5

The social class structure

Introduction Chapters 2–4 have shown how the insertion of Peru in the globalized capitalist world economy has caused the complete dependency of the country on external capitalist forces. A more or less independent national capitalist development path is impossible as Peru does not have the economic and business forces to implement an alternative course of development, albeit fundamentally capitalistic. The country’s functions in the international division of labor do not only have an internal economic expression but also find their manifestation in Peru’s class structure. A small dominant class is accompanied by a middle class with predominantly proletarian characteristics (urban semi-proletariat), a working class that principally performs manual labor, and a peasantry that owns very small pieces of land and are obliged to sell their labor-power (rural semi-proletariat). This chapter starts with a theoretical discussion on class and class structure within the Marxist tradition. Then, we examine the determining factors of the Peruvian class structure. The third section presents Peru’s class structure. Its four principal classes are: bourgeoisie, middle class, proletariat, and peasantry. We define these four classes, we determine their size, and we present empirical data on their importance in the Peruvian class structure. In the last two sections, we delve into class analysis and present our conclusions. We not only theoretically define the concept of class analysis but also ‘apply’ class analysis on Peru’s capitalist economic development. We relate the objective conditions of capitalist development to the country’s class structure. 5.1 Class and class structure The Marxist concept of class is crucial in Marxist theory. Ollman (1968: 580): For those who accept Marx’s version of capitalist social relations, the key concepts in which it is couched are second nature; “class” serves as a necessary vehicle for conveying what Marx taught. For those who do DOI: 10.4324/9781003289456-6

The social class structure  117 not share Marx’s analysis, or something close to it, using his concept “class” can only distort what they have to say. […] As a concept, “class” cannot be detached from the structured knowledge it seeks to express and of which it is, in the last analysis, an integral part. Hunt (1981: 9–10) argues that the study of class and class structure is fundamental to every Marxist analysis as on the basis of this analysis the foundations are laid for the development of the political strategies of revolutionary and socialist movements. In Marxist circles, several definitions of class are in use. As is known, only in Volume III of Capital and in the Eighteenth Brumaire of Louis Bonaparte, Marx (1973a; 1973b) has explicitly set out some, scarce, ideas regarding class. Also, in his work with Engels (Marx & Engels, 1973), Feuerbach. Opposition of materialist and idealist outlook, we can find some notions on the concept of class. Lenin’s (1961) definition of class, formulated in his article “A great beginning”, is generally used as a point of departure for the elaboration and analysis of class and class structure (Zeitlin, 1980; Harnecker, 1970). Wright (1985) and Osorio (2008) add to Lenin’s definition relations of domination. The definition of the concept of class should include various elements. According to Van Parijs (1989: 215–216), it should (i) be relevant for the explanation of consciousness and action; (ii) be hierarchical, in the sense that one class is ‘superior’ to another; (iii) be discrete, in the sense that “belonging to a class is not just a matter of degree”, i.e. there should exist a “non-arbitrary border”; (iv) be concerned with the distribution of material advantages and burdens (income, work, exercise and submission to power); and (v) be rooted in the property relations that characterize the particular mode of production. Przeworski considers class a name of a relation and not a collection of individuals. Przeworski (1977: 388) explains: Individuals occupy places within the system of production; collective actors appear in struggles at concrete moments of history. Neither of these — occupants of places or participants in collective actions— are classes. Class is the relation between them, and in this sense class struggles concern the social organization of such relations. Class can be considered as a relational or gradational concept. According to Wright (1985: 34), when class is considered a relational concept, one looks upon a certain class in relation to another class. “In gradational notions of class”, Wright explains, classes differ by the quantitative degree of some attribute (income, status, education, etc.) and not by their location within a determinate relation. Thus, the names of classes within gradational approaches have a strictly quantitative character: upper class, upper middle class, middle

118  The social class structure class, lower middle class, lower class, and so on. Of course, relationally defined classes also have gradational properties—capitalists are rich, workers are poor — but it is not these distributional properties as such which define them as classes.1 Ossowski (1969: 55, 56) differentiates between simple and synthetic gradation schemes. In the case of simple gradation in the “system of social classes”, one refers to one aspect of the social structure in which the “system of superior and inferior classes” are based on “objectively measurable traits”. In simple gradation, the class structure is based on one “sole criterion”. The concept of synthetic gradation is employed, according to Ossowski (1969: 56), when “two or more non-measurable criteria” are used. It might be argued that a synthetic gradation scheme synthetizes the different factors that are influencing and/or determining the class position of individuals. In addition, due to its ‘non-measurable’ characteristics, in contradiction to simple gradation, synthetic gradation does not “facilitate an objective scale”. In general terms, the Marxist concept of class is based on the individual’s relationship to production, i.e., the social relations of production.2 Although this implies particular property relations, these relations are not central to the Marxist concept of class. The ownership over the means of production does not necessarily alter the particular relations of production of the individuals. The collectively owned means of production in the former Soviet-Union did not fundamentally change the social relations of production. In addition, providing the workers the legal ownership over the means of production in capitalism does not change the capitalist mode of production and the capitalist social relations of production. Hence, we do not agree with Van Parijs who claims that class is, among others, “rooted in the property relations that characterize the particular mode of production” and also not with Anderson (1974: 124) who states that a “Marxist class model must begin with property as central to class definition”. A social formation may be composed of several modes of production. As to a particular mode of production corresponds to particular social relations of production, classes and class structures differ between and within social formations.3 Callinicos (2004: 54) describes the relation between the mode of production, the social relations of production, and classes as follows: Every mode of production involves a particular combination of the forces and relations of production. The productive forces are the labourprocess, the particular technical combination of labour-power and means of production employed in order to transform nature and to produce use values, thereby determining a particular level of productivity. The production relations comprise the relationship of the direct producers to the means of production and their labour-power, the nature of any nonproducing owners and the mode of appropriation of surplus-labour from the direct producers by any such owners. This mode of surplus-extraction,

The social class structure  119 or exploitation, in turn determines the class structure, so that classes are defined relationally, by their objective relationship both to the means of production and labour-power and to other classes. In general terms, the class structure of a society is derived from the whole of production relations. Harnecker (1970: 131) calls a class structure “the articulation of the different classes and class fractions at different levels (economic, political, ideological) of a social formation”. Wright (1999) defines it as the sum total of the social relations that correspond to a particular level of the development of society’s forces of production. The class structure, according to Wright (1993: 102), sets the broadest limits of variation on class struggle in at least two senses. First, the class structure defines the potential actors in the class struggle (for example, without peasants it is impossible to have land seizures as a form of class struggle). Secondly, the class structure defines the range of potential objectives of class struggle (for example, until the emergence of large-scale industrial capitalism, nationalization as an objective of the class struggle was not a viable possibility). The “class structure should be viewed as a structure of social relations that generates a matrix of exploitation-based interests” (Wright (1985: 123).4 5.2 International division of labor and the class structure The international division of labor affects a country’s class structure through its influence over its export structure and business structure. The international division of labor assigns the role of every individual country in the functioning of the world capitalist system. In concrete terms, this function is assigned by transnational capital through its international operators such as the International Monetary Fund (IMF), the World Trade Organization (WTO), and the World Bank (WB). The international division of labor determines, in the last instance,5 the hegemonic fraction of the dominant class. It also helps to define the bloc in power as this is composed of all those capitalist fractions that support and are directly dependent on the development of the hegemonic fraction. The international division of labor is the basis for the current Peruvian class structure. It is the economic basis for our understanding of the class structure. However, a full understanding necessarily includes the subjective conditions of the class structure (class struggle, strength of class organizations). The structure of the working class or the proletariat is heavily influenced by the role a country plays in the functioning of the world capitalist system. In the case of the periphery, a country might be, principally, a provider of natural resources for the development of the advanced capitalist countries and/or a provider of cheap labor-power for global value chains.

120  The social class structure When a country, in the periphery for instance, principally provides the mineral resources for the development of countries at the first level of the pyramid of the international division of labor (see Chapter 1 on the pyramid), this means that a large majority of the proletariat might be informal as employment in the mining branch is relatively scarce. A large part of the proletariat finds itself superfluous (see Chapter 2 on this question). The state apparatuses do not intend to elevate the educational level of its country’s workers or to increase the general skill level of its working classes because it is not necessary for the operation of the economic model. As a consequence, this workforce does not have any other option than to enter the informal sector or being employed by micro enterprises, characterized by a complete lack of labor rights. The reduced importance for economic development of the majority of the labor-force is expressed in the fact that a large part of this working class performs manual labor. As they are not directly needed, investments in the development of their labor-power are scarce. Furthermore, in the branches where this low-skilled labor-force is employed, relatively high-level technological investments are absent. A nation that is assigned the role of provider of cheap labor-power for capitalist development abroad, the international division of labor turns this nation in a sea of micro businesses. Also, the increased economic and labor presence of what are called own-account workers (independent workers) is ultimately determined by the international division of labor. In large part, the characteristics and the size of the middle class depend on the role of a country in the international division of labor. Countries at the first level of the pyramid of the international division of labor have a bigger middle class than countries at the lowest level of this pyramid, when calculating the middle class on the basis of occupational characteristics instead basing the measurement on income. This is principally due to the more complex production process and the involvement of higher skilled labor-power at the first level than at the third level of the pyramid of the international division of labor. Countries at the lowest level of the pyramid of the international division of labor have a small middle class as it is principally destined to facilitate the operation and the continuity of the economic model in place. Only a relatively very small part of the middle class is occupied in more complex production processes in the Advanced Economy (AE). In the case of the own-account workers, the large majority of these individuals are performing manual labor and according to their occupations would pertain to the working class if they stood in the traditional capital-labor relation. We might call these individuals the proletarian fraction of the independent middle class. It might be understood that, in general terms, the middle class of countries at the second level of the pyramid of the international division of labor is lesser qualified than the middle class at the first level. It is also to be expected that there are relatively far less own-account workers in nations at this level

The social class structure  121 of the pyramid than at the third level, as these countries are to be considered as the factories of transnational capital, the basis of the worldwide production and appropriation of surplus value in the manufacturing sector. The peasantry is relatively larger in countries that are principally providers of natural resources to the advanced capitalist countries than countries at the first and second levels of the pyramid of the international division of labor. Although many peasants in countries at the third level of the pyramid have abandoned their lands in order to find a better future in the cities (a worldwide historical trend), still the peasant class is of considerable size and importance. It should be underlined that the lack of employment in the cities is a factor that impedes peasants of these countries to move to the urban areas. The nations at the first level are key importers of natural resources. This does not mean that these countries, and also nations at the second level, have a peasantry that is of reduced economic and social importance. It is just that its peasantry is fundamentally different from peasants at the countries at the third level of the international division of labor. The peasantry in nations that are located at the first level of the pyramid is using technological advanced tools and machines. At the third level, the artisanal laboring of the land is a general practice. Hence, the rates of productivity of rural production at the first level are higher than at the third level. Also, the overall size of the land possessed by every individual peasant in the advanced capitalist countries is larger than in the periphery. As argued in previous chapters, the Peruvian economy can be divided into an AE and a capitalist subsistence economy (CSE). However, Peru does not have a dual economy. It is only presented in this way. The division of the economy into an AE and a CSE is not limited to some economic sectors. It is a division throughout the whole economy, including the peasant economy. The primordial exporters of agricultural products are large companies that are in the possession of large pieces of land and use relatively sophisticated tools and machines. They employ the rural proletariat. 5.3 A broad outline of the Peruvian class structure Classes are formed within the structure of economic production and thus can, partially, be defined in economic terms. Classes are groups of people differing from each other by their relationship to the means of production and labor-power, and by their political, ideological, economic, and social role in the production, and the reproduction of a historically political, economic, and social system. Classes are not homogeneous and can be subdivided in class fractions. Class fractions can be distinguished on the basis of the political and/or economic role individuals play in society and by the role they play and the place they have in the social organization of labor. In this section, we describe the classes that can be found in Peruvian society at the level of the economic structure of a capitalist socioeconomic system.

122  The social class structure At this level of analysis, class cannot be reduced to an economic definition of class as is the case in a pure capitalist mode of production. At the level of the socioeconomic system, a definition of class must “encompass also the political and ideological instances” (Carchedi, 1977: 82). However, according to Carchedi (1977: 167), “the economic definition […] I call economic identification, is determinant. In turn, within the economic identification, the identification in terms of production relations is determinant”. 5.3.1 The bourgeoisie

The bourgeoisie can be defined as those positions which: (a) occupy the bourgeois position within the social relations of production, i.e., positions of control over money capital, physical capital and labour power; or, (b) are linked directly to the bourgeoisie through families or class trajectories; or, (c) occupy bourgeois positions within the political and ideological apparatuses, i.e., positions which involve the control over the creation of state policy and the production of ideology. (Wright, 1993: 97) The bourgeoisie is not a homogenous class but can be divided in class fractions, principally according to economic sectors and branches. For instance, one can make a difference between the class fractions of industrial, commercial, financial, and extractive capital. In this book, the bourgeoisie is defined as individuals that pertain to this class own or control the means of social production and hire labor-power. Although, in general terms, capitalists do not sell their labor-power, there are individuals that pertain to the bourgeoisie and sell their labor-power. However, as they perform the function of capital they are incorporated in the bourgeoisie. Class fractions may be distinguished on the basis of the size of the companies and if individuals are employed in the public or private sector. One can also make a distinction between an urban and a rural bourgeoisie. (Lust, 2019: 39) The bourgeoisie, as in all capitalist societies, is a very small social class. On the basis of household surveys, it is possible to determine the number of individuals that pertain to the capitalist class. First of all, one calculates the number persons who considered themselves belonging to the occupational category of employers. After this exercise, second, the occupational groups have to be determined that perform the function of capitalist. All individuals that identified themselves with these occupational groups should be added to the individuals belonging to the occupational category employers.

The social class structure  123 Individuals that pertain to the capitalist class exploit labor and/or oppress labor (economic oppression). While in the first case surplus value is extracted, in the second case surplus labor is extracted.6 The exploitation of labor or economic oppression takes place in all kinds of companies. It takes place in micro businesses with only one individual employed, in transnational corporations, in the manufacturing sector, and in the service sector, among others. These differences cause the existence of variety of class fractions with common and contradictory interests (see section 5.4). On the basis of household surveys, it has been established that the number of individuals that pertain to the capitalist class as a percentage of the occupied Economic Active Population (EAP) fluctuates between 4% and 6%. More than 90% of Peru’s capitalists employ between two and nine individuals. The percentage of capitalists that employ more 20 individuals ranges between 1% and 2% (Lust, 2019: 127, 145). The structure of the capitalist class indicates the existence of an enormous division in Peruvian society. This division makes it very difficult for a relative autonomous capitalist development to prosper, as we explained in the first two chapters of this book. The capitalist structure also confirms that the economy presents itself as a dual economy, a very small AE and a very big CSE. 5.3.2 The middle class

The middle class is composed of the ‘old’ petty bourgeoisie and the ‘new’ middle class. The ‘new’ middle class also includes the own-account workers. The petty bourgeoisie, according to Poulantzas (1976: 223), are the small-scale producers and small traders (small property). They include forms of artisanal work and small family businesses in which one and the same agent is both owner of the means of production and of labor and is the direct worker. Here there is no economic exploitation in the strict sense, inasmuch as these forms do not employ paid workers (or only very rarely do so). Labor is principally provided by the real owner or the members of his family, who are not remunerated in the form of wages. Small-scale producers derive profit from the sale of their goods and from participating in the total redistribution of surplus value, but they do not extort surplus value directly. Secondly there is the ‘new’ petty bourgeoisie, which tends to increase under monopoly capitalism. It consists of the non-productive wage-earning workers mentioned above; we should add to it civil servants employed by the state and its various apparatuses. Burris (1980: 19) defines the “new middle class” as those positions within the social division of labor which share a common position with the proletariat in terms of two basic ownership

124  The social class structure relations: (1) non-ownership of the material means of production, and (2) the alienation of one’s labor power in exchange for a wage, but which are distinguished, in varying degrees, by some combination of the following relations of possession: (1) control over the immediate employment of the material means of production, and (2) control over the exercise of one’s own labor and/or the labor of others. In more concrete terms, Burris (1980: 29) divides the new middle class in four general categories depending upon their major function with respect to the capital accumulation process. 1. The supervision and control of the labor process: managers, foremen, technical supervisors, etc. 2. The reproduction of capitalist social relations: teachers, social workers, health professionals, state administrators, lawyers, cultural workers, etc. 3. The accounting and realization of value: professionals in advertising, sales, accounting, banking, finance, insurance, etc. 4. The transformation of the technical means of production: scientists, engineers, research technicians, etc. For the purposes of this book, the middle class in Peru is defined as individuals who sell their labor-power and/or the products of the use of their own laborpower, have control over their own labor-process, might have control over labor-power, may be economically oppressed and/or exploited. A part of this class may own or control the means of social production but does not exploit or economically oppress other individuals, apart from their non-remunerated family members. This class can be fractioned in independents and dependents. On the basis of the classification codes of occupations, independent members of the intermediate class can be divided in individuals with proletarian characteristics and middle-class characteristics. In the case these individuals would be dependents, some of these persons would pertain to the proletariat and others to the dependent intermediate class. The proletarian fraction of the independent intermediate class might be considered an urban semi-proletariat. The urban semi-proletariat is composed of individuals obliged to work on their own account (but not necessarily own means of social production) rather than forced into the capital-labor relation. (Lust, 2019: 39–40) The size of the Peruvian middle class depends on the definition of this same middle class. A Marxist definition is radically different from a definition based on income. A socioeconomic definition is also fundamentally different from the income definition and comes near to the Marxist definition. The

The social class structure  125 definition of the middle class on the basis of income turns class into a statistical grouping. Apart from the differences between the Marxist definition, the socioeconomic definition, and the definition based on income, there are also differences within the group of academics that determine the middle class on the basis of income (Desai & Kharas, 2017; Castellani, Parent & Zentero, 2014; Penfold & Rodríguez Guzmán, 2014; Ferreira et al., 2013; Jaramillo & Zambrano, 2013; Kapsos & Bourmpoula, 2013; Bigot, Croutte, Müller & Osier, 2012; Lora & Fajardo, 2011; Hopenhayn, 2010; Solimano, 2008; 2010; Banerjee & Duflo, 2007). Their debates are limited to discussion on thresholds, i.e., to determine where the middle class “begins” and where it “ends”. The definitions of the Latin American middle class based on income categories are very flexible. Simply by changing the thresholds, the size of the middle class increases or decreases. It seems that these definitions serve more political and ideological goals than scientific purposes. A definition of the middle class based on income makes it possible to argue that poverty has disappeared and that Latin America has become a middle-class society. As a consequence, there is no longer any conflict caused by the possession of the means of production and exploitation has become an obsolete concept. Furthermore, defining the middle class based on income makes it possible to establish “levels” of the middle class. In this way, one can differentiate between a poor middle class, a vulnerable middle class, and a rich middle class, for instance (Stampini et al., 2015). The definition we use in this book is a Marxist definition of the middle class. In the last two decades, around 30% of the EAP was part of the middle class. The middle class can be divided into a dependent and independent middle class. The large majority, between 72% and 77%, formed the independent middle class, i.e., was formed by the own-account workers. This means that the traditional middle class made up around 10% (including independent middle-class fraction of the independent middle class) of the EAP (Lust, 2019: 131, 145). This confirms that Peruvian society is a polarized society. A big working class versus a very small bourgeoisie. The traditional middle is only a very small part of the EAP. The independent middle class might be defined as an independent working class. Between 69% and 77% of this fraction can be called the proletarian fraction of the independent middle class. This percentage appears to be in accordance with the economic model in place and Peru’s role in the international division of labor. Individuals that would form part of the ‘official’ working class but due to their ‘abstract’ position in the production process pertaining to the middle class, maintain their ‘concrete’ position as working class. A big and developed middle class is not necessary in countries such as Peru. Its role in globalized production processes does not need an economically, socially, and culturally developed middle class.

126  The social class structure 5.3.3 The proletariat

The proletariat is that class in society which lives entirely from the sale of its labor and does not draw profit from any kind of capital; whose weal and woe, whose life and death, whose sole existence depends on the demand for labor—hence, on the changing state of business, on the vagaries of unbridled competition. The proletariat, or the class of proletarians, is, in a word, the working class of the 19th century (Engels, 1847) The working class, i.e. a class of laborers, lives only so long as they find work, and who find work only so long as their labour increases capital. These labourers, who must sell themselves piecemeal, are a commodity, like every other article of commerce, and are consequently exposed to all the vicissitudes of competition, to all the fluctuations of the market. (Marx & Engels, 1980: 53) The deciding issue for determining if one belongs to the working class is one’s role in the social division of labor instead of one’s function in the technical division of labor (Poulantzas, 1976: 211, 224). This means, for instance, that although foremen may technically do the same work as the “ordinary” worker, they are not part of the working class. Their function as supervisor is determinant. In the same line, engineers and technicians are not working class because their political and ideological function is to subordinate the working class to capital. Taking the above definitions and descriptions in consideration, the proletariat consists of all those individuals who sell their labor-power, who do not own any means of social production, who have no control over their own labor-process and who are exploited and/or are economically oppressed. It does not depend on the kind of payment of labor-power expended if an individual belongs to this class or not. Non-remunerated family members form part of this class, although they are not paid. On the basis of the International Standard Classification of Occupations 88 (ISCO-88), we determined the following occupations as pertaining to the proletariat: 239, 258, 269, 311, 312, 313, 314, 315, 316, 317, 318, 319, 320, 321, 322, 323, 324, 341, 342, 343, 343, 344, 345, 346, 347, 348, 349, 350, 351, 352, 353, 353, 354, 355, 356, 364, 365, 366, 367, 371, 372, 373, 374, 375, 376, 377, 378, 379, 381, 382, 383, 391, 392, 393, 394, 395, 396, 412, 413, 414, 415, 416, 417, 418, 419, 421, 422, 423, 436, 442, 443, 444, 451, 453, 454, 455, 456, 461, 462, 511, 512, 522, 523, 531, 541, 552, 571, 572, 573, 626, 631, 632, 633, 634, 635, 636, 711, 712, 713, 714, 715, 716, 717, 718, 719, 720, 721, 722, 723, 724, 725, 726, 727, 728, 729, 730, 731, 732, 733, 734, 735, 736, 737, 738, 739, 740, 741, 742, 743, 744, 745, 746,

The social class structure  127 747, 748, 749, 750, 751, 752, 753, 754, 755, 756, 757, 758, 759, 760, 761, 762, 763, 764, 765, 766, 767, 768, 769, 770, 771, 772, 773, 774, 775, 776, 777, 778, 779, 780, 781, 782, 783, 784, 785, 786, 787, 788, 789, 790, 791, 792, 793, 794, 795, 796, 797, 798, 799, 811, 812, 813, 814, 815, 816, 817, 818, 819, 820, 821, 822, 823, 824, 825, 826, 827,828, 829, 830, 831, 832, 833, 834, 835, 836, 837, 838, 839, 840, 841, 842, 843, 844, 845, 846, 847, 848, 849, 850, 851, 852, 853, 854, 855, 856, 857, 858, 859, 860, 861, 862, 863, 864, 865, 866, 867, 868, 869, 870, 871, 873, 874, 875, 876, 877, 882, 883, 885, 886, 931, 932, 933, 934, 935, 936, 937, 938, 939, 940, 941, 942, 943, 944, 945, 946, 947, 948, 949, 950, 951, 952, 953, 954, 956, 957, 958, 959, 960, 961, 962, 963, 964, 965, 966, 967, 968, 969, 970, 971, 972, 973, 974, 975, 976, 977, 978, 979, 980, 981, 982, 983, 984, 985, 986, 987, 999. The proletariat can be split up into individuals that perform manual or mental labor. The proletariat can be split up into individuals that perform manual or mental labor. Individuals in the following occupations are principally performing manual labor: 443, 444, 511, 522, 523, 531, 571, 572, 573, 626, 631, 632, 633, 634, 635, 636, 711, 712, 713, 714, 715, 716, 717, 718, 719, 720, 721, 722, 723, 724, 725, 726, 727, 728, 729, 730, 731, 732, 733, 734, 735, 736, 737, 738, 739, 740, 741, 742, 743, 744, 745, 746, 747, 748, 749, 750, 751, 752, 753, 754, 755, 756, 757, 758, 759, 760, 761, 762, 763, 764, 765, 766, 767, 768, 769, 770, 771, 772, 773, 774, 775, 776, 777, 778, 779, 780, 781, 782, 783, 784, 785, 786, 787, 788, 789, 790, 791, 792, 793, 794, 795, 796, 797, 798, 799, 811, 812, 813, 814, 815, 816, 817, 818, 819, 820, 821, 822, 823, 824, 825, 826, 827,828, 829, 830, 831, 832, 833, 834, 835, 836, 837, 838, 839, 840, 841, 842, 843, 844, 845, 846, 847, 848, 849, 850, 851, 852, 853, 854, 855, 856, 857, 858, 859, 860, 861, 862, 863, 864, 865, 866, 867, 868, 869, 870, 871, 873, 874, 875, 876, 877, 882, 883, 885, 886, 931, 932, 933, 934, 935, 936, 937, 938, 939, 940, 941, 942, 943, 944, 945, 946, 947, 948, 949, 950, 951, 952, 953, 954, 956, 957, 958, 959, 960, 961, 962, 963, 964, 965, 966, 967, 968, 969, 970, 971, 972, 973, 974, 975, 976, 977, 978, 979, 980, 981, 982, 983, 984, 985, 986, 987, 999. Mental labor is performed in the subsequent occupations: 239, 258, 269, 311, 312, 313, 314, 315, 316, 317, 318, 319, 320, 321, 322, 323, 324, 341, 342, 343, 343, 344, 345, 346, 347, 348, 349, 350, 351, 352, 353, 353, 354, 355, 356, 364, 365, 366, 367, 371, 372, 373, 374, 375, 376, 377, 378, 379, 381, 382, 383, 391, 392, 393, 394, 395, 396, 412, 413, 414, 415, 416, 417, 418, 419, 421, 422, 423, 436, 442, 451, 453, 454, 455, 456, 461, 462, 512, 541, 552. The Peruvian proletariat is a low-skilled working class. This is in accordance with the role of Peru in the international division of labor and the structure of the economy, expressed in the division of the country in an AE and CSE. Capitalist development in Peru does not force capital to innovate as an abundant labor-force is forehanded that is easy to exploit.7 In Table 5.1, we present the division of the proletariat in manual and mental labor performing individuals.

128  The social class structure Table 5.1 Division of the proletariat in manual and mental labor performing individuals, 2004–2019 (as a percentage of total proletariat) Year

Manual labor (%)

Mental labor (%)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

85.1 84.5 84.1 82.6 81.5 81.0 79.9 79.6 78.9 78.5 78.5 79.0 78.3 77.4 76.7 78.3

14.9 15.5 15.9 17.4 18.5 19.0 20.1 20.4 21.1 21.5 21.5 21.0 21.7 22.6 23.3 21.7

Source: Instituto Nacional de Estadística e Informática, Encuesta Nacional de Hogares, 2004–2019.

Table 5.2 Division of manual and mental labor performing individuals in micro ­businesses, 2004–2019 Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Manual labor (%) 91.9 89.9 86.7 88.7 88.6 87.8 88.6 87.0 88.5 88.2 86.2 87.9 86.9 86.7 86.0% 85.0

Mental labor (%) 8.1 10.1 13.3 11.3 11.4 12.2 11.4 13.0 11.5 11.8 13.8 12.1 13.1 13.3 14.0 15.0

Source: Instituto Nacional de Estadística e Informática, Encuesta Nacional de Hogares, 2004–2019.

The big majority of the labor-force is employed in companies that pertain to the CSE. These businesses, as described in previous chapters, are characterized by low productivity and scarce investments in the development of labor-power. Hence, the percentages of manual and mental labor performing

The social class structure  129 individuals are relatively high. In Table 5.2, data are presented on the division of manual and mental laboring individuals in micro businesses, defined as companies that employ between one and ten individuals. Peru is not a middle-class society, but a working-class nation. Between 47% and 50% form part of the ‘official’ working class. When we add the urban semi-proletariat, i.e., all those independents that perform productive tasks that ‘normally’ pertain to the ‘official’ working class (the urban proletarian fraction of the independent middle class), we obtain a total percentage of more than 60% (Lust, 2019: 133, 145). 5.3.4 The peasantry

The peasantry is considered to be society’s most heterogeneous class. According to Mintz (1973: 94–95), however total a peasant society may appear to be, its members rarely — if ever—may be said to compose the entire fabric of rural life. Various modes of share-tenure, sharecropping, squatting, etc., all of which both throw light upon, and complicate, the definitional problem, are typical of peasant societies. Lenin (1974: 464) has made a useful distinction between the various groups that exist within the “mass of peasants”. The “bottom group” consisted of the “proletarian and semi-proletarian strata of the population”. It is “the property-less population, which earns its livelihood mainly, or half of it, by the sale of labour-power”. The middle group consisted of “the poor small peasant farmers”. This group of peasants “barely manages to make ends meet, but the principal means of livelihood of this group is “independent” (supposedly independent, of course) small-scale farming”. The top group is formed by the “well-to-do small peasant farmers”. These farmers “exploit more or less considerable numbers of allotment-holding farm laborers and day laborers and all sorts of wage-laborers in general”. The peasantry in Peru can be divided into peasants and rural proletariat. Peasants are individuals that are occupied in farming (agriculture and livestock breeding) and located in the countryside. They do not have a direct relationship to the capitalist mode of production. That is, their relations of production are fundamentally pre-capitalist, although many peasants are forced into an indirect relationship to the capitalist mode of production, which allows their labor to be exploited. Peasants own some means of social production but do not exploit or economically oppress other individuals, apart from their non-remunerated family members. Individuals that pertain to the rural proletariat are occupied in farming but do not own the means of social production. Hence, they are forced to sell

130  The social class structure their labor-power. A part of the peasants might be called a rural semiproletariat. These individuals have one foot in labor (forced into a relation of wage-labor or to work on their own account) and one foot in the countryside, retaining access to agriculture. (Lust, 2019: 40) The Peruvian peasantry, or all those individuals who consider that their principal occupation, is working on their own plots of land or are contracted by companies that have focused their productive processes on the land (rural proletariat), fluctuated in the last 20 years roughly between 14% and 16% of the occupied EAP. Around 99% are peasants (own a small piece of land) and 1% are forming the rural proletariat (Lust, 2019: 138, 145). Since the start of what might be called the contra-revolution, i.e. the whole of processes that intended to undo the social changes implemented during the military regime led by General Juan Velasco (1968–1975), a second revolution has taken place in the rural areas. While during the government of Velasco it was aimed to create enormous rural companies (product of the Agrarian Reform or the expropriation of the land of the big landowners in 1968), managed by state officials and rural workers, the return of democracy in 1980 meant the start of the privatization of these enterprises. The privatization of these rural businesses caused the emergence of mini latifundios (very small plots of land owned by impoverished farmers) and the return of big landowners. Data for 2012 show that the big majority of agricultural and livestock units, around 78%, only occupy 6% of the agricultural surface. 0.3% of these units occupy 69.5% (Lust, 2019: 141). 5.4 Class analysis In Marxist circles, there is frequent talk about class analysis. However, very often class analysis is not defined. Is class analysis an analysis of the capitalist dynamics of a particular society in which one relates to the antagonistic classes in society? Is class analysis an analysis of classes? In general terms, we believe that class analysis is predicated on a structural analysis of the relations that individuals necessarily enter into in the process of production, according to the level of the development of society’s forces of production. Petras and Veltmeyer (2009: 32) argue that class analysis [is] a materialist analysis of the dynamics of capitalist development that takes into account both the objectively given, the structural forces of productive and social transformation, and the subjective or politically determined response to these conditions, a dialectical interplay of the objective and subjective, in particular conjunctures and over time.

The social class structure  131 According to Wright (1989: 271), “the task of class analysis is not simply to understand class structure as such but to understand the interconnections among all these elements and their consequences for other aspects of social life”. Przeworski (1977: 343) explains that the “theoretical” function of class analysis is to identify the objective conditions and the objective consequences of concrete struggles. […] The assumption of class analysis is thus that the historical development of capitalist societies is to be understood in terms of the development of the capitalist system of production, more specifically, in terms of the process of the accumulation of capital and all of its attendant consequences. In this book, we describe a Marxist class analysis of capitalist society as an analysis of the objective and subjective conditions that determine the capitalist development of a specific social formation, on the basis of which a particular class structure is erected and developed that influences the specific capitalist development of the social formation and at the same time forms the material basis for the reproduction and supersession of the dominant capitalist mode of production of this social formation. This section intends to develop only a part of the Marxist class analysis. We relate the objective conditions of Peru’s particular capitalist development to the country’s class structure. In general terms, the role of Peru in the international division of labor causes extractivist capital to become the hegemonic fraction of capital in Peru. The economic model in place is tightly related to the function of the country in the globalized capitalist world and the hegemony of mining and hydrocarbon businesses in society. Of course, extractive capital is not necessarily also the governing class, but it is definitively the politically leading class fraction. The principal businesses in the Peruvian extractivist sector are globally functioning corporations. According to Robinson (2010: 166, 170–171), because of the increasing political and economic importance of transnational corporations in Latin America, the dominant class fraction in Latin America is the transnational class fraction. This class is tied to the global economy and became the dominant fraction within the dominant classes of Latin America in the course of the 1980s and 1990s. The in-country agents of global capitalism, become integrated organically as local contingents into the transnational elite. […] These new transnationally oriented economic groups and political elites captured state power in country after country during the 1980s and 1990s, and used that power to integrate their countries into the emerging global economy and society. They are the manifest agents of capitalist globalization in Latin America.

132  The social class structure The block in power consists of extractive capital in association with financial and communication capital. These last groups profit from the hegemonic role of extractivist capital and facilitate its development. Income effects of the development of extractive capital permit the presence, development, and continuity of the associated capital groups in the block in power. National capital (micro, small, medium-sized, and big national capital) is too small and too weak to trigger an autonomous capitalist development process that might interest transnational financial and communication capital for reasons of accumulation. The biggest corporations in Peru are related to the extractivist sectors and finance. They are also the principal receivers of FDI. In the last instance, extractivist capital decides over the laws and policies that concern their particular interests (see Chapter 8). Hence, it is not of a surprise that the leading bureaucrats in the Ministry of Energy and Mining, and often we cannot even exclude the ministers themselves, have tied relationships with extractivist capital (Durand, 2016: 58, 66).8 Also, in Congress, extractivist capital has its representatives.9 In this context, it is important to remember that the only economic sector that was allowed, under certain conditions, to continue operating during the Covid lockdowns in 2020 was the mining sector (OCMAL, 2020: 66). The block in power guarantees the general interests of capital. Economic, commercial, and fiscal policies are implemented that fortify the country’s capitalist development processes. The continuing search and signing of free trade agreements, large fiscal benefits or tax exonerations for capital (especially mining capital), and the creation of regulating and controlling bodies without the necessary political, technical, and social power (for instance, regarding cartelization, the creation of monopolies and the defense of labor rights) are a few examples of how the block in power defends and promotes, in particular, the interests of capital and, in general, capitalist development processes. Manufacturing or industrial capital play, politically and economically, the second fiddle. This we demonstrated in our analysis of the class composition of the bourgeoisie in the years between 1980 and 2016 (Lust, 2019: 119–127), expressed in the current extractivist development models. This argument can also be evidenced when we analyze the development of the export of intermediate and manufacturing goods as a percentage of the total exports of goods. It shows a falling tendency (see Chapter 3). It can even be concluded that the role of Peru in global value chains is not really an important factor in the country’s economic development as also processes towards the industrialization is clearly not of interest. Furthermore, it must be underlined that the country does not have a structurally growing internal market. As a matter of fact, its development is even stagnating (see Chapter 2). In Chapter 3, we argued that the role of Peru in the international division of labor provides the structural basis for the division of the Peruvian economy in an AE and CSE. The AE is very small and the CSE is very big. While the AE has a homogenous production structure, the production structure of the CSE is heterogeneous.

The social class structure  133 The AE is composed of all those individuals who pertain to the bourgeoisie that employ more than 20 individuals or due to their role in the companies’ production and distribution processes play the role of capital in companies that employ more than 20 individuals, the dependent middle class, and the independent fraction of the middle class. The big landowners, i.e., those who possess more than 50 hectares,10 around 3% of all agricultural and livestock units (data for 2012), also form part of the AE (Lust, 2019: 141). The CSE encompasses all micro businesses or all those very small capitalists that hope, one day, to form part of the AE. The owners of these companies are dominated and oppressed by what may be called the big bourgeoisie. The proletarian fraction of the independent middle class also forms part of the CSE. In the case these individuals would be working in companies that pertained to the AE, they would also be part of the AE. If they are employed by micro businesses, they belong to the CSE. However, as the large majority are low-skilled, it is to be expected that most of them pertain to the CSE. The low-skilled characteristics of the working class are consequence of the role of Peru in the international division of labor, translated in the economic model in place (see Chapter 6). The CSE is principally composed of informally operating small and very small companies. It not only serves the interests of the businesses in the AE, but it also helps the state to evade its fundamental social responsibilities. The informal sector functions as a social security system. The peasants form part of the CSE as they normally work on very small plots of land. They have very low income and are impoverished. The rural proletariat, however, not only labors in the CSE but also in the AE. They are wage laborers that expend their labor-power at the service of small and medium-sized farm business or industrial agricultural enterprises. 5.5 Conclusions The role of Peru in the international division of labor has a determining effect on the country’s class structure. In the last instance, it defines the composition of the bourgeoisie, the hegemonic class fraction, the block in power, and the particularities of the middle class and the proletariat. Peru’s function in the globalized capitalist system condemns the country’s manufacturing sector to play the second fiddle. The block in power has its political representatives in Peruvian Congress. The majority of the Peruvian proletariat is low-skilled, is principally executing manual labor, is employed in micro businesses, and forms part of the CSE. The CSE serves the interests of the AE. The relation between the CSE and the AE as also the skills level of the Peruvian proletariat is, in the end, the consequence of Peru’s role in the international division of labor. The informality of almost the complete working class is also a consequence of this role as also the fact that the big majority of the independent middle class can be defined as the proletarian fraction of the independent middle class. Peru is not a middle-class society, but a working-class nation.

134  The social class structure Although the peasantry is relatively larger in countries that are principally providers of natural resources to the advanced capitalist countries than countries at the first and second level of the pyramid of the international division of labor, the current composition of the peasantry is a product of the Peru’s function in the international division of labor and the economic model in place. The large majority of the peasantry own very small plots of land. A poor peasantry is a structural characteristic of Peruvian society. Notes 1 Wright (1985: 59–60): It is noteworthy in this regard that theorists who adopt gradational notions of class structure tend to treat class in an extremely ahistorical manner. All societies have ‘upper’ and ‘lower’ classes, and gradational accounts of class tend to treat these terms as having the same meaning regardless of historically specific features of the society. Osorio (2008: 117) argues that to talk about, for instance, the bourgeoisie —and not about the high class— is indicating that there exists a sector in society that not only receives high incomes but appropriates the work of others in the form of surplus value. To talk about the proletariat — and not of the low class— is to demonstrate that this social sector is reproduced by means of the earning of a salary, and that this supposes a social organization supported by the expropriation of the part of the value produced by this social group. 2 Burris (1980: 19): “[…] the social relations which serve as the primary basis for the analysis of class are those of the sphere of production forces.” 3 Poulantzas (1980: 82) writes that the effects of the concrete combination of the respective instances of the modes of production […] give rise to a whole series of phenomena of fractioning of classes, of dissolution of classes, of class fusion […] of the appearance of specific categories, etc.: these things cannot always be located by examining the modes of production that enter into the combination. 4 According to Ossowski (1969: 197), considering classes to be some groups that form a system of groups in a social structure, a system can only be constructed on the basis of “ordering relations or on relations of dependency”. 5 “Determination in the last instance means that the determinant instance calls the determined instances into existence as conditions of the determinant instance’s own existence (reproduction) or supersession. […] The determined instances are considered not in their specific, realized characteristics but in their functionality, as conditions for the existence (reproduction) or supersession of the determinant instance. They are such because the determinant instance stamps the determined instances with its own (contradictory) class character. Thus, to be determined in the last instance means to be imprinted by the (contradictory) class character of the determinant instance and thus to be a condition of reproduction or supersession of the determinant instance” (Carchedi, 1987: 89–90). 6 Carchedi (1987: 196): Consider the formal material labour process. To begin with, we should recall that, if the unproductive enterprise does not produce value, it can appropriate

The social class structure  135 its share of value and surplus value only through the redistribution of the value produced in the productive branches of the economy, i.e. where real (both material and mental) transformations determine the nature of the labour process and thus of the capitalist production process. This transfer of value to the unproductive enterprise is performed by forcing the unproductive labourers to work for longer than the time socially necessary to reproduce their labour power. Since they are expropriated of surplus labour in the form of surplus value, they cannot be said to be exploited: I refer to this type of expropriation of surplus labour as economic oppression. If the ratio between the surplus labour and the necessary labour is called the rate of economic oppression, then, other things being equal, the higher this rate the greater the value appropriated by the capitalist. In fact, the unproductive labourer in the commercial enterprise buys the commodities (at less than their value) and sells them (at their value) and thus allows the capitalist to appropriate the difference. Clearly, the longer, or the more intensively, the unproductive labourer has to work, the more transactions he or she will carry out and the more will be appropriated by the capitalist. 7 A big number of laborers is easy to exploit because of the lack of employment possibilities in the AE. This induces these workers to accept precarious labor conditions. They do not have any other choice because of the absence of a universal social security system. 8 Other sources: https://convoca.pe/investigacion/asi-opera-la-puerta-giratoriade-la-supervision-ambiental-para-grandes-mineras (consulted 27/05/2022), https://ojo-publico.com/3371/puertas-giratorias-sector-privado-y-organismosreguladores (consulted 27/05/2022) and https://onamiap.org/2020/02/las-puertasgiratorias-de-la-corrupcion-y-el-despojo-territorial/ (consulted 27/05/2022). 9 In 2021, the former Minister of Economics and Finance, Pedro Francke, proposed to increase the taxes on the super profits that mining capital was obtaining due to increased prices for its minerals. The Minister even had the support of the International Monetary Fund. The right-wing majority in Congress did not approve. 10 This number is based on the limits of landholding during the Velasco regime (McClintock, 1978: 8).

References Anderson, Charles H. (1974), The political economy of social class, New Jersey, Englewood Cliffs, Prentice Hall, Inc. Banerjee, Abhijit & Esther Duflo (2007), “What is middle class about the middle classes around the world?”, Massachusetts Institute of Technology, Department of Economics, Working Paper Series, Working Paper 07–29, in https://www.ncbi.nlm. nih.gov/pmc/articles/PMC2638076/ (consulted 12/04/2023). Bigot, Régis, Patricia Croutte, Jörg Müller & Guillaume Osier (2012), “The middle classes in Europe. Evidence from the LIS Data”, Cross National Data Center in Luxembourg, in https://ideas.repec.org/p/lis/liswps/580.html (consulted 13/02/2020). Burris, Val (1980), “Capital accumulation and the rise of the new middle class”, Review of Radical Political Economics, vol. 12, no. 1, pp. 17–34. Callinicos, Alex (2004), Making history. Agency, structure and change in social ­theory, Leiden / Boston, Brill. Carchedi, Guglielmo (1987), Class analysis and social research, Oxford, Basil ­Blackwell Ltd. Carchedi, Gugliemlo (1977), On the economic identification of social classes, London / Boston, Routledge & Kegan Paul Ltd.

136  The social class structure Castellani, Francesca, Gwenn Parent & Jannet Zentero (2014), “The Latin American middle class. Fragile after all?”, IDB Working Paper Series no. 557, in http:// publications.iadb.org/bitstream/handle/11319/6733/The-Latin-American-MiddleClass-Fragile-After-All.pdf?sequence=2 (consulted 14/05/2022). Desai, Raj M & Homi Kharas (2017), “Is a growing middle class good for the poor? Social policy in a time of globalization”, Working Paper 105, Global Economy & Development at Brookings, in https://www.brookings.edu/research/is-a-growingmiddle-class-good-for-the-poor-social-policy-in-a-time-of-globalization/ (consulted 21/11/2019). Durand, Francisco (2016), Extractive industries and political capture. Effects on institutions, equality and the environment, Lima, OXFAM. Engels, Friedrich (1847), “The principles of communism”, in http://www.marxists. org/archive/marx/works/1847/11/prin-com.htm (consulted 10/05/2022). Ferreira, Francisco H. G., Julian Messina, Jamele Rigolini, Luis-Felipe López-Calva, Maria Ana Lugo & Renos Vakis (2013), Economic mobility and the rise of the Latin American middle class, Washington, DC, World Bank. Harnecker, Marta (1970), Los conceptos elementales del materialismo histórico, Mexico, Siglo Veintiuno Editores S.A. Hopenhayn, Martín (2010), “Clases medias en América Latina: sujeto difuso en busca de definición”, en Alicia Bárcena y Narcís Serra (coords.), Clases medias y desarrollo en América Latina, Santiago de Chile, CEPAL / Barcelona, Fundación CIDOB, pp. 11–37. Hunt, Alan (1981), “Introduction”, in various authors, Clases y estructura de clases, Mexico, Editorial Nuestro Tiempo S.A., pp. 7–16. Jaramillo, Fidel & Omar Zambrano (2013), “La clase media en Perú: cuantificación y evolución reciente”, Nota Técnica, DB-TN-550, Inter-American Development Bank, in https://publications.iadb.org/es/publicacion/15377/la-clase-media-en-perucuantificacion-y-evolucion-reciente (consulted 22/02/2019). Kapsos, Steven & Evangelia Bourmpoula (2013), “Employment and economic class in the developing world”, ILO Research Paper, no. 6, in http://www.ilo.org/ wcmsp5/groups/public/---dgreports/---inst/documents/publication/wcms_216451. pdf (consulted 10/05/2021). Lenin, Vladimir Illich (1974), El desarrollo del capitalismo en Rusia, Barcelona, ­Editorial Ariel. Lenin, Vladimir Illich (1961), “Una gran iniciativa”, in V. I. Lenin, Obras Escogidas en tres tomas, 3, Moscow, Editorial Progreso, pp. 217–239. Lora, Eduardo & Johanna Fajardo (2011), “Latin American middle classes: The distance between perception and reality”, Inter-American Development Bank, in https://publications.iadb.org/en/publication/10983/latin-american-middle-classesdistance-between-perception-and-reality (consulted 14/05/2022). Lust, Jan (2019), Capitalism, class and revolution in Peru, 1980–2016, Cham, ­Palgrave Macmillan. Marx, Carlos (1973a), El Capital, Crítica de la Economía Política, Libro tercero, Buenos Aires, Editorial Cartago, SRL. Marx, Carlos (1973b), “El dieciocho brumario de Luis Bonaparte”, in Carlos Marx & Friedrich Engels, Obras Escogidas I, Moscow, Progress, pp. 404–498. Marx, Carlos & Friedrich Engels (1980), Manifiesto del partido comunista, Beijing, Ediciones en Lenguas Extranjeras.

The social class structure  137 Marx, Carlos & Friedrich Engels (1973), Feuerbach. Oposición entre las concepciones materialista e idealista, Moscow, Progreso. McClintock, Cynthia (1978), “The ambiguity of Peru’s third way: costs and benefits”, in https://www.wilsoncenter.org/sites/default/files/media/documents/publication/ wp23_the_ambiguity_of_perus_third_way.pdf (consulted 24/05/2022). This paper was presented at the November 2–4, 1978, Workshop on “The Peruvian Experiment Reconsidered” organized by the Latin American Program of the Woodrow Wilson International Center for Scholars, Smithsonian Institution, Washington. Mintz, Sidney W. (1973), “A note on the definition of peasantries”, The Journal of Peasant Studies, vol. 1, no. 1 pp. 91–106. OCMAL (2020), “Minería y COVID-19”, Informe 2, October 2020, in https://www. ocmal.org/2do-informe-ocmal-mineria-y-covid/ (consulted 26/05/2022). Ollman, Bertell (1968), “Marx’s use of class”, American Journal of Sociology, vol. 73, no. 5, pp. 573–580. Osorio, Jaime (2008), Fundamentos del análisis social. La realidad social y su conocimiento, Mexico, Fondo de Cultura Económica / Universidad Autónoma Metropolitana. Ossowski, Stanislaw (1969), Estructura de clases y conciencia social, Barcelona, Ediciones Península. Penfold, Michael & Rodríguez Guzmán, Guillermo (2014), “The growing but vulnerable middle class in Latin America. Growth patterns, values and preferences”, Public Policy and Productive Transformation Series No. 17, CAF Development Bank, in https://scioteca.caf.com/bitstream/handle/123456789/909/CAF%20ENGLISH%20N17%20(2).pdf?sequence=5&isAllowed=y (consulted 13/02/2020). Petras, James & Henry Veltmeyer (2009), What’s left in Latin America? Regime change in new times, Farnham (England) / Burlington (USA), Ashgate Publishing Limited / Ashgate Publishing Company. Poulantzas, Nicos (1980), Poder político y clases sociales en el estado capitalista, Mexico, Siglo Veintiuno Editores S.A. Poulantzas, Nicos (1976), Las clases sociales en el capitalismo actual, Mexico, Siglo Veintiuno Editores S.A. Przeworski, Adam (1977), “Proletariat into a class: The process of class formation from Karl Kautsky’s The class struggle to recent controversies”, Politics & Society, vol. 7, no. 4, pp. 343–401. Robinson, William I. (2010), Latin America and global capitalism. A critical globalization perspective, Baltimore, MD, The Johns Hopkins University Press. Solimano, Andrés (2010), “La clase media y el proceso de desarrollo económico: evidencia internacional de 130 países”, in Alicia Bárcena y Narcís Serra (eds.), Clases medias y desarrollo en América Latina, Santiago de Chile, CEPAL / Barcelona, Fundación CIDOB, pp. 39–70. Solimano, Andrés (2008), “The middle class and the development process”, Seríe Macroeconomía del Desarrollo, no. 65, Santiago de Chile: CEPAL. Stampini, Marco, Marcos Robles, Mayra Sáenz, Pablo Ibarrarán & Nadin Medellín (2015), “Poverty, vulnerability and the middle class in Latin America”, IDB Working Paper 591, in https://publications.iadb.org/publications/english/document/PovertyVulnerability-and-the-Middle-Class-in-Latin-America.pdf (consulted 13/05/2022). Van Parijs, Phillipe (1989), “A revolution in class theory”, in Erik Olin Wright (ed.), The debate on classes, London / New York, Verso, pp. 213–241.

138  The social class structure Wright, Erik Olin (1999), “Foundations of class analysis: a Marxist perspective”, http://www.ssc.wisc.edu/~wright/Foundations.pdf (consulted 04/05/2021). Wright, Erik Olin (1993), “The class structure of advanced capitalist societies”, in Erik Olin Wright, Class, crisis and the state, London / New York, Verso, pp. 30–110. Wright, Erik Olin (1989), The debate on classes, London / New York, Verso. Wright, Erik Olin (1985), Classes, London, Verso. Zeitlin, Maurice (1980), “On classes, class conflict, and the state: An introductory note”, in Maurice Zeitlin (ed.), Classes, class conflict, and the state. Empirical studies in class analysis, Cambridge, MA, Winthrop Publishers, Inc., pp. 1–37.

6

Labor

Introduction Labor precarity is a worldwide phenomenon. It is a product of capitalist development. The urgent need to maintain and increase profitability, capital’s objective to accumulate and the increasing competition between private companies, can explain the emergence of precarious labor. This chapter discusses the structural character of labor precarity in Peru and examines the chains of exploitation between the companies in the capitalist subsistence economy (CSE) and the advanced economy (AE). In section one, we study the concept of labor precarity and we examine what has been called the precariat. The next section is dedicated to the labor conditions in micro businesses. As explained in previous chapters, micro companies form the absolute majority of all businesses in Peru and employ most of the labor-force. After having defined labor conditions, in this section, we present statistical data on the labor conditions in micro enterprises, characterized as companies that employ between one and ten individuals. We examine the type of contracts, the reception of bonuses, the affiliation to pension funds, the weekly working hours, and the remuneration of workers in micro businesses. We also discuss the situation on the work floor in selected micro companies. The third section delves into the educational level of the Peruvian population and, in particular, to the educational level of workers in micro enterprises. We demonstrate that these levels are in accordance with the productivity rates of the mentioned companies and the lack of using sophisticated technologies. The educational level of the majority of the workers in the CSE does not surpass secondary education. Labor precarity is a general characteristic of the businesses in the CSE. In this part of the Peruvian economy, there is no need for technological investments that urge for a high-skilled labor-force. In the CSE, principally manual labor is performed. The fourth section studies the chains of exploitation between the CSE and the AE. We first present the concepts of exploitation, economic oppression, and super-exploitation. Then, we discuss the suitability of the CSE for the AE DOI: 10.4324/9781003289456-7

140 Labor and, more in particular, the suitability of the companies in the CSE for the profitability of companies in the AE. The last section is dedicated to our conclusions. In the appendix to this chapter, a detailed statistical outline is presented on the educational level of the Peruvian population in the years between 2004 and 2019. 6.1 Labor precarity Since the 1990s, the labor conditions of the Peruvian working class have been worsening. This decline, however, has not been reduced to the Peruvian workers, but is a worldwide phenomenon. The global implementation of neoliberal labor reforms and increased commercial and economic integration has been the principal causes for the working conditions to deteriorate. Precarious labor is also a product of the restructuration of capital that started to unfold in the 1980s as a response to the overproduction crisis of the decade before. The restructuring of production processes in especially the advanced capitalist countries helped to reconfigure the structure of the labor-force. While employment in the manufacturing sectors started to disappear, occupations in the fast-growing service sector began to increase (Kolko, 1988: 309–311). Furthermore, not only new production technologies and a new regime of accumulation/labor regulation (post-Fordism) were incorporated, and many labor-intensive lines of industrial production were relocated overseas (Petras & Veltmeyer, 2013: 9), but also the relations between capital and labor were importantly changed. This new capital-labor relation was based on de-unionization, flexible workers, and deregulated work conditions (Robinson, 2010: 15). Subcontracting and outsourcing emerged as new forms of how the labor-capital relations were expressed. The displacement of whole industries to low wage countries was stimulated by the need to reduce labor costs and to increase productivity. The threat to move industries helped to put pressure on the local working class to reduce its social and economic demands. The displacement itself diminished the overall combativeness of the working class, resulting in a radical adaptation of its demands to the necessities of capital. The neoliberal attack on the labor conditions of the working class was most ferocious in those countries with authoritarian regimes and/or in which organized labor was weak (often also the result of the existence of undemocratic governments). Hence, it may not be a surprise that these attacks were first of all concentrated in countries at the periphery of world capitalist development. The labor conditions in these countries turned directly precarious. The labor conditions in the advanced capitalist countries were not exempt from the neoliberal attack. However, these conditions did not worsen in the sense that they became precarious. In Western Europe and the United States, the issue of precarious labor and, later, what might be called the precariat

Labor  141 started to come to the fore during the anti-globalization protests in the first years of the Third Millennium. The worldwide financial crisis of 2008–2009, the Occupy movement in the United States (2011), and the indignados movement in Spain (2011) helped to put the concept on the political and academic agenda (Munck, 2013: 753). In this chapter, we discuss the question of precarious labor. This issue is of importance for our analysis of the labor conditions of the Peruvian working class as it helps to put the particularity of the Peruvian situation in the context of worldwide socioeconomic tendencies and debates. 6.1.1 Definition and characteristics of precarious labor

Precarious labor cannot be disconnected from the worldwide implementation of neoliberalism (Jørgensen, 2013: 961; Standing, 2011: 1). Munck (2013: 751) argues that precarious forms of work and precarious modalities of employment were on the rise as the Fordist social regime of accumulation was losing its hegemony. Employment norms were being eroded from within, as it were, and various forms of non-standard working relations were coming to the fore. Jonna and Bellamy Foster (2016: 25–31) explain that already Marx and Engels had their eyes set on labor precariousness. The implementation of neoliberalism had far-reaching effects on labor. The flexibility of wages and employment was considered of crucial importance for maintaining jobs that were on the risk as a consequence of the overproduction crisis of the 1970s. Increased competition and the transference of whole industries to countries with lower wages and higher productivity rates put pressure on the labor movement to reduce their social and economic perspectives.1 In this context, Felder and Patroni (2016: 5) explain that, in the case of Argentina, the labor reforms and economic restructuring had a “pernicious impact on workers”. The costs of hiring and firing of workers were reduced, the use of temporary and part-time workers was facilitated, and collective agreements were increasingly negotiated at plant level. Precarious labor is not ‘reduced’ to flexible labor or temporary jobs. According to Standing (2011: 9), “precariousness also implies a lack of a secure work-based identity” and the lack of control over their labor, among others. Arrizabalo Montero (2014: 446, 458–474) explains that the precarization of labor has gone through different phases. While it first took the form of forced temporary work, the lack of social security and subcontracting, among others, later it started to attack the social welfare system, dismantling public services in areas such as education, health, and pensions. In relation to this wider use of precariousness, when referring to the work of Candeias (2008), Çelik and Erkus-Öztürk (2016: 426) tell us that precariousness is “a

142 Labor process associated with the increasing exploitation of a transnational labour force and new forms of dispossession of social commons, social rights, and general means of reproduction to organise everyday life it has led to”. This process includes “labour relations or forms of self-employment that in a concrete time and space do not guarantee an acceptable level of subsistence”, “little or any rights to unemployment benefits, health insurance, or pensions”, “the erosion of public services and dispossession of commons as basic means of reproduction”, and “a massive insecurity and weakening of individual agency and self-confidence”, among others. Labor precarity goes beyond the precarity of work. By referring to the work of Rodgers and Rodgers (1989), Fereira (2016: 6) writes that these authors characterize precarious work lack security in the following four dimensions: i “Temporal: limited duration or uncertainty of continuing employment. ii Organizational: weak individual and collective control over working conditions. iii Protection: reduced social security benefits and poor protection against improper working conditions. iv Economic: insufficient pay and/ or salary progression, associated with poverty and social exclusion.” The increasing precariousness of labor in the advanced capitalist countries, especially in the aftermath of the global financial crisis of 2008–2009, has led some authors to belief that a new social class was born: the precariat. As a matter of fact, Guy Standing dedicated a whole book to this supposed new social class: The precariat: the new dangerous class. 6.1.2 The precariat

The concept of precariat dates from the 1980s, but its origin can be traced back to the 1960s. Jørgensen (2013: 961): The neologism “the precariat” is an amalgam of “precarity” and “proletariat”. It was adopted by French labour activists (as a rhetorical and mobilizing tool) in the 1980s, Italian trade unionists and Spanish social movements in the 1990s, and the Global Justice Movement in the early 2000s. The movement fighting for rights for irregular migrants adopted it in the mid-1990s, and the link to migration and self-agency has characterized the understanding and political use of the concept. The origin of the term (precarité) can be traced back to the 1960s when Bourdieu used it to describe the colonial working class and later a new mode of dominance resulting from a (neoliberal) restructuring of global economy.2

Labor  143 The precariat, according to Standing (2011: 6–7), is not the same as the proletariat. The precariat are principally flexible workers without social rights and on temporary contracts. The proletariat is mostly composed of “workers in long-term, stable, fixed-hour jobs with established routes of advancement, subject to unionisation and collective agreements”. The precariat, Standing (2011: 8) explains, consists of people who have minimal trust relationships with capital or the state, making it quite unlike the salariat. And it has none of the social contract relationships of the proletariat, whereby labour securities were provided in exchange for subordination and contingent loyalty, the unwritten deal underpinning welfare states. Without a bargain of trust or security in exchange for subordination, the precariat is distinctive in class terms. It also has a peculiar status position, in not mapping neatly onto high status professional or middle-status craft occupations. It might be argued that the precariat embodies precarious labor. In his work, Standing (2011: 10) presents seven forms of labor-related security that lack the precariat: 1 “Labour market security – Adequate income-earning opportunities; at the macro-level, this is epitomised by a government commitment to ‘full employment’.” 2 “Employment security – Protection against arbitrary dismissal, regulations on hiring and firing, imposition of costs on employers for failing to adhere to rules and so on.” 3 “Job security – Ability and opportunity to retain a niche in employment, plus barriers to skill dilution, and opportunities for ‘upward’ mobility in terms of status and income.” 4 “Work security – Protection against accidents and illness at work, through, for example, safety and health regulations, limits on working time, unsociable hours, night work for women, as well as compensation for mishaps.” 5 “Skill reproduction security – Opportunity to gain skills, through apprenticeships, employment training and so on, as well as opportunity to make use of competencies.” 6 “Income security – Assurance of an adequate stable income, protected through, for example, minimum wage machinery, wage indexation, comprehensive social security, progressive taxation to reduce inequality and to supplement low incomes.” 7 “Representation security – Possessing a collective voice in the labour market, through, for example, independent trade unions, with a right to strike.”

144 Labor Standing’s argument that the precariat is a new class and is different from the proletariat has been widely discussed, mainly in the Global North. Munck (2013: 752): What is most noticeable in the broader literature around precarity and the precariat is that it is almost totally Northern-centric in its theoretical frames and its empirical reference points. There is a totally Northern sensibility at play here, it seems. In Standing’s case it is really just Britain that is the model of economic and political development which he has in mind. There is hardly a reference to any part of the world outside the North Atlantic. It is simply assumed as the centre and the norm which will apply everywhere. There is little cognisance that the type of work described by the term ‘precarity’ has always been the norm in the global South. In fact, it is Fordism and the welfare state which is the exception to the rule from a global perspective. Decent work, to call it that even though it is a rather dubious term, has never been the norm in the postcolonial world. Rather, super-exploitation, accumulation through dispossession and what might be called ‘permanent primitive accumulation’ have by and large prevailed. The discussion on precarious labor in the advanced capitalist countries might be just started, the question was already posed more than 100 years ago by Marx and Engels. Jonna and Bellamy Foster (2016: 23): Since Marx himself defined the proletariat as a class characterized by precariousness, the term precariat is often no more than a fashionable and mistaken substitute for proletariat itself (in Marx’s sense) – or else is employed to refer to a subcategory of the proletariat, i.e., the “subproletariat.” This resembles earlier theorizations of the “underclass” as a separate entity divorced from the working class (Wilson, 1987). In these various formulations, the notion of the precariat is often contrasted to what is characterized as an overly rigidified concept of the proletariat – the latter defined as a formal, stable industrial workforce of the employed, usually organized in trade unions (a notion, however, far removed from Marx’s classical definition of the proletariat). 6.2 Labor conditions in micro businesses Labor conditions are defined as those conditions that (i) permit an efficient, secure, and healthy labor performance on the work floor and (ii) enable a socially fair reproduction of the labor-force. The first conditions have to do with, for example, security, hygiene and health at the workplace, social services, and risk protection provided by the employer on the work floor, the equipment used by the workers on the work floor and training workshops. The second conditions concern the wage level, work hours, healthcare

Labor  145 insurance, affiliation to a pension fund, and unemployment insurance, among others.3 In a certain way, labor conditions are related to the living conditions of the laborers and their satisfaction. Of course, an improvement of these conditions and labor satisfaction improves labor performance.4 In the years between 1984 and 1990, real remuneration in Lima fell with about 40% to 80%, depending on the fact if one was employed in the private or public sector (Infante, 1995: 15). In the decade of the 1990s, wages and salaries were not re-established at their levels at the start of the 1980s. In 1996, it stood at around the same level as in 1990 (Verdera, 2000: 30–31), excluding the salaries of the CEOs. Data for the period 1997–2002 show that the real remuneration for workers did not increase (Gamero, 2005: 87). The labor reforms of the 1990s caused an increase of temporary contracts. While in 1991 63% of the salaried employees in the private sector had a permanent contract, in 2003 this had reduced to 35% (Gamero, 2005: 89). Individuals working on temporary contracts earn less than employees on permanent contracts (Cuadros Luque and Sánchez Reyes, 2007: 14-15). The increasing use of temporary contracts negatively affects labor rights related to healthcare, pensions, and collective bargaining, among others (Gamero, 2005: 89). In 2003, 33% of the workforce in Metropolitan Lima had a healthcare insurance and only 28.3% of the occupied Economic Active Population (EAP) was affiliated to a pension fund (Gamero, 2005: 92).5 In 2007, 50.6% of the occupied urban EAP did not have a contract, 56.8% did not have a healthcare insurance and was not affiliated to a pension fund, and 39% worked more than 48 hours a week (INEI, 2012: 67). In the years between 2008 and 2013, 67.7% to 73.7% of the occupied EAP was not affiliated to a pension fund, 37.8% to 56% did not have a healthcare insurance, and between 36.8% and 42.4% worked more than 48 hours a week. In 2013, only 6.2% of the occupied EAP had a healthcare insurance (INEI, 2015: 20, 23, 79) Having a job does not automatically mean that one has escaped poverty. A great number of workers receive an income below the poverty line. In Table 6.1, data are presented for the years between 2001 and 2013 on the occupied EAP that received remuneration below the poverty line. The labor conditions of individuals that are employed in micro and small businesses are not the same as the labor conditions of persons who work in medium-sized or big companies. The differences are legally established. Workers in micro companies do not receive extra payments for work at night, they do not have an unemployment insurance, they do not receive half year and end-year bonuses, they do not have a life insurance and a complementary labor risk policy paid for by the company, and they have 15 days less vacation then individuals that are formally employed in larger companies (Cuadros Luque, 2017: 76; Chacaltana, 2008: 22–23). According to a study of Gamero Requena (2005: 91), about 75% of the individuals employed in microenterprises do not have a contract. About 13.7% of the workers in medium-sized and big companies have no contract.

146 Labor Table 6.1 The occupied EAP that receives a remuneration below the poverty line (in percentage of total occupied EAP) Year

Income below the poverty line (%)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

37.4 36.5 37.4 39.1 38.5 36.2 32.8 30.8 29.5 28.1 26.5 25.3 24.9

Source: INEI (2015: 20).

In 2006, 60% of the workers in micro companies received a salary below the minimum wage level. Many individuals who work in these companies only succeed to attain the minimum wage level when they work more than 8 hours a day and during officially determined holidays (García, 2007: 151). According to Chacaltana (2008: 11–12), in 2007, 70% of the workers in microenterprises earned less than the minimum wage, only 18% had a healthcare insurance and 11% was affiliated to a pension fund. About 15% of these employees worked more than 60 hours a week. The use of temporary contracts is a generalized practice in medium-sized and big companies. Micro and small businesses are principally employing individuals without contracts (Cuadros Luque & Sánchez Reyes, 2007: 16). 6.2.1 Type of contract

In the years between 2004 and 2019, more than 90% of the workers in micro companies did not have a labor contract.6 In Table 6.2, data are presented on the type of contract of workers in companies that employ between one and ten individuals (excluding the independent worker) in Peru for the period 2004–2019. The question of workers without contracts is a structural issue in Peru. In the 1990s, when neoliberal labor reforms were implemented, an increasing number of individuals worked without any contract or legal protection (Chacaltana & García, 2001: 18; Martínez & Tokman, 1999: 20). Especially, individuals who were employed in micro companies often lacked a contract (Martínez & Tokman, 1999: 20, 22; Chacaltana & García, 2001: 20–21). In the years between 1989 and 1997, individuals without a labor contract who were employed in the urban private sector increased from 30% to 41% of the

Labor  147 Table 6.2 Type of contract of workers (main occupation) in companies that employ one to ten individuals: 2004–2019 (as a percentage of all workers in micro-enterprises) Indefinite contract (%)

Fixed contract (%)

Without contract (%)

1.1 0.9 0.7 1.2 1.4 1.1 1.0 1.2 1.5 1.3 1.5 1.3 1.5 1.6 1.5 1.3

1.5 2.2 1.9 2.1 2.7 2.5 2.6 2.7 3.3 4.1 4.0 4.1 4.3 4.9 5.0 5.0

96.5 96.1 96.7 95.8 95.0 95.6 95.7 95.2 94.3 93.9 93.3 93.9 93.4 92.6 92.6 92.3

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: Instituto Nacional de Estadística e Informática, Household Surveys of Peru, 2004–2019.

EAP (Gamero Requena, 2005: 83–84). In 2000, still 46.8% of individuals employed in the urban private sector did not have a labor contract (Chacaltana & García, 2001: 20). 6.2.2 Bonuses

Workers in micro companies do not generally receive bonuses for Independence Day in July and during Christmas time (end-year bonus). This can be understood as almost every individual who works in a micro company is an informal worker. They also do not receive these bonuses because a special labor regime is applied on these workers. It is important to underline that, in general, a lot of people use the bonuses for Independence Day and Christmas to pay for outstanding debts and for repair and replacement issues. In Table 6.3, data are presented on the bonuses of employees in companies that employ between one and ten individuals (excluding the independent worker) in Peru for the period 2004–2019. 6.2.3 Pension fund

Workers without a contract do not pay for social security. Hence, they are normally not affiliated to a pension fund. Currently, it is possible to affiliate to a pension fund without having a labor contract. This is one of the “successes” of the introduction of private pension funds

148 Labor Table 6.3 Reception of bonuses for national holidays and Christmas by workers in companies that employ one to ten individuals: 2004–2019 (as a percentage of all workers in micro-enterprises)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Independence Day (%)

Christmas (%)

9.4 8.3 8.9 9.8 9.3 10.5 10.9 10.9 11.5 11.3 11.4 11.5 12.0 12.6 10.5 9.5

12.3 11.1 11.2 12.2 12.2 12.8 13.9 13.9 13.4 13.0 12.9 12.5 13.3 13.6 12.1 11.0

Source: Instituto Nacional de Estadística e Informática, Household Surveys of Peru, 2004–2019.

Table 6.4 Affiliated to a pension system by workers in companies that employ one to ten individuals: 2004–2019 (as a percentage of all workers in micro-enterprises) Affiliated to a pension system (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

7.5 8.2 9.3 11.3 11.6 12.7 14.0 13.9 14.5 14.5 16.1 15.2 15.8 17.6 17.2 17.7

Source: Instituto Nacional de Estadística e Informática, Household Surveys of Peru, 2004–2019.

Notwithstanding the possibility to affiliate to a pension fund, the overall majority of individuals employed in micro businesses are not affiliated to a pension fund. In Table 6.4, we present data on the affiliation to a pension fund of workers in companies that employee between one and ten individuals (excluding the independent worker) in Peru for the period 2004–2019.

Labor  149 Table 6.5 Weekly hours worked by workers (main occupation) in enterprises employing one to ten individuals: 2004–2019 (as a percentage of all workers in microenterprises) 0–20 hours 21–40 hours 41–48 hours 49–60 hours (%) (%) (%) (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

26.5 27.5 27.0 28.7 29.6 30.1 31.7 30.9 30.7 30.8 29.5 27.9 29.4 29.2 29.3 28.8

29.2 29.5 26.6 25.1 24.4 25.1 24.3 27.8 25.6 24.8 26.5 26.3 26.6 26.6 26.2 26.5

14.6 14.3 13.7 14.0 13.3 13.3 13.2 13.7 13.9 14.9 15.0 16.4 16.5 15.8 15.6 16.0

13.8 12.6 13.0 12.9 12.9 12.7 12.6 12.7 13.0 12.7 12.8 13.6 12.6 12.8 12.1 12.5

>60 hours 15.3 14.4 14.6 15.4 15.7 14.2 13.7 13.5 13.1 12.5 12.0 11.7 11.5 11.6 11.2 11.9

Source: Instituto Nacional de Estadística e Informática, Household Surveys of Peru, 2004–2019.

6.2.4 Weekly working hours

In Peru, a 48-hour working week (Monday to Saturday) is mandated by law. However, a large number of individuals are working more hours than the officially established working week. In Table 6.5, data are presented on the weekly working hours in companies that employ between one and ten individuals (excluding the independent workers) in Peru for the period 2004–2019. 6.2.5 Remuneration

The remuneration of individuals who work in micro companies is for about 80% to 90% of all these employees below the officially established minimum wage level. This can be understood as also 90% of these employees do not have a contract. Informality helps to raise the wages as no payments have to be made for social security. It might be argued that it is possible that individuals who work less than 48 hours a week earn less than the officially established minimum wage level. We agree with this. However, one should consider that between 60% and 74% of all these individuals work 48 hours a week. Hence, more than 50% of these workers earn less than the minimum wage level. In Table 6.6, we present data on the percentage of individuals who work in companies that employ between one and ten individuals (excluding the independent worker) and earn a wage below the officially established minimum wage level in Peru for the period 2004–2019.

150 Labor Table 6.6 Minimum nominal wage level of the main occupation of workers in companies that employ one to ten individuals, including the independent worker, 2004–2019 (as a percentage of all workers paid in micro-enterprises)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Less than the nominal minimum wage level (%)

Minimum wage level

92.8 90.9 91.5 93.0 90.4 89.7 88.6 89.5 87.9 83.1 81.9 79.6 84.1 78.5 83.2 80.1

S/. 460 S/. 460 S/. 500 S/. 530 S/. 550 S/. 550 S/. 580 S/. 675 S/. 750 S/. 750 S/. 750 S/. 750 S/. 850 S/. 850 S/. 930 S/. 930

Source: Instituto Nacional de Estadística e Informática, Household Surveys of Peru, 2004–2019.

6.2.6 The situation on the work floor

The statistics presented in the previous subsections are, in general terms, confirmed by our interviews with workers in micro companies. None of them has a contract. However, this does not seem to be a very big problem because one does not get to be replaced very quickly (G1, interview, 29/03/2019). A kind of “trust relationship” seems to exist between employers and workers. In addition, in Gamarra, a popular trading center in Lima, everybody knows everybody, so everybody knows who is a good and who is a bad worker (G1, interview, 29/03/2018). As individuals who are employed in micro companies do not have a contract, they are normally considered informal workers. They also do not have a health insurance. As a matter of fact, when they do not show up for work because they are ill, they will not get paid (M2, interview, March 3, 2018, M4, interview, 03/03/2018). A worker in the electronic business in the commercial center Malvinas told that in the case he would not go to work, his salary might even be reduced (M4, interview, March 3, 2018). M4 (interview, 03/03/2018): “I practically have to beg him to give me permission to be absent. […] Several times he has told me to come here sick, just take some pills.” Informal workers do not stay at home when they are ill (G1, interview, 29/03/2018). Working in the confection industry is not healthy as it affects the lungs. One does not use masks against the dust. Not only the employer does not provide masks (G1, interview, 29/03/2018; M1 to M5, interview, 17/12/2017) but also the workers do not use them. It is not comfortable to use masks. During

Labor  151 summertime, one sweats a lot. The workers have adapted themselves to the situation that they are not working under healthy labor conditions, that one is sick. They do not have any other choice (G1, interview, 29/03/2018). In the case of the confection worker in Gamarra, the dust is really a problem because the place where he works has only one door and no windows (G1, interview, 29/03/2018). Accidents in the confection sector of workers in micro businesses in Gamarra are easily and quickly solved. If one loses his finger or a part of it, the first thing one does is to stop the bleeding. Then, when the bleeding has stopped, one puts a blister on the wound and continues working. In the case, the boss sends you home for a couple of days, you will not get paid (G1, interview, 29/03/2018). During official holidays such as May 1 and Independence Day, most of the formal businesses are closed. Informal companies may be open or closed. Micro companies are often part of the informal sector. Hence, in general, when the corporation closes on holidays, no one gets paid (G1, interview, Mach 29, 2018). This forces the workers to look for additional income in other companies. In Gamarra, workers do not benefit from officially established holidays (G1, interview, 29/03/2018). Working hours in micro companies can vary between 9 and 12 hours a day, excluding lunch time (G1, interview, 29/03//2018, M1, interview, 17/12/2012; M2, interview, 17/12/2012; M3, interview, 17/12/2012). In the case of the confection workers, when a lot of work must be finished before a certain deadline, the working day is prolonged (M2, interview, 17/12/2017). This might imply that one has to work all night because the shops/production places in Gamarra are located within confection malls. The workers cannot leave these malls until the next day when they open again (G1, interview, 29/03//2018). Sometimes, overtime is paid. The interviewed workers in micro companies said that they worked from Monday until Saturday.7 As an average, the interviewed workers labored around 60 hours a week. The monthly wages varied between 1,000 and 1,600 soles (G1, interview, 29/03/2018; M2, interview, 17/12/2017). This was just a bit more than the officially established minimum wage.8 As already mentioned above, the interviewed workers did not have a contract. Therefore, not only they did not have a healthcare insurance paid for by their employees but they also they did not receive end-year bonuses or a gratification on Independence Day. Of course, there were also no paid vacations (M1, interview, 17/12/2018; M3, interview, 17/12/2017). 6.3 Educational levels The Peruvian educational levels appear to be in accordance with the country’s role in the international division of labor, its economic and business structure, and the current neoliberal development model based on the extraction and export of, principally, mining products. In Table 6.7, we present the educational levels of the Peruvian population in the years between 2004 and 2019.

82.6 8.6 8.2 0.7

83.7

8.0

7.9

0.5

0.9

9.3

8.9

81.1

0.8

9.4

9.3

80.6

1.0

9.7

9.7

79.6

1.0

9.7

9.4

79.5

1.0

9.9

10.1

79.0

0.9

9.0

8.4

81.7

Source: Instituto Nacional de Estadística e Informática, Encuesta Nacional de Hogares, 2004–2019.

Secondary education or 83.8 less (or no indication of level) Non-university higher 7.9 education (complete and incomplete) University education 7.8 (complete and incomplete) Postgraduate education 0.5 1.1

11.1

9.8

78.1

1.0

9.9

10.1

79.0

0.9

11.3

9.2

78.6

1.0

10.5

8.9

79.5

1.1

11.6

9.9

77.5

1.2

11.8

10.0

76.9

1.3

11.9

10.6

76.2

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Table 6.7 Selected educational levels: 2004–2019 (in percentages)

152 Labor

Labor  153 The educational level seems to have improved since 2004; however, the big majority of the population still does not pass the level of secondary education.9 In the appendix to this chapter, we present a detailed outline of the educational levels of the Peruvian population in the period 2004–2019, from initial level to postgraduate level, completed or not completed. The educational level appears to prove why the working population is low skilled and why productivity is low. In Peru, only a very small minority of the labor-force is able to use relatively sophisticated technologies.10 These individuals pertain to the AE and are employed in economic sectors such as mining, finance, and communication. Low-skilled and low-productivity workers labor in companies that form part of the CSE. An immense portion of private businesses and working population belong to the CSE. The data on educational levels also confirm why the country is not producing a ‘lot’ of aggregate value, and why the exports of final manufacturing products and intermediate goods are falling. It also confirms the ‘educational’ consequences of the economic model. According to Bebbington (2013: 7), in mineral dependent countries education “under-invest in broad-based human capital formation because the extractive model of development does not need this form of labour”. Individuals who work in micro businesses or companies that employ between one and ten individuals pertain to the CSE. Data on the educational levels of employees in these businesses show the following. According to data of the Peruvian Household Surveys for the years 2004, 2007, 2011, 2015, and 2019, respectively 86.1%, 83.2%, 81.5%, 81.9%, and 78.1% of the individuals who worked in businesses that employed between one to ten individuals had secondary education or less (or none). Given the characteristics of the micro businesses, the educational levels attained by the Peruvian labor-force in micro businesses is not a surprise. The skills of the labor-force that is necessary in micro businesses are in accordance with the formal educational level of the workforce. 6.4 Chains of exploitation Before we elaborate on what we call the chains of exploitation, we think that first of all it is necessary to clarify the concepts of exploitation, economic oppression, and super-exploitation. Especially, this last concept is of fundamental importance to understand the relations of exploitation between the AE and the CSE. For the development of these concepts, we heavily rely on the work of Gugliemlo Carchedi in the case of exploitation and economic oppression and of the writings of Ruy Mauro Marini for an explanation of the question of super-exploitation. Marini develops this concept in the context of the relations between the Global North and the Global South. Exploitation is the extra time an individual expends labor-power in the benefit of another individual after having worked the social necessary labor

154 Labor time for the reproduction of his or her labor-power.11 In capitalism, this extra time is called surplus labor or surplus value. Strictly speaking, laborers that produce surplus labor are not exploited but are economically oppressed (Carchedi, 1987: 196). Laborers that produce and/or maintain surplus value are exploited. The relation between surplus value and variable capital (wages) is called the rate of exploitation or the rate of surplus value (Marx, 1973: 220). The rate of economic oppression is the relation between surplus labor and variable capital (Carchedi, 1987: 196). In what follows, we will concentrate on the rate of exploitation as the activities of the unproductive laborers, i.e., those laborers that do not produce and/or maintain value, are aimed at transferring value and surplus value instead of producing value and surplus value. The surplus labor is extracted in the form of surplus value (Carchedi, 1987: 196).12 The rate of exploitation is described as follows: s = surplus value v = variable capital Rate of surplus value or rate of exploitation = s / v The rate of exploitation may change due to a change in the relation between s and v. An increase of the wages leads to a lower rate of exploitation. An increase of the work intensity may increase the surplus value. The class struggle has a determining influence on the rate of exploitation. It determines, for instance, if the capitalist is able to lower the wage level, to increase the work intensity, and to introduce new organizational methods that might raise production and/or the appropriation of surplus value and/or help to increase productivity rates. The capitalist has the necessity to augment the rate of surplus value as it allows it to accumulate capital that enables it to increase the production and the appropriation of surplus value. However, the rate of surplus value cannot increase permanently. First of all, the rate of surplus value cannot rise infinitively as variable capital cannot be reduced to zero (Kliman, 2007: 30; Mandel, 1969: 156). Second, a continuous reduction of v at the benefit of s has a negative impact on the realization of the produced value.13 The concept of super-exploitation has been developed in order to understand the problem of underdevelopment and the responses of the local bourgeoisie in the Global South to offset the transfer of produced value to the companies of the Global North. The issue of super-exploitation is intimately tied to the question of unequal exchange. In his work Dialéctica de la dependencia, Marini argues that the secret of unequal exchange between the Global North and the Global South is the difference between the production of relative surplus value and the production of absolute surplus value (Marini, 1985: 22–24). The mentioned secret is based on the unequal exchange of value, i.e., some countries have a higher average rate of productivity than others and are able to appropriate more value

Labor  155 than they have actually produced. When a country produces commodities that other countries do not possess, it enables this country to demand a price above the value of these commodities. This implies a transfer of value in the exchange process (Marini, 1985: 34–35). The unequal exchange between the Global North and the Global South obliges the capitalists from the South to increase the rate of exploitation as the transfer of surplus value to the North diminishes the possibilities of local capital to accumulate. This increase can only take place when the wagelaborer is paid below the value of his labor-power. This is what Marini calls super-exploitation.14 Nations that are disadvantaged by unequal exchange do not seek to correct the imbalance between prices and the value of their exported commodities, but rather intend to offset the loss of revenue generated by international trade through the recourse of mayor exploitation of their workers (Marini, 1985: 36–38). Super-exploitation is not a consequence of unequal exchange, but unequal exchange is the consequence of the functioning of the capitalist system, i.e., the conversion of use values in exchange values (Marini, 1985: 39). Superexploitation has no ‘financial’ or ‘realization’ consequences or problems for locally working capitalists as “Latin American production does not depend for its realization on the internal capacity to consume” (Marini, 1985: 50). As circulation is separated from production, and circulation basically takes place in the external market, “the individual worker’s consumption does not interfere with the realization of the product, although determines the rate of surplus value” (Marini, 1985: 52). 6.4.1 The relationship between the AE and the CSE

The relationship between the AE and the CSE seems to be similar to the relationship between the advanced capitalist countries and the nations on the periphery of world capitalist development, and the relationship between the national metropoles and the satellites within an underdeveloped country. It is a relationship of domination, oppression, and dependency. This relationship of domination and dependency is expressed in the functionality of the CSE for the development of the AE, especially for the development of the profitability of the companies in the AE. Since the CSE produces commodities at low costs for the physical reproduction of the workers in the AE, this production helps to reduce the costs of variable capital in this economy and, as a consequence, to increase the production and the appropriation of surplus value. It appears that the negative effects of the rise of the organic composition of capital (OCC) on the rate of profit are not only offset by the increased production of surplus value in firms operating in the AE but also to a large extent by the increased production of surplus value in the CSE and its appropriation by capital in the AE, for example, via outsourcing. The suitability of the CSE for the AE can be compared to the suitability of informal workers for capital accumulation in the formal and informal sectors

156 Labor of the economy. The use of informal workers is very profitable for companies in the formal and informal sectors. Informal workers can be employed to reduce the wage demands of formal workers, to increase the rates of exploitation and economic oppression of formal workers, and to introduce measures to increase the productivity and the work intensity of formal workers. As a matter of fact, informal workers themselves are also sources of profitability: (i) the wages in the informal sector are lower than the gross wages in the formal sector; (ii) the absence of labor rights and union representatives cause the rates of exploitation and/or economic oppression in the informal sector to be higher than in the formal sector; and (iii) economic insecurity of the workers in the informal sector makes it much easier to increase work intensity. The existence of a whole range of small informal companies is functional to formal corporations as these businesses supply formal companies at lower costs than other formal enterprises and perform tasks at the service of formally established companies at lower costs than other formal corporations (in terms of labor costs, costs of maintaining machinery and equipment, etc.). The horizontal and vertical integration of formal and informal businesses is demonstrated by the whole set of subcontracting relationships that exist between these companies (Mukherjee, 2016: 22–23; Grompone, 1991: 81–82; Kolko, 1988: 316–317; Semana Económica, 1982: 6–7). Gamero and Humala (2002: 72) point out that because of lower total production costs caused by informal labor, the salaries, and wages of the formal workers might go down as the costs of reproduction of these formal workers have diminished. The profitability of the relation between the AE and the CSE for companies in both economies finds its institutionalization in the existence of different labor regimes. Specific labor regimes are in force for microenterprises, small businesses, and for the non-traditional agricultural sector (since 2000) and the export sector.15 A general labor regime is applied to the rest (a minority) of the formally employed Peruvian working population. The labor regimes ‘determine’ whether a worker has an individual unemployment insurance or not, if he or she receives a bonus for national holidays and an end-year bonus or not, and if he or she has a company-paid life insurance or not. The regimes also define how many free days an individual yearly disposes. Laborers who work in microenterprises do not receive a bonus at the end of the year, do not have an unemployment insurance, do not receive additional payments for night jobs (normally this should be an additional 35%), and only have 15 days of paid vacation per year. Nor do they have a life insurance and a complementary insurance for risky work as do, for example, workers in small businesses (Canessa Montejo, 2017: 67, 75; Fernández-Maldonado & Gálvez León, 2008: 31). Workers who pertain to the general labor regime have 30 days of paid vacation and 15 salaries a year (two bonuses and unemployment insurance). For overtime, they receive an additional 25% (Fernández-Maldonado &

Labor  157 Gálvez León, 2008: 31). In the case of the non-traditional agrarian labor regime, the year-end bonus and unemployment insurance may be incorporated in the remuneration. Working hours cannot exceed the legally established weekly hours (48 hours), but effective daily working hours can be adjusted to the particularities of the sector (Del Castillo, 2021; Canessa Montejo, 2017: 72–73). The differences between the labor regimes have been created to increase the competitiveness of companies. It is believed that micro enterprises will not be competitive when they are forced to pay the same labor costs as large companies. So, to support companies (and not the people employed in these businesses) in the agricultural and export sector, labor costs and labor rights are reduced. In relation to this issue, Cuadros Luque (2017: 76) has prepared a very illuminating table on non-salaried labor costs according to the number of people employed. For microenterprises (one to ten people employed) and small businesses (10–20 people employed), in 2012, these costs were 5% and 29.1%, respectively. For companies and organizations on which the general labor regime applies, these costs amounted to 54%. According to Canessa Montejo (2017: 66), the labor costs of microenterprises represent 68.1% of the general labor regime. In the case of small businesses and the agricultural sector, these percentages are 83.8% and 88%, respectively. 6.5 Conclusions Precarious labor is a natural consequence of capitalist development. Currently, global competition (and economic and commercial integration processes) between capital is one of the principal factors behind worldwide labor precarity. The hegemony of the capitalist ideology and the global political, economic, and social dominance of capital since the disappearance of the Soviet-Union in 1993 and the implementation of what might be called the political economy of neoliberalism, helped to bring about labor precarity, and reduced the strength of the labor movement. Precarious labor is expressed in the generalized practice of outsourcing and subcontracting. In Peru, labor precarity is the expression of the country’s economic and business structure. An economic structure heavily dependent on the nontradeable sectors and a business structure dominated by micro business undertakings do not permit the eradication of precarious labor conditions as economic growth hinges on economic progress abroad and labor precarity is the source of profit of micro companies. Precarity is institutionalized and legally stimulated by the implementation of a precarious labor regime for workers in micro businesses. The relations of exploitation and domination between the CSE and the AE are legally upheld with this extreme precarious officially established labor regime. Individuals who are employed in micro businesses have the worst labor conditions. It should be underlined that having a job in Peru does not mean that

158 Labor one has left poverty. A considerable number of workers receive a remuneration below the poverty line. Precarious labor in the CSE is a source of profitability for businesses in the AE. Companies in the AE realize their produced value abroad. The Peruvian internal market of these enterprises is made up of around 30% of the EAP (economic levels A, B, and a part of C; see Chapter 7). The educational levels in Peru are in accordance with the country’s role in the international division of labor, its economic model, and its business structure. A large majority of the workers are employed in micro businesses and only have attained secondary education. Hence, it can be understood why the use of sophisticated technologies in production processes is not generalized and why micro businesses are not able to develop major value-added production channels. The CSE is functional for the AE. For this reason, no processes will be implemented that may eliminate the conditions for its existence. The CSE helps to combat the reduction of the profit rate and to increase absolute and relative surplus value. In the words of mainstream economics, the CSE is useful for the companies that form part of the AE as it helps to maintain and/or increase their competitiveness. Notes 1 Felder and Patroni (2016: 6): “In reality, the urgent need to control production costs in an economic context that made labor costs the only viable source of adjustment intensified the push for greater labor flexibilization.” 2 Fereira (2016) argues, by referring to Barbier, Brygoo and Viguier (2002), that the concept of precarious employment “appeared in Europe in the 1970s when fixed-term contracts started to emerge. The term was initially related to forms of employment that lack the job security traditionally associated with the standard formal and open-ended contract”. 3 See on labor conditions, Ministerio de Trabajo y Promoción de Empleo (2009: 4–6, 11–12). 4 See on labor satisfaction, Ministerio de Trabajo y Promoción de Empleo (2009: 7–8). 5 See on the same issue, Cuadros Luque and Sánchez Reyes (2007: 16). 6 Microbusinesses are defined as companies that employ between one and ten individuals. See for this definition also Villarán, Álvarez and Mendoza (1988), Villarán (1993) and Cuadros Luque (2017). 7 G1 (interview, March 29, 2018) told that he normally works from Monday to Friday, and sometimes also on Saturday. 8 In the period we interviewed the workers, the minimum wage level was established at 930 soles for 48 hours a week (4, 84 soles an hour). A 60 hours a working week or 240 hours a month “earns” 1161 soles a month. 9 When we refer to the educational levels, we talk about the educational levels of the formal education received: primary and secondary education, university education and institutes. Of course, individuals might receive training in their companies. 10 See on this also Chacaltana and Yamada (2009: 48ft23). 11 In “Foundations of class analysis: a Marxist perspective”, Wright (1999) states: Exploitation is a complex and challenging concept. It is meant to designate a particular form of interdependence of the material interests of people, namely

Labor  159 a situation which satisfies three criteria: (1) The inverse interdependent welfare principle: the material welfare of exploiters causally depends upon the material deprivations of the exploited. (2) The exclusion principle: this inverse interdependence of welfares of exploiters and exploited depends upon the exclusion of the exploited from access to certain productive resources. (3) The appropriation principle: Exclusion generates material advantage to exploiters because it enables them to appropriate the labor effort of the exploited. […] If the first two of these principles are present, but not the third, economic oppression may exist, but not exploitation. The crucial difference is that in non-exploitative economic oppression, the privileged social category does not itself need the excluded category. While their welfare does depend upon the exclusion, there is no on-going interdependence of their activities. In the case of exploitation, the exploiters actively need the exploited: exploiters depend upon the effort of the exploited for their own welfare. 12 Carchedi (1987: 196): Consider the formal material labour process. To begin with, we should recall that, if the unproductive enterprise does not produce value, it can appropriate its share of value and surplus value only through the redistribution of the value produced in the productive branches of the economy, i.e. where real (both material and mental) transformations determine the nature of the labour process and thus of the capitalist production process. This transfer of value to the unproductive enterprise is performed by forcing the unproductive labourers to work for longer than the time socially necessary to reproduce their labour power. Since they are expropriated of surplus labour in the form of surplus value, they cannot be said to be exploited: I refer to this type of expropriation of surplus labour as economic oppression. If the ratio between the surplus labour and the necessary labour is called the rate of economic oppression, then, other things being equal, the higher this rate the greater the value appropriated by the capitalist. In fact, the unproductive labourer in the commercial enterprise buys the commodities (at less than their value) and sells them (at their value) and thus allows the capitalist to appropriate the difference. Clearly, the longer, or the more intensively, the unproductive labourer has to work, the more transactions he or she will carry out and the more will be appropriated by the capitalist. 13 Erik Olin Wright (2000: 32): Exploitation is a powerful concept precisely because it brings together an account of opposing interests with an account of the rudimentary capacity of resistance. Exploiters not only have a positive interest in limiting the life chances of the exploited, but also are dependent upon the exploited for the realization of their own interests. This dependency of the exploiter on the exploited gives the exploited an inherent capacity to resist. 14 Marx (1973: 573–574): In the chapters on the production of surplus value it was constantly presupposed that wages are at least equal to the value of labour-power. Forcible reduction of wages below this value plays, however, in practice too important a part, for us not to pause upon it for a moment. It, in fact, transforms, within certain limits, the labourer’s necessary consumption fund into a fund for the accumulation of capital. 15 The agrarian labor regime includes a limit for the payments of taxes on profits. Companies in this sector only pay a 15% tax rate. The general rate is 30% (Canessa Montejo, 2017: 72).

160 Labor References Arrizabalo, Xabier (2014), “Capitalismo y economía mundial, Madrid, Instituto Marxista de Economía / ARCIS-UdeC, cited in Xabier Arrizabalo Montoro (2016), ¿Es inevitable la precariadad en el capitalismo del siglo XXI? Rentabilidad, explotación y destrucción de fuerzas productivas en el estado imperialista” in https:// libertas.ufjf.emnuvens.com.br/libertas/article/view/3056 (consulted 24/04/2018). Barbier, J. C., A. Brygoo & F. Viguier (2002), A tentative approach to precarious employment in France (eSOPe Project Report, FP 5), Noisy-le-grand, Centre d’études de l’emploi. Bebbington, Anthony (2013), “Extractive industries, socio-environmental conflicts and political economic transformation in Andean America”, in Anthony ­Bebbington (ed.), Social conflict, economic development and extractive industry, New York, Routledge, pp. 3–26. Candeias, Mario (2008), “Double precarisation of labour and reproduction – Perspectives of expanded (re)appropriation”, The Rosa Luxemburg Foundation. Article removed from website: http://www.rosalux.de/fileadmin/wgdw_uploads/ Double_precarisation.pdf. Canessa Montejo, Miguel F. (2017), “Empleo y salarios en el sector exportador peruano: los regímenes laborales especiales y el Tratado de Libre Comercio con Estados Unidos”, in Omar Manky (coord.), Trabajo y sociedad. Estudios sobre el mundo del trabajo en el Perú, Lima, Pontificia Universidad Católica del Perú, CISEPA, pp. 58–83. Carchedi, Guglielmo (1987), Class analysis and social research, Oxford, Basil Blackwell Ltd. Çelik, Cosku & Hilal Erkus-Öztürk (2016), “Role of precariousness and space on class formation process: The case of Antalya’s tourism workers”, Capital & Class, vol. 40, no. 3, pp. 419–445. Chacaltana, Juan & Gustavo Yamada (2009), “Calidad del empleo y productividad laboral en el Perú”, IDB Working Papers no. 691, in https://publications.iadb.org/ publications/spanish/document/Calidad-del-Empleo-y-Productividad-Laboral-enel-Per%C3%BA.pdf (consulted 23/11/2022). Chacaltana, Juan (2008), “Una evaluación del régimen laboral especial para la microempresa en Perú, al cuarto año de vigencia”, International Labor Office, in https://www. researchgate.net/publication/228660574_Una_evaluacion_del_regimen_laboral_ especial_para_la_microempresa_en_Peru_al_cuarto_ano_de_vigencia (consulted 29/12/2018). Chacaltana, Juan & Norberto García (2001), Reforma laboral, capacitación y productividad. Lima, Oficina Internacional del Trabajo. Cuadros Luque, Fernando (2017), “Situación del mercado de trabajo y costos laborales en el Perú”, Cuaderno de Investigación, no. 2, Lima, Emancipación, pp. 34–82. Cuadros Luque, Fernando & Christian Sánchez Reyes (2007), “La contratación temporal en el Perú: la informalidad escondida”, Asesoría Laboral, pp. 11–17. Del Castillo, Laureano (2021), La Reglamentación de la nueva Ley de Promoción Agraria, in https://www.servindi.org/actualidad-informe-especial/25/01/2021/lareglamentacion-de-la-nueva-ley-de-promocion-agraria (consulted 22/01/2023). Felder, Ruth & Viviana Patroni (2016), “Precarious work in recession and growth: A new structural feature of labor markets in Argentina?”, Review of Radical Political Economics, pp. 1–22, in http://journals.sagepub.com/doi/ abs/10.1177/0486613416635053 (consulted 23/11/2022).

Labor  161 Fereira, Maria (2016), “Informal versus precarious work in Colombia: Concept and operationalization”, Progress in Development Studies, vol. 16, no. 2, pp. 1–19. Fernández-Maldonado Mujica, Enrique & Luis Gálvez León (2008), Pequeños negocios grandes responsabilidades. La responsabilidad social empresarial en las micro y pequeñas empresas en Lima, Lima, Centro de Estudios para el Desarrollo y la Participación (CEDEP) / Red Puentes Perú. Gamero Requena, Julio (2005), “La reforma laboral y la política social en el Perú de los noventa: del universalismo corporativo a la selectividad del residuo”, in Sonio Alvarez Leguizamón (coord.), Trabajo y producción de la pobreza en Latinoamérica y el Caribe: estructuras, discursos y actores, Buenos Aires, CLACSO, pp. 71–97. Gamero, Julio & Ulises Humala (2002), Empleo y microempresa en Lima metropolitana. Entre el desempleo y la sobrevivencia, Lima, Desco. García, Norberto E. (2007), “Auge y heterogeneidad productiva. Perú 2002-2006”, Revista CEPAL 93. Grompone, Romeo (1991), El velero en el viento. Política y sociedad en Lima, Lima, Instituto de Estudios Peruanos. INEI (2015), Perú. Evolución de los indicadores de trabajo decente, 2001–2013. Lima, INEI. INEI (2012), Perú: Calidad del empleo y mecanismos colectivos de integración social, 2010, Lima, INEI. Infante B., Ricardo (1995), “Perú. Ajuste del mercado laboral urbano y sus efectos sociales: Evolución y políticas”, Documento de Trabajo 9, Lima, Oficina International del Trabajo. Jonna, Jamil R., & John Bellamy Foster (2016), “Marx’s theory of working-class precariousness – and its relevance today”, Alternate Routes. A journal of critical social research, vol. 27, pp. 21–45. Jørgensen, Bak Martin (2013), “Precariat – What it is and isn’t – Towards an understanding what it does”, Critical Sociology, vol. 42, no. 7–8, pp. 959–974. Kliman, Andrew (2007), Reclaiming Marx’s “Capital”. A refutation of the myth of inconsistency, Lanham, MD, Lexington Books. Kolko, Joyce (1988), Restructuring the world economy, New York, Pantheon Books. Mandel, Ernest (1969), Tratado de Economía Marxista Tomo I, Mexico, Ediciones Era S.A. Marini, Ruy Mauro (1985), Dialéctica de la dependencia, Mexico, Serie Popular Era / 22, Ediciones Era S.A. Martínez, Daniel & Victor E. Tokman (1999), “Efectos de las reformas laborales: entre el empleo y la desprotección”, in V. E. Tokman & D. Martínez (eds.), Flexibilización en el margen: la reforma del contrato de trabajo, Geneva, Organización Internacional de Trabajo, pp. 11–37. Marx, Carlos (1973), El Capital, Crítica de la Economía Política, Libro primero, Buenos Aires, Editorial Cartago, SRL. Ministerio de Trabajo y Promoción del Empleo (2009), Boletín de Economía Laboral, no. 39, abril de 2008. Mukherjee, Deepraj (2016), “Informal economy in emerging economies: Not a substitute but a complement”, International Journal of Business and Economic Development, vol. 4, no. 3, pp. 16–27. Munck, Ronaldo (2013), “The precariat: A view from the South”, Third World Quarterly, vol. 34, no. 5, pp. 747–762.

162 Labor Petras, James & Henry Veltmeyer (2013), Social movements in Latin America. Neoliberalism and popular resistance, London, Palgrave Macmillan. Unedited version. Robinson, William I. (2010), Latin America and global capitalism. A critical globalization perspective, Baltimore, MD, The Johns Hopkins University Press. Rodgers, Gerry & Janine Rodgers (1989), Precarious Jobs in labour market regulation: The growth of atypical employment in Western Europe, Geneva, International Labour Organization. Semana Económica (1982), “Lo informal es muy formal”, Semana Económica, vol. 2, no. 76, pp. 6-7. Standing, Guy (2011), The precariat. The new dangerous class, London / New York, Bloomsbury Academic. Verdera, Francisco (2000), “Cambio en el modelo de relaciones laborales en el Perú, 1970–1996”, JCAS Occasional Paper 5. Osaka: The Japan Center for Area Studies. Villarán, Fernando (1993), Empleo y pequeña empresa en el Perú, Lima, Fundación Friedrich Ebert. Villarán de la Puente, Fernando, Sergio Álvarez Vásquez & Carlos Mendoza Villavicencio (1988), Perspectivas del desarrollo de la pequeña y micro industria en un contexto de crisis económica, Lima, Centro de Ingeniería para el Desarrollo. Wright, Erik Olin (2000), Class Counts: comparative studies in class analysis, Cambridge, Cambridge University Press, Student Edition. Wright, Erik Olin (1999), “Foundations of class analysis: a Marxist perspective”, in http://www.ssc.wisc.edu/~wright/Foundations.pdf (consulted 12/02/2013). Interviews G1, worker in the confection industry, Gamarra, 29 March 2018. I1, own-account worker in the confection industry, 27 May 2018. I2, own-account worker in the confection industry, 27 December 2017. I3, own-account worker in the confection industry, 27 December 2017. I4, own-account worker in the confection industry, 27 December 2017. MI, worker in the confection industry, 17 December 2017. M2, worker in the confection industry, 17 December 2017. M3, worker in the confection industry, 17 December 2017. M4, worker in the confection industry, 17 December 2017. M5, worker in the confection industry, 17 December 2017. MA1, worker in electronics (reparación electrónica), Mall Las Malvinas, 3 March 2018. MA2, worker in electronics (repair and sell of cell phones), Mall Las Malvinas, 3 March 2018. MA3, worker in electronics (repair and sell of cell phones), Mall Las Malvinas, 3 March 2018. MA4, worker in electronics (repair and sell of cell phones), Mall Las Malvinas, 3 March 2018. ME1, micro entrepreneur in confection industry, Gamarra, 16 March 2018. ME2, micro entrepreneur in confection industry, Gamarra, 16 March 2018. TH1, worker in the confection industry, 27 May 2018.

Appendix 6.1 Educational Levels 2004–2019 (in percentages of total educational level)

No indication of educational level Initial education Incomplete primary education Complete primary education Incomplete secondary education Complete secondary education Incomplete higher non-university education Complete higher nonuniversity education Incomplete university education Complete university education Post-graduate university education

2004

2005

2006

2007

2008

2009

2010

2011

11.9

11.0

10.6

10.5

8.3

7.9

7.9

7.7

1.7 23.9

2.0 23.8

1.7 23.1

1.9 22.6

4 22

4.3 21.5

4.3 20.8

4.2 20.6

11.8

11.9

11.9

11.3

11

10.8

10.9

10.9

16.6

16.4

16.6

16.5

16.5

16.5

16.7

16.5

17.9

18.5

18.7

18.4

18.8

18.5

18.9

19.1

2.7

2.8

3.1

3.2

3.4

3.6

3.5

3.5

5.2

5.2

5.5

5.7

5.9

6.1

6.3

6.6

3.3

3.4

3.5

4.2

4.3

4.5

4.7

4.8

4.5

4.5

4.7

5.1

5.1

5.2

5.0

5.1

0.5

0.5

0.7

0.9

0.8

1.0

1.0

1.0

164 Labor

No indication of educational level Initial education Incomplete primary education Complete primary education Incomplete secondary education Complete secondary education Incomplete higher non-university education Complete higher non-university education Incomplete university education Complete university education Post-graduate university education

2012

2013

2014

2015

2016

2017

2018

2019

8.8

7.2

7.7

7.0

7.6

6.6

6.4

6.3

4.2 22.9

4.2 20.1

4.2 20.6

5.0 19.5

5.4 21.6

5.0 19.1

5.0 19.0

4.9 18.7

11.9

10.7

10.9

10.6

11.2

10.5

10.4

10.2

16.8

16.0

16.5

15.5

15.7

15.3

15.1

15.1

17.2

19.9

19.1

21.1

18.0

20.9

21.1

21.0

3.0

3.5

3.5

3.2

3.1

3.6

3.6

3.7

5.4

6.3

6.6

6.0

5.8

6.3

6.4

6.9

4.7

5.3

4.8

5.3

5.1

5.6

5.6

5.6

4.3

5.8

5.1

6.0

5.4

6.0

6.2

6.3

0.9

1.1

1.0

0.9

1.0

1.1

1.2

1.3

7

Social segmentation

Introduction The division of the Peruvian economy into a capitalist subsistence economy (CSE) and an advanced economy (AE) finds its social manifestation in processes of social segmentation. Educational levels, consumption patterns, and access to health insurance are expressions of social segmentation. We show that the CSE and the AE not only reproduce themselves economically but also socially through the reproduction of educational levels, consumption patterns, and access to health insurance. This chapter starts with a discussion on the relationship between the state’s economic base and the superstructure. It provides a theoretical framework to understand the segmentation of society. It also helps to understand how educational levels, consumption patterns, and access to health insurance relate to Peru’s economic structure or its economic base. In the second section, we delve into the issue of development. We argue that the project of development is an ideological mask for structural exploitation and oppression by the Global North and their representatives in the state apparatuses. This section serves as an introduction to the data that we present in the sections on educational levels, consumption patterns, and health insurance. In the section on educational levels, we discuss the educational levels and the average number of years of education of the country’s population of 25 years or older. We not only present the low educational levels attained by the majority of these individuals but also the marked differences between the rural and urban areas. The section on consumption differences between the CSE and the AE is focused on the consumption of food, educational services, and the access to communication and information technologies. The next section demonstrates that the majority of the Peruvian population that pertains to the CSE has access to health insurance (a big minority does not have this access). However, this does not mean that it is of high quality. In relation to the question of health insurance, we also study data on the fulfillment of the basic necessities of families. It appears that families that pertain to the CSE have more possibilities to become sick than families that are located in the AE. The last section presents our conclusions. DOI: 10.4324/9781003289456-8

166  Social segmentation 7.1 Economic structure and superstructure The economic structure or economic base of society is defined as the social relations of production (Longo, 1978: 132). Callinicos (2004: 202) and Carchedi (1977: 19) include the forces of production in their description of the economic base. The state apparatuses (educational system, bureaucratic governing system, judicial system, etc.) and ideology are included in society’s superstructure. The relation between the economic structure and society’s superstructure is a dialectical relation. In his letter to Annenkov, Marx (1973: 532) wrote: If you assume a given state of development of man’s productive faculties, you will have a corresponding form of commerce and consumption. If you assume given stages of development in production, commerce or consumption, you will have a corresponding form of social constitution, a corresponding organisation, whether of the family, of the estates or of the classes—in a word, a corresponding civil society. If you assume this or that civil society, you will have this or that political system, which is but the official expression of civil society. In 1894, Engels wrote the following to Starkenburg: Political, juridical, philosophical, religious, literary, artistic, etc., development is based on economic development. But all these react upon one another and also upon the economic base. It is not that the economic position is the cause and alone active, while everything else only has a passive effect. There is, rather, interaction on the basis of the economic necessity, which ultimately always asserts itself. The state, for instance, exercises an influence by tariffs, free trade, good or bad fiscal system […] So it is not, as people try here and there conveniently to imagine, that the economic position produces an automatic effect. Men make their history themselves, only in given surroundings which condition it and on the basis of actual relations already existing, among which the economic relations, however much they may be influenced by the other political and ideological ones, are still ultimately the decisive ones, forming the red thread which runs through them and alone leads to understanding. In his letter to Bloch (1895), Engels wrote: Hence if somebody twists this into saying that the economic element is the only determining one, he transforms that proposition into a meaningless, abstract, senseless phrase. The economic situation is the basis, but the various elements of the superstructure —political forms of the class struggle and its results, to wit: constitutions established by the victorious class after a successful battle, etc., juridical forms, and even the reflexes of all these actual struggles in the brains of the participants, political, juristic, philosophical theories, religious views

Social segmentation  167 and their further development into systems of dogmas— also exercise their influence upon the course of the historical struggles and in many cases preponderate in determining their form. There is an interaction of all these elements in which, amid all the endless host of accidents (that is, of things and events whose inner interconnection is so remote or so impossible of proof that we can regard it as non-existent, as negligible), the economic movement finally asserts itself as necessary. Otherwise, the application of the theory to any period of history would be easier than the solution of a simple equation of the first degree.1 The relation between the economic structure and the superstructure is for every country a specific relation. This relation is different for advanced capitalist countries and countries in the periphery of world capitalism. Also, differences exist between nations in the Global North and the Global South. However, these specific relations are not radically different from the general relation described by Marx and Engels. The specificity of these relations is product of historical, social, and geographical factors. Educational levels and consumption patterns in Peru respond to the country’s economic structure. The fact that a considerable number of individuals do not have access to healthcare is related to the economic structure, mediated by the economic model in place. It is the economic model that impedes access for all, but this model is based on Peru’s economic structure. However, this is definitively not a natural law as policy makers might take decisions that turn against society’s economic base. 7.2 Development For around 70 years, developmental theorists are discussing the problem of underdevelopment and issues related to it in what is been denominated as the Third World. Different types of development strategies have been elaborated and implemented, conditioned by the international correlation of class forces and specific world political and economic circumstances. The strategies that have been implemented to address the question of underdevelopment took, and still take, the boundaries of the capitalist mode of production and distribution as given. As a matter of fact, although the developmental theorists that elaborated their strategies in the decades of the 1950s and the 1960s criticized the external and internal structures that made economic and social progress in the Third World very difficult and developed proposals that pointed to a change of these structures; nevertheless, these propositions were confined within the overall capitalist framework. The period in which the first development strategies started to appear is considered as the “golden age” of capitalism (Glyn, Hughes, Alain & Ajit, 1990), which occurred mainly in the advanced capitalist countries and was characterized by rapid economic expansion and high employment rates. The developmental theorists were undoubtedly influenced by the possibilities a capitalist road of development was offering and it is therefore of no surprise

168  Social segmentation that their strategies mainly concerned macro issues, such as the economic structure of society and the role of the state in the economy. Development within the context of the dominance of a capitalist mode of production can be considered as a political and ideological construct. It is political as it opposes the liberation of the peoples of the yoke of capitalism, and it is ideological as it tries to mask the character of the system. Development strategies intend to make belief that real and structural progress is possible within the implicit restrictions set by capitalism and the political and economic interests of imperialism and the local ruling class. As these strategies surge from the womb of capitalism and are tightly connected with it by an umbilical cord, they do not and cannot point to the eradication of the system that precisely made them appear. The project of development that surged at the end of the 1940s – the Point Four Program launched in 1949 by the then President of the United States Harry Truman – was meant to keep the recently decolonized countries within the ‘free world’ of capitalist exploitation and oppression. During the passing of time, this project has not changed its essential aim, i.e., to facilitate and expand the accumulation of capital by the corporations from the Global North. In the following sections on education, consumption patterns, and access to healthcare, we can visualize some important progress in the context of the general Objectives of Sustainable Development as formulated by the United Nations.2 Also, in the case of the GINI coefficient, we can see considerable progress.3 Notwithstanding these positive developments, no structural changes have been implemented that might have helped to eradicate the segregation of Peruvian society between haves and haves not, between rich and poor, between exploiters and exploited, and between oppressors and oppressed. In this book, this segregation is also manifested by the division of the Peruvian economy in AE and CSE. 7.3 Education In Chapter 6, we discussed the educational levels of the Peruvian population and those of the Peruvian workforce in particular. We concluded that these levels are in accordance with the role of Peru in the international division of labor and the economic development model in place, mediated by the company structure. The large majority of the Peruvian workforce has only attained secondary education or less. The division of Peru in an AE and a CSE does not stop at the production level but can also be noticed at the educational level. Of course, the very large majority of individuals that are employed in micro businesses do only have a few years of formal education. Most of them only have secondary education or even less. Because medium-sized, large, and transnational companies are principally located in the coastal area and the cities, the division of Peru in an AE and CSE can also be considered as a geographic or even an ethnic division. Although we do not neglect what might be called an emerging new middle class based on small and micro entrepreneurs, a historical product of

9.4

10.3 6.4

10.2 8.2 7.9

9.3

10.3 6.2

10.2 8.1 7.8

10.3 8.2 8.0

10.3 6.3

9.4

Sources: INEI (2014: 111); INEI (2021: 107).

Total 9.2 Area of residence Urban 10.2 Rural 6.3 Natural region Coast 10.1 Highlands 8.1 Jungle 7.8 10.3 8.4 8.1

10.4 6.3

9.5

10.5 8.5 8.1

10.5 6.5

9.6

10.5 8.6 8.2

10.6 6.5

9.7

10.5 8.7 8.3

10.6 6.5

9.7

10.5 8.7 8.5

10.6 6.6

9.8

10.5 8.8 8.5

10.6 6.6

9.8

10.6 8.9 8.6

10.7 6.7

8.9

10.6 8.9 8.5

10.6 6.8

9.9

10.6 8.8 8.5

10.6 6.7

9.9

10.7 8.9 8.5

10.6 6.8

9.9

10.7 8.9 8.5

10.6 6.9

9.9

10.7 8.9 8.5

10.6 6.9

10.0

10.8 9.1 8.5

10.7 7.0

10.0

10.9 9.2 8.8

10.8 7.3

10.1

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Table 7.1 Average number of years of education of the population of 25 years and older, according to area of residence and natural region, 2002–2019

Social segmentation  169

Sources: INEI (2014: 118); INEI (2021: 115).

Urban 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 No 4.7 4.7 4.7 4.4 4.2 3.8 4.1 3.8 3.9 3.7 3.3 3.4 3.3 3.4 3.5 3.3 3.1 3.1 indication / initial Primary 25.0 24.2 23.5 23.3 22.8 21.8 21.0 20.8 20.4 20.6 19.7 20.3 20.0 19.9 20.0 19.6 19.3 18.8 Secondary 39.5 39.4 40.0 40.9 39.7 39.2 39.3 38.5 39.2 38.8 39.3 39.7 41.2 42.2 40.6 41.2 41.1 40.2 Higher, non- 14.0 14.8 15.0 14.9 15.9 15.9 16.8 17.4 17.9 18.3 17.6 17.0 16.1 15.5 16.6 16.2 16.6 17.5 university University 16.8 17.0 16.8 16.6 17.4 19.3 18.9 19.4 18.7 18.6 20.0 19.6 19.3 19.2 19.3 19.6 19.9 20.5 Rural 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 No 21.3 20.8 20.2 19.2 18.0 17.7 17.0 16.7 16.6 15.9 14.9 14.7 14.6 13.5 13.2 13.1 12.4 12.2 indication / initial Primary 54.0 55.2 54.0 54.6 55.4 53.4 53.6 53.3 53.0 53.1 52.6 52.7 53.2 52.4 52.2 52.1 51.8 51.3 Secondary 19.7 19.9 20.2 20.7 20.8 22.9 23.4 23.4 23.9 24.3 25.5 25.5 25.2 27.4 27.4 27.9 28.9 29.4 Higher, non- 3.3 2.9 3.7 3.6 3.8 3.8 3.6 4.1 4.3 4.3 4.4 4.2 4.2 4.2 4.8 4.4 4.2 4.7 university University 1.8 1.3 2.0 1.9 1.9 2.2 2.1 2.5 2.2 2.4 2.7 2.9 2.8 2.5 2.4 2.5 2.7 2.6

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Table 7.2 Educational levels attained according to areas of residence of the population of 25 years and older, 2002–2019

170  Social segmentation

Social segmentation  171 migration from the mountain areas and the jungle to the cities, the large majority of these businessmen do not leave the economic and social environment of subsistence. Almost all individuals living and working in Peru’s rural areas, principally the ‘original’ Peruvian population, pertain to the CSE.4 In Table 7.1, we present, for the years between 2002 and 2019, the average number of years of education of the population of 25 years and older according to area of residence and natural region. The data in Table 7.1 show that we can clearly speak of an educational divide. Individuals at the coast or living in urban areas seem to have more real study facilities or find themselves in better study conditions than individuals living in the countryside (jungle and mountain areas). The situation regarding the average number of educational years according to area of residence is expressed in the differences between the educational level attained by individuals living in the urban and rural areas. In the urban areas, individuals have reached a higher educational level than in the rural areas. Also, the education provided in the urban areas is of a higher level than in the countryside.5 In Table 7.2, data are presented on the educational level attained according to areas of residence of the population of 25 years and older in the period 2002–2019. Data show that the large majority of individuals living in rural areas only have primary education. Income differences and different rates of poverty between urban and rural areas are easy to explain when referring to these educational differences. The fact that in the last 20 years nothing really has changed in the living conditions of individuals inhabiting rural areas, even during the commodities boom in the years between 2004 and 2011, makes segregation a structural issue. 7.4 Consumption It is not surprising that consumption patterns between social classes differ. Economic, social, and cultural factors influence consumption choices. Of course, marked consumption differences exist between individuals that pertain to the AE and to the CSE. In this section, we do not have the intention to register these differences, but to point out the existing consumption inequalities. A person who has a higher income than somebody else might have a more expensive car or a bigger house. This is not of issue here. What we would like to evidence is that marked consumption inequalities exist regarding the basic necessities. These necessities not only have to do with the percentage of income that a person expends on food but also on the access to communication technologies, education, and information. For our analysis of consumption patterns in Peru, we are using data that have been collected by the Peruvian Association of Market Intelligence Companies (APEIM for its acronym in Spanish). APEIM is not a public entity but a private non-profit organization. This organization determines and

172  Social segmentation measures the different levels of socioeconomic stratification. There exist six Socioeconomic Levels (NSE for its acronym in Spanish): A, B, C, D, and E. A is the highest level and E is the lowest level. We use the APEIM reports for the years between 2013 and 2020. There are no reports on Peru before 2013. The data that have been collected by APEM refer to families and individuals. Families are considered to be composed of four individuals. To calculate the NSE levels, in 2013, the following variables were considered: a b c d e

The educational level of the head of the family. Access to medical consultation. Household goods. The number of people living in the same house. Housing materials.6

Over the years, the number of variables increased. In 2018, for example, not only the variables a, b, and d mentioned above were considered but also the following7: a Goods and services: – Car or van for private use (no taxi or company car). – Paid domestic service (at least once a week). b Household equipment: – – – –

Computer/Laptop. Refrigerator/Freezer. Laundry machine. Oven/Microwave.

c Public service: – Telephone. – Cable TV. – Internet. Most of the individuals belong to NSE D and E. While in 2013 65.6% of the individuals pertained to NSE D and E, in 2020 this was 57.5%. The income of families that pertain to the NSE D and E is comparable to the income of individuals pertaining to the CSE. In this book, we consider individuals and families that pertain to NSE A, B, and C as belonging to the AE. Individuals and families that pertain to NSE D and E belong to the CSE. 8 In the years between 2013 and 2020, families belonging to NSE A/B have an income that is six times higher than the income of families belonging to NSE E. In Table 7.3, we present for the mentioned period the distribution of individuals according to NSE and in Table 7.4 the distribution of family income (in soles). Families that pertain to the AE spend considerably more on food than families in the AE. It might be supposed that they are healthier. In the case of

Social segmentation  173 education, this is not only higher in absolute numbers but also relatively. NSE D and E spent very little on education. It appears that education is not the way out for families in the CSE. They are low-skilled, they have reached only basic Table 7.3 Distribution of individuals according to NSE, 2013–2020

2013 2014 2015 2016 2017 2018 2019 2020

A

B

C

D

E

2.0 1.8 2.0 2.0 2.0 1.6 1.8 1.5

9.4 10.2 10.7 11.6 12.6 10.8 10.8 11.2

23.0 25.5 25.6 25.8 26.6 27.1 28.2 29.8

27.2 24.3 24.2 24.2 24.0 26.8 27.2 24.9

38.4 38.2 37.5 36.4 34.8 33.7 32.0 32.6

Source: APEIM (2013; 2014; 2015; 2016; 2017; 2018; 2019; 2020).

Table 7.4 Distribution of family income according to NSE (in soles), 2013–2020

2013 2014 2015 2016 2017 2018 2019a 2020

A/B

C

D

E

6,121 6,264 6,593 6,374 7,826 7,779 xxx 7,777

3,262 3,358 3,452 3,362 4,059 3,975 xxx 4,123

1,992 2,087 2,127 2,155 2,594 2,512 xxx 2,624

1,027 1,032 1,110 1,115 1,341 1,555 xxx 1,370

Source: APEIM (2013; 2014; 2015; 2016; 2017; 2018; 2019; 2020). a

It appears that the pandemic Covid-19 impeded to recollect data.

Table 7.5 Weight of selected expenditures of families as a percentage of total expenditures according to NSE (in percentages), 2013–2020 A/B Food 2013 2014 2015 2016 2017 2018 2019a 2020

xxx 28 28 28 28 27 xxx 27

C

D

E

Education Food Education Food Education Food Education xxx 17 17 16 16 17 xxx 11

xxx 40 40 41 39 39 xxx 39

xxx 13 12 11 12 12 xxx 6

xxx 46 46 47 46 46 xxx 46

xxx 9 9 8 9 9 xxx 4

Source: APEIM (2013; 2014; 2015; 2016; 2017; 2018; 2019; 2020). a

It appears that the pandemic Covid-19 impeded recollect data.

xxx 49 49 50 48 48 xxx 50

xxx 7 7 6 7 8 xxx 2

C 90.6 97.2 98.4 96.2 95.5 97.5 xxx 96.5

R 97.7 99.5 98.5 99.4 98.6 99.0 xxx 99.2

I 74.4 x x 94.0 95.4 97.3 xxx 100.0

CT 78.7 91.9 91.2 94.4 93.6 97.7 xxx 94.0

C 90.6 89.4 90.6 87.0 88.1 88.8 xxx 90.7

R 97.7 97.2 97.7 97.3 96.6 97.4 xxx 98.5

B I 74.4 x x 76.5 81.6 90.9 xxx 94.3

CT 78.7 76.7 78.6 80.0 81.0 89.8 xxx 84.4

C 58.9 63.9 65.5 61.6 63.0 63.5 xxx 58.5

R 84.6 87.0 86.6 87.4 86.3 88.5 xxx 90.5

C I 39.0 x x 44.2 50.3 54.3 xxx 67.9

C= Computer R = Refrigerator I = Internet CT = Cable Television a Data for A and B are combined in one figure. Hence the data presented are the same. b It appears that the pandemic Covid-19 impeded the recollecting of data.

Sources: APEIM (2013; 2014; 2015; 2016; 2017; 2018; 2019; 2020).

2013a 2014 2015 2016 2017 2018 2019b 2020

A CT 53.1 54.6 57.6 58.2 60.3 60.6 xxx 59.0

C 19.5 24.9 24.4 24.8 24.0 20.7 xxx 18.9

R 50.6 53.7 53.5 54.4 55.4 55.0 xxx 58.7

D I 9.2 x x 12.5 13.9 11.1 xxx 18.3

CT C 28.7 2.7 30.8 3.7 35.2 4.0 35.1 3.7 34.2 4.0 31.9 3.3 xxx xxx 31.9 3.3

Table 7.6 Available selected goods and services in homes of families according to NSE (in percentages), 2013–2020

R I CT 8.6 0.5 7.6 10.6 x 9.7 10.9 x 10.3 11.6 1.0 10.8 12.1 1.6 10.5 10.1 0.9 7.0 xxx xxx xxx 9.1 2.1 8.8

E

174  Social segmentation

Social segmentation  175 levels of education, and they spent very little on education. Education is not the instrument to leave the CSE and to get into the AE as it seems that they do not spend a lot on it. In addition, the educational distance between families that pertain to the AE and the CSE gets structurally bigger. In Table 7.5, we present the weight of selected expenditures of families as a percentage of total expenditures according to NSE in the period 2013–2022. The majority of the families have very scarce Internet access in their homesand a computer is not something usual in their homes. Individuals that pertain to the CSE principally execute manual labor. The lack of a computer and internet access is an expression of the type of labor these individuals are performing.9 Also, manual labor seems the future of their children. Families that belong to NSE D and E not only have scarce access to information through the Internet in their homes but also cable television is not common. In democracy, everybody should have the equal right to information. In Peru, some have more rights than others because some have more income than others. The existence of access barriers to information impedes the development and deepening of democracy in Peru. In Table 7.6, data are presented on selected available goods and services in homes of families according to NSE 2013–2020. 7.5 Healthcare insurance The big majority of the Peruvian population is affiliated to a company that provides healthcare insurance.10 As a matter of fact, more individuals located in the lowest two NSE levels are affiliated to a healthcare insurance than individuals that pertain to NSE level B. In 2018 and 2019, relatively more individuals at NSE level D were affiliated to a healthcare insurance than individuals that belonged to NSE level C. In Table 7.7, data are presented on the percentage of individuals that were not affiliated to a healthcare insurance according to NSE levels in the years between 2013 and 2020. Table 7.7 Percentage of individuals not affiliated to a healthcare insurance according to NSE, 2013–2020

2013 2014 2015 2016 2017 2018 2019a 2020

A

B

A/B

C

D

E

xxx 7.7 9.2 7.9 8.1 10.8 xxx 10.9

xxx 20.2 20.9 20.6 18.1 22.5 xxx 24.6

21.7 xxx xxx xxx xxx xxx xxx xxx

38.0 35.4 33.8 31.9 29.0 28.7 xxx 30.9

51.0 42.7 40.3 34.5 30.2 28.0 xxx 30.5

34.4 29.3 26.3 21.6 18.8 16.9 xxx 19.8

Source: APEIM (2013; 2014; 2015; 2016; 2017; 2018; 2019; 2020). a

It appears that the pandemic Covid-19 impeded to recollect data.

176  Social segmentation Table 7.8 Access of families to selected basic necessities according to NSE, 2013–2020 A

2013 2014 2015 2016 2017 2018 2019a 2020

B

C

D

E

W

D

W

D

W

D

W

D

W

D

97.5 97.2 99.1 97.5 96.6 97.0 xxx 95.6

98.9 99.0 99.7 99.9 98.5 97.7 xxx 96.8

92.9 97.5 98.7 98.1 96.5 96.8 xxx 98.0

94.7 98.5 98.9 98.9 97.9 98.0 xxx 97.5

94.5 93.1 94.1 94.4 94.6 94.1 xxx 93.3

96.3 94.7 95.4 95.0 95.5 92.4 xxx 92.1

79.0 81.3 83.3 83.2 85.4 84.0 xxx 84.4

76.8 78.8 79.9 79.9 82.3 78.6 xxx 78.4

54.7 56.4 62.3 62.6 66.6 64.6 xxx 70.5

20.7 23.8 24.3 25.1 26.0 24.6 xxx 31.3

Sources: APEIM (2013; 2014; 2015; 2016; 2017; 2018; 2019; 2020). W = Access to public network of water facilities within the home. D = The hygienic service in the home is connected to a public drainage network inside the home. a It appears that the pandemic Covid-19 impeded to recollect data.

It seems a little bit strange to notice that individuals that pertain to NSE level A are not affiliated to a healthcare insurance. They definitively can afford it. The principal reason for not being affiliated to a healthcare insurance might be that the costs for not affiliating are lower than the costs for being affiliated. In the case of individuals that belong to the levels D and E, a financial issue might be the principal reason for not being affiliated. In 2020, around 41% of the individuals that pertained to NSE D and E, or belonged to the CSE, did not have a healthcare insurance. The majority of the Peruvian population is located in the two lowest NSE levels. The segmentation of access to healthcare insurance is, in a certain way, comparable with the access to drinking water and the connection of the hygienic service within the homes to a public drainage network. For a healthy population to exist, the existence of adequately functioning water and hygienic services is fundamental. In Table 7.8, we present data on the access of families to selected basic necessities according to NSE in the period 2013–2020. Data in Table 7.8 evidence that lots of families at the lowest NSE levels do not have access to adequately functioning water and hygienic services. In general terms, for individuals that are located in NSE levels A and B, access to adequate water and hygienic services is not an issue. In the case of individuals that belong to NSE level E, the majority do not have access to adequate drainage facilities. Hence, there exists a higher possibility for them to get ill. Access to healthcare insurance and adequate water and hygienic services is still a class matter. 7.6 Conclusions Peru is an economically and socially segmented society. The economic division of the country between an AE and a CSE is translated to a social division. It can also be concluded that the country’s economic base is expressed in

Social segmentation  177 its superstructure, for instance with regard to the educational levels attained by its population. These levels are in accordance with the country’s economic and business structure. The development of societies in the periphery of world capitalism is conditioned by the political, economic, and social development of the nations in the Global North, as we explained in the first two chapters of this book. Hence, development strategies confined to the restrictions of the political, economic, and judicial capitalist framework imply that the social segmentation of Peruvian society perpetuates. The data presented in this chapter show that in the last 20 years, the educational levels attained by the Peruvian population do not permit to developing and implement productive processes that point to major levels of aggregate value production. The capacities of the Peruvian population to use sophisticated technologies can be questioned. Furthermore, not only the economy can be divided into an AE and a CSE but also the CSE is socially divided. In this case, we refer to the division between urban and rural areas. The structural character of poverty in rural areas and the differences between the poverty levels in the urban and rural areas can be explained, for a part, on the basis of the educational levels attained by the rural population and the educational differences between urban and rural areas. The existence of differences of consumption patterns between individuals is not a surprise. Income differences, age differences, and geographical differences are expressed in consumption patterns differences. However, the data on these differences show that the differences in the possibilities to acquire certain goods and services help to explain the continuity of underdevelopment (and inequality) in Peru and the division of society into an AE and a CSE. In Peru, the majority of the population has access to a healthcare insurance. However, data on the quality of healthcare are not available. The fact that a considerable number of individuals that pertain to NSE levels A and B are not insured for healthcare costs might indicate that the quality of healthcare services is relatively low. Although most of the individuals that belong to stratus D and E have a healthcare insurance, there exist more possibilities for them to get ill. Adequate drainage facilities are not generalized to all individuals. Instead of solving a structural deficiency that might cause diseases, the country seems to have chosen to cure diseases instead of eliminating the conditions for the existence of diseases. Notes 1 See on this in relation to ideology, Therborn (1998: 32–34). 2 See for these development goals: https://www.undp.org/sustainable-developmentgoals (consulted 25/07/2022). 3 See for Peru’s GINI performance: https://data.worldbank.org/indicator/SI.POV. GINI?locations=PE (consulted 25/07/2022). 4 See for a class account of the rural areas, Chapter 5.3.4.

178  Social segmentation

Social segmentation  179 Engels, Friedrich (1894), “Letter to Starkenburg”, in http://www.marxists.org/ archive/marx/works/1894/letters/94_01_25.htm (consulted 23/07/2022). Glyn, Andrew, Alan Hughes, Alain Lipietz & Ajit Singh (1990), “The rise and fall of the Golden Age”, in Stephen A. Marglin & Juliet B. Schor (eds.), The Golden Age of capitalism. Reinterpreting the postwar experience, Oxford, Clarendon Press, pp. 39–125. INEI (2021), Perú: Indicadores de educación según departamentos, 2010–2020, Lima, INEI. INEI (2014), Perú: Indicadores de educación por departamentos, 2001–2012, Lima, INEI. Longo, Gino (1978), “La aplicación del método dialéctico a la economía política”, in Pedro López Díaz (ed.), El capital, teoría, estructura y método t.1, Mexico, Ediciones de Cultura Popular S.A., pp. 100–159. Marx, Carlos (1973), “Marx a Pavel Vasilievich Annenkov”, in Carlos Marx & ­Friedrich Engels, Obras Escogidas I, Moscow, Progress, pp. 531–542. Therborn, Göran (1998), La ideología del poder y el poder de la ideología, Mexico, Siglo Veintiuno Editores S.A. de C.V.

8

The state

Introduction The Peruvian State is a dependent capitalist state. It holds the general attributes of the capitalist state and characteristics that are product of its country’s role in the capitalist world system and the dependent character of its economy. Based on the theoretical framework developed in Chapter 2, after having characterized the economic model of underdevelopment and the economic policies of underdevelopment, in the first section, we examine the economic policies implemented by the Peruvian governments since the 1960s. In the next section, we discuss the question of state capture. This section is important in order to visualize the power and influence of capital on the Peruvian state apparatuses. It also provides an approach to understand, in general terms, the functioning of the State in society and helps to connect the third section with the theoretical framework on the peripheral state in Chapter 2. The theoretical framework of the capitalist dependent state, presented in Chapter 2, is applied in the third section of this chapter. Peru’s commercial policies, labor policies, the tax system, the educational system, and the policies to maintain or to eradicate informality are discussed. This chapter closes with a review of the political Left and the political Right. Starting from an analysis of the Castillo government, we argue that the overall political and social weakness of the Left is the prime cause for the continuity of the underdevelopment model in place. The Right is strong because the Left is weak. The same as in the case of the political Left, the political Right is fractioned. However, in general, there are no fundamental ideological differences within the Right (except maybe in the case of the religious Right). The Left, however, is definitively ideologically split. Furthermore, the Right is in power through the economic model in place. 8.1 The economic model and economic policies of underdevelopment It can be argued that the economic policies implemented by the majority of the Peruvian governments since the Second World War have been determined DOI: 10.4324/9781003289456-9

The state  181 by the country’s historical role in the international division of labor, its economic model, and the correlation of class forces in society. The international division of labor not only determines, in the last instance, on which economic sectors and branches a country’s economic growth rests, but it is also the principal cause of a nation’s dependency on the international markets. Reducing as well as increasing the prices of its commodities can increase a country’s economic dependency. The importance of international capital for a country’s economic development is also influenced by its role in the international division of labor. Transnational capital executes a geo-economic analysis to determine its investment agenda. An economic model of underdevelopment is characterized by the total absence of policies that point to increasing and structural investments in economic sectors and branches that permit sustainable and inclusive economic development. Sustainable inclusive economic development is defined as an economic development that not only is environmentally friendly, but is also based on the direct political, economic, social, and cultural interests of the large majority of the population and structurally elevates the political, economic, social, and cultural consciousness of the currently exploited and oppressed majorities. Sustainable inclusive economic development depends on the creative capacities of its population. The economic policies of underdevelopment are policies that lack strategic coherence with objectives that point to sustainable and inclusive development and directly or indirectly serve the interests of capital. These policies depend on economic development abroad and are determined by private investments (foreign and national) for short-term and private purposes. Economic policies of sustainable inclusive development, on the other hand, in our point of view, turn transnational capital and the local economic groups into servants of the population, initiating political, economic, social, and cultural processes that permit increasing self-management of industries by the majorities and the control over the political, economic, social, and cultural destiny of the country. In the 1960s, the first Belaúnde government introduced economic policies that helped to further economic growth based on the country’s exports. In the years between 1963 and 1966, economic growth was largely stimulated by increased export earnings, principally caused by the rise of the international prices of copper and fishmeal (Kuczynski, 1980: 63–64). The progressive military regime led by Juan Velasco (1968–1975) added to the policies based on the export of natural resources, processes that pointed to the industrialization of the country. In line with the points of view of Economic Commission for Latin America and the Caribbean (ECLAC) in the 1950s and the 1960s, it was thought that lasting progress was only possible with the country’s industrialization (Parodi, 2010: 101; Bamat, 1983: 130; Jaquette, 1972: 650–651). The land reform of 1969 had to set the

182  The state political and economic base for what Deniz (1978: 71) called a “new phase of capitalist development”. The plans of the military regime were not accomplished. The replacement of President Velasco by general Francisco Morales Bermúdez stopped the initial industrialization processes and ‘returned’ the country to its historical role in the international division of labor. Just as in the case of other Latin American countries, the intent to industrialize Peru failed because the industrialization policies did not eradicate the country’s dependency on foreign capital. As a matter of fact, it increased dependency. Foreign means of production were financed by nationally available foreign exchange or by international loans. The second government of Belaúnde (1980–1985) implemented economic policies that had to fasten the economic model based on the export of Peru’s commodities (Burt, 2011: 70; Wise, 2010: 173; Crabtree, 2005: 49). The liberalization of the markets had to attract foreign investments in the extractive sectors and to boost export growth. Notwithstanding the purpose of the Belaúnde regime to transform the State into an economic regulator, its role in the economy did not really diminish. This is understandable as the task of the state in a capitalist economy is to provide the bases for the enlarged reproduction of the system. In order to set the conditions for private companies to ‘flourish’, State investments were directed towards (i) “the strengthening of physical infrastructure, with special emphasis on improving and expanding power and transport facilities” and (ii) “projects in the productive sectors—principally petroleum and mining” (World Bank, 1985: 30). According to the World Bank (1985: 9), gross public sector expenditures rose from 38% of Gross Domestic Product (GDP) in 1979 to 51% in 1983. Foreign Direct Investments (FDI) played a key role in the economic orientation of the government (Wise, 2010: 176). Policies were implemented to maintain the attractiveness of Peru for FDI, such as providing foreign capital the possibility to increase the percentage of its utilities that it was allowed to repatriate (Wise, 2010: 179). The first Garcia administration that governed the country between 1985 and 1990 pointed to the restart of the industrialization processes of the 1970s and to develop the internal market. Keynesian economic policies were applied to an economy in recession. In the context of an economy with a large unused installed economic capacity, these policies might have resulted very effective to restore economic growth: (i) the increase of demand might lead to an increase of production and income; (ii) the increase of production and income might lead to more tax income; and (iii) the increase of tax income might enable the government to finance its expenditures without having to resort to monetary expansion or to make up for the ‘loss’ of governmental income due to tax incentives. Although increased production and income might also lead to more imports and could create balance of payments problems in the case of an insufficient increase of exports, these problems were supposed to be tackled by the reduction of external debt payments (Crabtree,

The state  183 2005: 60) and import restrictions (Parodi, 2010: 209; Reyna, 2000: 38, 42). The issue of how economic growth would be sustained after full capacity was reached was not answered. In various ways, the APRA government had intended to stimulate the private sector to do investments. In 1987, for instance, the government created a National Council of Investments in which representatives of the State, the companies, and the unions participated (Reyna, 2000: 100). It also wanted to oblige the companies to use 20% of their utilities to buy governmental bonds (Reyna, 2000: 102), money that the government hoped to reinvest in the economy. In the same year, in a desperate intent to force capital to invest in the Peruvian economy, to reduce the interest rates for medium and small companies, and to prevent capital flight, García proposed the nationalization of the private bank sector (Burt, 2011: 76; Wise, 2011: 16; Crabtree, 2005: 69; Vásquez Huamán, 2000: 73; Pastor Jr. & Wise, 1992: 104). The policies to encourage private local and foreign capital to invest in the Peruvian economy were not successful. The failure to industrialize the country, coupled with the biggest economic crisis in the country’s contemporary history, set the political, economic, and social bases for the implementation of neoliberalism in the 1990s (Lust, 2019a: 55–56). The role of the Fujimori government (1990–2000) was definitively to ensure the enlarged reproduction of transnational capital and the simple reproduction of national capital. In more concrete terms, the role of the State in the economy was reduced to (i) the handing-over of public sector assets to the private sector; (ii) the elimination of all barriers that might hamper the development of the free-functioning of the market; and (iii) the defense of the interests of capital in the case of economic setbacks. Private national and foreign investments were the motors for economic development (Parodi, 2010: 298; Ruiz Caro, 2002: 22). The financial markets were liberalized, quantitative import restrictions were being eliminated, import tariffs were reduced, instruments to stimulate exports were abolished, the country was opened for FDI, the free movement of capital was guaranteed, profits were allowed to be repatriated to the home countries of transnational capital, all subsidies were eliminated, public monopolies were abolished and their privatization promoted, and the economy was deregulated in order to encourage competition between companies (Parodi, 2010: 269–270; 276–277; Murakami, 2007: 254; McClintock & Vallas, 2005: 164–165; Bowen, 2000: 84–85, 106–107; Kisic, 1999: 88). The Toledo regime (2001–2006) continued the neoliberal policies. The vigorous implementation of concessions policies, the continuity of privatization processes, and the permanent drive to sign free trade agreements demonstrate the character of the Toledo cabinets. The perpetuation of the export-oriented model that prioritized the export of the country’s minerals reveals the hegemonic fraction in power, i.e., transnational extractive capital. The second García regime (2006–2011) used the commodities boom in the first decade of the Third Millennium as a key stimulus for the furthering of the extractivist economic policies in place. The transfer of the land of

184  The state the indigenous and peasant communities to (transnational) extractive capital became legally possible. And so, while in 2004, 13% of indigenous communities’ territory was given in concession to gas and petroleum companies, by the end of 2008, this had increased to 70% (Bebbington, 2009: 14; Pinto, 2009: 86). In 2010, more than 70% of the Amazon region was parceled out (Huertas, 2011: 217) and approximately 16% of the national territory was given in concession (De Echave, 2012: 72; Urteaga, 2011: 40). The Ollanta Humala government (2011–2016) perfected the economic model in place by giving priority to the development of the infrastructure for the smooth transport of the mineral resources. The increasing presence of mining and hydrocarbon companies in the rural areas nearby or on the land of the impoverished native and peasant communities required the implementation of social clientelist policies to ensure social peace. The short-lived neoliberal governments of Pedro Pablo Kuczynski (2016– 2018) and Martín Vizcarra (2018–2020) continued were the previous regimes left off. The corruption scandals and the worldwide coronavirus pandemic (2020–2022) impeded important modifications. However, in the case of the Kuczynski regime, it should be mentioned that it deactivated all processes led by the State that pointed to productive diversification. It was believed that these processes should be led by market forces. 8.2 State capture Since the beginning of the 21st century, political scientists, sociologists, progressive scholars, and international organizations such as the World Bank have been discussing the concept of state capture (Durand, 2012; Hellman, Jones & Kaufmann, 2000). Even Finance & Development, the quarterly magazine of the International Monetary Fund (IMF), pays attention to the concept (Hellman & Kaufman, 2001). According to Francisco Durand, the principal researcher on state capture in Peru, political capture linked to the power of the corporations in a globalized world constitutes a field of study of growing interest as it relates to the abuse of power, material inequality and human rights, situations caused by the influence of economic and political elites on state issues. (Durand, 2016: 9) The concept of state capture or political capture refers to the decisive influence of capital on the state. This influence plays a crucial role in the formulation and the execution of public policies at national, regional, and local level that precisely defend and further the interests of the corporations. The executive power, the parliament, the judicial system, and the regulatory agencies, among others, all are subject to state capture or form the objective of state captors.1 State capture is not reduced to the corruption of policy makers by the companies but encompasses the whole spectrum of directly and indirectly

The state  185 influencing of individuals in politically decisive positions. According to Hellman, Jones & Kaufman (2000), state capture can be defined “as the efforts of firms to shape the very institutional environment in which they operate”. In Peru, the partisans of the concept of state capture argue that the capture of the state by capital started at the beginning of the ‘neoliberal era’, i.e., at the beginning of the 1990s. The analysis of the state by the adherents of the concept of state capture is based on an instrumentalist vision of the state. In this vision, certain class fractions of the bourgeoisie, or “power elites” according to Durand (2019: 48), use the state for their proper interests. The instrumentalist vision of the state is an incomplete vision of the state. It is shortsighted as it does not enable to understand the whole range of policies that are implemented by the state to assure the reproduction of the capitalist system as a whole. It is the particular character of this vision that makes it possible for state capture adherents to present their concept as an advance in state theory. In the case of Peru, it seems that just recently the supporters of the concept have discovered that private interests have ‘captured’ state power (Durand, 2012: 24). According to Lynch (2013: 8), it was just after the Fujimori auto-coup of 1992 that private interests started to dominate the Peruvian State. The State lost the little autonomy it had. However, capital’s use of the state apparatuses to advance its interests is known since the birth of capitalism. In other words, at its inception, the capitalist state was ‘captured’ by the hegemonic fraction of the bourgeoisie. This is a historical fact and has been thoroughly studied by the social sciences. In order to get a full understanding of the state, we think that the instrumentalist vision of the state should be combined with a vision that analyzes the state on the basis of its function for the reproduction of the system. This vision is a structuralist vision of the state. This vision helps to comprehend the role the state plays to weaken the resistance of the dominated and what it does to establish the cohesion of the rulers to recreate the economic conditions and the legal foundation that capitalism needs to function. The instrumentalist vision of the state cannot be attributed to Marx and Engels. It might even be considered anti-Marxist as it does not depart from the fundamental function of the state in capitalist society, i.e., to guarantee the reproduction of capital. Furthermore, it does not contribute to an understanding of the decisions taken by policy makers that are determined by changes in the correlation of class forces and the proper development of the productive forces. Although in the Civil war in France Marx presents an instrumentalist vision of the state, it is the structuralist vision of the state that is in line with materialist dialectics and historical materialism. In his Origin of the family, private property and the state, Engels (1974: 344) noted the following: The state is therefore by no means a power imposed on society from without; just as little is it “the reality of the moral idea,” “the image

186  The state and the reality of reason,” as Hegel maintains. Rather, it is a product of society at a particular stage of development; it is the admission that this society has involved itself in insoluble self-contradiction and is cleft into irreconcilable antagonisms which it is powerless to exorcise. But in order that these antagonisms, classes with conflicting economic interests, shall not consume themselves and society in fruitless struggle, a power, apparently standing above society, has become necessary to moderate the conflict and keep it within the bounds of “order”; and this power, arisen out of society, but placing itself above it and increasingly alienating itself from it, is the state.” In Engels’ work, not only the structuralist vision but also the instrumentalist vision of the capitalist state is presented. Engels (1974: 344): As the state arose from the need to keep class antagonisms in check, but also arose in the thick of the fight between the classes, it is normally the state of the most powerful, economically ruling class, which by its means becomes also the politically ruling class, and so acquires new means of holding down and exploiting the oppressed class. […] and the modern representative state is the instrument for exploiting wage-labor by capital. The instrumentalist vision of the state is a functionalist vision of the state. Although, in the last instance, the capitalist state defends the global interests of capital and its own interests, it does not mean that the state always, in all times and directly, operates against the interests of the dominated classes and social layers. Mandel (1980) argues that the capitalist state “must not only secure the external conditions, but also the social conditions of the capitalist mode of production. That is, it must also create those general conditions for production proper which the “functioning capitalists” cannot produce themselves, either because it is not profitable for them to do so, and because of the prevailing competition among private capitals. Capitalism presupposes social production and social exchange. […] The link between the “external” (social) and the “economic” (general) conditions is formed by those state functions that fall under the general heading of “administration”. Included here are not only the administration securing law and order and the protection of private property but also the police and military apparatus protecting the bourgeoisie from internal and “external” enemies as well as all of the administration concerned with other public services, such as the infrastructure proper (e.g. the public health system, which, given the raw poverty of the early proletariat was essential to protect the bourgeois class in the large cities from the danger of epidemics).

The state  187 It is important to underline that the adherents of the state capture concept provide a lot of important information that demonstrates the relation between the state and business, and how business influences policies or even determines the political course of a government. However, they do not have a state theory in the sense that they can explain the political, economic, and social conditions, the interrelations between these conditions, and the dynamic processes these interrelations set in motion, that enable certain sectors of the dominant classes to impose their rule in the state or to become the governing class. The concept of state capture parts from the hypothesis that the state is a class-neutral entity. It is a bureaucratic institution that should be controlled by civil society. Durand (2019: 50) tells us that the state is a “set of bureaucratic powers and apparatuses”. Considering the state as a class-neutral institution is at the same time seeing it as an independent institution with proper interests. We agree that state apparatuses have proper interests, but we do not think that they are independent from the corporations or from civil society as state capture adherents try to make us believe. In addition, it is important to underline that the hypothesis of independence fits neatly the instrumentalist vision of the state as the state loses its independence and turns into a vehicle of the principal economic powers when it is captured. Instead of absolute autonomy, we think that it is more adequate to consider the state as relatively autonomous.2 The relative autonomy or relative independence of the state is based on the fact that “the bourgeoisie, by its constitution and its place in the class struggle” is not able to “erect itself through their own political parties at the hegemonic level of organization”. The inability to “realize its internal unity” due to their individual private interests and fraction struggle on the one hand and the struggle of the bourgeoisie against the dominated classes and the particular difficulty it has to realize its political hegemony with respect to these classes on the other hand, causes the relative autonomy of the capitalist state (Poulantzas, 1980: 370–371). Departing from the idea of the political independence of the state and the conditions that allow state capture, the partisans of the concept define which states can be captured and which cannot. They even talk about a market for state capture and factors that shape this market (Hellman, Jones & Kaufmann, 2000: 28). This market is defined as a ‘location’ where “state actors engage in “selling” laws, rules and regulations” (Hellman, Jones & Kaufmann, 2000: 9). A weak state bureaucracy, “psychological subordinated” and with limited financial resources, are relatively easy targets for state captors (Durand, 2012: 25). The hypothesis that the state is an independent and a class-neutral institution at the benefit of all the citizens of a nation, limits the partisans of the state capture concept to solely denounce the power of the corporations within the state apparatuses and to point out the conditions that might

188  The state impede state capture from taking place. Horizontal (within and between the state apparatuses) and vertical (between the state and civil society) accountability of the state definitively helps to form a barrier against state capture, but it does not stop it from happening. It seems that the adherents of the concept are surprised to see that even in democracy the state is captured by the corporations (Durand, 2012: 54–55). 8.3 The practice of a peripheral state: a weak state The wars of independence have not really resulted in a radically different political, economic, and social structure of the former colonialized countries. The small group that was in power before independence maintained their privileged position (Bethell, 1991: 202). This position was one of the principal factors behind the economic policies of underdevelopment that were implemented by the Peruvian State. The main determining factor for these economic policies, however, as we outlined above and in Chapter 2, is the role of Peru in the international division of labor. The function of Peru in the globalized capitalist world as principally a provider of raw materials for capitalist development abroad has obliged it to maintain its economy open for investments of international capital and to reduce its commercial barriers. The investments of transnational capital in, for instance, the mining sector, are not only lucrative but are also in the interests of capital groups that process mining products and use them as intermediate goods. Business relations between these corporations permit smooth and relatively cheap accessibility of these commodities. A nationalized mining sector would definitively reduce the profitability of private companies that use mining products as intermediate products. Furthermore, a strong state would make the exports of these products much dearer. In this context, we should remember that international trade principally takes place between the branch offices of transnational capital. The desperate policies of opening the Peruvian economy through multiple bilateral and multilateral trade and investment agreements are clear practices of a weak state. The Peruvian State depends for its income mainly on taxes. In Table 8.1, we present the income structure of the Peruvian Central Government for the years between 2000 and 2021. The Peruvian State depends for its income mainly on indirect taxes. Indirect taxes are regressive taxes. The volatility of these taxes or their direct dependency on national economic development makes it politically and economically difficult to develop and implement medium and long-term development plans. In Table 8.2, data are presented on the contribution of a selected group of taxes to total tax income in the years between 2000 and 2021. The limited importance of direct taxes in the income structure of the Peruvian Central State has political and economic reasons. As discussed in 8.2.1, it can be argued that the Peruvian State is captured by transnational capital. This has resulted in tax policies that favor these businesses.

The state  189 Table 8.1 Tax income and non-tax income as a percentage of current income of the Peruvian Central Government

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Tax income (%)

Non-tax income (%)

82 87 84 87 88 87 86 86 86 86 86 85 86 86 87 89 89 86 88 87 87 89

18 13 16 13 12 13 14 14 14 14 14 15 14 14 13 11 11 14 12 13 13 11

Source: Peruvian Central Bank: https://estadisticas.bcrp.gob.pe/estadisticas/series/anuales/resultados (consulted 29/09/2022).

State building or the creation of strong, well-functioning, efficient, and accountable public institutions in Peru is a very complicated issue as fiscal pressure is very low. It seems to be financially impossible for the Peruvian State to turn itself from a weak state into a strong state. In the years between 1990 and 2019, fiscal pressure in the countries that pertain to the Organisation for Economic Co-operation and Development (OECD) fluctuated between 31.1% and 34%. The average range of the 26 countries that belong to Latin America and the Caribbean lies between 15.7% and 22.7%. For Peru, these percentages were 12% and 19.2% (OECD et al. 2021: 171). The low level of fiscal pressure in Peru is not only related, in general terms, to the role of the dependent capitalist state in the world capitalist economy, it should be mentioned that the Peruvian State has signed various fiscal stability pacts with big corporations, especially with those businesses in the extractive sector. These pacts protect these companies from changes in tax regimes. As a consequence, the State is not able to fully profit from commodity booms that result in super profits for transnational extractive capital. On the other hand, as we wrote elsewhere, extractive capital also benefited from a variety of tax exonerations (Lust, 2019b: 1241–1242; Lust, 2014a: 9–13).

190  The state Table 8.2 The contribution of a selected group of taxes to total tax income in the years between 2000 and 2021

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Income Tax (%)

VAT (%)

Tax on imports (%)

Excise Tax (%)

Other taxes (%)

22 24 25 29 29 31 40 44 41 39 40 45 44 41 42 39 42 41 40 40 41 39

52 51 52 51 52 51 47 48 54 56 55 54 52 54 53 57 59 60 58 57 60 56

13 12 10 9 9 9 6 4 3 3 3 2 2 2 2 2 2 2 1 1 1 1

15 15 17 16 14 11 9 8 6 8 7 6 6 6 5 6 7 7 7 7 7 7

9 11 7 5 7 8 7 7 8 8 7 7 8 10 9 9 9 10 10 10 9 12

Source: Peruvian Central Bank: https://estadisticas.bcrp.gob.pe/estadisticas/series/anuales/resultados (consulted 29/09/2022).

The institutionalization of super exploitation, as explained in Chapter 6, is an objective consequence of Peru’s business structure. In the context of economic dependency, it is the only real tool for the big majority of the country’s companies to maintain competitiveness or to increase the possibilities of accumulation and even expanded reproduction. The institutionalization of super exploitation is also a clear example of the class character of the Peruvian State. The institutionalization of super exploitation is not only an objective consequence of Peru’s role in the international division of labor but also a political decision. Super exploitation is not necessary for companies in economically dependent countries to prosper. It is the capitalist character of the production processes that determines the necessity of super exploitation. Hence, the social weakness of the Peruvian State is the weakness of a dependent capitalist state that instead eliminates super exploitation, prolongs, and institutionalizes it. Related to the question of super exploitation, we must mention the issue of informality. The structural character of informality and the absence of

The state  191 conditions and the implementation of policies that can eradicate informality prove the weakness of the Peruvian State. It is not only incapable to provide the economic and social conditions for the population to make it attractive for them to leave informality, for instance by providing high quality public services, but, more importantly, the Peruvian State does not have the political will and strength to force micro, small and big corporations to employ formal workers. As a matter of fact, the State has an interest that high rates of informality are maintained as they can be used as a political instrument to ease political conflicts. In Peru, informality can be considered a kind of social security system. The semi-privatization of the Peruvian educational system since the beginning of the 1990s has definitively increased the number of students that registered in higher educational institutions. It might be considered that the introduction of a profit-based educational system economically democratized the system because it increased access. Reduced tariffs permitted that more individuals could register. The increased role of private capital in the country’s educational system has impeded the State to implement the necessary radical and revolutionary transformations that the system needs to improve its quality. Private educational businesses only provide these educational programs that serve the necessities of capital, i.e. if it helps to maintain and/or increase profits. As we explained in Chapter 2, the peripheral state does not elaborate and implement policies for the reproduction of the national capitalist system on an enlarged basis. It is principally occupied with the reproduction of foreign capital. Policies that are implemented and that have to do with national capitalist development are based on short-term political and economic interests. These policies change in accordance with the political interests of the hegemonic class fraction in power. The clientelist functioning of the country’s political and social system fits exactly within a system based on short-term political and social interests of capital and its representatives in the state apparatuses. Since the 1990s, the hegemonic class fraction is extractive capital and is supported by financial and communication capital. The political power of extractive capital makes it impossible that Peru really sets course on a sustainable development path. Policies that point to the internalization of negative externalities are weak or lack political and fiscal power. The implementation of sustainable development policies is also a fantasy when we take the dependency of Peru on the export of its mining products and investment in the mining industry into consideration. Peru will not be able to comply with the 17 sustainable development goals as set by the United Nations. In Peru, these goals are used as ideological instruments to keep the Peruvian population believing in the democratic, social, and inclusive character of the state and its economic system.

192  The state 8.4 The Left and the Right The electoral win of the Left in the presidential elections of 2021 has been a historical electoral result for the Peruvian progressive forces. This result is only comparable with the electoral successes in the decade of the 1980s. In 1982, the Left succeeded to win the municipal elections in Lima and in the presidential elections of 1985 it came second after Alan Garcia. However, while in the 1980s this result was product of class struggle and political work of the Left (Lust, 2019a: 158–176), the electoral victory in 2021 was not based on an increased political and social presence of the Left in society. The left-wing oriented trade-union leader of non-university teachers Pedro Castillo won the elections because he expressed the feelings of disappointment of the politically unconscious masses with the neoliberal development model. The corruption scandals during the presidencies of Kuzcynski and Vizcarra, and the social effects of Covid-19 on the working population (Lust, 2021), contributed to the electoral victory. In the first week of December, President Pedro Castillo was removed and replaced by his vice-president Dina Boluarte. Castillo’s intentions to dissolve the Congress, to establish an emergency cabinet, to announce parliamentary elections, and to develop a new constitution were countered by Congress and the repressive forces. Currently, Castillo is imprisoned, accused of rebellion. The Castillo government (July 2021–December 2022) was a catastrophe. No changes have been introduced in the country’s economic, social, and cultural policies. A second agrarian reform was announced (the first reform was introduced during the military regime of General Juan Velasco) but was never implemented. Foreign policy was business as usual, and the repressive forces used the same repressive logic as in previous governments. Only in the case of labor some changes were starting to be discussed. For instance, it was proposed that outsourcing of the principal activities of a company would become prohibited. Also, it was hoped to incorporate the freedom of tradeunion organization and collective bargaining in the Law of Collective Labor Regulations (eliminated during the neoliberal years of Fujimori). The lack of a political vision for the future of the country, expressed in policies, proposals, and political strategies manifested itself in the absence of political, economic, social, and cultural changes that were led or initiated by the Peruvian State. It also resulted in Castillo’s permanent search for professionals to lead ministries. For different motives, in his first year as president, Castillo used 58 ministers. Every nine days, a minister was replaced.3 Castillo’s presidency has been extremely unfavorable for the Left. One might even argue that it has been a political disaster for the progressive forces. In the municipal and regional elections of October 2022, the Left has been wiped away. The officially declared Marxist political party Peru Libre, the political electoral vehicle used by Castillo to become president, did not win any municipality or regional presidency.

The state  193 The disaster for the Left was much more than just an electoral fiasco. In the first place, the program of Peru Libre was not implemented, not even 1%. Castillo did not betray this program because he never adhered to it. Although in 2020 he had become a member of Peru Libre in order to be its candidate for the presidential elections, before he was a long-time member of the liberal party Perú Posible of former president Alejandro Toledo. In June 2021, he officially resigned from the party Peru libre. In the second place, President Castillo did not really intend to organize the fight for a radical social change by mobilizing the popular masses outside the parliamentary buildings. He stuck by the rules of parliamentary democracy. The organization of the masses would be crucial for the modification of the country’s political, economic, and social structures, because although Peru Libre was the biggest party after the parliamentary and presidential elections of 2021, the representatives of capital in parliament had the absolute majority. In the third place, in the public opinion Castillo was considered a left-wing oriented political figure. For this reason, the permanent political instability (although principally caused by the political Right), the absence of the development and implementation of policies of social change, and the supposed corruption scandals surrounding his ministers, inner circles, and family were politically translated to the Left. The Left had increasing difficulties, and was questioned by the population, to differentiate itself from the Right. The debacle of the Castillo government is caused by the whole of the Peruvian progressive forces: political parties, trade-unions, and social movements. The electoral victory in 2021, it must be reminded, was “not the result of a structural increase of the political, social, and ideological strength of the Left” (Lust & Cypher, 2021: 20). Furthermore, Castillo cannot be blamed for not having implemented a political strategy, a political plan, and political objectives he did not favor. The absence of left-wing oriented and even socialist or communist ministers in the cabinets of Castillo (with the exception of Héctor Béjar at the beginning of Castillo’s presidency), was also not Castillo’s fault. He was not to blame that he did not fight for social change by mobilizing the population and creating committees in order to struggle for a new constitution. That he appointed individuals, from the political right and center, who supposedly were not suitable for their positions or had questionable careers, has definitively been a mistake of “el profe”. The political and organizational weakness of the Left is the principal reason why Castillo has not implemented the program of Perú Libre and why all his cabinets have been short-lived. The Left has not been able to capture, politically and ideologically, the presidency. Castillo kept himself considering a liberal trade-union leader and primary school teacher. Only for personal interests he became a member of Peru Libre. It was also the weakness of the Left of not being able to turn its presence in parliament into a political vehicle for radical struggles outside the buildings of parliamentary democracy.

194  The state The weakness of the Left has a structural character. It is not structurally, politically, and socially present in the popular districts. Although it is supposed that it represents the dominated and exploited masses, outside election periods, the Left is fully absent. Hence, it is comprehensible why the neoliberal ideology, as expressed in the ideology of entrepreneurship, among others, is dominating the popular districts instead of an ideology based on collective principles. The organizations are weak in the sense that they lack political and ideological strength and coherence and have a small membership. Furthermore, no strategies are developed, or policies implemented, at least not visibly, that help to regain the popular districts. As must be remembered, since the 1990s, these districts are in the hands of the popular Right. The principal reason for the weakness of the Left is its incapacity to respond to the erosion of its political and social bases since the mid-1980s, caused by the restructuring of capital at world scale and the conversion of the Peruvian economy in an economy of micro companies without unions (Lust, 2019a: 243–276). Since the 1990s, the political Right is in power. Alberto Fujimori initiated what might be called an epochal change (Lust, 2019a: 12). The neoliberal ideology that directed the political practice of the government of Fujimori also became the ideology of the regimes that came after him, including the nationalist government of Ollanta Humala that governed Peru in the years between 2011 and 2016 (Lust, 2016; 2014b). The political Right is a block in power. Political parties and presidents may change, but, in general, they follow the same political line, or their political ideas are based on the same ideology. Right-wing presidential candidates, presidential candidates of one of the country’s 25 regions, candidates for parliament, and candidates for city mayor and city councils, among others, easily shift parties. There are no fundamental ideological contradictions or conflicts between the politicians of the Right or, maybe better, the political representatives of capital. Clear evidence of the political similarities of the different regimes in the period 1990–2021 can be found in the fact that the economic underdevelopment model in place has not essentially changed since the 1990s. For this reason, it is not surprising that, in general, the ministers of Economics and Finance share the same ideology and have the same academic backgrounds. Furthermore, the current Director of the Central Bank, Julio Velarde, is a leading figure of the political Right. Not only was he leading the central bank since the start of the Third Millennium, but he was also its director in the years 1990 to 1992. The strength of the political Right is not caused by its political organizations, but, principally, by the popular support for the economic model in place as evidenced by its electoral successes since the 1990s. The political and ideological weakness of the political Left (see above) and its incapacity to present politically viable alternatives that point to long-term

The state  195 structural changes, and the dominance of the right-wing oriented means of communications such as the newspaper El Comercio, help to prolong the dominance of the Right. New political groupings of the Right are frequently founded, making use of old organizations, or building on structures of old political parties. The parties regenerate and resurrect with different leaderships, but with the same political and ideological fundamentals. Differences between the organizations of the political Right are caused by personal disputes between the leading individuals. Relatively minor political issues can also cause differences, such as more or less religious points of view or more or less liberal political, social, and economic paradigms. The historical parties of the Right such as the PPC (Partido Popular Cristiano) and Acción Popular, have seen their political power considerably reduced. Since the 1990s, with the introduction of neoliberalism, not only new right-wing oriented parties emerged but also many candidates considered themselves independents. These individuals founded political parties around themselves. The political ideology of these parties was essentially right-wing. 8.5 Conclusions The policies that have been implemented by the Peruvian State sought to reproduce the historical role of Peru in the international division of labor. Instead of policies that pointed to technological development and major valued-added production processes, policies were developed and implemented that increased dependency on political and economic developments in the advanced capitalist countries and China. Increased dependency was furthered through the privatization of public enterprises, deregulation processes, and multilateral and bilateral free trade agreements, among others. Policies that aimed at increasing political and economic independency were sabotaged by capital through investment stops and speculation against the currency. The State has played, and is still playing, an important role in the reproduction of dependency. The State is not a politically neutral organism but serves, in the last instance, the interests of the hegemonic class fraction in the country. The implemented state policies not only point to the enlarged reproduction of hegemonic capital but also to socially guarantee these policies. The economic development model that was proposed in the 1990s was relatively easy to implement because of the reduced political and organizational power of the progressive forces. Rising commodity prices and even commodity booms have been used to tightly fasten the model in the consciousness of the exploited and dominated masses. The Peruvian State is a weak state. It has not been able to implement and sustain policies that have the objective to structurally increase the welfare of the masses. The State has institutionalized super exploitation, it has not implemented policies that may eradicate informality and only those

196  The state educational programs are offered that help to make a profit. Peru’s adherence to the 17 sustainable development goals of the United Nations is an ideological masquerade of the real character of Peru’s dependent capitalist State. The political Right is a block in power. Although the state is relatively autonomous and has proper interests, a capitalist state defends the interests of capital. A dependent capitalist state principally defends the interests of international or transnational corporations. Hence, the continuity of the policies in favor of capital evidences the weakness of the progressive forces. The epochal change initiated by Fujimori in the 1990s has not come to an end as the masses support the economic model in place as evidenced by its electoral successes since the 1990s. Notes 1 The OECD (2017: 19, 23) makes a difference between state capture (capture of the central government, parliament) and regulatory capture (capture of a regulator). Both are part of what is called policy capture (“public decisions over laws, regulations or policies are consistently or repeatedly directed away from the public interest and towards the interests of a narrow interest group or person, by the intent and action of this group or person”). 2 The discussion regarding the independence of the state, or the nature of the state, brings us back to the historical debate between Poulantzas and Milliband in the 1970s. It goes too far to extensively refer to this discussion; however, for this article, we think it is necessary to cite Poulantzas on the relative independence of the state. 3 Source: https://elcomercio.pe/politica/ec-data-pedro-castillo-y-su-record-de-inestabilidad-59-ministros-en-tan-solo-el-primer-ano-de-gobierno-noticia/ (consulted 06/10/ 2022).

References Bamat, Thomas (1983), “Peru’s Velasco regime and class domination after 1968”, Latin American Perspectives, vol. 10, no. 2/3, pp. 128–150. Bebbington, Anthony (2009), “The new extraction: Rewriting the political ecology of the Andes?, in NACLA Report on the Americas, New York, North American Congress on Latin America, September/October 2009, pp. 12–40, in https://hummedia. manchester.ac.uk/schools/seed/andes/publications/papers/Bebbington_NACLAReport.pdf (consulted 25/09/2022). Bethell, Leslie (ed.) (1991), Historia de América Latina. 6. América Latina independiente, 1820–1870, Barcelona, Editorial Crítica. Bowen, Sally (2000), El expediente Fujimori. El Perú y su presidente 1990–2000, Lima, Perú Monitor S.A. Burt, Jo-Marie (2011), Violencia y autoritarismo en el Perú: bajo la sombra de Sendero y la dictadura de Fujimori, Lima, Instituto de Estudios Peruanos & Asociación Servicios Educativos Rurales. Crabtree, John (2005), Alan García en el poder. Perú: 1985–1990, Lima, Ediciones Peisa S.A.C. De Echave, José (2012), “La minería peruana y los escenarios de transición”, in Alejandra Alayza & Eduardo Gudynas (eds.), Transiciones: postextractivismo y alternativas al extractivismo en el Perú, Lima, Centro Peruano de Estudios Sociales, pp. 59–85.

The state  197 Deniz, José (1978), La revolución por la Fuerza Armada. Perú 1968–1977, ­Salamanca, Ediciones Sigueme. Durand, Francisco (2019), Odebrecht. La empresa que capturaba gobiernos, Lima, OXFAM, Fondo Editorial Pontificia Universidad Católica del Perú. Durand, Francisco (2016), Cuando el poder extractivo captura el estado. Lobbies, puertas giratorias y paquetazo ambiental en Perú, Lima, Oxfam. Durand, Francisco (2012), “El debate sobre la captura del estado peruano” in Eduardo Toche (ed.), Perú Hoy. La gran continuidad, Lima, Desco, pp. 19–56. Engels, Friedrich (1974), “El origen de la familia, la propiedad privada y el estado”, in Carlos Marx & Friedrich Engels, Obras Escogidas Toma III, Moscow, Progreso, pp. 203–352. Hellman, Joel S. & Daniel Kaufmann (2001), “Confronting the challenge of state capture in transition economies”, Finance & Development, vol. 38, no. 3, in http:// www.imf.org/external/pubs/ft/fandd/2001/09/hellman.htm (consulted 26/09/2022). Hellman, Joel S., Geraint Jones & Daniel Kaufmann (2000), “Seize the state, Seize the Day. An empirical analysis of state Capture and Corruption in Transition”, in http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.195.7211&rep=rep1&t ype=pdf (consulted 10/04/2017). Huertas, Beatriz (2011), “Agua e identidad cultural: la defensa de la Reserva Comunal Amarakaeri frente a la actividad hidrocarburífera, Madre de Dios, Perú”, in Patricia Urteaga (ed.), Agua e industrias extractivas. Cambios y continuidades en los Andes, Lima, Instituto de Estudios Peruanos / Justicia Hídrica / Concertación, pp. 217–246. Jaquette, Jane S. (1972), “Revolution by fiat: The context of policy-making in Peru”, The Western Political Quarterly, vol. 25, no. 4, pp. 648–666. Kisic, Drago (1999), “Privatizaciones, inversiones y sostenibilidad de la economía peruana”, in John Crabtree & Jim Thomas (eds.), El Perú de Fujimori: 1990–1998, Lima, Universidad del Pacífico / Instituto de Estudios Peruanos, pp. 75–113. Kuczynski, Pedro Pablo (1980), Democracia baja presión económica. El primer gobierno de Belaúnde (1963–1968), Lima, Treintaitrés y Mosca Azul. Lust, Jan (2021), “A class analysis of the expansion of COVID-19 in Peru: The case of Metropolitan Lima”, Critical Sociology, vol. 47, no. 4–5, pp. 657–670. Lust, Jan (2019a), Capitalism, class and revolution in Peru, 1980–2016, Cham, Palgrave Macmillan. Lust, Jan (2019b), “Objective and subjective conditions for the continuity of the Peruvian extractive development model”, Globalizations, vol. 16, no. 7, pp. 1232–1246. Lust, Jan (2016), “Social struggle and the political economy of natural resource extraction in Peru, Critical Sociology, vol. 42, no. 2, pp. 195–2010. Lust, Jan (2014a), “Mining in Peru: Indigenous and Peasant Communities vs. the State and Mining Capital”, Class, Race and Corporate Power, vol. 2, no. 3, pp. 1–23. Lust, Jan (2014b), “Peru: Mining capital and social resistance”, in Henry Veltmeyer & James Petras (eds.), The new extractivism. A post-neoliberal development model or imperialism of the Twenty-First Century?, London, Zed Books, pp. 192–221. Lust, Jan & James Martin Cypher (2021), “Edging along the precipice. Can Peru’s new leftist President Pedro Castillo persist?”, Dollar & Sense, November / December, pp. 17–24. Lynch, Nicolás (2013), “Perú: la prosperidad falaz”, Nueva Sociedad, no. 248, pp. 4–10.

198  The state Mandel, Ernest (1980), “Historical materialism and the capitalist state”, in http://www. marxists.org/archive/mandel/1980/xx/hismatstate.htm (consulted 12/04/2020). McClintock, Cynthia & Fabían Vallas (2005), La democracia negociada: las relaciones Perú – Estados Unidos (1980–2000), Lima, Instituto de Estudios Peruanos. Murakami, Yusuke (2007), Perú en la era del Chino. La política no institucionalizada y el pueblo en busca de un salvador, Lima / Kyoto, Instituto de Estudios Peruanos & Center for Integrated Area Studies, Kyoto University. OECD (2017), “Preventing policy capture: Integrity in public decision making”, OECD Public Governance Reviews, in http://www.keepeek.com/Digital-AssetManagement/oecd/governance/preventing-policy-capture_9789264065239-en#. WO5ytYg1_IU#page1 (consulted 19/07/2017). OECD et al. (2021), Revenue Statistics in Latin America and the Caribbean 2021, Paris, OECD Publishing. Parodi Trece, Carlos (2010), Perú 1960–2000. Políticas económicas y sociales en entornos cambiantes, Lima, Centro de la Investigación de la Universidad del Pacífico. Pastor Jr., Manuel & Carol Wise (1992), “Peruvian economic policy in the 1980s: from orthodoxy to heterodoxy and back”, Latin American Research Review, vol. 27, no. 2, pp. 83–117. Pinto, Vladimiro (2009), Reestructuración neoliberal del estado peruano, industrias extractivas y derechos sobre el territorio”, in José De Echave et al. (eds.), Minería y territorio en el Perú. conflictos, resistencias y propuestas en tiempos de globalización, Lima, Programa Democracia y Transformación Global / Confederación Nacional de Comunidades del Perú Afectadas por la Minería / CooperAcción / Fondo Editorial de la Facultad de Ciencias Sociales, Unidad de Postgrado UNMSM, pp. 85–103. Poulantzas, Nicos (1980), Poder político y clases sociales en el estado capitalista, Mexico, Siglo Veintiuno Editores S.A. Reyna, Carlos (2000), La anunciación de Fujimori. Alan García 1985–1990, Lima, Desco. Ruiz Caro, Ariela (2002), El proceso de privatizaciones en el Perú durante el periodo 1991–2002, Santiago de Chile, Instituto Latinoamericano y del Caribe de Planificación Económica y Social (ILPES), Serie de Gestión Pública, no. 22, in https://cendoc.esan.edu.pe/fulltext/e-documents/cepal/LCL1762PE.pdf (consulted 26/09/2022). Urteaga, Patricia (2011), “Agua e industrias extractivas: cambios y continuidades en los Andes”, in Patricia Urteaga (ed.), Agua e industrias extractivas. Cambios y continuidades en los Andes, Lima, Instituto de Estudios Peruanos / Justicia Hídrica, Concertación, pp. 19–58. Vásquez Huamán, Enrique (2000), Estrategias del poder. Grupos económicos en el Perú, Lima, Universidad del Pacífico, Centro de Investigación. Wise, Carol (2010), Reinventando el Estado: estrategia económica y cambio institucional en el Perú, Lima, Universidad del Pacífico / Centro de Investigación. World Bank (1985), “Peru. Country Economic Memorandum”, in https://documents1.worldbank.org/curated/en/781611468090298640/pdf/multi0page.pdf (consulted 26/09/2022).

9

Covid-19 The state, the economy, and the people

Introduction In December 2019, the world was notified about the existence of a new coronavirus in China. This virus, SARS-COV-2 (Covid-19), rapidly spread and was declared a pandemic by the World Health Organization (WHO) on 11 March 2020. Peru was the first country in Latin America to implement a nation-wide lockdown and strict quarantine measures. The state of emergency was declared. The military and the police became in charge with controlling the movements of the population. These measures lasted 3.5 months. Afterwards, based on the data on the expansion and control of the virus, slowly the restrictions were loosened. The measures did not have the expected results. At the end of December, 218,178 individuals have died as a consequence of the virus, Peru occupies the sixth place on the world ranking of Covid-19 deaths,1 and according to data for September 2021 (last data available), the country was placed at the number one position in the ranking of mortality rates.2 The rapid countrywide expansion of Covid-19 proved that Peru is still what might be called a Third World country. Although it intends to form part of the Organization of Economic Co-operation and Development (OECD), i.e., the organization of the most advanced capitalist countries (CEPLAN, 2014),3 it is still very distanced from this objective. The measures that have been taken by the Peruvian State in the fight against Covid-19 were a mix of repression and the implementation of weak economic and social relief programs. The support programs alleviated the poor somewhat, but it did not change their conditions. These programs did not prevent poverty from rising in the period 2020–2021. The expansion of the coronavirus in Peruvian society has made it overtly clear that its socially and economically segmented society corresponds with a segmented state presence. The working-class districts have not been of real interest to the dominant class as they are not fundamental for the realization of value and for the economy to operate. The lack of supply of medicinal oxygen that resulted in the death of thousands of Peruvians was the consequence DOI: 10.4324/9781003289456-10

200  COVID-19: The state, the economy and the people of the ideology of non-intervention in the markets and the lack of planning by the Peruvian State. In this chapter, we study the effects of Covid-19 on the State, the economy, and the population. The expansion of the virus and the measures taken by the State to contain its expansion, i.e., the lack of adequate intervention to contain its spread throughout society, demonstrates the persistence and the structural character of underdevelopment in Peru. First, we discuss the structural causes of the expansion of the virus such as the role of Peru in the international division of labor, the economic model, the economic and business structure, informality, and the structure of the Peruvian labor-force. Then, we examine the State’s measure against the spread of the virus. Finally, we demonstrate that Covid-19 is a class virus instead of a democratic virus. Informal workers or individuals employed in micro businesses have a higher probability to get infected by Covid-19 than individuals who have formal labor contract and are employed in small, medium-sized, and big companies. 9.1 The structural causes for the expansion of Covid-19 The Peruvian development model in place is the origin of the ferocious expansion of Covid-19 in the country. According to the last available data for September 2021, Peru had the highest Covid-19 mortality rate. As explained in previous chapters, the country’s extractivist development model, an expression of Peru’s role in the international division of labor, creates a superfluous labor-force. Around 70% of the Economic Active Population (EAP) is not directly required for the essential productive operations in the country. These individuals are principally located in the capitalist subsistence economy (CSE), working in micro businesses (the big majority of the Peruvian working class is employed in microenterprises, defined as companies that employ between one and ten persons). The large majority of individuals employed in micro businesses are informal workers. As per data of Peru’s National Bureau of Statistics and Informatics (INEI for its acronym in Spanish), in 2021, around 77% of the working population was informal.4 The lockdowns heavily affected the socioeconomic situation of formal and informal workers in micro businesses. When these companies were forced to close in the first four months after the declaration of the state of emergency in March 2020, their workers had to look for alternative means for generating income. Peru’s social security system does not foresee insurance for all unemployed individuals. Only those individuals who were formally employed have access to a reduced unemployment insurance (depending on one’s remuneration and duration of employment). Around 20% of the EAP is formally employed (including workers in micro businesses, small companies, medium-sized corporations, and big enterprises). In addition, it should be underlined that the

COVID-19: The state, the economy and the people  201 unemployment insurance is not sufficient to maintain a worker for about more than three months without any monetarized economic activity. The big majority of the workers of micro companies are informally employed. These individuals could not be confined to their homes. They had to leave their houses in search for work and income. Hence, informally employed workers were the most affected part of the working class by the coronavirus (Lust, 2021). Weller, Gómez Contreras, Martín Caballero and Ravest Tropa (2020: 234) have argued that workers with relatively low qualifications, low incomes, and with precarious jobs were the most affected by the sanitary crisis. The Peruvian labor-force is a low-skilled workforce and mainly performs manual labor. When the companies had to close, the workers lost their jobs because they were not able to do the same activities in their homes for the simple reason that the means of production could not be transferred to their residences. The extensive use of temporary contracts has largely contributed to the expansion of the virus. These contracts ended when the companies shut down, without any possibility for the workers to proceed with a legal claim because of the loss of income or to demand financial compensation. The lack of income forced these workers to get out of their houses in search for jobs, resulting in increased interactions between individuals and causing the expansion of Covid-19. The last factor that contributed to the expansion of the coronavirus is related to the economic and financial weakness of the big majority of the companies. As these corporations, mainly micro businesses, lacked the financial means to restart their activities when the economy reopened (July 2020), they urged their former workers to continue looking for other sources of income. Although the sanitary regulations to which companies had to abide before they could reopen were very difficult to finance, micro businesses did not even dare to take a loan at very lucrative rates to finance the costs of reopening (Lust, 2021: 663). 9.2 The State’s measures against the expansion of the virus The Peruvian State has not been able to contain the spread of Covid-19 until vaccination began. Although it declared, already on 16 March 2020, the state of emergency for the whole country, it did not stop the virus from spreading. Notwithstanding the fact that the different governments were not able to eradicate the structural causes for the expansion of the virus, they definitively implemented some measures that at least reduced the rapidness of its spread and took action to help the population to confront the socioeconomic consequence of the lockdowns and quarantine measures. The principal measure that was taken to stop the expansion of the virus was a lockdown. Only social and economically essential activities were

202  COVID-19: The state, the economy and the people allowed to operate such as pharmacies, grocery stores, supermarkets, public marketplaces, and banks. Also, key state institutions maintained operative. Of course, face masks became mandatory in closed public places and even in the streets (Lust, 2021: 658). It is just since 1 October 2022 that face masks are only obliged in public transport and hospitals. Although the idea was to confine the population in their homes, most of individuals that pertained to the working class could not abide to the lockdown. The military and the police could not impede the trespassing of the quarantine measures because it would have meant violent confrontations between the military and police on the one hand and the population on the other hand. Financial assistance to the most affected individuals was considered an appropriate relief strategy. For instance, in May and June 2020, the poor, the extremely poor, and the own-account workers received a subsidy of around US$ 210. Two months later, in August, another subsidy of US$ 210 was handed out to the most vulnerable families.5 The economic support was not enough to finance the monthly basic foodstuffs for a family (a family in Peru is considered to be composed of four individuals). The financial assistance of US$ 210 was just above the extreme poverty line of around US$ 207 per month.6 In 2021, new subsidies were handed out. However, these were lower than the months before. In February 2021, US$ 170 was transferred to around 4.2 million poor families and in October 2021, about US$ 85 to 13 million poor and extremely poor individuals, and receivers of different social programs. Finally, in November 2021, a last subsidy of US$ 52 was given to all laboring individuals in the formal sector who earned US$ 500 or less per month.7 The support programs definitively alleviated the poor somewhat. Their conditions did not change at all. Small subsidies only prolonged their agonizing situation. In the period 2019–2020, poverty rose from 20.2% to 30.1% of the population.8 As economic growth started to increase again in 2021, poverty rates began to fall. The lockdowns negatively affected private corporations. In order to help the companies to recover their losses, when the economy started to reopen after four months of quarantine measures, an interest attractive loan program was developed and implemented. This program was not a success. According to available data for October 2020, a total of 480,122 received a loan. The big majority of these receivers, 471,642 companies, were small and micro businesses, i.e., 19.9% of all micro and small companies according to the total number of these companies in 2019. However, data for September 2020 show that they only received 43.6% of the total credit amount. The big corporations, 1.4% of all companies that received a loan, got 51.4%. The average interest rate stood at 1.72%.9 The relief strategies for the most vulnerable population and the attractive credit programs for business were coupled with measures that had to improve the healthcare services. These actions definitively did have success but came late. For a lot of individuals, they came too late.

COVID-19: The state, the economy and the people  203 In 2020, the prices for medicinal oxygen and medicines to combat Covid-19 increased phenomenally. Increased demand did not correspond with increased supply. The lack of planning and the ideology of non-intervention in the markets seem to be the principal reasons for the shortages. The market of medicinal oxygen was dominated by two companies. In addition, as there was almost permanent shortage of intensive care units (ICUs) and hospital beds in public hospitals, many individuals infected by the virus were attended outside the hospital, in tents in the hospital’s parking lots, or stayed at home connected to big oxygen cylinders (Lust, 2021: 661). It seems that the different Peruvian governments did not have any idea about the effects that the expansion of Covid-19 might have on medical supplies. However, already in April 2020, the WHO recommended to make estimations on the demand and supply of medicinal oxygen. Five months after the start of the lockdown in March 2020, only 20% of the necessary supply of medicinal oxygen was produced in the country. Still there was no data available regarding the available stock in all healthcare establishments (Comisión Especial de Seguimiento a Emergencias y Gestión de Riesgo de Desastres – Covid-19, 2020–2021, 2020: 18, 22, 47). Hence, medicinal oxygen was imported from Ecuador and Chile. At the end of January 2021, oxygen plants were being implemented in some hospitals. In October 2020, Peru counted on 50 plants that produced medicinal oxygen.10 At the start of November 2021, this number had increased to 446. Another cause for the shortage of medicinal oxygen was the lack of technological capacity to build the installations for its production. These installations had to be imported. Only two companies possessed the adequate technology to quickly increase the number of installations that produced medicinal oxygen. 9.3 Class virus instead of a democratic virus Covid-19 is a class virus. The level of infection possibility depends on one’s labor situation. Informal workers and individuals employed in micro businesses have a higher probability to get infected than individuals who find themselves in a more favorable labor situation. In Table 9.1, data for all Metropolitan Lima districts are presented regarding the number of individuals working in companies that employ one to five persons as a percentage of the occupied EAP, the number of individuals classified as own-account workers as a percentage of the occupied EAP, and the number of infected individuals by Covid-19 as a percentage of total habitants per district in the years 2020 and 2021 The average rate of infections at the level of Metropolitan Lima is calculated on the basis of total number of confirmed Covid-19 infections in Metropolitan Lima (excluding the Covid-19 cases that were still under research) as a percentage of total habitants in Metropolitan Lima in the period 2020–2021. This rate was 10.6%.

204  COVID-19: The state, the economy and the people In case the rate of individuals working in companies that employ one to five individuals is higher than the average rate in Metropolitan Lima (55.5%), the rate of informality is considered to be high. The average rate of own-account workers at the level of Metropolitan Lima is 32.4%. An average rate higher than 32.4% is considered a high rate of informality. On the basis of these data, it can be determined that districts with higherthan-average informality have higher rates of Covid-19 infections than districts with less than average informality rates. However, we lack data to exactly determine the rate of informality. Hence, tor this book, “the rate of informality at district level includes the percentage of individuals that labor in companies that employ between one and five individuals and the percentage of own-account workers” (Lust, 2021: 663–664). The data in Table 9.1 show that, for various districts, we can determine a positive relation between the rate of informality and the rate of Covid-19 infections. Districts that have a high rate of informality and a high rate of Covid-19 infections are Barranco, Cercado de Lima, Comas, El Agustino, and Rimac. The total population in these districts is 1,324,988. The districts with a low rate of informality and a low rate of Covid-19 infections are Chorrillos, La Molina, Punta Negra, San Bartolo, San Miguel, and Santiago de Surco. The total population of these districts is 1,690,538. The overall number of individuals that live in districts for which a positive relation can be established between the rate of informality and the rate of Covid-19 infections is 3,015,526. Some districts are characterized for having a low rate of informality and a high rate of Covid-19 infections. The districts with this relation are Breña, Chaclayo, Jesus María, Lince, Los Olivos, Magdalena del Mar, Miraflores, Pueblo Libre, San Borja, San Isidro, San Luis, San Miguel, Santa María del Mar, and Surquillo. The total population living in these districts is 1,482,585. We can enumerate various reasons why some districts have a relatively low rate of informality and a high rate of Covid-19 infections. In Jesus María, for instance, many hospitals and state institutions are located. The district is also adjacent to one of the principal avenues in Lima, the Brasil Avenue. Breña is located between two principal Covid-19 infected avenues: the Brasil Avenue and the Venezuela Avenue. Agglomerations of individuals in these areas are one of the principal causes for the expansion of the virus.11 For its centric character and popular attractiveness, the district of Miraflores should be excluded from our analysis. In San Luis, the principal fruit market is located. This place attracts a large number of small and micro businesses from in and outside Metropolitan Lima.12 The total number of individuals living in the districts that might be excluded from our analysis on the relationship between the rate of informality and the rate of Covid-19 infections is 356,202. The number of individuals that live in districts that combine a high rate of informality and a low rate of Covid-19 infections is very large. These districts are: Ate, Ancón, Carabayllo, Cieneguilla, Independencia, Lurigancho,

COVID-19: The state, the economy and the people  205 Table 9.1 The average rate of individuals that labor in companies that employ one to five individuals and own-account workers as a percentage of the occupied EAP, and the percentage of Covid-19 infected individuals, according to corresponding districts in Metropolitan Lima in the period 2020–2021 Districts Ancón Ate Barranco Breña Carabayllo Cercado de Lima Chaclacayo Chorrillos Cieneguilla Comas El Agustino Independencia Jesús María La Molina La Victoria Lince Los Olivos Lurigancho Lurín Magdalena del Mar Miraflores Pachacamac Pucusana Pueblo Libre Puente Piedra Punta Hermosa Punta Negra Rimac San Bartolo San Borja San Isidro San Juan de Lurigancho San Juan de Miraflores San Luis San Martin de Porres San Miguel Santa Anita Santa María del Mar Santa Rosa Santiago de Surco Surquillo Villa El Salvador Villa María del Triunfo a b c

Labors in companies of 1–5 individualsa (%) 63.8 58.9 56.3 47.8 61.4 53.2 55.1 51.8 65.0 56.5 60.1 57.5 38.3 41.2 61.6 44.9 51.6 59.7 56.3 38.9 41.2 65.5 64.0 38.8 61.2 61.5 52.8 55.7 55.4 38.6 41.8 61.6 57.4 53.0 53.4 40.7 57.1 52.8 61.9 42.2 45.0 59.7 60.1

Own-account Covid-19c (%) workersb (%) 36.6 34.9 27.1 27.7 36.6 32.8 32.2 31.3 35.1 34.0 39.2 35.1 22.2 23.6 37.6 25.1 30.6 34.4 33.3 23.2 23.5 32.6 39.8 22.8 35.3 34.1% 28.9 35.3 30.0 22.9 22.4 35.0 33.8 30.8 31.4 23.7 35.0 24.9 35.4 24.6 26.1 34.4 32.9

INEI (2019a: 1888–1969). These are data of the census population of 2017. INEI (2019b: 2221–2333). These are data of the census population of 2017. Ministerio de Salud (2022: 77–78).

5.9 6.9 12.5 9.9 5.8 29.7 10.6 8.2 4.1 12.0 10.3 8.5 67.2 9.7 11.2 16.3 10.0 6.2 6.7 23.5 14.3 6.1 8.8 10.8 6.4 4.0 7.3 10.2 9.0 11.1 16.4 7.1 8.3 11.2 8.0 9.9 9.1 20.3 4.0 9.3 12.5 8.1 8.1

206  COVID-19: The state, the economy and the people Lurin, Pachacamac, Pucusana, Puente Piedra, Punto Hermoso, San Juan de Lurrigancho, San Juan de Miraflores, Santa Anita, Santa Rosa, Villa El Salvador, and Villa Maria del Triunfo. The total number of individuals living in these districts amounts to 4,566,246. The total number of individuals who live in these 17 districts with high informality and low rates of Covid-19 infections, and persons that live in districts with a low rate of informality and a high rate of Covid-19 infections, excluding the mentioned districts above, is 5,692,629, i.e., 59.4% of the total population of Metropolitan Lima. The presented data for the period 2020–2021 do not seem to confirm that, in Metropolitan Lima, an overall positive relation exists between the rate of informality and the rate of Covid-19 infections. Only about 31.5% of the total population of Metropolitan Lima lives in districts for which this particular relation exists. In a previous investigation on this question, we encountered the same result.13 We concluded that in our analysis, we also should take size differences of the districts into consideration. The number two district for Covid-19 infections is San Juan de Lurrigancho. Number five is Ate and number eight is Villa Maria del Triunfo. Number nine is San Juan de Miraflores and number ten is Villa El Salvador. The district of Puente Piedra is number 12. The total sum of individuals living in these districts is 3,446,005, i.e., 60.5% of all individuals that live in districts for which no direct visible positive relation exists between the rate of informality and the rate of Covid-19 infections (excluding the mentioned districts above). The total number of infections for these six districts was 254,399, i.e., 27.5% of total infections in Metropolitan Lima (excluding the Covid-19 cases that are still being researched). It is the large number of individuals that live in these working class districts that cause the rate of Covid-19 infections to be relatively low. San Juan de Lurrigancho is the most populous district in Lima (1.150.470), Ate is third (642.828), Villa Maria del Triunfo is fifth (440.575), Villa El Salvador is sixth (429.509), San Juan de Miraflores is seventh (421.017), and Puente Piedra is number nine (361.606). Lima consists of 43 districts. The smallest has 1,090 inhabitants (Santa Maria del Mar). The biggest is, as we mentioned, San Juan de Lurrigancho with 1,150,470 residents. When we divide the total number of Metropolitan Lima citizens by the number of districts, we get an average population of 222,787 per district. In order to be able to establish a reliable and comparable relationship between the Metropolitan Lima districts regarding the rate of informality and the rate of Covid-19 infections, it is essential that the number of district citizens varies between definite margins. We set the lower limit at 1 resident and the upper limit at 445,575 inhabitants. The results of the second part of our analysis on the relation between the rate of informality and the rate of Covid-19 infections also do not demonstrate that a positive relation exists between both variables. The average rate of Covid-19 infections became 9.4%. After reducing the new total inhabitants with the number of individuals that live in what we might call exceptional districts, data show that 40.1% of Metropolitan Lima individuals live

COVID-19: The state, the economy and the people  207 in districts for which a positive relation exists between the rate of informality and the rate of Covid-19 infections. In our earlier research on the relation between the rate of informality and Covid-19 infections, however, this relation was confirmed. There are at least two reasons that can explain why we cannot directly establish a positive and clearly visual relationship between informality and the spread of Covid-19 in Metropolitan Lima, although on the basis of the data of October 2020 this was possible.14 When Covid-19 began to spread throughout the country, the doors of almost all companies had to close. The informal sector was hardest hit. The big majority of individuals that were employed in these businesses were principally performing low-skilled manual labor. This work could not be executed in their homes. Hence, these persons were forced to put their lives on danger to find some small employment, leaving their homes in the most dangerous months. When the economy started to reopen, people returned to their workplaces and social distancing radically diminished. This increased the number of Covid-19 infections, generalizing it to all businesses. Also, the prolonged time that Covid-19 was spreading in Peru, without the country having vaccinated most of its population (vaccination started in February 2021), contributed to the generalization of Covid-19 infections to individuals who were employed in all kinds of companies. The working class was the most affected social class of the spread of Covid-19 in society. The big majority are informal workers and/or have a temporary contract. They mainly perform low-skilled manual labor that cannot be executed in their homes. Hence, Covid-19 resulted in their unemployment (officially or unofficially). The lack of a universal social security system was heavily felt by the exploited and oppressed masses. From March 2020 to October 2020, massive layoffs were allowed by the government. According to the INEI, in 2019, 697,381 individuals were unemployed. In 2020, this had grown to almost 1.2 million individuals, i.e., an increase of 58.4% with respect to the previous year.15 In Figure 9.1, we present the evolution of the unemployment rate in Metropolitan Lima in the period January 2020 and September 2022. In May 2020, unemployment doubled with regard to the month of January. In April 2021, unemployment initiated its downward trend. Starting from June 2022, the number of unemployed individuals in Metropolitan Lima returned to its ‘normal’ proportions. The absence of a real interest in the social and economic welfare of individuals who, in general, pertain to the ECS, was manifested in the absence of the State in the struggle against the spread of Covid-19 in working-class districts. Not only this we observed with regard to the lack of enforcement to maintain social distance in public marketplaces, for instance, there were also marked differences regarding the number of individuals that were ‘allowed’ in public transport. In the center of Lima and the relatively accommodating

208  COVID-19: The state, the economy and the people 18 16 14 12 10 8 6 4 2

0

Figure 9.1 Rate of unemployment in Metropolitan Lima Source: https://estadisticas.bcrp.gob.pe/estadisticas/series/mensuales/resultados/PN38063GM/ html/2020-1/2022-9/ (consulted 10/11/22).

districts, social distancing was forcefully maintained in public transport; however, the deeper one got into the working-class districts, the lesser this was the case. The socially and economically segmented Peruvian society corresponds with a segmented state presence in society. The working-class districts have not been of real interest to the ruling class as they are not fundamental for the realization of value and for the economy to operate. Of course, the State has not been planning for the massive expansion of the virus in these districts. However, it has not been very occupied with the protection of these districts either. 9.4 Conclusions Peru’s role in the international division of labor has made the country dependent on health supplies from abroad. The reduced role of the State in the economy and the preference of market-based solutions to social problems are for a considerable part responsible for the collapse of public healthcare. The permanent shortage of intensive care units, the lack of hospital beds in public hospitals, and the scarcity of medicinal oxygen provided by oligopolies have caused thousands of deaths. Covid-19 was not a democratic virus. Research indicates that in 2020, individuals who had been employed in the informal sector had a bigger chance to get infected by the new coronavirus than individuals working in the formal sector. However, the prolongation of the virus and the reopening of the economy after some months of harsh quarantine measures induced a generalization of the virus to individuals that were employed in all kinds of businesses: informal or formal; big or small companies. Furthermore,

COVID-19: The state, the economy and the people  209 the virus resulted in a massive increase of unemployment. As the country does not count on a universal unemployment assurance, this augmented the poverty levels in the working class. Of course, it also increased the number of individuals that pertained to the working class that were infected by Covid19 as they had to look for jobs in order to survive. The collapse of public healthcare has not been caused by increased demand. It is the lack of support from the different Peruvian governments that really has caused the country’s health crisis. Governmental expenses in healthcare are not near to what is expected by the Pan American Health Organization. In the last two and half decades, only between 4% and 5.5% of Gross Domestic Product (GDP) was expended on healthcare and the country has a low number of ICUs. The reaction of the Peruvian state to the coronavirus was insufficient. The state’s actions lacked planning, changed continuously, and policy decisions were not transparent. The absence of adequate planning is a general characteristic of the Peruvian neoliberal state. The coronavirus could have triggered processes that might have resulted in structural changes in the Peruvian economy. Short term financial assistance to the most affected population groups by Covid-19 has definitively been an important measure. However, the necessity for this assistance is based on structural inequality. The implementation of processes that would have pointed to the eradication of informality, the development of a universal unemployment insurance system and a dignified pension system for all citizens, and far-reaching labor reforms in favor of the working class, would have been important steps towards the necessary social transformation the country urges. Of course, without an accompanying increase of fiscal pressure, among other measures, these structural social changes are not possible. Notes 1 https://coronavirus.jhu.edu/map.html (consulted 26/10/2022). 2 Source: https://coronavirus.jhu.edu/data/mortality (accessed 26/10/2022). 3 See also: https://gestion.pe/peru/politica/castillo-ratifica-interes-de-peru-de-incorporarsea-ocde-nndc-noticia/ (accessed 26/10/2022). 4 Source: https://gestion.pe/economia/management-empleo/cerca-de-18-millonesde-peruanos-entraron-a-la-informalidad-laboral-el-2021-informalidad-laboralinei-trabajo-sin-derechos-sociales-noticia/ (consulted 14/10/2022). 5 The amounts in US$ are based on the exchange rates in the corresponding months. 6 Source: https://gestion.pe/peru/nivel-de-pobreza-en-peru-se-redujo-ligeramenteen-el-2019-noticia/?ref=gesr (consulted 18/10/2022). 7 Source: https://larepublica.pe/economia/2021/11/15/oficializan-bono-de-s-210-paratrabajadores-formales-mef/ (consulted 18/10/2022). 8 Source: https://www.inei.gob.pe/prensa/noticias/pobreza-monetaria-alcanzo-al-301de-la-poblacion-del-pais-durante-el-ano-2020–12875/#:~:text=el%20 a%C3%B1o%202020-,Pobreza%20monetaria%20alcanz%C3%B3%20al%20 30%2C1%25%20de%20la%20poblaci%C3%B3n%20del,pa%C3%ADs%20 durante%20el%20a%C3%B1o%202020&text=En%20el%20a%C3%B1o%20 2020%2C%20la,Estad%C3%ADstica%20e%20Inform%C3%A1tica%20(INEI) (consulted 18/10/2022).

210  COVID-19: The state, the economy and the people





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10 Conclusions

Peru’s role in the international division of labor is the principal factor that has been determining the persistence of underdevelopment. It is also this role that has been defining the character of the development models in place during the last 40 years and the policies developed and implemented by the Peruvian State. The international division of labor manifests itself as a pyramid. This pyramid expresses the level of contribution of countries to value-added production. Peru, like many other Latin American countries, finds itself at the bottom of this pyramid. Hence, average income is low, and the internal market is small. The insertion of Peru in globally organized production processes passes through its abundant natural resources. The investment of transnational extractive capital and the export of the country’s minerals by foreign companies to their own branch offices abroad are the principal expressions of Peru’s insertion in globalization. A secondary form of insertion is through the production and export of manufactures and intermediate goods. Transnational capital intends to increase its profits through international labor arbitrage. Data on the exports of manufactures and intermediate goods, however, show a falling trend. This signifies that Peru is not competitive enough in the world market of outsourcing productive activities. The particularity of Peru’s insertion in globalization causes that economic crises are mainly the product of crises in the advanced capitalist countries and China. Political crises in the country are translated to the economy and may lead to economic crises. The Peruvian State is a dependent capitalist state. The country’s function in the globalized capitalist world economy determines that the Peruvian State is a dependent capitalist state. It contributes to the reproduction of the system in the center of world capitalism. It is a capitalist state as it helps to create the conditions for the accumulation of capital. It has to ensure the reproduction of the system. In the end, the capitalist state defends the interests of capital. DOI: 10.4324/9781003289456-11

212 Conclusions Peru’s role in the international division of labor is the principal cause for the division of the Peruvian economy into an advanced economy (AE) and a capitalist subsistence economy (CSE). Peru is not a dual economy, but it expresses itself as a dual economy. Both parts of the economy are heavily interrelated and depend on each other for accumulation and/or reproduction. The CSE is not an economy that can be located geographically. In all economic sectors and branches we can find micro businesses. These companies help to increase and/or maintain the profit rate in the AE. Although the Peruvian economy is not a dual economy, it is definitively a segregated economy. Producers’ markets, labor markets, and consumer markets are segregated. Of course, also the country’s cities and villages are segregated. Hence, it may not be surprising that individuals employed in the informal sector or living in working-class districts had a bigger chance to get infected by Covid-19 than individuals who were employed in the formal sector or who were living in middle-class districts, for instance. The dominance of micro enterprises in the economy explains why Peru’s overall rate of complexity and the organic composition of capital (OCC) are low and why the development of productivity is stagnating. The nature of micro businesses in Peru impedes the investment in technological development or the development of labor-power. The country’s business structure is in accordance with its role in the international division of labor and the extractive development model in place. The hegemonic fraction of capital is extractive capital. The major part of Peru’s export is concentrated in just a few transnational extractive corporations. In general terms, transnational capital is not interested in the development of the country’s internal market as the structurally low average income shows. The internal markets of the companies in the AE can be estimated at around 30% of the EAP, principally composed of the socioeconomic strata A and B. Peru is a bank of natural resources and not a source for the exploitation of high-skilled labor. Economic crisis in Peru is not caused by overproduction or underconsumption. Around 95% of Peru’s businesses are micro companies. They principally function as a social security system for all those individuals who have not found employment in the CSE. Although these companies might also be inserted in global value chains, this is not their prime role. As we have demonstrated, data on the exports of manufactures and intermediate goods show a falling trend. In the context of the hegemony of capital or the current correlation of class forces, an increase of the level of precariousness or the levels of exploitation and economic oppression seem to be the only mean to reverse the trend. The capitalist character of Peruvian society and the role of Peru in the international division of labor as a provider of natural resources for capitalist development abroad are the determining factors of the country’s overall class structure. The division of the economy into an AE and a CSE, a product of

Conclusions  213 the function of the country in the globalized capitalist world economy, can explain the particularity of the principal class fractions. The majority of the economic active population (EAP) forms part of the working class. They are mainly low-skilled and are employed in micro businesses that operate in the CSE. Notwithstanding the fact that, in general terms, precarious labor is a natural consequence of capitalist development, in Peru, this is directly related to the function of the companies in the CSE to help maintain and/or increase the profit rate for the businesses that are active in the AE, the prohibition of unions in companies that employ less than 20 individuals, and the neoliberal labor policies implemented in the 1990s. As we argued in Chapter 6, labor precariousness and relations of super-exploitation are institutionalized and legally stimulated by the implementation of a precarious labor regime for workers in micro businesses. The middle class forms around a third of the EAP but has mainly a proletarian character (own-account workers, proletarian fraction of the independent middle class). Peru is not a middle-class society, but a nation that is principally composed of workers and peasants. It is a permanent polarized society. Hence, the possible positive effects of having a large middle class such as the fact that it “tends to favor greater social cohesion, provide skilled and productive labor, and demand goods and services, fostering the role of the domestic market as an engine of growth”, that it is “key for capitalism and democracy to thrive” (Castellani, Parent & Zentero, 2014: 2), are not visible in Peruvian society. The Peruvian middle class is a source of entrepreneurship out of necessity, but it is not a source of innovation, as Kharas (2010: 7) supposes. Peru has a very small rural proletariat. The large majority of the peasantry own very small plots of land. A poor peasantry is a structural characteristic of Peruvian society. It does not come as a surprise that the economic division of the country in an AE and CSE is translated to a societal or social division. This does not mean that some kind of static relation exists between the economic base and the superstructure, but it definitively tells us that both principal and basic components of society reenforce themselves in relation to one another. Peruvian educational levels are in accordance with the country’s function in the globalized capitalist economy (international base) and with the division of the economy into an AE and CSE (national base). The educational level of the Peruvian population does not permit to develop and implement productive processes that point to major levels of aggregate value production. Hence, one of the basic conditions to pass from a situation of underdevelopment to a situation of development does not exist in Peru. The policies that have been developed and implemented by the Peruvian State were principally based on the political, economic, and social relations between Peru and the center of world capitalist development and China. As we argued, these policies sought to reproduce the historical role of Peru in

214 Conclusions the international division of labor. Policies that would provide the conditions to structurally elevate the educational level of its population and that would increase investments in technological and labor-power development were not elaborated and implemented. It can be argued that the Peruvian State does not have a true interest in structurally increasing the welfare of its population. For instance, it has institutionalized super-exploitation, it has not implemented policies that can eliminate informality, and it has privatized the social security system. Poverty and underemployment are structural features of Peruvian society. The policies that were developed and executed responded to the function of Peru in the capitalist world economy such as the signing of free trade agreements and regional trade agreements, the promotion of economic integration processes, the liberalization of the markets, and the privatization of the provision of social services. The Peruvian dependent capitalist state is also a neoliberal state. As Harvey (2005: 2) argues, the neoliberal state has to create and preserve the institutional framework for “strong private property rights, free markets, and free trade”. Policies in favor of the companies and the hegemonic class fraction in particular are guaranteed because the block in power has its political representatives in Peruvian parliament. In order to maintain class peace, a part of the economic benefits generated by the extraction of natural resources is transferred to the most vulnerable population. As a matter of fact, in Latin America, extractivist development models are used as a panacea for economic and social progress. The expansion of the coronavirus in Peru has evidenced that Peru is still an underdeveloped country, although it longs to form part of the group of the most advanced capitalist countries, i.e., the Organisation for Economic Cooperation and Development (OECD). Peru had the highest Covid-19 mortality rate in the world and ranked sixth on the world list of Covid-19 deaths. The Peruvian case also demonstrated that Covid-19 is a class virus. Informal workers, own-account workers, and workers in micro businesses (the big majority of the country’s working population) were hit hardest, especially because, in Peru, these workers predominantly perform manual labor. Weak technological development, principally the product of Peru’s role in the international division of labor, forced the country to import the necessary health supplies. The collapse of public healthcare was the result of the lack of interest of the Peruvian State to take care of the health of its citizens. Health has turned into a private and lucrative business. However, the low-income levels of the masses make them, and not the individuals that pertain to the socioeconomic strata A, B, and C, non-interesting investments objects for transnational health capital. The persistence of underdevelopment in Peru implies that all strategies that have been used to supposedly convert, in the short term, medium term, and long term, Peru in a developed nation, have failed. In other words, if policy makers do not take the fundamental causes of underdevelopment into

Conclusions  215 consideration for the elaboration of strategies that should ‘eradicate’ underdevelopment, then these strategies are destined to fail. The fundamental causes of underdevelopment in Peru are the role of Peru in the international division of labor, causing the division of the country in an AE and CSE, and economic progress based on the exploitation of man by man. Some examples can illustrate our point of view. Labor precarity, for instance, is basically a product of the country’s economic and business structure. The CSE is functional for the AE. Hence, no conditions are developed that might turn the CSE into an AE. In addition, labor precarity is also a source of profit of micro companies. The conversion of Peru into a developed country, departing from our definition of underdevelopment, i.e., the lack of sustainable inclusive economic development, the overall strategy should be based on a process towards revolutionary change. A revolutionary change of society starts with the consciousness that this is possible. This means that revolutionary changes should go hand in hand with progressive changes in the class consciousness of the population. A process towards revolutionary change must imply a process towards the revolutionary change of the class consciousness of the population. The effects of the epochal change initiated by Fujimori in the 1990s (Lust, 2019: 11–24) have not come to an end as the masses support the economic model in place as evidenced by its electoral successes. Although a left-wing candidate won the presidential elections of 2021, 75% of the electorate did not vote for the Left or for a change of the neoliberal extractive development model. Revolutionary class consciousness emerges through the politization of the masses. This politization finds a material base when policies are introduced that advance towards a revolutionary transformation of society that increases the class contradictions between the exploited and the oppressed on the one hand, and the bourgeoisie on the other hand. In the case of Peru, these policies might have been the implementation of processes that point to the eradication of informality, the development of a universal unemployment insurance system and a dignified pension system for all citizens, far-reaching labor reforms in favor of the working class, and the organization of micro business in productive and distributive cooperatives. We consider the only viable concept of development the advancement of the struggle for a process that leads to a society based on socialist principles. This implies to be armed with a class-based understanding of as well the objective conditions – a structural-historical comprehension of (i) the social and economic structure of Peruvian society, (ii) the role of Peru in the international division of labor and the class nature of international relations, (iii) the class content of the economic and social policies introduced by the State, and (iv) the ideological effects of neoliberalism on the social consciousness of the population – as the subjective conditions – the experiences of the struggle of the social movements against exploitation and oppression – and their interrelations. This will enable us to fully understand the dynamic of a

216 Conclusions class society at work and in particular the current political situation in Peru. Furthermore, it means to project this comprehension on the fight against the actual development model, in order to contribute to the future course of the struggle for a structural transformation of society. A revolutionary social transformation will not be materialized when the governmental policies that point to this transformation are not based on structural popular support. The existence of structural support implies the existence of a revolutionary class consciousness. For this reason, the Castillo government was doomed to fail or was not able to uphold its promises because it did not have or had not created the social bases for even a small transformation. The social protests that expanded after his detention were mainly a product of the general rejection of the parliament and Castillo’s detention itself (social and cultural effects: a former rural teacher from the Peruvian impoverished provinces, impeached by the historically dominant classes), then a kind of support for the policies developed and implemented by the Castillo cabinets. References Castellani, Francesca, Gwenn Parent & Jannet Zentero (2014), “The Latin American middle class. Fragile after all?”, IDB Working Paper Series, No. 557, in http:// publications.iadb.org/bitstream/handle/11319/6733/The-Latin-American-MiddleClass-Fragile-After-All.pdf?sequence=2 (consulted 19/01/2023). Harvey, David (2005), A brief history of neoliberalism, Oxford, Oxford University Press. Kharas, Homi (2010), “The emerging middle class in developing countries”, OECD Development Centre, Working Paper, No. 285, in https://www.oecd-ilibrary.org/ docserver/5kmmp8lncrns-en.pdf?expires=1674144660&id=id&accname=guest& checksum=A55C78A9A922CFA054C7D999A3057A8E (consulted 19/01/2023). Lust, Jan (2019), Capitalism, class and revolution in Peru, 1980–2016, Cham, ­Palgrave Macmillan.

Index

Note: Bold page numbers refer to tables; italic page numbers refer to figures and page numbers followed by “n” denote endnotes. Acción Popular 195 advanced capitalist countries 6, 10, 16, 18, 21, 23, 42–46, 49, 51, 52. 54, 73, 74, 89, 90, 119, 121, 134, 140, 142, 144, 155, 167, 195, 199 advanced economy (AE) 3, 6, 7, 42, 56, 57, 59, 60, 64, 73, 85, 86, 88, 89, 89, 95, 97, 104, 106–110, 111n8, 120, 121, 123, 127, 132, 133, 135n7, 139, 140, 153, 155–158, 165, 168, 171, 172, 175–177, 178n8, 212, 213, 215 Béjar, Héctor 193 Belaúnde, Fernando 98, 181, 182 block in power 132, 133, 194, 196, 214 Boluarte, Dina 2, 192 bourgeoisie 11, 51, 116, 122, 125, 123, 133, 154, 185–187, 215; national 46; petty 123; rural bourgeoisie 122; urban 122 business structure 3, 6, 45, 46, 85, 86, 95, 97, 99, 109, 110, 119, 151, 157, 158, 177, 190, 200, 212, 215 capitalist class 61, 62, 122, 123 capitalist economy 43, 182, 189, 213 capitalist subsistence economy (ECS) 3, 6, 7, 42, 43, 56–60, 64, 65, 73, 85, 86, 88–90, 95, 97, 102, 104, 108–110, 121, 123, 127, 128, 132, 133, 139, 140, 153, 155, 156–158, 165, 168, 171–173, 175–177, 178n8, 178n9, 200, 212, 213, 215

Carchedi, Gugliemlo 111n11, 114, 122, 153, 159n12, 166 Castillo, Pedro 1, 2, 7, 180, 192, 193, 216 class analysis 7, 116, 130, 131 class consciousness 8, 215, 216 class fractions 101, 119, 121–123, 185, 213 class struggle 2, 5, 8, 17, 18, 119, 154, 187, 192 commodities boom 27, 28, 78, 79, 171, 183 competition 1, 9, 11, 50, 51, 60, 82, 88, 96, 126, 139, 141, 157, 183, 186; law of 35n2, 52 constant capital 13, 15, 34, 52, 66n13, 66n15, 88, 111, 114, 115 consumption patterns 7, 165, 167, 168, 171, 177 corruption 2, 184, 192, 193 credit boom 27 democracy 130, 175, 188, 193, 213 dependency 9, 30, 42–45, 64, 73, 78, 116, 155, 181, 182, 188, 190, 191, 195 development model 1, 3, 4, 9, 23, 26, 27, 34, 59, 74, 76, 90. 99, 106, 109, 132, 151, 168, 192, 195, 200, 211, 212, 214–216 developmental state 27 dominant class 23, 62, 101, 109, 116, 119, 131, 187, 199, 216 dual economy 57, 65, 73, 86, 90, 110, 121, 123, 212 dualism 51, 54, 55–57, 65, 97

218 Index economic base 3, 5–7, 43, 62, 63, 165–167, 176, 182, 213 economic active population (EAP) 49, 59, 66n25, 104, 105, 106, 106, 123, 125, 130, 145, 146, 147, 158, 200, 203, 205, 212, 213 economic complexity 73, 97 economic crisis 29, 30, 73, 189 economic oppression 21, 123, 139, 153, 154, 156, 212 economic structure 3, 8, 45, 46, 58, 62, 64, 97, 99, 121, 157, 165–168, 215 educational level 3, 151, 152, 153, 158, 158n9, 165, 168, 177, 213 elite 46, 62, 185 Engels, Friedrich 11, 62, 63, 66n27, 117, 141, 144, 166, 167, 185, 186 export structure 73. 74, 75, 89, 97, 99, 119 export value 19, 43, 57, 76, 77, 80, 82, 83 extraction of natural resources 6, 10, 23, 24, 26, 28, 214 extractive sector(s) 6, 42, 46, 50, 89, 95, 99, 100, 109, 182 extractivist capital 95, 131, 132 financial crisis 74, 141, 142 flexible labor 141 foreign capital 44, 46, 62, 65n6, 65n11, 95, 98, 108, 182, 183, 191 foreign direct investments (FDI) 9, 10, 14, 14, 17, 27, 28, 28, 32, 46, 47, 48, 50, 73, 76–79, 78, 85, 86, 89, 90, 90n2, 97–99, 132, 189 formal sector 54, 156, 202, 208, 212 free trade agreement 9, 99, 132, 183, 195, 214 Fujimori, Alberto 1, 76, 99, 109, 183, 185, 192, 194, 196, 215 Fujimori, Keiko 1 Gamarra 150, 151 García, Alan 98, 99, 192, 196, 182, 183 GINI 2, 168 global chains of exploitation 3, 6, 10, 28, 80 global commodity chains 32 global factory 16, 21 global value chains 6, 10, 18, 32, 35, 57, 65n8, 73, 74, 80, 82, 84, 85, 89, 90, 97, 106, 119, 132, 212

globalized production networks 32, 35 globalized value chains 6, 42 golden age of capitalism 29, 167 hegemonic class 101, 109, 133, 191, 195, 214 high-skilled labor 139, 212 high state bureaucracy 62, 64 Humala, Ollanta 1, 99, 111n8, 156, 184, 194 import substitution 4, 21, 23 Import Substitution Industrialization (ISI) 23, 49 industrial reserve army 6, 43, 58, 109 industrialization 4, 23, 46, 48, 49, 56, 65n6, 74, 98, 132, 181, 182 informal sector 59, 120, 135, 151, 155, 156, 207, 208, 212; economy 59, 115 informality 6, 25, 43, 61, 66n17, 106, 133, 149, 180, 190, 191, 195, 200, 204, 206, 207, 209, 214, 215 intensive care unit (ICU) 203, 209 intermediate goods 21, 73, 74, 80, 81, 82, 104, 153, 188, 209, 211, 212 intermediate product 34, 73, 89, 188 internal market 49–51, 56, 65n7, 65n11, 86, 88–90, 98, 132, 158, 182, 211, 212 International Monetary Fund (IMF) 22, 119, 135n9, 184 Kuzcynski, Pedro Pablo 99, 184 labor arbitrage 32, 111 labor conditions 5, 9, 58, 59, 135n7, 139–141, 144, 145, 151, 157, 158n3 labor costs 32, 37n19, 82, 84, 89, 104, 111n8, 140, 156, 157 labor productivity 54, 55 labor flexibility 30, 31 labor movement 60, 141, 157 labor precariousness 7, 61, 141, 213 labor reforms 140, 141, 145, 146, 209, 215 labor theory of value 5 left-wing 1, 27, 192, 193, 215 Lenin, Vladimir 35n1, 36n18, 96, 97, 110n3, 117, 129 low-skilled labor 21, 49, 120 low-skilled working class 127

Index  219 low-wage countries 21, 82, 85, 89 Luxemburg, Rosa 10, 11 Malvinas 150 manual labor 116, 120, 127, 128, 133, 139, 175, 201, 207, 214 manufacturing goods 6, 10, 80, 81, 82, 132 manufacturing products 73, 86, 153 manufacturing sector 32, 45, 121, 123, 133, 140 marginal pole 43, 58, 59 Marini, Ruy Mauro 153–155 Marx, Karl 10–12, 25, 35n2, 36n9, 51, 52, 58, 62, 66n12, 88, 95, 96, 106, 117, 144, 159n14, 166, 167 Marxist dependency theory 4, 5 Marxist political economy 4, 5 medicinal oxygen 199, 203, 208 mental labor 127, 128, 128 middle class 3, 116, 120, 123–125, 129, 133, 212, 213; dependent 125, 133; independent 125, 129, 133, 213; new 123, 124, 168 minimum wage level 49, 50, 59, 103, 146, 149, 150, 158n8 Morales Bermúdez, Francisco 182 mortality rate 199, 200, 214 national capital 49, 62, 73, 95, 132, 183 neoliberal ideology 194 non-paid labor 11 objectives of sustainable development 164 organic composition of capital (OCC) 29, 34, 35n9, 42, 48, 51, 52, 66n15, 73, 88, 95, 90, 96, 106, 107, 107, 108, 110, 111n9, 114, 115, 155, 212 Organisation for Economic Cooperation and Development (OECD) 29, 110n5, 189, 196n1, 199, 214 outsourcing 7, 10, 30–32, 34, 35, 36n18, 57, 74, 80, 95, 104, 140, 155, 157, 192, 211 overproduction crises 12, 29, 89, 140, 141 own-account workers 120, 123, 125, 202–204, 205, 213, 214 Pan American Health Organization 209 Partido Popular Cristiano (PPC) 195

peasantry 116, 121, 129, 130, 134, 213 peasant class 121 permanent contracts 145 Peru Libre 1, 2, 192, 193 Peruvian Association of Market Intelligence Companies (APEIM) 23, 171 political capture 102, 184 political left 1, 7, 180, 194 political right 1, 2, 7, 180, 193–196 precarious labor 59, 135n7, 139, 140, 141, 143, 144, 157, 158, 213 primary education 163, 164, 171 primary products 10, 25, 26, 34 privatization 16, 61, 98, 99, 130, 183, 191, 195, 214 production costs 57, 82, 102, 104, 111n8, 156, 158n1 production prices 35n2, 52 profit margin 49 profit rate 5, 7, 9, 13, 15, 16, 29, 34, 35n7, 36n14, 42, 88, 95, 96, 106, 107, 107, 110, 111n11, 114, 115, 158, 212, 213 profitability 12, 14, 16, 29, 30, 35n7, 78, 95, 104, 139, 140, 155, 156, 158, 188 progressive forces 192, 193, 195, 196 proletarian fraction of the independent middle class 120, 125, 129, 133, 213 proletariat 116, 119, 120, 123, 126, 127, 128, 133, 143, 144; rural 121, 130, 133, 213; semi 116, 123, 129 rate of exploitation 154, 155 rate of profit 13, 14, 15, 29, 34, 52, 66n13, 88, 96, 106, 108, 111n11, 114, 115, 155 reserve army of labor 59, 66n24, 104 revolutionary change 215 revolutionary social transformation 4, 216 rural areas 99, 130, 171, 177, 177n4, 184 ruling class 168, 208 secondary education 139, 152, 153, 158, 158n9, 163, 168 service sector 29, 54, 58, 123, 140 social relations of production 6, 118, 166 social security system 133, 135n7, 191, 200, 207, 212, 214

220 Index Socioeconomic level (NSE) 172, 173, 173, 174, 175, 175, 176, 176, 177, 178n8 state apparatuses 3, 7, 43, 61, 62, 64, 95, 101, 120, 165, 166, 180, 185, 187, 188 state captors 102, 184, 187 state capture 7, 102, 110n5, 180, 184, 185, 187, 188, 196n1 subcontracting 10, 30, 31, 141, 156, 157 super-exploitation 6, 43, 49, 60, 61, 139, 153–155, 213, 214 superstructure 5–8, 43, 62–64, 165– 167, 177, 213 surplus labor 123, 154 surplus value 5, 9, 11, 12, 14, 35n3, 51, 52, 58, 66n15, 96, 104, 106, 108, absolute 154, 158; rate of surplus value 154; relative 15, 154, 158 sustainable development 191, 196 sustainable inclusive economic development 3, 181, 215 temporary contract (s) 31, 143, 145, 146, 201, 207 temporary jobs 60, 141 terms of trade 21, 27, 36n9, 49, 73, 74, 78, 79, 79, 80, 80, 93, 93 Toledo, Alejandro 99, 183, 193 transnational capital 11, 17, 18, 23, 28, 35, 48, 56, 64, 73, 82, 85, 89, 90, 95, 109, 119, 121, 181, 183, 188, 212 transnational companies 18, 32, 74, 89, 110, 168

transnational extractive capital 6, 34, 183, 184, 189, 211 transnational mining capital 1, 24, 76 transnational mining corporations 27 under-consumption 89, 96, 212 underemployment 214; rate of 2, 49, 50, 50 unemployment 29, 142, 145, 156, 157, 200, 201, 207, 209, 215; rate of 207, 208 unequal exchange 36n9, 154, 155 unequal trade 21, 36n9, 49 United Nations (UN) 5, 168, 191, 196 United Nations Conference on Trade and Development (UNCTAD) 5, 23 use value 25, 155 variable capital 13, 52, 66n13, 66n15, 88, 104, 114, 115, 154, 155 Velarde, Julio 194 Vizcarra, Martín 92, 99, 184 working-class district 199, 207, 208, 212 working class 116, 119, 120, 125, 126, 129, 133, 140, 141, 199–202, 206–209, 212, 213, 215 working hours 139, 149, 151, 157 World Bank (WB) 5, 22, 28, 32, 66n18, 77, 85, 119, 182, 184 world exports 9, 12, 12, 17 World Health Organization (WHO) 199, 203 world trade 11, 12, 79 World Trade Organization (WTO) 5, 23, 80, 119