THE POLmCAL ECONOMY OF COPPER

Dissertation for the Degree OfPh. D.
MICHIGAN STATE UNIVERSITY
WILUAM JOHN BARCLAY, Jr.

1975

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thesis entitled

The Political Economy of Copper

presented by

William Barclay

has been accepted towards fulfillment
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Ph.D. Sociology

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l\\ ABSTRACT

@7‘ THE POLITICAL ECONOMY or COPPER

BY

William John Barclay, Jr.

The multinational corporation provides both the theo—
retical and organizational focus of this study. The partic-
ular case examined is the political economy of the United
States copper industry and the place of Chile and Chilean
copper within this political economy. It is the multina-
tional corporation which is both the dominant form of metro-
pole capital and the key linkage mechanism between metrOpole
and hinterland in the capitalist world political eCODOInY-
Thus, the structuring of the amount, forms, and usage, 0f
both actual and potential economic surplus in the hinter-
land and the dynamics of surplus value accumulation in the
metropole reflect the interests and priorities of the multi-
national.

The use of the political economy of copper as a case
study brings together three larger issues: (1) the theoret-
ica1 implications of the differing meanings of the concepts
0f economic surplus and surplus value, the core concepts Of
neo‘MarXian and Marxian theory. reSPeCtively; (2) the prob-

lem of the nature of the relationship between multinational

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William John Barclay, Jr.
capital and the metropole state which has been forged during
the last half century; and (3) the question of the dynamics
of colonialism and neo-colonialism in the contemporary world.
The three parts of this study are organized around these
three issues as they are illuminated through the political
economy of copper.

The methodology most compatible with a study of politi-
cal economy and with the particular problem investigated
here is that of historical-documentary methods. This meth-
odology requires the use of a multiplicity of primary and
secondary source materials. The information gathered from
these materials is sifted and organized through a conceptual
framework to produce a reconstitution and interpretation of

the political economy of copper during the last several

decades .

 

 

 

 

THE POLITICAL ECONOMY OF COPPER

 

BY

William John Barclay, Jr.

A DISSERTATION

Submitted to
Michigan State University
in partial fulfillment of the requirements

for the degree of

DOCTOR OF PHILOSOPHY

Department of Sociology

1975

 

 

 

 

 

This essay is dedicated to those who have been murdered

bY the Chilean counterrevolution. May their brothers and

Sisters succeed in the struggle for socialism and democracy.

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ACKNOWLEDGMENTS

I would like to gratefully acknowledge the support and
help given to me in this project by the members of my commit-

tee: Ruth Hamilton, Rick Hill, James McKee, and Mitch

Stengel. I realize that such acknowledgments are often

simply a matter of form. In this case, however, my relation-

ship with each of these individuals has been that of both

friend and intellectual companion. Thus to single out any

one of them for particular help in any part of this project
would be impossible and also a violation of such a relation—
ship. I would like to mention, however, that Dr. James

McKee has demonstrated that it is possible to work within
the university for a lifetime without losing one's humanity.
This has been a particularly important discovery for me.
Finally, I would also like to thank Pat Ashton, Len Berkey,
Teddi Gamso, and Rhonda Levine for the faith they have shown
in me and the support they have given me. Our relationship
has turned graduate school from an ordeal of socialization

into a process of intellectual and personal growth.

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TABLE OF CONTENTS

INTRODUCTION AND SUMMARY OF FINDINGS . . . . .
PART I: THEORETICAL FOUNDATIONS
CHAPTER 1: ECONOMIC SURPLUS AND SURPLUS VALUE

Definitions, Levels of Consumption, and
Theories of Productive Labor . . . . . . .
Discussion and Critique . . . . . . . . .

PART II: COPPER AND THE METROPOLE STATE

CHAPTER 2: COPPER AND THE STRUCTURE OF THE
METROPOLITAN POLITICAL ECONOMY . .

The Theory of Uneven Development and the
MONOPOIY and Competitive Sectors . . . . .
copper as a MonOpoly Sector Industry . . .
The Kapitalistate as Instrument and
Structure . .

CHAPTER 3: AN ATTEMPT To INTERNATIONALIZE THE
NATIONAL RULES OF THE GAME: THE
STATE As INSTRUMENT . . . . . . . .

CHAPTER 4: THE STATE AS STRUCTURE: SOCIAL
CAPITAL..............

State Social Investment in Physical

Capital: Diversification and Stockpiling
State Social Investment in Human Capital:
Ratlonalization and Diversification . . .
State Social Consumption . . . . . . . . .

CHAPTER 5: THE STATE As STRUCTURE: SOCIAL
EXPENSES . . g g g o o o 0 0 ‘ ' °

The Domestic Costs of Capital Accumulation
he Management of External Relations . . -

iv

35

38

53

77

77

85

101

117

128

128

146

162

164

164
180

 

PART II

CWTNm.6:

CHAPTER 7 :

CMWTMIB:

BIBLIOGRAPHY

TABLE OF CONTENTS (Continued)

Page
I: THE POLITICAL ECONOMY OF CHILEAN
DEPENDENCY
THE ROOTS OF CHILEAN DEPENDENCY . . . . . . 200
THE APPROPRIATION OF ACTUAL ECONOMIC
SURPLUS 0 O O O O O O O O O I O O O O O O O 2 3 0
THE LOSS OF POTENTIAL ECONOMIC
SURPLUS O O I O O O O I O O O O 0 O O O O O 2 61
O I O O O O O O O O O O O O O O O O O O O 27 9

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Table 1:

Table 2:

Table 3:

Table 4:

Table 5:

Table 6:

Table 7:

Table 8:

Table 9:

Table 10:

Table 11:

 

LIST OF TABLES

Selected Data on Sales, Assets,
Employees, and Invested Capital,

Big COpper and Fortune 500:
1954-1969

Big Copper and the U.S. Economy
1954-1969 .

The Secular Deterioration of Wages

Labor and Product Demand, Copper
and the U.S. Economy . . . . . . .

Chilean Copper Production in the
Nineteenth Century . . . . . . . .
Chilean Nitrate Production, Selected
Years and Share of Nitrate Taxation
in Government Revenue . . . . . . .
Selected Measures on the Role of

Chilean Mining, COpper, and the

GranMineria............
Some Measures of Chilean
"Underdevelopment" . . . . . . . . .
U.S. Direct Long Term Investment
in Mining and Smelting in Chile . .
Two Measures of Chilean Loss of

Actual Economic Surplus Through U.S.
Investment in Mining and Smelting

Chilean Copper: 1948—1970 . . . .

vi

 

 

Page

90

93

95

98

204

207

235

237

241

244

271

 

Figure l :

Figure 2:

LIST OF FIGURES

TheGranMineria............

Hypothetical Structure of a
Copper Multinational . . . . . . . . . .

vii

Page
225

 

270

 

 

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INTRODUCTION AND SUMMARY OF FINDINGS

The theoretical focus of my dissertation is the linkages
between an advanced capitalist metrOpole and an underdevel-
Oping capitalist hinterland. I see the multinational corpor-
ation, the dominant organizational form of capital in the
contemporary world, as the crucial linkage mechanism. The
internationalization of capital through the framework of the
multinational corporation structures the amount, forms, and
usage of both actual and potential surplus in the hinterland
and the dynamics of surplus value accumulation in the metro—
pole. The particular case I am examining is the political
economy Of the United States copper industry and the place
of Chile and Chilean copper in this political economy.

In terms of my own interests, this study flows from four
larger concerns: First, a commitment to the analysis of the
Changing nature of colonialism and neo-colonialism, both
international and internal. Here the multinational corpor"
ation is a key factor in shaping the neo—colonial system of
C1333 and strata, defining the course and limits of dependent
Capitalist deveIOpment. Second, a concern with the emergence
of the mUItinational corporation as the core institution of
monOpoly capitalism and the new relationship between capital
and the metropole state forged during the last half century.

1

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2
To comprehend the structure and functioning of the capital-
ist world political economy requires an analysis not only of
the priorities and interests of the multinational corpora-
tion but also of the manner in which these priorities and
interests interact with the functions of the state. Third,
an effort to elaborate the differing meanings and implica-
tions of the Marxian concept of surplus value and the neo-
Marxian notion of economic surplus. These distinct, yet
complementary, concepts are at the cores of their respective
Paradigms. In a nutshell, surplus value provides insight
into the imperative of accumulation and thus the relation—
ship between capital and the metropole state. Economic sur-
plus illuminates the contradiction between that which is and
that which could be produced in hinterland political economies
Penetrated by metropole based multinationals. (These con-
ceptions are developed at length in Chapter One.)

Finally, and most importantly, these intellectual com-
mitments are rooted in my opposition to the vast social and
economic inequalities which are such a marked feature of the
calPitalist world political economy. In fact, as this study
argues, inequality is inherent in the very functioning Of
this system. I believe that these inequalities are pro-
fWildly damaging to the free development of indiVidua1 and
SOCietal Potential in both metropole and hinterland alike.
Thus, my theoretical concerns for understanding the world
flow from and acquire meaning because of my COMitment to

Change that world. Without that commitment to change. my

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theoretical labor would risk becoming mere scholastic exer-
cise. In turn, my theoretical work both informs and inspires

my commitment to change.

I

The previous paragraphs were written in retrospect, as
a summary of this essay after it had been substantially com-
pleted. I did not, of course, begin this project with such
a coherent and well-ordered conception of where I was going
and the questions I wanted to ask. Instead, like all such
Projects, this one grew, each part evolving out of what I
had done before. In the following pages I will attempt to
outline the evolution of my thinking, moving from my initial
interest in and support for the Chilean struggle to construct
a socialist society to my eventual focus on the role of the
multinational corporation in the international political eco-
nomy 0f copper. After this summary of my personal develop-
ment, the remainder of this chapter is divided into two
Parts. First I present the organization of the essay as a
whole, outlining the questions and problems with which each
0f the following chapters is concerned. Then I discuss the
mEth°d°1°9Y and the sources of data which are involved in a
Project of this nature.

Given my Opposition to the inegalitarian structure of
capital as a world system, it was only natural that my SYN“
Pathies and hopes were kindled by the election of Salvador

Allende ‘30 the Chilean presidency in September 0“- 1970' Of

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course, I was also skeptical. There is, after all, a long
history of the failure of the electoral route to socialism
in Western Europe and the distorted face of socialist society
in Eastern Europe and the Soviet Union. And then there was
always the overwhelming counterrevolutionary presence of the
United States in the Western Hemisphere. Nonetheless, I
hoped that Chile might representa new break at the weakest
lhm.in the capitalist chain (see Hobsbawm, 1971 for a simi-
kn suggestion). Most importantly, the creation of a so-
cfialist society in Chile would have significance far beyond
<mm corner of the Latin American continent.

Chilean history does, of course, have its unique fea-
tures: The political structure is almost a paradigm case of
the link between class and political party; Chilean democracy
tms shown greater stability, fewer instances of military
intervention, and greater continuity than other Latin Ameri-
can nations; Culturally Chile has always been influenced
less by the U.S. and more by West Europe than much of the
remainder of the continent (Petras, 1970:chapters l and 9;
Pike, 1963:chapter 1; Silvert, l965:chapters 6 and 8). The
structural parallels with other dependent political economies
are at least as significant, however. Like much of the rest
of Spanish America, Chile had passed from a Spanish colony
to a British dependency in the nineteenth century. By World
War I the United States had replaced Britain for Chile as
for most of the rest of the area (Griffin, 1969:chapter 1).

Throughout these decades, it was Chilean mineral wealth--

5

rdtrate owned by the British and copper owned by the U.S.--
that was the key to Chilean dependency. It is this relation-
flfip, revolving around mineral exports under the control of
metropole based multinationals, which gives the Chilean ex-
;mriment such significance for other hinterland nations.
“me Girvan, 1970 for a discussion of this relationship in
Latin America . )

The gathering conflict between capitalist metropoles
«mm hinterlands over control, develOpment, and use of raw
nuterials may well be the defining fact of the capitalist
vmrld political economy during the last quarter of the
twentieth.century. The United States, Western Europe, and
Japan have relied on increasing imports of petroleum and raw
materials to sustain economic prosperity; these same mate-
rials now dominate the export earnings of hinterland nations.
Copper ranks high at both the export and import end of this
list (Barraclough, 1975; Jalee, 1969:chapters 1, 3, 5 and 6;
.Bfikesall, 1971b). At least until the 1970's, almost all of
these resources were controlled by foreign capital. The
direct private foreign investment of U.S. multinationals
gave that nation more than 50 percent of this foreign owner-
ship (Mikesall, l971b:3-6, 13). Thus, the multinational
corporation in general, and U.S. multinationals in particular,
are at the center of this conflict. The struggle over world
resources highlights the Operations of the multinational
corporation, its relationship with the metropole state, and

its impact on hinterland societies. What happens to Chile

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6
and Chilean copper has implications which go to the roots
of the present world gap between the rich and the poor. As
I came to see the Chilean situation in this context, I nec-
essarily shifted by vision to the two U.S. multinational
corporations which have been the decisive factors in Chilean
cmpper since the first decade of the twentieth century,
Anaconda Company and Kennecott COpper Corporation.

The conflict between Chile and the U.S. multinationals
is not only a case study of the world conflict between rich
and poor over raw materials, however. The outcome of the
conflict is also crucial for the success or failure of
(milean plans for deve10pment, where development means not
simply a growing GNP but rather "the happy coincidence of
suructural change and improvement in the human condition"
(Johnson, 1972:273). The high labor productivity of the
(LS. owned copper mines in Chile, the substantial proportion
ct Chilean state revenues drawn from taxation on copper, the
potential forward and backward linkages of the industry, and
the essential role that earnings from the export of copper
sflay in financing the import of capital goods make copper an
important source of the surplus that Chile must mobilize for
successful development (Girvan, 1972 provides a discussion
which underlines the significance of copper for Chilean de-
velopment). Here the relationship between Chile and the 0.8.
multinational corporations parallels not only other COpper
exporting hinterland nations but the raw material exporting

countries of the third world in general. Thus, from this

7
perspective also my attention was directed towards the U.S.
based copper multinationals.

At this point then, I had settled on the study of the
two copper multinationals, Anaconda and Kennecott, as the
organizing focus of my project. I saw that these firms, and
multinational capital in general, had two functions. They
served both as the key linkage between metropole and hinter-
land nations and as a major influence in the creation and
reproduction of dependent capitalist political economies
internal to the latter countries. The impact.of the multi-
national corporation on hinterland political economies is a
multi-faceted one: market fragmentation, regional inequal-
ities and political conflict, incorporation of some social
strata and marginalization of others, etc. (Meeropol, .1972;
Sunkel, 1973) . I needed a conceptual framework within which
to analyze these disparate strands. Here I turned to the
Works of Paul Baran (1957; 1966; 1969) and particularly to
his conceptions of actual and potential economic surplus.

The central problem which the multinational corporation pre-
Sents to the hinterland political economy is the contradic-
tion between the forces of production set in motion by the
milltinational and the relations of production inherent in the
internationalization of capital. Baran's economic surplus,
which emphasizes both how the total social product is used
and the gap between what is produced and that which could be

produced seems the best way to approach these issues.

8
At flrSt I thought that this formulation of my project
was complete, that the study of the U.S. COpper multination»

alS and their Penetration and restructuring of the Chilean

pontlcal economy was sufficient. However, as I worked on

the project in this form I became increasingly dissatisfied.
It was impossible to fully comprehend the functioning of the
multinationals at the general level--the drive towards diver—
sification, the struggles around the potential of underseas
mining, the parameters within which investment decisions

were made--without asking about the political economy of

U.S. copper and the functioning of the U.S. state. Nor was

it even possible to adequately analyze the actions of the
multinationals in Chile-~decisions on the expansion or cur-
tailment of production, resistence to Chilean demands for
the domestic fabrication of COpper, where Chilean copper fit

in the multinationals picture of the world-~without asking

similar questions. After all, I was arguing that the multi-

national corporation was a linkage mechanism. What the
multinationals link together are hinterland political eco—
nomies and metrOpole political economies. I needed to under—
stand the dynamics of the latter. I soon discovered that an
analysis of the functions of the metropole state was central
to this task and that it was only through this analysis that
I could understand the relationship between capital and the
metropole state, both abroad and within the geographical
boundaries of the metropole. In short, I had made two

further discoveries: that the study of imperialism and the

 

 

 

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study Of dependency complement each other (see Bodenheimer,

1971: DOS Santos. 1971; and Girvan, 1973 on this point) and

that the 5‘3de 0f either is rooted in an investigation of

the metr0p01e Political economy.

The central problem for multinational capital is growth,
expansion. This is simply shorthand for saying that the
supreme imperative for capital remains what it was in Marx's

day, the accumulation of surplus value. His commandment to

the nineteenth century entrepreneur, "accumulate, accumulate,
that is Moses and the prophets," is etched on the minds of
the managers and directors of the multinational corporation.
What has changed and changed decisevely since Marx wrote,
however, is the role of the metropole state in this impera-

tive. It was already clear to me that the metropole state

was not simply a disinterested observer when metropole cap-

ital ventured abroad. As I studied the development of the

U.S. copper industry--expansion, efforts at price stabili-
zation, the growing significance of planned research and
development—-it was obvious that the laissez faire state was
a thing of the past in the functioning of the metrOpole
political economy as well. Neither the state nor big capital
could be understood in isolation for each was dependent on
the other.

If I was not content with the liberal theory of the state
as referee, the independent enforcer of the neutral rules of
the game, neither was I happy with the model, which many

Marxists use, of the state as servant of the capitalist class

 

 

10

(Wolfe, 1974) . The reality of the political economy of
capper was more complex than either of these theories sug-
gests. It was at this point that I first read James
O'Connor's The Fiscal Crisis of the State (O'Connor, 1974).
While his project was quite different from my own, I saw al-
most immediately that the framework he developed for compre-
hending the contradictory tasks facing the state in the
metropole political economies was what I needed for an anal-
ysis of the relationship between the state and big copper.
The first function of the state, to aid in the imperative of
capital accumulation, manifests itself in state social capi-
tal expenditures, state outlays which reproduce or create
the conditions necessary for profitable capital accumulation.
The other, contradictory, function of the metrOpole state is
legitimation, mitigating the social costs of accumulation--
regional. inequalities, pollution, conflict with hinterland
rations over the control of raw materials. These state out-
lays O'Connor labels social expenses. Within this framework
the interests of the metropole state and multinational capi-
tal, while interdependent, are not identical. Each must be
seen as distinct actors with potentially divergent assess-
ments of the long and short term interests of industry, class,
and nation.

Perhaps the best way of summarizing the evolution of
this project is by suggesting a comparison between my focus
on and conception of the multinational corporation in the

capitalist world political economy and Max Weber's discussion

 

ll

of the medieval city (Weber, 1958:65-89) . He saw the city
of that era not simply as an economic marketplace but also
as a locus of political power which attempted to restructure
unapolitical economy of the hinterland. Flows of people,
(finds, and money were organized in a manner that furthered
the growth and development of the city, particularly the
rising merchant class whose power and existence were rooted
in that growth. The multinational corporation is also best
understood as both a political and an economic organization,
for its economic actions are also political decisions (see
Engler, 1961:3ff and Tanzer, 1970:20ff for a similar argu—
ment). It too restructures the political economies of the
regions it penetrates, subordinating their rhythms to its
own and its expansion nourishes the power of an emerging in-
ternational corporate class.

The parallels can be extended at least one step further.
The new merchant class of the medieval cities faced a dual
threat. On the one hand were the demands of the subordinated
urban and rural classes for a different version of social
order, demands which often produced revolutionary upheavals
and which were occasionally, although only temporarily,
realized. On the other hand, the city soon appeared as an
insufficient political economic base for the full develop-
ment of capital (Hibbert, 1965:208-228; Weber, 1958). Simi-
larly, the multinational corporation is faced with demands
for a new order from hinterland peeples and discontent with—

intflmametropole pOpulation. The new international ruling

 

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12
class rooted in the organizational structure of international
capital is already suggesting that the world of nation states
is an artificial restriction on the further development of
capital. In fact, the more articulate members of this elite
have made the parallel with the medieval merchants explicit
(Weissman, 1973). The medieval urban merchants finally
transcended the limits and threat of the medieval city
through the creation of the modern nation state. Whether
the new multinational bourgeoisie will be so fortunate re-
mains an open question (see Hymer, 1972a for an insightful
discussion of the contradictions besetting the development

of the multinational corporation).

II

The remaining eight chapters of this study are divided
into three parts which are organized around the differing
sets of questions_through which my thinking progressed.
Chapter One, which comprises the entirety of Part One, lays
the theoretical foundations for the succeeding chapters.
Here I deve10p and contrast the conceptual framework implied
in the concepts of surplus value and economic surplus. Part
Two, containing Chapters Two through Five, is concerned with
the nature of the metropolitan political economy of copper:
the patterns of uneven development by industry and region
within the metropole; the shifting relationship between
nmltinational capital and the metropole state: the conflicts

and coalitions between multinational capital, local and

 

 

 

 

l3

regiOrlal capital, and state agencies. In Chapters Six

throngh Elghtv Which comprise Part Three, I turn to an anal-
ysis 0f the copper multinationals, Anaconda and Kennecott,

and the Political economy of Chilean dependency: the forms
in whiCh the actual and potential surplus of the Chilean

political economy of COpper appear; the mechanisms by which
the corporate organization of multinational capital appro-

priates and redirects that surplus; the ties between indig—

enous classes, interests, the Chilean state, and the con—

tinued existence (and expansion) of COpper production under

the aegis of multinational capital. This organization of

my project reverses the chronological development of my own

thought, beginning with the political economy of the metro-

pole rather than that of the hinterland. As I suggested

previously, this is necessarily the case: dependent politi—
cal economies can be understood only within the larger con—
text of the expansion of metropole based capital and the
emergence of a capitalist world political economy.

Within this general framework, each individual chapter
is directed towards a particular problem and attempts to
answer several questions. Chapter One has a two—fold pur-
pose. On the one hand, as mentioned above, it provides the
theoretical underpinnings for the remainder of the study.
(hithe other hand, I consider it a small contribution in the
collective effort to create an alternative paradigm within

the social sciences, a paradigm which builds upon the poten-

tial of Marxian social theory (Blackburn, 1973; Review of

14
Radical Political Economics, 1971). Thus the chapter both
stands on its own but also raises several issues explored in
the following chapters. These two functions are brought to-
gether through a consideration of the following questions:
(1) What are the contrasts and continuities between Marxian
and neo-Marxian theory? and (2) What facets of advanced cap-
italism do the two perspectives illuminate? Of course nei-
ther of these questions can be treated exhaustively within
such a limited space. Rather I have approached both ques-
tions through an extensive theoretical discussion of central
concepts: surplus value in the case of classical Marxism
and economic surplus for neo-Marxian theory.

Here I will simply sketch my answers to these two ques-
tions (see also Barclay and Stengel, 1975). The central
continuity between surplus value and economic surplus is, as
might be expected, that both are critical concepts. That is
to say that each_strips away the veil of appearances woven
by everyday life and reveals the anatomy of the social order.
They do so in quite different ways, however. First, there
is a marked contrast in the level of historical generality
at which the conceptual net is cast. Surplus value is
specific to capitalism as a mode of production. Both actual
and potential economic surplus are applicable to a wide vari-
ety of social formations. From this contrast flows a second
one. While both concepts illuminate contradictions within
capitalist society, these are contradictions of a distinct

nature. Surplus value points to the social relationships of

15
class and Class struggle while economic surplus asks about
the pace and social rationality of economic growth. Thus,
the two concepts and the two paradigms focus on distinct
aspects of advanced capitalism. Each of these contradictions
is crucial to my focus on the multinational corporation as
the dominant organizational form of capital. Surplus value,
because it focuses on the social relationships of class, pro-
vides a grasp on the imperative of capital accumulation.
1Huee paths to the accumulation of capital exist, each of
which involves the multinational corporation and the metro-
pole state in a structured interdependence. Economic sur-
plus, because it inquires of the nature and direction of
societal growth (or lack of growth), provides a framework
for analyzing the multinational corporation as the linkage
tmtween metropole and hinterland and as the major determinant
of hinterland underdevelopment. Thus, the two conceptions
are complementary: neither can absorb the other. This com-
;flementarity probably arises from the differing roots of
classical Marxism and neo-Marxian thought: class conflict
and social change in the heartland of capitalism in the
first instance and a critique of the U.S. empire in the
second case.

Chapter Two, which introduces Part Two, is concerned
with three separate questions, my answers to which are in-
terwoven throughout Chapters Three through Five. While this
means that the chapter is perhaps the least integrated of

the study, all of the questions are within a broader problem:

16
the structure of the metropolitan political economy and what
is the place of the copper multinationals within this struc-
ture. This problem is approached by way of the following
questions: (1) What is the nature and roots of the sectoral
divisions within the U.S. political economy? (2) What is
the structure of the copper industry in terms of these sec-
toral divisions and what intersectoral patterns are demon-
strated by the industry? and (3) What is the relationship
between capital, both that of the monopoly and competitive
sectors, and the metropole state? Thus, this chapter moves
through successive approximations to provide a model for
analyzing the copper multinationals and the metropolitan
political economy.

In answering each of these questions, I have relied on
the framework provided by O'Connor (1974; see also Franklin
and Resnick, 1973 and Fusfeld, 1968) and the work of the
revisionist historians on the development of the political
economy of modern liberalism (cf Kolko, 1963; Radosh and
Rothbard, 1972; Weinstein and Eakins, 1970: Weinstein, 1968;
and Williams, 1966). Thus, I suggest that O'Connor's monop-
oly competitive sectoral division is rooted not in technology
but in the law of uneven development and the resulting social
relations of production. While competitive and monopoly
capital have a long term shared interest in the preservation
and expansion of capital as a system, their unequal partner-
ship in that system is the basis for several real conflicts

over the short term. A study of the c0pper industry within

h!

1‘!

.7-

In]

17

this framework reveals an additional facet of the monopoly/
competitive sectoral division: instead of running only be-
tween industries, it actually interpenetrates an industry
such as copper. (This provides further support for the argu-
ment that the sectoral divisions are social, not technolog-
ical.) Thus many of the igtgrfsectoral contrasts--vertical
integration/functional specialization, expansion/marginali-
zation, secular deterioration of wages--are internal to an
industry such as copper. Anaconda and Kennecott are, of
course, part of the monopoly sector within the industry.
However, their world and their political concerns also in-
volve numerous small producers. At both the general level
of the U.S. political economy and at the specific level of
the copper industry, then, a major role of the metropole
state is as the mediator of conflicts between different
groups of capitalists in the interest of the capitalist
class as a whole._ The metropole state has, therefore, a
hegemonic function, solving the problem of legitimacy.
Equally important is the state's role in capital accumula-
tion. Gabriel Kolko's conception of political capitalism
(1963) encapsulates these two functions, the relationship
between the state as instrument and structure and expansion
of capital.

”It is not enough to construct an abstract model and
provide an explanation of how it operates; it is just as
important to demonstrate the explanatory effectiveness of

such a model as applied to historical realities" (Furtado,

.. .1:-
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18
1964:l) . This is the task I undertake in Chapters Three
through Five. Here the histories of Anaconda and Kennecott
during the three decades 1944-1973 provide the empirical
test for the model of state and capital constructed in Chap-
ter Two which focuses upon the imperative of capital accum-
ulation. While these chapters consider the copper industry
as a test case for the model in general, I am particularly
concerned with several questions which are implicit or ex-
plicit within the model. Each is also the focus of a wider
debate among social analysts. How do the divergent interests
of monopoly and competitive sector capital manifest them-
selves within a particular industry and within the state as
structure? How are these interests mediated by policies
which enable the state to fulfill the contradictory func-
tions of capital accumulation and legitimation? Does the
metropole state itself develop any interests which diverge
from those of monopoly capital, i.e., how does the state as
structure differ from the state as servant of the capitalist
class? How are conflicts between monopoly capital and the
underlying population mediated by the state and how do state
agencies structure the demands for regulation within the
needs of the regulated? What relationship revails between
the metropole state and monopoly capital when the latter
goes "offshore" and how does this differ from the relation-
ship within the metropolitan political economy? To shed
light on these questions I have focused on five issues: The

setting of the rules of the game (the state as instrument);

19
the POliti-CS Of stockpiling and the ideology of national

securitY3 the efforts of big copper to externalize the dis-
economies of inter-industry uneven development through di-
versification: the social costs of capital accumulation by
big copper: and the management of foreign relations--involve-
ment of the metropole state in the interaction between Chile
and the copper multinationals. At this point it becomes
necessary to shift attention away from the nature of the
mfltinational corporation and the metropolitan political
economy towards the political economy of Chilean dependency.
This is the topic of Part Three.

Part Three is introduced by Chapter Six which explores
the roots of Chilean dependency and covers the period from
independence to the arrival of the COpper multinationals in
the years prior to WWI. The problem of the roots of depen-
dency in hinterland political economies extends considerably
beyond the Chilean case, however, and the debate over this
issue is intense. Three general positions can be distin-
guished (Dos Santos, 1971; Meeropol, 1972; Mikesall, 1971a).
The dominant school of thought has laid primary emphasis on
the social structure of hinterland societies in explaining
"underdevelopment." In Opposition to this view, others have
stressed external factors. More recently, a third school of
thought has synthesized these positions, linking the develop-
ment of the national social structure to the evolution of
the world capitalist political economy. In my discussion of

Chile as a case study of dependency, I have developed this

1|

20
third position, through the following three questions: (1)
What were the limits on Chilean deve10pment which flowed
from the C010nia1 export oriented political economy? Spe-
cificaIIY: What were the roles of mining interests, the
state, and the Chilean middle sectors in pre-twentieth cen-
tury dependency? (2) How did the arrival of the copper
multinationals in the first decade and a half of the
twentieth century both build upon and modify the nineteenth
century political economy of dependency? This question asks
about the nature of Chile's insertion into the emerging cap-
italist world market. (3) What was the basis for the pene-
tration and dominance of foreign capital--technology, or-
gmfizatirni, or financing? This question is central to the
debate over the world gap in economic deve10pment and the
:nfle of foreign capital in lessening or maintaining that
gap.

In answering each of these questions it is necessary to
bring together: (1) historical material on the Chilean
class structure; (2) a discussion of the international divi-
sion of labor produced by the metropole revolution in physics
and chemistry during the last third of the nineteenth cen-
tury; and (3) theoretical work on the interaction between
foreign enclaves and national political economies. Thus I
suggest that even in the late nineteenth century, a period
during which Chile appeared to be a rapidly developing soci-
ety, Chilean class structure contained the roots of depen-

dency. Furthermore the dependent relationship involved not

 

21

omhzthe interests and priorities of the propertied classes
mm.also the emerging middle sectors whose base was in com—
Immce and the state. Chile's reincorporation as a primary
gmoducer in the twentieth century capitalist world political
emonomy by the COpper multinationals consolidated a pattern
established earlier in the British owned nitrate production.
At the same time, however, copper as the mechanism of depen-
dency meant increased specialization and reliance upon a,
single commodity and on the industrial prosperity of a single
metropole nation. Further, the Chilean productive structure
was now geared towards demand in a high technology society
and thus output could not easily be shifted to other markets
if Chile attempted to cut the ties of dependency. Lastly,
the success of the copper multinationals was not based upon
either superior innovative or risk taking ability, but
rather upon access to financing on a scale available only
in a major metropole. It was this which made possible the
large scale mining of known deposits with known technology.

Chapters Seven and Eight attempt to answer, for the
Chilean case, a question that has been extensively debated
but seldom analyzed in a systematic, empirical manner: what
have been the costs to dependent political economies of pene—
tration by foreign capital? It is here that the concepts of
actual and potential economic surplus provide the most in-
sight in ordering the limited statistical and descriptive
material available. While these chapters focus on Chile as

a case study, I place the evidence from this particular case

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22
within the larger patterns of multinational corporate appro-
priéltion and Control over economic surplus (for differing
perspeCtiveS On the multinational corporation see Girvan,
1970: Hymer, 1972a; Mangff, 1969; Penrose, 1971; and

Vernon: 1971) . Thus the questions I ask concerning the re-

lationship between Anaconda and Kennecott on the one hand,
and the Chilean political economy on the other, have much
wider implications. What are the major mechanisms by which
the multinational corporation appropriates actual economic
surplus and what are the forms of potential economic surplus
lost to a dependent political economy such as Chile? Since
the multinational corporation is the modern parallel to
Weber's medieval city, how is the appropriation of actual
economic surplus and the loss of potential economic surplus
rooted in this organizational form of capital? Throughout
these two chapters I am also interested in a crucial com-
parison: how does the economic surplus lost due to the
hinterland/multinational corporation relationship compare
to the amount available for hinterland attempts to overcome
the problems of underdevelopment?

In examining the appropriation of the actual economic
surplus by the multinational corporation I consider four
mechanisms to be of prime importance: The flow of capital
between parent and subsidiary through reinvested profits
and repatriated earnings; the international division of
labor and the flow of royalties, fees, and costs of produc-

tion between metrOpole and hinterland; the enclave nature of

.
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23
foreign investment and the channeling of the multiplier
effect into the metropole political economy; and the ability
of the multinational corporation to allocate profits and

taxes between countries and processing levels through con-
trol over internal transfer prices. There are two organiza-
tional features of the multinational corporation which
determine the loss of potential economic surplus: (l) the
internalization of the capitalist world division of labor by
the multinational and (2) vertical integration across polit-
ical boundaries. The resulting loss of potential economic
surplus takes two forms: the growing disparity between
Chile's share of proved world copper reserves and her share
of copper output; and the locational decisions by the multi-
national corporation concerning processing facilities which
limit the forward and backward linkages available to the
Chilean COpper industry. The overall result of the relation-
ship between the multinational corporation and hinterland
societies is an intensifying conflict between the national
political economy of the hinterland and the international
political economy of the multinational. The stakes in this
conflict are substantial: when the loss of actual and po-
tential surplus is combined, it appears that Chile could
easily have doubled the economic surplus available for

growth during the 1950-1970 decades.

 

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24

III
The questions which I have formulated as the organiza-
tional fOCUS for each chapter necessitate a study in polit-

ical economy. By political economy I understand an analysis

in whiCh the institutional framework subsumed under the
demand and supply curves in orthodox economics, i.e., which
is held constant, becomes a central part of the analysis.
Thus political. economy is not simply a new name for economics
but symbolizes a coMitment to a holistic analysis, one which
integrates the disparate academic specialities of sociology,
history, and economics (Beckford, 1972:v-vi). Further, the
Marxian tradition of political economy is a critical one in
which the goal is the dereification of the social world (of
Marx, 1967 :Vol. 1, Chapter 1, esp. section 4). The method-
ology most compatible with this conception of political eco-
nomy and the problem I chose is that of historical-documentary
research. In this concluding section of the first chapter,
I briefly outline the application of this methodology to my
project. This discussion has two parts. First I raise some
general points about the meaning and interpretation of his-
torical materials. Second, I discuss in more detail the
strengths and weaknesses of the sources available for a study
of this nature.

The late C. Wright Mills once wrote that "every well-
considered social study...requires an historical scope of
conception and a full use of historical materials" (Mills,

1959:145). The use of such materials and such a conception

 

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25
is certainly the Core of a project such as my own. The
wwtrelaticnlS}liE> between history and the field of soci—
ologY has bee“ a subject of considerable debate, however.
The dominant POSition is perhaps best represented by the
combined PIOQUCt of a leading sociologist and (recently de-
ceased) hiStorian, S. M. Lipset and Richard Hofstadter. In
their book Sociology and History: Methods, (1968) Hofstadter
argues that sociology, through its emphasis on the skills
of quantification and conceptual generalization, can contrib-
ute to the scientific standing of history (see his essay in
Lipset and Hofstadter, 1968:1-16). Lipset's View nicely
complements this conception. He suggests that the task of
sociology is to create general propositions and that the
work of historians serves, in effect, as a master file. of
cases'by which sociologists can test these propositions (see
his essay in Lipset and Hofstadter, 1968:17-58). This ap-
proach to historical-documentary research carries over the
logic of sampling to the study of historical patterns and
historical change. However, as Moore argues, this procedure
has serious problems, for it risks "gains in logical rigor
and ease of manipulation..at the expense of..historical con-
tent" (Moore, 1963:80).

In contrast, I believe that it is more fruitful to con-
sider historical-documentary research as an attempt to "per-
ceive the general in the atypical or even the unique, re-
solving in this fashion the tension between universals and

particulars" (Moore, 1963:88). Thus, while the concern with

,..
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26
the relationship between the general and the particular re-
mains, this approach contrasts with that outlined above
which omits "more and more of the characteristics of what we
are studying until the residue is something approaching pure
form without content" (Moore, 1963:89). Historical-documen-
tary research, then, requires the use of concepts which re-
\mal structures when applied to history (Dobb, 1963zvii-
\dii; Mannheim, 1936:200-201). As my discussion in sections
1 and II of this chapter made clear, I have drawn my con-
cepts from Marxian and neo-Marxian theory. This theoretical
tradition of historical materialism, and thus the conceptual
framework I have drawn from it, is one of structure and func-
tion which posits a hierarchy of social phenomena and inter-
nal tensions (contradictions) in any social structure I
(Hobsbawm, 1973:273-274, 278—289).

Understood in this manner, historical-documentary re-
search in political economy requires the use of a multiplicity
of primary and secondary sources which are sifted and organ-
ized through a conceptual framework. The outcome is a re-
construction of the history which the researcher seeks to
illmminate, a reconstruction which is at the same time an
interpretation of that history. Further, the reconstruction
involved is necessarily incomplete; "everything that hap-
pened" can never be the goal of any effort to understand the
social world. Thus my approach to historical-documentary
methods differs from experimental and survey research. In

both of the latter cases, hypotheses are formulated, data is

27

collected. and then the analysis is undertaken. Research
using historical-documentary methods begins with a problem
and a set of questions and a conceptual framework by which
to tease out the answers to these questions from the avail-
afle materials. As a result, the gathering and the analysis
of information overlap, a characteristic this method has in
cmmmon with field or qualitative methods. Historical-
<kwumentary methods also share two further similarities
with field methods: *it is both difficult to codify and
nukes possible greater flexibility during the research pro-
cess than the more established research methodologies.

In carrying out my particular research project, I made
use of a variety of primary and secondary sources, some ob-
vious, some less so; some of immediate aid in my analysis
and some of which had to be used only with great care. Here
_I will comment on the types of sources I drew upon in a gen-
eral way before concluding with a brief discussion of some
which were of particular relevance to the central questions
cm my project. Perhaps the most widely used materials in
this project are the wealth of government documents avail-
able in most college and university libraries. These sources
provided information on a wide range of questions with which
I was concerned: congressional hearings and reports on par-
ticular industries such as copper covered the spectrum of
issues from price fixing to state programs to encourage in-
vestment and expansion of industrial capacity. Particularly

useful, once I abstracted from the ideology of the Cold War,

28

was the information published by state agencies concerned
with military preparedness and the strategic interests of
the state. The Business Services Administration's quarterly
journal Copper is a prime example of this type of source
mfierial. Similar publications are available for steel and
cmher strategic industries and could serve as a basis for
gmrallel research projects.

A second significant source of information was the
United Nations, particularly the Economic Commission for
Latin America (ECLA). My general impression is that re-
searchers have made insufficient use of the vast amount of
material, most of it of very high caliber, that the regional
agencies of the UN regularly gather and publish. Such pub-
lications include not only primary sources. At least in the
case of ECLA, the agencies regularly draw upon the talents
and the analytical abilities of the best social theorists of
the region and can thus be of considerable bibliographic aid
also. Without the material available through ECLA, many of
the questions I raised about the political economy of Chilean
dependency would have remained unanswered. Further, since
virtually all of their material is available in English, the
regional agencies of the UN may be of special aid to research-
ers whose knowledge of foreign languages is limited.

The third major source of primary information that I
drew upon was industry publications, both those concerned
with the mineral industry in general and those whose focus

was copper in particular. The latter included company

*—

   

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29
reports. Once again, this seems to be a very underutilized
source of information, perhaps because of the tendency to
either take such publications at face value or to dismiss
them altogether as pure propaganda. Of course it is with
muerial of this nature that the researcher must be most
cuitical and where the method of historical-documentary re-
search most closely parallels the effort of the participant
observer to construct an analytic description of social
reality (McCall and Simmons, 1964:4-5). The potential for
research through the use of industry publications is fantas-
tic, however, particularly for those interested in political
economy, and can even make use of the ideology within which
such material is cast. Let me suggest only one example of
a project toward which I felt a constant pull as I buried
myself in the experience of the Cold War years as seen
through the eyes of the mining industry. One could carry
out a fascinating study of the meaning of the Cold War--how
it affected perceptions of both world and domestic politics,
how it became the social cement of an era and delineated the
universe of discourse, and how policy makers in both public
and private spheres articulated and acted upon its assump-
tions--through a content analysis of a series of industry
publications such as the Engineering and Mining Journal
(gggl) and the "social commentary" found in most company
annual reports. Finally, as the discussion and references
in Part II of this chapter make clear, I also drew upon a

range of secondary materials. These varied from historical

 

 

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30
and sociological studies of Chile to economic and social
histories of the COpper industry and a selective sifting of
the recent flood of writings on the multinational corpora-
tion. In the latter case I was interested both in the range
of perspectives on the meaning of the multinational corpora-
tion and particularly in those works which tried to place
the‘multinationals in the perspective of the world political
economy of capital.

In general I made greatest use of the documents pub—
lished by the state and the mining industry in Part II of
this essay and those of the UN, supplemented by industry
publications, in Part III. The task I set myself in Chapter
Two, a sketch of the U.S. political economy as a whole, the
place of c0pper within that political economy, and the rela-
tionship between capital and the state required both the
conceptual framework provided by O'Connor (1974:1-12) and

the use of such primary sources as the Census of Manufac-

 

tures and Employment and Earnings. Chapter Two can thus be

 

thought of both as an outline of a conceptual framework and
as a small case study of that conceptual framework. In
Chapters Three through Five I relied most heavily on the
publications of the mining industry and the copper companies.
However, I was doing so not simply to provide an account of
how capital perceived the 1944-1973 era, particularly the
relationship between mining capital and the state. Instead,
I was using the information generally read only by the par-

ticipants within the industry-~mining engineers, company

 

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no...

 

 

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31
executives, officials of state agencies concerned with
mineral development--to test the framework for analyzing
tmestate budget which O'Connor developed from Marxian
flmory. There are some obvious difficulties with this pro-
cmhue and, as noted above, it was here that I had to be
Immt critical of my sources and the way in which they analyzed
awesocial reality which they reported. This was particu-
larly true when it came to examining the relationship be-
‘uMen mining capital'and the state. I discovered that the
(flder laissez faire ideology--where state and capital ap-

pear in opposition--remained dominant, even within the

 

pu_blications and speeches of big copper, well into the 1960
decade (see Seider, 1974 for a similar finding for big busi-
ness in general). However, the use of industry sources not
intended primarily for public relations was also as asset.

_ State actions. company responses, and even conflicts of
interest within the industry were much more clearly articu-
lated in M1 than might normally be the case (e.g., in con-
trast with annual reports). I emerged from this effort with
a much strengthened belief in the validity of my theoretical
framework for understanding the functions of the metropole
state. .

Here I should mention one other phenomena that I en-
countered repeatedly. Both individuals and institutions
usually articulate (and understand) their interests and
actions in terms of some ideology, or at least some rhetoric

of legitimation. In the early days of the Cold War, interests

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32
were often expressed with a frankness that is revealing--
even embarrassing--in retrospect. This is so for two rea-
sons. First, the Cold War universe of discourse of the late
1940's and early 1950's had not yet come under attack and
was thus neither as sophisticated nor as complex as was to
be the case by the latter 1960's. Second, once a particular
ideology has become delegitimized by subsequent events (in
this case the Indochina War, detente, and the cultural shift
of the 1960's) , the motives behind actions articulated with-
in its framework become more transparent. Thus, a historical
perspective on an era often reveals key relationships and
interests involved in political conflicts with a clarity
denied either to the participants or to the researchers
present at the time. This type of insight is one of the
strengths of historical-documentary methods of research,
, i.e., the ability to overcome the limits of studies of mil-
ieux (Mills, 1959:149-150).

Part III also required the weaving together of primary
and secondary sources of information. Chapter Six is once
again a case study that focuses on a specific issue, the
origins of dependency in hinterland political economies.

Here I-drew upon largely secondary sources on Chilean his-
tory filtered through the theoretical literature on depen-
dency. That is to say I was not seeking simply to give an
account of Chilean history but an account which links the

Chilean class structure to Chile's position in the evolving

Capitalist world division of labor. Once again I found a

t l
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33

little used government source to be quite helpful. In the
1950‘s and early 1960's the Department of Commerce published
a series of books designed to aid U.S. multinationals in
planning foreign investment. Whether the research staff of
multinationals ever makes use of these materials I do not
know. These publications do, however, contain valuable
historical information including some of the longest sta-
tistical series on such important political economic vari-
ables as foreign trade, foreign investment (including the
identity of the companies involved), output of foreign owned
extractive industries, and regional inequalities.

In Chapters Seven and Eight I faced the difficult task
of quantifying the actual and potential economic surplus
lost to Chile as a result of the penetration of U.S. copper
multinationals. At the same time, I wanted my discussions
of the mechanisms of economic surplus appropriation in the
Chilean instance -to be small case studies of the larger pat-
tern of conflict between national and multinational politi-
cal economies. Thus I wanted my estimates for Chilean loss
of economic surplus to be paralleled by estimates of the
dimensions of economic surplus appropriation by U.S. multi-
nationals as a whole. Here I made use of both UN and U.S.
data on foreign investment, supplemented by studies of the
multinational corporation which illuminate the link between
its organizational structure and the international division
of labor in the capitalist world political economy. ECLA's

yearly report on the Latin American economies, which contains

 

 

 

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34

summaries for individual countries, was also a basic source
here, providing much material not otherwise available.

Perhaps the best way to summarize this overview of the
methods and sources used in this project is by making a gen-
eral recommendation for graduate programs in sociology.
There should be a course or substantial portion of a course
in historical-documentary methods of research that is re-
quired or strongly recommended in every department. There
are both practical and theoretical reasons for such an ad—
dition to graduate programs in sociology. The library as a
source of information is greatly underworked in a discipline
that has increasingly come to see either the experiment or
the questionnaire as the model of research. In a time when
we are facing substantial cutbacks in research funding, his-
torical-documentary research represents an economical alter-
. native method.- However, my recommendation is based not
simply nor primarily on economy in research. There is a
distinct limit to what can be discovered through the experi-
ment or the questionnaire, a limit in terms of time and
place boundedness and in terms of social import. Historical-
documentary research—-the deceptively simple method of Marx
and Weber—-is essential to transcend these limits and to
realize the promise of our discipline: the sociological

imagination .

PART I

THEORETICAL FOUNDATIONS

 

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CHAPTER 1

ECONOMIC SURPLUS AND SURPLUS VALUE

From the vantage point of the rising laissez faire
cuder, the classical political economists attacked the ir-
najonality and exploitation embedded in the decaying feudal
mm.mercantile systems. Adam Smith put their case well when
macommented that landlords "love to reap where they have
mm.sown." Ricardo integrated this formulation into his sys-
thof political economy, defining rent as payment for "the
15a of the original and indestructible powers of the soil...
hepresenting]...no addition to the national wealth but
(merely a transfer of value" (Ricardo, l97l:9l,33l). Further,
mfith's concern with the needs for capital accumulation in
‘Um new system (Blaug, 1968:53) led him to a theory of pro-
<hmtive and unproductive labor which became a theoretical
weapon in the hands of the bourgeois class.

The labour of some of the most respectable

orders in the society is, like that of menial ser-

vants, unproductive of any value, and does not fix

or realize itself in any permanent subject, or

vendible commodity, which endures after that labour

is past...The sovereign, for example, with all the

officers both of justice and war who serve under

him, the whole army and navy, are unproductive

labourers...Their service, how honorable, how use-

ful, or how necessary soever, produces nothing for

which an equal quantity of service can afterwards

be procured...In the same class must be ranked,

some of the gravest and most important, and some
of the most frivolous professions: churchmen,

35

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36

lawyers, physicians, men of letters of all
kinds; players, buffoons, musicians, opera—
Singers, opera-dancers, etc. (Smith, n.d.:
315) .
Thus political economy was born not only as an attempt to
understand a new social order, but also as a critical anal—
ysis of a past order.
The classicists saw the imperatives of production and
capital accumulation which were the motors of the new
bourgeois society. However, with the partial exception of

Ricardo--whom Marx called the economist of production par

excellence--their vision was blurred when it came to the

 

analysis of the capitalist social relations structured by
these imperatives. Irrationality, exploitation, productive
and unproductive labor--these issues receded from the view
of political economy as the new order consolidated itself.
It was left to Marx to unravel the laws of motion of capital
and to inquire of the political economic category profit as
classical political economy had of rent--why does it exist?
Marx's answer, and the theoretical core of his critique of
capitalist society, was the concept of surplus value, a con-
cept which integrated the explanation of profits, interest,
and rent. Despite its early appearance in the history of
economic thought, however, this concept remained outside the
orthodoxy. Indeed the very questions that it sought to
answer were ruled illegitimate by the marginalist revolution
of the late nineteenth century. Although surplus value con-
tinued to be invoked by even reformist socialists and was

debated in the Marxist economic underground, it has had’

 

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37

little importance in academic economics. This has been
particularly true in the U.S. where Marxism has always been
weak. However, in recent years a new generation of U.S.
economists, particularly those associated with the Union of
Radical Political Economics (URPE) have taken up Marx's un-
finished task: the critique of capitalist society. But
they have done so with a different concept, that of economic
surplus.

In fact, economic surplus has emerged as the key con-
ceptual tool in a new paradigm for social analysis (Stanfield,
1973:l).1 Yet this has occurred almost by default. There
has been remarkably little discussion of either the concept
or its relationship to Marx's notion of surplus value. Both
of these are imperative if we are to continue the successful
development of a counter paradigm in political economy and
if we are to understand the strengths and limits of our
tools. This chapter is a first step in that effort and
consists of two parts. First, I discuss the meaning of
each concept, clarifying and comparing the theories of pro-
ductive and unproductive labor upon which each rests. This
task is relatively straight forward for surplus value, but
requires some selectivity when it comes to definitions of
economic surplus. I have chosen to focus on the work of
Paul Baran (1957, 1966, 1969) and Paul Sweezy (1966, 1974)
since they have been the central figures in the development
of the latter concept and are the authors usually cited

When the concept is used. In the second part of this chapter

.70: ‘he use

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38
ZIexplore the uses and implications of each concept, con-
cluding that both are insightful since they illuminate dif-
fiuent aspects of contemporary capitalist societies. Here
Ifocus‘on surplus value as a tool for grasping the dynamic
ofaccmmulation in capitalist societies and on economic sur—
phm as a way of viewing the loss of potential wealth and
wen.being of subordinate nations in an imperial system.
Tmsproblem of the accumulation of capital is the major
tmmm of my analysis of state and capital in Part II while
tie loss of potential for social and economic development
is the integrating thread in the analysis of the political

economy of Chilean dependency in Part III.

Definitions, Levels of Consumption, and Theories
of Productive Labor

Let us begin by considering Marx's definition of sur-

plus value :

The character and tendency of the process M-C-M
[money-commodity-money] is therefore not due to

any qualitative difference between its extremes,
both being money, but solely to their quantitative
difference. More money is withdrawn from circu-
lation at the finish than was thrown into it at the
start...The exact form of this process is therefore
M-C-M': where M' = M+AM = the original sum advanced
plus an increment. This increment or excess over
the original I call 'surplus value' (Marx, 1967:

vol. I, p. 150).

The "original sum advanced," M, includes both the variable
capital outlays, V, by the capitalist for the purchase of

labor power and the constant capital outlays, C, for the

means of production exhausted in the process of producing

 

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39
amecommodity. It does not, however, include the consumption
mulays of the capitalist and of unproductive groups in gen-
enfld All of this consumption is financed out of surplus
wflue, S. In a situation of simple reproduction, that is
ane the means of production and the labor power exhausted
amareproduced but no growth occurs, consumption on the part
ofunproductive groups absorbs all of the surplus value
cnmted. In expanded reproduction, some portion of S is.
aanmmlated for the purchase of additional means of produc-
tion and/or labor power (Marx, 1967:Vol. II, Chapters XX and
XXI) .

Surplus value is thus "the monetary form of the social
mnmflus product" (Mandel, 1968:90). Social surplus product
is not to be confused with economic surplus. In Marx's
flnmulation, social surplus product is the result of sur-
phm labor, that labor performed which is above and beyond
tmanecessary labor required to reproduce the producing
class and the means of production. Necessary labor, surplus
Jenny and therefore social surplus product have character-
ized a multitude of social formations:

Capital has not invented surplus-labour. Wherever

a part of society possesses a monopoly of the means

of production, the labourer, free or not free, must

add to the working time necessary for his own main-

tenance an extra working-time in order to produce

the means of subsistence for the owners of the means

of production, whether this proprietor be...Etruscan

theocrat, civis Romanus, Norman baron, American

slave-owner, Wallachian Boyard, modern landlord or

capitalist (Marx, 1967:Vol. I, p. 235).

Surplus value, on the other hand, is specific to societies

in which production for exchange value, of commodities for

 

 

 

 

40
market, is found. In fact,

The essential difference between the various eco-

nomic forms of society, between, for instance, a

society based on slave labour, and one based on

wage-labour, lies only in the mode in which this
surplus-labour is in each case extracted from the
actual producer (Marx, 1967:Vol. I, p. 217: see

also Vol. III, Chapter XLVII).

In turn, the "mode in which...surp1us labour is...ex-
tnmted from the actual producer" is the basis for Marx's
tmauy of productive and unproductive labor, a distinction
much underlies the entire conceptualization of surplus
vahmu Further, one of the major differences between sur-
gflus value and economic surplus is the divergent theories
ofguoductive and unproductive labor developed by Marx on
13m one hand and Paul Baran on the other. Initially, Marx
(flassifies labor as productive if it produces use values
Unrx, 1967:Vol. I, pp. 180-181). However, in class society,
mabe a productive laborer means to be linked through a
humorically developed social relation with those non-
pnflucing classes which apprOpriate the social surplus
pnfluct. ~Productive labor, then, is labor which contributes
H>the wealth and expansion of the ruling class in a partic-
tflar mode of production and to the wealth and expansion of
flat mode of production itself.2 Capitalism is, of course,
such a mode of production. Thus, in a society in which
capital is dominant .

our notion of productive labour becomes narrowed.
Capitalist production is not merely the produc-
tion of commodities, it is essentially the produc-
tion of surplus-value. The labourer produces, not
for himself, but for the capitalist. It no longer
suffices, therefore, that he should simply produce.

 

 

 

 

 

41

He must produce surplus-value. That labourer
alone is productive who produces surplus-value for
the capitalist, and thus works for the self-
expansion of capital (Marx, l967:Vol. I, p. 509).

Although later writers have sometimes confused the issue,
maxis explicit in his refusal to restrict the category of
productive labor to that labor engaged in the production of
tumnble goods or salable commodities. This conception is
achmlly closer to what Marx called "Adam Smith's Second
Eqflanation: the View of Productive Labour as Labour which
isiRealized in a Commodity," an approach which Marx criti-
cized in Theories of Surplus Value (Marx, 1969:156-170; see
also Gough, 1972:52 on this point). Marx drives home his
formulation in both general terms and with specific illus-
trations of labor outside the sphere of goods production
inn:which also creates surplus value. Thus, the definitions
ofgmoductive and unproductive labor

are therefore not derived from the material char-
acteristics of labour (neither from the nature of
its product nor from the particular character of
the labour as concrete labour), but from the
definite social form, and social relations of pro-
duction, within which the labour is realized (Marx,

1969:153).

An actor, for example, or even a clown, according
to this definition, is a productive labourer if he
works in the service of a capitalist (an entre-
preneur) to whom he returns more labour than he
receives in the form of wages; while a jobbing
tailor who comes to the capitalist's house and
patches his trousers for him, producing a mere use
value for him, is an unproductive labourer. The
former's labour produces a surplus-value; in the
latter's, revenue is consumed (Marx, 1969:153).

If we may take an example from outside the sphere
of production of material objects, a schoolmaster
is a productive labourer, when, in addition to be-
labouring the heads of his scholars, he works like

 

 

 

 

42

a horse to enrich the school proprietor. That the
latter has laid out his capital in a teaching fac-
tory, instead of in a sausage factory, does not
alter the relation (Marx, l967:Vol. I, p. 509).

Fm:Marx, this definition of productive labor as embodied
intme distinction between the clown and the jobbing tailor

also establishes absolutely what unproductive
labour is. It is labour which is not exchanged
with capital, but directl with revenue, that is,
with wages or profits (including of course the
various categories of those who share as co-
partners in the capitalist's profit, such as in-
terest and rent) (Marx, 1969:153).

 

{Hus brief account does not, of course, exhaust Marx's theo—
retical development of the concept of productive and unpro-
chxmive labor as the basis of the expansion of capital
tjuough the appropriation of surplus value. Nevertheless,
‘U)summarize, while the line between productive and unpro-
chxmive labor may be difficult to draw in practice, it is
mnweptually clear. In the second portion oftfifisschapter I
dmmmstrate that it is this conceptual clarity which gives
tmaconcept of surplus value its analytical strength as a
tmfl.for grasping the dynamic of accumulation in the capi-
tafist social order.

Before concluding this discussion, two final points
mmt be made explicit. First, unproductive labor should
mm be confused with unnecessary labor since "labor may be

Imcessary without being productive" (Marx, Grundrisse,

 

(muted in Baran, 1957:33). That is to say that labor such
am is involved in the sphere of circulation or in the mech-
musms of social control, may be necessary for the function-

fig and preservation of a given social formation even if it

 

43
ribute to the social surplus product. Second,
1y emphasizes

designation of labour as productive labour
lutely nothing to do with the determinate
of that labour, its Special utility, or the
ar use—value in which it manifests itself
969:389).

"they produce dum—dum bullets, opium, or por-
els, workers produce new value" (Mandel, 1968:
therefore productive laborers. Socially bene-
cially harmful goods are equally likely to be
f capital's thirsr for surplus value. In my
scussion it will become apparent that the re-

y consideration of the nature of the goods

he categorization of labor as productive or

is a second major distinction between Marx's
rplus value and the concept of economic surplus.
ecapitulate. I have now analyzed surplus value
ically specific form of the social surplus
capitalist society, indicated that the consump-
ductive groups, but not of productive laborers
n the concept, and examined the historically
ction Marx draws between productive and unpro-

I now turn to a paraflel discussion of eco-

an and Paul Swezay's Monopoly Capital is un-

.. ~_‘-

 

best known and most often cited source for

e concept of economic surplus. Despite the

the concept to that work, however, the only

‘ "I ‘..r
‘1...”

 

 

44
definition offered is "the briefest possible [one]...the
(fiiference between what a society produces and the costs of
guoducing it" (1966:9). The subsequent addition of the
mmlifying phrase "socially necessary" (which is nowhere
(fiscussed) to the notion of the costs of production only
mus confusion. While there is not space to consider all of
Um resulting difficulties in detail (see O'Connor, 1966 and
fimnfield, 1973:Chapters 1 and 2 for an analysis of some of I}
the problems involved), I will list the major ones: (1) “‘”
This definition combines output categories with income flows,

a problem which is apparent in the statistical appendix that _‘ ‘

 

develops empirical estimates of the economic surplus. In ;
arriving at these estimates categories of output such as
total government expenditures are added to income categories
smfllas total property income: profits, rent, and interest
(Stanfield, 1973:86 makes a similar point in a different
unmext); (2) The inclusion of the entire budget of the

mate sector in the category of economic surplus is an "un-
umml assumption for Marxists to make...If the main seats of
Mate power are occupied by the corporate oligarchy, then
state spending must serve ruling class interests. Thus, in
the absence of government financial programmes, the corpor-
ations themselves would be compelled to maintain utilities,
transportation facilities, the health of the work force, and
so on" (O'Connor, 1966:46): (3) Under monopoly capitalism
the total product and mode of surplus utilization are not
independent of each other, e.g., some of the new cars pro-

duced each year would probably not be made if surplus were

 

45

1 through the sales effort; and (4) the same is
:al surplus and mode of surplus utilization,
iry spending which creates jobs vs. foreign in-
Lch returns as pure surplus.

ttely Baran and Sweezy offer a path out of the

liCh plagues the Monopoly Capital formulation of

 

rplus. In a footnote, they refer to Baran's

 

1 The Political Economy_of Growth (1957) "[f]or “a 5

’f the concept" (1966:8), implying that their . “"

1nd use of the concept does not significantly '

that earlier work. The very brief discussion éi
I!

 

Capital (1966:9-10) which emphasizes the size
:ion of the surplus as an index of the produc-
lumaneness of a society also seems fully consis-
Lran. Following this suggestion, I believe that

rplus as used in Monopoly Capital can be under-

 

: difference between actual output and essential
Actual output is, of course, an easily under-

lantity. Essential consumption is analyzed in

.on of potential economic surplus below which

fan's earlier works.

Lran first distinguishes actual economic surplus

1 identical definition of the concept in both

and in his later book The Political Economy of

 

'). "Actual economic surplus [is] the difference
.ety's actual current output and its actual cur-

:tion" (1957:21). There is no great conceptual

46

ere and in fact the actual economic surplus is
to measure even with the statistics collected
t states. Baran himself goes on to equate it
saving and in a footnote (1957:22) says that
hat part of surplus value that is being accumu-
s it excludes the surplus value that goes into
ion of capitalist and other unproductive classes
t portion appropriated by the state. In the or-
formulation, actual economic surplus is equal to
of I which is net investment.

of its simplicity and closeness to more ortho-
ions this version of economic surplus has not
e most attention nor been the most controversial.
a concept restricted to the effort to build a
digm for social analysis (see for example
:~Turner, 1941; Wolf, 1969). The strength of
of actual economic surplus is its focus on the

a society makes use of the resources available
stment. This same focus also limits the con-
r, since it ignores the difference between what
available for economic and social development
Id be available in any given society. Thus, it
ncept within the parameters of the existing

. Use of this concept as the only tool of anal-
alling into what Harvey calls "hopeless rela-

3:219), an abrogation of the critical intelli-

is supposed to inform social analysis.

‘1‘ J
L P».

 

v_- 1

1

 

 

an

sil-

 

47

notion of potential economic surplus is an
Jercome these limitations. He begins his
:ussion of this concept by defining it as
Eerence between the output that could be

i in a given natural and technological

ment with the help of actually employed

Lve resources and what might be called

11 consumption (1969:273).

is definition slightly in The Political Economy

 

1bstituting "employable productive resources" :3
I employed productive resources." The result of
in wording is to add "the output foregone owing

ence of unemployment caused primarily by the

 

apitalist production and the deficiency of effec-
(l957:24) to the three headings under which po-
>mic surplus was seen to exist in his earlier
short he has now added output lost due to
employment to the category potential economic
IS, potential economic surplus is the sum of
aption, output lost through the existence of un-
>rkers, output lost because of the irrationality
less of the prevailing economic organization,
>st due to Keynesian unemployment (Baran, 1957:
;h Keynesian economic theory was a product of

E metrOpole capitalism and its economics, what

: idle industrial capacity, lack of effective
irrationality of agrarian structures in the de-
:alisms of the third world suggests that this
Lle modification of the concept for a grasp of

3
of the hinterlands of World capitalism as well.

 

‘W

 

 

48

' to grasp the similarities and differences be-
»ncept and surplus value, there are two ques-
’equire further discussion-~the idea of essen-
.ion and the theory of productive and unproduc-
.ich underlies the concept of potential economic
’ Baran the meaning of essential consumption is
of real income necessary for what is considered
'elihood'" (Baran, 1969:277). This is similar F1 r
.er political economist who uses a slightly dif-

»t of potential economic surplus defines as

 

rntial production: g i
(mum amount of production required to main-
(growing) population at a standard of
,ecessary to its survival. It includes
'duction contributing directly to the es- -
consumption of the population and produc-
;uired to replace whatever capital stock
.atural resources are used up in the pro-
:isskopf, 1972:366).
empirical determination of essential consump-
.ifficult (See Stanfield, 1973, for an effort
BLS budgets), the idea is theoretically clear.
L on to point out, some effort at such a deter-
.ften made by the state in times of war and
;is (Baran, 1957:30).
.her clarification we can compare essential
.o the level of consumption in Marx's model of
Luction. The historically determined consump-
productive labor force, the amount set aside

the means of production exhausted during the

'ocess and the surplus value needed to support

 

 

49
twacapitalist and other unproductive classes at the same
]ewfl.of "decent livelihood" as the producing classes are
allincluded in the concept of essential consumption. The
mnqflus value which goes into the consumption of the capi-
talim:and all other classes4 above the level of a decent

livelihood is part of the potential economic surplus, how-

ever.
The theory of productive and unproductive labor that .1
t.

Baran uses in his diScussion of potential economic surplus

I l JR" :-

is less clear. He defines unproductive labor as:
all labor resulting in the output of goods and ‘"
services the demand for which is attributable to
the specific conditions and relationships of the
capitalist system, and which would be absent in
a rationally ordered society. Thus a good many...
unproductive workers are engaged in manufacturing-
armaments, luxury articles of all kinds, objects
Of conspicuous display and marks of social dis-
tinction. Others are government officials, mem-
:bers of the military establishment, clergymen,
(lawyersv.advertising agents, brokers, merchants...

(Baran, 1957:30-31).

were (are two significant differences between the productive/

 

1;;

unproductive conceptualization of the 1952 article and this

defiJtition taken from The Political Economy of Growth, pub-

hshedi in 1957. (1) In his earlier article Baran mentions

in passing workers "who are engaged in the PrOduCtion Of
“Wkwesgéntial goods" (1969:277), but his discussion is cast
solely in terms of those workers "not directly related to
the process of production" (Baran, 1969:277). Thus. exam-
ples given are physicians, artists, advertising agents,

galmjblers, etc. but none of the labor force in manufacturing.

H
oweV’er, as the above quotation demonstrates, certain groups

 

 

.In

 

50
of manufacturing workers are explicitly included in Baran's
1957 discussion of unproductive laborers. (2) Second, there
is his treatment of what might be called the "socially use-
ful" professions--scientists, physicians, teachers. In his
first discussion of the concept of potential economic sur-
plus, Baran classifies the people in these professions as

unproductive workers. When he revised the concept for The

J

Political Economy of Growth, he explicitly excludes these

groups from the category of unproductive labor. He does so “'1‘

on the grounds that the demand for their labor "would become

multiplied and intensified to an unprecedented degree" in a '

is"
a»

 

"rationally ordered society" (Baran, 1957:33) . Even though

these services are socially useful and would be expanded,
he nevertheless characterizes these groups as "supported by
the economic surplus" (1957:34) . Thus, despite his step

’ away from Marx's formulation of productive and unproductive
labor, Baran seems unable to abandon it entirely, and his
own S(:hema remains somewhat ambivalent.

Once again it is useful to compare this conceptualiza-
tion with the productive/unproductive classification devel-
Oped by Marx. The central difference is as follows: Marx's
clas'Sification of productive and unproductive labor is
firmly rooted in a historically specific theoretical anal-
Ysis of a given mode of production. Productive labor con-
tributes to the wealth and power of that society and thus to
the Wealth and power of the ruling class. Baran, on the

other hand, specifically rejects this approach to the issue:

—

 

 

51

what is productive and what is unproductive labor

in a capitalist society cannot be decided by ref-

erence to the daily practice of capitalism...the

decision has to be made concretely, from the

standpoint of the requirements and potentialities

of the historical process, in the light of objec-

tive reason (Baran, 1957:32; see Baran, 1969:275

also).
Thua,except to the extent that the level of "essential con-
sumption" is historically variable, productive labor for
Baran remains a historical category. Further, as a result
of his focus on irrationality and waste, he approaches the n?
theoretical question of productive and unproductive labor I
through an analysis of unproductive labor in specific modes ;

I"! Y
0f production with productive labor emerging as a residual E3
category. Marx develops an analysis of productive labor and
SOCial growth so that unproductive labor is the residual

Several other distinctions flow from this difference in

’u."

‘3“mCEEnualization. First, and most obviously, some workers
thnl are productive in Marx's schema are unproductive for
Bazul and vice versa. Examples of the former would be those
engaged in the production of sophisticated alarm systems for
Um Errotection of factories, in the manufacture of new-
fmxfiled potato chips, and in the creation of luxury goods
ku‘czapitalist consumption. The latter, those productive
for Baran but not for Marx, could include family farmers,
artiSts, and independent professionals. Since the work of
both authors was part of a critique in praxis of capitalist
Society, this distinction is of more than purely theoreti-

Cal interest. Socialists have often argued that those

—

 

4

 

52

emmged in productive labor have the greatest potential for
ckms consciousness and thus should be the focus of social-
istpmlitical activity. Thus, different conceptions of pro-
munive labor have direct implications for socialist strat-
egy. (On this point see Cherry, 1973:60—65 and Gough, 1972:
71-73). Secondly, Baran's statements to the contrary not-
withstanding (cf Baran, 1957:33 and 1969:275), nobody in his
model can be said to "live off the surplus" since essential
consumption of all individuals is defined as outside the po-
tential economic surplus. Of course, some groups--and to
smme extent these are Baran's nonproductive groups--consume
more of the surplus than others, that is to say that excess
ccmSumption is differentially distributed. In Marx's model,
or'the other hand, unproductive groups do live entirely off

Um sOcial surplus product. Finally, for Marx, those who

‘*—uve<3ff the-social surplus product are not productive

” “erzrs. In Baran's analysis, however, some peOple who are
“Tpoisted largely from the potential economic surplus may
ago 13a productive workers, e.g., doctors or teachers.
IXfter considering these differences of conceptualiza-
ti“on: I have decided to use the discussion and definition
ofactual and potential economic surplus in The Political
BEEEflmy of Growth as the basis for my own analysis through-
out'the remainder of this chapter and for the study of the

political economy of Chilean dependency in Part III. There

a O I O 0
re three reasons for this chOice. First, as the prev1ous

d .
18cussion has indicated, these are by far the most powerful

 

 

a.

.1- H

 

53
ofthe different concepts of economic surplus that Baran
amiSweezy have developed. Second, they are also the most
mnweptually rigorous. Although Baran had already devel-
opaihis own theory of productive and unproductive labor at
the time of his 1952 article, he still remained at least
partially under the spell of the analogous Marxian cate-

gories. This accounts for some of the confusion in the

earlier discussion. Finally, as already noted, this same I1
book is the referenCe cited by Baran and Sweezy themselves y

at the end of their brief discussion of economic surplus in

 

fiygmmly Capital, indicating at least some satisfaction with 1

tihat version of the concept of economic surplus.

Discussion and Critique
(Dn the few occasions that either Paul Baran or Paul
””-&mezy'havevdiscussed the relationship between economic sur-

Mus 61nd surplus-value, they have always stressed the con-
hnuii:y and similarity between the concepts. Baran's foot-
rmteS» in The Political Economy of Growth (1957:22 and 23)
suggest that the difference involved is a quantitative rather
that a qualitative one. Thus he states that potential eco-
nomic surplus

excludes such elements of surplus value as...

essential consumption of capitalists, what could

be called essential outlays on government admin-

istration and the like; on the other hand, it

comprises what is not covered by the concept of

surplus value--the output lost in view of under-

employment or misemployment of productive re-
sources (1957:23).

—

 

54
In Monopoly Capital the two concepts are linked even more
directly. The authors justify their choice of economic
surplus as their major theoretical tool by arguing that "in
a highly developed monopoly capitalist society, the surplus
assumes many forms and disguises" other than the sum of
profits, interest, and rent with which surplus value "is
probably identified in the minds of most people familiar
with Marxian economic theory" (Baran and Sweezy, 1966:10) .
Recently, Sweezy has reiterated the argument of continuity
between the two concepts. "At no time did Baran and I ex-
plicitly or implicitly reject the [Marxian] theories of value
and surplus value but sought only to analyze the modifica—
tions which became necessary as the result of the concen-
tration and centralization of capital..." (Sweezy, 1974:32) .

Nor have Baran and Sweezy been alone in this belief in con-

».._Ceptua1 continuity. Several other writers, e.g., Nicolaus

(1969309410) and Gough (1972:72) have accepted this claim
of continuity in their own comments on the concept of eco—
nomic surplus.

However, as the discussion of the two concepts has al-
ready demonstrated, they rest upon quite divergent theories
of Productive and unproductive labor. This divergence flows
from the radically different use of historically rooted
Categories in the two concepts. Equally important, potential
ecorlomic surplus, through its stress on the output lost due

1: . . . . .
0 the wastefulness of the ex1sting soc10economic order, in-

cludes an institutional critique which is absent from the

 

 

 

i

m

 

55
concept of surplus value. It seems that, just as Baran's
theory of productive and unproductive labor remained par-
tially under the spell of the analogous Marxian categories,
so the two authors did not fully realize the distinctive
nature of their new concept. Rather than merely extending
surplus value to the conditions of monopoly capitalism,
Baran and Sweezy, along with subsequent analysts, have de-
veloped a conceptual tool which has different uses and il— F.

luminates different facets of the reality of advanced capi-

talist societies. None of this is meant as a denial of

 

Sweezy's insistence that he and Baran never rejected the 4:
theory of surplus value but rather to point out that the L:
same theoretical framework cannot be the basis of both sur-
PluS Value and economic surplus. Instead, I am suggesting
that the usefulness of the new concept exceeds that of sur-
.-_plus Value on »some dimensions, but is more limited on others.
Perhaps the best way to approach these issues is through
the divergent uses of historical categories. The most
Striking difference between the two concepts is the histor-
ical generality of economic surplus and the historical spe-
cificity of surplus value. In his earliest discussion of
e“nomic surplus, Baran (1969:280-285, 291-294) applies the
concept to modes of production as varied as the prehistoric
Middle East, the Roman Empire, feudal Europe: and the con-
ter“porary United States. Five years later, in The Political

E .
%y of Growth, economic surplus is used to analyze a

w' _ .
lde range of non-Western societies while Monopoly Capital

—

 

56
:e, an affort to understand the U.S. political
1 economic surplus the major conceptual tool.
' hand, as I have already demonstrated, in Marx's
.us value is the monetary form of the social sur-
.. Thus it exists only in modes of production
.ge value appears. This limits the concept
lhe analysis of the capitalist mode of production
'plus value may also be found on the margins of
.t societies, particularly where the monetariza-
' distance trade has occurred. The reason for
.ion is that, like all of Marx's concepts, sur-
‘5 relational (Ollman, 1971), that is to say that
L a particular social relation, a dialectic, be-
:ers and non-producers. I
national or dialectical nature of surplus value
.most clearly by placing it in the context of
'sis Qf the labor process and the rise and de-
lode of production. For Marx the social rela-
a labor process were the fundamental element in
z of any mode of production since they distin-
specific mechanism by which surplus labor was
.f the producing classes by the non-producers
'3:226). Thus, it is only under the capitalist
[notion that free wage-labor meets capital in the
'ther, Marx saw that this freedom of the laborer

as: freedom to dispose of one's own labor time

 

Lied by freedom from any claims on the means of

 

 

.7;
.
L'Xlu
C

 

 

l
.

~01

"I

57
mnmistence except that which could be purchased in return
fin'the sale of one's own labor power. The latter freedom
ensured that the former would be exercised, or, as Edmund
make was the first to make explicit, the whip of hunger
wmfld.force the laborer into the market to seek employment
fnmlcapital (Polyani, 1944:116-117). It was on the basis
ofthis sociological condition--which "comprises a world's
Ifistory"--rather than the economic model of equal, autonomous
amyms who meet in the market, that Marx constructed an en-
thm critique of political economy (Horowitz, 1970:156-158).

The employment of the laborer by the capitalist results

 

inthe production of surplus value while the aggregate of
imfiyidual surplus values describes the relationships be-
Ummlthe capitalist class as a whole and the proletariat
asiiwhole. It is in fact the labor of the individual pro-
-_1eUHian that-creates the individual capitalist just as it
‘iistme labor of the collective proletariat that produces
theeapitalist class. Thus the dialectic is both micro and

macro:

...[C]apital presupposes wage-labor and wage-labor
presupposes capital. They mutually condition one
another; they mutually bring each other into exis-
tence...[C]apita1 and wage-labor are the two sides
of one and the same relation. The one conditions
the other (Marx, 1948:38-39).
&mdlar1y, the conditions necessary for the existence of the
capitalist are those which call into being the proletariat.
Surplus value thus strips away the veil of appearances woven
by the interaction of commodities, of things, in the market
and reveals the labor process, the social relations of pro-

duction (see Marx, 1967:Vol. I, pp. 71-73).

 

 

58

The concept of economic surplus, in contrast, is built
Imither upon the labor process nor upon any other social
relation. It is defined in the aggregate, for society as
ammole, and cannot be represented as the sum of the sur-
gfluses created from the social relations of individual la-
uners and capitalists. Clearly the output lost due to the
hrationality and wastefulness of the prevailing social
mfler is not appropriated since it is never produced, thus
Here is no social relation involved. Thus, the dialectics

ofgmoduction, exploitation, and class conflict, integral

toany class based mode of production, are virtually ignored.

hmMonopoly Capital, for example, the use of this concept
lemms us with a contradiction of monopoly capitalism, the
temmncy of the surplus to rise, that is a contradiction
Wifimut an agent and therefore moves in a void. The lack
- -Ofan internal contradiction which drives the system forward
iSunderlined_by-the very language used when the economic
Sumflus is discussed. Both authors repeatedly write of
"Smfiety" doing this, or of economic surplus as an index
Of"society's" ability to do that. In fact, when Baran
inupduces his discussion of economic surplus, he does so
hiterms of an analysis of "comparative statics" which "ig-
rmre the paths of transition from one economic situation to
another" (1957:22; see also 1969:273).

Yet there is a dialectic involved in the concept of

economic surplus, a dialectic that Baran himself explicates

when he writes

 

 

59

tegory of potential economic surplus itself
ends the horizon of the existing social
relating as it does not merely to the easily
able performance of the given socioeconomic
zation, but also to the less readily visualized
of a more rationally ordered society (1957:
phasis added).

 

 

rplus is thus a product of Baran's lifelong strug—
ire reality by reason, "to point out the...dis-
tween the objective capacity for the creation of
ne social order and the socio-political struc-

h maintains itself as a system of social imbalance
nality: (O'Neill, 1969:XXVI). The dialectic which
roots of the concept of economic surplus emerges
arcusean one, the tension between the is and the

sen that which exists and that which could be.

, while surplus value goes behind the appearances
at to a deeper level of social relations, econom—
transcends these appearances, going to the plain
son.5

, what Baran has done is not, as a recent and
Jite useful article by Ian Gough suggests, to
historical viewpoint which Marx utilized to
rkers in the circulation process from production
Jugh, 1972:67) to the categorization of all pro-
unproductive labor. Instead, he has chosen a
that is intellectually outside the prevailing

c, that is unencumbered by its values...and...

3 critical insight into that social order's con-
6
and hidden potentialities" (Baran, 1969:275).

 

4-_4.—- .-

 

 

60
Mae we have a paradox. It is precisely this position out-

fide of history which enables Baran to make historical cate—

 

 

mmizations of productive and unproductive labor, illumi—

 

rmting the irrationality of a given social order. This

flmus on irrationality has given his work, and that of his
aflleague Paul Sweezy, much of its moral and political force.
mlthe other hand, it is this same position that turns
&uan's conception of economic surplus into merely a cate—
mny of political ecOnomy rather than also a social relation
ofexploitation as in the case of Marx's own conception of
suqflus value. At the conclusion of this chapter I will try
tosuggest some of the larger socio—historical reasons for
this difference .

At this point the discussion has laid the basis for the
(mnfideration of the strengths of each of the concepts as
.r-flmmestrengths bear on the analysis in Parts II and III of
"thnsessay. hefore proceeding, however, it may be worth-

Whfle summarizing the argument to this point. First, al-
thmmh Baran and Sweezy themselves insisted on the similar-
itkm between economic surplus and surplus value, I argued
thatan examination of the divergent theoretical bases of
tMatwo concepts called into question this claim. I then
Ingan to consider precisely how the two concepts differed,
fbcusing on the historically specific nature of surplus
value and the ahistorical nature of economic surplus. I

next demonstrated that the historical specificity of surplus

value was rooted in a social relation and dialectic peculiar

 

 

61
to the capitalist mode of production, the confrontation of
capital and wage-labor in the market. Thus the concept is
cum of change, an attempt to grasp the dynamic of an entire
qmch. .Economic surplus, on the other hand, is located not
huany social relation but in a dialectic of reason which
adsts outside of, or beyond, history. This dialectic of
‘Uwught is the origin of both the strengths and limits of
Um concept. Now we are ready to turn to an examination of
muplus value as a way of understanding the central impera-
thm of the capitalist mode of production, the accumulation
ofcapital. Then I shall discuss economic surplus as a con-
cqmual tool for the analysis of the relationship between
pofitical economic units in a system of dominance and sub-
onfination. The final pages of this chapter are devoted to
a mmiology of knowledge consideration of the two concepts.
"The fundamental problem to which Marx's sociology was
“amnessed was the_systematic explanation of structural
<mmmes generated by the very inner workings of capitalist
Smfieties themselves" (Balbus, 1971:37). The concept of
SIlr‘plusvalue is these "inner workings" in a nutshell and
i‘tpoints to the central law of motion of capital as a sys—
tem “Accumulate, accumulate, that is Moses and the Proph-
ems." This is the dynamic which has driven the capitalist
nmde of production forward from its origins in a few twelfth
century Italian city states (Cox, 1959) to become the world

system of the twentieth century. To this dynamic all else

is subordinated. The accumulation of surplus value is, of

 

 

 

 

62
cmurse, based on the accumulation of productive labor. This
istrue at all three levels: the biography of the individual
cantal, the social structural level of capital as a class,
mm.in the history of the capitalist mode of production as a
wmfle. Marx's injunction, like the dialectical social rela-
tnnlupon which it is built, is an imperative that operates
mzboth the micro and macro levels. In each case, to fail
Unexpand means to decline and eventually to be absorbed by
anther, stronger, unit of capital. It is within the para-
mfiers of this imperative that capital allocates surplus
vahm to waste, consumption, and reinvestment. The latter
cmuse is crucial for it is through the reinvestment of sur-
Eflusvalue that capitalist society moves out of the situa-
timlof simple reproduction and into a process of expanded
rqnoduction which in turn makes possible the continued ac-
~,Cmmuation of—capital for the further expansion of repro-
” duction.

In surplus value terms we may distinguish three paths
tothe accumulation of capital. (1) The amount of surplus
Vahm extracted from a given quantity of labor power may be
imneased, that is the rate of surplus value rises, while
tMBamount of capital employed remains constant; (2) The
mmntity of labor power set in motion may be increased due
to the employment of more capital while the rate of surplus
value remains constant; or (3) The quantity of labor power

set in motion may rise while the amount of capital and the

rate of surplus value remain unchanged. Of course, various

 

 

 

 

63
ambinations of these three paths may also occur. (See
max, 1967:Vol. I, Chapters VII-XVII for an exhaustive dis-
mmsion of these possible combinations.) Here I will
match the process involved in each case.

The mass of surplus value extracted from a given quan-
tfly of labor power may be increased either through a length-
mung of the working day and thus of the period of surplus
laxm or by raising the productivity of labor, that is by
rahming the period of necessary labor. In Marx's terminol-
Cmy,the first form is the production of absolute surplus
vahm. The second, which "revolutionises out and out the
taflmical process of labour, and the composition of society
...hnd]...therefore presupposes...the capitalist mode of
Emmhmtion" (Marx, 1967:Vol. I, p. 510) is the production
Ofrelative surplus value. In the beginnings of the capi-
__unim:epoch»it was undoubtedly the impulse of capital to-
"wudsthe extraction of evermore absolute surplus value
wrliChpredominated and which also made the confrontation be-
tWeencapital and labor such an explosive one. However, as
tGChnology and science have been harnessed to the logic of
Cflfltal, the extraction of relative surplus value has come
togmedominate, particularly in the large scale, technolog-
kmlly innovative sectors of industry. The accumulation of
capital through the production of relative surplus value,

the increase in the productivity of labor power, is a major

theme in my analysis in Part II of this essay.

 

 

64
The mass of surplus value may be increased through an

awension of the sway of capital, the drawing into the social
lmlations of capitalist production an increasing number of
lflmmers. This second path to the accumulation of capital
isat the roots of the expansionary dynamic of the capital-
im:mode of production. It also takes two forms, internal
mm external. The latter, extensive, form of expansion has
haulanalyzed in writings on the different stages of col-
mfialism and imperialism. As an explanation of the thrust
ofcapital beyond the boundaries of its own nation state,
thnsemphasis on the imperative of capital accumulation is
suflficient. However, for reasons I outline below, the anal-
yshsof the impact of capital on colonized regions and
qufles solely in terms of the extraction of surplus value
isjnadequate since the sociological relationships of race
~,aMinationality are collapsed into pure class relations.
'Iknithe analysis must be supplemented with the concept of
emxmmic surplus. The internal, or intensive, expansion
ofcapital has been less studied. However, Marx himself
Stmmsed the importance of the enclosure acts for the crea-
tkm of a proletariat from pre-capitalist classes and

snata and thus for the accumulation of capital (Marx, 1967:
Wflu I, Chapters XXVII and XXVIII). Even in the centers of
the world system of capital this dynamic continues into the
present. On the one hand, strata which have been wholly or
partially outside the capital—labor social relation--women,

youth, racially oppressed peoples--are incorporated as a

 

 

 

65
further source of surplus value. On the other hand, ac-
tivities which have been funded out of revenue, i.e. , which
have absorbed unproductive labor, are brought under the
dominion of capital in its thirst for surplus value. Such
activities range from domestic servants to functions pre—
viously carried out by the state such as mail delivery in
the U.S. Both this type of internal expansion and the ac-
cumulation of capital imperative behind external expansion
form a part of the dynamic of state and monopoly capital
analyzed in Part II.

Marx did not live to write his "specific study of the
state... [which was to be] ...the conclusion of his life's
work" (Girardin, 1974:200) . Thus, while he discussed in
depth these first two paths to the accumulation of capital,
he did not consider in any detail the third path, the ability

_Of a given amount of capital to set more labor power in
‘motion without lowering wages. The social relations involved
here can best be summarized as the socialization of costs and
the continued private appropriation of profits. The process
is simple: capital shifts part of the outlays for constant
CaPital to some other portion of society. Today this is
uSually the state, but at an earlier period it could be wage
labor itself which might be required to supply both means of
Production and place of work as in the old putting out sys-
tem. With a reduction of outlays for constant capital, the
identical amount of capital employs more labor power and

thus accumulates surplus value more rapidly, even if the

66
late of surplus value remains unchanged. This is possible
fince, in Marx's model the rate of surplus value, defined as
a.and the rate of profit, v_§_5, do not necessarily move
tbgether. Of course, it is often the case that the social-
ization of the outlays for constant capital will increase
the rate of surplus value through the production of relative
muplus value. Still, the two paths are analytically dis-
tinct, and the ability of capital to transfer the outlays of
mxmtant capital to the state is a central pattern of my
(fiscussion of the political economy of COpper in Part II.
Precisely because of its ability to illuminate the
kflmr process, the dialectic of class, and the dynamic of
mnfital accumulation, it is difficult to use surplus value
assisufficient conceptual tool to grasp the "underdevelop-
nmnt"<1f the hinterlands of world capitalism by the metro-
t-_pokm, depressed areas by national growth poles, and racially
sunndinated populations by dominant peoples. A focus on
theappropriation of the social surplus product by the dom-
inmm unit in each of these cases gets at only some of the
famks of the linkages involved. This approach takes too
“mdias a given the organization of the social relations of
PKMuction in both the dominant and subordinant entities.
”us is particularly true in the stage of imperialism when
the social relations of production have internalized the
political economy of dependency in the subordinate unit. At
the same time, these social relations are integrated with

the linkage mechanism, the multinational corporation, of the

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67
(Eminent unit. What I am suggesting is that crucial to each
of the structures of dominance and subordination mentioned
is the loss of potential wealth and well being on the part
of the subordinate entity as it becomes organized in a man-
rwr which is complementary to the political economic dynamic
cf the dominant unit. (See Dos Santos, 1971, for a discus-
:flon of the complementary nature of dependent societies.)
Ibtential economic surplus illuminates this loss of potential
mswell as much of the social surplus product which is also
appropriated .
All of this is not to deny that the extraction of sur-

Iflus value remains the fundamental imperative of capital as
aiworld system and a--the?--basic exploitative social rela-
tnxlof the capitalist mode of production. Rather it is to
sumess that this imperative and this relationship is often
-__embedded in,,-and modified by, international, regional, and
'rmfial structures of dominance and subordination. Thus, po-
temial economic surplus encompasses the concentration of
tafimology intensive production processes in the metropoles
Ofvmrld capitalism, the canalization of forward and back-
walrdlinkages by the internationalisation of capital, and
thedependent nature of the rhythm of economic expansion
andcontraction in the hinterlands. In each case, it is a
"fitter of "output lost because of the irrational and waste-
ful organization of the existing productive apparatus,"
Baran's third heading under which potential economic sur-

plu5 is found, rather than the apprOpriation of surplus

68
\mlue from wage labor. (Part of the inadequacy of the
writings of many theorists of imperialism is precisely this
(Neremphasis on the latter relationship, cf the otherwise
insightful works of A. G. Frank, 1969 and 1970.) Thus,
rather than illuminating the "inner workings" of any specific
nmde of production, potential economic surplus provides a
measure by which to judge the outcome of all modes of pro-
<hmtion. Since, as argued previously, the concept is thus
mnxide of history, the forms of potential economic surplus
mnmot be specified as precisely as the three paths to the
amnmmlation of capital. However, the analytical power of
tie concept is considerable and simply needs to be developed.
Potential economic surplus is not the only conceptual
tmfl.developed for the analysis of imperialism and dependency
chaing the post World War II period of increased interest in
,_tM%m issuesas While Baran was elaborating the economic sur-
' lesconcept in the 1950's, Myrdal was discussing the pro-
cemsofunderdevelopment in terms of the "backwash" and
"Smmad" effects. The former are defined as "all relevant
mhmrse changes, caused outside that locality" experiencing
emnmmic growth (Myrdal, 1971:30). Spread effects are
Sinlply-the other side of the coin, the positive effects of
Swm.growth which manifest themselves in other localities
”Wrdal, 1971:31; see also Weaver, 1968, especially Chapters
1 and 2 for a discussion of backwash and spread). For
”Yrdal, "the play of the forces in the market normally tends

t9 increase, rather than to decrease the inequalities between

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69
regions" (Myrdal, 1971:26). -Thus, the spread effects of
economic growth in the industrialized regions could not be
expected to balance the backwash effects as far as the "un-
derdeveloped" regions were concerned. More recently,
Galtung has developed a parallel notion in his conception
of "spin offs" by which he understands the intra-unit ef-
fects of inter-unit interaction (Galtung, 1970:86—87).
Again these are argued to be differentially distributed
vdth the beneficial effects concentrated in the dominant
entity and the negative effects in the subordinate one. For
cammple, Galtung sees a psychology of dependence, "special-
ists in having" such as lawyers, and practical knowledge
emerging in the "perpheries" while the "centers" produce a
psychology of self-reliance, "specialists in creating". such
assmientists and engineers, and technical/scientific skills
-_-am1knowledge‘(l970:87).

While these_three concepts at least partially overlap,
tmne are also important differences between them. Despite
itslooseness of formulation, potantial economic surplus
Pmmesses greater theoretical rigor than does the notion of
bmmwash and spread effects and also encompasses the out-
C<Jules of inter-unit interaction which spin offs emphasizes.
Irlthe former case, the economic surplus concept gives us
the parameters by which to judge the "adverse effects"--the
0thput that could be produced by the use of all employable

productive resources. As compared with spin offs, potential

QQonomic surplus keeps our vision on the gap between the is

 

7O
amd the ought, what is real and what could be real. A
further strength of the concept is the light it casts on
the question of economic growth, a problem closely linked
to the analysis of imperialism and dependency. While the
source of growth is obscure in comparison to an analysis in
terms of surplus value, economic surplus does pose questions

about the direction or nature of the growth that occurs-—

 

what is the gap between the social and private rationality
in any given growth process? Potential economic surplus
also points to the reasons for lack of growth since the eco-
rmmic surplus can be wasted, invested in unproductive activ-
ities, or simply not produced due to "the waste of resources
caused by various aspects of monopoly and monopolistic com-
pmtition" (Baran, 1957:36). Once again, the position out-
sfide of history enables us to use the concept to focus on

_the negation-of what is, an advantage over the concepts of
quead and backwash and spin offs in the comprehension of
imperial relationships. Finally, as I argue in Chapter 2,
{mtential economic surplus also aids in the understanding
ofthe drive of the multinational corporation to canalize
emernal economies.

To conclude this chapter I will approach the contrast
lmtween surplus value and economic surplus from a somewhat
<fifferent angle, a consideration of the socio-historical
bases of the contrasts. First, at least in part the diverg-
ehce between the two concepts, particularly the lack of a

historically grounded contradiction in the concept of economic

71

surplus, is rooted in the distinct social and political
environment in which each was developed. Marx thought and
acted during the years when the nascent proletariat first
announced its political presence through demands for suf-
frage, strikes, and insurrections. His own biography inter-
sects the clash between the pre-capitalist and capitalist
social orders in Germany, the great urban proletarian
risings of mid-nineteenth century France, and the hegemonic
capitalism of Victorian England. The new bourgeois order
was still young, at places on the continent hardly yet con-
solidated, but already the revolutionary agent appeared to
he waiting in the wings. At the same time, Marx's pro-
EOundly historical and dialectical grasp of the social

vmrld meant.that both the grandeur and potential along with
the tragedy and human wastefulness of capitalist industrial-
-ization were.day by day etched anew in his mind. Thus, the
chalectic within-his schema is rooted in the praxis of

‘Umse who first grasp the need for revolution in the hand,
i.e., the proletariat.

Contrast this with the biography of Paul Baran, the
rmjor theorist of the economic surplus concept. Leaving the
Rwiet Union in the twenties--already with forebodings of
flat the future he1d7--he witnessed the debacle of the
(hrman left and the failure of the working class everywhere
to make the revolution which the world crisis of the 1930's
Was to trigger. Fleeing from the Nazis, Baran left the

home of classical Marxism to find sanctuary in the United

72

States, the advanced capitalist nation where the Marxian
political economic vision remained largely detached from

any proletarian base. Further, Baran first developed the
economic surplus concept during the years in which the Cold
War was at its height and his own isolation as a radical at
Stanford was quite pronounced. Thus, in a period of retreat
for Marxian politics, Baran created a concept whose dialec-
tic was an appeal to those who first grasp the need for
revolution in the head, a dialectic of thought. It is not
surprising that an attack on irrationality and waste, the
critique of the overdeveIOpment of wants and the underdev-
eloPment of needs which is epitomized in the consumption
ethic of monopoly capitalism, should attain such a prominent
Position in this context. Even in the middle of the 1960's,
the chapter on the sales effort, which stresses this waste
,and irrationality, emerges as one of the most powerful in

8
Baran and Sweezy's Mon0poly Capital (1966) . Nor is this

 

emphasis incongruent with the fact that Baran himself first
aPplied the concept in a seminal analysis of the poverty of
the "underdeveloped" capitalisms of the globe. The major

integrating theme of The Political Economy of Growth is the

 

marmer-in which the subordination of the third world to the
caPitalist metropoles has caused the waste and loss of the
deVeIOpmental potential of the former areas (Baran, 1957;
See eSpecially Chapters 6 and 7 "Towards a Morphology of
BaCkwardness") . Similarly, just as the decline of Marxian

political praxis produced a dialectic which Operated on the

 

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73
plain 0f reason, so the apparent absorption of class conflict
in the advanced capitalist societies externalized the agent
of revolutionary change.

Second, as the discussion in this chapter has made
clear, a major problem in the comparison of surplus value
and economic surplus is the vast disparity in the level of
elaboration of the two concepts. For Marx, surplus value
was the foundation piece in an intricate theoretical analysis
of capitalism as a mOde of production. As such, its inter-
connections with the other elements in his theoretical sys-
tem were painstakingly refined over a period of decades.
Surplus value, the dialectic of class, the expansion of
capital as a system, and the nature of the labor process-—
none of these can be considered separately in Marx's schema.
Furthermore, because Marx's theoretical efforts resonated

_with political praxis that attempted to change the world,

'the concept has been analyzed and used extensively by
Marxists for more than a century. By contrast, economic
surplus is a much less rigorous concept to begin with and
has never been part of an exhaustive and comprehensive anal—
ysis of monopoly capitalism. Thus, Baran and Sweezy sub-
titled their ong_volume work on the U.S. "an essay on the
American economic and social order" (emphasis added). To
some extent, the appeal of the economic surplus concept has
been allowed to remain at the intuitive level. This was
perhaps inevitable in a time when the depoliticization of

daily life meant that the struggle to simply maintain one's

)

74
radical commitment required increasing amounts of personal
time and energy. Conceptual formulations that encourage
the imagination to break out of the one dimensionality of
everyday life are a natural outcome of such a period. Thus,
the concept has retained several ambiguities which this
chapter, written in perhaps more hopeful times, has at—
tempted to clarify, with the goal of aiding not only my own
analysis but also the larger product of a counter paradigm
in political economy.

To summarize the discussion in this chapter, while the
concepts of surplus value and economic surplus diverge, they
are complementary, not contradictory. That is to say that,
when applied to the analysis of contemporary capitalism,
each concept illuminates some facets of that reality which
are cast in the shadows by the other. Thus surplus value
_emphasizes the confrontation between wage labor and capital
'in the market as,the basis of class conflict, linking this
conflict to the inner workings of the system. More impor-
tantly, this social relation is also the key to the accumu-
lation of capital and therefore the growth of capitalist
society itself. Economic surplus on the other hand, poses
a challenge to that which is in the name of that which
cmuld be, a challenge which is extended to all class based
nmdes of production. Here the focus is on the waste and
irrationality which have characterized all such societies,
a critique of the functioning of the institutional orders

which are grounded in the divergent interests of dominant

75
and subordinant classes. This gap between the is and the
ought is most apparent in the hinterlands of world capital-
ism. Thus the central contribution of the economic surplus
concept appears to lie in the study of uneven development
which is integral to the international system of capital,
the creation of poles of wealth and poverty. At a higher
level of analysis, the two concepts do converge. That is to
say that both are critical categories of social theory that,
unlike bourgeois social science, refuse to judge the estab-
lished order "by criteria it, itself, has evolved" (Baran,
1957:72). For those, such as myself, who believe that the
study of the social world should be a liberating praxis,

this is perhaps their central strength.

76

NOTES

1

This book contains one of the few discussions of the
concept I have been able to locate. The thrust of Stan-
field's argument is that while surplus, as defined in Monop-
oly Capital, does show a tendency to rise, the investment
seeking portion does not, nor is there sufficient evidence
to show that the U.S. version of monopoly capitalism cannot
absorb the surplus.’

 

2
I owe much of this formulation to a talk by James
O'Connor at Michigan State University in the spring of 1974.

3
For an analysis of pre-capitalist societies the earlier
version would be the appropriate one, however.

4

In Baran's model, excess consumption is not limited to
the ruling class since it is not based on a competitive
model of capitalism.

‘. ‘

S

In fairness to Baran, he does argue that the content
of reason is historically variable. On the other hand, he
goes on to say that it remains constant over long periods of
time.

6

See Baran's essay entitled "On the Nature of Marxism"
hithe same volume, particularly pp. 32-40, for an elabora-
tion of this approach to Marxian social analysis.

7.

There is some evidence that Baran was associated with
(Me of the groups that opposed the rise of Stalin to absolute
predominance .

8

One of the best of the recent books of readings in
political economy, Edwards, Reich, and Weisskopf (1972),
discusses the concept of economic surplus only in the chap-
ter entitled "Irrationality."

PART II

COPPER AND THE METROPOLE STATE

 

CHAPTER 2
COPPER AND THE STRUCTURE OF THE

METROPOLITAN POLITICAL ECONOMY

The Theory of Uneven Development and the Monopoly and
Competitive Sectors
The conceptual underpinning for the monopoly/competitive

sector division of the U.S. political economy is the theory
of the uneven nature of capitalist development. The concept
originates in Marx's writings on the abortive German bour-
geois revolution of 1848 and was drawn on heavily by
Bolshevik theoreticians, particularly Trotsky, to explain

the course of-Russian capitalism and the success of the

"Bolshevik revolution (Horowitz, 1970:23-28, 97-101). De-

Spite its early elaboration, however, this approach to anal-
ysis of advanced and retrograde forms of development has
been largely neglected by both sociologists and economists.
In its place has appeared a dualist model of diffusionism

in which the "modern" and "traditional" aspects of a polit-
ical economy are seen as originating in distinct social
worlds. Over time the modern sector is thought to pene-
trate into and transform the traditional sector, producing

a strain towards homogeneity (Frank, 1972:356-382). This

sociological theory of homogeneous, or even, capitalist

77

 

78
development has its counterpart in the static equilibrium
economics of the neo-classical paradigm where "diminishing
returns to any single investment supposedly militate against
a long-run dichotomy between sectors of the economy or be-
tween classes in society" (Bluestone, l972a:65).

The renewed concern over regional and sectoral inequal-
ities engendered by the very process of capitalist growth
has caused several authors to return to the question of un-
even development in recent years (Bluestone, 1972a; 1972b;
Gorz, 1971; Gurley, 1971; Mandel, 1970; Myrdal's notion of
”circular causation with cumulative effect is an earlier,
although incomplete, effort in the same direction (1971)).
Both Gorz and Gurley are concerned primarily with the prob-
lems of regional uneven deve10pment, a process which Gurley
calls the tendency of capitalist economies to build on the
-best. “Thus,-a businessman locates a new factory in an
'urban center, rather than out in the hinterlands in order
to gain access to existing supplies, a skilled labor force,
high income consumers; to maximize profits, he hires the
best, most qualified workers" (Gurley, 1971:330-331). Gorz
goes further linking these tendencies toward regional in-
equality to those producing sectoral inequality by arguing
that "in the context of monopolistic accumulation, the
leading industries...are those which make the quickest
gains in productivity," the consumer durable producers
(Gorz, 1971:25). While Gorz explicitly excludes capital

goods industries from this sector, O'Connor (1974:15-17)

 

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79
includes them since the social relations of production and
the pace of technological change are similar to that pre-
vailing in consumer durables. Bluestone's (1972a:65-66)
summary of the concept ties the sociological and economic
imperatives, the regional and sectoral processes together
and is worth quoting at length:

The simple dynamics of profit maximization, espe-

cially in a period of monopoly capital, produce a

tendency toward a 'secular deterioration of terms

of trade' between nations, between industries, and
between social classes.

This occurs for two reasons. First, invest-
ment in a dynamic economy tends not only to in-
crease the capital intensity of the product or
factor in question, but also changes the quality
of the factor so as to make further investment
technologically profitable. Capital investment
in a given product, for instance, often increases
the market value of the product, thereby strength-
ening the profitability of renewed investment.
Higher past profits can also be used for research
and development, which further expand the market
for these goods. Profits also allow expanded
advertising, which reinforces this tendency. On
the other hand, new capital, products, or people
that originally fail to meet the test of the
market, like many infant industries, seldom re-
ceive additional investment and consequently are
doomed to deterioration.

The second reason for a dichotomization
within society derives from the potential redis-
tributive effect of any given investment. While
it may be true that continued investment runs
into diminishing marginal returns, capitalists
will tend to link efficiency and distribution
criteria in investment decisions. Private in-
vestors will tend to reinvest their capital in
areas which promise the highest relative return
only if such investment does not tend to alter
the long-run income distribution in such a way
§§_to reduce their own relative standing. The
capitalist has both a psychological and a po-
litical stake in an unequal distribution of in-
come, and consequently often measures his success
not by the absolute amount of accumulation, but
by the relative surplus he accumulates compared

 

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80

with others..Seldom will the maximization of

private returns constrained by this distribu-

tional objective coincide with the maximization

of total social returns. The outcome, of course,

is uneven deve10pment where the rich become

richer and the poor more impoverished.
Thus Bluestone deve10ps Gurley's stress on the private
rationality behind building on the best as the non-techno-
logical determination of this sectoral dichotomization.
That is to say that rather than the primary/secondary/
tertiary categories which conventional wisdom deduces from
technology, (compare Bell, 1973:Chapter 2) the theory of un—
ewen development makes clear that the sectoral divisions of
the political economy are rooted in the social relation-
mfips of production and accumulation. Of course, as I shall
augue below, the dichotomous model of the U.S. political

emonomy is incomplete. The state sector, whose very ration-

ale is rooted in this tendency toward dichotomization, turns

”‘

Hithe‘model into a trichotomy. With this by way of introduc-
O‘tion, let me now turn to a sketch of uneven development in
thelJ.S. as it appears in the monopoly and competitive sec-
tors outlined by O'Connor (what follows draws heavily on
Franklin and Resnick, 1973:74-83; Fusfeld, 1968; and
(PConnor, 1974:13-16).

The monopoly sector is the locale of big capital and
tug labor, of the multinational corporation, and is the po-
litical economic base of "the more sophisticated leaders of
America's largest corporations and financial institutions"
(Weinstein, 1968:ix). These are the class conscious entre-

Ineneurs whose vision of the entire political economy and

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81
ability to subordinate the market to corporate rationality
has been the source of the political economy of modern U.S.
liberalism: the welfare state at home and the open door
empire abroad (Weinstein, 1968:4-5). This elite sits across
the bargaining table of class collaboration from those labor
leaders Mills called the new men of power. Behind the
latter are the giant unions whose wage and benefit contracts
set the standards that others seek to emulate and that the
small businessman fears: the steelworkers, the Teamsters,
tie United Auto Workers. These men, these unions, and their
power are as much a part of the monOpoly sector as are their
corporate partners. It is the fortunes of this sector that
lie behind the fluctuations of the GNP growth rate, the
American Challenge, and much of the rising--at least until

1965--rea1 income which is the basis of the "American stan-

-~ _ dard of living."

This is the-visible sector of the political economy--
Heel, autos, chemicals--and is what most of us, including
mute a few economists and political leaders,have in mind
vmen we speak of "the U.S. economy." The Fortune lists--the
Hm leading industrials, the 50 largest commercial banks,
the 50 insurance companies whose assets dwarf the others--
areidevoted to the celebration of this economy. All the
Corporations which appear on the now numerous company/
country comparison tables are drawn from this sector. What
can we say about the characteristics and trends of the

'Mbnopoly sector? In a nutshell: both invested capital and

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82
productivity per employee (white or blue collar) are high
and increase over time, wages and salaries are attractive,
and profits are ample. The demand for the output of this
sector increases relatively slowly and this fact, coupled
with rising productivity means a rate of labor absorption
that lags considerably behind the growth of the labor force.
Some of these companies and certain industries may grow
slower or faster than others but, except in times of major
crisis (e.g., the Penn Central) they do not go out of busi-
ness: the continuity of names and industrial distribution
on the Fortune 500 is quite impressive. Here the world of
the Smithian entrepreneur has been left far behind and
bears a relation to reality somewhat analogous to the

rationalization of U.S. agricultural policies in terms of

the need to preserve the family farm. The New Deal/WWII

.-response t0»the Great Crash cemented the corespective be-

'tmvior of the large corporation and the big union. Thus

jobs are steady, working conditions are good, and retire-
nent will bring a pension check sufficient for a decent
Jife--if inflation is kept under control and no major medi-
cal problems develop.

But this is not all there is to the U.S. political
economy. The contrast with the competitive sector is a
Sharp one. The latter is the milieux of small capital-~the
Rpm and pop grocery store, the local textile mill, the town
bank--of a disprOportionate number of part time employees,

and a good portion of the 65 percent of the nonagricultural

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83

labor force outside of unions. This latter group includes
the several million service employees whose wages are be-
low the federal minimum while the former group encompasses
much of the under class of big cities: recent rural mi-
grants, the aged, racial minorities (Gorz, 1971:23). Much
of the work force organized into small unions such as the
United Paperworkers can be found here also.

The multinationals of the monOpoly sector plan the
future and through their peak associations-~the Committee
for Economic Development, the Business Counci1-—argue for
the advantages of foreign investment, trade liberalization,
and, in times of intensified international competition, the
need to increase productivity. Businesses in the competi-
tive sector struggle to survive from year to year and, when
their representatives speak politically, it is in the terms
_of tariff protection to save jobs and businesses at home and
' the demand that big government and big labor give the small
guy "just trying to make an honest buck" a break. For most
of the several hundred thousand people of this country who
experience mobility from the ranks of the employed to the
ranks of the self employed--and usually back again--during
their lifetime, this sector is the setting for the dream
of economic independence. That is to say they become de-
pendent on the market (monopoly sector companies subsume
the market) rather than on an employer.

No magazines celebrate life in this sector. It is in-

visible in the manner of Harrington's The Other America, of

 

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84
which much of it forms a part. Our freeways go around it,
or if through it, the competitive sector is shoved aside
first. Hosiery mills, drug stores, laundries--the jobs,
the industries, and even the people seem a grab bag. Never-
theless, again something can be said about characteristics
and trends. Capital per employee is low and productivity
is neither high to begin with nor rising very rapidly,
lagging behind the growth of productivity in the economy as
a whole. Wages are also low. These jobs are often beyond
the reach of federal minimum wage laws and wages are largely
market determined, rising no faster than the rate of infla-
tion. Labor demand is often unstable in any given firm or
industry but overall the labor demand in this sector grows
faster than that of the monopoly sector. Working conditions

are poor, barely meeting and sometimes violating minimum

. _standards of—noise, ventilation, and cleanliness. All of

 

'these are characteristics we might associate with the brutal
squeezing of a work force in a drive for higher profits.

The work force is squeezed alright, but the high profits

are not there. Profit rates are lower than in the monopoly
sector nor can they be increased and wages and working con-
ditions improved. The competitive sector is already over-
crowded and price increases simple shift demand away from
one easily substitutable good to another. Thus, the working
poor, more than 50 percent of the total poor, are here and a
good portion of the aged poor spent much of their working

years here. These are also the jobs available to those who

 

85
move in and out of officially defined poverty and on and
off the welfare rolls.

Finally, while O'Connor's original formulation implied
that an industry would usually be located in one sector or
another, what we actually find is that many industries cut
across both sectors. Copper is a good example of this pat-
tern. On the one hand, there is big copper-~Anaconda,
Kennecott, and Phelps Dodge--which together produce two-
thirds of U.S. mine output. On the other hand, there are
the 175 or so companies which work the approximately 200
xnines that provide 5-6 percent of U.S. copper output. While
my discussion of cepper focuses on the big three, with oc-
casional interest in the middle level producers such as
Nhgma or Miami, I shall also discuss the economic and po-
litical role of the small producers whose world is that of
the competitive sector. The new political economy of lib-

' eralism has attempted to incorporate both big and small

business in the synthesis of state and economy.

Copper as a Monopoly Sector Industry

Company [Anaconda] and subsidiaries are en-
gaged in the mining, milling, and smelting of
nonferrous metal ores; in the refining and sale
of the materials obtained from these ores; in the
manufacture and distribution of semi-finished and
finished COpper, aluminum, and brass products,
and lumber. The principal metals recovered from
ores treated are copper, lead, and zinc, but there
are also recovered silver, gold, arsenic, cadmium,
manganese, selenium, and tellurium...At Great
Falls, Montana, company owns an electrolytic re-
finery...Company owns lumber mills at Bonner,
Montana, with a capacity of about 114,000,000
board feet per annum...At Butte, Montana, a

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86
subsidiary, the Butte Water Co., Operates the
water system...
---Moody's Industrial Manual, 1965

During the post war years, approximately 200 companies
have been activein copper mining in the United States. As
suggested above, three of these stand head and shoulders
above the rest. But their superior position in c0pper
mining alone does not begin to exhaust the power and scope
of Anaconda, Kennecott, and Phelps Dodge. Before it can be
utilized in the production of other goods, copper has to be
refined and fabricated. Twelve companies constitute the
entire copper refining industry in the U.S. Four of these
control 88 percent of total refining capacity: ASARCO 24
percent, Phelps Dodge 23 percent, Kennecott 21 percent,

Anaconda 20 percent. In the refining stage, which requires

a much larger commitment of capital than mining, the depen-

H-dency of the small nonintegrated producers on big copper is
'readily apparent. *It is here that big COpper also jostles

Ione another: Kennecott's long time stock and buyer/seller

ties to ASARCO have linked a major producer with a company
whose copper interests were based at the refining stage. As
ASARCO has used state aid to integrate backwards, Kennecott
ins acquired its own refining capacity. Finally, Anaconda,
Kennecott, and Phelps Dodge are three of the four firms that
Inssess 50 percent of the nation's fabricating capacity
(Report of the Subcommittee, 1970:12; Wideman, 1965:266).

It is immediately obvious that big copper, like other monOp-

Oly sector industries, is characterized by a high degree of

 

87
vertical integration. Or, in the words of Anaconda's sales
department: "From the Mine to the Consumer."

As Robert Engler points out in his brilliant Politics
of Oil, corporations of this nature and spread are as much
political as economic organizations. They are best concep-
tualized as competing and cooperating governments, each
dedicated to bringing as much of the total industrial pro-
cess as possible into the realm Of the predictable. That
is to say that they desire to turn the external unknowns of
the market into internal decisions of the firm. They are,
in short, organized systems of power (Engler, 1961:3). In
the financial, geographic, and personal scale of the deci-
sions involved they rival many of the formal political en-
tities with which they deal. As far as intra-industry

politics and economics are concerned, the significance of

.._the vertical-integration Of big copper can be summarized as

follows. The political interests of big copper are consid-
'erably more diverse than those of competitive copper. At
times,as I shall demonstrate in Chapters Four and Five,
big COpper and competitive COpper Oppose each other. At
the same time, the integrated producers are less vulnerable
to the ups and downs of the economic cycle. They may have
good and bad years but they continue to have those years.
Many of the smaller producers close down or operate at a
loss during periods of slack demand.

Just as the big three are the major miners, refiners,

and fabricators of copper, so they are the visible element

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88
of the industry. All have been among the 175 largest cor-
porations by sales in the Fortune 500 since that yearly hymn
to bigness in business was first published in 1954. The
TNEC included the companies in their list of the 200 largest
nonfinancial corporations in the late 1930's. On an asset
basis they are even larger. Anaconda and Kennecott are
among the 100 largest on the Fortune list and Phelps Dodge
is in the next 25. The consistency of rank among the three
demonstrates the stability of the monopoly sector--while
they have moved up and down on Fortune's list, it has always
been 1, 2, 3--Anaconda, Kennecott, Phelps Dodge. In fact,
the pattern of stability is even longer. Since 1912,
Anaconda and Kennecott (or their corporate ancestors) have
been the two leading COpper producers in the capitalist

world with Phelps Dodge usually third or fourth (Herfindahl,

._1959:171) . ~ -

Copper itself has been a visible metal. One of the
'first to be mined and used in human society, it formed the
basis of the bronze age in the past and is the basic metal
in the age of electricity in the present. Since the indus-
trial revolution, only one metal, iron, has been removed
from the earth in greater quantities than the red metal.
Copper remained the second metal in world output until the
1960's when aluminum, a much newer and partially competitive
substance, passed it in terms of yearly production (Ageton
and Greenspoon, 1970:535-537). Finally, as big capital is

entrenched in the corporate organization of the industry,

 

 

89
so the labor force is in the domain of one of the largest
unions, the United Steelworkers. Unlike some monopoly sec-
tor industries, the consolidation on the side of labor is
late and still incomplete. Other unions such as the United
Mine Workers still have a hold in the industry and until the
late 1960's no one union was dominant. The International
Union of Mine, Mill, and Smelter Workers (IUMMSW), expelled
from the C10 in the late 1940's for its refusal to purge
alleged communists from leadership positions, held the
largest number of contracts in the industry until the end
of the 1950's. After the explusion, the USW, apparently
with industry encouragement, made repeated raids on IUMMSW
contracts. While the outcome of the conflict was a stale-
mate--IUMMSW held most of its existing contracts but failed
to expand with the industry-~the financial exhaustion of

the smaller-union made it a willing recipient of USW merger

'feelers during 1966-1967. The merger talks culminated with

the dissolution of the IUMMSW in the U.S. and its absorption
by the USW in 1967 (gggg, 1946-1967).

Table 1 on the following page compares big copper with
a sample of other large corporations, the mining and manu-
facturing concerns of the Fortune 500.1 Most, and probably
all, of the latter group of companies would also be part of
the monopoly sector. Thus, the comparison is between big
copper and a sample of monopoly sector corporations. Sev-

eral relationships which emerged in the course of the theo-

retical discussion of the monopoly sector are readily

s

90

 

 

 

 

 

 

 

 

 

 

 

Table 1. Selected Data on Sales, Assets, Employees, and Invested Capital,
Big Copper and Fortune 500: 1954-1969
1.91514.
Sales Asset Employees
Rank Rank Rank Assets/Employee Sales/Employee
Anaconda 62 22 37 $22,427 11,882
Kennecott 71 25 , 64 28,692 16,629
Phelps Dodge 108 68 123‘ 26,250 20,194
Fortune 500,
median --— --- --- n.a. n.a.
1959
Sales Asset Employees SaleS/s Assets/ Sales/
Rank Rank Rank Invested Capital Employee Employee
Anaconda 69 25 53 $0.69 $28,508 $16,696
Kennecott 98 47 75 0.58 29,481 16,055
Phelps Dodge 161 89 144 0.75 29,560 20,245
Fortune 500, =*3
median --- --- --- 2.06 14,849 20,054
1964
Sales Asset Employees Sales/S Assets/ Sales/
Rank Rank Rank Invested Capital Employee Employee
Anaconda 61 31 49 $0.84 $30,019 $21,064
Kennecott 116 52 95 0.69 35,073 20,918
Phelps Dodge 156 101 168 0.90 33,553 26,956
Fortune 500, ,u3
median --- --- --- 2.14 16,957 23,162
1969
Sales Asset Employees Sales/S Assets/ Sales/
Rank Rank Rank Invested Capital Employee Employee
Anaconda 76 45 74 $1.21 $40,343 $32,266
Kennecott 111 52 143 0.95 57,183 36,341
Phelps Dodge 168 122 212 1.14 44,829 37,133
Fortune 500, 3.3”
median --- --- —-— 2.41 21,545 27,986
Source: Computed from relevant issues of Fortune magazine 1955, 1960, 1965,

1970.

91
apparent for big copper. First, even within a group of
firms with higher than average assets per employee, a mea-
sure of capital intensity, big copper stands well above the
median in each year (inspection of the 1954 data for indi-
vidual companies makes clear that the same relationship
holds then also). Second, sales per employee moves from at
or below the median in the early years Of the period to a
position above the median by 1969. This is an indication
that, again relative to the Fortune 500 sample of monopoly
sector corporations, big copper grows more through increased
productivity than through growth in employment. Third, be-
cause of the heavy capital commitments indicated by these
first two measures, sales per dollar of invested capital
are well below the median for the entire group. Overall,

mining showed the lowest value of sales per dollar of in-

._vested capital and ranked among the four highest industries

'in terms of sales and asset value per employee in each of
ithe years for which that information is available. Last
but not least, profits as a rate of return of sales, both
for mining and for big copper, exceed the median even for
the 500 in each year, a further indication of the function
and structure of big COpper as a monOpoly sector industry.
Table 2 on page 93 compares growth trends for big cop-
per and the U.S. economy during the same decade and a half.
The dollar value increase in output for big copper grew at
about the same rate as the GNP indicating the fairly slow

growth of demand in monopoly sector industries. The

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92
variation ranged only from Phelps Dodge's 8 percent less
than GNP to Anaconda's 19 percent more than GNP. While it
might seem desirable to control both GNP and sales for price
changes, in the latter case this would be virtually impos-
sible since the total sales of each company are composed of
a changing mix of as many as twenty different metals. A
rough measure of.what the actual relationship between sales
growth in copper and GNP growth with prices controlled would
be can be estimated as follows. The price of COpper, the
largest single element in the total sales of each company,
more than doubled between 1954 and 1969 while inflation
during the same period was less than 75 percent. Thus, on
a constant dollar basis for copper and the total GNP, the
sales growth for the three companies was less than GNP

growth, further demonstrating the slow growth in demand for

.u_uwnopoly sector output. The comparison between increase in

”'employees and growth of the labor force strikingly demon-
strates the inability of a monOpoly sector industry to ab-
sorb new labor at the rate it becomes available. Both
Anaconda and Kennecott increased employment at less than
one-third the rate of growth of the private non-agricultural
labor force despite a sales growth (for all products) which
VHS greater than the dollar growth of output in the private
sector of the economy. Even the much greater increase in
employment by Phelps Dodge was not as large as the growth

cm either the private or total non-agricultural labor force.

Total employment in big copper expanded at less than half

 

93
the rate of growth of the non-agricultural civilian labor
force. Once again this indicates the lagging rate of labor
absorption in the monopoly industry, forcing increased mar-
ginalization in the competitive sector and the growth of

state employment.

Table 2. Big COpper and the U.S. Economy 1954-1969

 

 

% In-
% In- crease
crease Private
% In- % In- Non-agri. Non-ag.
crease GNP crease Civilian Civilian
in Increase in Em- Labor Labor
Sales 1954-1964 ployees Force Force
Anaconda 184.4 12.6
Kennecott 148.2 154.7% 13.3 43.4 39.4
Phelps
Dodge 142.6 32.1

 

 

"n'Sources: Calculated from Economic Report of the President.

1972 and Fortune.

In the remainder of this discussion of COpper as a monOpoly
sector industry, I have had to make use of information com-
;filed for the entire industry and divided by size of estab-
lishment. This is the form in which the Census of Manufac-
tures and the Census of Mineral Industries provides data
rather than by identifiable company. Thus, only an approx-
imation of the relationship between big COpper and the rest
of the economy is available although, at least at the mining
stage, this approximation is very close. The largest mines

are generally owned by the three largest corporations in the

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94

industry. To some extent this same relationship holds in
the refining and fabricating stages of the industry also
although here the size differential is less marked.

Perhaps the key relationship of the monOpoly/competitive
division of the political economy is what Bluestone (1972a:
65) calls the secular deterioration of wages of competitive
sector workers compared to monOpoly sector workers. Rather
than divide the entire economy between competitive and mo-
nopoly sectors, I have simply compared wages Of production
workers in copper with those for all private nonagricultural
workers. Table 3 presents this data for COpper mining and
COpper rolling and drawing (fabricating). I had hoped to
make three comparisons: (l) a comparison of wages for all
production workers in each group; (2) a comparison between

the wages of those workers in the largest copper establish-

..-ments (an approximation of big copper) and those of all

'private nonagricultural workers; and (3) to get at the
question of monopoly and competitive sectors within the
copper industry, a comparison of the hourly wages of the
largest establishments with those of the smallest estab-
lishments. However, except for the last Census Of Manufac-
tures in 1967, the data necessary for the second and third
comparison are not available for rolling and drawing. This
has necessarily restricted the discussion, although mining
employment is an important segment of the total employment,
comprising more than half the employment in mining, milling,

smelting, and refining.

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Table 3. The Secular Deterioration of Wages (All Ratios
Involve Average Hourly Wage Rates of Production
Workers)
Ratio 1947 1950 1955 1960 1965 1972

Copper Mining/All

Private Nonag. Wkrs. 1.15 1.17 1.24 .26 1.28 1.30

Copper Rolling & Drawing/

All Private Nonag. Wkrs. .19 1.23 .24 1.25 1.25 1.19
Ratio 1939 1954 1958 1963 1967

Copper Mining Estabs.

With 1000+ Wkrs./

All Private Nonag. Wkrs. N.A. 1.31 1.38 1.43 1.41

Copper Rolling & Drawing

Estabs. With 1000+ Wkrs./

All Private Nonag. Wkrs. N.A. N.A. N.A. N.A 1.28

Copper Mining Estabs.

With 1000+ Wkrs./

Copper Mining Estabs.

.,__With4100 Wkrs. 1.08 1.20 1.19 1.23 1.28
"Copper Rolling &.Drawing

Estabs. With 1000+ Wkrs./

Copper Rolling & Drawing

Estabs. With<100 Wkrs. N.A. N.A. N.A. N.A. 1.10

 

sources :

Ratios calculated from Employment & Earnings:

 

United States 1909-71, U.S. Dept. Of Commerce,

 

n.d.; Employment & Earnings, December 1973; 1939,

 

1954, 1958,

1963, and 1967; Census of Manufac-

 

tures, Industry_Statistics: Nonferrous Metals,

 

Mill and Foundrprroducts and Census of Mineral

 

 

Industries, General Summary and Industry Sta-

 

tistics:

Copper,

Lead,

Zinc,

 

Gold and Silver

 

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96

The ratios in Table 3 for COpper mining strongly sup-
port the theory of uneven development and secular deterio-
ration of wages between monOpoly and competitive sector
industries. The relative gap between wages in copper mining
and all other private nonagricultural production employees
has increased during each period although not at a steady
rate. The largest relative gains were made during the Kor-
ean War but the trend may not have been wartime induced
since it was not repeated during the Vietnam War. It would
be fascinating to have a similar ratio for the late 1930's
to determine the significance of the New Deal/WWII era for
the establishment of this pattern but no data for average
hourly earnings in the entire economy are available for
these years. The ratios between the wage rates in the.
largest mines and those for the entire economy reinforce
the concept.of secular deterioration of wages and demonstrate
'the existence of,a monopoly sector within the COpper indus-
try. This analysis is reinforced from a different angle by
the ratios between wages in large and small establishments
within the industry. The intra-industry secular deteriora-
tion of wages is almost as marked as that between COpper
and the rest of the economy. On this measure, 1939 data is
available and the 1939/1954 figures lend support to the
argument for the consolidation of the social relations of
uneven development during the 1940's.

Copper fabricating exhibited the lowest level of con-

centration within the industry, a factor which may account

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97
for the mixed results for this industry on the question of
secular deterioration of wages. On the one hand, the indus-
try emerges as a relatively high paid one, with a larger
industry/total private economy gap in the initial year than
was true for copper mining. Once again the early 1950's
show the largest secular deterioration and the ratios keep
pace with those for copper mining until 1960. However,
during the 1960-1972 period the wage gap first levels and
then actually declines between 1965 and 1972. As noted pre-
viously, it is not possible to calculate comparisons by size
for copper rolling and drawing except for 1967. Using the
latter year as a benchmark, it appears that the differentia-
tion between monopoly and competitive sector industry is
much less pronounced here than in the case of copper mining

with a ratio of 1.10 for the wage gap between large and

- -small establishments in the former case compared to 1.28 in

'the latter. It should be reiterated that these statistics
Rare only by size of establishment, not by individual com-
pany. Information on the fabricating plants of big COpper
might lend stronger support to the secular deterioration of
wages argument.

Data pertaining to several of the other dimensions of
monopoly sector industries are presented in Table 4. Demand
for copper rose at less than the rate of GNP growth, largely
due to the concentration of end use in the producer goods
industries and to increased efficiency in raw material us-

age. The price inelasticity of demand for monOpoly sector

 

98

Table 4. Labor and Product Demand, Copper and the U.S.
Economy

 

I. Index Numbers of GNP (Constant Dollars), Gross Private
Domestic Investment (Constant Dollars) and Copper Mine
Production, 1947-1971 (1947 = 100)

1947 1950 1955 1960 1965 1971

 

GNP 100.0 114.6 141.3 157.4 199.4 238.6

Copper Mine
Production 100.0 107.3 117.8 127.4 159.5 179.6

Price per Pound
of Refined COpper 100.0 99.5 178.5 154.1 168.4 248.8

II. Index Numbers of Employment of all Wage and Salary Workers

 

 

(1947 = 100) 1947 1950 1955 1960 1965 1971_
Civilian Non-ag.
Labor Force 100.0 103.1 115.5 123.6 138.6 161.1
Private Non-ag.
Labor Force 100.0 101.8 111.1 114.1 125.4 142.6
Employment in \

, COpper Mining- 100.0 92.7 99.2 91.5 100.0 123.9
(1953 = 100) .~~‘ 1958 1960 1965 1971
Private Non-ag. Labor Force 100.0 105.2 115.6 131.5

Employment in Copper Rolling
and Drawing 100.0 97.8 99.7 88.0

 

 

Sources: Calculated from Employment & Earnings: United
- States 1909-71, U.S. Dept. of Commerce, n.d.;
Employment & Earnings, December 1973; Economic
Report of the President, 1972; Minerals Yearbook,
annual.

 

 

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99

commodities is also indicated by a comparison of the index
numbers of copper output and COpper prices.

The indices for the growth of employment graphically
indicate the failure of monopoly capital to absorb new labor
in line with the rate of labor force growth in even the pri-
vate economy. When the comparison is with the total non-
agricultural labor force, the short fall in employment ex-
pansion is even greater since it is the state--federa1,
state, and local--which has been the greatest absorber of
new labor in the last three decades. Particularly illumi-
nating would be a comparison between growth in employment
in copper production alone among the big three of the in-
dustry and total civilian employment. Unfortunately this
comparison cannot be made because the post WWII period has
witnessed diversification and conglomeration on the part of
big copper.--For example, even by the middle fifties,

— Anaconda's combined output Of all other metals--lead, zinc,
gold, silver, molybdenum, etc.--exceeded her output of cop-
per. The same mining and processing facilities are usually
the source of a variety of metals, thus making employment
calculations by particular metal impossible.

An insight into the significance of this development--
conglomeration--can be obtained by contrasting the employ-
ment expansion figures for big COpper from Table 2 with
those for copper mining, COpper rolling and drawing, and
the total economy in Table 4. Employment has grown faster

.in big copper than in the COpper industry as a whole despite

 

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100

the greater productivity of the former, although the total
labor force has grown even faster. The thrust towards con-
glomeration thus appears to be quite important for big COp-
per in terms of employment expansion, a pattern that is
probably characteristic of monopoly industry as a whole.
This is a major counter trend to the marginalization of more
and more of the labor force into the competitive sector and
is realized through the concentration and centralization of
capital.

As a conclusion to this discussion of the structure and
growth trends of copper as a monopoly sector industry, one

more facet of monopoly industry must be noted, the inter-

nationalization of capital. For copper, this process con-

siderably predates the post WWII era. Anaconda acquired
and brought into production its Chilean, Mexican, and

. , (former) Polish properties before the Great Crash. Kennecott
" developed itsChilean mine during the same years. Phelps
Dodge, which remains a primarily domestic producer, had not
gone offshore before the end of WWII. Nonetheless, the
shift of the U.S. from a net exporter to a net importer of
raw materials in 1940 was also true of copper production
and consumption (Bidwell, 1958:l). Since that time, this
Country has consumed approximately a third of capitalist
World copper output while producing about a quarter of this
total (Coppg, various issues; Wideman, 1965:293). Coupled
With this shift in the trade balance has been a declining

grade of ore, "one of the most significant factors affecting

cnpper production cost" (Ageton and Greenspoon, 1970:546) .

 

 

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101
The response of big COpper to this crisis was concisely

summarized by Kennecott in its 1951 Annual Report: "Your

 

management is making every effort in the three of the four
quarters of the globe where exploration is possible, to find
amidevelop new mines" (Kennecott COpper Corporation, 1951).
Nuzfocus of this chapter is not the international political
emonomy of COpper. Thus, for present purposes the dialectic
of national monopoly/international expansion can be summa—
rized as follows: MOnopoly industries at home are able to
accumulate the necessary capital to expand abroad; success-

ful foreign expansion means control over foreign resources,

 

direct access to foreign markets, geographical dispersion

 

” of political risks, and the multiplication of financial op-
portunities (compare Girvan, 1971a:24-37). In turn, these
serve to reinforce monopoly power at home. In this process

.-as in the process of domestic growth and conglomeration,

'the relationship-between big copper and the state has been
fundamental. It is to an analysis of the state in the

metropole political economy that I now turn.

The Kapitalistate as Instrument and Structure

 

Well, I do not think that necessarily any
organized effort in industry to bring about a
stabilization of prices means necessarily a fixed
price. I do think it would be infinitely better
from the standpoint of employment, from the
standpoint of the ownership, stockholders, man-
agement, and everybody concerned, if we had some
means of protecting the public and at the same
time enabling industry to self regulate itself...

--Cornelius F. Kelley,
Pres. and Chmn. of
Anaconda, testimony before
the TNEC in January 1940

‘—

 

 

 

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102

We cannot go through another ten years like
the ten) years at the end of the twenties and the
begiruiing of the thirties without having the most
farreaching consequences upon our economic and
social system.
--Sec. of State Dean Acheson,
statement before the
Congressional Committee
on Postwar Economic Policy
in November 1944

From the onset of the capitalist era, politics and the
political authority have been integral to the creation of a

V' 3'...“-

fertile soil for the expansion Of capital. Politics and

z.
2:

economics were inextricably mingled in the West European

city states which were the birthplace of the modern bour-

 

geoisie (Dobb, 1963:Chapter 5; Pirenne, 1956). The mercan-
tilism that followed was simply the city policy writ large
(Cox, 1959:318ff). Even the theoretical father of laissez
faire recognized an important role for the state. 'After
all, Adam Smith did want the political authority to do cer-

Uftain things; -to remove the fetters Of the mercantile order
and to clarify and enforce the rules of the game for the new
regime of competition. Capital would do the rest.

In the laissez faire capitalist order, the state acts
as an instrument rather than as a structure. This instru-
ment is wielded in the interest of capital as a whole and
tithe maintenance of the class structure which is its basis
enm.which capital itself reproduces (Sweezy, 1968:240-244).
(Attfimes, of course, the state acts in the narrow interests

Ofindividual capitalists but we are not concerned with this

vmfiation in the rules of the game here. Anyway, such ac-

tnm is usually legitimated in terms of the broader framework

 

 

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103

of actions necessary to maintain the capitalist social
order.) Of paramount importance is the definition by the
political authority of an industry, region, or project as
Open to private capital accumulation, the guaranteeing of
the right of private property (Murray, 1971:88; Miliband,
1969:69ff). For mining corporations, themselves a product
of this guarantee, the nature of the market in land is the
all important question. In the words Of a contemporary
spokesman of big copper, the demand Of capital is for the
following: (1) security Of tenure; (2) exclusivity of use;
and (3) the setting of the Operating rules (EQMJ, February
1969:124, speech by Kennecott's General Counsel Malcolm R.
Wilkey on the question Of access to underwater minerals).
Security of tenure does two things. First, it provides

the time horizon necessary for large scale investment to be

-, made. Whenlprofits can be reasonably anticipated next year

and next decade,_the firm can use this year to build the
'required infrastructure, train the necessary labor force,

and carry out the research demanded by the project. Second,
security Of tenure is important in the intercorporate strug-
gle over control Of mineral resources. A competitor cannot
acquire the land worked by one firm today for its own use
tomorrow. Exclusivity of use complements security of ten-
Ure. Since usage is exclusive, others cannot reap the
external economies which are the potential result of a trans—

portation network, a power source, or the technical knowl-

edge acquired by the first occupant. Exclusive and secure

 

 

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104

usage and access together mean that after a mineral deposit
is purchased it can be developed at a time and output set
at a rate that makes the most economic sense for a given
corporation. All of this can be done without the fear that
someone else will have removed all or part Of the deposit
in the meantime on a schedule that fits their own differing
calculus of private rationality. Finally, the state must
set the rules of Operation. What is desired here is that
the actions of the State be predictable enough to be entered
into the cost accounting framework of the individual corpor-
ation. A tax on profits, even a high one, is one thing; a
tax on profits one year, on invested capital the next, a
demand for a portion of the output the third, is something
else. The latter is repugnant to capital which demands that
the rules be made clear and not be subject to change without
_notice. When-security Of tenure, exclusivity of use, and
'clarity of operating rules are integrated in the framework
of the modern corporation, the vagaries of the market which
dominate both small capital and those who must sell their
labor power, are largely subsumed (see Galbraith, 1967:Chap-
ters 3 and 6 for a discussion of the corporation's ability
to subordinate the market).

All of this is part of the generally taken-for-granted
Scheme of things. In recent years, analyses of state and
Capital during the monopoly phase have extended the argument,

however. Increasingly the two are seen as coequals, what-

ever the perspective Of the particular writer (compare Bell,

 

 

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105
1973; O'Connor, 1974; Shonfield, 1969). Both Robert Engler
and Michael Tanzer, in their pathbreaking works on the Oil
industry have stressed the political nature Of the modern
corporation and the economic significance of all state ac-
tion (Engler, 1961:3ff; Tanzer, 1970:20ff). Rather than the
earlier model of the state as referee, a function that was
appropriate for the period of Laissez faire, it is the posi-
tive state that now occupies the stage.

Murray (1971:88-91) has elaborated this line Of argu-
ment in an article which suggests five functions of the kap-
italistate in addition to its role as guarantor of property
rights. (1) Economic liberalization consists largely of the
abolition of pre-existing restrictions on the movement Of
capital, labor, and commodities. The standardization Of
currency, laws of trade, weights, etc. falls here also.
_Within the national domains of the capitalist metropoles
'this task has long been accomplished (Cox, 1959). Today,
as I shall argue later, it is the internationalisation Of
capital which demands parallel efforts. (2) Economic or-
chestration is the lesson of the Great Crash. The state
attempts to regulate and lessen the ups and downs of the
business cycle through some form of planning (Dowd, 1974:
269-271; Shonfield, 1969). This function belongs to the
Positive state of the twentieth century while that of eco-
nomic liberalization is also done by the state as referee

of the nineteenth century. (3) Input provision in the form

of labor, capital, land, and infrastructure has characterized

 

“3;,

 

106
the kapitalistate from an early date. This has been par-
ticularly the case in frontier areas such as the U.S. Here
the state must regulate the supply and price of labor, de-
fine both land and labor as alienable commodities, and sup-
port the development and extension of a reliable system of
finance and credit. In the U.S., state constant capital in-
vestment in infrastructure has been important first in the
system of canals of the late eighteenth/early nineteenth
centuries, later the land for railroads in the nineteenth
century, and finally the constructure of highways in the
twentieth century (Faulkner, 1960:270ff, 428ff, and 622ff).
In the monopoly phase, science has been harnessed to the
logic of private profit and technical and scientific knowl-
edge have come to the fore as state inputs. The rhythm of

technological advance must be integrated with the rhythm of

.- the business cycle. (4) Intervention for social consensus:

'the state attempts to meliorate the outcomes of the tempo

of uneven deve10pment as it is manifested in the clash Of
social and private rationality. Control of the external
diseconomies of pollution and regional inequality, the reg-
ulation of the conditions of work and of the functioning of
the market place, and the effort to cushion the insecurity
of employment and income for the underlying population, are
all included here. (5) Finally, there is the problem of

the external relations of a given national capitalism. Here

the identity of the state with "its own" capital is perhaps

the strongest. Aid, trade, and military policies, even when

 

 

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107
carried out through "international agencies" are oriented
to the need to provide a fertile soil for the international-
ization of capital in a world of competing nation states
(Magdoff, 1969: Hayter, 1971). At the same time, the state
strives to protect the preserves that capital has already
carved out at home and abroad.

For the U.S. case, these functions of the state have
been nicely encapsulated in Gabriel Kolko's notion of polit-
ical capitalism, a formulation which rejects the dichotomy
between the economy and the polity which has informed much
historical and sociological analysis. He is worth quoting
at some length: Political capitalism is

the utilization of political outlets to attain
conditions of stability, predictability, and
security--to attain rationalization in the eco-
nomy. Stability is the elimination of internecine
competition and erratic fluctuations in the eco-
nomy. Predictability is the ability, on the
basis of-politically stabilized and secured means,
to plan future economic action on the basis Of
fairly calculable expectations...security...means
protection from the political attacks latent in
any formally democratic structure..rationaliza-
tion...is the organization of the economy and the
larger political and social spheres in a manner
that will allow corporations to function in a
predictable and secure environment permitting
reasonable profits over the long run (Kolko, 1963:
3).

 

 

 

The question then, is not state intervention or no state
intervention, but what kind of state action by what agency
and with what effects (Kolko, 1963:4).

The transition from the state as instrument to the

state as structure was contemporaneous with a shift in the

ideological framework within which the dialectic of state

 

 

 

 

.,

‘0

 

108

tal moved. While liberalism has been the hegemonic
(Gramsci, 1971; the concept of hegemony in this
been quite helpful throughout this section) of both
nd then dominant business groups in the United
two periods in the formation of the liberal politi-
Dmic world view can be distinguished (Weinstein,
i). The opening years of the twentieth century mark
sition between these periods. In the nineteenth
Weinstein sees equality, mobility, and antagonism
nment intervention in the self-regulating political
as the main tenets Of liberal doctrine. The con-
On of big capital and the rise Of the U.S. as a
ternational capitalist power in the early twentieth
(Dowd, 1974:64-69, 85-87; Williams 1966:343ff)
turning away from this emphasis on competition and
a1 striving. In its place there was created a
chauung of cOOperation, efficiency, and "social
bility" (Sklar, 1972:22; Weinstein, l968:xiii).
hegemonic task of the kapitalistate is the replace-
the ideological concepts Of laissez faire capitalism
ideal of a responsible social order in which all
could look forward to some form of recognition and
in the benefits Of an ever-expanding economy"
in, 1968:x). The key element in the new order is
ise of "an ever—expanding economy" such that op-
al groups can always, given time, be incorporated

established political economy. The roots of the

 

 

'1"..-

 

 

9‘.‘

\<

 

if

109
ever-expanding economy lie, of course, in the synthesis be-
tween the monopoly sector and the state. It is upon this
structure that the "socially responsible" community is built.
(For an analysis of the crisis of the liberal conception Of
the community see Wolff, 1969.)

Much of the groundwork for this new structure of state
and capital had been laid by the time of World War I. How—
ever, prosperity and "the return to normalcy" Of the 1920's
witnessed the temporary, and partial, suspension2 of these

efforts (Bernstein,1969:265; Sklar, 1972:65; Williams 1966:

439ff). The impact of the Crash was to revive the thrust

 

towards the new liberalism. This revival was essentially a
return to a Wilsonian conception of the corporation, its
role in the new industrial order, and its relationship to
the state (Sklar, 1972:65). As Wilson had argued, the re-
.-_sponse to the-new conditions could not be a return to a

' competitive capitalist order (he never seriously entertained
.the possibility of a socialist alternative). Instead, the ef-
fort Of the state must be directed towards preventing the
misuse of the corporation and to redirect its functioning
in the pursuit of the public interest (Sklar, 1972:19).
Business and businessmen, while to be chastized if they
violated the public trust or enriched themselves at the
expense of the public interest, must not be subject to ar-
bitrary and capricious executive decision making. They

would also have to be adequately protected from the "polit-

ical attacks latent in any formally democratic structure,"

 

 

 

'1

110

i.e., from the "whims" of popular Opinion as reflected in
the elected bodies of government. Law, then, must create a
predictable and secure environment for the flourishing of
the new capitalism, for it was only in such an environment
that the public good could be realized by private capital.
Regulatory agencies provided the ideal solution. These
agencies were to be charged with the dual task of preventing
the abuse of the power of the corporation and encouraging
the development of its public service potential. Each Of
these tasks required the independence Of the regulators from
both the executive and congress (Kolko, 1963:298; Sklar,
1972:20).

This merger Of businessman and public Official (Wein-
stein, 1968:10) was expressed well by Cornelius F. Kelley,

president and board chairman of Anaconda, at the end of the

,,, depression.-.Ref1ecting on the experience of the depression

‘and the efforts of the New Deal to reconstruct the politi-
cal ecOnomy of modern liberalism he asked that the TNEC
agree to the proposition that industrial cooperation for
stabilization be accepted as a protection and service to
employees, owners, stockholders, and the general public.

In sum, to ”everybody concerned," for all would then be able
to participate in the benefits of the ever expanding eco-
nomy (TNEC, 1941:13160). The voice of the industry, EgMJ,
had reached the same conclusion nine years earlier in an
editorial entitled "Uncontrolled Individualism and Its

Aftermath" which attacked the arguments for free competitive

determination of COpper prices on the grounds of humanitar-

 

 

 

L-

'o.

<1

‘1

 

(I

 

111
ianism and the maintenance of local standards of living
(£551! September 1931:241). As the quote from Secretary of
State Dean Acheson at the head of this section indicates,
businessmen were not alone in this realization and the
stakes involved were recognized to be high indeed.

In many ways this new vision was far from that of Adam
Smith, yet the major flaw in each case is strikingly similar.
Smith, with a background in moral philosophy, hoped to in-
crease the scope of individual freedom and contribute to the
common welfare by limiting the alien power of the state
(Dowd, 1974:9-11). What he failed to see, and what Marx saw
so clearly, was the manner in which his answer to the prob-
lem produced a new alien, and even more awesome, power, the
corporation in a Hobbesian capitalist world. The new lib-

eralism created the other term in the dialectic, the state

,_w regulatory agency. Perhaps, from a movement that was not

’opposed to business but in fact often led by business (Kolko,
1963), the aufhebung was inevitable: the synthesis of

state and capital in kapitalistate. A new and still more
threatening structure emerged which has been the pivot of

the political economy of U.S. capitalism during the last
three decades.

The functioning of this new synthesis, of the state as
structure, is best understood through the marxian categories
of social expenditure and social investment as developed in
O'Connor's Fiscal Crisis of the State. It is in the changing

volume and distribution of state expenditures that the po-

litical economy of the state sector appears and it is these

 

 

 

 

 

.ll

 

112

expenditures that reflect the two contradictory functions
of the state: capital accumulation and social legitimation
(O'Connor, 1974). Capital accumulation encompasses the pre-
dictability and stability aspects of political capitalism
while legitimation brings together Kolko's concern with
security and Weinstein's larger emphasis on the legitimation
of the corporate ideal in the liberal social order. Togeth—
er they provide the anatomy Of contemporary U.S. capitalism.
Let us look more concretely at the nature Of these two
categories of state expenditure. State outlays that in-
crease the tempo and amount of capital accumulation are
geared towards the expansion, growth, and continued har-
monious class relations in the monOpoly sector. This type
of expenditure appears in the form Of social capital and
can be further subdivided into expenditures for social con-
sumption, or social variable capital, and those for social
investment, or social constant capital. The former are
designed to lower the costs of the reproduction Of labor
power through investment in variable capital and include
state financed and organized schemes such as social insur-
ance and urban renewal. These expenditures decrease the
proportion of the working day devoted to the reproduction of
labor power thus increasing the time that can be devoted to
the creation Of surplus value and raising the rate of ex-
ploitation. Social investment as a category of social cap-
ital can be further divided into physical capital such as

transportation, industrial parks, and mineral exploration,

 

| J. _r
O

‘-4

113
and investment in human capital such as administrative and
scientific training programs. Both forms of social invest-
ment increase the productivity of labor through investment
in constant capital. Thus, they enable capital to increase
the relative rate of exploitation and the amount of surplus
value extracted from a given amount Of labor power (see
Marx, 1967:Vol. 1, Chapters XVII-XXVII on the relationship
of surplus value, constant capital, variable capital, and
rates of exploitation). Both types of social capital out- .fi-h

lays are indirectly productive since they indirectly expand

I ‘m
I -

surplus value, the sine qua non of productivity in the eyes

W" .I' .
.——'~

 

of capital.

It is the reality of the productivity of state expen-
diture in contemporary capitalism that can be taken as dis-
tinguishing the state as structure from the state as instru-

. _ment. The difference can be summarized as follows:

S
l. The State as Instrument: C+V+SF p

ass

2. The State as Structure: (Cp+CS)+(Vp+VS)+(Sp+SS)
where C=constant capital; V=variab1e capital; S=surplus
value and the subscripts p and s indicate private and
state sectors.
In the former case the total constant and the total variable
capital are equal to private constant and private variable
capital. All state expenditures are financed out of surplus
which is divided between private and state portions through
political bargaining. The state and the private sector are

thus in conflict over the distribution of the social surplus.

 

1.2;;

114

This model of the state and economy has underlaid much
marxian analysis (cf Baran and Sweezy, 1966) and, although
without this conceptual framework, much of the orthodox
social science discussion of the state. Although the re-
visionist historians have also not discussed the issue in
these terms, they have in fact worked with the second model
of state and economy. Here the state and private capital
participate together in the investment of constant and vari-
able capital. As it stands, this formulation is partially ‘“
misleading when it comes to the disposition of surplus

value. Under the rules of the capitalist game, the state

 

does not directly appropriate the surplus value which its
outlays indirectly create but instead relies on taxation.
This distinction is crucial for grasping the socialization
of costs/private appropriation Of profits/fiscal crisis
--n-dia1ectic. ‘
The very.process of state productive expenditure in the
.monopoly sector creates the need for the contradictory state
role of legitimation. Legitimation expenditures must re-
integrate both the casualties of monopoly sector growth, i.e.,
the social disruption of the "ever-expanding economy," and
meliorate the relative economic deprivation of competitive
sector capital and labor. These expenditures appear as
social expenses in the analysis of the state budget. They

are not even indirectly productive, that is these outlays

do not expand surplus value even indirectly. Unproductive

should not here be equated with unnecessary for these

 

 

 

115
expenditures, like the outlays for the reproduction of labor
power in Marx's schema, are "functional necessities" for the
maintenance of the capitalist system. Welfare at home (Piven
and Cloward, 1972) and counterinsurgency abroad (Klare, 1972)
are examples.

Although the categories social capital and social ex-
penses interpenetrate each other (a point O'Connor, 1974,
stresses:7) in conjunction with a graSp of the state as
instrument they provide the essential framework for the
analysis of the fusion of big COpper and the U.S. state.

In what follows I attempt this analysis for the 1944-1973
period. I begin with a discussion Of the state as instru-
ment and then move on to a more extensive examination of

social expenses of legitimation which arise from the rhythm

of capital accumulation on the part of big copper.

 

 

. ’. l
’ .———~- ..

V' ...—

 

116

NOTES

1

I have used 1969 as the last year in both Tables 1 and
2 since the rankings and ratios for the 1970-1973 period
would be affected by the nationalization of COpper in Chile
in 1971. This is particularly true for Anaconda which had
dropped behind Kennecott in sales and assets in the 1973
rankings. The latter company's structure was also affected
although not to the same degree.

2

The word suspension as it captures the relationship
between the "return to normalcy" of the 1920's and the
earlier elaboration of the political economy of modern lib-
eralism has two contradictory senses. On the one hand it
means to stop, to end, while on the other it means to sus-
tain, to hold. Both of these senses are implied here, '

 

 

 

 

CHAPTER 3
AN ATTEMPT TO INTERNATIONALIZE THE NATIONAL RULES OF

THE GAME: THE STATE AS INSTRUMENT

The instrumental function of the kapitalistate falls
under the normally accepted rules of the game. Few social
theorists devote much time or effort to the consideration
of the state as instrument of the capitalist class and busi-
nessmen, while they certainly have a day to day awareness
of these facts, do not write theoretical treatises. In it-
self, the easy assumption of this reality is a tribute to

the hegemony of the bourgeois social order. Nevertheless,

n_it is worth summarizing the historical function of the U.S.

"state as an instrument in the development Of the mining in-
ydustry and the options excluded in the development Of a
legal framework for mineral exploitation. This will enable
us to see more clearly the meaning of efforts by big COpper,
and big capital in general, to reproduce this pattern on
the international level in the coming struggle for control
over undersea mineral deposits.

There are at least two patterns of mineral exploitation
excluded by the capital/state relationship which have emerged
in the U.S. The first pattern would have the state itself

develop minerals such as copper, iron, and (later) aluminum

117

 

 

 

 

 

l

 

118

since these metals are necessary inputs in so many other
industries. The model would be that of public utilities
where a particular commodity is defined as a state input, a
form of social constant capital. The state developed min-
eral industry would have been Operated either at cost, thus
decreasing the constant capital outlays of private capital,
or to raise state revenue. The rate of profit but not the
rate of surplus value would be increased in the former case.
Pre-capitalist states such as Rome have Often pursued the
latter course in an attempt to solve their own version of
the fiscal crisis (Rostovtzeff, 1926:225). In either case,
access to mineral supplies would have been Open to capital
at large, limiting the possibility of preferred buyer/
seller relationships and generalizing both external eco-

nomies and economies of scale. While state social constant

."_capital investment in mineral development would have fur-

'thered capital accumulation, it would have limited the con-
~tributiOn of minerals to unequal rates of accumulation,
acting also as a counter to the tendency towards uneven de-
velopment. Here the timing of the development of new de-
posits, the setting of output levels, and the rate of
depletion of old deposits would have differed from that of
any individual corporation and from the simple sum of cor-
porate decisions. This would also be true for the substi-
tution of competing metals, e.g., COpper and aluminum, re-

search priorities, and the calculus of social costs in

mineral development. While for an earlier period this

 

 

 

 

119
pattern of mineral development may be considered marginal
to the social structure of capitalism, it is certainly not
incompatible with the thrust of capital for surplus value.
The interests of private capital as a whole would be served
as is the case with state industry in Western Europe
(Kidron, 1970:Chapter l; Shonfield, 1969:Chapter 5; O'Connor,
1974:183-188).

There is still a second pattern excluded by the U.S.
case which is clearly within the capitalist rules of the
game. In the areas of the world colonized by Spain and
Portugual, particularly Latin America, the operating rules
retained all of the subsoil and mineral rights as the pre-
serve of the state. By and large, for both fiscal and
ideological reasons, the state in these nations has not
developed and operated these mineral deposits but has in-
.stead leased.claim to individuals and firms for a specific
period of time. ,The time involved has often been so long,
'e.g., §9 years, as to mean effective loss of state influ-
ence. Nevertheless, this legal tradition has been the
groundwork for state operated mining and petroleum companies
in Latin nations (see Tanzer, 1970:Chapters 22 and 25 on
state oil companies in Latin America).

Rather than following either of these patterns, the
U.S., reflecting its English colonial experience, followed
the practice of Anglo-Saxon law. During the early years

as an independent nation, the individual states provided

the legal framework for mineral development. Both businesses

 

 

 

 

 

120
and markets were small and the differing state laws pre-
sented no immediate problems. The boost given to regional
and national business by the Civil War, the new technologies
of large scale production, and the elaboration of a trans-
portation network integrating previously disparate markets
changed this, however (Faulkner, 1960:327ff and 477; Selig-
man, 1971:91-112). Thus, by 1860 when the U.S. census
showed a frontier area almost exactly equal to the already
settled regions of the country, the expansion of capital re-
quired the supersession of the conflicting legal frameworks

of the individual states. Here mining led the way. "The

 

search for minerals, which had played such a major role in
the early exploration and settlement of the American conti-
nent, again became an important influence..." (Faulkner,
1960:348). By 1890, the last frontier had been closed.
The mineral-led development of these areas was based
heavily on the legal framework established by the first
{federal mining codes of 1866 and 1872. These codes con-
tained two key provisions. First, corporations and indi-
viduals were given free access to the public domain;
second, low cost purchase--originally $5.00 an acre--was
legislated for lode claims (McMahon, 1965:313). The codes
were cast in the universalism characteristic of capitalist
legal relations. The equally characteristic substantive
inequality of capitalist society assured that it was to be
yet another case where the effective rule was to be the

famous dictum of Anatole France: "The law, in its majestic

 

 

 

121
equality forbids the rich as well as the poor to sleep under
bridges, steal bread, or beg in the streets." All of this
was of particular significance for copper since it was only
a decade after the 1872 code that the first electric gen-
erating stations were built in NYC, London, and Milan.
Within another quarter century the automobile made its first
appearance. The development of a mining code and the rise
of the electrical industry transformed the composition of
end use for copper and radically increased the volume of
demand at a time when the states which were to dwarf the
output of the then premier COpper district of the world-—
Michigan--were being opened up to settlement. Each member
of the triumvirate of big copper was established in the
1880-1910 period and each has found their richest domestic
sources of copper in the five states of Arizona, Montana,
Nevada, New Mexico, and Utah (Richter, 1927a). All of these
were, of course, largely part of the public domain at the
time of the first federal mining code and even today, when
20 percent of the contiguous U.S. is still within the public
domain, fully 50 percent of these five states remain so sit-
uated (United States, Dept. of Interior, l973:v-2).

For big copper the framework established by these early
state actiOns has been a profitable and generally smoothly
working system for the last century. Now, however, a new
game has begun and the stakes are high. By the early 1960's

it was clear that the undersea mineral nodules (sometimes

called manganese nodules) contained manganese, copper, iron,

 

 

‘ h’h _: wr-

VIZ?

 

122
nickel, and cobalt to a total amount probably in excess of
all that found on the dry land surface of the earth (see
for example, the September 1959 E851 editorial "Who Owns
the Sea?"). Thus, at a time when some minerals are ap-
proaching absolute exhaustion in the U.S. and when the
richest, most economical sources of many others are more
likely to be found in the hinterlands of world capitalism,
big capital is presented with a new opportunity for expan-
sion. There is, however, a crucial problem. Most of the
nodules are located in international waters. Does it follow
that they should be "internationalized" minerals, in the
development of which all nations shall participate?

Big COpper, at least, has an answer to this query and
the answer is no. Kennecott has been a leader among miner-
al multinationals in the exploration of the ocean floor,
beginning in 1967 to allocate substantial resources for
such work (Kennecott Annual Reports). The U.S. state has
been a coparticipant in this concern. In 1963 the United
States Bureau of Mines (USBM) began a research program on
the problems associated with metal and mineral mining under
the ocean floor. During the same year the U.S. Geological
Survey announced a five year study of the ocean floor
(5251' February 1963:20 and May 1963:23). In 1967, the
USBM undertook a program for underseas mining development
in cooperation with private capital and the next year Senator

Pell of Rhode Island proposed an Ocean Space Treaty while

Kennecott began active prospecting on the Pacific floor

 

 

 

 

fiifi'

 

If":

 

.lf

4
\

 

123

(Eggg, February 1967:17 and July 1968:86). In 1969 the
Marine Science Council, a state/capital group, issued a re-
port urging that state agencies direct their energies to
research on mineral extraction and mapping the ocean floor
rather than on actual mining or the development of hardware
for mining. The latter tasks were thought best left to pri—
vate capital (gggg, January 1969:16). The next month
Kennecott's General Council Malcolm R. Wilkey called for a
new mining claims law for operations on the U.S. continental
shelf, for defined boundaries between territorial and inter-
national waters, and for provisions for activity on the part
of private capital in the latter area. He went on to sug-
gest that underseas minerals would become a significant
component of world output in 7-10 years (Eéfllv February 1969:
124; Kennecott Annual Report, 1969). Later that year, the
Assistant Secretary of the Interior for Mineral Resources,
Hollis M. Dole, gave added impetus to this thrust by warning
of a mineral shortage within twenty to thirty years which
could depress the standards of living among the rich nations
of the globe. Dole urged the need to develop foreign
sources and new technology to tap unused mineral deposits
(gggg, May 1969:15).

Here the stategic concerns of the metropole state have
come into play, providing support for but also acting inde-
pendently of the private calculus of multinational mining

capital (Girvan, 1971a:18-21 and 26-37, discusses the im-

portance of metropole state strategic interests in the

 

 

 

 

124
determination of incremental mineral output and guaranteed
access to supplies in the case of Jamaican bauxite). That
is, a fusion of the state as instrument-~the efforts, de-
tailed below, to define underseas mining as an area suitable
for private capital accumulation--and the state as struc-
ture-~social investment--is occurring. The concerns of the
metropole state, as they have been manifested in internation-
al debates and conferences over underseas mining, are three-
fold. (1) Controlled access to underseas minerals, that is,
access through the internationalization of nationally based
capital, will provide assured supplies of these materials to
meet future needs. This has been a recurrent concern of
the U.S. state (Bidwell, 1958), first reflected in the Paley
Report of 1952 and most recently expressed in the Annual
Reports of the Secretary of the Interior under the 1970
Mining and Minerals Policy Act. (2) Underseas mineral re-
sources could lessen the need of metropole nations. This
concern is closely tied to the question of controlled and
secure access. Here, underseas mineral deposits are per-
ceived as providing a counter lever against rising third
world nationalism. Would Chile, for example, have been as
quick to nationalize U.S. copper investments--without com-
pensation, no 1ess--if the threat of a Kennecott vice pres-
ident to make Chile a "residual supplier" of the metal
could have been realized through production from underseas

mining? (3) Finally, the U.S-, along with Japan and sev-

eral other capitalist metropoles are net importers of raw

 

 

 

”g “m
C o _'

m-O

\~'

I?

125
materials. This is a regular and rising negative entry in
the balance of payments at a time when international compe-
tition for both markets and raw materials is increasing
sharply. (As early as 1965 the U.S. government was reported
pressuring the mining industry to improve its balance of
payments as reported in BEMJ, November 1965:23.) Underseas
mining could alleviate this problem, giving the state
greater freedom of action in the arena of international
politics. (These three themes emerge from a reading of
articles in mining publications such as Eéfll and Copper,
newspaper accounts and the Reports of the Secretary of
Interior issued under the 1970 Mining and Minerals Policy
Act. See also the statement of C. H. Burgess, Kennecott

vice president in Mineral Resources and the entire volume.)

 

There are, however, other players in this game who
have a different conception of what the appropriate rules
are. Most of the smaller nations of the world are seeking
UN control of mining under international waters and for a
pooling of resources in the development of underseas min-
eral deposits. The reason is simple: The cost of a single
underseas mining operation is estimated at $300 million, a
sum considerably beyond the reach of many smaller countries.
International cooperation is desired also for deve10pment
of technology and for market size sufficient to absorb the
output from such a large investment. The possibility here

is for an international rules of the game which would par-

allel one of the patterns excluded in the U.S. case. The

 

 

 

v. .- 77mfiv
v v '

 

126

[m could invest the social constant capital necessary to
develop these resources and Operate them at cost or as a
revenue source. In either case, the relative independence
and the hopes for industrialization of hinterland nations
would be increased. Both patterns would also increase the
potential of the UN as a world government. This would be
particularly true if the minerals were used to raise revenue,
emancipating the UN financially from the political influence
of the metropoles (cf Logue, 1973:405—418).

The conflict over the future of mineral nodules has

been joined on the floor Of the UN with the U.S. leading the

 

Opposition to international control of underseas mining and,
where outright opposition seems too politically costly;
urging a go slow policy (EEMJ, March 1969:16). The third
Law of the Sea Conference, in 1974, took up this issue but
”-was unable to-resolve it. Thus the conflict has been re-
scheduled for future meetings.

At present a stalemate exists between the political
weight of the third world and the economic and military
weight of the U.S. and a few metropole allies. The stand
of the U.S.S.R., which could be crucial in the outcome, is
still unclear. However, the mineral multinationals must
be considered as another element in this conflict. It can-
not be assumed that the interests Of the metrOpole state
and big COpper, or big capital in general are identical. I
suspect that the latter would not be unhappy if the UN were

to emerge as a new state structure and instrument with the

 

an

’5

 

 

 

127
gmwer to establish and enforce the rules of the game in
underseas mining. This would be acceptable if the social
investment necessary for private capital accumulation
(mapping of the undersea deposits, research on extraction
techniques) were also to take place under UN auspices but
with private appropriation of the profits from mining itself.
The outcome would be an international political capitalism
with stability, predictability, and security greatly en—
hanced for private capital. This internationalization of
capitalist rationality would further emancipate the multi—
nationals from their metropole states and at the same time
increase the dependency Of hinterland states on the policies

of these same multinationals.

 

CHAPTER 4

THE STATE AS STRUCTURE: SOCIAL CAPITAL

State Social Investment in Physical Capital:

 

Diversification and Stockpiling

 

State social constant capital investment in physical
capital increases the productivity of a given amount of
labor power and is thus indirectly productive. State out-

lays Of this nature remain only indirectly productive be-

‘1' 3 v. Tut—t"?

cause monopoly capital socializes much or all Of the costs
Of planning and developing physical capital projects while
continuing to privately appropriate the profits. Thus these
_state outlays'only indirectly lessen the fiscal crisis, i.e.,
only through the-increased tax revenues arising from pri-
vate capital accumulation. This category Of state expendi—
ture has served the capital accumulation needs Of big copper
in two ways. On the one hand it has furthered efforts at
diversification while on the other it has evened out the
rate of capital accumulation on both an inter and intra in-
dustry basis. The former case involves state outlays which
were originally intended to provide a stockpile of materials
for national defense. An examination Of these outlays pro-
vides a first picture of the state as structure, the synthe-

sis of state and capital.

128

 

 

 

 

.9.-

~-

'Iv

 

 

‘In.

 

 

r.
"is

a .
'\
N'l

i

129

During the last half century the rate of growth Of
demand for aluminum has been much more rapid than for copper.
Although bauxite was not produced until 1910, by the 1960's
the expansion of capitalist world aluminum output had made
it the largest nonferrous metal by tonnage produced. The
divergent rates of growth for the two metals is expected to
continue for the remainder of this century. Aluminum and
copper are competing metals for several industrial uses,.
particularly in the electrical goods industry which has pro-
vided 50 percent of the market for COpper since the 1920's
(Brown and Butler, 1968:69-75; Parsons, 1933:20). Thus,
some of the expansion of demand for aluminum has come at the
expense of copper. For example, aluminum has displaced cop-
per in high voltage overhead power lines (Brown and Butler,
1968:166). Government studies in the 1950's showed that
during the 1945-1954 period, the 25 industries consuming 69
percent Of copper base mill products and 38 percent of
aluminum base mill products increased their demand for cop-
per only 1.6 percent while their demand for aluminum rose
66.3 percent (Copper, Spring 1957:5—6). Thus, despite cop-
per's established position as a monopoly sector industry,
its relative standing was being eroded. Even within the
monopoly sector the law of uneven deve10pment was working
itself out.

The decision on metal choice has in fact been cumula-

tive as the law suggests: once the shift to aluminum oc-

curs it is seldom reversed due to the investment in new

 

 

M

 

130

equipment, the commitment to new size specifications, and
the advantages of established and stable relations between
buyers and sellers. For example, Ford's decision to pur-
chase 30,000 tons of molten aluminum per year from Kaiser
was considered a breakthrough for the aluminum industry
(Girvan, 1971a:23). There are, of course, limits to the
possible aluminum penetration of copper markets. Thus, alu-
minum's greater volume per unit of conductivity means that
copper's position in telephones and electric motors remains
secure. Further, an era Of energy shortage gives copper a
cost advantage. Producing a ton Of the red metal requires
less than 20 percent Of the KW hours required to produce a
ton Of aluminum. Overall, however, a major force behind the
efforts of big copper to develop new markets has been the
penetration of aluminum into COpper's traditional markets.

Differing growth rates have not been the only contrast
between copper and aluminum. While there have long been
three major copper producers and numerous lesser firms,
Alcoa was the sole domestic producer of aluminum until the
end of World War II. During the war the state built alu—
minum facilities to meet the increased wartime demand. With
the end Of the war came the question of the disposal of
these facilities: should the state sell them to the company
with the most experience in the field, Alcoa, thus entrench-
ing and appearing to legitimate a monopoly or should new

producers be sought? The decision would Obviously affect

both the total rate Of capital accumulation and particularly

 

 

 

 

 

l“

131
Um rates for individual corporations. The final decision
vms designed to both encourage competitiveness in the indus-
try and to increase the rate of growth of aluminum output.
The state's 301 million dollar investment in bauxite mines,
smelters, and alumina plants was disposed of for $101.1 mil—
lion to Reynolds and Kaiser.

State social constant capital expenditures tO increase
aluminum production did not stop with the sales to Reynolds
and Kaiser, however. During this same period the state Of-
fered favorable terms for amortization Of investment and a
five year market guarantee to new capital entering aluminum
production (Brown and Butler, 1968:145; Girvan, l97la:82-83).
Big copper had long been concerned by competition with alu-
minum and in 1952 Anaconda (along with two smaller firms,
Ormet and Harvey) became a reducer Of alumina. Although
initially dependent on Reynolds as an alumina source, Ana-
conda quickly began efforts to integrate forwards and back—
wards, researching the possibility of producing alumina from
clays in Georgia and Idaho and establishing an aluminum
fabricating facility. In the former effort they were aided
by USBM research while their venture into fabricating was
facilitated by the similarity with COpper fabricating (Brown
and Butler, 1968:145-147; EQMJ, November 1952:136 and Janu-

ary 1957:80-85; Anaconda Annual Reports). While Anaconda

 

has remained the fourth largest producer Of aluminum in the
U.S., aluminum output has expanded much more rapidly than

copper production, increasing over 200 percent in the last

 

 

 

132

cmcade. Together with Ormet and Harvey, Anaconda has cut
into the market shares Of the big three in aluminum (Brown
and Butler, 1968:27; EEMJ, various issues; Anaconda Annual
Imports). The internationalization Of capital has also been
a force behind Anaconda's aluminum venture. Agreements with
the French firm Pechiney (the world's fifth largest aluminum
producer) enabled Anaconda to acquire advanced reduction
technology for their Columbia Falls, Montana plant. Frus~
trated with the efforts to produce aluminum economically
from alumina clays, Anaconda has joined with Reynolds and
Kaiser in the Alpart Project. The three companies will mine
bauxite and reduce alumina in Jamaica, shipping the product
to their U.S. plants for further processing (ggflg, January
1967:81, OECD, 1969:58).

On the one hand, these state expenditures represent
social investments in physical capital: the below cost sale
of the plant and equipment, favorable amortization terms,
and market guarantees. From the perspective of the major
political economic forces behind these decisions, that is
undoubtedly the correct classification. However, if analyzed
from the perspective of the copper industry suffering from
the costs of uneven development in its competitive struggle
with aluminum, these state expenditures functioned as social
expense outlays. The divergent interests of copper and alu—
minum producers were integrated within the larger class

imperative of an increased rate of capital accumulation.

The interpenetration of state and capital converted interest

 

 

 

133
group conflict, which "is inconsistent with the survival
and expansion Of capitalism" (O'Connor, 1974:67), into the
common denominator of class interest (cf O'Connor, 1974:
65-70 on this point). Further, state expenditures made it
possible for Anaconda to socialize the risks of uneven de-
velopment. Fluctuations in Anaconda's rate of capital ac—
cumulation were no longer tied to the fortunes of copper in
its competitive struggle with aluminum. Rather, different
regions, towns, or segments of the international proletariat
within the organizational framework Of Anaconda now bore the
brunt of the shifting demand for the two metals. Domestical-
ly, Anaconda, Montana--1ong time center of Anaconda's copper
processing--declines while Columbia Falls, Montana, with its
new aluminum refining and fabricating capacity, grows.l In-
ternationally, Anaconda's Chilean copper competed with its
Jamaican aluminum. Anaconda, however, kept on growing.

The unceasing efforts of capital to transform external
unpredictable outcomes of the market into internal con-
trollable decisions of the firm (Galbraith, 1967:Chapter 2),
is characteristic of big copper also. Here the concern is
with "wasteful" competition and the problems Of over and
under production. The lack of control over production levels
and existence Of alternating periods Of slack and capacity-
straining demand means uneveness in the rate of capital ac-
cumulation by price instability. The result is difficulty

in corporate planning and, once again, the spector of alu-

minum penetration of copper markets since the higher degree

 

 

 

134

of concentration in the production of aluminum has resulted
in greater price stability for that metal in recent years.
As a selling point, price stability is particularly impor-
tant in the producer goods sector of the economy where the
ability to control, and if possible, reduce, prices is em-
phasized (Baran and Sweezy, 1966:68-70). This is difficult
if the price of an important component of the final good,
such as copper, is not readily predictable.

State expenditures for stockpiling enter here since
they both further the accumulation of capital and act as a
price stabilization mechanism. At the same time, the network
of stockpile and purchasing agencies, legislative guide-
lines, and private capital graphically illustrate the state
as structure. Stockpiling, of course, was not begun with
these purposes in mind. Although industry publications such
as EQMJ had been calling for such action as a "preparedness
measure" and incidentally as an industry relief measure
(EEMJ, January 1939 editorial), well before World War II,
it was the war itself which provided the impetus for state
stockpiles. The rationale lay in the key role that many
minerals, including copper, play in armaments production.
Since the major sources of several of these metals are out-
side the U.S., governmental stockpiling would assure access
to the needed raw materials. Thus, the initial state ex-

penditures in this area should be understood as social ex-

penses and only secondarily as social investment.

 

 

 

135

All of this seems straightforward enough, but (1) the
ideology Of national interest is a very malleable one and
(2) once a national security establishment is created, the
agencies involved attempt to maximize their resources and
functions, that is to tie themselves more firmly to expanding
industrial sectors and, in turn, to aid in that expansion
(see Barnet, 1973:13ff on this latter point). Let me take
these complicating factors in order. The initial stockpile
legislation, the 1939 Strategic Metals Act, specified only
that the minerals and metals involved should come from U.S.
producers but not necessarily from domestic ores. A con-
flict over this question quickly deveIOped. Competitive
capital argued that national security and national defense
meant national--the support of existing domestic producers
and, as in the case of copper, where domestic capacity was
lacking, state constant capital expenditures to increase
the output Of the resources in question. Thus, stockpiles
were quickly tied to capital accumulation through the ide-
ology of "a national minerals policy." Big copper, along
with other multinational mining corporations responded that
the goal was adequate resources for national defense and
that whether these came from domestic ores or foreign ores
under the control of U.S. producers was a secondary issue.
The defense policy of these interests was often cast in

terms of a "Western Hemisphere policy, arguing that we

could retreat to "our" hemisphere and have all raw materials

necessary for an extended war. (The information in this

 

 

 

 

136

paragraph is drawn from the following sources: Bidwell,
1958:38-42; pggg, 1939-1940; and McMahon, 1965:327-328.)
The political conflict between large and small producers
mirrored a differing conception of future of the capitalist
political economy. Competitive capital sought to maximize
the rate of capital accumulation for national and regional
capital while monopoly capital saw the imperative of capital
accumulation on the international level.

Competitive capital found its political voice in this

debate in the members of Congress from the western mining

 

states while big capital pursued their interests through the 1»
Secretaries of Navy, War, and Defense (EEMJ, 1940-1941).
The simple exigencies of an escalating war demand for raw
materials propelled the state towards the policy Of big
capital but part of the political goals Of small capital
(including competitive copper) were realized in the post
war stockpile programs. That is to say that while state
constant capital outlays were responsive to the demands of
monopoly capital, the state also incorporated the potential-
ly politically disruptive pressures of competitive capital.
TO understand this process we must consider the second point
raised above, the ability of state agencies to link their
survival and growth to the demands of capital and the stra-
tegic interests of the state.

Whatever the outcome of the debate over the responsi-

bility for the origins of the Cold War (contrast Schlesinger,

1967 and Williams, 1967) one reality cannot be denied: the

 

 

 
 
 

 

137

Cold War as a militarized peace served the interests Of cap-
ital and the state alike. For the mineral industry, the

Cold War ideology was the framework for the continuation and
expansion of state stockpiling. When the Strategic Materials
Act expired in 1946, it was renewed as the Strategic and
Critical Materials Stockpiling Act and retained under con-
gressional control (Bidwell, 1958:39-40; Wideman, 1965:289).
In the early years Of the Cold War it was still possible for
state agencies tO clash over military vs. economic priori-
ties as the Commerce Department and the Defense Department
(DOD) did in 1948. The Commerce Department questioned the
wisdom Of stockpiling metals in short supply domestically
while the DOD demanded assured availability of metals for
the coming conflict with the U.S.S.R. With Truman's backing,
the DOD's military definition of reality triumphed (EgMJ,
February 1948:121).

Along with business in general, mining interests in-
creasingly saw the economic and strategic needs of the
nation not in conflict but as a seamless whole, the unity
behind leadership in foreign affairs and domestic prosper-
ity. Thus, Eéfll repeatedly argued that military prepared-
ness, including stockpiling, and mineral industry growth
and expansion were two results of the same state policies.
Typical was a May 1948 piece by Col. G. A. Lincoln entitled
"Military Strategy and Minerals." Col. Lincoln saw minerals
as the key to a rising standard of living domestically (the

«ever-expanding economy) and success in foreign warfare.

 

 

 

 

'.
‘c

 

'~

 

.
.
H“

 

 

138
Stockpiles would serve both purposes and also further the
political-economic thrust of the United States in the Third
WOrld (EEMJ, May 1948:84-88). In that same year, another
ggpl article pointed out the connection between the Marshall
Plan and assured continued access Of the U.S. to mineral
supplies from West Europe's colonial empires (EgMJ, Septem-
ber 1948:70-74). Two years later, the fate of the U.S.
mineral industry was linked to the future of civilization
itself in an editorial entitled "A Mining Program to Defend

Civilization." Once again state social constant capital

 

 

 

investment was to provide production incentives and finan-

‘Ei‘.

cial aid to mining (EEMJ, September 1950:66-70).

State response to the perceived threat took the form
of the Defense Production Act of 1950 (DPA). The DPA.
created a second stockpile, under the control of the execu-
tive, and established the Defense Minerals Exploration Ad-
ministration tO provide financial support in the exploration
and development of minerals in the U.S. (Brown and Butler,
1968:1543 McMahon, 1965:325; Wideman, 1965:289). Aid took
the form of tax concessions and a guaranteed market for a
state—capital negotiated portion of the output of mines de—
‘veloped under the program. By the early 1960's it was be-
lieved by at least one expert in the area that the DPA pro-
gram (under which over 800,000 tons of COpper were pur-
chased) had boosted U.S. copper output above the level the

(wast/price relationships prevailing in the industry would

otherwise have produced (Herfindahl, 1959:138) .

 

 

 

c|

r/

 

139

Like and ideology in which the central tenet is national
interest or national security, the Cold War weltangschauung
proved quite flexible. In 1954, still a third, Supplemental,
stockpile was established, but this time in Opposition to
the priorities of mining capital. The metals in this stock-
pile were to be acquired neither from U.S. domestic nor
foreign-owned mines, but directly from the stocks on hand in
third world nations. These were the halycon days of agri-
cultural surpluses and the synthesis of state and agricul-
tural interests, acting through the Department of Agricul-

ture, had concluded that farmers could be aided and the

‘ -
!\ ~'
-._._ .

national defense served by the exchange of agricultural com-
modities with raw materials from allied nations with a food
deficit (Bidwell, 1958:43-44). Mining capital, including

big copper, Opposed this Supplemental Stockpile on three

. _grounds: (l)'it was administered and controlled by state

agencies tied to-agriculture rather than mining; (2) it was
.thought to be a disruptive influence on the world market,
although producers were split over this point; and (3) re-
leases from this stockpile were beyond the control of mining
interests. In June of 1957 copper and other mining inter-
ests forced a temporary halt in this stockpile through a
congressional investigation of the agricultural surplus/raw
materials barter scheme. When the Supplemental Stockpile
was reinstated later in the year, it was under much tighter
administrative control and a sharp decline in the amounts

involved resulted (E&MJ, June 1957:78, 118 and August 1957:

128).

 

 

 

140

Despite the demise of the Supplemental Stockpile, state
accumulation of raw material stocks continued throughout the
1950's and into the 1960's. However, the rate of stockpile
accumulation was clearly subordinated to the rate of private
capital accumulation. When the demand for a mineral was
particularly weak, stockpile purchases would increase and
political pressure would mount for raising the stockpile
ceiling. On the other hand, as demand recovered, stockpile
purchases could be delayed with the firm retaining the right
to sell increased amounts to the state in the future to meet
its stockpile quota. While this pattern was Of greatest
importance to competitive capital whose marginality is under-
lined during periods Of slack demand, big copper was also
involved. Thus Anaconda and Kennecott used this mechanism
to hold onto their dominant position in the production of
1_ tin and zine,~metals in which the U.S. is a high coSt pro-
ducer. Even within the copper industry itself, the same
‘dynamic operated. For example, in early 1957 Egg; reported
a market decline in demand for copper stimulating copper
sales to the state following an extended period during
which the state allowed capital to divert output needed
under the stockpiling program to civilian use (Egflg, January
1957:119; see Eéfli throughout the 1950-1960 decade for evi-
<dence of this pattern; Bidwell, 1958 also discusses the
politics of stockpiling). In the case Of each metal, state
stockpile purchases helped to even out the rate of capital

acxzumulation and to dampen the impact of market fluctuations.

 

 

2.0.4 ‘

‘ “Tm-r

l

 

 

 

 

 

 

141
In short, the synthesis of state and capital created the
more predictable and stable economic environment required by
political capitalism.

The new Kennedy administration briefly considered
ending stockpiling altogether and released the previously
classified information on stockpile quotas and stocks ac-
tually on hand (E&MJ, March 1962:21 and April 1962:25; United
States, Dept. Of Interior, 1972:4-5). However, for most of
the 1960's the problem Of COpper price stability and the
strategic interests Of the state dominated the politics of
stockpiling. As the U.S. became ever more mired in Indo-
china, copper price stability, which had been established
in 1962 at 31¢/lb., began to crack, creating a dual U.S./
world market structure with an initial 3-4¢/lb. gap appear-

ing by the early months Of 1964 (E&MJ, March 1964:23;

,,”_O'Hanlon, 1966:118). By the end Of the year, copper prices

had begun to rise, While it might seem that producers, at

ileast, would not Oppose such an increase, the fear of alu-

minum penetration of copper markets must once again be re-
membered. In addition, price increases stimulate output
frrnn marginal mines and an influx of scrap. As supply
catches up with and surpasses demand, prices begin to fall
creating further instability. While the state is not in—
terested in COpper price stability from the same perspec-
tive: as big COpper, there was a convergence of goals during
time Indochina War. Rising copper prices would increase the

cost:<Df the war, putting additional strains on state

 

 

 

 

 

..u.

.k

142

resources and perhaps forcing a tax increase. Since this
was politically costly for an undeclared and increasingly
Impopular war, the state responded by using the stockpiles
to exert leverage on COpper prices. Once again it was the
case that neither producers nor consumers in a monOpoly sec-
tor industry such as copper are interested in market deter-
mination Of prices (Brown and Butler, 1968:145).

During 1965-1967, 550,000 tons Of the 835,000 tons Of
stockpiled COpper were released on the basis of a defense

priority (Report of the Subcommittee, 1970:19). The first

step in this, eventually, unsuccessful effort to stabilize
copper prices came in early 1965 with a release of 20,000
tons, considerably below the 100,000 ton release sought by
Senators Mansfield and Symington but Opposed by the pro-
ducers as so large as to disrupt the normal market function-
ing (E&MJ, January 1965:19). As it became evident that
stockpile releases were to continue, the mining industry
pushed for and obtained legislation setting stockpile re—
lease prices at "fair market value" rather than presidential
Option (gggg, March 1965:19). This incipient conflict be-
tween big copper and the state came to a head in November
Of 1964 when Anaconda announced a further price increase Of
2¢/lb., bringing the U.S. price in line with the world
price of 38¢/lb. The state, in pursuit of its strategic
Objectives in Vietnam, countered with both short and long
term measures against the rising price of copper. The first

response was the release of 200,000 tons of copper, about 15

 

 

‘ _ fia—‘ggwt

143
percent of U.S. yearly consumption, and directives to the
DOD and FHA to encourage the substitution of aluminum wher-
ever possible. (The policy of substitution had only limited
effectiveness since within a year aluminum too was in short
supply and stockpile releases were necessary in an effort to
control price.) To increase the supply of copper over the
long run, the state revived the Office of Minerals Explora-
tion's (OME) program of payments to cover up to 50 percent
of the exploration cOsts of copper and other minerals (E&MJ,
December 1965:21 and August 1966:17; Forbes, 1970:28).
Under these pressures, plus the requested repeal of the
tariff on fabricated COpper, Anaconda's price increase,
which had been followed by all major producers except Kenne-
cott, was rescinded (O'Hanlon, 1966:119; Report of the Sub-

committee, 1970:17). To further augment supplies, the state

‘purchased 100,000 tons of COpper from Chile at the U.S.

rather than the higher LME price. The quid pro quo was a

forty year $10 million loan at less than 1 percent and a

promise of increased tax payments by Anaconda subsidiaries
(P'Hanlon, 1966:119; EgMJ, February 1966:25). State pres-
sure on the price of copper continued through 1967 when an-
other 150,000 tons were released from the stockpile.

The state effort to control the U.S. COpper price for
its own strategic interests took place in the context Of
rapidly rising world prices for the metal which were spurred
by strikes in 1964 and increased demand by India and the

U.S.S.RJ The outcome was the effective insulation of the

 

'-.. in WI-

'V.'iai‘l‘ ,

 

IN

~
.I

\

..fn

144
U.S. market from the world market. Copper from foreign pro-
ducers could not be expected to enter the U.S. market at
prices below those prevailing on the LME when consumption
outside the U.S. was high enough to absorb existing output
(E&MJ, December 1965:21 and February 1966:24). Here the
corporate interests of big COpper and the strategic inter-
ests of big copper and the strategic interests of the state
further diverged. While, as I have argued previously, price

stability is important to big COpper in its competitive

 

struggle with aluminum, the division between the U.S. and

the world market left over half of Anaconda's production

m“‘“- ‘7‘.

and about 30 percent of Kennecott's production out in the
cold. The division between the U.S. and the world market
was solidified for the companies by the politics of Eduardo

Frei's Christian Democratic Party. While Opposed to the

-- nationalization of the U.S. properties in Chile, the re-

formist PDC was interested in raising the "take" of the
’Chilean state from these properties, both to undercut the
appeal of the left's call for nationalization and to help
finance Chilean deve10pment. Chilean revenues from copper
production were in part dependent on the market price for
copper; Thus, the Chilean state began for force the com-
panies to sell Chilean copper at the LME price rather than
the lower U.S. producer's price. As the gap between the
LME and the U.S. price widened (it was already more than
25¢/1b. by mid 1966), Anaconda and Kennecott found them-

selves unable tO profitably integrate their now more costly

 

(.

 

145

Chilean output with their U.S. refining and fabricating

facilities. Thus, the companies turned increasingly to West

EurOpe as a market for their Chilean copper during the latter

1960's. Ironically, the strategic interests of the metro-
pole state in Indochina produced corporate policies leading

to a market shift which worked to the advantage of the

Unidad Popular when they nationalized the companies' Chilean

properties in 1971. Allende was not faced with retaliation
through the immediate loss of the U.S. as Chile's major
market. (Information in this paragraph is drawn from EEMJ,
February 1966:80-82; May 1966:29, and January 1967:21;
Girvan, 1972:35-37; O'Hanlon, 1966:119, 121, 235.)

The politics and economics of stockpiles and stockpile
releases represents the interpenetration Of social expenses
for the maintenance of empire with social constant capital
_ outlays for~capital accumulation. Three relationships of
the larger political economy are illuminated through an
'examination of this interpenetration. (1) State social ex-
pense outlays for stockpiling also Serve as social constant
capital outlays to sustain and level the rate of capital
accumulation. Thus, the impact of the instability of the
producer goods sector demand for COpper is lessened. Here
both big copper and the state share an interest in subsum-
ing the market. (2) The interests of surplus capitalists
in the competitive sector are integrated through the syn-
-thesis of state and capital into the class imperative of

‘the ever-expanding ecOnomy. Here state social constant

 

 

, -' ( “Wm a_

P --
063 o-

 

.Fu

 

‘

.‘l

146
ll outlays for mineral exploration and development do
a duty as social expenses of legitimation. (3) The
egic interests of the state take on a relative autonomy
2 pursuit Of stockpile quotas in particular and assured
3 to raw materials in general. State outlays and
.es designed to realize the "national interest" may at
conflict with the corporate interests of any given
1t of big capital. In sum, the interpenetration of
L expenses and Social constant capital in the political
1y of stockpiling reveals the fundamental unity of the

:e/welfare state.

State Social Investment in Human Capital:
Rationalization and Diversification

Social constant capital investment in "human capital"
3 second-type of state outlay for increasing the pro-
rity of labor power. Much of the expenditure falls
the broad category of state supported research and
3pment. While the costs of scientific and technical
:e are socialized through the state's use of tax rev-
, the fiscal crisis is not eased since the technical
ity gained from these investments is turned over to
te capital for development. That is to say that both
and risks have been socialized but profits continue
privately appropriated. For big COpper, state expen-
es of this type have played a key role in the efforts

tionalization and in the drive to diversify. In the

 

 

2.1;-

«ch
w.

 
 
 

 

 

 

147

former case, the mineralogical and geological knowledge
gained from state projects creates a technically skilled
labor force that can avoid much of the uncertainty and risk
of mineral exploration, thus increasing the rate of ex-
ploitation. In the latter case, state expenditures in the
development of new metals map out routes for profitable
capital accumulation, increasing the productivity of the
labor force employed in capital's efforts to develop new
product lines and new markets. Once again, the total pat-
tern is one Of the interpenetration of state agencies and
private capital, the state as structure.

The transformation of the unknown parameters of a sit-
uation into calculable variables is the essence of the pro-
cess of rationalization, the overarching goal Of political

capitalism. From its inception as the Federal Bureau of

. _Mines, the USBM has been the rationalizing agency par excel-

lgpgg. The agency Carries out extensive research on explor-
iation, deve10pment, and Operating difficulties in metal
mining. Particularly useful for big COpper (and other min-
eral interests) have been the USBM's studies Of rock me-
chanics and geological structures and their relationship to
mineral deposits (McMahon, 1965:308-309). The USBM also

publishes an annual Minerals Yearbook and a periodic Mineral

 

Facts and Problems which are valuable data sources for long
term assessments of both supply and market situations. As
the political economy of U.S. mineral supplies has been in-

ternationalized in the post 1940 decades, a volume on foreign

 

 

 

I IMI‘I ‘

t

~i~

I.
\a

A w
..o

148

output has been added to the Minerals Yearbook. A sister

 

state agency, the United States Geological Survey has worked
in close cooperation with the USBM in recent years. The
Geological Survey was given the task of mapping the conti-
nental shelf, making the maps available for industry use in
late 1969 (E&MJ, September 1969:16).

The projects undertaken by the USBM are not limited to
those which increase the rate of capital accumulation for l
mining capital as a whole. The relationship between the 5

agency and capital provides a classic case of "the private

 

appropriation of state power for particularistic ends" E
(O'Connor, l974:9). A couple of examples will suffice to

clarify this process. In 1961 it was the USBM's Salt Lake

City research facility that was responsible for develOping

the flotation process which made Anaconda's Mount Washington

._ beryllium ores economically mineable (E&MJ, January 1962:

138; the Mount Washington mine was itself developed for an-
'other state agency, the ABC and is discussed below). In
1967 the USBM developed the process by which uranium could
be extracted from Kennecott's Bingham Canyon Mine COpper.
This research both brought a new firm into the uranium in-
dustry and raised the productivity of the labor in that mine

(E&MJ, October 1967:140; Kennecott Annual Report).

 

The free market in labor which characterizes advanced
capitalism means that any individual unit of capital risks
losing the increased technical skills (and thus the in-
creased rate of exploitation) which its own labor force may

acquire. Thus, much of the state's social variable capital

 

 

 

 

-
-

 

 

 

149
outlays for research and development serve the interests of
mining capital as a whole. Perhaps the most spectacular
example of this type of state expenditure is the USBM's co-
operation with NASA in the Earth Resources Observation Sat-
ellite Program under the aegis of the Department of Interior.
Together these agencies planned and launched satellites in
1972 and 1973 which used sensors and infrared devices to
Obtain land use maps, soil classifications, and mineralogical
information for the entire globe. The results are available
to mining capital at large, raising the productivity Of

labor engaged in exploration and deve10pment (E&MJ, November

QEET‘firfiwnm-r

1969:16 and September 1973:18; NASA:45-46). The internation-
alization of capital has thus propelled the internationaliza-
tion of the state as structure. I

Although the synthesis of state and capital in the USBM
.has been functional for the mining industry, for several
years big mining-capital has agitated for higher level rep-
Iresentation in federal mineral policy making. The Secretary
of the Interior is the cabinet official that represents
mining but he/she has a constituency much broader than
mining alone. As early as 1961 the big producers were sup-
porting a bill to create a U.S. Department Of Mineral Re-
sources with four subdivisions: coal, petroleum and natural
gas, metallic and nonmetallic minerals, and mineral patents
and leases (E&MJ, April 1961:19). That same year EEMJ_called
for a cabinet level Secretary of Mines who could Oppose

wilderness bills which threatened to withdraw federal land

from mining (E&MJ, May 1961:81).

 

 

 

 

150

Two deve10pments of the 1960's fed this initial concern
and were the impetus behind several other bills and committee
studies which culminated in the Mining and Minerals Policy
Act of 1970. On the one hand, mining capital and mining en-
gineers have never tired of arguing that a sound minerals
policy is the basis of national defense. The rising concern
over population growth and potential minerals shortages for
economic growth have spurred this impetus to political ac-
tion by big copper and other mineral interests (Anaconda

Annual Reports; Kennecott Annual Reports; United States,

 

 

Bureau of Mines, selected years). Secondly, the 1960's

veer—vw

decade witnessed increased pressure from ecology groups on
the Secretary of Interior to follow mineral and public land
policies which mining capital saw as detrimental to its

interests. In 1962 both Anaconda and Kennecott Opposed re-

-, classification of land around Anaconda, Montana as a Nation-

 

al Wildernesstrea and the creation of a national park at
'Wheeler Peak where Anaconda had a large beryllium mine
(E&MJ, April 1962:13 and July 1963:118). Big copper was
also part of the coalition which got the 1964 wilderness
bill watered down to include provisions requiring congres-
sional action to enlarge the area included in the bill and
funds for the USBM to search for deposits prior to the
December 31, 1983 cut off date for prospecting (E&MJ, Sep-

tember 1964:23).
Although former USBM chieprharles Will Wright called

for a cabinet level mineral department as early as 1966

 

 

 

151

(E&MJ, November 1966:17) and the USBM led the push for a new
Paley Report (E&MJ, February 1968:83), mining capital failed
in the efforts to obtain its maximum program. However,
early in 1969 the Mineral Science and Technology Panel of
the National Academy of Science released a report embodying
most of the goals of mining capital. The panel (composed of
industry and university representatives) called upon the
state to coordinate and increase support for mineral re-
search, especially that Of the USBM. In addition, state
outlays were to be used to provide incentives for research

by private capital, to employ more overseas mineral attaches,

was,“ - '5‘ -“‘-"‘“'F—'
I.

and to compile an annual report of the Secretary of the
Interior on the state of the nation's mineral resources.
Finally, the synthesis of state and capital was to be for-
malized through the creation of a cabinet level council on
_mineral resources. Most of these proposals were incorpor-
ated into the Mining and Minerals Policy Act of 1970 (E&MJ,
'March 1969:15 and June 1972:110-111; United States, Bureau
Of Mines, 1971; United States, Secretary of the Interior,
1972).

Mining capital remained unsatisfied with this arrange-
ment, however, and continued the effort for an independent
cabinet level department to deal with natural resources.
During the Nixon administration, this effort increasingly
took focus around a proposed Department of Natural Resources

(DNR) which would be concerned with the social costs Of

mining (particularly pollution and strip mining, see below),

 

 

 

 

'3

 

~‘I

 

 

‘&

152

the coordination of state policies and outlays in the area
of mineral resources, and the impending balance Of payments
deficit in minerals (E&MJ, February 1970:15: May 1972:9;
June 1972:111; and December l973:9). Although the DNR re-
mains an unrealized goal, Nixon took an important interim
step in early 1973 when he created a super cabinet position,
a Counsellor for Natural Resources, and appointed Earl Butz
to the post (E&MJ, February 1973:13). Mining capital was
well on the way to the creation of a new structure of state
and capital in the pursuit of rationalization and surplus
value.

State expenditures on human capital have also been
integral to the diversification efforts of mining capital
in general and big copper in particular. Here I will sketch
three examples of this process, two of which involve coop-

. eration between state agencies and Kennecott and the third

' with Anacondafin The second project involving Kennecott
'again demonstrates the strategic concerns of the state for
an adequate and secure source of raw materials and can be
considered a synthesis between state and the COpper industry
as a whole in an effort to boost U.S. copper reserves.

Eyen prior to World War II titanium was believed to
have great potential in several areas. In fact, it has the
reputation as almost a "super metal": lighter than aluminum,
stronger than steel, so corrosive resistent as to be almost
immune even to salt water (see United States, Bureau of

Mines, any issue for a discussion of the metal). However,

1

 

 

 
 
 

 

 
 

153
there is no economically feasible method for producing
titanium in a pure form and no single corporation was able
or willing to make the R & D investment required when there
was no guarantee of a return. Thus the task fell to the
USBM which carried out research for a decade. In 1946, the
agency perfected the Kroll Process for the production Of
titanium and made it available to private capital. In that
same year, Kennecott, which had already been prospecting
for titanium, discovered the world's richest mine in the
form of an iron-titanium deposit in Quebec. Over half a
million dollars were spent simple to explore and measure

the extent of the mine (Kennecott Annual Reports; Fortune,

 

1951b).

To develop the property, Kennecott acquired knowledge
of the Kroll Process, complementing their own constant cap-
_ ital outlays in the new metal with the social constant cap-
ital expenditures of the USBM. Kennecott then formed a
'joint venture with New Jersey Zinc which had developed a
smelting technique capable of recovering both iron and
titanium. The resulting Quebec Iron and Titanium Corpora-
tion (Q.I.T.), planned on a state market for the metal,
particularly because Of military interest. The state mar-
ket was to be the floor on which the new metal was launched,
eventually supplemented by rising civilian demand. This
same projection of product demand growth brought other mo-

nopoly sector corporations--DuPont, National Lead, Alleghany

Ludlum--into the field. While titanium powder rapidly found

 

 

 

 

..l
a

n

 

 

 

154
a secure market in paints, the state induced investment in
the metal created an overcrowded market situation during
most of the 1955-1965 period. However, demand picked up in
the latter 1960's and by 1970 Kennecott's Q.I.T. (they own
two-thirds) produced 65 percent more titanium slag than in

1966 (Kennecott Annual Reports; United States, Bureau of

 

Mines, 1970 and 1971; Fortune, 1951b).

While Kennecott was appropriating the socialized re-
search expenditure Of the USBM, Anaconda had cultivated a
similar relationship with the AEC. Once again it was the
case of a new material, uranium, where the technology and
markets were developed by and located within the state.
After the AEC had perfected the process Of uranium extrac-
tion, it was made available to private capitaL.and corpor-

ate involvement in uranium production was encouraged. As

__ in the case~of Kennecott's titanium, this encouragement

took the form 9f-a state market, this time a guaranteed
Ione. The ABC offered long term cost plus contracts for
uranium from private corporations. A further inducement was
also added. Since the military was clearly the only im-
mediately available market for uranium, tax relief was given
for capital expenditures incurred in its production on the
grounds of national defense needs (E&MJ, various years;
United States, Bureau of Mines, selected years).

Anaconda, which was straddled with relatively high

cost domestic mines, over half its copper output from for-

eign sources, and a slower gross revenue growth rate than

 

 

 

 

 

 

4

l I‘.‘

.1

C) .'

155
either Kennecott or Phelps Dodge during the 1940's, had
already moved into the production of minerals other than
copper. The company was the second largest producer and
largest processor of zinc in the U.S., the source of 60 per-
cent of U.S. manganese output, and the largest domestic
silver producer (Fortune, 1955:92-93). Thus Anaconda re-
sponded quickly to the social constant capital expenditures
of the AEC in uranium R & D, investing $12 million in
Grants, New Mexico facilities. By the latter 1950's Ana-
conda regularly ranked first or second in U.S. uranium pro-
duction and thus among uranium producers in the capitalist
world (E&MJ, March 1952:137 and June 1959:354; Anaconda

Annual Reports). Again, however, the private sector market

 

'for state induced production was slower in develOping than
predicted. While Anaconda and others had processing facil-
. ities by the end of the 1950's, market demand was insuf-
ficient to utilize the capacity available and the state was
icalled to the rescue. The ABC responded by signing stretch
out contracts with the companies throughout most of the
1960's. Under these contracts the uranium quotas of the
firms could be supplied over a longer period of time, al-
lowing demand in the private economy to gradually take up
the slack (E&MJ, December 1960:18 and January 1964:17).

The uranium connection proved fruitful for future efforts
of Anaconda towards diversification. In 1960 the company
began development of the largest desseminated beryllium

deposit in the 0.8. for the AEC. (Beryllium is a very

 

 

 

 

 

 

 

 

 

156

light, heat resistent metal used in aerospace, computers,
and electronics.) State investment in constant capital had
already devised the flotation process necessary for the ores
involved (E&MJ, January 1960:116; July 1960:21; December
1960:41).

The third example of state expenditures geared to the
increase of labor productivity through investment in human
capital also involves the AEC but this time in conjunction
with Kennecott. That company's announced intention to
prospect for future deposits only in politically secure
areas (E&MJ, July 1962:109) was undoubtedly important in
orienting Kennecott towards a project designed to increase
U.S. copper reserves. However, in this instance it is also
the larger concerns of the state for economic orchestration--
predictability of mineral access--that coincided with
_ Kennecott's~own private rationality to produce Project
Sloop. The lerger forces at work are simply stated. On
'the one hand, the U.S. is faced with declining ore content
of domestic reserves. This decline is occurring in the
context of rising third world nationalism which is Often
directed against foreign ownership of raw materials. The
multinationals and the metrOpole states have, on the whole,
been successful in the goal Of maintaining the pre-World
War II status quo of world distribution of raw material
ownership (Girvan and Jefferson, 1971:267-268; Tanzer, 1970:
9-20). However, this success has been largely predicated

on a U.S. hegemony which has been eroded during the latter

 

 

 

I‘J

 

157

1960's and early 1970's. The world is entering a period of
both inter-imperial rivalry and the maturation of China as
a third, noncapitalist, super power. Each of these trends
decreases the economic, political, and military power that
the U.S. state can bring to bear against nationalization.
While a metropole state may be induced to accept a national-
ization which provides for continued access to the raw
material in question even if "its own" capital receives a
poor financial deal, a potential conflict over access still
exists (Girvan, l97la:234-236). In short, there are strong
political-economic forces propelling the U.S. state towards
a policy of self sufficiency in raw materials.

One response to the coming U.S. crisis in raw materials
has been state social constant capital expenditures in
physical capital to stimulate exploration and development
_ of new reserves. A second effort has focused on investment
in human capital, an attempt to achieve a technological ad-
'vance which would make economically rational the mining of
the lower grade ores which are still plentiful in the U.S.
Project Sloop was part of this latter effort. The concept
is simple: to apply the technology of the nuclear age to
the ancient problem of mineral extraction. In 1967 Kennecott
and the AEC began work on the design of a nuclear blast to
be set Off at a Nevada Kennecott property. The blast had
two goals. First, ores with copper content as low as .4

percent could be mined (the use of ores under .7-.8 percent

is unusual and considered extremely costly with current

 

 

 

 

0.!

5.-

 

158
ndning technology). Second, COpper mining through nuclear
explosives would eliminate an entire stage in copper pro-
cessing. Current mining techniques require the newly ex-
tracted ore to be concentrated, a physical operation which
eliminates much of the non-COpper bearing material and
raises the ore content of the remainder to 20-30 percent.

Project Sloop would concentrate the ore in place, using

 

sulphuric acid on the ore "mined" by the explosion (E&MJ,

March 1967:13 and April l967:7). Both the ability to prOf- ?‘
itably mine the lower metal content ores, which now have to R
be discarded as waste, and the elimination of one state in i

processing would increase the amount of surplus value ex-
tracted from a given amount of labor power. When the final
design for the project was announced in 1969, it was slated

to cost $13.2 million, a small outlay for a project which

_. would increase U.S. COpper reserves by more than half (E&MJ,

 

December 1968 and June 1969:186; Kennecott Annual Report,

 

‘1969).

Project Sloop would have required Kennecott and the ABC
to request congressional authorization for a nuclear blast
at a time when concern about the destruction of the envirOn-
ment was escalating rapidly. That is to say that Kennecott
would have emerged as the grand daddy of strip miners.
Largely for these reasons, the project was shelved. The
idea of bringing copper into the atomic age through the use

of state social constant capital outlays was not forgotten,

however. In April of 1973, E&MJ announced that Kennecott

 

 

 

159

and the AEC had contracted to study ip_§ipp leaching tech-
niques for a nuclear fractured orebody under the ABC's
Plowshare Program for peaceful uses of nuclear explosives.
This time the contract includes studies by Kennecott's
Lexington, Massachusetts and the ABC's California and Nevada
labs on the environmental impact of such a project (E&MJ,
April 1973:26).

Kennecott's interest in accumulating surplus value in
a manner befitting the atomic age underlines the political
nature Of the modern corporation. Here I shall point out
only two ramifications of these plans, one domestic and one
international in scope. Domestically, the Kennecott/ABC
proposal involves three political forces: the strategic
interests of the state in secure and adequate supplies of
needed raw materials, Kennecott's imperative for the ac-
cumulation of capital, and the resistence of the underlying
population to the social costs of capitalist growth. Inter-
nationally, the implications for the world political eco-
nomic struggle over raw materials are immense. It again
appears that the technological monopoly of the capitalist
world metropoles can be used to udnercut the rising bar-
gaining power Of the hinterlands Of world capitalism. In
fact, if nuclear mining technology were to be adOpted on a
‘1arge scale, the dependence Of the latter on the former for
future mineral deve10pment would be heightened. Kennecott

thus emerges as a significant participant in the drama of

the world conflict between rich and poor, as a political

 

 

 

 

 

 

 

‘x

160
actor of the first magnitude. (For discussions from widely
divergent vieWpoints that emphasize the role of technOlogy
in the current relationship between metrOpoles and hinter-
lands, see Frank, 1969:296-318 and Vernon, 1971:65-77.)

The training of scientific and technical labor power
is perhaps the major state social constant capital invest-
ment in human capital (see the discussion in O'Connor, 1974:
111-117). While most expenditures of this type are geared
towards the needs of monopoly capital as a class, some can
be tied directly to mining and even to COpper. The new
technologies and production processes developed by the USBM
for private capital require new and altered skills from the
labor force. The costs of this additional training are
socialized in the tax supported curriculum of mining schools,
the state financed purchase of new lab equipment by these
. schools, and the production of research articles on these
topics. The increased productivity of labor power which re-
.sults is apprOpriated privately through capital's relentless
thurst for surplus value.

At the level of the individual states, big COpper has
used the principle of tied aid and the ability of the cor-
poration to channel external economies to insure continued
social constant capital expendutures in its favor. Kenne-
cott has provided major grants to both the University of
Utah and Utah State and later established a research facil-
ity at the former school to serve the firm's entire western
Operations. Anaconda, which has moved into Arizona COpper

mines in the last three decades, has attempted to maximize

161

the economies Of location by establishing a research facil-
ity at Tucson in COOperation with the University of Arizona.
Kennecott's grants were tied to research on the improvement
of prospecting techniques and the development of new uses
fOr mineral products (E&MJ, March 1946:125, May 1953:163,
and November 1965:127).

The close links between the research labs and the
universities draw scholars, students, and funding to the.
latter as a result of the Opportunities for scientific work
aind the prestige accruing. The labs themselves, nominally
£>art of the operations of private capital, in effect canal-
:ize the socialized state expenditures on salaries for pro—
ifessors, clerical workers, and maintenance personnel to the
loenefit Of capital. Meanwhile, graduate students, many sup-
Eported by state scholarships, are oriented towards a future
‘Nith big copper. What has happened is that the philanthropic
sections of big copper--the grants and the locations of the
.labs on or near the campuses—-have taken the (supposed)
:social rationality of state legislatures and pbulic univer-

sities and rechanneled it along the direction of its own
lPrivate rationality, creating friends and political allies
in the process. Once again it is a case of the "private
appropriation Of state power for particularistic ends."
'The relationship involved is not unlike that prevailing be-
tlween the suburb and the city in which the dominant partner
ITedirects the structure of the political economy along

IDsths which are favorable to its own growth and expansion

¥_____

 

 

 

 

.72.

 

 

 

 

 

 

 

 

 

N

'I

*1

162
(see O'Connor, 1974:125-129). In the case of big copper,
the interpenetration of the state and capital through
smcialized costs and private appropriation Of profits be-
cmmes so total as to almost defy analytic efforts at separ-
ation. Surely Marx's comment on the joint stock company,

that it "represents social production within the shell Of

private prOperty," is even more applicable today than in

his own lifetime.

State Social Consumption
Social capital outlays for social consumption, that is
Estate social variable capital expenditures that lower the
crosts of reproducing labor power, are difficult tO link
ESpecifically to the dynamics of copper. Most Of these bud-
QJet categories-~urban renewal, unemployment insurance,

‘Vvorkmen's compensation-~are grounded in the universalistic

JLegal criteria Of capitalism rather than the particularistic

Jrequirements of any given segment of capital. This feature

(of these state outlays rebounds to the benefit of capital
:Since the free mobility of labor means that the reproduction

<:osts Of labor power in general should be lowered rather

'than the labor power employed by a particular capital. How-

eVer, copper, along with other mineral industries, is inter-
tlwined with the state in specific and somewhat unique ways.
Tune demand for COpper is concentrated in the most volatile
EBlement of the business cycle, the producer goods industries.
'anus, the yearly fluctuations of COpper output are consid-

Ei‘rlc'ably greater than those of the GNP growth rate. This

% _

 

 

 

 

up.

 

Mr

'90. .

.,.

.u

163
dynamic plus the tendency Of monopoly sector output to grow
through productivity gains rather than through labor force
growth creates employment fluctuations in COpper which
greatly exceed those for the total political economy.
While GNP growth has been negative only once in the

post World War II era (1949; in constant dollars 1954, 1958,
and 1970 were all years of negative GNP growth), copper out-
put has shown no such stability. Declines were registered
in domestic mine prOduction in more than half of the 1944-
1973 years despite an overall increase in output. Similar-
.ly, although total U.S. nonagricultural employment showed a
Iaegative growth rate in only 1949, 1954, 1958, and 1961,
eemployment in copper declined in these four years and in
3L952, 1956, 1957, 1962, 1964, 1967, 1969, and 1970 as well.
st a result, the state is forced to make greater outlays for
IJnemployment insurance per number of employees in the cop-
Iper industry than in the economy as a whole. Analogously,
‘the accident rate is higher in mining than in most other
(occupations, requiring greater workmen's compensation pay-
Inents per hours worked to copper than in most manufacturing
iand service industries. (Data for this paragraph from E997
SEQmic Report Of the President, 1973; United States, Dept.

c3f Commerce, n.d.:selected issues.)

 

CHAPTER 5

THE STATE AS STRUCTURE: SOCIAL EXPENSES

The Domestic Costs Of Capital Accumulation

There is nothing to be gained by finding L_
fault with any of this business-like enterprise “7
that is bent on getting something for nothing
at any cost. After all, it is safe and sane
business, sound and legitimate, and carried on i _

 

blamelessly within the rules of the game. One
may also dutifully believe that there is no
harm done, or at least that it might have been

worse.
--Thorstein Veblen,

The Vested Interests
and the Common Man

The business of getting something for nothing, that is
‘the drive Of capital to use labor power as a means to sur-

jplus value rather than as the end of social production, is

(an integral feature of the accumulation of capital. Popu-

lations, communities, and regions are foced to bear the
social costs of the expansion of capital while the gains
are appropriated privately (Gorz, 1971). This ability of
Capital to externalize the diseconomies and internalize the
economies of growth necessitates considerable outlays for
ilegitimation, for "the collective welfare," on the part of
tune state. Of course, the ever-expanding economy--the
Errowth and well being of monopoly capital--is the key ele-
I“ent in the state's conception Of the collective welfare.

Nonetheless, these social expenses represent the state's

164

 

 

 

 

u
u;

.
u.

165
effort to integrate the private rationality of individual
capitals, the interest group consciousness Of industry as-
sociations, and the functional prerequisites Of capital as
a system. To carry out this task, the state requires a
conception of the collective welfare which, like the con—
ception of the strategic interest which informs the deci—
sions on social investment, transcends the needs, and may
at times clash with the interests of, any given capital.
While this type of Outlay does not increase surplus value,

it becomes the basis of the security--"protection from the

 

political attacks latent in any formally democratic struc-
‘ture"--which provides the political environment within
‘which monopoly capital can function.

Here I consider big copper and state social expenses
lander two headings: the question Of present and future
iaccess to mineral lands and the problem of air pollution.
iflhile the latter-issue has generated more visible political
(conflict, the former goes to the roots of the rules of the
(capitalist game as practiced in the U.S. Just as capital
.in general seeks to create and maintain the option of ex-
ansion abroad, so the mineral industry in general and big
<=Opper in particular are vitally interested in continued
access to potential mineral lands for expansion at home.
Turns, the political conflict over the future Of public
14inds brought out the mineral industry as a political bloc.
trlle struggle around the issue of air pollution was fought

along more particularistic lines. For copper, this latter

 

 

 

Li

 

166

issue turned on the level of sulphur emissions allowable
from copper, lead, and zinc smelters. In each case, copper,
the state, and ecology groups are involved. Each brings a
somewhat different conception about how the costs and bene-
fits of capitalist development should be distributed.
Neither issue has reached final settlement at this writing.
However, state social expense outlays have already emerged
as an important element in state efforts to mediate the con-
flicting interests.’

The most immediately Obvious social cost of copper
ruining is the destruction of the land. From an ecological
Ipoint of view, an Open pit COpper mine is simply a large--
63nd growing--hole in the ground. This is necessarily the
(case for two reasons flowing from the nature of copper min-
eeralization. On the one hand, copper deposits are below
1the surface-of the earth. Thus, if open pit mining is to
Ice used, and this method is the cheapest and safest avail-
eable, the overburden (the land above the copper deposit)
Inust be stripped and discarded. Second, the ore to metal
ratio in copper mining is among the highest in the mineral
industries. It is usual to remove more than a hundred tons
of earth to Obtain one ton of metal. In fact, copper mining
r emoves more earth than virtually any other human activity

(see Minerals Yearbook or Mineral Facts and Problems for

 

statistical information on these relationships). In cases
‘VTlere the size of the deposit is large enough to insure

rn<>re or less continuous usage, e.g., as at Kennecott's

7214‘-

 

 

 

 

‘-
uh

167

Bingham Canyon, the problems of what to do with the exhausted
mine and where to mine next do not arise. However, most cop-
per deposits, including most of those owned by big copper,

do come to an end and all companies are constantly involved
in the search for new deposits, the struggle Of mining cap-
ital to achieve control over sufficient raw materials for‘

long term planning. (See companies' annual reports for the

 

emphasis on exploration and development.) A
The drive Of mining capital to obtain assured future 'F*'J

;profits has meant intimate involvement with the politics of E

jpublic lands. In the 1960's this involvement produced I

several conflicts between big copper and the ecology move-
ment over the use of these lands. Within the state as

structure this conflict was manifested in the Department of
the Interior which is responsible both for supervising min-

"~- eral exploration and development and for the creation and

 

administrationflof national parks and recreation areas. In
fact, this dual responsibility is one of the reasons that
mineral interests mounted the political push (discussed
above) for a Department of Natural Resources during the

last decade. An early conflict between big copper and

groups attempting to limit the environmental impact of
Inining occurred over Washington's Glacier Peak area. Kenne-
cott.had located a copper deposit in the region but announced
-in 1961 that operations had to be curtailed due to "uncer-
‘tainties" over the creation of a Glacier Peak Wilderness

lkrea (E&MJ, June 1961:19). .As noted previously, it was also

 

 

168
during this same period that both Kennecott and Anaconda
testified against the reclassification Of land near Anaconda,
Montana as a wilderness area (gggg, April 1962:136) and
against the creation of a national park near Wheeler Peak,
Nevada where Anaconda was developing its beryllium mine for
the AEC (E&MJ, July 1962:118; see company reports for the
concern over the issue Of public lands).

The initial response of the state to these conflicts
was an attempt at rationalization of land access and use
through the establishment of the Public Land Law Review Com-
mission. The commission heard evidence and arguments from
the several interests concerned with the use of public
lands, including big COpper. Kennecott suggested that the
commission include in its task the study of the use of pub-
lic lands and policies for the development of these lands
(E&Mg, May 1966:28). Four years later, the commission re-
leased a report which was welcomed by EgMJ as a boost to
the mining industry and a recognition of national priorities.
The key section of the report called for mineral development
to take preference over "some or all" alternative uses of
public lands. Further, the state was to conduct a thorough
study to determine the mineral value of these lands before
a decision on their allocation was made (E&MJ, July 1970:
16). This latter concern, the need for a national inventory
of mineral resources, has also been echoed by the Secretary
of the Interior in his reports under the Mining and Minerals

Policy Act Of 1970.

 

 

 

169

The release of the commission's report signaled the be-
ginning of a political debate over the relationship between
mining capital and the state. There is widespread feeling
that the existing relationship, represented by the mining
code Of 1872, needs to--and would be--a1tered (of company
reports during 1971-1973). In an October 1972 speech before
the New York Mining Club, a Kennecott vice president sum-
marized big copper's view of the issues involved. The shift
from rural to urban political dominance, the rising concern
with the social costs of pollution and surface mining, and
the high accident rate in mining all pointed towards new
actions on the part of the state. Mining capital itself
was concerned with incentives for development of the re-
maining mineral resources of the nation and the problem of
security of tenure. The task facing the mining industry is
to outline, both for itself and the public, a consistent
role for the state, particularly in the areas of regulation
and foreign vs. domestic sources of mineral growth (E&MJ,
December 1972:59). By December of that year, Interior was
calling for industry to talk about ppg_the 1872 code should
be altered (E&MJ, December 1972:21). No final action has
been taken at the time of this writing. However, it is al-
ready clear that the distribution of the social costs of
Inining and the role Of state social expense outlays have
emerged as key issues. Proposed revisions revolve around
the questions of control over subsoil rights, royalties to

support state policies, the costs of land reclamation, and

 

 

170
incentives to allow the generally high cost U.S. mine indus-
try to expand domestic production, etc. (E&MJ, January 1972:
126, August 1972:23, and December l973:9).
Smelter pollution has been the social cost of capital
accumulation by big COpper which has had the greatest polit-
ical visibility during the last five years. Overall, about

12 percent of the sulphur oxide omissions in the U.S. atmo-

 

sphere is sulphur dioxide (802) given off by COpper, lead, f"
and zinc smelters. While heating with coal and petroleum
produces about four times as much sulphur oxide emissions, 1
COpper, lead, and zinc smelters--Often the same facility-- i 5
are a concentrated source Of such pollution (E&MJ, August
1970:95-97). This is particularly the case since these
smelters are not distributed throughout the U.S. Instead,
85 percent of U.S. copper smelter capacity is located in
six states: Arizona, Montana, Nevada, New Mexico, Utah,
and Washington (McMahon, 1965:256). In these states the
smelters are often a major source of sulphur oxide emissions:
in 1970 Kennecott's Garfield smelter was identified as the
single largest source Of 802 in Utah (E&MJ, July 1970:98).
While the conflicts which developed around the issue
of smelter pollution during 1969-1973 Often found big COpper
pitted against the ecology movement and state agencies, this
is too simple an interpretation of the interests involved.
Monopoly capital is not opposed to environmental and con-
servation measures and, in fact, class conscious members Of

the capitalist class recognize the necessity of such measures.

 

 

171

Indeed, as a part of the rationalization function of polit-
ical capitalism, such measures may even serve the long term
interests of capital, regulating cutthroat competition that
threatens to exhaust resources and absorbing political at-
tacks arising from discontent over the social costs Of cap-
ital accumulation. Thus, as early as 1959, Eéfll responded
to Arizona's concern over smelter pollution with an article
calling for industry to act on the problem (E&MJ, March
1959:120 and July 1959:65-74; in 1973 the magazine did, how-
ever, quote an official of big copper to the effect that the
ecology movement "got things moving" EEMJ, April 1973:50E).

Monopoly capital in general and big COpper in particu-
lar do, however, have two overriding interests in the ques-
tion of pollution control. First, no one firm or industry
can afford the expenses Of pollution control and still re-
main competitive (O'Connor, l974:l76-l77). Thus, anti-
pollution programs necessitate an expanded role for the
state and increased state social expense outlays. In fact,
if possible, the control Of pollution by industry should be-
come a further means of capital accumulation, i.e., state
social expense outlays should be turned into state social
investment expenditures. This will only happen if the sec-
ond interest of monopoly capital is realized. Any expanded
state program which involves new state agencies requires a
new synthesis Of state and capital. Thus, big COpper strug-
gled to make the new anti-pollution bureaucracies responsive

not only to the legitimation function of the state, but also

 

 

 

 

 

172
to the state's capital accumulation function. The monopoly
Of expertise within big copper and state agencies, such as
the USBM, which were part of the pre-existing synthesis of
state and capital was a key factor in the outcome Of this
struggle. In sum, rather than fighting anti-pollution
policies as a whole, big copper focused on the qeustions of

who would make policy and who would finance the implementa-

 

tion of policy (of Weinstein, 1968 for a discussion of
earlier political economic struggles involving the social

costs of capital accumulation).

 

The answer to the question "who will pay" came first.

 

In 1968 the state released a report which pegged the cost
Of treatment of mining wastes to meet proposed state stan—
dards at $1.5 billion, double that for any other industry
(E&MJ, March 1968:17). In 1969 monopoly capital Obtained
passage Of legislation providing for tax breaks on the cost
Of pollution control equipment, i.e., state social expense
outlays were to socialize the costs of capital accumulation
(E&MJ, July 1969:15). A year later President Nixon further
encouraged the socialization of the costs of accumulation,
arguing that "the price of goods should be made to include
the costs of producing and disposing Of them without damage
to the environment" (quoted in EgMJ, February 1970:16).

Big copper's stake in the issue was recognized that same
year when Kennecott president Frank Milliken was appointed
to Nixon's 55 member industrial pollution control council.

The council was to advise the president and the new environ-

 

 

 

‘n

173

mental control agencies of the state on the environmental
priorities and programs of capital (E&MJ, May 1970:17).

It was also in 1970 that the conflict over the control
Of smelter pollution, particularly the allowable level of
SO2 emissions, began in earnest. In the previous year, the
Arthur G. McKee Company had submitted a report to the Na-
tional Air Pollution Administration (an EPA forerunner)
which recommended a cut back of 90 percent in the level of
SO2 emissions from Smelters. This 90 percent recommendation
was supplementary to the ambient air standards also drawn
up by the state and which required implementation plans to
be submitted by the individual states (E&MJ, July 1971:
61-62). In 1970 and early 1971 all six COpper states moved

to shift the social cost of smelter pollution to capital by

adopting, or taking steps towards the adoption of, the 90

.3 percent control of SO2 recommendation (E&MJ, August 1970:

98-99). Big copper proclaimed its willingness to meet the
iambient air standards but resisted making the investment
necessary for existing smelters to meet the 90 percent stan-
dard (E&MJ, July 1971:63).

In the ensuing political economic battle big COpper
had two major disadvantages. First, they were dealing
either with new state agencies such as the EPA and various
POllution control commissions or with agencies such as
boards of health without established links to mining capi-
ta1. Thus, the synthesis of state and capital in these new

regulatory agencies was as yet unstructured. Second, big

 

 

.1”

A

 

174
copper was basically arguing from the position of its own
narrow profit interests against the state's conception of
the collective welfare. Big copper wasnot, however, lacking
in political economic counters to these disadvantages. The
ideology of national security, the existing synthesis of
state and mining capital, and two organizational features
of copper as a monopoly sector industry were used to good
advantage in big copper's efforts to shift the social costs
Of pollution to state social expense outlays.

The demands of national security and the need for in-
ternational economic competitiveness were the major politi-
cal arguments mounted by big COpper and ably seconded by
the state agencies linked to COpper. The period 1969-1973
was both the crest of the ecology movement as a political
.force and a time of mounting state concern over mineral
shortages. -Big COpper argued that "unreasonable" environ-
mental contrels,,such as the 90 percent 802 requirement,
prevented the investment of capital necessary to prevent
increased dependence on foreign supplies. As early as
October 1970 Anaconda announced that its copper production
was down due to air quality controls on custom smelters
(E&MJ, August 1970:99 and October 1970:126). Further, since
Copper is a world commodity, capital said that pollution
Control in the U.S. would hurt the metropole's competitive
Position in world markets, worsening the already negative
mineral balance of payments (E&MJ, July 1971:64). The
Department Of Interior and the USBM, both part of the pre-

eXisting synthesis of state and capital, used their expertise

175
to impress the importance of continued profitable capital
accumulation on the new anti-pollution agencies. Interior
Secretary C. B. Morton and Assistant Secretaries Dole and
Wakefield repeatedly expressed concern over the influence
of the ecology movement, arguing that their demands would
entail a decline in U.S. mineral output and increase depen-

dence on other nations (see e.g., First and Second Annual

 

Reports of the Secretaryiof the Interior under the Mining

 

and Minerals Poligy Act of 1970; E&MJ, September 1972:13

 

and December l973:9). In 1971, the USBM released its own
study of the costs of pollution control. The results sup-
ported the estimates Of big copper against the lower esti-
mates of the EPA and backed the argument of capital that
existing technology could not be expected to do the jOb
(E&MJ, December 1971:78).

The organizational flexibility of monopoly capital was
also used to make big COpper's political economic point.
The internationalization of capital in the copper industry
coupled with the geographical concentration of domestic
smelting employment gave the companies a maneuverability
denied to the individual states. Thus, big COpper threat-
ened, and in a few cases actually did, cut back smelter
operations in the U.S., shipping ores and concentrates
abroad for smelting. The matte (smelted metal) was then
imported for refining and fabricating with the claim that
the additional costs of pollution control made this the

cheaper method of Operation. This action demonstrated that

176
not only can international capital shift production to maxi-
mize profits, it can also redistribute the social costs of
capital accumulation during periods of political reform in
one country or another. It thus appears that one tragic
result of the demands for increased participation in mineral
processing by hinterland nations may be the export of pol-
lution to these nations. This will also enable international
capital to prolong the life of equipment that no longer meets
the pollution contrOl standards of the metropole. In the
metropole itself, the threat by big COpper to export smelter
Operations maximized the geographical impact of their polit-
ical economic power: Arizona, with 30 percent of U.S.
smelter capacity, was faced with the loss of jobs and tax
revenues during a recession and the spector of foreign com-
petition. This international dialectic is captured in the
first response of big COpper to Arizona pressure on smelter
pollution: the idea of a free zone for smelting in Mexico
' (gig, February 1967:196) .

An important step in big COpper's struggle to shape
anti-pollution policy was the creation of sources of ex-
pertise sympathetic to the needs of big COpper for capital
accumulation. Here big copper relied on already established
educational and administrative ties. The Arizona Mining
Association (which included Kennecott's Ray Mines Division)
granted the University of Arizona $545,000 to establish an
atmospheric analysis lab (E&MJ, July 1971:66). Kennecott,

which owns the only Utah copper smelter, commissioned that

177

University to study the effects of S02. In 1971, Anaconda,
Kennecott, Phelps Dodge, and five smaller copper producers
established a research consortium on the problems of SO2 and
particulate emissions by copper smelters. The consortium,
called the Smelter Control Research Association (SCRA), was
headed by a Kennecott vice president. Although the Justice
Department expressed concern that the SCRA might violate
anti-trust laws, the EPA took the side of capital and the
consortium was allowed to continue (E&MJ, March 197l:9 and
June l97l:7). Big COpper was thus able to pool their re-
sources in the conflict over expertise and policy.

The division of labor within the pollutiOn control
agencies of the state graphically demonstrates the way in
which the state as structure reflects the political economic
power of monopoly capital. When smelter pollution first
emerged as a political issue, big COpper complained of the
multiplicity of state agencies and laws concerned with the
' issue (E&MJ, August 1970:101; company reports). The demand
was for the creation of a centralized state regulatory
agency, a function fulfilled by the newly created EPA. On
the other hand, big copper could bring the most effective
political pressure on the details of pollution control plans
at the level of the individual COpper states. The EPA's
decision to establish general guidelines but to invest re-
sponsibility for implementation plans to meet these guide-
lines in the states was thus ideal from the perspective of

big copper. The workings of this set up can best be seen

178

through a sketch of events in Arizona and Montana during
the clash over the distribution of the social costs of smel-
ter Operations.

When Arizona and Montana first proposed the 90 percent
reduction in SO2 emissions, big copper went to court, forcing
open hearings on the issue. It was then more than a year
before the Arizona Board of Health presented an implementa-
tion plan to the EPA. Hearings revealed that secret nego-
tiations between big COpper and the Arizona Board of Health
had produced an agreement to allow the state health commis-
sioner to gradually reduce pollution regulations. The EPA
rejected the plan (E&MJ, February 1972:10). Under mounting
pressure from a variety Of interests, the Arizona board then
decided to send in a plan without enforcement powers, forcing
the EPA to write these with the belief that ones satisfac-
tory to capital would be adOpted (E&MJ, April 1972:162).

This decision had been taken in the absence of the board's
chairperson, however. Finally, the Board of Health sub-
mitted relaxed standards and, by the end of 1972, Kennecott

and other COpper companies had gone to court supporting the

 

board's prOposals which had been rejected by the EPA (E&MJ,
October 1972:34). The case was decided in favor of Kenne-
cott in 1973 although the EPA planned an appeal.

Montana presented a different set of problems. Only
one smelter, Anaconda's million ton giant, is located in
the state. Despite open hearings, the Montana Board of

Health stuck by its 90 percent SO2 prOposal. After the

179

December 1971 hearings, big copper--Anaconda, Kennecott, and
Phelps Dodge-~turned to the executive arm of the federal
state for political support, going directly to the White
House. It is interesting to note that while the Montana
regulations presented only Anaconda with a problem, big cop-
per evidently felt the need for a united opposition. Per-
haps the perception of a domestic domino effect was involved.
Whatever the case, capital succeeded in getting representa-
tion from the state: White House aide Peter M. Flanigan (a
partner in the investment banking house of Dillon, Read)
persuaded the Denver EPA office to send a letter to the
Montana Board Of Health asking for "clarification" of their
90 percent SO2 reduction standard and requesting a new hear-
ing (E&MJ, March 1972 and April 1972:42). Despitethese
efforts, Anaconda had to go to court against Montana and
_ the EPA in a case also decided in favor of capital in 1973.

Although the conflict over the distribution of the
social costs of smelter pollution had not been fully re-
solved by the end of 1973, the climate had certainly changed
from two years earlier. State social expense outlays were
integral to the shift. The USBM, which had spent several
million dollars on smelter pollution research, announced
the development of a pollution free process for COpper
smelting (E&MJ, May 1973:32). The SCRA had been given state
sanction—-and state social expense funds--through a USBM
contract to study the economic feasibility Of a SO control

2
method for existing smelters (E&MJ, December l973:9). By

180
March of 1973 the EPA was putting distance between itself
and the 90 percent standard: in an interview with EQMJ, a
senior EPA administrator claimed that some "very junior"
people were responsible for it originally (E&MJ, April 1973
50E-F). In September, the EPA recognized the need of con-
tinued profitable capital accumulation by big copper, ac-
cepting the SCRA's proposed closed loop control process as
an interim method (E&MJ, October 1973:13). Tow years ear-
lier, Anaconda had already begun the conversion of the
social costs of development into further capital accumula-
tion by announcing that its Chase Brass subsidiary was ex-
panding into water pollution control (E&MJ, July 1971:70).
A new synthesis of state and capital was emerging around
the volume and distribution of state expense outlays for

the social costs of capital accumulation in COpper.

The Management of External Relations

The dominant fact which emerges from all dis-
cussions of the raw material position of the United
States is the nation's increasing dependence on
foreign sources of supply.

--Percy W. Bidwell,
Raw Materials: A
Study of American Poligy

 

 

Anaconda is all over the map expanding its copper
output.

--Anaconda advertisement
in the mid-1960's showing
map Of Western Hemisphere
indicating Anaconda
facilities

181

Anaconda makes it in America.
--Anaconda advertisement

in 1971, post national-

ization, showing map of

U.S. indicating Anaconda

facilities

The social relations of capital as a system are inter-

national is scope. However, from the perspective Of any
given capital, the world remains a patchwork of differing
legal and political systems. These differing state frame-
works represent both Obstacles and Opportunities in capital's
thurst for surplus value. Thus, while expanding capital may
penetrate the jurisdiction Of other nation states, reliance
upon its own state for military protection, diplomatic rep-
resentation, and economic aid remains fundamental. Metro-
pOle based capital in particular tends to see the function
of the state in the management of external relations as the
creation of—a "political and financial climate both here and
abroad...conducive to overseas investment" (Augustus C.
.Long, Chmn. Texaco, June 1957, quoted in Engler, 1961:190).
On the one hand, then, there is a "blending Of public and
private" (Engler, 1961), a synthesis of state and capital
abroad, arising from the perception of mutual needs, a
shared conceptual framework of free enterprise and private
property, and a two way flow of personnel (Engler, 1961:
247-247; Miliband, 1969:83-87; Murray, 1971:96-99; Tanzer,
1970:55). Nowhere is this identity of the state and its

own capital closer than when it is a question of the sur-

vival of the latter. Both capital and the kapitalistate

182

find nationalization (the expropriation of the expropriators)
repugnant, particularly if "prompt, adequate, and just" (the
phrase of former Secretary of State John Foster Dulles) com-
pensation is not forthcoming.

On the other hand, the state is not simply the servant
of capital in the expansionary dynamic of the latter. As I
argued in the theoretical discussion of the state and the
changing nature of liberal doctrine, and as I tried to dem-
onstrate in the empirical discussion of stockpiling, the
state has its own strategic interests. In turn, these are
part of a larger conception of national interest. Thus,
state action in regards to a particular corporation, com-
modity, or hinterland may conflict with the narrow profit
needs of any given capital (Girvan, 197laz36-37; Warren,
1971). The size of the capital in question, its role in
the total foreign investment stake of national capital, and
the impact offla given capital on the national balance of
payments are all part of the parameters within which the
state acts (Tanzer, 1970:52-54). Further, we must also
consider the relative power of the states involved: metro-
pole and hinterland states are not equal participants in
the system of world capitalism. Finally, while metropole
capital may dominate a hinterland state, this is not the
case with a metropole state. Here the very process of the
internationalization of capital may strengthen the state
and the resources which the latter can bring to bear in
the pursuit Of its, admittedly imperfect, perception of the

interests of the system as a whole (Warren, 1971:86-87).

183

The attempt to realize both its particular definition
of the national interest and the demands of expanding capi-
tal require large, and growing, state outlays which may be
classified as social expenses. That is to say that these
outlays are neither directly nor indirectly productive.
Once again, unproductive must not be confused with unneces-
sary: without the maintenance of the Option of expansion,
it is unlikely that the system of capital could survive
(Magdoff, 1969:14, 20-21; Williams, 1964:Chapter 2). The
root cause of these social expense outlays is the inter-
national uneven development and social disruption which
have been part and parcel of the expansionary dynamic of
capital. Of course, as outlines in Part II, uneven deve10p-
ment also manifests itself on the national level.. However,
the vertical integration of monopoly capital across national
boundaries means that the backwash effects of expansion are
concentrated in the hinterlands of world capitalism while
the spread effects are canalized to the benefit of capital
in particular and the metropole regions as a whole in gen-
eral (Meeropol, 1972:78-80; Myrdal, 1971:26-33; see Beck-
ford, 1972 for a brilliant analysis of this process). Thus
uneven development is more marked on the international
level (as the UN puts it, the gap between the rich and poor
nations increases) than on the national level. The outcome
of this cumulative inequality has been growing efforts by

hinterland states to alter this dynamic.

 

I-I'
r'I

184

The efforts of hinterland states to counter the inter-
national dynamics of uneven development have repeatedly con-
flicted with the interests of metropole capital and/or state.
For big copper, it has been the efforts of the Chilean state
to obtain a greater "take" from the copper mining and pro-
cessing investments of Anaconda and Kennecott which has been
the focus of the external relations function of the U.S.
state during the last three decades. In the 1950's the
struggle turned on the issues Of prices and markets; in the
1960's the question of control was posed in terms of parti-
cipation through "Chileanization"; and, as the 1970's began,
the stakes were raised to nationalization. None of these
conflicts have occurred solely between the Chilean state
and U.S. capital. At each juncture the U.S. state has been
involved, acting on a particular definition of strategic
_ and national interests and using social expense outlays in
an attempt to resolve the conflicts.

During the Second World War the U.S. state froze the
price of copper at 12¢ per pound and allocated U.S. output
entirely to war needs. Both the freeze and the allocation
applied not only to domestically mined COpper but to for-
eign produced COpper under the control of U.S. capital as
well. When copper prices were decontrolled at the end of
the war, the price per pound quickly rose to over 20¢. Thus
Chile paid--one estimate friendly to the U.S. suggests $120
to $500 million--for the U.S. war effort (Reynolds, 1965:

240). Shortly after the Korean War began, the U.S. state

 

185
again attempted to freeze COpper prices, this time at 24.5¢/
lb. However, several political groups in Chile had profited
from the WWII experience and pressured the Chilean state to
demand higher prices. Unlike WWII, the London Metals Ex-
change (LME) continued to function and shipping lanes to
West European and Japanese markets remained open. Thus, the
Chilean state had increased room for maneuver. The first
response of the U.S. state to Chilean demands for greater
returns was the May 1951 Washington Conference. The state
agreed on a 3¢/lb. premium for Chilean copper entering the
U.S. Big copper was close to the negotiations and Kennecott,
through its Chilean subsidiary Braden COpper Company, agreed
to loan Chile the money to modernize the port of San Antonio,
the chief shipping and receiving center for Braden(§§MgL
June 1951:138; Gedicks, 1973:6-7). In return, the Chilean
_ state agreed to restrict copper exports to the capitalist
world and to eut-its growing exports of semi-manufactures.
'A maximum of 20 percent of the output of U.S. owned mines
would go for domestic Chilean consumption and semi-manufac-
tured exports under the control of the state (E&MJ, February
1952:79-81; Girvan, 1972:19).

Even at the time of the Washington Conference Chile was
able to sell the state marketed 20 percent at a price double
the 27.5¢/lb. the U.S. was paying. This wide and growing
world/U.S. gap continued to exert pressure on the Chilean
state to realize greater returns from COpper and in May of

1952 Chile repudiated the Washington Conference price

 

 

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186
agreements. After meetings with representatives of the
U.S. state, the Chilean state pegged COpper prices to the
LME, took over the marketing of copper, and authorized the
executive to determine the proportion of exports in refined
form. The Chilean Central Bank purchased the copper from
the companies at the official U.S. price and sold it on the
world market, the difference accruing to the Chilean state
(E&MJ, June 1952:104; NACLA, 1972:113-114). The U.S. state
allocated the higher priced Chilean copper entering the
U.S. to all fabricators on a percentage basis, including
those who were part of integrated producers and thus able
to supply their needs with lower priced copper.

The entry of the Chilean state into the marketing of
copper in the capitalist world was a threat to the strategic
interests of the U.S. state and to the efforts of the com-
panies to subsume the vagaries of the market. State and
capital responded by undercutting the Chilean market venture
in several ways: (1) production in Chile was cut back by

15 percent; (2) investment plans in U.S. mine expansion

Vwere accelerated; (3) disinvestment occurred in the com-
panies' Chilean properties; (4) state stockpiles were used

as market leverage; and (5) the U.S. state manipulated the
international control structure for non-ferrous metals
(Baklanoff, 1966:33; Girvan, 1972:19-20; NACLA, 1972:113-
114; Reynolds, 1965:247). Despite these efforts, the re-
sults of the first year of the Chilean state market monopoly
were spectacular—-a gain of $100 million for Chile, consider-

ably in excess of the companies' payment of direct taxes

 

187

(Girvan, 1972:20). However, as the Korean War came to an
end and capitalist world copper demand slackened, the com-
bined efforts of metrOpole state and capital began to be
felt and problems mounted for Chile.

First, the hinterland state had little knowledge of the
ins and outs Of the copper market, knowledge which Anaconda
and Kennecott, like all international capital, had always
considered the preserve of private capital. Second, most
of Chile's potential customers were already integrated
through formal and informal ties with major suppliers.
Third, to lessen the squeeze between the frozen U.S. price
and the higher cost of Chilean COpper entering the metrOpole
at the world price, the 0.8. state released some stockpiled
copper. In addition, the accumulating Chilean stocks were
rejected as a possible source of stockpile copper. Fourth,
working through the International Materials Conference, the
U.S. state got purchases of Chilean COpper by the United
Nations allies deducted from their quotas at the lower ceil-
ing price (E&MJ, February 1953:78 and December 1953:169;
Gedicks, 1973:7-8; Girvan, 1972:24).

As long as Chile honored the 1951 agreement not to sell
outside the capitalist world, the hinterland state was
caught in a bind. In 1953 sales declined drastically, ex-
ports falling to a level below any year since the 1930's.

As copper stocks accumulated, the Chilean senate announced
(1) that COpper should not be sold at less than 30¢/1b.;

(2) if the metal was not of sufficient strategic significance

 

188
for the U.S. state to purchase it for stockpiling, it was
not of enough strategic importance for sales to be limited
to the capitalist world; and (3) the senate would be willing
to consider any legislation designed to stimulate investment
and increase output. The combined threat of sales to the
U.S.S.R. and the virtual promise Of new tax and incentive
policies more to the liking of capital brought the U.S.
state back into negotiations (Gedicks, l973:9; Girvan, 1972:
24-25). In March of 1954 agreement was reached on the pur-
chase of 100,000 tons by the U.S. state at the Chilean
Price for stockpiling. Within a year, the "New Deal for
COpper"--lower taxes, more favorable exchange rates, tax
deductions for processing investments--was enacted by the
Chilean senate (E&MJ, May 1954:107; Mikesall, l97la:372,

Re)lnolds, 1965:249-250). State expenditures for legitima-

“‘-.tj&>n in the—management of external relations had reinte-

grErted a dependent political economy on terms satisfactory
tC) the capital accumulation interests of big capital and
tlua national interests of the metropole state.
The Chilean political groups who had supported the New

D6531 for COpper had done so in the belief that the result
We‘uld be greater investment, output, and processing in
(“311e, and an increased take for the Chilean state. Al-
though one new mine was brought on stream-~El Salvador had

already been planned as a replacement for the exhausted

POtretillos, however--the rise in investment after 1955 was

Shortlived (Baklanoff, 1966:335; Mamalakis, 1971:413). The

 

 

 

189
proportion of exports refined in Chile actually declined
between 1955 and 1964, government revenues from copper fell
since the increased output was not sufficient to compensate
for the lowered tax rates, and Chile's share of capitalist
world copper production continued its post WWII downward
trend (Mikesall, l97la:373; NACLA, 1972:114; Reynolds, 1965:
253-254). Finally, the New Deal "failed to make a major
dent in the outflow of foreign earned income from Chile"
Mamalakis, 1971:413). Chilean unhappiness with the results
of the New Deal ran so deep that when big COpper proposed
new investments in 1960 in return for tax concessions and a
twenty year guarantee of the continuation of the New Deal
policies, the Chilean legislature rejected the proposal and
passed a surtax instead (Baklanoff, 1966:337-338; Mikesall,

l97la:374). By the 1964 presidential elections, copper was

-, again the major issue.

The pivot of the Chilean political debate over copper
had shifted in the intervening years, however. Now the
issues were no longer prices and markets but participation
and control. The left prOposed nationalization and the
Center participation through Chileanization--state "purchase
of 25 percent or more of the stock in established companies»
and 49 percent equity in new companies" (Edwards, T., 1972:
71- Metropole state social expense outlays in support of
the centrist candidate Eduardo Frei began well before the
election: when it comes to the sanctity of private property

"Btropole capital and its state have a common set of

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190

assumptions. In May of 1964, four months prior to the
election, discussions between big COpper and Frei's repre-
sentatives began in New York. During the same period, Frei's
prospective cabinet met with policy makers of the U.S. state
in Washington (E&MJ, November 1964:23; Mikesall, l97la:375).
The USIA cooperated with big COpper in an "educational cam-
paign" contrasting Frei and Allende which U.S. Officials
later credited with an important role in Frei's victory.
The metropole state was also able to mobilize the support
of private "non-political" groups such as CARE in the strug-
gle to elect Frei: CARE packages were distributed in the
neighborhoods of the urban poor as the election approached
with suitable reminders of the connection to the good will
of the U.S. and the election of Frei. Overall, a former
U.S. Official estimated that it cost the metropole state
$20 million to defeat Allenda (CALA; Wolpin, 1969). On a
per capita basis-this social expense outlay compares quite
favorably with the cost of U.S. presidential elections.

While the Chileanization agreements themselves involved
big copper and the Chilean state, the U.S. state was never
far from the scene. Kennecott offered, and Chile accepted,
a 51 percent interest in Braden, the subsidiary which owns
El Teniente, and the two also worked out an expansion pro-
gram to be completed in 1970. The program, which was to
raise El Teniente's output from 180,000 tons per year to
280,000 tons per year, would cost $230 million, financed as

follows: $27.5 million from the Chilean state's COpper

191
corporation (CODELCO), a $92.7 million loan from Kennecott,
and the remaining $110.0 million from the U.S. through its
Export-Import Bank (Edwards, T., 1972:17-19; Girvan, 1972:
30: Mikesall, l97la:376). In fact, Kennecott had taken the
socialization of costs to a fine art. After receiving $81.6
million from the Chilean state for a 51 percent share in a
mine whose total book value had been listed at $65.7 million,
Kennecott turned around and loaned this sum as the bulk of
its $92.7 million contribution to the mine expansion--at
5.95 percent interest! Tax rates on Kennecott's remaining
49 percent interest in Braden were reduced to the level
that returns to Kennecott exceeded those prior to Chileani-
zation (NACLA, 1972:115; Gedicks, 1973:13; Girvan, 1972:
57-58). As a New York security analyst for the company ex-
plained it: "The beauty of the deal is that the Chileans
are happy, and Kennecott is getting a bigger share of a
bigger pie without any big outlay of new money from the

states" (Business Week, December 7, 1969). Except, of

 

course, the social expense outlays of the metrOpole state
itself to finance the mine expansion and those which could
be predicted as the nature of the deal dawned on the
Chileans over the succeeding years.

Under the Chileanization agreements Anaconda did not
sell any of its existing property but did agree to a joint
venture in a new company and an expansion of output at
Chuquicamata and El Salvador. Once again the U.S. state

footed part of the bill with a $58.7 million loan from the

192
Export-Import Bank for mine expansion (Edwards, T., 1972:
17-19; Mikesall, l97la:376-378). In both of the Chileaniza-
tion agreements capital had managed to tie the interests of
the U.S. state to the stability of the Chilean government
and its continued willingness to meet its external financial
obligations. State outlays were also involved in the con-
flict over copper prices which developed during the Frei
administration. In 1965, when the U.S. state was attempting
to control the price of copper, the Chilean state saw the
widening U.S./LME price gap as an Opportunity to gain in-
creased revenues. In October of that year Chile raised the
price of its copper to 38¢/1b. but when U.S. producers fol-
lowed, the metropole state announced the release of 200,000
tons from the stockpile and forced a price rollback in the
U.S. The U.S. state then negotiated a 100,000 ton purchase
for defense purposes from Chile at the 36¢/lb. price. In
return, Chile was granted a $10 million, 40 year low interest
loan through AID to meet the rising cost of mine eXpansion.
By the end of 1966 Chile had shifted to LME prices and the
state began allowing Anaconda's Chilean production to enter
the U.S. at these prices and allocated it to fabricators on
a percentage basis, regardless of the ability of integrated
capital to supply its own needs (E&MJ, February 1966:25 and
January 1967:21; Mikesall, 1971a:382-383). In each of these
cases, state social expense outlays were required to reinte-
grate the triangle of metropole state, hinterland state, and

capital.

193

The hopes for Chileanization were only partially re-
alized. Although refined exports increased as a percentage
of total COpper exports, total output of the Gran Mineria--
the large mines of U.S. capital--was less in 1970 than in
1963. The rhetoric and partial reality of land reform under
Frei radicalized large segments of the rural population
(Petras and LaPorte, l973:Chapter 5). Opposition politicians
increasingly called into question the cost/benefit ratio of
the Chileanization program. Finally, the intervention of
Alliance for Progress programs and priorities in Chilean
politics alienated much of the traditional support for the
U.S. copper companies (Moran, 1972). Despite Frei's be-
lated 1969 "impacted nationalization," copper was again an
issue in the 1970 election. The Unidad Popular's Allende,
who advocated immediate nationalization, received a plural-
ity of the vote and was confirmed as president by the leg-
islature. In 1971, the Chilean senate voted unanimously
for Allende's nationalization prOposal. After deductions
for excess profits, depreciation, and failure to maintain
facilities, the Comptroller General announced that not only
did Chile not owe compensation to big COpper, in fact big
copper was in debt to Chile.

There was a time when such an action would have stimu-
lated an almost automatic response from the U.S. state: the
marines. However, the 1970's are not the 1920's or even the
1950's. There are at least three factors which imposed im-

portant restraints on action by the metropole state in

194

pursuit of national interest. First, Latin American nation-
alism precluded any significant hemispheric support for an-
other Playa Giron. Second, Indochina was still an albatross
around the neck of U.S. foreign policy. State strategic and
national interests in one part of the world blocked immedi-
ate and decisive action in another. Finally, related to the
second point, the disaster of Indochina had discredited
imperial adventures among the underlying metrOpole popula-
tion. Instead, the metropole state relied on the political
forces set in motion by the social expenses of legitimation
to undermine the Unidad Popular government abroad while
social expenses at home partially compensated capital for
its loss.

Military aid is a major component in the total sOcial
expenses involved in the management of external relations
(O'Connor, 1974:151-158). Among Latin American nations
Chile had received the highest per capita level of this aid
from the U.S. state since WWII, a sum amounting to 10 per-
cent of the Chilean defense budget. These funds were con-
centrated in the areas of force modernization and weapons
acquisition, the dynamic sectors of any military establish-
ment, thus committing future resources to the directions
marked out by the giver of aid. Nor were technology, re-
placement parts, and organizational conceptions the only
links between the U.S. state and the Chilean military.

More than 4,000 officers of the Chilean armed forces, in-

cluding future coup leader Gen. Pinochet, had been trained

195
by the U.S. military and joint naval Operations were con-
ducted each year. Although all other forms of state outlays
for Chile were ended with the leection of Allenda, military
aid continued at double the 1967-1970 rate. These increased
social expenses incurred by the state included the low cost
sale of sophisticated aircraft, a move which required the
waiver of congressional restrictions on arms sales to hin-
terland nations (Burns, 1973:424-425; Klare, 1972:280-281,
292-302; NACLA, 1973:8-9, 12). The Chilean military, bol-
stered by metropole state social expenses, emerged as the
major actor in the counterrevolution which began in September
of 1973.

Other agencies of the U.S. state carried on the counter-
revolutionary struggle in their own way. As the $2 billion
in loans that Frei had negotiated came due, representatives
_ Of the U.S.-state at the Parid debt renegotiations pushed a
hard line. State Department spokesperson Charles Bray said
that compensation to big COpper was the key issue (E&MJ,
August 1972:15). Loans from the IMF and the IBRD were cut
off under U.S. pressure with one exception: a World Bank
loan to the Catholic University TV station which opposed
Allende. The espionage arm of the state supported at least
ten CIA operatives in the Santiago embassy at one time or
another during Allende's tenure in office. The embassy it-
self was placed under the direction of Nathaniel Davis, an
ambassador with long time Central Intelligence Agency con-

nections. Finally, an inflow of U.S. dollars the week before

196

the coup was indicated by the sharp fall of the dollar on
the black market while interviews with striking truckers re-
vealed claims Of external financial support. As in the

case of the military, the social expenses necessary for the
management of external relations were directed towards the
strengthening of the hinterland counterrevolutionary forces
(Burns, 1973:424-425; NACLA, 1972:179-208).

The total social expense outlays of the metropole state
in the struggle to reverse the nationalization of big copper
in Chile do not stop here, however. The upsurge of hinter-
land nationalism during the last two decades has resulted in
a metrOpole state financed program of insurance for foreign

investments (Multinational Copporations and United States

 

Foreign Policy, 1974). Operated originally by AID and now

 

by the Overseas Private Investment Corporation (OPIC), the
policies cover war, revolution, natural disaster, and our-
rency inconvertibility. Chile, with less than 1.5 percent
of U.S. capital's direct private foreign investment, ac-
counted for 19.8 percent of OPIC's coverage at the end of
1968 (Multinational Corporations and United States Foreign
Policy, 1974:448). Both Anaconda and Kennecott had pur-
chased policies from OPIC and both companies cashed the
policies after nationalization and the rejection of their
protests in Chilean courts: capital turned state expendi-
tures for social expenses into social investment for capi-
tal accumulation. OPIC paid Anaconda's $11.89 million

claim on the new La Exotica mine and $66.9 million on the

197
$92.7 million loan Kennecott had made to Chile for expansion
at El Teniente. (Chilean repayments had already reduced the
debt to $74.7 million.) However, OPIC refused to grant
Anaconda's $154 million claim on Chuquicamata and El Salva-
dor. Anaconda had saved $4 million on insurance by carrying
only standby coverage on these properties at the time of
Frei's 1969 impacted nationalization and OPIC had refused
requests to transfer to full coverage after that date on the
grounds that nationalization had already occurred. After
all, $154 million on top of $78.79 million of social ex-
penses would be a significant contribution to the fiscal
crisis of the state (pggg, December 1971:76; November 1972:
262; and February 1973:123).

The immediate outcome of the Unidad POpular'sprOject
of socialist transformation in Chile has been the counter-
revolution of September 1973. Social expense outlays of
the metropole state were critical in the success of that
struggle against the course of history. Both the counter-
revolution and the state social expenses involved are also
part of a larger project whose outlines were articulated by
"Copper Man of the Year," Kennecott's president Frank Milli-
ken, at a speech before the Copper Club in March 1973. The

time has come when we must take some initiative

to create business conditions. With the help of

host governments in underdevelOped areas...the

support of our government..and with the coopera-

tion and expertise of international organizations

such as the World Bank and the International

Arbitration Commission, we need to createge new
order and stability_for foreign investment"

 

 

198

(Quoted in EEMJ, April 1973:169, emphasis added). This new
order" is, in fact, the continuation of an Old status quo,
the structure of capitalist metrOpole and hinterland in the
modern world, the political economy of dependency. I have
looked at the metrOpole side of that relationship in the
last several chapters. I now turn to a consideration of the

changing forms which the Chilean hinterland has undergone in

the twentieth century.

I think that it's not asking too much to
have our little region over here which has never
bothered anybody.

--Sec. of War Henry L.
Stimson to Asst. Sec.
Of War John J. McCloy,
1945

The produce of the earth-~all that is derived
from its surface by the united application of
labor, machinery, and capital is divided among
three classes of the community, namely the pro-
prietor of the land, the owner of the stock of
capital necessary for its cultivation, and the
laborers by whose industry it is cultivated.

But in different stages of society, the pro-
portions of the whole produce of the earth which
will be allotted to each of these classes, under'
the names of rent, profit, and wages, will be es-
sentially different...To determine the laws which
regulate this distribution is the principal prob-
lem in Political Economy.

--David Ricardo, The

- Principles of Political
Economy and Taxation

199

CHAPTER 6

THE ROOTS OF CHILEAN DEPENDENCY

I

The colonial heritage of Spanish America produced the
time of troubles which followed the wars of independence of
1810-1822. Competitive with each other in their exports,
regionally fragmented as a result of Spanish political con-
trol, and ruled by classes whose orientation remained
largely West EurOpean, the new nations found stability and
national integration, much less Latin unity, to be elusive
(Furtado, l970:2). Chile, almost alone, was an exception;
and by 1830, under the leadership of Diego Portales, the
country had achieved a considerable degree of political and
economic stability (Pike, l963:1). This achievement was
not, however, based on a social structure likely to evolve
into an industrial society in the twentieth century, but
rather was founded on what Claudio Veliz has called the
three legged table of Chilean society:

In the period between independence from Spain

and the depression of 1929, the Chilean economy

was dominated by three legs of the national eco-

nomic table. In the first place, there were the

mining exporters of the north of the country; then

there were the agricultural and livestock export-

ers of the south; and finally there were the large

import firms which were usually located in the

center, in Santiago and Valparaiso, but which op-

erated in the whole country. These three pressure

200

201

groups were in entire agreement about what eco-
nomic policy the country should follow. There
was no other group which was able to challenge
their economic, political and social power, and
the three totally dominated national life, from
the municipal councils to diplomatic representa-
tion, economic legislation and the horse races...

The mining exporters of the north of the
country were free traders. This policy was not
fundamentally due to reasons of doctrine--though
they also had these--but rather to the simple
reason that these gentlemen were blessed with
common sense. They exported COpper, silver,
nitrates, and other minerals of lesser importance
to Europe and the United States, where they were
paid in pounds sterling or dollars. With this
money they bought equipment, machinery, manufac-
tures, or high quality consumer goods at very low
prices. It is hard to conceive of an altruism or
a far-sighted or a prophetic vision which would
lead these exporters to pay export and import
duties with a view to the possible industrializa-
tion of the country. Tied to the liberal ideas
of the era, they would have argued that if it
were really worthwhile developing Chilean industry,
this should at least be efficient enough to com-
pete with EurOpean industry which had to pay high
freight charges before getting to our shores...

The agricultural and livestock exporters of
the South were also emphatically free traders.
They sent their wheat and flour to Europe, Cal-
ifornia, and Australia. They clothed their cow-
boys with ponchos of English Flannel, rode in
saddles made by the best harnessmakers of London,
drank authentic champagne and lighted their man-
sions with Florentine lamps. At night they slept
in beds made by excellent English cabinet makers,
between sheets of Irish linen and covered by
blankets of English wool. Their silk shirts came
from Italy and their wives jewels from London,
Paris and Rome. For these hacendados, who were
paid in pounds sterling, the idea of taxing the
exPort of wheat or of imposing protective duties
on imports was simply insanity. If Chile wanted
its own industry to produce ponchos, very well,
let it--as long as it could produce cloth of as
good a quality and low a price as the English.
Otherwise, the proposal was a swindle. For these
simple and undoubtedly solid reasons, the mining
exporter of the North and the agricultural ex-
porter of the South both put pressure on the gov-
ernment to keep an economic policy of free trade.

 

202

The big import houses of Valparaiso and

Santiago also were free traders. Could anyone

imagine an import firm supporting the establish-

ment of high import duties to protect national

industry! (Quoted in Frank, 1969:89-90).

Three legged tables are notoriously unsteady and, even-
tually, this proved the case for the Chilean one also. De-
spite some early wobbles, it remained upright for over a
century, however, and its construction dictated certain
limitations and determined certain options for Chilean de-
velopment. This was particularly true in regard to the
mining export sector. Thus, it is worth examining the legs
in some detail. Of the three legs, the fate of one was ob-
viously dependent on the other two: import firms do not
Operate on a large scale unless the class structure of a
nation organizes the productive factors towards foreign ex-
change earning exports. No export sales means low effective
demand for imports. While the export of agricultural goods,
particularly wheat, retained regional significance for cen-
tral Chile, these exports declined relative to mineral ex-
ports. It was the latter which provided most of the basis
for Chilean prosperity and growth in the nineteenth century
(Pendle, 1960:144-149).

In this respect, the years after independence differed
little from the colonial period when the desert North and
Araucanian resistance in the South fed the Spanish "disease
of the heart for which gold [was] the specific remedy."

While gold mining in colonial Chile never reached the level

of San Luis Potosi or the placer mines of New Granada, gold

203
was Chile's leading export by value. Almost half of total
Chilean gold production of 1545-1958 occurred prior to in-
dependence and, at its 1801-1820 peak, Chile produced 17.5
percent of the world's gold (Pederson, l966:6,166). In ad-
dition, the Indians of pre-Conquest Chile had mined and
worked copper as well as gold, and the Spanish continued to
extract COpper from the same mines. Most Chilean copper,
beginning as early as 1715, was exported to the Viceroyalty
of Peru, and COpper mining remained important in Coquimbo
province through the latter part of the 1700's (Pederson,
1966:6).

After independence, the mineral rich Chilean earth
yielded silver, a mineral little worked in the colonial era.
The first big strike was at Chanarcillo in 1832 and this
mine remained the most productive one throughout the nine-
teenth century. Between 1832 and the last important find
at Caracoles in-1870, numerous smaller deposits were dis-
covered. Silver production multiplied six times between
1840 and 1855 (Frank, 1969:60-61) and Chile was third in
world production at the 1887 peak (Pederson, l966:8). The
decline was rapid, however, and silver was not the major
vein in the third leg of the Chilean table. That role was
held by COpper until the last two decades of the century.
Under Spanish rule, Chilean COpper output reached 46 metric
tons per year in the 1600's and jumped to 622 metric tons
per year in the eighteenth century (United States, Dept. of

Commerce, l960:8). As Table 5 indicates, however, it was

204

Table 5. Chilean Copper Production in the Nineteenth Century

 

Annual Average Output

 

in Metric Tons Chilean Production as
Period (Cppper Content) % of World Production
1801-1810 1,489 9%
1811-1820 1,542 9%
1821—1830 2,735 11%
1831-1840 4,638 14%
1841-1850 8,973 20%
1851-1860 22,082 32%
1861-1870 45,974 44%
1871-1880 46,595 36%
1881-1890 36,198 16%
1891-1900 22,633 6%

 

Source: Calculated from Skelton (1937:392).

not until the middle of the nineteenth century that Chile
emerged as an important producer of COpper on a world scale.
The discovery of the Tamaya mines in 1833 began the rapid
rise. By 1851, Chile was the leading copper producing
country, replacing the United Kingdom. Chile retained this
position until 1883 when the United States moved into first
place (United States, Dept. of Commerce, 1960:87; NACLA,
1972:94; Wideman, 1965:263).

As if to mirror the present and foreshadow the future
configurations of world power, the old metrOpole, England,
the underdeveloping hinterland, Chile, and the future metro-
pole, the United States, were already linked through the
commodity copper. Swansea in Wales was the world center
for refining and technological innovation in copper through-
out most of the 1800's. Much of the copper mined in the

United States and Chile was exported to Swansea, smelted

205

and/or refined, and re-exported. Thus, the social relations
of copper appeared as market relations in an international
division of labor, a division which concentrated the latter
stages of processing, the labor requiring technical skills
and administrative abilities, and the accumulation of surplus
in a capitalist metropole. While the emergence of a domestic
market, the availability of financing, and the wealth of its
COpper deposits enabled the United States to break out of.
this pattern of the international division of labor, Chile
merely exchanged one metropole for another (Pederson, 1966:
200-201; Richter, l927a:159-16l).

In Chile, as elsewhere, the expanding production of
copper during the nineteenth century was based on discovery
of new mines with very high copper content in the ores.. At
the beginning of the nineteenth century, the copper content
of Chilean ore probably ran as high as 50 percent, i.e.,
two tons of ore yielded one ton of metal; the industry was
labor intensive, and remained so despite a continuous de-
cline in ore content over the course of the century to a
level of 10-25 percent. While the large mines worked sul-
fide ores with methods equivalent to those found in Europe
and the United States, steam power, blasting powder, and
pneumatic drills found limited application. Furthermore,
the proliferation of small claims made consolidation for
the mining of low grade ores difficult (Pederson, 1966:
191-199). Nevertheless, the industry was developed through

the processing level of smelting, and controlled by Chileans.

206

In 1876, the peak year of Chilean COpper production in the
nineteenth century, 90 percent of the COpper output was

from Chilean owned mines (NACLA, 1972:95; Reynolds, 1965:
221). By the end of the 1890's, however, the declining cop-
per content Of Chilean ores had relegated Chile to the posi-
tion of a marginal producer at the same time that the new
uses of copper, as a conductor of electricity and in the
manufacture of automobiles, were radically increasing metro-
politan demand for the metal (Reynolds, 1965:211-212).

Yet the three legged table did not collapse, for Chile
was blessed with still another mineral--nitrate. In fact,
it can be argued that the very abundance of minerals in
Chile probably made it easier to ignore the decline of COp-
per and the exhaustion of the silver mines. Chilean and
Peruvian capital had developed the nitrate deposits after
the 1830's when the value of nitrate as a fertilizer became
widely known. As the figures in Table 6 indicate, nitrate
production increased rapidly thereafter. While there is a
scarcity of information on the percentage of world nitrate
production supplied by Chile, the prOportion must have been
extremely high since Chilean nitrate was a truly unique re-
source. These deposits are the only naturally occurring
ones of any great size and the Haber process for mass pro-
duction of synthetic nitrates was not developed until World
War I (Levin, 1960:108-110). Even as late as the early
twentieth century, Chile accounted for more than two-thirds

of world nitrate production.

207

Table 6. Chilean Nitrate Production, Selected Years and
Share of Nitrate Taxation in Government Revenue

 

% Contribution of
Nitrate Industry to

 

Production Ordinary Revenues
Year (000 Metric Tons) Year of Chile
1840* 40
1850* 30
1869* . 100
1880 223 1880 5%
1885 28%
1890 670 1890 48%
1895 56%
1900 1,643 1900 49%

 

*Pre—1880 nitrate production not Chilean.
Source: United States, Dept. of Commerce, 1960:98;
Reynolds, 1965:33.

The benefits accruing to Chile from its nitrate wealth
were somewhat less than might be expected, however. Most
' of the nitrate lands, which lie in the present-day provinces
of Tarapaca and Antofagasta, originally belonged to Peru
and Bolivia, a division reaffirmed by an 1866 treaty with
the latter nation. In the War of the Pacific (1879-1883)
Chile defeated these two nations and acquired the nitrate
deposits in the peace settlement. During the war, however,
the bonds of the Chilean and Peruvian companies who owned
the nitrate concessions were purchased at depressed prices
by British investors. After the war, Chile operated the

deposits through a state company for eight months but then

returned the mines to private control, honoring the British

208

bondholders' claims. As a result, a substantial portion of
potential nitrate revenues left the country and the nitrate
deposits were integrated into the Chilean political economy
only through wage payments to Chileans and via government
taxation. The latter linkage was by far the most signifi-
cant and its contribution to government revenues is summa-
rized in Table 6. 0f perhaps greatest importance, this
structure of incomplete integration of a mineral sector
largely under foreign control established a pattern which
was to be repeated in the twentieth century in the case of
COpper (Frank, 1969:73-85; Pike, 1963:4-5). Even at the
level of day-to-day life the parallels are striking. In
the nitrate towns as in the copper mining camps of the
future, "everything...was imported--building materials...
furniture and clothing, diamond jewelry, champagne, and

cigars" (Pendle, 1960:148). In the nitrate enclaves, the

‘ pleasures of the—day flowed in while the wealth of the

future flowed out.

The dominance of mineral export and finished goods im-
port in the three legged Chilean table produced a class
structure and a set of political forces which the re-
emergence of copper in the twentieth century modified but
also strengthened. It took an external crisis, the depres-
sion of the 1930's and the collapse of Chilean exports to
topple the table (Sunkel, 1965:121-122; Pinto, 1965:9-12).
The existence of the Chilean mineral wealth in nineteenth

century made possible the absorption and consolidation of

209

new upper class elements during the 1830-1860 period, a
process which contributed greatly to the relative stability
of Chilean society when compared to other nations of Spanish
America (Pike, 1963:5—6). Thus, the division in the ruling
class between Pipiolos and Pelucones (liberals and conserva-
tives) which defined Chilean politics into the twentieth
century did not prevent most presidents from completing
their ten year terms. At the same time, the stability and
flexibility provided by mineral export earnings was an im-
portant source of elite hegemony and confidence in their
ability to govern which later facilitated the emergence of

a greater degree of formal democracy.

By the end of the 1800's, Chilean prosperity had also
begun to create a middle class, and the Old elite/mass model
of society was no longer applicable (Huelin, 1968:468-470).
It was not, however, the middle class which formed the in-
dustrial bourgeoisie in Western Europe or the United States
but instead was based on international commerce, the import
and export of goods and services. That is to say that it
was a pre-industrial middle class, one dependent on the
continued success of Chilean mineral exports. This depen—
dence was often direct, through employment as clerks, ac-
countants, or supervisory personnel (empleados) in the min-
eral industries themselves or at one step removed, through
positions in the import/export firms centered in Santiago
and Valparaiso. The mineral industry was also the basis of

a middle sector whose dependence was indirect but no less

210

real. As the revenue figures in Table 6 suggest, the state
bureaucracy was increasingly financed through taxation of
nitrate exports. In sum, while the origins of a pre-
industrial urban middle class in Chile lie in the mineral
economy and metropole oriented social structure of the colo-
nial period, the expansion of silver, copper, and nitrate
production in the nineteenth century facilitated the growth
of this class and firmly tied its interests to commercial
and state activities (Petras, 1970:25-30; Veliz, 1965:3-4;
Veliz, 1969:9-10). By the late 1880's, Chile had the highest
per capita income in Latin America, a mineral base to pro-
vide a surplus for investment, a rising middle class with
some reform interests, and a ruling class with the self
confidence necessary for national progress. From at least
one angle of vision, Chile appeared to be on the way to
national stability, economic growth, and political autonomy.

Yet there were some clouds in the horizon, some aspects
of Chilean history already manifest by the end of the nine-
teenth century which suggest the contradictions in the
Chilean path of development, contradictions which were the
roots of stagnation in the next century. First, there was
the question of industrial deve10pment. While it is often
suggested that Latin American efforts at industrialization
took the form of "forced" import substitution as a result
of the 1930's depression, Chile's first attempts occurred
a half century earlier. In the 1880's, concern over the

drastic ups and downs of an "outward developing" economy

211

Spurred efforts by several groups within Chile to implement
"spontaneous" (indigenously induced) import substitution
industrialization (ECLA, 1966:7-8). Import substitution in
this period was organized around the production of food-
stuffs, textiles, and export linked industries. President
Jose Manual Balmaceda's attempt to carry out a national in—
dustrialization program in the early 1890's represents the
culmination of these first efforts. His overthrow in 1893
by the three legs of the Chilean table indicates that the
structuring of underdevelopment had already begun in Chilean
society. That is to say that the internal structural ob-
stacles to development were already aligned with the exter—
nal restraints on development (Frank, 1969:73-82; ECLA,
l966c:8). I

Second, and inseparable from the above, there was the
problem of Chile's place in the world economy. The country
was already strongly tied to a single metropole, Britain,
which had replaced Spain soon after independence (Pike, 1963:
7). Sources of export earnings remained the crucial deter-
minant of Chilean well-being, and the important nitrate
deposits had come under British control after being developed
by Chileans. COpper, the other major mineral resource, was
declining and already vulnerable to foreign penetration.

Third, there was the problem of the relationship be-
tween the mineral export sector and the rest of Chilean
society. As noted above, the revenues from government tax-

ation and the wages of employees were the chief linkages

212

between nitrate mining and Chile, and, while the revenues
from exports rose, the revenues from taxation on the lati-
fundios was falling. The government's ability to tax some
of the earnings of the export sector lessened the political
will to tax the classes which held power internally. Since
nitrate extraction was actually organized across national
economies, or more correctly as a part of the international
political economy of Britain rather than along the lines of
the Chilean political economy, many of the forward and back-
ward linkages which might have been established were not.
The middle class created on this export basis proved too
weak to fulfill the role of innovating entrepreneurs and
instead preferred to emulate the import-dependent consump-
tion standards of the upper class. They also found a polit-
ical alliance with the old ruling class more to their taste
than the socially disruptive task of import substitution
industrialization. Chile, then, despite appearances of well
being in the statistics of the world market, was, in terms
of the international class relations, actually well down
the path of dependence, a

situation in which the economy of certain coun-

tries is conditioned by the development and ex-

pansion of another economy to which the former

is subjected. The relation of interdependence

between two or more economies, and between these

and world trade, assumes the form of dependence

when some countries (the dominant ones) can ex-

pand and be self starting, while other countries

(the dependent ones) can do this only as a re-

flection of that expansion, which can have either

a positive or a negative effect on their immedi-
ate development (Dos Santos, 1971:226).

213

II
Immediately before us, at exactly the right

time, just as we are ready for it, great Oppor-

tunities for peaceful commercial and industrial

expansion to the South are presented. Other in-
vesting nations are already in the field--England,

France, Germany, Italy, Spain; but the field is

so vast, the new demands are so great, the prog-

ress so rapid, that what other nations have done

up to this time is but a slight advance in the

race for the grand total...

. The investment of American capital in South

America under the direction of American eXports

should be promoted, not merely upon simple invest-

ment grounds, but as a means of creating and en-

larging trade...
--William Howard Taft, 1906

The opening years of the twentieth century marked a
period of transition for Chilean copper, a transition shaped
and directed by an accelerating and structurally changing
demand for copper in the capitalist metropoles. This new
demand for COpper was not experienced directly by Chile,
however, but was mediated through the expansion of metropole-
~based mining cOrporations. The political economy of Chilean
COpper which emerged from this period has remained a major,
perhaps the major, determinant of Chilean underdevelopment
for more than five decades.

One way of summarizing this transition is as follows:
during the 1871-1880 decade Chile reached its nineteenth
century peak in COpper production, averaging 47.8 thousand
metric tons per year (MT/Y), 36 percent of a world average
of 129.4 thousand MT/Y. Chile's share was considerably
more than the 15 percent each provided by Spain and the

U.S., the second leading producers. Approximately 90 percent

214

of Chilean production during this decade came from several
dozen Chilean owned mines. Three decades later, Chile's
copper production had fallen by a third, averaging 32.5
thousand MT/Y while world production had increased over 450
percent to 727.3 thousand MT/Y. Chile's share of world out-
put was less than 5 percent during this 1901-1910 decade.

In 1918, Chile's copper production was 115.3 thousand MT/Y,
more than double the nineteenth century peak, and repre-
sented 8 percent of world output of 1,420.0 thousand MT/Y.
The latter was already twice the average of a decade earlier.
In this same year 87 percent of Chilean production was from
foreign owned mines and fully 71 percent came from the two
mines owned by subsidiaries of the U.S. based multinationals,
Anaconda Company and Kennecott Copper Corporation.‘ By the
early 1920's, approximately 70 percent of the copper con-
sumed in the United States (which is broadly representative
of world consumption) went to uses unknown during Chile's
(peak production years of the preceding century. The chief
sources of this new demand were the electrical industry,
which accounted for 50 percent, and the automobile industry
which consumed another 10-12 percent (particularly in rad-
iators). In these same years, Chile's share of world pro-
duction rose to around 15 percent, making her the second
largest producer after the United States; and 90 percent of
her output came from the mines of Anaconda and Kennecott.

In the decades between the 1870's and World War I, the world

COpper industry had been reorganized under the direction of

215

a handful of multinational corporations which mined, milled,
smelted, refined, fabricated, and sold copper, along with a
good half dozen by-product metals. United States based
firms occupied a dominant position in this new international
political economy of COpper, accounting for over three-
fourths of world production by the end of World War I (ECLA,
1951:380; Reynolds, 1965:259; Skelton, 1937:385, 401, 405).
To understand this reorganization of the Chilean copper
industry, a closer look at COpper in the country which dis-
placed Chile as the leading producer, the United States, is
in order. The major problem facing Chilean and United
States copper miners at the end of the nineteenth century
was similar, the declining copper content of ores with the
exhaustion of mines based on veins or native COpper. By
1900, the copper content of United States ores was down to
less than Sopercent while few new deposits had been discov-
ered since the rapid succession of major finds in the 1870's
' and 1880's (Bidwell, 1958:116). Technological advances in
processing such as the convertor and the reverberatory fur-
nace had already been introduced into United States mining
practice, but these did not give United States miners a de-
cisive lead over other producing areas (Davis, 1924:115-
124). The big breakthrough in COpper mining came in two
stages: (1) the rise of electricity as an energy source
and the subsequent development of electrolytic refining, and
(2) the application of mass mining techniques to previously

uneconomic deposits.

216

The theoretical basis for the use of electricity as an
energy source extends back into the 1700's and Faraday's
experiments date from 1830, but it was not until Edison lit
up a part of New York City in 1882 that the potential of
electricity began to unfold. The first commercial generating
stations were opened in London, Milan and New York City in
the 1880's; in 1892 copper wire linked New York and Chicago,
signaling the displacement of steel as a conductor; in the
same year, the General Electric Corporation was organized.
Anaconda's construction of an electrolytic refinery, also in
1892, at Great Falls, Montana, was a crucial step in freeing
the United States producers from dependence on Swansea as a
smelting and refining center. Two years later, the United
States exported more refined than unrefined COpper (McMahon,
1965:31; May, 1937:539-541; Richter, l927a:265-266, and
1927b:690-693). As copper stimulated electrification, so
electricity aided in the production of COpper. It required
the electrolytic refining process, developed during the
1870 and 1880's to produce copper of sufficient purity--
over 99.9 percentufrom low grade deposits to meet the de-
mands of new industrial uses. At this level of purity,
only one metal, aluminum, is superior for conducting elec-
tric current.

Electricity was only a part of the new technology of
physics and chemistry develOped in the last third of the
1800's which dramatically widened the metropole/hinterland

gap in the capitalist world. While disparities in standards

217

of living had existed in the past in conjunction with power
differentials, by the end of the 1800's, the size of this
gap was unprecedented (Rosenstein-Rodan, 1972:29-30). Hin-
terland nations such as Chile failed to assimilate these
new technologies not because of "traditionalistic value
patterns," nor simply because of inadequate market size.
There were, instead, two other reasons for Chile's failure
to apply the new technologies to retain control over and
develop their mineral resources, reasons which are typical
of the fate of hinterland nations during this era. First
was the structure Of dependency shaped by the colonial past.
The three legged table of Chilean society would have tOppled
if the institutional changes required for the absorption of
metropolitan technology had occurred. Equally important,
however, was the fact that the new technologies of potential
abundance were implemented through the corporate economic
form of the metropole. Thus, the "transfer of technology"
occurred by way of an organizational structure which inte-
grated the hinterland nations into the world economy in a
subordinate role (Furtado, 1970:79-83; Skelton, 1937:379-
380).

As this suggests, the solution to the problems of de-
clining ore content in the United States copper mining in-
dustry was not simply technological. To make use of the
new technologies required organization, markets, and finan-
cing on a scale hitherto unimagined outside of the rail-

roads. In the capitalist metropoles, of course, this was

218

carried out under private auspices (although with state
aid) and it is in the business organizations of this period
that the roots of the modern multinational corporation can
be found. The millions needed came from the great financiers
of the day--the Morgans, Guggenheims, Harrimans-- while or-
ganizational changes in the corporation required increasing
separation of administrative and Operating functions within
the firm (Chandler, 1961:1-18). During these same years,
the metrOpole state financed the transportation networks
which integrated national metropolitan markets and without
which the corporation would have been unable to fulfill its
potential for the emancipation of space-bound and time-
bound people.

For COpper, these general developments were brought
together and applied by a United States mining engineer,
Daniel C. Jackling. A failure in an earlier attempt at gold
mining and a success as a metallurgist, Jackling got banker
Charles Hayden and his Guggenheim associates to invest ten
million dollars in the development of the Bingham Canyon
mine near Garfield, Utah. NO new invention was involved,
simply the organization of existing mining techniques on a
mass basis, particularly the use of the steam shovel to
remove the large amounts of ore and overburden found in all
porphyry deposits.1 The mine came onstream in 1907 and the
dividends had exceeded $204 million by 1930 (Fortune, 1930:
73-74; Pan American Union, 1952:3-4; Richter, 1927a:266-267;

Wideman, 1965:265).

219
Yet the same pattern of business expansion which made
possible production and sales for a national market also
meant growth beyond national boundaries and the need to pro-
duce for, and secure raw materials from, the world at large

(Monthly_Review, 1969, Part 1:12—13). A transportation net-

 

work that integrated national markets was extended to or-
ganize international markets which focused on the capitalist
metropoles. For copper, as for trade in many other raw ma-
terials, it was the advances in steel production and ship-
building which solved the technological obstacles to the
integration of raw material producing hinterlands into the
world economy (Furtado, 1970:79-83; Magdoff, 1968:33). In
sum, in the last forty years of the nineteenth century there
was created a .

new pattern of economic relations in the world
capitalist system. During the period from 1860
to 1900, three changes in the economic relations
between nations are notable: (l) the number of
commodities.entering international trade on a
large scale multiplied greatly; (2) competition
between many widely separated regions of the
world first appeared or grew more intense; and
(3) the standard of living of workers and the
profitability of industry in European nations
came to depend on the maintenance of overseas
supplies, while the standard of living of the
producers of raw materials came to depend on mar-
ket fluctuations occurring sometimes on the other
side of the world (Magdoff, 1969:32).

It was in this context that United States entrepreneurs
turned to Chile and acquired at extremely low cost, the
most productive of the Chilean COpper mines.

Boston had been the financial center of the early de-

velopment of the U.S. copper industry, particularly the

220
Michigan deposits and it was two Bostonians, William Braden
and A. C. Burrage, who brought Chilean copper under United
States control. Using Guggenheim money, Braden acquired
the Chilean mine E1 Teniente in 1904 and organized almost
100 claims into the Braden Copper Company incorporated the
same year in Maine. In 1909 the Braden Copper Mines Company
was organized in Delaware to be the sole stockholder of
Braden Copper Company, now with 173 claims. Braden himself
and four directors Of the Kennecott Mines Company, including
two Guggenheims, were on the board of directors. The mine
came onstream in 1912, using the mass mining techniques de-
veloped in the United States, and in 1915 the newly organized
Kennecott COpper Corporation acquired about 99 percent of
Braden Copper Company along with several Alaskan properties
including the Kennecott mine. Guggenheim and Morgan inter-
ests have been represented on the board of Kennecott through-
out its 58 years-of operation as they were on the board of
its predecessor. In 1916, E1 Teniente was estimated to con-
tain 219.7 million tons of 2.19 percent copper ore. Today,
El Teniente is the largest underground COpper mine in the
world and yearly output is exceeded only by two open pit
mines, Bingham Canyon in Utah, also a Kennecott property,
and Chuquicamata in Chile. A significant amount of gold,
silver and molybdenum are extracted as by-products from E1
Teniente. In the mid 1960's, reserves were reported in
excess of 1,700 million tons of 1.2 percent copper ore, al-

though Kennecott mined ore throughout the decade which ran

221
between 1.7 percent and 1.9 percent (ECLA, 1970:146-148;

Kennecott Annual Report, 1970:15; Moody's Manual of Railroads

 

and Corporation Securities, 1911:3598; Moody's Manual of

 

Railroads and Corporation Securities, 1917:2411-2413; Rich-
ter, 1927b:706; Skelton, 1937:404; TNEC, 1940:453, 1008-1009).
During these same years, A. C. Burrage, a director of
Amalgamated Copper Company which then had controlling inter-
est in Anaconda Copper Mining Company, acquired an Option on
the largest Chilean mine and the largest copper mine in the
world, Chuquicamata. Also working with Guggenheim money,
he organized the Chile Exploration Company (incorporated in
Delaware in 1911) and, after an investment of $100 million,
production began in 1915. By 1918, Chuqui (as the mine is
known in COpper circles) had surpassed the total Chilean
output in the 1876 peak year of the nineteenth century. Six
members of the Guggenheim family, four Burrages, and a rep—
resentative of the Loeb banking family were among the direc-
tors during the years when a 1920 estimate gave Chuqui 690
million tons of 2.12 percent COpper ore. With control
divided and with extensive interests in other mineral ven-
tures, the Guggenheims decided to put their controlling
interest up for sale in the early 1920's. The result was
consternation in the U.S. copper industry which at that
time controlled three-fourths of world production. Cor-
nelius Kelley and John D. Ryan, the two key figures in the
consolidation Of Anaconda Company and the absorption of its

Amalgamated Copper parent, went to Washington to discuss

222

the purchase of Chuqui. Ryan and Kelley argued that (1)
domestic ores could not be expected to last forever and (2)
that British interests would buy the mine if Americans
failed to do so. The United States government agreed and
Washington helped obtain the services of J. P. Morgan and
Company as negotiator for the sale. In 1923, the Chile Ex-
ploration Company, then valued at $180 million, was sold to
Anaconda "at a tremendous profit" (Skelton, 1937:404). Ana-
conda, which has remained loosly associated with Rockefeller
interests, completed acquisition of Chile Exploration Com-
pany by 1929 in a series of questionable maneuverings later
investigated by the TNEC (Fortune, 1936a:91, 212, 214; Hend-

ricks, 1922; Kolko, 1963:50-51; Poor's and Moodyfs Manual

 

Consolidated, 1921:1775-1776; Moody's Industrials, 1926:

 

 

1971; Reynolds, 1965:217; TNEC, 1940:393, 700-701). After
42 years of output, in 1957, 686.2 million tons of ore had
been removed; in-the mid 1960's reserves were reported at
another 2,000 million tons of 1.25 percent COpper ore. In
addition to being the world's largest copper mine in terms
of output, Chuqui is also a major producer of sulfides,
gold, and some silver (Davis, 1924:75, 79; ECLA, 1970:146-
148; Pan American Union, 1952:8-9).

The third mine in the Gran Mineria has actually been
operated as two separate mines. Among William Braden's 173
claims were several acquired in 1913 around Potrerillos,
including a concession from the Chilean government for the

construction of a railroad. In 1916, Anaconda organized

223

the Andes Copper Company (also incorporated in Delaware) to
acquire these rights. The demand for COpper during World
War I stimulated an initial investment of $60 million and
production from sulfide ores began in 1926 and from oxide
ores in 1928. The mine was estimated to contain 128.3 mil-
lion tons of 1.49 percent copper ore at that time. By 1958,
200 million tons of ore had been removed. The oxide ores
were exhausted in 1949 and the sulfide ores had only a de-
cade of productive life remaining. In 1955, Andes acquired
the adjacent Indio Muerto property and began an investment
of $100.7 million in a mine called, appropriately enough,

El Salvador. While a new crushing plant had to be construc-
ted, El Salvador was close enough to Potrerillos for Andes
to use most of the same railroad, the smelter, etc. Produc-
tion began in 1959 and soon surpassed that of Potrerillos
at its peak. The same mid 1960's survey estimated El
Salvador to heve-350 million tons of 1.6 percent COpper ore.
Like the rest of the Gran Mineria, Potrerillos and El
Salvador produce significant amounts of gold, silver, and
molybdenum as by-products (ECLA, 1970:147; Griffin, 1966:
153-156; United States, Dept. of Commerce, 1960:90; Moody's

Manual of Railroads and Corporation Securities, 1917:2136;

 

Poor's and Moody's Manual Consolidated, 1921:1059-1060;

 

Moody's Industrials, 1936:662-663; Moody's Industrial Manual,

 

 

1956:2747).
Taken together, these three mines compose the Gran

Mineria, defined in 1955 as those mines producing 25,000

224

MT/Y or more and in 1966 as those producing at least 75,000
MT/Y. The Gran Mineria has accounted for over 85 percent,
and often in excess of 95 percent, of Chilean COpper pro-
duction and all the production under foreign control since
World War I. Chile Exploration Company and Andes Mining
Company, the largest and smallest Of the three respectively,
account for 60-65 percent of the Gran Mineria output, while
Braden COpper Company provides the remaining 35-40 percent.
Figure 1 summarizes the international linkages in Chilean
copper which existed prior to Chileanization in the late
1960's and/or nationalization in 1971.

In concluding this section, I would like to point out
some of the implications of the acquisition Of Chilean cop-
per properties by United States multinationals for a re-
curring debate over the role of foreign capital in raw ma-
terial producing hinterlands. Those who argue that foreign
sources of capital can make an important contribution to
"economic deve10pment" Often base their claim on the assump-
tion that "capital expenditures for exploration and develop-
ment in mining and petroleum are large, have a long gesta-
tion period, and involve a high degree of risk" (Mikesall,
l97lbz26). Private investors from metropoles are seen as
best able to assume this risk while hinterland governments
are asked to limit themselves to infrastructural investment
and administrative efforts. An alternative perspective sug-
gests that it is at the level of finance and market access

and control, rather than any ability to take risks, which

225

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226
metropole based multinationals defeated their hinterland
rivals (Girvan, 1970:492). This perspective goes on to
argue that, since foreign control produces distorted growth
and a drain of surplus for investment, hinterland government
would be well advised to develop their own mineral resources
and attempt integration through several processing levels.
While the second issue in the debate cannot be answered at
this point, it is clear that, whatever may be the general
case (and many more specific studies need to be done) the
case of copper certainly supports the latter position and
Chile is perhaps the strongest example.

By the end of the nineteenth century, the location of
all the major porphyry deposits of COpper in the western
hemisphere were well known. Only the low ore content made
these deposits uneconomical for working by the labor inten-
sive methods in use at the time. The rich surface veins of
E1 Teniente, for-examp1e, had been worked since the eigh-
teenth century when it was supposedly discovered by a
Spanish lieutenant (hence the name El Teniente). The mine
was a major producer from 1819 until 1897 when the decline
in ore content forced a cessation of Operations. The same
was also true for Chuquicamata, worked even in pre-conquest
times. Thus, William Braden and A. C. Burrage did not
"explore," invest "risk" capital and reap the rewards due
the private investor who defeats his competitors in open

competition.

227

As was the case for the huge Bingham Canyon porphyry
deposit in Utah, successful deve10pment required no new in-
ventions. All that was needed was the coordination of
existing mining techniques and the use of steam power on
the scale necessary to remove the vast amounts of ore--often
100 tons for every 1 ton of COpper--and overburden found in
porphyry deposits. This meant, first and foremost, access
to vast accumulations of capital, provided at first by the
commercial banks and later generated internally by the
mining companies themselves. Second, there was the neces-
sity of a large and growing market which could absorb the
large output necessary to make a profit beyond the high
overhead expenses of prophyry mining. This was made pos-
sible by the electrification and automobilization of the
metropoles (Fortune, 1930:3-4; Herfindahl, 1959:213ff; May,
1937:541-550; Reynolds, 1965:215-216: Richter, 1927b:705).

Nor do our protagonists fit the mold Of the small
risk-taking entrepreneurs of classical economics. The cop-
per industry was already fairly concentrated and the leading
firms established. Anaconda and Kennecott, or their prede-
cessors, have been the two largest producers in the world
every year from 1912 to the present. Their share of world
production has fluctuated between 27 percent and 41 percent
(Herfindahl, 1959:165). Anaconda had already been the major
factor in one effort at monopolization of the industry on a
world scale, the Amalgamated Pool of 1899-1901, an attempt
by Standard Oil and U.S. Steel interests to create a paral-

lel firm in the COpper industry. Even as early as the

228

collapse of the Secretan Corner of 1887-1889, Anaconda, along
with Calumet and Hecla, was strong enough to force EurOpean
bankers to unload their accumulated COpper stock slowly
enough to prevent disruption of the market. Similarly, by

no stretch of the imagination can the Guggenheims or the
Morgans be seen as sources of risk capital for independent
small investors. Thus, the achievement of control over
Chilean COpper can best be described as the accumulation of
advantages on the part of oligopolistic corporations which
were already beginning to integrate across processing levels
and political boundaries. In addition, it required state
action to make the acquisitions economically viable. With-
out the United States-instigated Panamanian "revolution"

and the completion of the Panama Canal in 1914, Chilean cop-
per would have been a much less desirable investment for
metropole firms. The Canal cut the distance to the companies'
refineries on the East Coast of the U.S. by 40 percent and
the distance to West European ports by one-third. In an era
when the COpper consumption of the United States, Germany,
France and the United Kingdom was over 75 percent of the
world total, this was a significant saving. ‘The possibility
of State action of this nature ane state social investment

on this scale was of course, limited to a very few metropole
governments. In this hemisphere, only Washington was capable
of such a venture. In sum, less elegantly but more eloquent—
ly, the success of Anaconda andeennecott is simply a case

of "them that as, gets" (May, 1937:547-549; McMahon, 1965:

32-33; Moon, 1926:424-428; Skelton, 1937:395-398, 505).

229

NOTES

1
Porphyry copper deposits are large bodies of ore with

low, usually less than 3-4 percent, copper content in which
the copper is evenly distributed throughout rather than ap-
pearing in the form of veins or as native metal. These de-
posits constitute the basic resource of the twentieth century

COpper industry.

CHAPTER 7

THE APPROPRIATION OF ACTUAL ECONOMIC SURPLUS

Underdevelopment is an unemployed worker
looking through a glass store window at a tele—
vision set showing an airline commercial.
--Salvador Allende, 1970

In this section, I analyze the mechanisms by which the
copper mining multinationals appropriate the actual economic
surplus generated by the Chilean economy. For a variety of
reasons, it is difficult, if not impossible, to arrive at
definitive figures for the amounts involved, and in some
cases any pretense at exactness is simply wishful thinking.
It would be helpful to have unrestricted access to company
records for comparison with official data, but such is not
likely to occur. In several cases I have been forced to
rely on descriptive material. Thus, the conclusions ar-
rived at in this section are subject to revision. There is,
however, sufficient information available to sketch the
outlines of the international relationships of surplus ap-
propriation within the copper industry. Even with the
above limitations, the results are both startling and so—
bering.

Before examining these mechanisms at length, however,
it is necessary to outline, in greater detail than was pos-

sible in the introduction, the reasons for focusing on

230

231

copper in any analysis of the Chilean path of deve10pment

in the twentieth century. Although it is an accepted fact
that copper has an important place in the Chilean economy,
many writers prOpose a national, or internal, explanation
for Chilean stagnation. Those who take this approach often
go on to argue that, while COpper is not the key sector in
Chilean deve10pment, its contribution has been positive,’
largely as a result of the policies of the copper companies
and despite misguided nationalism on the part of Chilean
administrations. The following points form the core of this
argument: (1) The size of the mining sector as a whole and
the employment it generated made it the key factor in
Chilean deve10pment until the end of the 1920's when min-
eral exports amounted to 23 percent of GDP. Since that
time, however, depression-induced import substitution in-
dustrialization has made industry the leading sector while
agriculture is a.retarding sector. This has also meant that
(2) mining and quarrying, which includes coal, nitrate, and
COpper mines not part of the Gran Mineria, has declined as

a portion of GDP. (3) The labor force in mining has also
declined in relative terms and employment in the large cop-
per companies has declined in absolute terms. (4) Further,
while the profits of the copper companies have risen in
recent years, they do not amount to a substantial portion

of Chilean GDP; therefore (5) Chile should avoid over-taxing
the Gran Mineria, which discourages reinvestment and in-

creased output, and (6) should concentrate on policies which

232
provide incentives for the companies to establish linkages
with the Chilean economy through their purchasing policies.
Finally (7) COpper mining cannot be counted on to have a
large impact on national integration and growth since it
fails to do so even in areas such as Utah and Montana in the
United States (Amunategue, 1968; Mamalakis, 1971; Mikesall,
1971a; and Silvert, 1965 all make one or more of these
points).

In a nutshell, my response to these arguments is as
follows: While there is some validity to these points taken
separately, as a whole they obscure and/or deny the most
significant facts about Chilean.copper: its unique poten-
tial as a source of actual (and potential) economic surplus
for Chilean development, and the loss of that surplus.
through the international organization of the industry. (1)
While it is true that the mining sector has declined as a
proportion of GDP and a source of employment, the use of
these figures alone understates COpper's significance even
in statistical terms. Past government policies have pro-
duced some linkages, albeit limited ones, between copper
and the rest of the economy. Therefore, some employment
and output in manufacturing and agriculture along with a
considerable portion of commerce and transportation are
dependent on the Gran Mineria. (2) Further, the linking of
the Gran Mineria to the Chilean political economy largely
through taxation means that a substantial portion of the

state based middle class owes its well being to the Gran

233
Mineria. Thus, import substitution industrialization,
which has progressed little since the mid 1950's anyway
(Furtado, 1970:86-87), has simply made more complex the ties
of dependence but has not broken them. (3) Since copper

continues to provide an increasing portion of export earn-

 

ings (manufactured exports are declining) and thus serves
as a "substitute" for a capital goods sector (Mamalakis,
1971), further progress in industrialization remains heavily
dependent on COpper earnings. In a dependent, export-
oriented society, there is a fairly inflexible structure of
necessary imports if import substitution industrialization
is to continue. (4) As suggested in the second point, cop-
per is an important source of government revenue. Thus, a
government not beholden to the state—based middle class for
political support could potentially use these revenues for
the type of social consumption and investment expenditures
that would socialize both the hardships and the benefits

of the deve10pmental process. The hardships, as is charac-
teristic of capitalist development, have long been social-
ized but not so the benefits. '(5) The high labor produc-
tivity of the work force in the Gran Mineria, anywhere from
two to four times that of other sectors (Weaver, 1968:133-
134), means that it must continue to provide a major share
of surplus for investment. (6) The international organiza-
tion of the Chilean copper industry in the form of the mul-
tinationals means an appreciable loss of this surplus. (7)

Finally, COpper mining can and should make an important

234

contribution to national integration and growth through ex-
tensive linkages. The correct comparison here is not copper
in Chile with employment, taxes, and linkages of copper in
Utah or Southwest Montana but rather with copper in the
United States. Non-ferrous metals rank high in terms of
linkages in the latter case (OECD, 1969:17). Table 7, on
the following page, presents some of the important histor-
ical data on the place of mining, COpper, and the Gran
Mineria in the Chilean political economy.

This debate raises several issues, one of the most im-
portant of which is the problem of comparison. To what
should the amount of actual economic surplus extracted by
the COpper companies be compared in order to assess the
significance of the sums involved? Since the question is
one of Chilean growth, actual and potential, the relevant
numerator is not the total gross national (or domestic)
product or total-national income. Rather, the actual eco-
nomic surplus appropriated should be juxtaposed with the
amount of actual economic surplus available for investment
by Chileans. It is the latter, as argued in Chapter 1,
rather than the size of GNP, GDP, NI, etc. which is the key
to growth. Actual economic surplus available for invest-
ment can be approximated by net private and public capital
formation, gross domestic capital formation financed through
savings, or the total after tax returns to corporate capital
plus central government revenues. Each of these measures

has some advantages and disadvantages. Generally, however,

2235

 

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236

statistics for gross domestic capital formation financed
through savings are the most readily available and thus I
will use these in most instances.

One final point: when making comparisons of this sort,
it is all too easy to forget that while, in and of them-
selves, numbers are neutral, each statistic is an expression
of some facet of many lives. Lives which might be different--
better nourished, more healthy, happier--if less of the fruits
of Chilean labor were appropriated by United States multi-
nationals. Simply as a reminder of this reality, Table 8 is
included to suggest some of the dimensions of Chilean under-
development and stagnation. Again, there is the problem of
what to compare with Table 8. Rather than debate this issue
at length, I will leave it with this: in 1970, the presi-
dent of Anaconda, Frank Milliken, received $225,000 in sal-
ary alone. -From all reports, Mr. Milliken and his family
appear in good health--no distended bellies, no children
dying in infancy--and probably consume the United States
average of over 3,100 calories a day, an average that in-
cludes an amount of animal protein which, by itself, exceeds
the total Chilean protein consumption per day. Finally,
most of the directors of Anaconda have already outlived the
Chilean life expectancy of 50-55 years.

Drawing on studies of multinational corporations in
general and of mining multinationals in particular, I have
been able to identify four primary mechanisms by which mul-

tinationals appropriate the actual economic surplus generated

237

Table 8. Some Measures of Chilean "Underdevelopment"

 

Income Distribution: Chile

 

 

1948 1960
8 Population % Income % Population % Income
33.4 5.8 31.7 5.6
12.6 5.4 18.3 10.0
42.5 46.6 37.3 40.8
9.1 25.4 10.7 29.9
2.4 16.8 2.0 13.7

 

Average Annual Increase in Cost of Living: Chile
1940-1944 1945-1949 1950-1954 1955-1959 1960-1964‘ 1965-1969

16.3% 18.6% 31.2% 45.8% 24.7% 25.4%

 

Infant Mortality Rate

 

1948 1956 1963 1966

Chile 147.0 112.3. 105.4 127.5

 

Food Production Per Capita: Chile (1952-1956:100)

 

 

 

 

 

 

1953 1955 1960 1963 1966 1969

99 103 97 100 92 90
Daily Per Capita Calories: Chile Grammes of Protein Per Day: Chile
Pre-WWII 1954-1956 1964—1966 Pre-WWII 1964-1966

2,250 2,540 2,520 69.6 65.4

 

Sources: Income distribution 1948 and 1960 from ECLA, l966a.
Infant mortality rates from United Nations, 1958 and 1968.
Food production per capita from FAO, 1970.
Calories and protein per capita from FAO, 1962 and 1971.
Cost of living from United States, Dept. of Commerce, 1960;
Furtado, 1970; ECLA, 1970.

238

by hinterland economies. Some of these mechanisms have ap-
plication chiefly to mining multinationals but in all cases
it is the integration of the multinational corporation which
makes surplus apprOpriation possible. This integration

takes two forms, (1) vertical, i.e., across levels of pro-
cessing and manufacture, and (2) geographical, i.e., across
national boundaries. In the first case, the outcome is the
internalization of profits from different stages of produc-
tion and the resulting difficulty of national efforts at
regulation, taxation, and control of multinationals. In the
second case, the result is a class between national priorities
in factor organization and the profit priorities of the mul-
tinational corporation which organizes factors across sev-
eral nations. In short, a national political economy versus
the political economy of a multinational corporation (Girvan,
1970: O'Connor, l970a; Penrose, 1971b; Rollins, 1970).

The most obvious form of surplus apprOpriation arises
from the geographical integration of the multinational and
appears in the statistics of international capital flows
between parent and branches or subsidiaries. Thus, United
States based multinationals have produced a net inflow of
private capital in every year since World War II, while
multiplying the book value of their assets by a factor of
10 during the same period. (See relevant issues of U.S.,

Dept. of Commerce, Survey of Current Business.) Of partic-

 

ular significance here is the fact that, when disaggregated

by metrOpole and hinterland nations, there is a net outflow

239

to the former and a net inflow from the latter great enough
to produce an overall net inflow despite the greater book
value of United States investments in other metropoles. By
the end of the 1960's this surplus on the private account
had become the largest single positive contribution to U.S.
balance of payments (Ackerman and MacEwan, 1972:31; Multif

national Corporation and the World Economy, 1973:33). For

 

an individual hinterland nation, unless new foreign invest-
ment continues indefinately at an accelerating rate, a very
unlikely occurrence, the outflow in repatriated profits on
any given amount of foreign investment will eventually ex-
ceed the gains from foreign exchange, savings through de-
creased imports, and increased exports, government taxation,
etc.(Zweig, 1973). I

It has proved impossible to obtain data on capital flows
between the U.S. and Chile for the COpper companies alone.
There are some general indicators of magnitude however: A
source sympathetic to the companies states that Anaconda's
net investment in Chuquicamata and the Potrerillos/El Salva-
dor complex amounted to $93 million between 1930 and 1965,
while the profits between 1945 and 1969 were $810 million
on Chuquicamata alone (Gall, 1972:l). Another source re-
ports that U.S. mineral multinationals--c0pper, iron, and
nitrate--have received $10.8 billion in earnings on their
Chilean operations during the 1910-1970 decades (NACLA,
1972:107). This sum exceeded the total Chilean GNP in 1970

by approximately 35 percent. This outflow has meant

240

increasing balance of payments pressures on Chile, partic-
ularly during the 1960's. During 1965-1969, the yearly
deficit for "compensation for employees and property and
entrepreneurial'income" (most of which represented payments
to the copper multinationals and their employees) in the
external transactions of the Chilean economy was greater
than the total yearly deficit on current transactions for

the same years (UN, Yearbook of National Accounts Statistics,

 

1970:209). Chile ended the decade with one of the highest
per capita levels of external debt in the world, debt in-
curred at least partially to finance these balance of pay-
ments deficits. During the 1958-1968 decade, service pay-
ments on foreign capital averaged 45 percent of export in-
come and exceeded 50 percent for 1963-1965 and 1968 (ECLA,
1972:84-85).

Although figures are not available for the copper com-
panies alone, there are yearly statistics on capital flows
for all United States companies with investments in mining
and smelting in Chile. Table 9, on the next page, presents
the information for 1950-1970. An examination of Moody's,
company reports, and assorted documents indicates that the
investments of Anaconda Company and Kennecott COpper Corpor-
ation represent at least 90 percent of the total U.S. in-
vestment in mining and smelting. Thus, these figures closely
approximate the operations of the copper multinationals.
Chile appears as a paradigm case of the general tendency

outlined previously. In all years except 1953, the profit

' 241

Table 9. U.S. Direct Long Term Investment in Mining and Smelting in Chile
(All figures in million $) * = $500,000

 

 

 

 

Year End Book Value Profits From
All Mining & Capital Flow From Reinvested Subsidiary
Year Industries Smelting‘ Parent to Subsidiary Earnings To Parent
1970 748 445 25 -22 62
1969 847 452 —l42 26 108
1968 964 586 78 —8 131
1967 878 517 17 -4 129
1966 844 494 -14 -l 98
1965 829 509 9 * 56
1964 788 499 -5 1 60
1963 768 503 -1 * 48
1962 768 504 4 l 52
1961 725 503 -14 * 43
1960 738 517 -10 * 58
1959 729 526 29 3 63
1958 687 498 24 4 32
1957 666 483 27 3 41
1956 682 454 31 2 83
1955 643 421 2 1 61
1954 635 418 —34 * 31
1953 660 452 26 2 17
1952 626 423 39 2 43
1951 585 382 30 2 45
1950 540 351 _11 1 33
1950-1970 totals: 138 15.5 1,294
1960-1970 totals: -53 -5 , 845

Total net transfer of funds from Chile to the U.S., 1950-1970:. 1,173.5

 

Sources: 1961—1970 from United States, Dept. of Commerce, Survey of Cur-
rent Business.
1950-1960 from United States, Dept. of Commerce, 1963.

 

 

242

flow from subsidiary to parent exceeded both the reverse

flow and the sum of the reverse flow plus reinvested earnings.
In 18 of the 21 years, repatriated profits were at least 50
percent greater than the sum of reinvested earnings and cap-
ital flows from parent to subsidiary while in 14 of the

years, repatriated profits were at least double the latter
sum.

There are also some other interesting patterns. First,
the rate of reinvestment is incredibly low, a fact admitted
by even those writers sympathetic to the companies (Mamalakis,
1971:413). While the investments of U.S. multinationals in
mining and smelting accounted for more than 85 percent of
the repatriated profits during the 1950-1970 period, they
provided less than 70 percent of the capital flow from par-
ent to subsidiary and less than 10 percent of the reinvested
earnings during the same years. Despite this low rate, the
book value of United States investment in mining and smelting
increased by over 60 percent between 1950-1968. The type of
investment which did occur was generally geared towards a
quick recovery of capital in a national political environ-
ment which seemed increasingly threatening to foreign con-
trol of the Gran Mineria. During 1969 and 1970, the book
value of U.S. investment in mining and smelting fell by al-
most a quarter. Anaconda and Kennecott were evidently wor-
ried about the 1970 elections and the threat of a leftist
victory. In fact, in 1969, the companies removed $224 mil-
lion, an amount equal to a per capital contribution of over

$22 by Chileans to the U.S.

243

A second striking fact is the tremendous drain on the
Chilean economy which occurred throughout the 1960-1970
years. Total reinvested earnings are negative for this
period as is the flow from parent to subsidiary. On the
average, over $85 million was extracted each year, more than
$10 a year on a per capita basis for the entire period.

This pattern of surplus appropriation during the 1960's
raises some fascinating questions which are not answerable
from publicly available information. Did the companies re-
sent Frei's Chileanization program and, despite their greater
fear of a U.P. nationalization effort, attempt to sabatoge
it in the hope of a reversal by a future rightist govern-
ment? Had they simply decided to write off Chile as a long
term investment and attempted to take out as much as pos-
sible as quickly as possible? Or were their investments in
Chilean COpper so fabulously profitable that, once the re-
placement and modernization investment foregone during World
War II had occurred, the rates of return in the 1960's could
be expected to continue indefinitely? Whatever the case

may be, the behavior of the copper companies differed from
that of other U.S. investors. In sectors other than mining
and smelting, repatriated profits exceeded reinvested earn-
ings plus new capital flows by "only" 15 percent, a gap
which shows no variation between the two decades.

How do these absolute figures compare to the actual
economic surplus available to Chile for investment? Two

ways of approaching this question are summarized in Table 10.

244

Table 10. Two Measures of Chilean Loss of Actual Economic Surplus
Through U.S. Investment in Mining and Smelting (Million $)

 

Funds Transferred as
% of Gross Domestic

 

Net Transfer Funds Transferred as Investment from Govt.,
of Funds from a % of Gross Private Public & Private
Year Chile to U.S. Fixed Investment Corporations Savings
1950 15 14.0 54.0
1951 13 12.3 40.2
1952 2 2.0 8.6
1953 -11 ---- negative savings
1954 64.5 70.4 negative savings
1955 58 65.0 48.7
1956 50 33.3 36.8
1957 11 6.8 3.5
1958 4 2.8 3.8
1959 31 13.9 11.4
1960 67.5 31.6 28.8
1961 56.5 23.3 17.5
1962 47 37.1 40.3
1963 48.5 32.5 23.5
1964 64 30.3 20.9
1965 46.5 20.2 13.4
1966 113 41.8 23.7
1967 116 43.8 25.5
1968 61 22.2 12.9
1969 224 74.1 37.0
1970 57 16.4 10.4
Average 1950-1970: 28.3 Average 1950-1970: 24.2
1950-1959: 22.0 1950-1959: 25.9
1960-1970: 33.9 1960-1970: 23.1

 

Sources: Col. 1: Calculated from Table 9 by adding Col. 3-5.

Col. 2: Col. 1 and ECLA's five year averages.

Col. 3: Calculated from Col. 1 and Pan American Union,
America en Cifras.

 

245

In this table I have used the net flow of capital between
Chile and the United States (from Chile to the U.S. in all
years except 1953) since this amount represents the actual
loss of surplus. (In terms of loss of control over the
actual economic surplus, however, a case can be made for in-
cluding repatriated profits, reinvested earnings, and net
capital flows from subsidiary to parent.) The first mea-
sure in the table compares the amount of repatriated profits
with the total gross private fixed investment and shows the
same pattern noted in Table 9 of a discontinuity between the
1950's and the 1960's. While the overall average was 28.3
percent, during 1960-1970 Chile could have increased her
gross private investment by one-third if she controlled the
profits from the Gran Mineria. This comparison understates
the impact for two reasons: (1) some of the private fixed
investment that did occur was done by Andes, Braden, and
Chile Exploration Company and thus the comparison between
surplus lost and Chilean private fixed investment is under-
stated; (2) more importantly, gross private fixed investment
includes both net investment and replacement but it is only
the former which can legitimately be considered part of the
surplus. If figures for net private fixed investment were
available, the percentage lost through capital flows to
U.S. mining multinationals would be much greater, perhaps
well over 50 percent.

As in most dependent capitalist societies, the Chilean
state has been increasingly important as a source of invest-

ment; thus, a comparison with private investment, gross or

246

net, does not include all investment. In the Chilean case,
private investment has accounted for only about 50 percent
of gross domestic capital formation since 1950 (ECLA, 1951,
1965, 1966b, 1967, and 1970). Using figures for gross domes-
tic capital formation would again involve double counting
since some portion of the depreciation financed investment
would come from the COpper companies. Figures are available
on the total gross domestic capital formation financed by
public and private savings, however, and they are the basis
for the second measure in Table 10. Savings by private house-
holds have been excluded since, with the exception of 1950 and
1953, there has been dissaving in this sector. While the
yearly rates of surplus loss on this measure fluctuate, in
each decade investment could have been increased by about a
quarter. Once again there is some understatement involved
since part of the saving represents that of Andes, Braden
and Chile Exploration Company. Even with these rough mea-
sures, it is clear that the potential gain to Chile through
control over the surplus generated by the Gran Mineria is
considerable. During the pre-WWII period, when taxation on
the Gran Mineria was lower (between 1913 and 1924, Braden
Copper Company returned only 0.8 percent of its total sales
by way of taxation to the Chilean government) and the Chilean
surplus was smaller, the proportion of surplus lost through
capital flows to the U.S. must have been considerably greater.
Despite their impressive size, the statistics of capi-

tal flows from Chile to the U.S. represent only a part of

247

the loss of Chilean surplus. A second mechanism of surplus
appropriation is rooted in the division of labor within the
multinational corporation. To grasp this requires a recog-
nition of the ideological function of the word "multination-
al," a term which evokes an image of an equal partnership
among several nations. DeSpite this label, however, almost
all the major multinationals are controlled by stockholders/
management/directors in the nation where their headquarters

are located (Monthlpreview, 1969, Part I:3-4). Virtually

 

the only exceptions to this rule are Royal Dutch Shell and
Unilever, where control is truly shared between Dutch and
British capital. These two corporations are among the
earliest multinationals, however, and their example has not
been widely followed. It is also worth pointing out that
these two firms are binational between two of the oldest
capitalist metropoles. There is still no publicly known
example of a multinational where control is shared between
metrOpole and hinterland nationals. Since the headquarters
of multinational corporations are not randomly distributed
throughout the capitalist world (I have seen no list of
multinationals which includes any from Latin America, Asia
except Japan, or Africa except South Africa), control is
thus concentrated in the capitalist metropoles. The result
is a structure in which the functional division of labor is
organized on a national basis (Chandler and Redlich, 1961:
115-120: Hymer, 1972b:122-125).. The head offices in the
metropole administer the Operational units in the hinter-

lands. The tasks of administration include the allocation

248
of financial resources, the determination of output, the
raising of additional capital through sales of stocks and
bonds, the determination of what technical expertise should
be developed for the operation of the corporation, and con-
trol over its distribution and use at the various levels of
the firm.

The appropriation of Chilean surplus as a result of
this structure is probably impossible to quantify, there-
fore, I shall use examples in order to demonstrate this
mechanism. As a first case, for a Chilean national to ac-
quire stock in one of the COpper companies whose actions
were so crucial to the Chilean nation involved a transfer
of funds out of Chile to the U.S. Andes Copper Company,
Braden Copper Company, and Chile Exploration Company were
all at least 99 percent owned by Anaconda or Kennecott,
leaving little room for any influence from Chilean stock-
holders. Furthermore, Andes and Chile were each listed on
the New York but not the Santiago stock exchange. Similar-
ly, the two parent corporations, in which there is a large
amount of public stock trading, were listed on the New York
and San Francisco exchanges and sold informally in other
major U.S. cities, but again, were not available on the
Santiago exchange. Thus, Chileans who wished to purchase
stock in these companies had to go through a U.S. stock ex-
change which meant fees to U.S. brokers and transfer agents,
all of which involved payments to U.S. nationals and which

represented an outflow of funds from Chile. This outflow

249
was a drain on Chilean surplus since money invested in U.S.
stock could hardly be expected to further Chilean develop-
ment, nor would that paid to U.S. brokers.

The sums involved would undoubtedly be small when com-
pared to the repatriation of profits; however, total U.S.
receipt of royalties and fees during the 1960-1970 period
amounted to $17 billion, ten times the U.S. outflow on this
item. In 1970, the U.S. received a $2.5 billion contribu-
tion to its balance of payments in the form of royalties
and fees (Multinational Corporation: A Compendium of Papers,
1973:37-38). None of this is to argue that it would have
been a social benefit to Chile for Anaconda and Kennecott
to have been listed on the Santiago Stock Exchange, thus en-
couraging stockholding in the COpper companies bythe.
Chilean ruling class. This "reform," along with analogous
ones such as the promotion of indigenous managers to the
head office (Turgenhadt, 1971:193-202), would simply repre-
sent a neo-colonial consolidation of the alliance between
metropole and hinterland ruling classes (Galtung, 1970:81).
Nonetheless, while the benefits from these reforms would
have been class linked, the losses from the actual situation
were socialized through the appropriation of the Chilean
surplus by the mining multinationals.

The international division of labor along functional
lines which is internal to the multinational also delineated
channels of actual economic surplus appropriation which did

not appear in the national accounts but were instead entered

250

as costs of production for the Chilean subsidiaries of
Anaconda and Kennecott. For example, since the higher level
of skilled personnel are concentrated in the metropole, the
operation of the Chilean mines remained dependent on metro-
pole technological expertise. Thus, when significant bot-
lenecks or breakdowns occurred at Chuqui, engineers were
flown from New York City to handle the problems. The ex-
pense incurred was entered as an overhead cost for the Chile
Exploration Company and they had to repay the amount involved
to Anaconda (Gall, 1972:7—8). This repayment would not, of
course, appear under remitted profits. A cost it was, but
hardly a socially necessary one. Instead this is a striking
example of an international class structure in which surplus
is apprOpriated from the productive facilities of the hin-
terland to support the creation of a professional class in
the metropole. Indeed, this international class structure
received explicit recognition in the wage and salary pattern
of the Chilean subsidiaries. Each of these companies had
what was known as a "gold roll," professional and technical
contract employees who earned their salaries in dollars
(Gall, 1972:2). These employees numbered over 1,000 by the
early 1960's when they constituted about 6 percent of the
labor force in the Gran Mineria. They were also the per-
sonnel who could hope for a future, and whose loyalty lay,
with Anaconda and Kennecott, not just Andes, Braden, or
Chile. Payment in dollars oriented them towards this future,

gave them privileged access to imported consumer goods

251

(avoiding the discriminatory exchange rates designed to re-
tain some of the surplus in Chile), and thus served as a
further drain on the Chilean surplus. Evidently, one of
the responses of the COpper multinationals to the efforts
of nationalists to control their operations was to expand
this miniature center in the hinterland since the gold roll
proportion of the Gran Mineria labor force doubled between
1940 and 1960. As all class structures, this one also so-
cialized its members, which, in the case of the Chileans on
the gold roll, meant "metropolitanization." Thus, when
nationalization, with its threat to their standards of con-
sumption, came in 1971, many gold roll Chilean employees
left along with their U.S. counterparts (Gall, l972:7;
Reynolds, 1965:390-391). .

The multinationals' vertical integration which locates
successive stages of production in different nation-states
makes possible a third mechanism of surplus appropriation,
the allocation of costs, tax burdens, and profits in a man-
ner which maximizes the total returns to the multinational.
International transactions that were measured at the points
of exit and entry to the national economy in the days when
national firms were the dominant organizational form, are
now intra-firm and thus measured only by the information
provided by the accounting departments of the multinational
corporations. Within this system, transfer pricing can con-
centrate profits in the processing stage and the nation with

the most favorable tax structure; operations at an early

252

stage of processing that are marginal or even losing propo-
sitions in and of themselves can produce a profit for the
multinational as a result of control over a later stage of
processing. The shifting of costs, taxes, and profits af-
fects not only the interests of the hinterland nations. The
U.S. allows corporations to claim as tax credit against U.S.
taxes on foreign earned income any taxes "paid or deemed
paid" to foreign governments and grants generous depletion
allowances to extractive industries. As a result, U.S.
mining multinationals paid no taxes to the U.S. government
on the $1.3 and $1.2 billion they remitted from foreign

earnings in 1968 and 1970 respectively (Multinational Cor-

 

poration and the World Economy, 1973:17). This is likely

 

to be a continuing pattern since hinterland nations that
"possess" mineral and petroleum resources worked by multi—
nationals are making increased efforts to link the export
economy based on-these resources to the national political
economy through taxation. This is a defensive form of na-
tional integration, but probably the only path open to them
short of nationalization.

Again illustrative material provides the best evidence
of this loss of surplus to Chile, although access to corpor-
ate accounts would make possible some efforts at measure-
ment. Both Anaconda and Kennecott supported their sales
operations in Western EurOpe and Japan in part by overhead
charges on their Chilean subsidiaries (NACLA, 1972:112).

Presumably this was because a substantial portion of Chilean

253

copper was sold in these nations during recent years. It
might be argued that under Chilean ownership there would
also be selling costs, and this is undoubtedly true. How-
ever, there would be no need to support the competing mar-
keting organizations of both Anaconda and Kennecott as was
the case prior to 1971. The organization of Chilean copper
through the two U.S. based multinationals also produced
duplication and surplus loss at earlier processing stages.
Smelting and refining operations require 100,000 tons of
COpper per year to maximize economies of scale although
smaller operations are sometimes undertaken. Since the Pot-
rerillos/El Salvador complex seldom reached that level of
output, until the mid 1960's most of Andes copper output was
exported prior to the refining stage on "freighters bring[ing]
machinery, timber, cement, equipment, and consumer goods and
carryIing] away bars of blister COpper for refining at Perth
Amboy, New Jersey" (Pedersonz236). Similarly, for many
years, the output from the small and medium sized mines was
exported as ores and concentrates because the low production
levels of each mine meant that none could support a smelter
or refinery. Nor did they have reliable access to the smel-
ters and refineries of the Gran Mineria. In the early 1950's,
the Chilean government built a smelting and refining complex
at Las Venturas in an effort to capture some portion of the
surplus loss to Chile from this pattern (UNIDO, 1969:47-48;
United States, Dept. of Commerce, 1960:88). Even the, the

new complex was smaller than was economically desirable

254

because of the low total output of the mines outside of the
Gran Mineria. Had the Chilean copper industry been inte-
grated in terms of the Chilean national political economy,
the multiplication of smelting and refining facilities with-
in the Gran Mineria on the one hand, and the lack of access
of small producers to these facilities on the other, could
have been avoided. The problem of maximizing economies of
scale at the refinery level is particularly important since
it is at this and later stages that most profits are made
and can be made even with high cost mines such as the smaller
Chilean mines (Fortune, January 1955:93-94).

The very nature of COpper deposits also puts the com-
panies in a position to apprOpriate part of the Chilean sur-
plus through shifts in costs and profits. In most cases,
other minerals are found with COpper in porphyry deposits.
(In fact, some of the major Canadian COpper mines actually
produce as much lead or zinc as copper.) Gold, silver and
molybdenum are particularly common with 25-35 percent of
U.S. production of each of these metals coming from copper
mines. As an example, Kennecott's Bingham Canyon mine is
the second largest producer of gold in the Western Hemi-
sphere. The mines of the Gran Mineria in Chile also contain
substantial amounts of these metals, accounting for all of
Chilean molybdenum output, one-third of the gold output and
three-fourths of silver output. Because of chemical bonding,
these metals are not separated until the electrolytic re-

fining stage and thus, in exports of blister copper, their

255

value for tax purposes must be estimated. This enables the
companies to circumvent the regulatory efforts of the
Chilean state while at the same time apprOpriating a portion
of the Chilean surplus. This is particularly true for
Braden Copper Company which has always exported most of its
output in fire refined form, much of which is later elec-
trolytically refined on a toll basis by ASARCO, a closely
linked company since the days of the Guggenheims. As a
hypothetical example of the amounts involved, one ounce of
gold recovered from a ton of 99 percent blister copper
selling at 35¢ per pound (a high price until the late 1960's)
would increase the revenues from that ton by over 5 percent.
Since all three companies export some blister COpper, and

at times in the past even some ores and concentrates, this
is probably a significant loss of Chilean surplus. The re-
covery of precious metals at metropole refiners also re—
duces the cost per pound of U.S. COpper mining, making it
more competitive with output from other areas. In addition,
the combining of blister COpper from different sources en-
ables U.S. refineries to achieve an Optimum mix which lowers
the cost per unit. Since the cost per pound of COpper in
the United States is greater than any other major producer,
these benefits from the geographical and vertical integra—
tion of the multinationals are significant in terms of ad—
ditional profits. Thus, the appropriation of Chilean sur-
plus feeds the growth of metrOpolitan industry (Brudenius,
1969:191-192; McMahon, 1965:3-4; OECD, 1969:85-86; Wideman,

1965:277-279).

256

The final mechanism of actual surplus appropriation is
largely the result of the mineral extractive nature of the
multinationals in Chile. This mechanism has usually been
analyzed as the enclave effect (Levin, 1960). Most of the
loss of surplus that results from the enclave structure of
the Gran Mineria falls under the heading of potential sur—
plus, particularly the failure to establish forward and
backward linkages between COpper and the remainder of the
Chilean economy. HOwever, the question in the Gran Mineria
can fruitfully be analyzed as an appropriation of actual
surplus by the mining multinationals.

The issue of the benefits to Chile through wage and
salary payments by the large copper companies is a complex
one: On the one hand, the wage rate is considerably above
the national average, yet at the same time the number of
employees has remained fairly constant for several decades.
The Gran Mineria-has become increasingly capital-intensive
and input-saving in general. Perhaps the best way to ap-
proach the issue and to understand the enclave aspect of
Chilean copper is by considering the geographical situation
of the COpper towns and the multifaceted activities of the
copper companies. For example, the E1 Teniente mine area
covers300 square miles at altitudes between 8 and 10 thou-
sand feet, and since it is located in an otherwise infer—
tile region, is fairly isolated from any other population
centers. Braden (Kennecott) built and Operated a railroad

which moved the ore from Sewell (the mining town) to

257

Caletones for concentration and smelting in company-owned
plants. The town of Sewell was built from scratch by Braden,
and, as at Chiquicamata, a somewhat less isolated area, much
of the food and consumer goods were imported on the multi»
national's ships and delivered to the towns via their rail-
roads and trucks. Nor is this pattern, which strongly re-
sembles the earlier nitrate towns, a thing of the past. In
the 1960's, the Chile Exploration Company described its
activities as the mining, smelting and refining of ore; the
Operation Of power plants, water and telephone systems,
railroads, foundaries, and warehouses; and the ownership of

houses, hospitals, schools, stores, bakeries, clubs and

 

"other service facilities for employees" (Moody's Industrigi
Manual, 1966:1014). Andes Copper Company carried out simi«
lar activities and, in a parallel to United Fruit's Puerto
Barrios in Guatemala, owns and Operates the port of Barquito
(Davis, 1924:85-90; Gall, 1972:2—4, United States, Dept. of
Commerce, 1960:89-90).

Within this setting, it may be useful to look at the
miners and their families in much the same way that theorists
of internal colonialism are beginning to examine the ghetto,
and particularly the welfare recipients within the ghettc.
To a large extent, it appears that the inhabitants of the
company mining towns may simply serve as conduits for the
copper companies. The relatively high wages (by Chilean
standards) paid to both the miners and supervisory personnel

are largely returned as income to company stores, housing

258
agencies, and utilities. Thus the insulation of the mining
towns from the rest of the Chilean political economy gives
the high wages a very limited multiplier effect, further
supporting the argument that government taxation is the
major link between the mineral producing multinationals and
the national economy (Girvan, 1970:517-518; Rollins, 1970:
189-193). Instead, the potential multiplier effect is
transferred via the geographical integration of the multi-
nationals and stimulates the production Of manufactured
goods in the metropole.

The enclave structure of the Gran Mineria also alters
the Chilean class structure. Through the relatively high
wages and the importation of metrOpolitan consumer goods to
the mining towns, the multinationals create what might be
called a labor aristocracy (Sunkel, 1965:129) with an ori~
entation towards the metrOpolis. In this case, the inter-
national demonstration effect is transferred via the geo-
graphical integration of the multinational and penetrates
the hinterland through a portion of the working class
(Pinto, 1965:45-46). This economic fragmentation of the
Chilean class structure as a result of the international
mechanisms Of surplus appropriation has its political re~
flection. While COpper miners, as is almost universally
true for mining areas, have a long tradition of radicalism
and were important in the successful early emergence of
the Chilean left, there are some interesting differences

between voting patterns in COpper towns and other mining

259

towns. The contrast is particularly marked in the case of
coal miners who work in Chilean-owned mines and are not
tied to the international class structure which shapes the
lives of the COpper miners. Thus, while the latter gave
Allende over 40 percent of their vote in 1970, more than 10
percent above the national average, the coal mining towns
voted over 75 percent for the U.P., double the national
average. This pattern has existed for several decades as
Petras and Zeitlin‘s analysis of earlier elections demon-
strates (1968:238).

In sum, the political economy of international copper
creates a strata which is both a labor aristocracy within
the hinterland and, at the same time, is linked, through the
mechanisms of appropriation of actual economic surplus by
the copper multinationals, to the metropole. Once again,
the amount involved is difficult to calculate, but some
orders of magnitude can be suggested. The COpper Gran
Mineria employs between one-fifth and one-fourth of the
labor force in mining and quarrying and probably accounts
for at least one-third of the wages, salaries and income of
business enterprises in this sector. In recent years,
around 9 percent of the national income has gone to mining
which would indicate about 3 percent to the Gran Mineria.
While further calculations become increasingly speculative
at this point, if as much as 1 percent of the national in-
come is lost through the enclave structure of the Gran

Mineria, this would amount to about 20 percent of the average

260

Chilean savings rate during the 1960's and increase the pro-
portion of surplus appropriated to total savings in Table 10
accordingly. I

To conclude this section, when the amounts involved in
the four mechanisms of surplus appropriation are added, a
conservative estimate Of the results suggests that there
would be an increase of at least a half in the amount of
savings available for net investment during the 1950's and
1960's. Since many of the linkages which retain part of
the actual surplus in Chile have been established since
World War II, the loss was probably greater during previous
years. Whatever the exact percentages involved, the loss
of actual surplus only scratches the surface. As I shall
try to make clear, although only in outline form, it is
through the loss of potential economic surplus that Chile
has suffered the most extensive damage and through the con-
trol over this potential economic surplus that the multi-

national mining corporations have realized the biggest gains.

CHAPTER 8

THE LOSS OF POTENTIAL ECONOMIC SURPLUS

When I speak of the Pacific Rim, I am putting
the broadest possible construction on the term--
the western coasts of South America, Central Amer-
ica, and our own continent, and extending beyond
Australia and the Far East to India. There is no
more vast or rich area for resource deve10pment
or trade growth in the world today than this im-
mense region and it is virtually our own front
yard...I emphasize that this is a largely under-
developed area, yet an area rich in an immense
variety of resources and potential capabilities.

 

--Rudolph A. Peterson
President of Bank of
America, 1968
The mechanisms Of appropriation and control over the
potential economic surplus--that amount beyond essential
consumption which an economy could produce with its natural
and technological environment and its employable productive
resources--are rooted in the political economy of inter-
national COpper organized by the multinational corporation.
Here I will discuss the two most substantial losses of po—
tential economic surplus: (l) the increasing gap between
Chile's proportion of capitalist world COpper reserves and
her proportion of capitalist world output since World War
II; and (2) the locational decisions by the multinationals
over the distribution of the facilities which are necessary

for the processing and fabricating of copper and the re-

sulting employment and profit flows. This second mechanism

261

262

of potential surplus loss also touches on the question of
linkages between COpper and the larger political economy in
the metropole and hinterland. What follows is only a

sketch of the research I have undertaken on these questions.
Here as elsewhere, my analysis is limited to the production
and marketing within the capitalist world since this has
been the limits of Chile's markets and the multinationals'
Operations through 1970.

While the proved and probable reserves and the actual
copper production of the major producing regions in the cap-
italist world have all increased since World War II, there
has been no major development of new COpper deposits since
the rise of the African copper belt in the 1920's. Nor, as
thoroughly as the multinationals have prospected "the three
of the four quarters of the globe where exploration is pos-
sible" (Kennecott Copper Corporation, l951:7), is such a
discovery likely-in the foreseeable future. Thus, over 80
percent of capitalist world reserves have remained concen-
trated in just six nations: Chile, Peru, U.S., Canada,
Zambia, and Zaire. The five nations which led the capital-
ist world in copper output in 1970 also did so throughout
the 1930's, 1940's, 1950's, and 1960's. Peru is the only
newcomer to the top six nations during this period, but the
Peruvian deposits were also known much earlier (Herfindahl,
1959:159; Wideman, 1965:286-287; Copper, 1970 Annual Sta-
tistical Supplement).

This geographical concentration is reflected in the

corporate concentration of COpper production. _Prior to

263
the 1970's, ten multinational mining corporations based in
four countries own over 70 percent of the capitalist world
reserves: Anaconda, Kennecott, ASARCO, Newmont Mining
(U.S.); Noranda, International Nickel (Canada); Anglo Amer-
ican Corporation, Phodesian Selection Trust (Britain); and
the Belgium firm which was the COpper industry in Zaire
through 1970, the Union Miniere du Haut Katanga. Pre-l970
Anaconda, estimated to own more than 30 percent of these
reserves, was the giant among giants (O'Hanlon, 1966:117;
Hardy, 1969:35).

As Anaconda was the richest corporation, so Chile had
the richest copper resources. Throughout the last quarter
of a century, over 20 percent of world COpper reserves and
more than a quarter of capitalist world reserves have been
located in Chile. This cornucopian abundance of COpper
deposits comes in a form which makes United States domestic
mine owners green with envy. Chilean ore content runs be-
tween l.5 percent and 2.25 percent, double the less than 1
percent average for the U.S. and higher than Canada's l to
1.5 percent or Peru's 1-2 percent (McMahon, 1965:55-63).
Only the African COpper belt, with several mines of 2.5
percent or more cOpper, has an overall ore content greater
than Chile's; however, the lack of adequate transportation
facilities raises the price of African copper. While
Chile's mines are all located within 100 miles of the
coast and linked to Chilean ports by railroads, the major

African mines are more than 1,000 miles from ports, a

264

journey which involved both rail and river transport until
the mid 1960's. In sum, industry studies show Chile as
having one of the lowest costs per pound of COpper produced,
considerably below that of the U.S. mines of Anaconda or
Kennecott and easily competitive with the African COpper
mines (Griffin, 1969:129; O'Hanlon, 1966:121; "Mining in
Latin Americaf'l969z85-86).

Despite these advantages, Chile's share of capitalist
world output has not matched her proportion of reserves at
any time since World War II. Supplying about 18 percent of
capitalist world copper production in the late 1940's,
Chile's share has steadily declined falling to only 13 per~
cent by 1970 and averaging 15 percent for the entire quarter
century. In fact, during the 1944-1954 period, Chile's
output fell over 25 percent in absolute terms and the 1944
peak was not surpassed until 1959. Since the foreign-owned
Gran Mineria accounted for over 90 percent of Chilean cop-
per production through 1960, and at least 79 percent during
the next decade, the failure Of Chile to realize her poten-
tial output lies in the failure of the multinationals to
expand production in Chile as rapidly as capitalist world
production increased (COpper, relevant issues; Griffin, 1969:
125-135; United States, Bureau of Mines, relevant issues).

Thus, had Chilean copper production matched her share
of capitalist world COpper reserves and the returns to Chile
per pound of copper produced remained constant, the amount

of surplus accruing to Chile from the Gran Mineria would

265

have been greater by 65-70 percent. Once in power, it was,
Of course, difficult for the Unidad Popular government to
rapidly increase Chile's share, since the U.S. market, al-
most one-third of the total, was eliminated. Further, and
most importantly, any gains on the part of Chile would
probably have meant losses, not to the U.S. as the leading
producer, but to other hinterland nations. This latter
situation was structured into Frei's Chileanization program,
drawn up in a manner which gave Chile less than 40 percent
of the benefits at the prevailing prices and more than 50
percent of the benefits from price increases. Thus, Chile
would have gained from political or economic instability in
Zambia, Zaire, or Peru (Griffin, 1969:163).

What were the gains to the U.S. multinationals from
this loss of potential Chilean surplus? Their most impor-
tant benefits were: (1) the ability to keep some portion
of their COpper production capacity in areas of proven po-
litical stability; (2) the accumulation of capital for di-
versification into other raw materials including a competing
metal, aluminum; and (3) political leverage in bargaining
with the Chilean government. To briefly elaborate: (l) the
majority Of Kennecott's production of copper comes from
U.S. mines, several Of which would be quite marginal and
perhaps losing propositions if the price of COpper were to
fall to the level which "free competition" would dictate.
While Anaconda was dependent on Chile for two-thirds of

its COpper production, their largest U.S. mine at Butte,

266
Montana would also be a marginal producer in direct competi-
tion with other areas of the world (Griffin, 1969:127-128;
Mikesall, l97la:370). (2) While Anaconda and Kennecott have
long been vertically integrated and thus supplied much of
their own fuel, transportation, and chemicals used in pro—
cessing, each diversified industrially during the post World
War II period. By 1970, they were less dependent than Chile
on COpper, a development financed in part by Chilean earn-
ings. Anaconda has'emerged as the fourth largest producer
of aluminum in the U.S., a metal which has displaced copper
in several areas including high voltage overhead lines.
Anaconda's joint venture with Reynolds and Kaiser in Jamai-
can aluminum provides a classic example, with a cross elas-
ticity twist, of the competition between hinterland nations
within the framework of the multinational corporation.
Kennecott's efforts at diversification have included (a) the
acquisition of a_substantial interest in Kaiser Aluminum;
(b) a controlling interest in a Nigerian tin venture; (c)
investments,later liquidated, in South African gold mines;
and (d) a controlling interest in a joint venture with New
Jersey Zinc in a Canadian iron-titanium deposit, the largest
in the world. In 1968, Kennecott capped their diversifica-
tion efforts with the purchase of Peabody Coal Company, a
major factor in the U.S. coal industry with 10-15 percent
of the total output. Once a strip miner, always a strip

miner (Copper, relevant issues; Moody's Industrials 1956,

 

1961, 1966, and 1971; OECD, 1969:58; company reports); (3)

 

267

the Chilean government has repeatedly attempted to expand
the Chilean share of the capitalist world COpper market,
sometimes through marketing controls and sometimes through
incentives to the companies. The companies have equally
repeatedly responded by demanding tax concessions and legal
guarantees and have expanded output only when these were
provided. Twice during the 1950's the multinationals in-
creased their investment in marginal U.S. mines after con-
sidering and rejecting the Option of increased output from
their Chilean properties. Even during the Chileanization
period, the companies refused to increase their output de-
spite the agreements with the government. Thus, over 90
percent of the increase in Chilean production in 1966-1970
came from the small and medium mines not part of the Gran
Mineria. Evidently the companies were awaiting the outcome
Of the 1970 elections (ECLA, 1969 and 1971; Griffin, 1969:
155-163; Mikesall, 1971a).

The second mechanism of potential surplus appropriation
is rooted in the international vertical integration of the
copper multinationals. This integration gives them consid-
erable choice in their locational decisions concerning the
facilities for the processing of COpper. The result, as
Galtung (1970:85, 87) suggests, is a vertical interaction
Irelation, "interaction between metrOpole and hinterland
across processing levels." That is to say that it cannot
be stressed enough that Anaconda and Kennecott did not just

mine Chilean COpper--they also milled Chilean COpper, smelted

268

Chilean COpper, refined Chilean COpper, fabricated Chilean
copper, and sold Chilean copper--but not always or even pri-
marily in Chile. Nor was Chile their only source of COpper.
Kennecott owns four of the dozen most productive mines in
the U.S. and Anaconda another two. Anaconda also has an-
other source Of foreign COpper, Greene Cananea, a Mexican
mine whose output is similar to that of the old Potrerillos
property. Once again, raw material producing regions and
nations compete with each other through the framework of

the multinational corporation.

For a grasp of the flows of raw materials and output
determination instructions which are created by the vertical
integration of the multinationals, Girvan's model of the
division between administrative and Operational functions
in the mineral extracting multinational is suggestive
(Girvan, 1970:409-504). It needs to be modified to fit the
specificity of copper processing, however, While, as noted
previously, COpper passes through several stages of pro-
cessing, it is only economical to transport copper long
distances between the smelting and refining stages and be—
tween the refining and fabricating states. (In the past,
however, and at times even today, large volumes of COpper
may be transported between the concentrating and the smelting
stages.) This is because, by weight, the ore is only 1-3
percent COpper while the matte (COpper after it is concen-
trated) is 25-50 percent copper. However, after smelting,

the blister is 99 percent COpper. The technological

269
imperatives of copper processing placed in the organization-
al shell of the multinational corporation means that the
flow of material for processing is not determined solely by
”market" considerations, nor by what would be least costly
and most beneficial to national political economies. In-
stead, it is the economic and political priorities of the
multinational-—what areas are politically secure, where does
an investment stake already exist, where are the most prof—
itable markets--that are decisive. Figure 2 depicts the
structure that emerges.

The results of these decisions for the political eco-
nomy of Chilean copper are summarized in the statistics of
Table 11 (page 271). The most striking fact about the
figures in the table is the decline, beginning in the early
1950's, in both the proportion and the absolute amount of
copper exported in refined form. Throughout the whole per-
iod covered, the-proportion refined was never as great as
during the 1926-1933 period and in the year 1953-1962 and
1964-1965, the absolute amount refined was less than the
pre-depression peak year of 1929. The fall in refined ex-
ports also took place during the same years that the Chilean
government constructed a smelter and refinery to handle the
output Of the small and medium sized mines. Thus, the de-
cline of refined exports from the Gran Mineria must have
been even greater than the overall figures suggest. Through-
out these years, the U.S. continued to be the leading pro-

ducer of refined copper in the capitalist world with about

METROPOLE
MARKET

 

270

 

     
   
 

METROPOLE
MARKET

f _

Owned
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- //’
fiurzumn/ . /

® Owned Production
Facility "'
Refinery Capacity

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Refinery Capacity
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271

 

 

 

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272

one-third of the total while mining about one-fourth of the
copper in the capitalist world. Chile was the leading sup-
plier of unrefined imports to the U.S., providing over a
third of the total during the 1948-1970 years. Further,
despite consumption in excess of mine production throughout
these years, the U.S. remained one of the leading exporters
of refined COpper. By the 1960's, as Brazil and Argentina
became two of the five largest customers for the U.S. re-
fined exports, Chilean copper was reaching these Latin Amer-
ican nations via U.S. East Coast refineries. Even more
incredible, throughout the 1950's, COpper wire and cable
was eXported to Chile from U.S. fabricating plants! (COpper,
selected issues; Skelton, 1937:401 and 405; and sources
cited in Table 11). t

It was the decisions of the copper multinationals,
Anaconda and Kennecott, which shaped this structure of
Chile's international copper trade. During Chile's peak
copper producing years of World War II, when the price of
copper was frozen in the U.S. at 12¢ per pound, the com-
panies refined as much as 85 percent of their Chilean out-
put in Chile. However, when the Chilean government attempted
to assert control over the COpper industry in the early
1950's, through increased control over marketing, higher
rates of taxation, and exchange rates designed to maximize
the returns to Chile, the companies shifted more of the re-
fining to their U.S. facilities. In 1953, the Chilean gov-

ernment tried to establish a price for refined copper 3¢/1b.

273
above the 24.5¢/lb. set by the U.S. government during the

Korean War. In that same year, the prOportion of Chilean
exports in refined form fell from 74 percent to 52 percent.
This drop in refined exports was also reflected in U.S.
import statistics. Refined imports from Chile fell from 85
percent of the U.S. total in 1952 to 54 percent in 1953
while Chile's share of U.S. pprefined imports rose from 25
percent to 34 percent in these two years. (In fact, Chile
even lost ground in capitalist world smelter production,
going from over 20 percent of the total in 1946 to only 14
percent in 1955 and 12 percent in 1970.) Interestingly
enough, the decline in refined production in Chile occurred
despite the existence of over 500,000 MT/Y refinery capacity
in the Gran Mineria by the 1950's. Although by the end of
that decade these refineries were evidently operating at no
more than 50 percent of capacity, Kennecott completed a
198,000 ton electrolytic refinery at Baltimore, Maryland

in 1959. Much of the ore which went to this refinery came
from El Teniente. Anaconda expanded and modernized their
Perth Amboy refinery during this same period. While the
U.S. tariff on unrefined COpper was not in effect between
1947-1963, during 1932-1947 and 1963-1966 when the tariff
was in effect, ores, concentrates, scrap and blister copper
were not dutiable when they were imported for smelting and/
or refining and re-export. Even with the tariff, the cost
per pound of Chilean COpper evidently made it profitable
for import, refining and consumption (Bidwell, 1958:103,

108; Copper, relevant issues; Company reports).

274

The failure of Braden Copper Company to expand refined
production from E1 Teniente provides a particularly instruc-
tive example of the determination of hinterland political
economy by the multinational political economy. Until the
early 1950's, Kennecott did not even own an electrolytic
refinery in the U.S. although it did have a fabricating sub-
sidiary. Kennecott's mine and smelter production was re-
fined on a toll basis by ASARCO (formerly American Smelting
and Refining Company) to which Kennecott had been linked by
stockholdings and directors since the days of the Guggenheim
Exploration Company. Thus, Braden also owned no electro-
lytic refining facilities and much of Braden's blister and
fire refined copper1 went to ASARCO's Baltimore and Perth
Amboy refineries for further processing. The loss of po-
tential Chilean surplus was converted into a profitable
metrOpolitan relationship (Kennecott COpper Corporation,
relevant years).-

The total loss to Chile from this structure of inter-
national COpper is difficult to determine with any precision
but some rough indicators are available. First, refining
Of Chilean copper in the U.S. certainly entailed an export
of jobs to the U.S. Total U.S. employment in mining and
quarrying of copper is divided approximately 50 percent in
mining, 16.7 percent in smelting, and 33.3 percent in re-
fining. The latter percentage has tended to rise slightly
during the post World War II years, reflecting both in-

creased productivity in mining and continued imports of

275

unrefined ore from hinterland nations (Copper, Spring 1957:
14; McMahon, 1965:299-201; Wideman, 1965:292). Since Chile
refined an average of only 54 percent of her COpper exports
in the years 1948-1970, employment in COpper refining could
have been nearly doubled if refining had taken place in
Chile. This would have provided more jobs, a higher level
of average income and greatly increased the multiplier
effect of copper wages since the refineries were located in
less isolated towns where the enclave structure of the Gran
Mineria was not as limiting. Other indicators of the loss
to Chile are more indeterminate. If refinery production
had remained at even the 1948 level, of 300,000 MT/Y (an
output not reached again until 1966), the pressure for the
realization of potential forward and backward linkages with
the rest of the Chilean economy might have been greater.
For example, it was not until the Chileanization program of
the 1960's that the copper companies agreed to increase
their use of Chilean coal as an energy source. In the in-
terim, Chile continued to give up vital foreign exchange
for the import of petroleum for use in the Gran Mineria,
despite an increase in Chilean petroleum output of over
2,000 percent between 1950 and 1969 (United States, Dept.
of Commerce, 1960:188; Griffin, 1969:154-155).

There is one facet of copper processing that Table 11
says nothing about. To have use value, copper must go be—
yond the refined stage and be fabricated into the shapes,

sizes, and dimensions needed by other industries. It is

276
the fabrication of COpper and the sales of fabricators to
the electrical, automobile, and aerospace industries that
provides the linkages which are important spin offs of the
copper industry and are the basis of much of its potential
in the process of economic growth (OECD, 1969:17; UNIDO,
1972:20-25). The multinational COpper corporations have
never produced any fabricated COpper in Chile despite the
fact that each is integrated through the fabricating stage
and is a major factOr in the U.S. fabricating industry.
Technological difficulties are not the issue since fabrica—
tion is considered relatively simple in terms of the tech—
nological SOphistication required. In addition, experience
in the fabrication of one non-ferrous metal is readily gen-
eralizable to others (Richter, l927a:7l4). Even under the
Chileanization program of the 1960's, the best that could
be done was to get a commitment from Anaconda to "consider"
the possibility of establishing a fabricating plant for
export. The Chilean government did make one past effort at
developing its own fabricating products for export. Limited
success was achieved for a few years during the early 1960's
when there was a general shortage of COpper in the capitalist
world, but Chile was unable to compete with the vertically
integrated multinationals and the tariff barriers to metro-
pole markets. By the end of the 1960's, semi-fabricated
copper exports had fallen to less than 2 percent of the
total copper exports (UNIDO, 1969:74; UNIDO, 1972:125).

(Under the Unidad POpular, Chile reached an agreement with

277

Romania to develop a fabricating industry which would market
much of its output in the socialist nations.)

The loss to Chile through the refusal of the multina-
tionals to develop a fabricating industry in Chile has been
immense. Without including the question of spin offs from
such an industry, the following statistics suggest the di-

mensions of the loss: The 1947, 1956, and 1967 U.S. Census

 

of Manufacturing and Mineral Industries report employment

 

in copper rolling and drawing establishments alone to be
double that in the mining of COpper, six times the employ-
ment in the smelting of COpper and three times the employ-
ment in copper refining. Employment in wire and cable mills
and brOnze and brass mills was again greater than employment
in mining and smelting. Value added in the stages of pro-
cessing beyond copper refining was more than three times
that in mining, smelting, and refining. In this area alone,
then, the contribution of the Gran Mineria to Chilean devel-
opment was less than half of what it could have been. In I
sum, for Chile as for most of the remainder of the third
world, the most enduring legacy of the capitalist metropoles
has been the loss of potential economic surplus, a potential
which has been absorbed in the development of those metro-

poles.

278

NOTES

1

Fire refined copper is acceptable for some industrial
uses. While over 99 percent COpper by weight, it is not as
pure as electrolytic COpper and sells at a slight discount.
Electrolytic refining is necessary to recover precious
metals such as gold and silver, however. All COpper used
in the electrical industry which accounts for 50 percent of
the total market is electrolytic COpper.

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