A necessary condition for the successful redress of a challenge is to understand its origin and context.
Popular but misleading adage
The initial idea was to tag this piece- ‘Robbery through international trade’-provoked by the popular saying that ‘Exchange is no robbery’, the truthfulness or validity of which calls for interrogation in the light of lived experience. Whereas, indeed, our subject can be rightly labelled as robbery, its modern day mechanism is more of theft than naked robbery as dictionaries are wont to insist. In this vein, it bears recalling how colonialism was indeed a blatant act of robbery as the colonizing power pillaged the resources of its victim nation with little restraint as it constituted the law unto itself. However, with transition to the more subtle level of neocolonialism where some modicum of political power is ceded to the succeeding local rulers, the mechanism of exploitation assumed the subtler though no less effective method of resource expropriation through the manipulation of trading relationships to suit the colonial power albeit officially departed. As an aside, this is the process and outcome captured graphically by that old comrade and Professor of Law at the University of Lagos, Akin Oyebode, in the terse but graphic submission, that: ‘The British left Nigeria in order to stay behind’.
As we all know, commercial exchange essentially means trade and it takes place at two broad levels: local and international; the former being within-a-country transactions while the latter refers to trade transactions between-countries. At either level of exchange, we can imagine a regime of barter under which goods are exchanged directly for goods without the intervention of money as a unit of account, obviously without the complexities of foreign exchange rate determination but carrying the intriguing challenge of determining how much of one precisely should be given in exchange for the other. However, at the local level, history has bounteous records of trade by barter that lasted for ages while at the international level, the most recent application of the barter principle by Nigeria occurred during the first coming of General Muhammdu Buhari in company of General Idiagbon, which was called counter-trade during their administration of early 1980s.
The basic underlying principle of trade is the need to complement an economic unit’s autonomous supply of a given good or service with external supply in order to bridge a gap due to quantity or quality shortfall. Hence, trade on the surface logically implies a beneficial outcome for trading partners; this still holds true theoretically even today but there is the practical doubt around how much a trading partner benefits compared to the other partner(s). Given that our focus is international trade, the issue of equity in trade features in the argument and hence our return to the basic theory of international trade, inspired by the principle of comparative advantage.
Implication and Limitation of Comparative Advantage Theory
In economics, the theoretical underpinning of the importance and benefit of international trade is laid in the theory of comparative advantage. The theory grew from an initially weak logic advanced by Adam Smith to the effect that countries will benefit from trade if they sell to others what they are better at producing than other countries which in reality may translate to a particular country being more efficient in the production of all relevant goods leaving the others to be perpetual importers; this rendition is what is known as absolute advantage theory, the severe limitation of which is so glaring. It was David Ricardo who formally exposed the limited applicability of the absolute advantage theory and in its stead, came up with the more realistic comparative advantage theory.
As illustrated in standard Ordinary Level economics texts, the logic of comparative advantage is demonstrated with a two-country, two-product model, in which say Nigeria and India produce cassava and textile. Although Nigeria may be better at producing both cassava and textile than India, but Nigeria’s advantage over India is greater in cassava than in textile and so, with concrete arithmetic illustration, Nigeria should focus on producing cassava for both local consumption and export to India while India concentrates on the production of textile for both local consumption and export to Nigeria. The superiority of the comparative advantage logic over the absolute advantage lies in the fact that the former provides a more rigorous explanation of the possibility of mutual gains from trade by establishing the basis for the choice of product that each country should produce for export and which to import; at the end, the total output of both traded goods will be greater than if there was no trade thus creating the possibility of reduced prices paid even in the importing country with its obvious positive implication for consumer welfare as people spend less to get more.
Our primary and guiding concern is how some countries have ended up paying more for what they import compared to the fall in receipts from what these same countries mostly in the global south get on their exported products-manifesting in unequal exchange and in effect, worsening terms of trade with negative impact on balance of trade and payments.
How and when exchange is unequal
The name most visibly associated with the concept of unequal exchange is Arghiri Emmanuel (1911-2001), a Greek-French Marxist economist who became known in the 1960s and 1970s for his work on the theory, especially his 496-pages book published in 1969 titled: Unequal Exchange-a study of the Imperialism of Trade. It must be noted, however, that way back to the time of the classical economists among whom to a significant extent Karl Marx is to be counted along with Adam Smith and David Ricardo, the operational reality of unequal exchange had been anticipated. Thus, for example, Karl Marx had noted that, “despite this immediate gain, exchange operates at the expense of less industrialized economies and actually turns out to be unequal, that is, it is a form of expropriation, as soon as we take into account the quantities of labour and productive efforts that go into the exchanged goods”. Wikipedia has correctly acknowledged how Marx’s perspective on the subject is indeed broad, noting that: ”Marx’s reference to unequal refers therefore both to unequal exchange in production, and unequal exchange in trade”.
In a basic sense, what is at play on the ground has to do with the relative ease of movement of capital and labour. The reader may have noted how greater freedom of movement across national boundaries is accorded to capital more than to labour as reflected in the unending controversies and still positioning on issues of migration. This is what the International Socialist Review captured in the statement that: “The theorists of unequal exchange envision the world economy as a single entity in which capital is mobile across nations, but labour is geographically fixed”.
As Prabhat Patnaik expalined in the August 15, 2018 essay- ‘In Memoriam: Samir Amin’ published by MR Online, “the fact that metropolitan capitalism’s annexation of the third world had given rise to a process of unequal exchange had been widely recognized . . . (as) a rise in the “degree of monopoly” within metropolitan capitalism gave rise to a greater squeeze on third world primary commodity producers”. Samir Amin (1931-2018), the famous Egyptian economist, who obtained his PhD in Political Economy in 1957 in France but spent 40 years in Senegal -ten of these as Director of the UN African Institute for Economic Development and Planning and later as the Director of the African Office of the Third World Forum, had argued brilliantly how “the labour of the periphery remains super-exploited in all these phases” as recalled by Prabhat Patnaik. Although this discussion is not meant to centre on Samir Amin, however, any debate worth a decent reference cannot but accord deference to the man even just from the glimpse provided by John Bellamy Forster in the piece of October 2011 on: “Samir Amin at 80: An Introduction and Tribute” published on Monthly Review website carrying the following message:
The theory of worldwide value is Amin’s signal economic contribution, summing up as it does the system of unequal exchange/imperial rent that divides the global North and the global South. Today the concentration and centralization of capital is manifested in the growth of international monopoly capital. Capital is more and more mobile (along with technology), as the giant firms become increasingly globalized and financialized. Nevertheless, nation-state divisions remain intact with governments promoting the interests of “their” corporations over those of other countries, along with restrictions on the mobility of labor.12 The result is a system of unequal exchange, in which the difference in the wages between labor forces in different nations is greater than the difference between their productivities. This creates a system of “imperial rents” accruing to the global corporations in the center—referred to less directly in mainstream economic circles as the “global labor arbitrage.”
As scientifically documented by Dylan Sullivan on the platform of MR Online -June 8, 2021- the global South has lost $152 trillion through unequal exchange since 1960. The figure was arrived at following the logic of unequal exchange, using a method developed by the economist Gernot Köhler, “who proposes that we can use purchasing power parity (PPP) exchange rates constructed by the World Bank to value the South’s exports at the North’s price level. By subtracting the actual market price that the South received for its exports from this figure, we can measure the commodities appropriated by the imperialist states, in terms of the Northern price of those commodities.” The message of the study is that:
Since wages and natural resource prices are much lower in the global South than the North, poor countries must export many more units of embodied labour and resources than they import in order to achieve a monetary balance of trade. This creates a constant transfer of labour and ecology from the periphery to the core, developing the latter but impoverishing the former.
Thus the theory of unequal exchange helps to explain the widening gap between the rich countries and their poor counterparts as it explains how the phenomenon constitutes a mechanism ‘which maintains the hierarchical structure of geographically uneven development’.
The experience of Third World Countries
Using the method alluded to earlier, the adopting authors found that in 2017 the ‘emerging and developing economies,’ as defined by the IMF, lost $2.2 trillion worth of goods to the ‘advanced economies.’ As the authors argued rightly, “this represents an enormous loss for the South. These resources could have ended extreme poverty 15 times over, but instead they were transferred gratis to the core. This windfall is of enormous benefit to the centres of empire. For instance, in 2017 the U.S. gained $2,634 per person through unequal exchange, while the average Australian citizen received $3,116 from the South. Since 1990, the North’s annual gains from unequal exchange have sat at 5.2% of GDP, considerably higher than the North’s annual growth rate. In other words, if not for imperialist plunder, aggregate income in the North would have been declining for decades.
The main takeaway form the foregoing is the fact that the extraordinary levels of material consumption currently enjoyed in the North are predicated upon exploitation and poverty in the periphery. In this vein, in 2021 Italian economics scholar, Andrea Ricci of the University of Urbino came out with the book 'Value and Unequal Exchange in International Trade: The Geography of Global Capitalist Exploitation', published by Routledge. According to the publisher's website for this book, “the huge increase in trade in recent decades has not made the world a fairer place: instead, the age of globalization has become a time of mass migration caused by increasing global inequality”. This work has permanently neutralized the apologetic attempt by Detlef Lorenz in 1982 viz the piece, “Notes on Unequal Exchange between Developing and Industrialised Countries” published in Intereconomics Vol. 17 Issue 1. Of course, several African scholars such as Walter Rodney, Bade Onimode, etc. had laid solid grounds for Ricci’s effort.
Now, especially since the more recent times, developed countries have added an advantage over developing countries in international trade through the imposition of high tariffs on the agricultural goods that many developing countries export, which has contributed to the increase in labour migration. In this context, although there is some justification for the IMF’s claim (in its IMF Staff Paper of November 2001on: “Global Trade Liberalization and the Developing Countries”) that “integration into the world economy has proven a powerful means for countries to promote economic growth, development, and poverty reduction”, however, it glosses over the inequity in the trading scheme that enriches the rich economies at the expense of the poorer ones in the global South. Even more vacuous is the Bretton Woods institution’s assertion that, “the resulting integration of the world economy has raised living standards around the world”, given the penalizing trend of brain drain from the third world countries as the Nigerian experience demonstrates so embarrassingly with the exodus to medical doctors moving in droves to the UK and USA.
Escaping from the trade reap off
A necessary condition for the successful redress of a challenge is to understand its origin and context. This principle applies with full force to the trap of unequal exchange cul de sac into which third world countries are boxed under the neocolonial order. Needless to repeat, neocolonialism is the effective extension of colonialism into the post-independence era. Thus, going down historical lane, the roots of unequal exchange were nurtured during the colonial regime as Britain decided both the prices of its manufactured goods brought to Nigeria and the prices of the agricultural goods produced in Nigeria and sold to their home country.
For the purpose of broadening understanding, one may suggest that Nigeria has greater comparative cost advantage in the production of agricultural goods than Britain and hence Nigeria should indeed specialize in producing primary goods while Britain focuses on producing manufactured goods where she has comparative cost advantage. However, this trapping logic overlooks basic questions such as: how did the respective countries acquire their comparative advantages? Also, is a given advantage an eternal phenomenon such that once you are a producer of raw materials, you are destined to stay within that bracket? Without doubt, these questions touch on the limitations of the comparative advantage theory as they expose its static and therefore time-blind essence. The key point to note here is the role of colonialism in ascribing production specialization functions to the trading countries through the self-serving industrialization policies designed and imposed.
Apart from the fundamental malaise highlighted above which naturally points to its long term redress through a radical transformation of the global economic order beginning with a systematic delink from the status quo, there are general issues that constitute the basis for trade in the world which can and should be addressed in the short and medium term framework as a move towards escaping from the cycle of reap off through trade advertised as mutually beneficial. The issues are:
Differences in technology-increasingly compounded under the constraining regime of strict intellectual property rights. This must be taken along with the deliberate policy of arresting the technological progress of the colonies by the imperial powers during colonialism;
Differences in resource endowment-which, if the natural owners were in effective control would have been in favour of the global South;
Differences in demand- a simple economic principle that would have improved the benefits accruable to the developing countries flowing from the huge and growing appetite of the rich nations ;
Existence of economies of scale-resulting from large scale production that lowers cost per unit and a means by which the producer earns more from the sale of its products on the condition of an open market of level playing field; and
Government policies- which ultimately impacts on all the other issues and the overall outcome and benefits derived from international trade.
Clearly, of all the above, issue number 5 is the most important as it is embracing and which is determined by the quality of governance in place; this links inevitably with the orientation of the political leadership in specific countries and their willingness and capacity to inspire and encourage cooperation among third world countries of similar fate. I come in peace, please.
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