Have Rich Countries Drained the Global South?

Recent research demonstrates that rich countries continue to rely on a large net appropriation from the global South. This flow of net appropriation occurs because prices are systematically lower in the South than in the North. For instance, wages paid to Southern workers are on average one-fifth the level of Northern wages. This means that for every unit of embodied labour and resources that the South imports from the North, they have to export many more units to pay for it.

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Economists Samir Amin and Arghiri Emmanuel described this as a “hidden transfer of value” from the South, which sustains high levels of income and consumption in the North. The drain takes place subtly and almost invisibly, without the overt violence of colonial occupation and therefore without provoking protest and moral outrage.

In a recent paper published in the journal New Political Economy, the work of Amin and others to quantify the scale of drain through unequal exchange in the post-colonial era was established. The drain increased dramatically during the 1980s and 1990s, as neoliberal structural adjustment programmes were imposed across the global South. Today, the global North drains from the South commodities worth $2.2 trillion per year, in Northern prices. For perspective, that amount of money would be enough to end extreme poverty, globally, fifteen times over.

Over the whole period from 1960 to today, the drain totalled $62 trillion in real terms. If this value had been retained by the South and contributed to Southern growth, tracking with the South’s growth rates over this period, it would be worth $152 trillion today.

These are extraordinary sums. For the global North (and these are the US, Canada, Australia, New Zealand, Israel, Japan, Korea, and the rich economies of Europe), the gains are so large that, for the past couple of decades, they have outstripped the rate of economic growth. In other words, net growth in the North relies on appropriation from the rest of the world.

For the South, the losses outstrip foreign aid transfers by a wide margin. For every dollar of aid the South receives, they lose $14 in drain through unequal exchange alone. This is not counting other kinds of losses like illicit financial outflows and profit repatriation. Of course, the ratio varies by country – higher for some than others – but in all cases, the discourse of aid obscures a darker reality of plunder. Poor countries are developing rich countries, not the other way around.

Neoclassical economists tend to see low wages in the South as “natural” – a kind of neutral market outcome. But Amin and other economists from the global South argue that wage inequalities are artefacts of political power.

Rich countries have a monopoly on decision-making in the World Bank and IMF, they hold most of the bargaining power in the World Trade Organization, they use their power as creditors to dictate economic policy in debtor nations, and they control 97 percent of the world’s patents. Northern states and corporations leverage this power to cheapen the prices of labour and resources in the global South, which allows them to achieve a net appropriation through trade.

During the 1980s and 1990s, IMF structural adjustment programmes cut public sector wages and employment, while rolling back labour rights and other protective regulations, all of which cheapened labour and resources. Today, poor countries are structurally dependent on foreign investment and have no choice but to compete with one another to offer cheap labour and resources in order to please the barons of international finance. This ensures a steady flow of disposable gadgets and fast fashion to affluent Northern consumers, but at extraordinary cost to human lives and ecosystems in the South.

There are several ways to fix this problem. One would be to democratise the institutions of global economic governance. Poor countries will then have a fairer say in setting the terms of trade and finance. Another step would be to ensure that poor countries have the right to use tariffs, subsidies and other industrial policies to build sovereign economic capacity. A global living wage system and an international framework for environmental regulations, and this would put a floor on labour and resource prices.

All of this would enable the South to capture a fairer share of income from international trade and free its countries to mobilise their resources. But achieving these goals will not be easy; it will require an organised front among social movements toward a fairer world, against those who profit so prodigiously from the status quo.

Reference:

Rich countries drained $152tn from the global south since 1960, Jason Hickel, Dylan Sullivan, Huzaifa Zoomkawala, 6 May 2021 (https://www.aljazeera.com)