Unequal Exchange and the Evolution of the World System

Since the beginning of modern economic theory in Europe the importance of foreign trade as a means of increasing welfare has been stressed. There was, however, a change in emphasis and understanding. While the Mercantilists were mainly concerned with increasing their own nation’s well-being, irrespective of the effects of their proposed policies on other nations — to them it seemed, in fact, clear that they were playing a zero-sum game — later schools of economic thought have believed (or at least stressed) that trade would be to the advantage of all. While Mercantilists differentiated between ‘good’ and ‘bad’ trade, their successors soon came to see trade, as such, as a purely positive phenomenon. Free trade, unhampered by governments, would increase global welfare: this has been one of the standard arguments of orthodox economists for roughly two centuries. The best-known relic of the beginning of the age of freetraders, still revered today, is doubtlessly the Torrens-Ricardo theory of comparative advantages. Neoclassical economists preaching a world of harmonious equilibria were predictably quick to elaborate theories of mutual advantages even further.

Although classical economists always stressed the harmoniously beneficial effects of free trade, hints and remarks on exploitation, domination, and inequality of exchange can be found. Adam Smith (1976, p. 594) admitted that ‘exclusive trade’ gives ‘evident advantages’ to the metropolitan country but argued nevertheless fiercly against mercantilism and the monopoly of colonial trade. He argued that it would be detrimental to the colonies, all other nations and even to the ‘mother country’ in the end, ‘like all other mean and malignant expedients of the mercantile system’ (Smith, 1976, pp. 610f).

Emmanuel’s ideas evoked strong reactions, mostly from France and Italy, but also in individual cases from the United States (as we have just seen), Scandinavia and other parts of Europe, and the Third World.

Oscar Braun’s theory of Unequal Exchange has never been published in English. His untimely death in January 1981 is the reason why no more than a draft English translation exists (Evans, 1981, p. 601). Besides the Spanish original there exists a full French translation (in Amoa and Braun, 1974). In his tribute to Braun, Evans also speaks of ‘Italian and German editions’ (Evans, 1981, p. 601). While I could not find an Italian publication, the ‘German edition’ can only be Braun’s short article in Senghaas (1981) which had first appeared in 1974 and covers only parts of the book. However, in his article Braun himself summarises what he calls his ‘most important thoughts of my most recent work on imperialism’ (Braun, 1981, p. 137). It is a translation of Braun’s Postscriptum in Braun (1977, pp. 105ff.) that is also published in Amoa and Braun (1974, pp. 243ff).

The most important contributions to the debate not yet dealt with come from Samir Amin. Amin, who admits the heuristic merits of Emmanuel and Braun as well as the usefulness of the debate triggered by the former, introduces historic materialism as his method of analysis. This allows him to introduce effective demand more fully into his line of argument, and to extend it to non-capitalist modes of production.

All approaches to Unequal Exchange presented in the foregoing chapters suffer from two main shortcomings. First, they lack the link between trade and Unequal Exchange: that is, they do not detail how non-equivalence is being produced and reproduced by the very act of exchange. Second, it must be asked whether the Marxian law of value and the transformation pertaining to it or Sraffa-type equations do really lend themselves to an analysis of international economic relations.

Negative effects of international economic relations could not exist if the periphery simply refused to trade with the centre. Some conservative economists have in fact criticised the theories of Unequal Exchange, by remarking that if trade were really that much to the disadvantage of the periphery and an instrument of exploiting these countries they would simply not engage in it. Unequal Exchange undoubtedly presupposes a certain will — or need — to trade. This will did not always exist in the periphery. Furthermore it must be asked whether the centre has always been the region exporting relatively inelastic products — in other words, whether it has always been equally easy to sell Northern products in the South. Only if it were so would the world market have led to the present situation (cf. Raffer, 1983b, 1983c), but this would also have been an incredible coincidence.

Like any other science, economics and development research have their legends and fairy tales, an especially popular and widespread example being the legend of oil, OPEC and Third World power. Whenever problems of dependency are discussed someone is likely to introduce OPEC as a precedent of reverse dependence: albeit the only example, the argument might run — it shows that industrialised countries too are dependent on the South. Oil shocks and oil crises prove it.

As the chapters surveying the debate on Unequal Exchange have shown, the discussion tends to centre on the very moment when goods cross the North-South border. This might be misleading. Starting from the sharing of value added and defining equivalence as double factoral terms of trade of 1, permits us to analyse who suffers under Unequal Exchange, i.e. to see where as well as to what extent non-equivalence occurs. This can, of course, only be done if we discard the pet of traditional foreign trade theory, the country as a solid unit. Recently this view was also attacked by Brecher and Bhagwati (1981), who showed with the traditional tools of neo-classic analysis that an advantage or net-gain for a country can easily be split into a big gain for some and a relatively big loss for others. If, for example, profits accrue to a TNC within a periphery country which repatriates these profits immediately, looking at country units and — as is usually done — the balance of trade, is simply misleading.

The problems connected with measuring Unequal Exchange are of two types, namely the measurement of non-equivalence on which the last chapter has already dwelt, and the measurement of the index of specificities of goods.

The existence of Unequal Exchange leads by necessity to the problem of a global restructuring of production facilities, or what is nowadays often called redeployment in international fora. If the same good can be produced at lower costs in the periphery although it may be sold in the centre at the same price as a unit produced there at higher costs, industries simply have to retreat under competitive market assumptions. Even if the price of PC imports is cheaper (as in the case of textiles or apparel) yet allowing very much higher profits to those who produce outside the consuming region, the same effect must be triggered.

As we have seen in the first part of this book, the question of effective demand or the problem of how to realise gains has always been prominent in the Unequal Exchange discussion. It is the more interesting that the problem of redeployment treated in the previous chapter has not found equal interest, because it is inseparably intertwined with the former. As we saw in the last chapter, the actual dimension of redeployment is rather limited (with sectoral maxima for example in apparels) and definitely below the level one might expect from the theoretical discussion of the Unequal Exchange issue.

The historical evolution of North-South relations is the history of unequal partners. Economic development in the periphery has always been a reflexion of the needs of the centre. Yet these reflexions have been different. Independently of whether one shares Keynes’s opinion that when re-writing economic history it should be asked whether ‘the long stagnation of the Middle Ages may not have been more surely and inevitably caused by Europe’s meagre supply of the monetary metals than by monasticism or Gothic frenzy’ (Keynes, 1965, p. 151), the tremendous impact of the gold that was robbed in Latin America on Europe cannot be denied.