Post-War Industrialization despite or through Asymmetric Development?

Europe Supported by Africa and America, William Blake (woodcutting, 1796)

'Europe Supported by Africa and America', William Blake (woodcutting, 1796)

1. Introduction

Presented with a choice, an overwhelming majority of the ~6.5 billion humans alive today would opt to reside in relative comfort amongst the industrialized minority. For evidence of this, one need look no further than the migratory fluxes ‘braindraining’ the ‘developing world’ and the considerable risk to which an ever-increasing number of people knowingly expose themselves in a concerted effort to gain a foothold in ‘the developed world’. In this essay, I wish to briefly propose that there exist theoretical – as opposed to historical – grounds for the seemingly stable patterns of sharp discontinuity that so persistently pervade the distribution of global wealth.

GDP/capita for different country groups over time. Real GDP/capita at 2008 US$ calculated using Purchasing Power Parity (PPP). Figure compiled using 2008 World Bank data. {http://www.realfuture.org}

There was a time when economists drew comfort from the belief that ‘affluence is good for everyone’. Consider, for instance, the words and works of Henry Morgenthau. One wonders which history will come to judge more harshly – the moribund Plan that carried his name, or statements such as the following:

“… [it is an] elementary economic axiom … that prosperity has no fixed limits. It is not a finite substance to be diminished by division.”
– U.S. Secretary of the Treasury Henry Morgenthau, Bretton Woods, 1943.

I do not propose, however, to examine whether global affluence at levels to which Morgenthau’s progeny has today become accustomed is even physically possible – that is, in the strictest thermodynamic sense. For those of us – the uninfluential few! – who have followed developments subsequent to milestones such as The Entropy Law and the Economic Process (GEORGESCU-ROEGEN, 1971) and The Limits to Growth (MEADOWS et al., 1972) through For the Common Good (DALY et al., 1989), this question has lost some of its intellectual – but not pragmatic – urgency. Faith in the possibility of unlimited growth is losing ground.

What I seek to do is different.

Let us first acknowledge that, in the decennia following Morgenthau’s words, a medley of intrusive deregulatory measures of increasing sophistication – ‘free trade’ foremost amongst them – has been wrought on the non-industrialized world by focused industrialized interests. According to a small but growing number of economists, these measures have effectively insured the non-industrialization of all but a handful of former colonies (e.g. CHANG, 2008; REINERT, 2007).

Country Incomes and Racial Demographics
Country Incomes and Racial Demographics. Real GDP/capita at 2003 US$ calculated using Purchasing Power Parity (PPP). ‘% of Population Caucasian’ refers to pure Caucasian ethnicity, as defined on individual country census reports. Figure compiled using 2003 World Bank income statistics and 2003 CIA World Factbook population data. {http://www.realfuture.org}

Taking the nation state as the unit of analysis, my question is this: did the asymmetrical development to which the post-war period bears unequivocal witness act as either (i) an impediment to, (ii) a benefit to, or stronger still (iii) a requirement for ‘First World’ industrialization? The chain of enquiry can be illustrated as follows:

Conceptual flow diagram

2. Nuances

“Someone has to dig potatoes, after all.”
– Robert E. Lucas, ‘The Industrial Revolution’, p. 6

Is this question worth posing? Orthodox economics (a.k.a. ‘neoliberalism’), through the theory of factor-price equilization, disallows the very possibility that asymmetrical development could in any way aid industrialization. There exist additional reasons for skepticism: would not an enriched Third World (to use an outmoded term) provide vast new markets, benefiting all? The overriding majority of today’s trade takes place between rich countries, after all. In 2006, 64% of global exports emanated from, and 67% of global imports ended up in, the high-income countries (UNCTAD, 2006). Applying this elementary logic, could we not expect ‘full development’ of the remaining five-sixths of humanity to lead to a quadrupling in trade turnover?

Perhaps.

But which features of the global economy would stand to be structurally altered by the dissolution of the First/Third world dichotomy? I posit that the following three benefits are currently enjoyed by developed countries:

Hypothetical benefit 1: Lowered primary commodity prices

Finding the road to the attainment of a firm manufacturing base and allied tertiary sector barred, the majority of poorer nations have naturally come to depend heavily on raw material export. Of the 150 or so countries classed as ‘low income’, 23 rely on one single commodity for over 80% of their export earnings, with another 21 earning 60-80% and a further 23 earning 40-60% in this fashion. Unsurprisingly, the majority of raw material exports are ‘Westward’ bound. If consideration is extended to include hydrocarbons, developing countries are responsible for almost half of the world’s primary commodity exports, whilst importing less than a third (Data tables in Appendix A). All other things being equal, universal industrialization would see coupled demand increases/supply decreases in international primary commodity markets, elevating downstream prices.

21st-Century Western standards of living rely in part on low commodity prices. Wealth is not generated in an isolated closed system: ‘value added’ requires something to be added to, and preferably something cheap.

Hypothetical benefit 2: Lowered labour-intensive product pricing

Income disequilibrium at the nation-state niveau allows for cheap provision of a large and diverse class of manufactured goods. The limited industry in the developing world that has survived transnational exposure is chiefly anchored in labour-intensive, low value-added processes. In general, such industries specialize in steps within the chain of production that have proven resistant to mechanization – and concomitant increasing returns to scale.

Needless to say, the overwhelming majority of finished and unfinished goods whose production makes use of supersaturated labour are ultimately destined for Western markets. In this way, current standards of living in the West are subsidized by markedly sub-Western wage levels and labour-standards elsewhere. In a fully industrialized world, no-one will sew t-shirts or solder circuit boards for 15 cents an hour.

Hypothetical benefit 3: Tolerance for negative externalities in low-discount-rate societies

For the starving Tswana farmer desperately struggling to feed his four children, next year’s source of firewood or the future repercussions of contracting HIV/AIDS are considerations that will at best only weakly inform his decisions. For others, whom circumstance has shielded from experiencing hunger, thirst, or the trauma of war, the ‘sphere of consciousness’ is freer to transcend the individual’s horizon and encompass the wellbeing of future generations.

As such starkly contrasting cases illustrate, great variation exists in the weight which Homo sapiens places on the future implications of present actions. The ‘discount rate’ dictates the level of future hardship that an individual is willing to endure in exchange for immediate gratification of need or desire. We are here concerned with global trade and its localized effects. In this context, the forms in which future hardship may be clothed include suffering due to:
(i) Foregone benefits from compromised natural capital, such as soil formation and other ecosystem services;
(ii) Resource depletion, such as collapsed fisheries and forests;
(iii) Waste production.

Consider, for instance, that the world’s principal polluting centers (petrochemical-, chemical- and bonded coalpower- plants) lie oceans removed from the consumers whose wants they satisfy.

The export of negative market externalities has much in common with the benefits accrued from differences in labour oversupply previously touched upon. The latter really connotes a particular subtype of the general mechanism outlined here.

Cartogram illustrating combined country-level wood and paper imports (by volume) for the year 2000.

Cartogram illustrating country-level net forest loss between 1990 and 2000.

Cartogram illustrating country-level net forest loss between 1990 and 2000.

3. Conclusion

To recapitulate: I have outlined three hypothetical benefits that accrue to developed countries as a result of global-scale disparity in wealth.

Firstly, within a finite system such as our planets’, a dichotomy in wealth ensures lower raw material prices through lower demand and higher supply relative to the ‘fully developed’ analogue.

Secondly, labour-intensive segments of the chain of production are kept cheap.

Thirdly, the relative wealth and relative poverty that come about through inter-country inequality lead to differing discount rates. Proximal relative poverty provides the supply and distal relative wealth the demand for (potentially irreversible) damage to some peoples’ immediate environment, to the detriment of their future selves and offspring. With regard to the means through which this pair coalesces into economic value, we need look no further than what Roland Robertson (1992) terms “the compression of the world and the intensification of consciousness of the world as a whole”, what Anthony Gibbens (1990) calls “the intensification of world-wide social relations which link distinct localities in such a way that local happenings are shaped by events occurring many miles away” or what David Harvey (1989) condenses into the “compression of our spatial and temporal worlds” – globalization, so-called.

In this fashion, I argue that the economist’s ‘inequality’ and the ecologist’s ‘sustainability’ are each best understood as a precondition for the other – are in fact two faces of the same coin. This argument, if true, has profound and urgent implications.

Appendix A: Data tables

Country imports

Country exports

References

Chang, H.-J., 2008. Bad samaritans : the myth of free trade and the secret history of capitalism. Bloomsbury Press : Distributed to the trade by Holtzbrinck Publishers, New York.

Daly, H. E., Cobb, J. B., and Cobb, C. W., 1989. For the common good: redirecting the economy toward community, the environment, and a sustainable future. Beacon Press, Boston.

Georgescu-Roegen, N., 1971. The entropy law and the economic process. Harvard University Press, Cambridge, Mass.

Lucas, R. E., Jr., 2002. The Industrial Revolution: Past and Future. In: Lucas, R. E., Jr. (Ed.), Lectures on economic growth. Harvard University Press, Cambridge and London.

Meadows, D. H., Meadows, D. L., Randers, J., and Behrens III, W. W., 1972. The Limits to growth; a report for the Club of Rome’s project on the predicament of mankind. Universe Books, New York.

Reinert, E. S., 2007. How rich countries got rich– and why poor countries stay poor. Carroll & Graf, New York.

UNCTAD, 2006. UNCTAD handbook of statistics – Manuel de statistiques de la CNUCED. United Nations, New York.

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