We have long known that the industrial prosperity of rich countries was based on the exploitation of the global south during the colonial era. The industrial revolution in Europe was largely dependent on cotton and sugar grown on land stolen from Indians – and with forced labor from slaves of Africans.
The exploitation of Asia and Africa has been used to finance infrastructure, public buildings and welfare states in Europe – all the hallmarks of modern development. The costs to the South, however, were catastrophic: genocide, abduction, famine, and mass impoverishment.
The imperial powers finally withdrew most of their flags and armies from the south in the mid-20th century. But in the following decades, economists and historians linked to “dependency theory” argued that the underlying patterns of colonial appropriation persisted and continued to define the world economy. Imperialism never stopped, they declared – only changed form
You were right. Recent research shows that rich countries are still dependent on a large net grant from the global south, including tens of billions of tons of raw materials and hundreds of billions of hours of human labor a year – invested not only in primary goods but also in high-tech goods such as smartphones, laptops, computer chips and cars, which have been predominantly manufactured in the South in recent decades.
This flow of net appropriations arises because prices are systematically lower in the south than in the north. For example, wages paid to workers in the south are, on average, only one-fifth of wages in the north. This means that for every unit of invested labor and resources that the South imports from the north, the South must export many more units to pay for it.
Economists Samir Amin and Arghiri Emmanuel have described this as a “hidden transfer of value” from the south, maintaining high income and consumption levels in the north. This “drain” takes place subtly and almost invisibly, without the obvious violence of the colonial occupation and therefore without arousing protest and moral indignation.
In a recent paper published in the journal New Political Economy, we built on the work of Amin and others to calculate the extent of unequal exchange outflows in the postcolonial era. We found that they increased dramatically in the 1980s and 1990s as neoliberal structural adjustment programs were imposed across the global south.
Today, every year, Global North extracts $ 2.2 trillion worth of raw materials from southern to northern prices. Seen in perspective: This sum would be enough to end extreme poverty worldwide fifteen times.
Throughout the period from 1960 to the present, the outflow is $ 62 trillion in fixed prices. Had that value been maintained by the South and contributed to growth in the South, it would have been worth $ 152 trillion today, based on growth rates in the South during that period.
These are monstrous sums. For the global north (and here we mean the US, Canada, Australia, New Zealand, Israel, Japan, Korea and the rich economies of Europe) the gains are so great that they have surpassed the economic growth rate in the last few decades. In other words, net growth in the Nordic region is due to grants from the rest of the world.
For the South, the losses far outweigh the foreign aid provided. For every dollar in aid that the South receives, it loses $ 14 in outflow alone through odd trades. And it does not even count other types of losses, such as illegal cash flows and repatriation of profits. Of course, that number varies from country to country – some higher than others – but in any case, the “help” discourse hides a darker reality of looting. Poor countries develop rich countries, not the other way around.
Neoclassical economists tend to see low wages in the South as “natural” – a kind of neutral consequence of the market. But Amin and other economists from the global south argue that wage inequality is a consequence of political power.
Rich countries have a monopoly on decisions of the World Bank and IMF, they have the most bargaining power in the World Trade Organization, they use their power as lenders to dictate economic policy in debtor countries, and they control 97 percent of the world’s patents. Northern states and corporations are using this power to their advantage to push up labor and resource prices in the global south. This allows them to obtain net appropriations through trading.
In the 1980s and 1990s, the IMF’s structural adjustment programs reduced wages and employment in the public sector, while reducing labor rights and other protections. All this made labor and resources cheaper. Today, poor countries are structurally dependent on foreign investment and have no choice but to compete with each other and offer cheap labor and resources to please the masters of international finance. This ensures a steady stream of disposable items and fast fashion for affluent consumers in the North, but at enormous cost to life and ecosystems in the South.
There are several ways to solve this problem. One would be to democratize the institutions of global economic control so that poor countries have a fair say in determining trade and financial conditions. Another step would be to ensure that poor countries have the right to use tariffs, subsidies and other industrial policies to build their sovereign economic capacity. We could also take steps towards a global system of living wages and living wages and an international framework for environmental regulations that lays a foundation for labor and commodity prices.
All of this would enable the South to have a fairer share of the proceeds of international trade and free up its countries to mobilize their resources to eradicate poverty and meet human needs.
But achieving these goals will not be easy; it requires an organized front of social movements for a fairer world to those who benefit so much from the status quo.
Jason Hickel, UK, economic anthropologist
Dylan Sullivan, PhD student at the Department of Political Economy at the University of Sydney
Huzaifa Zoomkawala, independent researcher and data analyst in Karachi