Developed nations profit by exploiting the global South

April 18, 2021

The Northern Hemisphere continues to plunder the riches of the South. (AP Photo/Joaquin Sarmiento)

The wealthy nations of the global North exploited $2.2 trillion from the global South in 2017 alone, a new analysis found, a colonial dynamic that allows inequality and wealth hoarding — particularly by the United States.

Moreover, the researchers found that the global South lost at least $14 in unequal exchange for every $1 the North sent in "aid." At the same time, the money taken in 2017 by so-called advanced economies — including the U.S., Japan, Germany, Korea and Great Britain — was 15 times the amount needed to end extreme poverty across the world, the researchers behind the study wrote. 

The South lost $30 for every $1 of aid from the North when the researchers accounted for multinational companies both illegally moving profits from developing countries, often into tax havens, and companies sending profits back to their developed home countries rather than reinvesting them in the countries that produced them.

"Rich nations continue to rely on the exploitation of lands and bodies in the global South in order to maintain their high levels of growth and consumption," said Jason Hickel, the lead author of the paper and a visiting senior fellow at the International Inequalities Institute at the London School of Economics. "If we want to end poverty and ensure all people have access to the resources they need to live well, we have to change the rules of the global economy."

For the paper, published March 30 in New Political Economy, the researchers created an exchange rate deviation index, as developed by Gernot Köhler in the 1990s. They essentially calculated the difference between prices in different countries — for example, in 1995, the United States' prices were 4.12 times higher than India's. In contrast, comparing global North countries to each other gives index values close to 1, indicating little price distortion. 

Then they calculated the value of unequal exchange between nations using those exchange rate deviations and exports from the South to the North, minus the values of imported exports — for example, a laptop produced in one country with a microchip imported from another country. They reported all amounts in 2011 U.S. dollars.

Since 1960, the researchers found, the South was drained of $62 trillion — money that the North was able to invest in itself. If they adjusted for the GDP growth of the South taken together, that $62 trillion became $152 trillion in lost growth. 

The United States profited the most, appropriating $856 billion in 2017 and $18.29 trillion over the whole period. The total amounted to $56,000 for every U.S. citizen. 

While there has been a decline in value transfer, since around 2005, the decline was mostly explained by the increasing power of China, which has lost almost $14,000 for every person in China since 1960 — a total of $18.76 trillion. "The North's ability to extract cheap labor and goods from China has been sharply diminished," said Dylan Sullivan, a co-author and a graduate student in the University of Sydney's Department of Political Economy. 

Sullivan noted that "China was not forced to adopt structural adjustment programs by the IMF and World Bank" like most of the global South — structural adjustment programs that have been shown to foster inequality and sometimes provide outsize benefit to U.S. banks. Hickel, who is also a senior lecturer at Goldsmiths, University of London, said that "democratizing the World Bank and the IMF, and ensuring global South countries have the freedom to use tariffs, subsidies and other industrial policies to develop their domestic economic capacity and improve the terms of trade" would help build a more equal world.

Their work, Hickel said, contradicts "the dominant assumption in international development discourse in the global North, among mainstream development economists and NGOs" that the North is economically successful because of good governance, strong institutions and free markets, and the South lacks these things or is inefficient or corrupt and thus economically worse off. 

In fact, the North is economically successful because it benefits from undervalued labor and commodities in the South, and is able to overinflate its own prices. This position, although not as mainstream as it should be, has been "promoted by heterodox economists, and certain NGOs ... and of course social movements in the global South, who point to power imbalances in the global economy," Hickel said.

Hickel told The Academic Times that he and his co-authors called the unequal extraction of wealth a "plunder" in the title of their paper because of something he heard an economic historian say: "He mused about how we use the term 'value transfer through unequal exchange,' which sounds very technical and abstract, when in reality it is a form of plunder and we should have the clarity to say so."

The study, "Plunder in the Post-Colonial Era: Quantifying Drain from the Global South Through Unequal Exchange, 1960–2018," published March 30 in New Political Economy, was authored by Jason Hickel, London School of Economics and Goldsmiths, University of London; Dylan Sullivan, University of Sydney; and Huzaifa Zoomkawala, independent scholar, Karachi, Pakistan.

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