Introduction
The exclusive use of money as a tool for measuring value in trade relationships is one of the many axioms of mainstream economics, serving as an indubitable truth that forms the foundation of subsequent reasoning. According to this view, it is unquestionable that when a country exports products with less monetary value than it imports, it is, according to such conventional reasoning, in a deserved deficit relationship because it has received more value than it has given. Likewise, if an economy achieves a monetary balance between its exports and imports, it is in a balanced trade relationship with the outside world. In this sense, sub-Saharan African trade is relatively balanced as its deficit is as little as 2.4% of total trade revenues (WITS 2022).
A new trend in development research, often called ecologically unequal exchange, rejects the neoclassical assumption that prices are a fair representation of value and therefore a measure of fairness of trade relations. For example, Lauesen and Cope (2015) argue that prices are not usually a good explanation of value and that prices are what need to be explained. A recent study by Hickel et al. (2022) similarly argues that prices do not reflect value or utility in any objective way: ‘Rather, they reflect, among other things, the (im)balance of power between market agents (capital and labour, core and periphery, lead firms and their suppliers, etc); in other words, they are a political artefact.’
Ecologically unequal exchange can be considered the most recent heir of unequal exchange theories, first espoused by Raul Prebisch and Hans Singer in 1950 when they demonstrated that global South countries are at risk of deteriorating barter terms of trade as their commodities (mainly primary) drop in value relative to the commodities of the global North (mainly secondary and tertiary). Prebisch and Singer offered income elasticity of demand as the main force behind the diverging prices of primary and secondary commodities. Barter terms of trade means the neutralisation of money as a measure of trade, and measuring the value of commodities relative to one another.
The idea was further developed by dependency theorists, including Arghiri Emmanuel and Samir Amin, who argued that wage disparity is the root cause of unequal exchange and transfer of value from South to North, or from the periphery of the world economy to its centre. According to Amin, exchange is unequal whenever labour of the same productivity is rewarded at a lower rate in the periphery (Amin 1976). Emmanuel argued that the terms of trade are directly related to the level of national wages, thus involving value transfers from low- to high-wage countries through unequal exchange (Ricci 2021). For Immanuel Wallerstein, unequal exchange is the continuous flow of surplus value from the producers of peripheral products to the producers of core-like products (Wallerstein 2004).
This dynamic has obvious repercussions on the ecological capital of resource-exporting countries. Infante-Amate and Krausmann (2019) argued that deteriorating terms of trade require physical exports to increase, thereby putting greater pressure on domestic extractions of materials in resource-exporting economies. At the other end of the exchange, favourable barter terms of trade can motivate wealthy countries to outsource environmental impact and use this advantage to better preserve their own ecological capital. In other words, when wealthy countries can receive more for their exports, they can afford to import resource-intensive and polluting industries, therefore outsourcing the ecological impact of manufacturing these products.
Hickel et al. (2022) calculated trade exchanges in terms of transfers of biophysical resources and found that, in 2015, net global North imports from the South accounted for 392 billion man-hours, 12 billion tons of raw material equivalents (RMEs), 822 million hectares of land, and energy equal to 3.4 billion barrels of oil. The study stressed the significant size of this imbalance, as it comprises about a quarter of the total global North consumption. It also expresses ‘net’ values, meaning that it is the portion that the South provides to the North in excess of what it receives. As for sub-Saharan Africa’s transfers of biophysical resources, in net terms the continent exported 1.72 tons of raw material equivalents, 4.16 exajoules (equal to 680 million oil barrels) and 656,000 hectares of land in 2015.1 This is in stark contrast to Africa’s balance of trade expressed in money terms, from which it appears that the relationship is in relative balance.
The famous Prebisch–Singer hypothesis may partially explain the modest monetary gains that Africa derives from its exports of colossal amounts of biophysical resources. The hypothesis, developed by Prebisch (1950) and Singer (1950), argues that the prices of primary goods decline relative to secondary and tertiary goods, mainly because secondary and tertiary goods have higher income elasticity of demand relative to primary goods; additionally, the capacity of technically advanced consumer countries to produce synthetic substitutes for the primary commodities of global South countries, as well as develop more efficient ways of using these commodities, provides them with increasingly favourable terms of trade (Raffer and Singer 2001). A 2013 International Monetary Fund study (Arezki et al. 2013) tested the Prebisch–Singer hypothesis by measuring the prices of 25 commodities since 1650 and found that in most cases and for most commodities the hypothesis ‘was not rejected’.
An additional reason that was not sufficiently addressed by Prebisch and Singer is that the value of a disproportionate and growing share of global North exports is derived from intangible assets, protected by a powerful intellectual property rights (IPR) regime; this contrasts with global South exports which derive their value from material resources. According to European Patent Office data, 96% of EU exports in 2016 came from IPR-intensive industries, while the trade surplus for IPR-intensive products in the EU amounted to 182 billion euros in the same year (European Patent Office 2019). In the United States, in 2018, total intellectual property revenue from royalties and cross-border licensing fees was US$129 billion, while cross-border US payments of royalties and licensing fees amounted to US$56 billion, giving a trade surplus of US$73 billion (Congressional Research Service 2020).
Is export-oriented industrialisation still the solution?
A shift to export-oriented industrialisation might be seen as the solution to the ecologically unequal exchange impasse, an idea that dominated the developmental imaginations of global South countries in the post-colonial era when manufactured products occupied the top of the value-added pyramid. However, this section asks whether export-oriented industrialisation is still the optimal development solution for global South countries to negotiate a better position for themselves in the international division of labour.
Although the term ‘industrialised nations’ continues to be used to describe the richer countries of the global North, manufacturing currently accounts for only about 13% of their GDP (World Bank Data 2022a) while it constitutes 20% of low- and middle-income countries’ GDP, and 12% of sub-Saharan African GDP (World Bank Data 2022a). On the other hand, services represent nearly 72% of the GDP of high-income countries, compared to 52% of low- and middle-income countries and 47% of sub-Saharan African GDP (World Bank Data 2022b).
As economies were undergoing the service turn, Singer came to the realisation – four decades after his initial hypothesis – that industrialisation was not a salvation from deteriorating barter terms of trade. In a paper published in 1999, he argued that the bridging of the industrialisation gap between the South and the North does not invalidate the Prebisch–Singer hypothesis. Rather, he asserted that with the increase in the share of manufactured exports from the countries of the South, it becomes increasingly necessary to ‘break with the identification of the terms of trade between primary commodities and manufactures … and to undertake separate studies of the manufacture-manufacture terms of trade’ (Singer 1999, 912). For Singer, international trade was a factor contributing to international divergence rather than convergence.
Since Singer wrote his paper at the end of the 1990s, the integration of global production processes has deepened greatly, with the stages of manufacturing of a single product passing through several countries in what are known as global value chains. Models of value distribution across global value chains show that an increasing portion of the value extracted goes to pre-manufacturing services (such as research, development and design), as well as post-manufacturing services (such as distribution and marketing), concurrent with a decreasing portion going to the manufacturing process, in what has been ironically labelled a ‘Growing Smile’ by the World Intellectual Property Organization (see Figure 1).
The ‘Growing Smile’ of value added.
Source: World Intellectual Property Organization (2017).
As with the relationship of primary to secondary commodities observed by Prebisch and Singer in 1950, we are now facing a similar situation in the relationship of tangible commodities of all kinds (raw and manufactured) to intangible services, where the value of the former decreases relative to the latter. In other words, the Growing Smile model can be considered the new Prebisch–Singer hypothesis, where instead of capturing the falling value of primary commodities relative to secondary commodities, the model demonstrates how the value of secondary commodities is under increasing pressure relative to tertiary commodities (i.e. services).
This challenges the belief of right-wing nationalists in the global North that their industries failed in their competition with the global South, which has succeeded in seizing, if not stealing, tens of millions of jobs from Northern countries. It may be true that Northern countries lost millions of industrial jobs, to the detriment of blue-collar working classes in numerous communities in the global North, including in the so-called ‘rust belt’ in the United States, a constituency which significantly contributed to Trump’s victory in the 2016 presidential election (Scheyder, Brown, and Lange 2020). Victims of deindustrialisation in the global North were also a key force behind Britain’s departure from the European Union (Ringel 2020).
However, the deindustrialisation of the global North was more akin to a wilful transition than a fait accompli, at least from the perspective of the North’s wealthy elites, who have been massively enriched throughout the deindustrialisation process. This dynamic could not be expressed better than in the following comment by the US business theorist Michael Porter:
We used to think of services as flipping hamburgers, now we have to think of services as rocket science. Services are where the high value is today, not in manufacturing. Manufacturing stuff per se is relatively low value. That is why it is being done in China or Thailand. ( Hauge and Chang 2019, 13)
When exchange occurs, competitive products are in a weak position and quasi-monopolised products are in a strong position. As a result, there is a continuous flow of surplus value from the producers of peripheral products to producers of core-like products. This is called unequal exchange. (Wallerstein 2004, 28)
Nowadays, the IPR regime is one of the main mechanisms for monopoly creation, in contrast to the products of the South that often operate under conditions that more closely resemble perfect competition and face significant price pressures not only due to its competitive nature, but also because of pressure from distribution and retail monopolies. This means that increasing the export of manufactured materials will not necessarily bear the anticipated developmental fruits if the prices of those exports collapse with time in relation to overvalued intangibles imported to the global South, not to mention the increasing pressure it entails for the natural and human resources of global South countries.
Investment, not exports, as the primary determinant of growth
What about models such as China and Japan, whose economies have significantly grown, driven by an increase in exports? While it is true that China has grown in the last four decades, unlike any other major economy since the industrial revolution, mainstream development literature usually overlooks the fact that sub-Saharan Africa exports a greater portion of its domestic product than both China and Japan (World Bank Data 2022c).
The primary difference between China and Africa lies not in the size of their exports, but in the rates of capital formation, which measure the volume of investments in new productive assets such as machinery and equipment. From 1990 until the present day, the average rate of capital formation in China has hovered around 40% annually, while in sub-Saharan Africa it was just above 20% (World Bank Data 2022d).
Despite the shortcomings of some investment models and the over-prioritisation of economic growth at any expense, investment, not export rates, remains the most important determinant of economic growth. However, investment without deepening the market and domestic demand will inevitably lead to economic bubbles and slowdowns, because the question of where the money to buy the products of such new investment would come from will remain unanswered. This demonstrates how policies based on neoliberal principles avoid the law of the marginal propensity to consume, which shows that additional increases to low incomes stimulate consumption much more than an equivalent increase in the incomes of more financially well-off groups, who tend to favour saving over consumption.
Deepening the domestic market
Durable growth is therefore inescapably dependent on the existence of broad-based real demand, as opposed to demand driven by debt bubbles and speculation. By demonstrating that the growth of peripheral exports under the current international division of labour conditions has its problems, from the displacement of natural resources to the collapse of the relative value of those exports over time, the combination of ecologically unequal exchange and the Prebisch–Singer hypothesis (itself combined with the Growing Smile model) seriously challenges the outward-looking export-based growth model that has dominated developmental imagination in both Africa and the global South in the neoliberal age.
Given that previous experiences of import substitution industrialisation in post-colonial contexts did not always prove very successful, as they fell victim to the ‘latecomer syndrome’ and many countries even had to undergo ‘premature deindustrialisation’, the solution should be linked to the revaluation of commodities instead of continuously chasing a mirage: the rapidly moving target of high added value.
Pricing politics have the advantage of being capable of addressing the ‘fallacy of composition’ that further defies export-driven ideologies based on the Ricardian ‘comparative advantage’; the fallacy is defined by and arises from the impossibility of applying to the whole what might have worked for a part of that whole. Trying to generalise export-led growth is practically impossible because any country’s exports are by definition another country’s imports.
Negotiating better prices for the products of global South countries reverses the fallacy of composition, meaning that it is an experiment that can only be generalised. This is because any country that tries to unilaterally impose better prices for its products would lose, especially if these goods are competitive and provided by other countries, which is the case for most of the goods that global South countries export. This is not to mention the advantage of promoting South–South cooperation rather than competition. This would need to be combined with negotiating lower prices for IPR-protected products coming mostly from the North, by radically reforming the global IPR regime.
Better prices for global South commodities and lower prices for global North goods and services will also contribute to the deepening of African domestic markets and boosting domestic demand because the continent would keep a greater part of the surpluses it produces within its borders. Moreover, Southern countries would reduce the increasing environmental pressure on their natural resources resulting from the large outflows of biophysical resources and the growing pressure on their foreign currencies.
Playing by the rules of the current global value regime by attempting to move up the value ladder will only entrap Africa in vicious circles, because by the time structural transformation occurs, it is most likely that the sought-after economic activity would have become competitive and of low added value. This is precisely what happened when the Southern economies started industrialising at about the same time, leading to a sharp fall in the value of manufacturing (Hauge and Chang 2019).
This type of politics is not completely unheard of. In the 1960s, the Group of 77 was established as an alliance of global South countries within the United Nations, aimed at promoting the interests of its member states, especially regarding trade exchange with the countries of the global North. Raul Prebisch was deeply involved in this alliance and its affiliated bodies. The Charter of Algiers issued by the Group of 77 in 1967 clearly discusses the importance of negotiating better prices for global South products; it reads:
The main objectives of pricing policy should be: (i) elimination of excessive price fluctuations; (ii) the highest possible earnings from the exports of primary products; (iii) maintenance and increase of the purchasing power of the products exported by developing countries in relation to their imports; and (iv) that developed countries undertake to assist in achieving more stable and higher prices for unprocessed and processed commodities from developing countries by applying adequate domestic taxation policies. (FAO 2017)