Unequal Exchanges & Underdevelopment in the Global System
The Unequal Exchanges and Underdevelopment
Not all countries engage in trade in the same manner and with equal opportunities. Producers in the South have to sell their goods in Northern markets, unable to exert any influence on prices. Not everyone gets the same benefit from trade.
The Unequal Exchange: Core and Periphery
Because of the unequal distribution in quantity and quality of means of production, different world regions have specialized in the production of certain products at a given level of technology.
North America, Japan, and the EU have high-quality resources and control the world market. This is referred to as the core. Africa, on the other hand, has no control over the world market and its means of production are of low quality. This is referred to as the periphery.
The business relationship established between the core and the periphery is called unequal exchange. The core countries control market prices, while the periphery is subject to them.
Core:
- High-value functions
- Decision-making and organization
- Innovation and technology
- Advanced services
- Growth activities
- High capital investment
- High levels of income and employment
- Economic articulation
- Self-directed development
Periphery:
- Subsidiary features
- Production of low value goods
- Natural resource extraction
- Simple services
- Traditional activities
- Low capital investment
- High underemployment and unemployment
- Internal disruption
- External dependency
Core Countries:
- Rich, highly industrialized: The U.S., Canada, Japan, Australia, New Zealand, and the EU.
- Control 90% of industrial production
- Technologically advanced
Peripheral Countries:
- Poor economy
- Population mostly dependent on the primary sector
- Underdeveloped health, education, housing, and food sectors
- Examples: South America, Central America, Africa, Asia
Semi-peripheral Countries:
- Coexistence of developed and underdeveloped areas
- Oil exporters and semi-industrialized nations
- Dual economy
External Debt
External debt refers to the money that Southern countries owe to Northern countries. This money, which was supposed to have fostered development in these countries, has instead served to maintain their dependence and hinder their progress.
IMF (International Monetary Fund):
- Funded by its member states
- States contribute proportionally to their wealth, determining their voting rights
- The USA, UK, Germany, France, and Japan can veto decisions made by the board
World Bank:
- Provides loans to developing countries to promote economic growth
- Grants the IMF the power to intervene in the economies of countries by imposing measures
Unseen Flows
The current global system moves many products that are not physical but have great economic importance. These are capital and information, which are exchanged through so-called invisible flows.
The US Dollar: The Most Commonly Used Unit of Exchange
The US dollar was established as the world’s reference currency for setting the value of other currencies (dollar standard) at the Bretton Woods Conference (USA) in 1944. During World War II, leaders of major world powers agreed to organize the international monetary system, leading to the creation of the IMF (International Monetary Fund) and the International Bank for Reconstruction and Development, better known as the World Bank (WB).
Investing Abroad
Most capital flows are investments made by individuals or companies in countries other than their own. Japan, the USA, and Germany are major exporters of foreign-invested capital, often for speculation rather than production.
Flow of Information and Technological Innovations
All activities related to capital flows, such as foreign investment, foreign exchange trading, and electronic payments, would not be possible without another unseen flow: information.
Information is crucial for:
- Companies deciding when to buy or sell a product
- Monitoring the status of factories located across the world
- Knowing the cost of goods in dollars
Since the invention of the telegraph in the 19th century, communication systems have continued to evolve. The 19th and 20th centuries saw the emergence of various means of communication, allowing for faster information exchange.
Means of communication include:
- Telegraph
- Telephone
- Radio
- Television
- Fax
- Mobile telephony
- Satellite television
- Internet
- Fiber-optic systems
Internet
The speed of information flow facilitated by the internet opens up new business opportunities and provides professionals with access to remote information sources, increasing efficiency and productivity.