"China, unequal exchange, and the present world-historic juncture."

Let me begin by framing our current moment. We live in a capitalist world economy. Production is controlled overwhelmingly by capital (the major financial firms, large corporations, and the 1% who own the majority of investible assets). And for capital, the purpose of production is not to meet human needs or to achieve social progress. The purpose is to maximize and accumulate profit. That is the overriding objective.

Now, to sustain a process of perpetual accumulation, capital must obtain an ever-rising quantity of inputs, and at the lowest possible price: cheap labour and cheap nature. The problem is that this entails very severe contradictions. During the rise of capitalism in the West, they discovered that if you intensify the exploitation of your domestic working classes, you will eventually face a revolution. And if you intensify the exploitation of your domestic resources, you undermine the ecological basis of production. Capital, therefore, requires some kind of “outside”, an external frontier, where it can exploit labour and nature with impunity, and where it can externalize social and ecological costs.

In other words, capitalism requires an imperial arrangement in order to stabilize accumulation. Imperialism is a structurally necessary feature of capitalism.

This arrangement was obvious, of course, during the colonial period. The industrialization of the West relied utterly on the appropriation of resources from the colonies, and the use of enslaved and indentured labour on a massive scale. To achieve this, colonizers systematically destroyed indigenous industries and reorganized the global South’s production away from servicing local human needs and development in order to service consumption and accumulation in the core. Indeed, this was the central objective of the colonial project.

Now, this arrangement was forcefully challenged during the 20th century. Radical anti-colonial movements arose across Asia, Africa and Latin America, overthrew their colonizers, and immediately set about pursuing strategies of economic sovereignty. Most of these movements were inspired in some way by socialist and communist ideas, which provided a blueprint for reclaiming national control over production and organizing it around human needs and development. They used land reform to reclaim territory from foreign firms; they nationalized key resources like oil and minerals; they used subsidies and protective tariffs to develop their national industries; and they used planning to build public services and to develop necessary industrial capacities.

All of this posed an extraordinary threat to the core states, as it was cutting off their access to cheap labour and resources. Sovereign development in the South meant that Southern countries were producing and consuming more for themselves, which in turn meant that those resources were no longer cheaply available for the core. This manifested as a rising supply price, destabilizing the imperial arrangement and making capital accumulation in the core very difficult to sustain.

So the governments of the core faced a fork in the road: they could either accept economic sovereignty in the South, abandon capital accumulation and shift to a post-capitalist economy, or they could try to maintain capital accumulation by somehow restoring the imperial arrangement. 

They opted hard for the latter. They did this by intervening militarily to destroy radical Southern governments, but also by using the IMF and World Bank to impose structural adjustment programmes across the global South. Structural adjustment forced governments to privatize public industries, cut public services, cut tariffs and subsidies, and cut protections on labour and the environment, reversing the policies of the anti-colonial era. 

Structural adjustment restored the imperial arrangement. It re-established the South as suppliers of cheap raw materials, but this time also as manufacturers of light industrial goods in subordinate positions within global supply chains dominated by Northern firms. 

Structural adjustment also depressed wages and prices in the global South, including through currency devaluation. Meanwhile, the North monopolized technology and capital goods and set high prices. 

This has very severe implications for international trade. All imports need to be paid for with exports. Systematic price inequalities mean that for every unit of embodied labour and resources that the South imports from the North, they have to export many more units to pay for it. This leads to a “hidden transfer of value” that flows from South to North. It’s hidden because there is a monetary balance of trade, but in reality, the South is sending a net transfer of real value to the North. This enriches the core, but it drains the periphery of resources that are necessary for development. Global South economists like Samir Amin and Roy Mauro Marini described this as “unequal exchange”. They argued that this dynamic enables a continuation of imperialist appropriation from the periphery even in the absence of colonial occupation.

Today, we can see this in the empirical data that my colleagues and I have been working with. For every unit of labour embodied in traded goods that the South imports from the North, they have to export at least 10 times more to pay for it.

This is not primarily because Southern labour is less productive. On the contrary, Southern labour in export industries tends to be highly productive. Rather, it is because Southern wages are cheaper compared to Northern wages.  Southern workers earn about 90% less than Northern workers for work of the same skill level in the same sector. In fact, the inequalities are so extreme that highly-skilled workers in the global South, such as engineers and scientists, are paid 68% less than low-skilled workers in the global North.

These are systematic inequalities, political artefacts of the capitalist world economy, and a major driver of unequal exchange. We also see similar systematic trade imbalances when it comes to embodied materials, land and energy. 

This unequal exchange leads to truly massive net transfers from South to North. In the final year of data, we see the following:

1. A net South-North flow of 12 billion tons of embodied materials, and 21 Exajoules of embodied energy. According to recent research, this quantity of materials and energy would be enough to provide infrastructure and supplies to provision decent living standards – universal healthcare, education, modern housing, sanitation, electricity, heating/cooling, induction stoves, refrigerators, freezers, washing machines, public transit, computers, and mobile phones – for the entire population of the global South, but instead it is siphoned away for consumption and accumulation in the core.
2. A net flow of 820 million hectares of embodied land. This is twice the size of India. This land could be used to provide nutritious food for up to 6 billion people, but instead it is used to produce things like sugar for Coca-Cola and beef for McDonald's, consumed in the North.
3. A net flow of 826 billion hours of embodied labour. That’s more than the total annual labour rendered by the entire workforce of the US and European Union combined. That labour could be used to staff hospitals and schools in the global South, and produce food and goods for local needs, but instead it is used to churn out tech gadgets and fast fashion for Northern corporations.

These results reveal that the high levels of consumption and growth in the core rely heavily on net appropriation from the South, today just as much as during the colonial era.  In the case of materials and labour, around half of the total consumption in the core is net-appropriated from the South.

It also means that while the North benefits from the extra consumption, the social and ecological costs are effectively externalized to the global South. That’s where the damage happens — not primarily in England or in Finland but in the Congo, in Indonesia, in Brazil.

Furthermore, the data on unequal exchange helps us understand the persistence of inequality between the core and periphery in the world economy. The mainstream development narrative holds that, if given enough time, the South will gradually “catch-up” to the global North. But it’s not happening; the income gap is getting bigger every year.  And the reason is because that catch-up development cannot happen within a system that is predicated on imperialist appropriation and net South-North flows. 

Finally, the data help us understand the persistence of mass poverty and underdevelopment in the global South.  The South is impoverished not because it is somehow “naturally poor”, but because its income is compressed and its productive capacities are drained to support development in the core. 

Unfortunately, unequal exchange also affects China. China has suffered a substantial net drain of materials, energy and labour to the core, although it has recently become a net-importer of land. Drain from China comprises about 20% of the North’s total net appropriation from the global South. 

However, China’s exchange ratio with the core has improved over time. During the 1990s, the exchange ratio was on average 34 to 1.  In other words, for every unit of embodied labour, materials, land and energy that China imported from the core, they had to export 34 units to pay for it.  As of 2015, the ratio had declined to 4 to 1.

This improvement has occurred mostly because China has experienced an increase in its wages and prices. These are positive changes for China – and specifically for Chinese workers – but they pose a very severe problem for Western capital.  Higher prices in China reduce the core’s ability to appropriate value, and place a constraint on Northern profits.  This is one of the reasons that the core states are now trying so hard to push wages in China back down and restore their access to cheap labour. And of course this is what Trump is trying to do with his tarrifs: he wants to force countries to concede by cutting export prices.

So, what is to be done?  The fundamental point is that Southern governments need to find ways to escape the imperial arrangement.  They need to achieve the second stage of decolonization: reclaim control over their national productive capacities, and reorganize them around meeting human needs and achieving national development.  

Remember: the South is not poor.  It is rich.  They are endowed with vast tracts of fertile land, abundant labour, extraordinary resources and productive power.  The problem is that they do not have sovereign control over these capacities. So, how can we achieve this?  First, do everything possible to reduce dependence on imports from the core in order to reduce exposure to drain through unequal exchange. Also, implement an industrial policy to develop sovereign industrial capacity. And deploy public finance and credit policy to mobilize labour and production for national development, rather than for foreign capital. 

China shows how this can be done. However, China can still further improve its position. China currently suffers a net-drain to the core of 100 billion hours of labour per year. This can be resolved by reducing unnecessary imports from the core (such as luxury goods, and goods that can be substituted with domestic production), therefore reducing the pressure for exports, and thus retain billions of hours of labour power that can be redirected toward things like social care, ecological regeneration, and human development.

China can also play an important role in helping the rest of the global South by providing them with an alternative source for finance, technologies and capital goods, thus enabling them to reduce their import dependencies on the core and develop their own industrial base.

By way of conclusion, let me say this. We are at a juncture in history. The existing arrangement is not working for the vast majority of humanity. The capitalist world-system cannot deliver meaningful development in the periphery. This system can and must be overcome. The Southern struggle for liberation is the true agent of world-historical transformation, and this is the generation that must bring it about.