2. THE THEORY OF UNEQUAL EXCHANGE.

A Fundamental Contribution

And so we see that specialization may be unequal. In what cir­cumstances does international exchange also become unequal? It is to Arghiri Emmanuel, the author of Unequal Exchange, that we owe the first general formulation of the problem, which I shall recapitulate here, adding some points of my own.

The hypothesis of a capitalist mode of production implies mobility of labor (equalization of wages between one branch of capitalist economy and another, and between one country and another) and of capital (equalization of the rate of profit). This abstract hypothesis provides the frame within which both Ricardo

and Marx reason when they study the capitalist mode of production. Marx refrains from tackling the question of international exchanges, since it has no special significance within this problematic. He is content to make a few passing observations on the possible conse­quences ofimperfect mobility of labor or of capital, while empha­sizing the analogy between this problem and that of the effects of a similar imperfection inside the nation.

Ricardo does deal with international trade, though in an am­biguous way. As an empiricist, he notes the relative immobility of labor and capital. This fact is not in itself questionable, at any rate for the period when Ricardo was writing — just as there is no question that any socioeconomic formation of capitalism at the center can be reduced to a pure capitalist mode of production, that the development of capitalism at the center is unevenly advanced in different countries, and that, consequently, organic compo­sitions, productivities of labor, and values of labor power are not identical between one country and another. But Ricardo had no right to invoke in the same argument both these facts, which belong to the plane of concrete social formations, and the assump­tion that provides the framework of his thinking, namely, the capitalist mode of production in its pure state.

If capital is mobile, and if we assume identical wages (equiva- ∣ lent to subsistence), exchange takes place only in the event that ∣ productivities are different. This can happen only through one or ∖, other of these two causes: either (1) different “natural” potential­ities (with the same amount of labor, capital, and land it is possible to produce more wheat in Portugal than in England, owing to the climate); or (2) different organic compositions, reflecting unevenness in the development of capitalism. In the latter case, however, wages are not equal, because “there enters into the determination of the value of labor power a historical and moral element” (ρ. 150).

If the two factors, labor and capital, were perfectly mobile, there would be no trade (as Heckscher has shown). Emmanuel shows (p. xiii) that specialization represents only a relative optimum: ρ “The absolute optimum would be, not for Portugal to specialize in wine and England in cloth, but for the English to move to JPortugal with their capital in order to produce both wine and ^! cloth.”

One can observe, then, two forms of international exchange in which the products are not exchanged at their value.

A = the less advanced country (c∕v — 1)

B ~ the more advanced country, (c∕v — 2.3) Rate of surplus value = 100 percent Average rate of profit: 17/43 = 40 percent

Emmanuel says (ρ. 164) that in this case, although exchange does not ensure the same quantity of products for an hour of total labor, it is nevertheless not unequal because “unequal” exchanges of this order are a feature of internal relations within the nation: “prices of production... are an element that is immanent in the competitive system.”

And yet exchange is unequal, all the same, and this inequality reflects the inequality in productivity. For it is important to note that the two equations written here, which describe the conditions of production of one and the same product with different tech­niques — advanced in B, backward in A — are equations in terms of value: in,hours of labor of A and B respectively, considered in isolation. In terms of use-values, the quantity of the product can not be fhe same in A as in H, tor the level of the pτξglιιcfive forces is higher in B. With 30 hours of total labor (direct andj indirect), equipped as this is in B, we get, for instance, 90 physical units of the product, whereas with the same number of ho^urs of total labor equipped as it is in A we get only a smaller amount? say, 60 units. If A and B are integrated in the same world market, the product can have only one price, the price set¹ by—Llie more advanced country.

As Charles Bettelheim has pointed out, exchange is, in fact, unequal in this case, mainly because the productivities are unequal (this inequality being connected with different organic compositions) and, secondarily, because the different organic compositions deter­mine, through the working of the equalization of the rate of profit, prices of production that differ from values in isolation. It must be added that the problem is made still more complex by the rates of surplus value, which are necessarily different in A and B (in orderto ensure an equivalent real reward of labor in A and B).

In reality, however, Emmanuel’s argument is based on a different case, in which the organic compositions of the products exchanged are similar. Let us assume that production techniques are at the same level of development (same organic composition), and, at the beginning of our argument, that wages are the same (same rate of surplus value). Exchange is then strictly equal. If now, for one reason or another, while production techniques remain un­changed, wages in A are only one-fifth what they are in B, we shall have the following situation:

A and B produce the same product (e.g., oil) with the same (up- to-date) techniques, and sell this product on the world market.

jl The greater rate of surplus value in A raises the average rate. ι∣of profit of A and B, taken together, from 14 to 20 percent. The

tow-wage country (A) receives in international exchange, for.an equal quantity of labor (direct and indirect) of the same pro­ductivity, less than its partner B (exactly 76 percent). Emmanuel describes this kind of exchange as really unequal exchange, as he shows that the difference in rates of profit between one country and another that have to be allowed in order to make up for the inverse difference in wages would need to be very great. In the example given above, for exchange to be equal, with wages in A only one-fifth of wages in B, the rate of profit in A would have to be 26 percent, as against 14 percent in B.

Now, this second case does actually correspond to the situation as it exists in reality. For the exports of the Third World are not, in the main,, made, up of agricultural products coming from backward sectors with low productivity. Out of an overall total of exports from the underdeveloped countries of the order of $35 billion (in 1966), the ultra-modern capitalist sector (oil, mining, and primary processing of minerals, modern plantations — like those of United Fruit in Central America, or of Unilever in Africa and Malaya) provides at least three-quarters, or $26 billion. If these products were provided by the advanced countries, with the same techniques — and so the same productivity — the average rate of profit being around 15 percent on capital installed, and the capital employed representing one-seventh of this (replaced after five to ten years, seven being the average), and with the rate of surplus value 100 percent (which therefore corresponds to a capital-output ratio of the order of 3.5) — their value would be at least $34 billion.

As regards the other exports of the Third World, provided by the backward sectors, with low productivity (agricultural produce supplied by peasantries of the traditional type), is the situation less clear? Here the differences in the reward of labor (the term “wages” is out of place in this context) are accompanied by a lower productivity. How much lower? It is all the harder to say because the products involved are, as a rule, not comparable: tea, coffee, cocoa are produced only in the periphery. It can be safely suggested, however, that rewards are proportionately much lower in the periphery than are productivities. An African peasant obtains, for example, in return for 100 days of very hard work every year, a supply of imported manufactured goods the value of which amounts to barely twenty days of simple labor of a European skilled worker. If this peasant produced with modern European techniques (and we know, concretely, what this means, from the modernization projects drawn up by agronomists), he would work 300 days a year and obtain a product about six times as large in quantity: his productivity per hour would at best be doubled. Exchange is thus very unequal in this case: the value of these products, if the reward of labor were proportionate to its produc- tivity, would not be of the order of $9 billion, (which is what it is) but 2.5 times as much, that is, around $23 billion. The transfer of value from the periphery to the center is thus of the order of $14 billion. It is not surprising that this transfer is here propor­tionately much greater than that which arises from the products of modern industry. In the case of the latter, the content of imported capital goods is much greater, whereas this is negligible where the products of traditional agriculture are concerned, in which direct labor represents almost the whole of the value of the product.

Altogether, then, if exports from the periphery amount to about $35 billion, their value, if the rewards of labor were equivalent to what they are at the center, with the same productivity, would be about $57 billion. The hidden transfers of value from the periphery to the center, due to the mechanism of unequal exchange, are of the order of $22 billion, that is to say, twice the amount of the “aid*' and the private capital that the periphery receives. One is certainly justified in talking of the plundering of the Third World.

The imports that the advanced countries of the West receive from the Third World represent, it is true, only 2 or 3 percent of ∣their gross internal product, which was about $1.2 billion in 1966. But these exports from the underdeveloped countries represent 20 percent of their product, which was about $150 billion. The hidden transfer of value due to unequal exchange is thus of the order of 15 percent of this product, which is- far from being negligible in relative terms, and is alone sufficient to account for the blocking of the growth of the periphery, and the increasing gap between it and the center. The contribution that this transfer makes is not negligible, either, when seen from the standpoint of the center, which benefits from it, since it comes to about 1.5 percent of the center’s product. But this transfer is especially important for the giant firms that are its direct beneficiaries.

The thesis of unequal exchange has called forth three types of criticism. BetteIheim, while remaining within Emmanuel’s frame­work of reasoning, nevertheless refrains from drawing the logical conclusion from the extension of Marx’s models (of the trans­formation of values into prices of production) into the field of international relations and from his own assumption that the rate

Is an Economic Theoty of International Exchange Possible?

An economic theory must serve to analyze appearances, that is, to study the mechanisms whereby the capitalist mode of pro­duction functions. Marx, by revealing the essence of the capitalist mode of production, transcended economistic “science,” subjecting it to a fundamental critique, and showed what must be the foundations of the only possible science, that of society.

It was because they remained economistic, and therefore alienated, in their way of thinking that Adam Smith and Ricardo sought to work out an economic theory of international exchange. In order to do this they had to assume the existence of a pure capitalist mode of production for both partners in exchange. But Smith already perceived the function of external trade that corresponds to the beginnings of capitalism (“the generation of a surplus restricted by the narrowness of the internal agricultural market”), just as Ricardo perceived its function for his time: “the generation of a surplus hindered by the diminishing returns of agriculture.” Marx, as Christian Palloix has pointed out, synthesized Smith and Ricardo. Ifhe went no further in this field, this was probably not because he failed to perceive the problem but, on the contrary, because he did perceive it. Since the theory of relations between different social formations cannot be an economistic one, interna­tional relations, which belong precisely to this context, cannot give rise to an “economic theory.” What Marx says about these relations is in accordance with the questions that arose in his own time. Transfer of surplus from the periphery to the center at that time could not, indeed, be very substantial: the periphery was in those days exporting very little in absolute quantities, and, besides, rewards at the center were low — not very different, given equal pro­ductivity, from those at the periphery. It is not the same today, however, when 75 percent of exports from the periphery come from modern capitalist enterprises, and when the rates at which labor is rewarded at the center and at the periphery have diverged considerably.

The neoclassical form of the economistic theory of exchange, based on the subjective theory of value, represents, here as else­where, a step backward in comparison with Ricardo’s economism — for it can no longer be anything but tautological, since it has lost sight of the production relations. The real question is that of discovering what are the actual functions of international trade, as it has been and as it is, arid how these functions have been fulfilled.

It is not certain that Marxists since Marx himself have always seen what the problem is. As an example, here is an argument used by Bukharin (p. 40):

Corresponding to the movement of labour-power as one of the poles of capitalist relations is the movement of capital as another pole. As in the former case the movement is regulated by the law of equalisation of the wage scale, so in the latter case there takes place an inter­national equalisation of the rates of profit.

Bukharin does not see that the world capitalist system is not homogeneous; that it cannot be seen as the capitalist mode of pro­duction on a world scale.

It was Rosa Luxemburg’s great merit to have realized that relations between the center and the periphery depend on the mechanisms of primitive accumulation, because what is involved is not the economic mechanisms characteristic of the internal func­tioning of the capitalist mode of production but relations between this mode of production and formations that are different from it. Preobrazhensky wrote, in the same spirit, about these exchanges, that they are “the exchange of a smaller quantity of labor by one systerii of economy or one country for a larger quantity of labor furnished by another system of economy or another country’’ (p. 91). When that happens, unequal exchange is possible.

The dominant economistic theory, inspired by the Soviet Union, marks a step backward. G6ncδl, Pavel, and Horovitz claim, according to Palloix, that “the value of the products supplied by the under­developed countries is determined by that of the advanced countries, sector by sector throughout production; and this value is practically zero, because the advanced countries would be able to produce for nothing a product that specialization has nevertheless assigned for production to the underdeveloped countries” (pp. 257-58). This argument will not stand up, for 75 percent of exports from the periphery come from modern enterprises with a very high productivity, and the rest — mainly exotic agricultural products — simply cannot be produced in the advanced countries. It is understandable that it should be a Romanian economist, Rachmuth, who has come out against this view; although, unfortunately, he invokes another economistic theory, namely, Ricardo’s. International exchange based on comparative costs, he says, intensifies unevenness of development if “the advanced country specializes in activities that are susceptible to the biggest possible increase in productivity, whereas the less developed country is confined to specializing in the sectors in which increases in productivity are very limited.” This is only partly true, since the specialized production of the periphery involves modern products to a considerable degree. Once again, the economis­tic theory of comparative advantages fails to answer the question: why are the underdeveloped countries restricted to this or that kind of specialization — in other words, what are the functions.of inter­national exchange?

The economistic theory of comparative advantages, even in its scientific Ricardian version, has only a limited validity; it describes exchange conditions at a given moment, but it does not allow for preference for some specialization,. based on comparative productivities as these stand at a given moment, as against development, in other words, improvement in these productivities. It cannot account for the two essential facts that characterize the way world trade has developed in the setting of the capitalist system: (1) the development of trade between advanced countries that are of similar structure, and in which, therefore, the distribution Ofcomparative productivities is similar — a development that seems to be more rapid than that of trade between advanced countries and underdeveloped ones, although the distribution of comparative productivities is more diverse in the latter case; and (2) the successive and varying forms assumed by specialization in the periphery, including its present forms, tinder which the periphery supplies raw materials that are mostly produced by modern capitalist enterprises with high productivity.

To explain these two phenomena, it is necessary to take note, first, of the theory of capitalism’s inherent tendency to expand markets, and, second, of the theory of the domination of the periphery by the center.

Analysis of exchange between advanced countries and under­developed ones leads us to observe that exchange is unequal

market in Rhodesia, Arrighi criticizes W. A. Lewis’s theory of the dynamic of the supply of and demand for labor in the underdeveloped economies. Lewis postulates a potential surplus of labor power in the “traditional” sector (“concealed unemployment”), productivity being low in that sector — a surplus that is reduced as the “modern,” high-productivity sector develops. It is this surplus that makes it possible to reward labor at a low rate in the modern sector, which is said to have an unlimited supply of labor power, at its disposal. Arrighi shows that, in fact, the opposite has occurred in Rhodesia: the superabundance of the labor supply in the modern sector is increasing, being greater in the 1950s and 1960s than it had been in the early days of colonization, between 1896 and 1919 — because the superabundance is organized by the economic policy of the state and of capital (especially through the “reservations” policy). It is

Other Formulations and Aspects of Unequal Exchange

Formulation of the theory of unequal exchange in terms of the transformation of values into prices of production is essential in that it enables us to give the concept a scientific content, and thereby to define the conditions governing it, but it is not “practical.” Indeed, the trans­formation of values into prices, in accordance with Marx’s method, does not allow for the fact that the constituent elements of ∞nstant capital, the inputs, are themselves commodities, incorporated in the production process and for this purpose reckoned not at their values but at their prices. The same is true of the commodities consumed by the pro­ducers, which constitute the real content of wages. In order to take this general interdependence into consideration we need to stay at the level ofimmediate appearances, of prices, as Sraffa does. He arrives afresh, on the basis of an analysis carried out in positivistic empirical terms, at the essential conclusions that were drawn by Marx, namely, that the system of relative prices and the average rate of profit are determined by the level of real wages. This proof demolishes the entire edifice of subjectivist economics, depriving the “economic rationality’’ based upon subjective value of its claims to absolute validity, and reducing it to rational choice within a given system chiefly defined by a social relation that determines the value of labor power. What is of interest here is that Sraffa’s system can be used to measure the degree of unequal exchange, as Oscar Braun has shown.

The latter assumes that two commodities, iron and wheat, are produced in a certain economy with the following technologies:

13 tons of iron + 2 tons of wheat + 10 man-years = 27 T of iron 10 tons of iron ÷ 4 tons of wheat + 10 man-years ~ 12 T of wheat

If the rate of profit r is uniform, we have:

and

in which p₁ represents the price of a ton of iron and p₂ that of a ton of wheat, and w the wages paid per man-year.

Let us assume that the iron is produced by country A, an advanced country, in which wages are w₁, whereas the wheat is produced by country B, a dominated country, in which wages are w₂, less than w₁. If wages were the same in A and B — equal, say, to 0.56 — then the rate of profit would be 0.20 and the price of wheat 2.44, the price of iron being 1. If, however, wages in A were 0.70 and in B 0.12 (or 5.8 times less), then, with the same average rate of profit of 0.20, the price of wheat would fall to 1.83. A

worsening of the terms of trade for country B (exporting wheat and importing iron) by 25 percent would imply, with an unaltered average rate of profit, a radical transformation in the respective wage levels: in A wages would increase by 25 percent, while in B they would fall to 17 percent of what they had been. Conversely, if wages were the same in A and B, with equal productivity (as is the case, since B produces wheat in accordance with the technique previously used in A), the international price of wheat would have been different from what it is when wages are lower in B. Which is cause and which is effect: the international prices, or the inequality in wage levels? The question is pointless. Inequality in wages, due to historical reasons (the difference between social formations), consti­tutes the basis of a specialization and a system of international prices that perpetuate this inequality.

Conventional economic theory remains fundamentally “micro- economic.” In international relations it refuses to see anything but relations between individuals — the buyers and sellers. And yet the mercantilist experience contradicts this view of the matter: down to the belated victory of free trade, international economic relations were strictly subordinate to the policies of governments. The history of the chartered companies that operated within the framework of a monopoly of foreign trade shows this. Great Britain did not hesitate to employ political means in order to ruin possible competitors, as in the case of Indian industry. The doctrine of free trade has only ever been preached by the Stronger, after they have established a dominant position by other means. A study of tariff policies leads one to consider the monopolistic character Ofinternational relations. According to the theory of comparative advantages, if a state sets up a protective tariff, its trading partners have no interest in replying in kind. For the newly established tariff is a “fact” that alters the distribution of relative prices inside the country that has established it. Other countries will continue to “maximize their satisfactions” by practicing free trade with this country and looking upon its internal price system — allowing for the customs duties — as a “datum.” Reasons that might justify a reply in kind are excluded in advance from the theoretical assumption. These reasons are twofold: on the one hand, the purpose of the tariff is to create a monopoly, which improves the terms of trade, and, on the other, by protecting itself in this way, the country that does so makes it possible for certain industries to come into being behind the tariff barrier. In this manner it creates an advantage for itself in the future. The other countries ought, then, to do the same. Advocates of free trade answered by claiming that the reply-in-kind made by a country that increases its tariffs as the result of a similar action taken by its trading partners is based upon a miscalculation. On the one hand, to be sure, the country’s terms of trade are improved; but, on the other, a nonoptimal distribution of resources is brought about. Taussig and Edgeworth affirmed, though without proving this, that the disadvantage so incurred was greater than the advantage gained. Actually, this was a pseudo-problem, for the theory of “optimal distribution of resources” is based on that of “factorial endowment,” which is meaningless in the context of a dynamic view.

One trend in contemporary econometrics has proposed to “measure” the unevenness of monopoly in international relations by looking at states as the units in world trade. This trend measures the “comparative intensity” of the exports and imports of states, price elasticities and income from external trade, and elasticities of substitution. However, the contribution made by their work is of only secondary importance for Understandingthe relations between advanced countries and under­developed ones. Nations'are seen as oligopolists of unequal strength. While this is true, theoretically, for relations between advanced countries, it is not the same for relations between advanced countries and underdeveloped ones. For the oligopolistic conception of inter­national relations presupposes economic independence of the buyers and sellers. In relations between the advanced countries and the rest, however, the complementary character of the economies con­cerned, created by the mechanisms of specialization in the context of domination by the more highly developed economy, which adjusts the structure of the dependent country to suit its own needs, rules out this assumption of mutual independence. External analysis of bilateral monopolies or oligopolies will certainly be obliged one day to leave the domain of “games theory” in order to analyze social for­mations and the political relations between the different dominant classes within these social formations.

Instead of confining oneself to description of the phenomenon of inequality by carrying out econometric measurements of its outward manifestations (elasticities), what is needed is to analyze the place held by the monopolies in world trade. Today the greater part of the raw materials that are exported by the underdeveloped countries are controlled by the monopolies, either directly, at the stage of production, or else at the stage of world trade. The amount of profit realized by a monopoly is proportionate to the strength of this monopoly in relation to the producers it controls, and this strength is undoubtedly greater in the underdeveloped countries. To what extent will it be possible to effect a transfer of value? A priori, there is no means of determining the answer, for political considerations may not be without influence on the firm’s attitude in the matter. Broadly, however, it is possible to say that this transfer can be effected up to the point at which the price of the product no longer covers more than the price of local production services (wages and rents), paid at the minimum rate, that is, so as to ensure subsistence only involve danger for them: besides the political difficulties it may engender, it cannot free the underdeveloped countries from the need to employ foreign technicians and foreign capital, which in such circumstances may require even higher remuneration.

Relative prices and comparative real rewards of labor do not constitute the only elements that enter into the theory of unequal exchange that we need, although they are its essential components. In the system of actual prices on the basis of which economic decisions are made, a special element is constituted by the cost of access to natural resources. We have seen that economic calculation based on the system of actual prices possesses no particular rationality, since some of these natural resources are subject to exclusive appro­priation by a certain class, which introduces a factor of inequality, while others are free to all. Furthermore, these resources are dis­tributed among different nations, and the conditions governing their appropriation are not everywhere the same.

In general, the “fair” international price of a product that necessitates consumption of a natural resource should include an element of rent, added to the equal reward of labor and the average profit, adequate to make possible the reconstitution of this resource. If what is involved is a resource that is self-renewing, like land, air, ιor water, then the price must make possible the satisfactory ^maintenance of this perm'anent resource. If what is involved is a Iresource that is liable to exhaustion, like hydrocarbons or minerals, Ithen the price must make possible the development of a replacement '‘activity of equal value to the nation.

This is rarely the case, however. The capitalist system makes use of the precapitalist forms of appropriation that are current in the countries of the periphery in order not to pay for the upkeep of the land. Systematic destruction of soils is a major factor of long-term Impoverishmentfor the dependent economies. This destruction is to ■the advantage of the dominant economies, through prices that are lower than would be those of possible substitute products.

Technological dependence is another aspect of unequal exchange, the importance of which will doubtless increase. UNCTAD (the United Nations Committee for Trade and Development) has tried to work out the total amount of the transfers that the underdeveloped countries make to the advanced ones under this heading: royalties and payments for the use of patents, profits paid as a result of shares accorded to foreign capital in exchange for good will and know-how, super-prices paid by enterprises when they buy spare parts, fees for after-sales services, and so on. The minimum estimate, regarded as very much an underestimate by UNCTAD itself, was SI.5 billion in 1968. These transfers are increasing at the rate of.20 percent per year, and so in 1980 will amount to $9 billion or 20 percent, of the probable exports of the underdeveloped world at the end of the present decade.

Here, too, we see a monopoly price — the price of what is certainly the most absolute of monopolies, that of technique. So long as production techniques were relatively simple, domination necessi­tated direct control of the means of production, that is, in practice,