Throughout the development of world mercantilism and then capitalism promoted by imperialism and colonialism, international political economic theories were established and shaped in an Eurocentric image that led to the split and cracking down of the borderless world into the core (developed) and periphery (developing and underdeveloped) hemispheres or states and regions. Here, three of such theoretical and corelated subjects will chronologically be demonstrated in three different sections in the context of empire. First section concerns itself with Ricardian comparative advantage trade theory which in its theoretical perspective will bring about profound international trade amongst the states that will promise mutual benefits to all existing nations. In the second section, the paper illustrates unequal exchange as a byproduct of the implementation of comparative advantage for the fact that such trade mechanism is not applicable in reality and leads to relative advantage and then absolute advantage for one trading partner and absolute disadvantages for another. Thus, the trade deficit country loses its capital and industry while the other gains all in a zero-sum scenario. The last section connects the former concepts into one conclusion that the metropoles-satellites world structure originated by the imperial and colonial powers leaves the peripheral/semi-peripheral regions in severe indebtedness and sociopolitical turbulences for decades if not centuries as prices for their independence from and dependency on the core states.
I. Comparative Advantage
In theory, David Ricardo assumes that in a reality where two countries (Britain and Portugal), each having the exact two products (Wine and Cloth), both sides can make profift and increase production through free trade and specialization in production of one product by one country rather than producing both products although one of the trading partner (Portugal) can more sufficiently produce the two products relatively than the other (Britain) in the first hand (Ricardo 2001 (1871): 85, 90 & 91). Nevertheless, the theory has fundamental empirical flaws regarding to its fictional scenario by narrowing down all the other factors and denominators in production and trade into laboure and capital in two countries with only two products. Additionally, there lies another major deficiency when it is implemented (Subasat 2002: 258-63). When such free trade happens, Portugal will have trade surplus while its products still have relative price advantage, and Britain will have trade deficit because its products still have relative price disadvantage. The system eventually collapses before specialization takes place whilst there will not be enough capital in Britain to deal with the price mechanism, and Britain will return to protectionist policies to save its industries and economy from bankruptcy (Subasat 2002: 264-69).
The satire and deception are exposed when historical and empirical studies show that by the time Ricardo published his book on the comparative advantage, in actuality, Portugal had been relatively producing wine and cloth more efficiently, and Britain had trade deficit with Portugal in term of wine. Yet, both sides made three successive commercial agreements between (1700s-1800s) known as the Methuen Treaties in which both sides agreed to “drastically” remove tariff barriers on both products to lubricate trade and improve their economies. (Watson 2017: 261-64). By the time Ricardo’s comparative advantage theory was on its way, promoted by Britain, to become universally perceived as natural laws of international political economy and commerce, as the results of the treaties, not only tariffs on Portuguese wine imported to Britain had been doubled by 1830s, but wine production and its trade were monopolized by English mercantilists and capitalists within Portugal. Furthermore, Portugal started to have trade deficit in term of cloth against Britain as well as current account deficit which led to over exploitation of slaves/labors and gold/silver in Latin America particularly the Brazilian colonies to compensate its deficit. Thereafetr, the weakening position of Portugal allowed Britain to have dominance even on Brazilian colonies and consequently compensate the wine trade deficit with Portugal leaving Portugal without sufficient capital (gold) power to fight back the everlasting trade and current account deficits (Watson 2017: 266-70). In short, the praxis of comparative advantage theory made Portugal, one of the strongest colonial powers, to degrade into a European periphery, and was one of the main reasons for Britain to rise as the hegemonic imperial state by the end of nineteenth century.
II. Unequal Exchange
While comparative advantage in its imperial mode of commerce is to deceive other colonial powers, the concept correlates with unequal exchange theory which can be well demonstrated through dependency theory. History tells us that until 16th century, the Indian subcontinent, mostly ruled by the Moghuls and Bengal as its metropole, was the second richest and most powerful empire after Ming China, but the Britain’s systematic over-exploitation and conquest of the subcontinent through East India Company ‘an empire within the British empire’ from 1500s-1800s left Bengal as the poorest region on the planet. Simply the forceful contractual agreement between the two nations were that raw materials and manpower in India being exchanged for manufactured goods ‘made from the Indian raw materials’ as well as ‘civilizing’ Indians in accordance to the European version of progression (Dalrymple 2015: 4-7). Such transnational or multinational corporations are still apparatuses of the Global North to over-exploit the riches of the Global South through the unequal exchange model (Dalrymple 2015: 8).
Andre Gunder Frank, the founding figure of dependency theory, explains the unequal exchange theory through the lenses of dependency theory in which the European colonial and imperial powers had established metropole-satellites world structure along with the development of world mercantilism and capitalism that reinforces the dependency of the peripheries (developing and underdeveloped regions) on the core (developed and most developed sates). In such hierarchical structure, resources and manpower in the satellites are over-exploited and traded with manufactured goods and capital (in terms of loans and aids) from the core. While the core is the most developed, the peripheries cannot compete with the core regarding to free trade, technology, capital, and industrialization; consequently, it leads to commercialization of the satellites economies in the advantage of the metropoles. Moreover, the most interacted peripheral regions with the metropoles in the past, are actually the most underdeveloped regions in the world today, and Bengal is an accurate example (Frank 1970 (1966): 4-8, 13 & 15).
The forceful and toxic ‘liberal’ global political economy restricts the development of developing and underdeveloped countries and increases the dependency of these regions on the external loans and investments originating from the developed counties to fight back the constant capital outflow as well as super-exploitation of domestic manpower that shrinks their economies to subsistence-based economy due to the unequal exchange model (Santos 1970: 231-32). Dos Santos, another leading radical dependentist, demonstrates the relation as follows: meanwhile the satellites cannot compete with the cores, more external debt is needed to buy machineries, but the capitalists in the cores are not willing to sell their outdated machineries; therefore, they reinvest them as capital in the peripheries. The outdated machineries cannot produce sufficiently as the up-to-date machineries in the core, thus the peripheries will not be able to find markets for their own products in the global “free” market, and they must be consumed domestically. The suppressed wages domestically creates more demands on foreign capital, and the cores provide more loans and foreign investment for the peripheries. But the empirical data in between 1946-67 shows that for every dollar had been invested in Brazil by the US, $2.7 left the country and in the late 1960s this ratio has doubled (Santos 1970: 233-34).
Until 1790, Haiti was the richest Americas’ colony and most crowded trading center, producing and exporting great quantities of sugar and coffee to the Western Europe (Phillips 2008: 2). In their quest for independence, the Haiti Republic was the second colonized territory after the US, and first slave populated colony to declare independence that followed by almost the intinction of its people, exhaustible indebtedness (ten times than its annual revenue at that time), and fatal blockades by the colonial and imperial powers. The forceful contractual agreement between Haiti and France (1825) that Haiti must pay for its independence as compensations for France’s losses in the colony, made Haiti to struggle socioeconomic and political instabilities which today it is one of the poorest and most unstable countries in the world. Furthermore, after few defaults on external debts and being refunded by the French creditors, Haiti could finally repay its independence debt by 1947 (Phillips 2008: 4-6). The intensity and continuity of colonial schemas even in the post-colonial era reemerge when in 2002, the Haitian Government intended to claim for compensation and unjust enrichment from France for its forceful and exaugurated independence debt ‘illegal’ agreement which devastated Haitian economy and ecology, the government was overthrown in 2004 in a coup supported by the US, Canada, and France (Phillips 2008: 7). History has yet more to tell on independence debts even within the very Europe itself. Greece independence wars supported by the Britain and western powers against Ottoman Empire and then Turkey, followed by independence debts funded by European powers in 1924 and 1897. Throughout two centuries, Greece has defaulted on external debts four times (1824-2000s), two of which were on debts and rescue packages borrowed to repay the initial borrowed independence debts that lasted until 1924 (REINHART & TREBESCH 2015: 315-19 & 321).
According to postcolonial studies, the development of world capitalism promoted by the colonial and imperial powers under the liberal and neoliberal doctrines such as comparative advantage formed and reformed metropole-satellites structure which led to the formation of comparative disadvantage and unequal exchange in the peripheries. The super-exploitation of manpower and resources along with capital outflow in such regions led to the ‘development of underdevelopment’. Independence movements against the core were paid by blood, tears, and independence debts funded by creditors in the core itself. Austere external debts result in defaults on external creditors which increases external interference that forces domestic political and economic restructuring and austerity measures to ever more exploitating and draining of domestic economy to payback external creditors (REINHART & TREBESCH 2015: 311 & 322). The very narrative was still implemented on the verge of European Sovereign Debt Crisis that the core states like Germany and France insisted on and enforced fiscal adjustment programs and austerity measures on the European peripheries, such as Greece, Portugal, Ireland, and Italy as the only way to provide rescue packages which again meant more over-exploitation of the domestic economies and impoverishment of their people to service external debts, plus interest rates in accordance to the debts’ maturities (Block-Lieb 2015: 516-18).
Bachelor of Arts in International Studies and Law at the American University of Iraq, Sulaimani
Studies Master’s Degree in Global Political Economy and Development at University of Kassel, Germany firstname.lastname@example.org
Phillips, Anthony (2008): Haiti, France, And The Independence Debt Of 1825. Institute For Justice And Democracy In Haiti.
Block-Lieb, S. (2015). Austerity, Debt Overhang, and the Design of International Standards on Sovereign, Corporate, and Consumer Debt Restructuring. Indiana Journal of Global Legal Studies, 22(2), 487-541. doi:10.2979/indjglolegstu.22.2.487
Dalrymple, W. (2015): The East India Company: The Original Corporate Raiders. The Guardian, 4(03).
Frank, Andre Gunder 1970 (1966): The Development of Underdevelopment, in: Rhodes, Robert (ed.): Imperialism and Underdevelopment. New York: Monthly Review Press, 4-17.
REINHART, C., & TREBESCH, C. (2015). The Pitfalls of External Dependence: Greece, 1829-2015. Brookings Papers on Economic Activity, 307-328. Retrieved June 22, 2020, from www.jstor.org/stable/43752176
Ricardo, David 2001 (1817/21): ‘On Foreign Trade’, in idem., On the Principles of Economy and Taxation, Kitchener, 85-103.
Santos, T. (1970). The Structure of Dependence. The American Economic Review, 60(2), 231-236. Retrieved June 22, 2020, from www.jstor.org/stable/1815811
Subasat, T. (2002). A Political Economy Critique of the Ricardian Comparative Advantage Theory. In Confronting 9-11, Ideologies of Race, and Eminent Economists (pp. 255-292). Emerald Group Publishing Limited.
Watson, M. (2017): Historicising Ricardo’s Comparative Advantage Theory, Challenging the Normative Foundations of Liberal International Political Economy. New Political Economy, 22(3), 257-272.
Frank, Andre Gunder (1994): Hegemony and Social Change. Mershon International Studies Review 38, no. 2, 361-76. Accessed June 7, 2020. doi:10.2307/222747.
Subasat, T. (2003). What Does the Heckscher-Ohlin Model Contribute to International Trade Theory? A Critical Assessment. Review of Radical Political Economics, 35(2), 148-165.
Wolf, C. (1990). Relative Advantage. Symbolic Interaction, 13(1), 37-61. doi:10.1525/si.19184.108.40.206