Unequal Exchange and Poverty in African Countries exporting Primary Commodities

Lecture held at the European Conference of People's Global Action (PGA), September 2, 2002

1st Part: The Civil War in Sudan and the Trading Mechanisms of Disparate Exchange

1. Introduction

In this second part of my lecture on disparate exchange and unequal exchange, I will invert my order of reasoning. Whereas in the first part dealing with the ongoing civil war in Sudan, I had primarily focused on the existence of the mechanism of disparate exchange, in this more general section of my lecture, dealing with the common problems of least developed countries (LDCs) in Africa, I will first focus on the issue of the trading mechanism of unequal exchange. My basic target, however, remains the same. Whereas proponents of globalization argue that the building of one integrated world market, in the capitalist manner as being done now, serves to enhance people's welfare throughout the world, - the experience of LDCs in Africa brings out the very opposite: namely that globalization here has contributed instead to increasing mass poverty, and even to the destruction of human lives. The combination of the two trading mechanisms of disparate and unequal exchange, as I will seek to demonstrate, has brought terrible results.

2. Participation of LDCs in the Process of Globalisation

An elementary question which should be settled at the outset is whether the category of (49) countries termed LDCs (Least Developed Countries), the majority of which are located in Africa, are really participating in the process of globalization right now. This issue has to be addressed because advocates of globalization often argue that the real problem with African LDcs is their lack of a sufficient integration in the world market and world economy. Hence, the persisting problems of impoverishment and undernourishment presumable can be solved through more instead of a lesser amount of integration into the world economy. This argument, as an important UNCTAD report published recently (2002) has brought out, cannot be defended if the degree of export dependence of LDCs is taken into account. True, the share which LDCs hold in total world trade is negligible in percentage terms. According to the mentioned UNCTAD-report the value of LDC's merchandise exports in the year 2000 amounted to $ 31.5 Billion and was equivalent to only 0.5 percent of world merchandise exports. 'The total merchandise exports of all LDcs was equivalent to about half those of Australia” (p.112). If looked at from the angle of their joint share in world trade, LDCs were indeed marginalized and apparently insignificant participants in world trade. Moreover, the share of LDCs in world exports of goods and services has been declining, i.e. by 47 percent between 1980 and 1999.

However, there is a different way one can look at the matter, namely by recording the extent to which goods produced by LDCs are exported. Here, UNCTAD has cited a striking figure, a figure which precisely brings out that there is a large average degree of export dependence in the case of Least Developed Countries (LDCs). According to UNCTAD, during 1997-1998, exports and imports of goods and services constituted an average 43 percent of the Gross Domestic Product (GDP) of LDCs. This means in fact that these countries are highly sensitive to changes in the level of world demand for exported commodities (due to a downturn in the business cycle eg.), and are much affected by a decline in the world price of the commodities they trade. Moreover, the vulnerability of the LDcs is further enhanced by the fact that one single type of commodity or a few items of trade often take the overwhelming share of the exports of individual LDCs. This again is illustrated by a chart incorporated in the UNCTAD's 2002 report on LDCs. In nine out of 49 cases, three leading export products occupied more than ninety percent of the total merchandise exports in 1997-1999 (p.109). In two main African countries affected by war, Angola and Congo, dependence on few export items was also large, i.e. 97.6 % and 79.6% respectively. Thus, looked at from the angle of their great vulnerability due to the dependence on the export of a few items, there is no reason to presume that LDCs are well served by greater integration into the world economy.

3. African LDCs Exporting Primary Products

- Evidence on Increasing Poverty

Now, what do UNCTAD figures tell us about the incidence of poverty in LDCs, and in particular about poverty in LDCs located in the African continent? First again according to UNCTAD the incidence of extreme poverty is increasing in the LDCs as a whole. In LDCs for which data are available, on average about 48 percent of the population were living on less than $ 1 a day during 1965-1969, compared with 50 percent during 1995-1999. This effectively means that the number of people living in conditions of extreme poverty has more than doubled over the last thirty years... (p.111). Further and these facts should be emphasized since they point at the interconnection between globalisation and immiseration among LDCs there is a close mutual association between the incidence of extreme poverty, and dependence on exports of primary commodities. Note these percentages: sixty-nine percent of the population in non-oil commodity exporting LDCs was living on less than $ 1 a day during 1997-1999. In mineral-exporting LDCs the proportion was over 80 percent (p.iv). Inspite of the presence of rich natural resources, the overwhelming majority of the people here were condemned to a life of misery.

Thirdly although you may get a bit tired from listening to an enumeration of statistical data I do want to add a few UNCTAD-figures on poverty in African LDCs, since my lecture is after all oriented towards globalization and the African continent. In the second half of the 1990s, for the group of African LDCs for which UNCTAD avails of data, 87 percent of the population was living on less than $ 2 per day, and the average consumption of these 87 percent was only 86 dollar cents a day. Sixty five percent of the population of African LDCs lived on less than $ 1 a day, the average being 59 dollar cents a day. 'These numbers suggest that the severity of the poverty problem in African LDCs has been hitherto underestimated' (p.iii). The figures cited so far, in a general manner can be used to support the critique of the ongoing process of globalization. They show that the problem is not merely one of increasing inequality, between a handful of people who have become multibillionaires in the 1990s and the billions of people whose incomes have remained pitifully low. No the figures tell us that whereas there is one super-Bill (Gates) at the one extreme pole we have many tens of millions of people, in particular in African LDCs exporting primary commodities, whose conditions of living have deteriorated under the regime of free trade and globalization. This is support to the severest criticists of the ongoing process of globalisation!

4. Unequal Exchange:

Enduring Problem in Particular for Africa

I will now initiate my discussion on unequal exchange, a topic to which I have briefly referred in the introduction to my discourse on the war in Sudan. Unequal exchange refers to the question of the changing terms of trade, between primary commodities traded by Southern countries on the one hand (in particular by LDCs today), - and commodities traded by Northern countries on the other. Whereas the problematic of protectionism e.g. in the form of Northern subsidies towards indigenous agriculture has been a target of much criticism by anti-globalists -, the issue of unequal exchange has been far less actively addressed by anti-globalists. This is not just deplorable. It is unjust precisely towards the people living in the poorest countries on earth. Here I will cite data from two reliable sources to show that the issue of unequal exchange today is as relevant for the analysis of underdevelopment, as it was in the era before the WTO had been created.

First there is a study by Henk Kox, executed under the Free University of Amsterdam, and published in 1990. The study was concerned with the trading position of Subsaharan countries producing primary commodities. The study recorded important trends for a major part of the 1980s. In 1987, primary commodity exports still were 'the largest single source of foreign exchange for the region' (p.11). Further, the international purchasing power of Subsaharan non-fuel commodity exports deteriorated sharply during the 1980s. In 1987, the net barter terms of trade were 30 percent below their 1980 level and 58 percent below their 1977 level (1977 was a peak year) (p.9-10). In calculating the financial loss for Subsaharan countries, Kox argued that Subsaharan exporters of non-fuel commodities since 1980 (i.e. over ten years) lost $ 7.5 Billion in consequence of falling terms of trade for their commodities. Again the UNCTAD study published in 2002 which both covers longer-term trends and offers data for the last five years, reconfirms that the issue of exploitation via unequal exchange is very relevant for Africa today. Thus, real commodity prices of LDC exports declined by over 30 percent between 1986 and 1999, which is a slower decrease than registered by Kox for the preceding 7 years, but a significant fall nevertheless (p.139). For non-oil exporting countries in Subsaharan Africa, the losses over 37 years (1970 1997) are said to have been larger (119%) than the regional GNP for 1997!

The above data sufficiently prove that it is wrong to ignore or belittle the problematic of unequal exchange. Whereas this question, dealt with for long by UNCTAD, has been sidelined since the formation of the WTO with its deceptive “free trade” ideology, the anti-globalists who criticize the ongoing process of globalization should take up the issue of unequal exchange as a strategic question along with disparate exchange. For the selected data cited above show that the issue of unequal exchange which was hotly debated by progressive economists in the 1950s, 1960s and 1970s, has continued to haunt Southern countries during the last two decades, and especially exporters of primary commodities located in Subsaharan Africa. From the standpoint of solidarity with the poorest section of the world population this issue decidedly needs to be posed, along with disparate exchange which, as I will argue below, is often afflicting the same countries as are affected by unequal exchange.

5. Unequal Exchange and Disparate Exchange:

Two Co-existing Mechanisms of Exploitation

In my discourse on Sudan I have discussed the interconnection between the trade in oil and the trade in arms, which is the most prominent expression of the mechanism of disparate exchange. Oil, however, is a commodity which the UNCTAD consciously exempted from its study on the terms of trade of primary commodities, since it is the one Southern export item, in relation to which the stranglehold of unequal exchange has historically been broken. Here, in relation to oil, disparate exchange historically has appeared as successor mechanism to unequal exchange, instituted consciously by US imperialism as mechanism to re-channel oil-revenues towards the North. In order to find cases where unequal exchange and disparate exchange coexist, we instead have to focus on countries exporting non-oil primary commodities, such as for instance the Congo. In reports drafted under the UN Security Council, the interconnection between the export of minerals and the imports of weaponry by warring parties in the Congo have been highlighted. Disparate exchange forms the basis of the war efforts of both sides in Congo's internationalized civil war. Congo, along with Angola, Sierra Leone and Sudan, too has fallen prey to an imperialist trading mechanism.

However, there is evidence to show that misery suffered by the people of Congo is also due to the mechanism of unequal exchange. UNCTAD's data bring out that the country's main export items include both minerals, for instance copper, and agricultural commodities, in particular coffee. Again, a glance at UNCTAD's price index for selected primary commodities of LDCs for 1997 2001 a period during which the Congo has been mostly at war shows that some of the country's main items have lost much of their value. Coffee lost 66 percent, copper 27 percent. In the case of the Congo, then, both disparate exchange and unequal exchange co-exist; their detrimental impacts befall Congo simultaneously. The implications for our understanding of globalization and its negative consequences are very dramatic indeed. Both unequal exchange and disparate exchange are expressions of the ongoing process of globalization. Both refer to injust trade relations between North and South, both at this moment in history have their most dramatically negative effects for countries in Africa. As to unequal exchange: calculations of the financial losses suffered by Subsaharan Africa due to this mechanism have been recorded. Unfortunately to my knowledge no matrix has been drawn regarding the losses in terms of human lives, the environment and capital resources suffered by African countries conjointly due to the trading mechanism of disparate exchange. Even less do we have an overview regarding the effects of disparate and unequal exchange, where these mechanism function conjointly. Yet on the basis of my own investigations I have no doubt, that truthful investigations regarding these two topics will reveal that globalization has many more negative implications than has been admitted so far.

Bangladesh People's Solidarity Centre (BPSC)
The Netherlands

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