Competition Between Local and Imported Products in Third World Countries
Developing countries have often experienced difficulties in marketing their locally produced goods against imported commodities. Liberalization of trade resulted in a scenario where countries did not have to consume all the goods they produced. It is often argued that the actual beneficiaries of market liberalization are the developed countries. The global historical perspective has been used to explain the inequality in economic development that is witnessed today between developed and developing nations. Consequently, it is apparent that the history of the intercontinental political economy has resulted in the harmful trend where local goods in the periphery lack a market.
Historically, globalization resulted in inequalities regarding the interconnectedness of the involved nations, further leading to their unequal integration. Global interconnectedness came about in the 15th and 16th-centuries when European nations sought world trade as a source of economic wealth (Hobson, 2004). Trading routes were formed to connect different states, which linked the major economic regions. Thus, the movement of goods and resources would follow these routes.
Arguably, the trading routes are still effective to date. The bulk of world trade takes place among America, Europe, and Asia, a situation that has not changed much from the era of European expansionism. Traditionally, developing countries used to serve as a market for the finished goods produced in the developed nations. As the industrial revolution took form in Europe, industries began producing more goods, which exceeded the consumption needs of the local population.
Therefore, a need arose to seek a market for the surplus in countries that were less industrialized. Consequently, developing countries have remained mostly a consumer of goods produced in the developed economy, rather than producing their own goods. Despite the efforts to produce and export their goods, developing nations naturally find it difficult to compete with goods from developed nations for several reasons. The most obvious reason is that developed nations have a comparative advantage in the production of most goods because of their advanced technology and vast resources.
Various historical factors have contributed to the witnessed inability of local commodities to compete with goods obtained from developing countries such as Jamaica. Firstly, the doctrine of free trade replaced protectionist laws that were in play in the mid-ninetieth century. Under free trade, regions would engage in producing only goods that they could manufacture most efficiently, a situation that O’Brien and Williams (2013a) refer to as a comparative advantage.
Protectionist laws cushioned local producers against the influx of cheaply produced goods from other regions. For instance, in Britain, corn farmers were shielded by the Corn Laws against the import of cheaper wheat from other regions. As free trade took shape, the developed nations were poised to benefit over developing nations. Despite free trade being the bedrock of modern trade, it can be argued that it has not been very helpful in developing economies. Secondly, the absence of protectionist laws in developing countries means that producers in these nations are expected to compete at the same level as those from developed states.
Such competition cannot be fair if one takes into account the advanced production processes, as well as the sophisticated technology that manufacturers in developed nations enjoy. Therefore, free trade has only served to promote the historical economic inequality between regions that were shaped by European expansionism. Importantly, industries in developing countries depend mostly on primary products such as agricultural produce. This situation poses a challenge since the prices of primary products are always actuating at the international market (Cavusgil, Knight, Riesenberger, Rammal, & Rose, 2014). Additionally, primary products register a low elasticity of demand. For this reason, even with economic growth, demand only rises slightly.
Ongoing Transformation of the Social Relations of Production
Karl Marx and Friedrich Engels invented the famous notion of social relations of production. The theory asserts that the ruling class (bourgeoisie) uses all means possible to control the proletariat or the workers. The ruling class has the means of production. Therefore, it naturally influences the economy of a nation (O’Brien & Williams, 2013b). This perspective has been applied to the global level where strong economies are seen to dominate weaker ones. This dominance is evident in the division of labor at the global level. The arrangement where the bourgeoisie dominates over the proletariat has subsisted since the origin of civilization culminated in feudalism. The industrial revolution served only to magnify this existing tendency of one class to control all resources.
During the industrial revolution in Britain, peasants were forced to abandon their land for rich farmers as a way of increasing production. People who had lost their land would either work as laborers in the aggregated land or leave the country. This is a clear demonstration of the ruling class concentrating on economic power. Further, to facilitate the industrial revolution, imperial powers sought resources from other regions of the world.
Among these resources was the human workforce (slaves). Slaves were more favorable to imperialists because they were easier to exploit compared to the domestic workers. O’Brien and Williams (2013b) observe that the industrial revolution served to shape the division of labor between the industrialized nations and their colonies. These colonies automatically attained the role of supplying raw materials to the developed world. This role has continued to date, implying that the current world order has a historical bearing.
In the World Systems Theory, Immanuel Wallerstein classified countries as the core, semi-peripheral, and peripheral states (O’Brien & Williams, 2013a). Core countries are the developed nations that control the world economy whereas semi-peripheral ones consist of emerging economies such as Latin America and East Asia. Peripheral countries are the least industrialized. They rely mostly on primary production.
The developed nations (bourgeoisie) use both political power and economic ideas to hold onto economic supremacy (O’Brien & Williams, 2013b). Western countries, including the United States, for instance, control the major economic institutions that oversee the world trade. These institutions include the World Bank, the International monetary fund (IMF), and the UN Security Council. By controlling how trade is conducted at the world stage, these developed nations effectively block any potential threat to their position that may be posed by peripheral and semi-peripheral states.
In the past, powerful dynasties such as the Roman Empire used physical force to gain economic dominance. However, in the modern world, ideas are seen as the key to economic dominance. At the domestic level, the bourgeoisie must seek consent from the proletariat class to remain in power.
Therefore, a consensus is reached upon based on common ideas and values. Additionally, the proletariat class is provided with minimal economic benefits to prevent it from carrying out a revolution. Salaries and wages are also used to maintain the support of the working class. For instance, Henry Ford raised the minimum wage to $5 to attract and retain workers in his car factories (O’Brien & Williams, 2013b). Nevertheless, physical force may still be used to suppress a possible revolution against the bourgeoisie.
The recent shift from international to a global division of labor further emphasizes the existing inequality in the distribution of resources. For instance, companies are relocating various operations in the production chain to developing countries. This move is being adopted primarily because the cost of production is lower in these developing nations. Numerous cases have been witnessed by such companies either oppressing workers in third world countries or simply underpaying them.
References
Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International business. New York, NY: Pearson.
Hobson, J. (2004). The eastern origins of western civilization. Cambridge, England: Cambridge University Press.
O’Brien, R., & Williams, M. (2013a). Forging a world economy: 1400-1800-global political economy: Evolution and dynamics. Basingstoke, Hampshire: Palgrave Macmillan.
O’Brien, R., & Williams, M. (2013b). Industry, empire and war: 1800-1945’ in global political economy: Evolution and dynamics. Basingstoke, Hampshire: Palgrave Macmillan.