Development aid for the rich? How the Global South continues to develop the North

The Global North was not getting rich due to its ingenuity and effort but rather got developed by the labor and resources of the South.

Growing up in Germany, one of the richest countries on earth, I grew up thinking that central Europe’s economic success was somehow completely self-generated. It’s not that I didn’t care about the existence of impoverished places in the Global South, but I learnt to see these conditions completely separated from the wealth I could witness in the Global North. This is not an accident. It is a powerful Eurocentric worldview that we learn in schools, media, politics and particularly in economic education. Its a deep collective belief that justifies a wealthy position in this unequal world and hides the violent neo-colonial reality of an “imperial mode of living” at the expense of others [1].

One key concept I am fascinated by and that was crashing with this story is unequal exchange, a term developed and used by several economists critical of mainstream ideas of development [2]. Unequal exchange means that one of the two parties involved in (global) exchange needs to pay many more real goods/working hours/resources to reach and exchange for the same price of another good. This is because your good’s (or labor time’s) market value is much lower than its actual value. How is that possible? Well, if you believe that market price is the same as value and that all exchange is voluntary (as I learnt in mainstream economics) than you cannot make sense of such an idea.

Theories of unequal exchange, in contrast, claim that market prices are not reflecting value but are results of unequal power relations and unfair trade structures built over centuries. If you are in a less powerful position on the global market, for example because you are lacking capital and you offer labor intensive goods and unprocessed raw materials that are in open competition with other places, your prices can be artificially depreciated. And even if processed products (like a t-shirt) are in the meantime entirely manufactured in the South, only a fraction of final market price is flowing to the producers, but the majority is captured in the North. (If you are curious about the details, John Smith explains this for three global commodities: iPhones, coffee, and T-shirts [3].) Unequal exchange is like a hidden value transfer that is showing up in high GDP (per capita) as presumed “productivity”; the value added in Northern economies. Looking at this with the lens of unequal exchange, instead of “value added” we could see a high GDP as an indicator for successful “value capture” [3].

So much about the theory, there are many more complexities to explaining what makes unequal exchange possible which we are not diving into here. I wanted to know, what are the numbers? What’s the scale of value transfer in unequal exchange? I could find: Whereas colonialism has formally ended, the neo-colonial pattern of outflowing resources to the North has clearly continued. A recent study has estimated the scale of raw materials, land, energy, and labor-time appropriated by the Global North through unequal exchange (in excess of what the North provided to the South) [4]. In the year of 2015 alone, countries in the North have drained and gained….

  • 12 billion tons of embodied raw material equivalents (9 times Germany’s annual raw material consumption)
  • 822 million hectares of embodied land (23 times the size of Germany)
  • 21 exajoules of embodied energy (almost twice Germany’s annual primary energy consumption)
  • 188 million person-years of embodied labor (more than two years’ time spent by everyone living in Germany)

(The term “embodied” describes that these inputs are not all visible in the traded goods and services, but they are necessary for its production. Imagine you cannot see the amount of land and labor that was necessary to produce an iPhone). All these together are worth 10.8 trillion dollar (in prices of the global North)! The authors highlight: this amount is enough to end extreme poverty 70 times and is 30 times the amount of official aid flowing towards the south. Consider that this is only the figure for one single year and imagine all this time, space, energy and raw material is not available to build necessary infrastructures, to produce and work for “development” in the South.

Given the direction of flows to the North by so-called developing countries, we could say that countries like Germany are in fact developing countries – they are receiving an extra developing aid from the South through unequal exchange. But that story sounds quite different from the self-confident narrative of economic success by own means and implies a radical change of global economic structures is needed to meet everyone’s needs on the planet.

[1] the concept “Imperial mode of living” explained

[2] e.g. Arghiri Emmanuel, Samir Amin, Raúl Prebisch among many others. Also see and the Unequal Exchange Podcast on the legacy of Arghiri Emmanuel

[3] John Smith (2012): The GDP Illusion – Value Added vs Value Capture. Monthly Review, Volume 64 (3).

[4] Jason Hickel, Christian Dorninger, Hanspeter Wieland, Intan Suwandi (2022): Imperialist appropriation in the world economy: Drain from the global South through unequal exchange, 1990–2015, Global Environmental Change, Volume 73.

Image credits: Christine Roy auf Unsplash

Author: Sven-David Pfau, Wirtschaftsuniversität Wien / Austria

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