Economic development
The economic development witnessed in China can be explained through the principle of unequal exchange. This is because though the profit realized by industries in China has been internationally equalized, the wage levels are not. Industries in China have taken advantage of the high population in that country to obtain cheap labor and hence make abnormal profits due to low costs of production. In ecological economics, the economic development in China can be considered to be a certain form of hidden exploitation where foreign companies reap high take advantage of the ready, cheap and available human resource to increase production output and pay low wages in order to reap high profits.
However, those who support this form of development have argued that it cannot be termed as unequal exchange because the people who provide cheap labour have a choice to sell their labour at a price that is either below or above the real value and cannot therefore blame any one for getting a bad deal. There are also claims that labor just like other commodities should be controlled by the forces of demand and supply and therefore if Chinas high population contributes to a higher labor supply and hence lowering the wage levels the high profit the industrial owners earn is justified.
Through monopoly, oligopoly and monopsony market structures countries like USA have been able to achieve economic development by domination of the economies of less developed countries. USA based companies like Coca Cola and General Motors have dominated and still continue to dominate many developing economies especially in Africa and China where the local companies are not able to compete with the foreign companies due to low capital investment. USA is able to outdo the developing economies by marketing their products at a lower price than that of the local companies because of low cost of production.
The US based multinationals companies also reap high profits when they increase their market share through blocking the local industries and disadvantaging their market position. This type of economic development can however be justified by the fact that when US invests in the developing economies it only reaches the unexploited markets and the local industries should be able to compete with US companies given that they also have some domestic advantages over the foreign companies such as knowledge of the local markets. From laymans language, business is about competition and therefore companies in less developed economies should not complain when outdone in market competition and should instead develop tactics to attract more customers.
A country such as USA buy raw materials from developing economies at low price and then sells finished products at very high price. This is a direct exploitation of the developing economies such as China because there is a very big difference between the value added to the product and the price (Lewis, 2003 pp 1-2). The trade effect of this trading activity is that USA industries make extraordinary high profits as a result of exploiting the less developed economies when they buy the raw materials from them and later sell the finished products at relatively higher prices. But this has been justified on the basis that though unequal exchange may be said to have occurred, it is better than if no trade took place at all. This is because when trade occurs each of the trading parties gain even though some gain more than the others. Besides if such trade is as a result of an agreement between both parties, it cannot be said to be exclusively unequal as claimed by the opponents of economic development gained through such trade. Furthermore, traders aim at selling their products at the most competitive prices in order to make profits which can keep their operations running.
It is worth noting that developing economies lack the capacity to process raw materials into finished goods which is one of the most important resources in any industrial country. Hence, a country such as USA exploits other developing economies by making use of its expertise and capital advantage to buy raw materials at relatively cheaper prices and selling finished goods at higher prices. In the long run, the developed economies such as USA remain at a more advantageous position because they are able to reap back and cover the costs with which they bought raw materials by selling their finished goods at higher prices.
Another type of exploitation that has been witnessed is that USA has been making foreign investment in China and agitating for punitive measures to be undertaken to make the countrys economy more open. However, USA itself has policies that do not favor foreign investments in by outside developing economies and therefore it is said to be achieving economic development through unfair trade. But this has been criticized in that fair trade is subjective as it is not possible to achieve total equality when one country is more industrialized than the other.
Furthermore, the pricing policies applied by USA and China are quite different. For example, the domestically manufactured goods are low priced in USA as compared to USA. This is because USA offers subsidies to local manufacturers and the trickle down effects are that local goods remain cheaper than imported goods and services. As a result, local manufacturers in USA are more advantaged because they have a ready market for their goods and services. In China, the pricing policies are such that locally manufactured goods are expensive than imported goods from developed economies such as USA and thus imported products dominate a major segment of the Chinese market. Graphically, this can be explained in a demand curve as follows
USA and 6 China demand curve
China prices (steep demands curve)
4
USA demand curve
2 (less steep demand)
Q1 q2 Quantity demanded
From the above graph, the Chinese goods are high priced and hence the quantity demanded is low (q1) as compared to the goods from developing economies such as USA which are low priced and thus the quantity demanded is higher (q2).
Thus the pricing polices applied in the two economies have contributed significantly in economic exploitation of China by USA because even in the Chinese market, goods from America are highly demanded due to their low prices.
The above forms of exploitations advanced by the developed economies on developing economies can better be described by Marxist theory which states that the world is hungry but lacks funds for food buying and in the developing countries where a majority of people are hungry, possible methods that can be used to expand production of food are met with strict opposition in order to ensure that people in the developing countries continue to buy food at exorbitant prices from the developed economies.
This statement describes the form of exploitation where developed economies ensure that developing economies do not access vital capital investments which can be used to expand production. Since, the developed economies are majorly ahead in terms of technological expertise, technological transfer to developing economies is also made very expensive in order to ensure that developing economies remain vital markets for the goods and services produced in the developed economies. Hence, in Marxian theory, exploitation is taken to mean the subjection of proletariat or producers to work for bourgeoisie or passive owners who pay the producers insignificant amount of compensation which is not measurable to the work done by the producers.
Applying the Marxian theory it is quite evident that the form of exploitation used by USA in China can be referred to as the normal form of exploitation where USA businessmen in China own the important production means. In the same perspective, the proletarians or the workers or the non-property owners who make a majority of population in China survive by working in factories set up by foreign businessmen from USA and hence such owners take the advantage by paying the workers low wages. Hence, workers have no choice at all but to facilitate the progression of the foreign factories in terms of profits earned in order to get employment opportunities that can aid in their survival. The earned profits are then channelled back to mother companies in developed economies where they contribute significantly towards the economic development of such economies.
In addition to the above form of economic exploitation which facilitates the economic development and growth of developed economies at the expense of developing nations, it is also imperative to note that foreign companies from developed economies resort to human exploitation through the use of child labour. This is done in order to ensure that the amount of wages paid to the children is marginally lower than that paid in the home country. In addition to the low wages, such workers are also exposed to poor working conditions such as long working hours and unhealthy working environments which ensure that foreign companies reap high profits by incurring the minimum costs of production.
Globalization which is defined as the process through which regional societies, economies and cultures get integrated through globe trade and communication can also be used to explain the reasons why economic development and growth in developed economies is essentially a process of economic domination and exploitation by major economies over the less developed economies. Specifically, economic globalization has resulted into international trade, capital flows, foreign direct investment and migration. This has resulted into the emergence of free markets where goods and services from developed economies are dumped in large quantities and at cheaper prices thus killing the local manufacturers and producers.
As mentioned above, developed economies ensure that local production capacities are killed in order to get ready markets for their goods and services. In the same regard, the free markets brought about by globalization are also used as ready markets for expensive but harmful substances such as drugs which are sold by businessmen and companies from developed economies. In this regard, it is quite true that developed economies have largely taken advantage of globalization to dump, sell and kill domestic industries in developing economies by selling cheap products. This ensures that developed economies continue to enjoy ready markets for their manufactured goods at the expense of goods manufactured by local industries in developing economies.
Another form of economic exploitation which has been fuelled by globalization is brain drain. From an economic point of view, workers are attracted by high wages. Developing countries such as China which are characterised by low wage rates and poor working conditions have continued to lose key expertise and skills to developed economies due to the differences in wage levels offered in the two economies. For example, USA continues to attract numerous immigrants from less developed economies who move into developed countries in anticipation of getting higher wages in foreign economies than in their own economies. Brain drain affects the development and growth of less developed economies by slowing down the economic activities. In addition to the high wage rates found in developed economies such as USA, such economies have gone further to facilitate more immigrants into their economies through such policies such issuance of green card.
In this connection, the developing economies have continued to lose vital skills and expertise to developed economies. Hence, the continued domination of the developed economies in terms of favourable wage rates offered to the workers is one form of economic exploitation over the developing economies that lose numerous numbers of workers to such economies in anticipation of getting high wage rates. Thus the weak polices that governments and firms in developing economies have had concerning the wage rates offered to the workers by factory owners are key contributory factors which has led to their persistent exploitation by the developed economies.
However, it is important to understand that a countrys economic policies are formulated by its own people and it is therefore not justifiable to blame the developed economies for the economic woes experienced by the developing economies. Poor economic policies results into poor economic development and growth experienced by developing economies. Developing economies have also been associated with rampart corruption where resources are used to benefit individuals rather than the key sectors of the economies. In this connection, developing economies have continued to lag behind not only because of the economic dominance by the developed economies but also due to increased levels of corruption.
From the above discussion, a conclusion can be made that to some extent economic development can be justified, but to a given extent it can be said to be as a result of unequal exchange or exploitation of developing economies. It is also imperative to note that even though developing economies are endowed with a wide variety of raw materials, the pace of industrialization in such countries is still very low and hence the raw materials are under-utilized. In this respect, developed economies such as USA have taken advantage of their expansive capital outlay to buy raw materials from developing economies at cheaper prices and selling back finished goods at relatively higher prices. The discussion above has shown that even though developed economies can be said to be exploiting the developing economies, it is necessary to some extent because of the major gap that exists in the industrialization sectors of the two types of economies.