Poverty of Nations: The Eurocentric Bias of Developmental Economics
Mehmet, Ozay, Harvard International Review
OZAY MEHMET is Professor of International Affairs at Carleton University and author of Westernizing the Third World (1995).
Our capitalist world has been shaped by a 200 year-old Western economic tradition that dates back to the publication of Adam Smith's The Wealth of Nations in 1776. This date also coincides with the onset of the British Industrial Revolution, when the construction of capitalism began in earnest. Capitalism is an efficiency-oriented system of resource allocation. It has served the West exceedingly well, but it is unfit for the "Global Village," which requires not only rules of efficiency but also rules of equity and sustainability to ensure the welfare of all the world's citizens.
Capitalism is driven by the profit motive. An increase in profits requires continuous accumulation of capital. Hence, the central logic of capitalism is accumulation through "capitalization," a gradual transformation of non-capital resources (for example, labor and environment) into forms of capital. This transformation process occurs according to market forces of supply and demand on the basis of revealed preferences that are assumed to be rational. Though often rational, these preferences are sometimes derived from the worst aspects of selfish behavior, such as greed and mindless consumerism. The result of capitalization is private ownership and control.
It is no accident that the West holds the largest stock of capital assets in the world. This outcome is the by-product of market forces. Economics textbooks extol the concept of perfect competition based on perfect foresight, full information, and a level playing field. In reality, perfect competition is an academic abstraction. The real market system, dominated by monopolies and cartels, works to enrich the West by impoverishing the rest of mankind. The flip side of this impoverishment is income and wealth concentration in the West, almost always benefiting the rich.
Global market forces are Western-based because economics, as a body of scientific knowledge, is pro-capital and anti-labor. While capital and technology are priced in the West at high levels, Third World resources are underpriced. This polarization is accomplished either by treating the environment as a free good and labor as plentiful and cheap, or by such indirect means as intra-corporate transfer pricing. Unions and social safety nets ensure workers in the West decent wages, but few Third World workers enjoy such protection. Underpricing Third World labor, environment, and resources overstates the rate of return on capital, overvalues capital assets, encourages speculation, and leads finally to the collapse of financial markets--as happened in the case of the Asian currency meltdown in 1997-98.
In the nineteenth century, the search for profit converted England from a closed, agrarian economy to the "workshop of the world," dominated by aggressive captains of industry. Despite the initial success of industrialization, classical economists were pessimistic about the long-term sustainability of capitalism. John Stuart Mill predicted the ultimate collapse of the system due to vanishing profits in a stationary state. Thomas Malthus forecast a population explosion owing to an ever-worsening population-food imbalance.
The internationalization of free trade and colonial expansion have postponed the collapse predicted by nineteenth-century economists, but it has not eliminated the inherent danger. England, a small island, could ship its excess population to the colonies, but mankind has nowhere to go to escape the law of diminishing returns on a global scale. The world could not sustain itself if everyone in India and China, for example, were to emulate the Western consumer's ideal of becoming a two-car owning family and living in a 3000 square-foot home.
To date, globalization, or a universalized market economy, has meant trade liberalization, free capital mobility in financial flows, and the diffusion of technology. …