Unequal exchange

Unequal exchange is used primarily in Marxist economics, but also in ecological economics (more specifically also as ecologically unequal exchange), to denote forms of exploitation hidden in or underwriting trade. Originating, in the wake of the debate on the Singer–Prebisch thesis, as an explanation of the falling terms of trade for underdeveloped countries, the concept was coined in 1962 by the Greco-French economist Arghiri Emmanuel to denote an exchange taking place where the rate of profit has been internationally equalised, but wage-levels (or those of any other factor of production) have not. It has since acquired a variety of meanings, often linked to other or older traditions which perhaps then raise claims to priority.
In the works of Paul A. Baran, and subsequently adopted in the dependency approach of Andre Gunder Frank, there is a related but distinct concern with the transfer of values due to superprofits. This did not refer to the terms of trade, but to the transfer taking place within multinational corporations (called "monopolies"). Versions of unequal exchange originating within the dependency tradition are commonly based on some such concern with monopoly and center-periphery trade in general. Here, if unequal exchange occurs in trading, the effect is, that producers, investors and consumers incur either higher costs or lower incomes (or both) in the buying and selling of commodities than they would have, if the commodities had traded at their “real” or "true" value. In that case, they are disadvantaged in trading, and their market position is worsened, rather than strengthened. On the other side, the beneficiaries of the trade obtain a superprofit. This term implies that the beneficiaries of unequal exchange are capitalists or entrepreneurs, whereas as understood by Emmanuel the beneficiaries are the high-wage country consumers or workers.
The most renowned of those adopting the term is Samir Amin, who tried to link it to his own argument on the interdependent uneven development of rich and poor countries. Ernest Mandel also adopted the term, although his theory was based rather on that of the East-German Marxist Gunther Kohlmey. The most common approach within Marxism is to talk about unequal exchange whenever unequal labour values are being exchanged (e.g., John Roemer), and this type of approach has then been elaborated in recent decades by ecological economists, based instead on, e.g. ecological footprints or energy.
Depending on definition, the historical occurrence of unequal exchange can be traced to anything from the origins of trade itself, not limited to the capitalist mode of production, to the origins of significant international wage-differentials, or to the post-war appearance of a significant net-inflow of raw-materials to the developed countries. In the approach of Immanuel Wallerstein the origins of the modern world-system, or what others, such as Ernest Mandel, would call the rise of merchant capitalism, is said to have entailed unequal exchange, although the idea was criticised by Robert Brenner.
Another aspect of these theories is the criticism of fundamental assumptions of Ricardian and neoclassical theories of comparative advantage, which could be taken to imply that international trade would have the effect of "equalising" the economic position of the trading partners. More generally, the concept was a criticism of the idea that the operation of markets would have egalitarian effects, rather than accentuating the market position of the strong and disadvantaging the weak.
Basic definition.
The basic principle of unequal exchange can be described simply as "buying cheap and selling dear", in such a way that a commodity or asset is bought either:
This practice was already known and described in medieval times and earlier, and it led to theories of a “just” or “fair” price for products. For example, according to medieval Christian theologians, the profit mark-up should never be more than one-sixth (16-17%) of the value of the traded object (see Paul Bairoch, Victoires et deboires, Vol. 3, Gallimard 1997, p. 699). The idea of unequal exchange surfaces again nowadays in controversies over fair trade. However, in modern neoclassical economics, the notion of a morally justifiable price is regarded as unscientific; at most one can talk about an “equilibrium price” in an open, competitive market. If the value of a good is simply equal to the price someone is prepared to pay for it according to individual choice, no exchange can be unequal.
Anyone can claim to have been "cheated" or shortchanged in exchange, in the sense of receiving an "unfair" price for a commodity, less than it is really worth, or having to pay more than it is really worth. The crucial question which must be answered therefore is what the "real value" of commodities actually is, what their real worth is, and how that could be objectively established. A related question is why the "victim" traded at a lower price, when he could have gotten a higher price elsewhere.
This question preoccupied social philosophers and economic thinkers for many centuries. It contributed to the "moral science" of political economy, which was originally concerned with the problem of what would be a fair and just exchange, and how trading could be regulated in the interests of a more harmonious progress of human society.
In modern thought, however, value in economics is regarded as a purely subjective matter — it can be judged only on the basis of how an individual actually lives his life and how he conducts himself as an individual in the marketplace. The only “objective” aspect that remains is the price at which a commodity sells or is purchased, and this becomes the foundation for modern economic science.
So in modern economics, value is essentially a question of style, moral behaviour and the spirituality of individuals, not an economic issue. If unfair trading practices occur, it must be that there is an impediment to freely competitive markets; and if those markets or market access could be open, all would be fair. Fair competition is said to be guaranteed through:
In that case, the concept of "unequal exchange" can only refer to unfair trading practices, such as:
By implication, unequal exchange is not itself viewed here as an economic process, because if open market access and market security exist, then trade is equal and fair by definition - it is equal because everybody has the same access to the market, and it is fair because just laws and their enforcement ensure that this is so. Another way of saying this is that if citizens have equal rights and equal opportunity, there cannot be any unequal exchange, except if citizens behave in immoral ways.
In Marxian economics.
Karl Marx aimed to go beyond moral discussion, in order to establish what, objectively speaking, real values are, how they are established, and what the objective regulating principles of trade are, basing himself principally on the insights of Adam Smith and David Ricardo (but many other classical political economists as well). He was no longer immediately concerned with what a "morally justified price" is, but rather with what "objective economic value" is, such as is established in real market activity and real trading practices.
Marx's answer is that "real value" is essentially the normal labour cost involved in producing it, its real production cost, measured in units of labour time or in cost-prices. Marx argues that the "real values" in a capitalist economy take the form of prices of production, defined as the sum of the average cost price (goods used up + labour costs + operating expenses) and the average profit reaped by the producing enterprises.
Formally, the exchange between Capital and Labour is equal in the marketplace, because, assuming everybody has free access to the market, and an adequate legal-security framework exists protecting people against
robbery, then all contractual relations are established through free and voluntary consent, on the basis of juridical equality of all citizens before
the law. If that equality breaks down, it can only be, because of immoral behaviour by citizens.
But Marx argues that, substantively, the transaction between Capital and Labour is unequal, because:
In "Das Kapital", however, Marx does not discuss unequal exchange in "trade" in detail, only unequal exchange in the sphere of "production". His argument is that unequal exchange implied by labour contracts, is the basis for unequal exchange in trade, and without that basis, unequal exchange in trade could not exist, or would collapse. His aim was to show that exploitation could occur even on the basis of formally equal exchange.
Marx however also notes that unequal exchange occurs through production differentials as between different nations. Capitalists utilized this differential in several ways:
That, Marxian economists argue, is essentially why the international dynamic of capital accumulation and market expansion takes the form of imperialism, i.e., an aggressive international competition process aimed at lowering costs, and increasing sales and profits.
As Marx put it,
Criticisms of the concept.
Broadly, six main criticisms can be distinguished:
All these arguments illustrate that market trade supplies no specific moral norms of its own, beyond the (contractual) obligations necessary to settle transactions. If one is "free to choose" in market trade, one is also able to choose freely what "morality" to follow, within an accepted or enforced legal framework. Those moralities might clash, but there may exist no neutral arbiter that can adjudicate: it may be that "between equal rights, force decides".
The typical response to these criticisms is that one may be "forced" to buy or "forced" to sell, even just for survival - whether one likes that or not, and under unfavourable conditions - both because markets set price levels beyond anyone's control, and because market actors have unequal bargaining power. Thus, it may be impossible ever to reach the position of fair or equal exchange, except through non-market interventions. That is, market trade could be liberating, but it could just as well be very oppressive. If the rich/poor gap widens constantly, and terms of trade deteriorate constantly, the idea of "trading up the ladder" or "trickle down effects" is seriously undermined.