N. Kolupaeva
Lipetsk
When we are talking about the North-South system, we
should notice the difference between the problems of the North-South and Western systems.
The North-South system is separate from the Western system because it deals with
"lower incomes and resources bases of the developing countries" (Joan Spero
149). However, it is also embedded in the Western system because the North, which
generally represents the West, has veto power and therefore is able to make important
changes in the global market system. The major difference is that the Western system is
characterized by the common interest and free access to two types of management: formal
and informal. As to the North-South system, only the North is recognized as a dominant
decision-making authority. Besides, the economies of the Western system get more or less
equal treatment, while the South receives far less benefits compared to the North.
Why is the North-South issue becoming so important at the end of the
twentieth century? First of all, the income gap between the North and the South is
increasing. At the same time income per head is raising in the countries of the North
where only 15 per cent of the world population live. Besides, the goods produced by the
countries of the South become less valuable for the developed countries. Such circumstance
enables the poor countries to produce more in order to buy even less products from the
rich countries. It reduces the ability of the poor countries to manage the global economy
because their products are not needed and their opinion is not counted by the rich
countries. That is why poor countries are usually unhappy with the management of the
global economy because of the small role that they play in its organization.
The North-South issue was discussed by the three different
philosophical schools, which argued whether this gap could be reduced in the modern
economic system. Liberal theory of economic development is the dominant theory in the
International economy. Globalist or Marxist views see the problem in the present free
trade system. Structuralists fall between liberals and globalists because they believe
that the system is not ideal but can be peacefully reformed and reorganized. All theories
can be criticized at some point, but all of them contain valuable information for the
complex perception of the issue.
Liberals support free trade as the only possible way to promote mutual
growth of all parties involved. They say that the problems of the South lie in its
resistance to adopt the market system and its incapability to conduct domestic economic
policies in accordance with the free trade rules. The trouble of this theory is that its
prescription of "more free trade" does not work in most of the Third World
Countries. Another trouble is that such countries as South Korea and Japan, which have
interventionist governments (managed trade), are still doing very well in their export
industry. Therefore, the adoption of the free trade policies in domestic economy is not as
fundamental as liberals suggest.
Globalists focus on the economic exploitation of the South by the
North, which is an essential element of the capitalist system. They argue that free trade
represents an unequal exchange between the North and the South in the economy controlled
by the monopolies of the North. Therefore because of its management ability, a need for
the raw materials and markets overseas, the North reduces prices on the materials exported
by the South/ imported by the North and increases prices on the materials exported by the
North/ imported by the South. Revolution is the policy prescription, which will change the
system and put an end to transferring wealth from the periphery to the North. The trouble
with this theory is that the Third World is no longer very important to the rich
countries. Its exports do not have much effect on the North because "overall
consumption of raw materials declines due to changing growth patterns, conservation,
substitution and technological improvement" (Joan Spero 159).
Structuralists agree with Marxists that free trade is an unequal
exchange with most of its benefits going to the rich countries. However, they argue that
it is not a necessary aspect of the system. They explain the dual structure of society
when some people live in primitive conditions and some are linked to the global economy
because of their work in export industry. They believe that industrialization of the South
can be achieved within a reformed international market by the control of the population
(education of women and urbanization), diversification of economy through import and
export substitution, and regional integration. By regional integration structuralists mean
creating of trade groups among several developing countries in order to look more
attractive and reliable to the foreign investors. The trouble with this theory is the
question of its practical implication. There is a political problem linked to the economic
issue: how can the weakest countries change the status quo against the will of the
strongest countries? Another question is whether reform is possible and what is necessary
to do for its enforcement.
The major objections of the developing countries are to overcome
poverty and inequality, to achieve growth and to play an important part in the global
economy decision-making process. Developing countries wanted to change the system or to
get adopted to it with the minimum cost to their economy. There are several general
Southern strategies to achieve these goals, which were acquired after many years of
samples and mistakes, such as "the attempt to delink themselves from some aspects of
the International economic system, the attempt to change the economic order itself, and
the attempt to maximize the benefits from integration into the prevailing system"
(Joan Spero 151).
According to the historical development of the poor countries, the
period of decolonization and industrialization after the World War II was aimed at
achieving independence and escaping the poverty. Some theoretical attempts to
industrialize the domestic economy were to take advantage of cheap labor in order to
attract investors, to produce more food and then invest the money in industry, and to
improve educational system. The first idea is not applicable today when the blue-collar
workers are less important than before. Production of more food created competition among
the countries with similar export. Therefore obtaining enough money for the
industrialization from exporting food became more difficult. Education required a lot of
time and training, which might work in a long run prospective, but would not immediately
contribute to the economic growth to the country.
As the result of the decolonization, the poor countries achieved
political independence but did not obtain economic one. In many cases developing countries
experienced hardships in having some other state but their Mother country as their
financial provider. The economies of the developing countries were short of capital and
technical skills. Both factors constituted the dependence of the Southern countries on the
technology and financial resources of the developed countries. Another wave of dependence
was that developing countries based their economies on one exporting material and
therefore soon became dependent on their Mother countries, which were interested in one or
two industries producing the necessary material and kept other industries undeveloped.
Another bad consequence of the dependence of the developing countries on a single
commodity was that the price drop on this very commodity influenced the whole economy and
destabilized it. Free trade system seemed to benefit all but the developing countries;
that is why they were suspicious of its effectiveness.In order to limit their dependence,
developing countries started two new strategies called the import substitution strategy
(IS) and the export substitution strategy (ES). IS meant to stop importing things and make
them at home by developing new industries. ES meant to export a wider range of goods than
one commodity. As practice has shown export substitution worked better than import
substitution because developing countries of Asia prospered using the export substitution
policy, while developing countries of Latin America did not succeed in reducing the income
gap between the North and the South by using import substitution. The failure of import
substitution happened as a result of the huge foreign investment and the less permanent
use of high tariff barriers.
Another way to achieve economic growth for developing countries was to
ask the United Nations for help in terms of foreign aid and special trade preferences such
as lower tariffs. As a result of this unison cry for changes Group of Seventy-Seven (G-77)
was created "to act as a permanent political block representing the interests of the
developing countries in the UN" (Joan Spero 162). The formation of the United Nations
Conference on Trade and Development (UNCTAD), which presented the ideas of structuralists
about the greater aid flows, restricting of free trade and control of multinational
corporations, reflected the confrontations between rich and poor countries in UN.
The attempt of the poor countries to establish their assembly in order
to influence the rich countries went even further. In 1974 developing countries called for
a New International Economic Order (NIEO), which appeared out of the threat and the
promise of the economic crises. Its success depended on the unity of the Southern
countries, credibility of their export products and understanding their vulnerability by
the North. The NIEO failed because none of these three steps were completed. First of all,
there was a growing gap between the Newly Independent Countries and the least developed
countries. Besides, the commodity became less valuable for the North, whose demand for raw
materials was declining. Another factor was that the North did not want to make any
changes apart from what they were always willing to do. The North offered its help by
agreeing to transfer the funds, to offer advice for learning about export strategies, to
prevent degradation of the global environment and to reduce the flow of the Southern
people to the North.
The failure of the NIEO did not resolve the North-South issue. After
the second oil shock it became obvious that oil producers and developing countries
following the export substitution strategy were doing very well.
On the other hand the countries, which were strongly against free trade
system, did not succeed in achieving their economic independence. Favored by many Southern
countries in theory, protectionism did not work in terms of free trade system pursued by
the majority. Therefore, the effort of the 60s and 70s aimed on removing free trade and
using the protectionism instead seemed very obscure. In the 80s the issues of pollution,
debt and migration dominated the North-South agenda. Until the debt crisis of the 1980s,
which created a big problem in the developing world because the banks in the developed
countries stopped lending money to the South, the developing countries did not like the
idea of managing multinational corporations. After the crisis southern strategy of control
and hostility to multinational corporations shifted towards more pragmatic politics
because of the decline in foreign investment flows and globalization of the world economy.
Multinational corporations were recognized as "necessary evil at worst and
contribution to the development process at best" (Joan Spero 249). Most of the
foreign investment in the Third World countries is the direct investment through
multinational corporations. Multinational corporations try to concentrate their
investments in developing countries of Asia and Latin America. They focus on extraction of
minerals, energy, forests and agricultural resources; promoting manufacturing; and
establishing such services as telecommunications, finance, insurance and transportation.
The multinational corporation has human capital (technology and
management), money, access to global markets and political influence of its home country.
The host country has the power to control the scarce resources and
legal environment. This power is called the bargaining advantage and is used by the South
to impose restrictions on the multinational corporation. At the same time, the host wants
to get most of the things the multinational corporation can offer such as jobs,
technology, tax revenues, foreign exchange, money and access to foreign markets.
Therefore, the host does not want to deter potential investor by creating too many
restrictions. Besides, the multinational corporation has hard time deciding whether it
wants to take the risk of investing in that particular host country. Absence of
competition for investment opportunities also reduces the ability of the host to dictate
its rules. All those factors weaken the power of the host to use its bargaining advantage.
The positive factors of the multinational corporations for the South
are "the improvement of the labor and products’ quality, the increasing money
flows and domestic investment, knowledge of foreign markets and technology" (Joan
Spero 255). The negative effects are that the host does not benefit as much as the
multinational corporation and pays a lot of extra money for the use of technology.
Besides, the political intervention by multinational corporations in the country’s
politics deprives the host from its complete sovereignty. Also, such things as
inappropriate market development and transfer pricing reflect the unfair treatment of the
host by the multinational corporation. Nevertheless, direct investment is very important
for the development of the South because it ties together capital, money, technology and
links it to the global economy.
After looking at so many different ways to deal with the North-South
issue, the most sobering response is the recognition that there are no easy solutions and
standard policy prescriptions. Solutions must lie in an approach that links economic
policy and social development. The excessive concentration on the economic factors
deprived the South from its social role by naming North -the elite and South -the
subordinate/periphery.
Therefore, economic dependency has also brought a problem of social
inequality. The North-South gap can be reduced by the reforms, which should be aimed on
economic growth of the developing countries and on their social development as an equal
member of the society. New forms of foreign participation such as "joint ventures,
management contracts, licensing agreements" (Joan Spero 269) may bring a difference
in the relationship between the North and the South by promoting their cooperation rather
than the conflict.
Spero, Joan. The Politics of International Relations. New York: St. Martin’s Press, 1997.