January 17, 2009
It is considered an intuitively self-evident idea among most people in the developed nations, whether they are intellectuals or otherwise, that the difference in income between those nations and the underdeveloped ones can be explained away by noting that the costs of living in the Third World are lower than in the First. This is generally seen as a truism, supported by the experiences of many a tourist from the developed world when visiting popular destinations in the underdeveloped parts, such as Egypt and Mexico, and then noting the extraordinarily low prices for basic products in these countries. Surely then with such low prices, the lower incomes must have been compensated for, so that the common people in such nations are not in terms of living standards that much poorer, according to the norms they are used to?
Yet this idea is wholly false, as can be demonstrated by some simple calculations. Indeed of course the relative costs of living vary much by nation and also within nations, and incomes vary much as well; yet it is possible to give some examples that will indicate how strong in fact the difference in incomes also translates into differences in living standards, because the living costs in the underdeveloped world are in fact higher than in the developed world.
The price of bread in Ghana is 0.6 Cedi (this is the minimum price guaranteed by the state), which is $0.46. The American price of bread is $1.28 (given as average price in an article in the Boston Globe, dated 09-03-2008.). The average daily wage in Ghana is $1. The minimum hourly wage in the United States is $6.55 (federal minimum); assuming eight hours of work, we get $52.40.
Now all you need to do is calculate how many local loaves of bread one local day of work is worth, to compare. We see that one day of work buys the American minimum income worker $52.40/$1.28 = almost 41 loaves of bread (40.94). One day of work for a Ghanaian average worker buys him $1/$0.46 = a little over 2 loaves of bread (2.17). Therefore, the cost of living (expressed in bread) is much higher in Ghana than in the US.
But, it will be objected, there is more to living costs than merely food prices. Bread may in the parts of the world where this is the common staple food serve as an acceptable proxy for the costs of food, but another major expense is the costs of housing. What of this? It must first off be noted that in terms of housing comparisons are much more difficult to fairly make. Bread is bread everywhere and everywhere essentially the same, but housing costs vary enormously. Not just because of the differences in amenities common in the housing units, but also because of the differences in land prices, due to the influence of land rent. This in turn is affected by a great many variables, from effects of crime to proximity to work and urban areas, as well as environmental factors and so on.
Yet we need not despair for our analysis entirely. The LA Times fortunately has some information in their article of 26-03-2007 on the slum living of illegal immigrants near Los Angeles. They give the example of a family which earns $10.000 a year and pays $360 a month in rent. I’m not sure if this is household income, but I think so. Rent then is 43.2% of their income, monthly and yearly, for the equivalent of an illegal hovel. From Kenya we have info on slum living, assuming the source is accurate, from a Pambazuka News article of 03-07-2007 by Humphrey Sipalla. The cost of rent is here given as KES 2,693 monthly, which is at current exchange rates $34.26 (this just to give an idea). According to the article, this represents 22% of their income, I assume also applies to households. If this is accurate then, the housing cost in a Kenya slum is just under half of what it is for illegal immigrants in California (22% versus 43%). But it would have to be 1/20th, i.e. ten times as cheap, to remove the difference in living costs altogether. Of course rents account for differences in costs as mentioned, but comparing Nairobi to the Los Angeles area seems to me not so unfair as to undo that entirely.
We may conclude then from this example, comparing the expenses in major cities in the United States (for average people and poor people respectively) with the living costs in food and housing in Ghana and Kenya respectively, that the common idea of the living costs being much lower in the underdeveloped world is wholly false. Indeed it makes that appearance because the prices, when valuta are calculated according to exchange values on the market, are indeed significantly lower in the Third World – the bread in Ghana costs one-third of what it does in Boston. However, our naive friends in the developed world forget that the incomes in the underdeveloped world are so much lower than theirs, that 1/3rd of the price is for them over 20 times the relative cost.
On a final scientific note, it must be taken into account that there is good evidence that the currencies of underdeveloped nations are undervalued by exchange rates in comparison to their value in terms of purchasing power. The nominal exchange rate of 16-01-2009, which is the one that I have used, is likely (as any nominal exchange rate) to undervalue the currencies of underdeveloped nations compared to their purchasing power. This has no particular implications for the living cost comparison I have undertaken, but it does affect international trade between, say, Ghana and the United States, because it means Ghanaian wages as well as prices are undervalued compared to American ones in the exchange rate, causing the terms of trade to tilt strongly in favor of the United States. Gernot Köhler’s research, described in “The Structure of Global Money and World Tables of Unequal Exchange”, in: Journal of World-Systems Research 4:2 (Fall 1998), p. 145-168, indicates in the appendix that the estimated loss as percentage of GNP (PPP) on the part of Ghana and Kenya is respectively 30% and 35%. If currencies were equalized according to PPP, the relative value of the Cedi would be much greater, increasing the relative price of food in Ghana compared to the United States, but also increasing the relative value of the wage. This would not of itself necessarily alter the proportion between wage and food costs within Ghana (aside from changes in the market caused by changes in international trade in the longer run, which are outside the purview of this article), but it would to a significant degree remove the false impression on the part of citizens of developed nations about the low costs of living, because they would experience the local prices as much higher.
January 11, 2009
One of the most important ways in which a society can ideologically justify itself, or a class within that society, is through the writing of history. Roman aristocrats wrote histories of Roman politics and society to justify both themselves and their rulers, as well as to attack dynastic opponents and ‘populists’ representing the interests of the Roman poor. For Shakespeare, the Tudor dynasty was to be justified by writing historical plays about their predecessors, where opponents of the ruling dynasty, such as Richard III, appeared as evil schemers. But this is not limited to just political history – it is at least as true for the wondrous science of economic history. Famous is the expression ‘Whiggish history’, referring to the 19th Century British school of history-writing, both political and economic, which saw history as an evolutionary succession of stages of development leading to the final pinnacle of human achievement, Victorian bourgeois society. Marx, of course, combated this by critiquing their political economics, but he also in the process had to rewrite this history of successive modes of production himself, since criticism tends to have the greatest effect when an alternative reading is proposed along with it.
Yet for all his attempts at subverting bourgeois categories, Marx’s historiography was not free of bourgeois Eurocentric assumptions, although it has to be said in his defense that much more of this is known now than at the time. Indeed Friedrich Engels was the greater historian of the two perhaps, and not least because he was more inclined to pay close attention to historiographical developments in the study of ancient and ‘primitive’ societies as well as contemporary non-European ones.1 But he also was limited by the narrow horizons of economic history of that time. A worse example of the same thing is to be found in the explicitly idealist conceptions of Max Weber and to a lesser degree Werner Sombart, together the great exponents and founders of sociology and the German school.
Where Marx had seen non-European societies as essentially inherently stagnant and incapable of development due to the combination of the “idiocy of rural life” in isolated villages with an absolute and bureaucratic power overarching them. This is something to be seen in the context of Marx & Engels’ own experiences with the Prussian bureaucracy they detested. Weber and his group even considered Europe to have developed superior concepts of ‘rationality’ in economics and the idea of cost-benefit analysis free of ideology, which Protestantism had enabled them to do where other religions did not permit it (it is of course no coincidence that the leaders of the German school were all of Protestant background themselves).
It is only in recent times that these views have been succesfully challenged, by both ‘Western’ and ‘Eastern’ historians. Such people as Goody, Frank, Braudel and Arrighi have systematized our now much more advanced knowledge of economic history in a manner showing beyond question that the West has not always been ahead of the East, nor is the difference to be ascribed to any inherent superiority. In fact, it is only a short period of time that the West can be said to have truly been systematically more advanced: roughly the period from 1750 to 1950. This is a mere 200 years of a history of civilization going back 10.000 years! Yet its impact has been enormous. As Sir Jack Goody writes, “self-congratulation is a zero-sum game”.2 It is then no coincidence that the rise of this self-congratulation coincides with the victory of Europe over the other parts of the world in the equally zero-sum game of imperialist fights over control of zones of plunder and exploitation.
In reality, of course, China and India were clearly ahead of Europe both in technology and living standards until certainly halfway the 16th Century. Joseph Needham’s famous studies of Chinese technology show how practically every major invention of the Middle Ages in Europe was preceded by the same invention in China, often centuries earlier.3 Equally, the development of mercantile capital did not lag behind, despite this having been seen often as something peculiar to the continent, which would explain how Europe came to develop further than any other part of the world had. Although some of the critics also make the error of equating increasing volume of trade with development, like André Gunder Frank does, this is based on a fundamentally false understanding of the point of modes of production. Indeed accumulations of capital gained through (unequal) trade can form the basis for expansion of capitalism as such, but it is not sufficient to point to increases in trade as an independent cause. In any case they were not greater in Europe than in other advanced parts of the world: the great trading cities of China and India, like Guangzhou and Ahmadabad, were no less than Venezia or Antwerpen, both in terms of sophisticated large-scale trading companies and volume of trade.4
As alluded to already, the basis for the European advancement cannot be sought for in differences in trade scope or depth. Both for empirical and methodological reasons: the latter because of the fact, familiar to all but the vulgar economists, that production analytically precedes exchange: there must first be something to trade before trade can take place. Nor is it acceptable to point to inherent differences. Aside from the implicit racism of dubious analyses of the superior ‘rationality’ etc. of Europeans, it doesn’t withstand even the most superficial critical analysis. If Europeans were indeed more rational, then why hadn’t they always been ahead? When these theories were devised, this was widely understood to indeed have been the case, but we know this now to be untrue. And if they had somehow become more rational (or scientific-minded, or freedom-oriented, or individualist, or whatever idealist ’cause’ one wishes to propose), then how was this change possible? Indeed one can hardly think that the European brain changed significantly in its processing functions from one century to the other, even if just for biological reasons. And there is no evidence that one group of people are less capable of dealing with material reality and understanding how to use it than another – indeed there are differences and always have been in terms of specific cultural practices, as well as levels of scientific knowledge and understanding of natural science, but these are the products of the same kind of reasoning. All societies, without exception, exist in and through “the deployment of social labor, mobilized to engage the world of nature”5; something which is only possible because of the capacity for planning and abstraction, something all humans naturally share.
We must therefore do away with this kind of Whiggish history concerning non-European peoples. This is not merely a question of academic science: one need but point to the important role that this Eurocentric ideology has played in actual colonization and imperialism itself, particularly through the idea that the peoples of colonized areas were not endowed with the same capacities for economic reasoning as Europeans, and therefore did not “improve”, which justified stealing their land. To be able to maintain such reasonings, it became essential for European ideologists, from Locke to the current day vulgar economists, to pretend that for whatever cultural, racial or religious reasons the non-European peoples did not possess the economic rationality that allows increases in productivity ‘for the benefit of all’, so that their mere presence on their own living space became a hindrance to the spread of civilization. Indeed, it was best if one could argue that they weren’t just not “improving” now, but that they never had and never could, because otherwise the risk appeared that they could adapt to European methods and so reclaim their stake to the land. The tragic history of Cherokee attempts to compete with the Europeans in the white man’s civilization and according to the white man’s norms is a good example of the real nature of these purported scientific reasonings: those who argue the incapacity of non-European peoples will never permit those peoples to prove them wrong. They would rather destroy them than allow the ideology of European dominance to be undermined, because it would threaten the entirety of the ‘world system’.
This as regards Whiggish economic history. Of course, this critical essay has not yet answered the question itself that is posed by history: namely, how come the Europeans did win, even if just for a short time. The Industrial Revolution and the development of capitalism to its fullest extent were made possible by these European conquests, and in turn enabled them even further, until even India and China were fully under the dominion of foreign powers and the ancient Chinese empire collapsed because of its incapacity to defeat them. If at the beginning of the late Middle Ages we are still at the period “before European hegemony”, as the title of Janet Abu-Lughod’s book indicates6, and yet in 1690 the English had settled in Calcutta and could not be dislodged even by the waning Mughal Empire (heir of the great Timurid realm which had defeated more or less every major empire that had existed at the time)7, then what happened in the meantime? Indeed in about 300 years the European powers must have not only caught up with the great Asian powers, but even surpassed them in development to such a degree that they could not be beaten by them (although it would take until the 18th Century before they could truly enforce their will on any Asian power no matter its size).
Jim Blaut in his excellent studies on the same topic has pointed to the European conquest of the Americas as the main cause.8 The Americas were extraordinarily rich in gold and particularly silver, allowing (despite inflationary effects) a huge surge in essentially ‘free money’ for the European powers. First Castille and Portugal benefited, then, as they collapsed under the strain of internal conflict over the spoils as well as inflation and the massive debts owed to German and Italian bankers (it is not a coincidence that America is probably named for the Italian investment banker Amerigo Vespucci), the baton was taken over by France, England (later to become Britain), and the Netherlands. It may seem odd to some people that such an enormous difference, with such major impact for world history and the current political situation in the world, could be just because of some gold and silver mines in the Americas. Yet this is for an important part true, although some more detail is needed to explain it, which Blaut provides.
The so-called “Manila galleons” as well as the “silver fleet” of Spain carried such large quantities of precious metals to the European continent that there was a 20% increase in the total flow of gold circulating in the entire Eastern Hemisphere as well as a tripling of the total silver flow during the 16th Century.9 The circulation of metal coins increased eight- to ten-fold in the course of the century.10 This meant of course not only a great increase in wealth for the European powers relative to the rest, because they could now buy in Asian markets at prices that nobody in Asia could compete with, but it also meant that this money would spread quickly through all of Europe itself, through trade, payment of debts as well as robbery.11 But it was not just gold that glittered. An at least as essential role was played by the plantation systems the Americas made possible, for reasons of climate as well as the presence of peoples that the Europeans were willing to work to death and yet whose revolts they did not fear. Disease had wiped out the vast majority of the population of the Americas rather soon after the arrival of European conquerors, but the job was further finished by the slave labor plantation system, in particular for the production of sugar. For several centuries sugar production was probably the most profitable industry in existence: sweeteners had always been popular in food worldwide, but the price of sugar had normally far outstripped other products such as honey, making sugar production a relatively marginal enterprise.12 All this changed with the possibility of cheaply mass producing cane sugar in the Caribbean, which for this reason quickly became the most important of all colonies in the world for its possessors. (It is because of this that France gave up its North American colonies so relatively easily – they were considered of little import compared to Haiti, Guadeloupe etc.) Brazil was also a major sugar producing area. Since the natives in the Americas had quickly been wiped out through the combination of diseases and overwork (whereby overwork must be noted to have greatly increased their susceptibility to disease, so that at least part of the millions of deaths from disease ought to be ‘credited’ to the European conquerors as well), it became necessary to abduct and buy millions of slaves from Africa, which played a significant role in destroying what development existed on that continent, due to depopulation and the way slave raids are purely predatory on productive labor. The exports of Brazilian sugar alone in 1600 were in value worth twice the combined total of all English exports to the entire world in that year.13 Clearly the conquest and plunder of the Americas was profitable to the extreme on a world scale, and in just the ‘right’ period too for the leapfrogging of Europe over Asia! Incidentally, North Africa had been the greatest sugar producer before this, and this production was undermined entirely, sending particularly Egypt into an economic decline along the way.14 Finally, the slave trade itself was also highly profitable, and entirely parasitical on Africa and therefore at its expense. Well-known is the rise of the great port cities of Europe in the 17th and 18th Century on the basis of slave trading, such as Amsterdam and Liverpool.
It is therefore not any specific intellectual capacity on the part of Europeans that allowed their conquests of the known world that have shaped the state of our world today. Nor was it purely an internal European development in the 15th Century, as Brenner would have it15, as before 1492 Europe was behind rather than ahead of India and China in terms of economic development, and feudal relations as well as commercial enterprise no different than in England or France. (If anything, the lower taxation of Chinese serfs compared to European ones would give Chinese landlords more room to squeeze them further, giving Chinese peasants in turn more reason to innovate in production methods and to seek to capitalize on production. Or alternatively Chinese peasant income would be higher, which according to Brenner enables them to adopt new technologies better, like English yeoman farmers did. We know however that the opposite happened: Chinese agriculture declined from the late 14th Century on.16) So if it cannot be sought in Europe itself, the solution to the riddle must be sought outside it. And there, indeed, we have the Americas, then African slavery, which in turn gave the impetus for the industrialization that allowed the final subjugation of India and China. In a neat chronological series, the Europeans systematically conquered and/or plundered each continent that was at the time the weakest link in the chain. The conquest of the Americas necessitated the destruction of Africa through the slave trade, which together gave Europe the advantage allowing it to outpace everyone else in wealth and productivity increases, so that it could finally invade India, which was then used as a stick to beat China with. The development of modern medical science, part of the general superiority in technology on the part of the Europeans, also enabled the final colonization of the African inland. And the rest, as they say, is history.
1. See for example his most famous work of this kind, The Origins of the Family, Private Property, and the State. But Engels has written much more on history, a lot of which has unjustly been neglected in Marxology.->
2. Sir Jack Goody, The East in the West (Cambridge 1996), p. 238.->
3. Joseph Needham, Science and Civilisation in China (Cambridge 1956-2004).->
4. For Indian trade, see e.g. the works by K.N. Chaudhuri.->
5. Eric Wolf, Europe and the People Without History (Berkeley, CA 1982), p. 391.->
6. Janet Abu-Lughod, Before European Hegemony: The World System A.D. 1250-1350 (Oxford 1991).->
7. Wolf, p. 244.->
8. Jim Blaut, Eight Eurocentric Historians (New York, NY 2000). This is probably the only study of the kind discussed here that even refers to itself as (by implication) “Third Worldist”: see p. 65. Also of relevance is its prequel, The Colonizer’s Model of the World (New York, NY 1993). Both are essential reading on these matters, the best in post-orthodox Marxist scholarship.->
9. Jaime Vicens Vives, An Economic History of Spain (Princeton, NJ 1969). See also Blaut 1993, p. 189.->
10. Pierre Vilar, A History of Gold and Money, 1450-1920 (London 1976). See also Blaut 1993, p. 189.->
11. Indeed in the Netherlands there are still songs about the conquest of a Spanish silver fleet by the Dutch privateer Piet Hein, indicating the importance attached in later times to these forced sharings of the spoils, even if few now remember the context.->
12. Blaut 1993, p. 191.->
14. The Egyptian state (the Mamluk dynasties) had been quite reliant on income from its sugar monopoly since Baybars instated it in 1423. See Fage & Oliver (eds.), The Cambridge History of Africa, Vol. III: 1050-1600 (Cambridge 1977), p. 57. The Mamluks were the main power in North Africa and the Palestine-Syria area, so their relative weakening greatly enhanced the possibilities for European expansion in the Middle East in later times.->
15. For more on the Brenner thesis and its relevance to this discussion, see Blaut 2000, p. 45-71.->
16. Wolf, p. 54-56. Cf: Blaut 2000, p. 64-65.->