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The Evolution of the International Economic Order

The Evolution of the International Economic Order

Copyright Date: 1978
Pages: 96
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  • Book Info
    The Evolution of the International Economic Order
    Book Description:

    Do rich industrial nations underestimate the threat to their economic stability posed by demands for a new international economic order? Are the developing countries wrong to assume that their economic advancement depends on a transfer of wealth from the richer nations? Sir W. Arthur Lewis's provocative analysis of the present economic order and its origins suggests that the answer to both questions is yes.

    Professor Lewis perceptively illuminates aspects of recent economic history that have often been overlooked by observers of international affairs. He asks first how the world came to be divided into countries exporting manufactures and countries exporting primary commodities. High agricultural productivity and a good investment climate allowed countries in Northwest Europe to industrialize rapidly, while the favorable terms of trade they enjoyed assured them and the temperate lands to which Europeans migrated of continuing dominance over the tropical countries.

    At the core of the author's argument lies the contention that as the structure of international trade changes, the tropical countries move rapidly toward becoming net importers of agricultural commodities and net exporters of manufactures. Even so, they continue to depend on the markets of the richer countries for their growth, and they continue to trade on unfavorable terms. Both of these disadvantages, he concludes, stem from large agricultural sectors with low productivity and will disappear only as the technology of tropical food production is revolutionized.

    Originally published in 1978.

    ThePrinceton Legacy Libraryuses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These paperback editions preserve the original texts of these important books while presenting them in durable paperback editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

    eISBN: 978-1-4008-6851-3
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
    (pp. vii-2)
    W. A. L.
    (pp. 3-3)

    In international circles the topic of the day is the demand of the Third World for a new international economic order. My topic is the evolution of the existing economic order: how it came into existence not much more than a century ago, and how it has been changing.

    The phrase “international economic order” is vague, but nothing would be gained by trying to define it precisely. I will discuss certain elements of the relationship between the developing and the developed countries that the developing countries find particularly irksome. These are:

    First, the division of the world into exporters of...

    (pp. 4-13)

    How did the world come to be divided into industrial countries and agricultural countries? Did this result from geographical resources, economic forces, military forces, some international conspiracy, or what?

    In talking about industrialization, we are talking about very recent times. England has seen many industrial revolutions since the thirteenth century, but the one that changed the world began at the end of the eighteenth century. It crossed rapidly to North America and to Western Europe, but even as late as 1850 it had not matured all that much. In 1850 Britain was the only country in the world where the...

    (pp. 14-20)

    The development of the agricultural countries in the second half of the nineteenth century was promoted by two vast streams of international migration. About fifty million people left Europe for the temperate settlements, of whom about thirteen million went to what we now call the new countries of temperate settlement: Canada, Argentina, Chile, Australia, New Zealand, and South Africa. About the same number—fifty million people—left India and China to work mainly as indentured laborers in the tropics on plantations, in mines, or in construction projects. The availability of these two streams set the terms of trade for tropical...

    (pp. 21-25)

    Now let me come to more recent developments. I must first make the point that, in spite of the poor factoral terms of trade, the opportunity to trade did substantially raise the national incomes of those tropical countries that participated in trade. This was partly because prices had to be set at levels that would bring the produce out. So, although prices were based on the low productivity in food, they had to be set somewhat higher. Just as wages were higher in Australia and Argentina than in Paris or London, so also wages were higher in Ceylon or Burma...

    (pp. 26-30)

    The year 1929 was a turning point in the international economy: the start of the greatest depression the world has seen in the last two centuries. This great depression played havoc with the tropical countries and gave force to two movements that are still reverberating—the quest for international commodity agreements and industrialization for import substitution.

    The commodity terms of trade moved sharply against agriculture in the 1930s. The price of tropical crops is tied to the price of food, through substitution possibilities; but the price of food in terms of manufactures is in practice determined mainly by acceleration or...

    (pp. 31-37)

    A second change has taken place since 1929. The great depression moved the commodity terms of trade against the tropical countries, and also dried up the demand for their exports. As their purchasing power fell, money for imports vanished. So the depression gave a direct fillip to industrialization for import substitution, especially in Latin America. Even more important, it broke the back of the political resistance to industrialization—whether it had been the resistance of imperial powers or the resistance of domestic vested interests in primary production.

    After the Second World War the tropical countries plunged into import substitution. Rapid...

    (pp. 38-46)

    Europe has been a center of international finance for several centuries, as the Italians, the Dutch, and the British followed in each other’s footsteps. Britain assumed the mantle of chief purveyor immediately after the Napoleonic war, but after a disastrous flurry with lending to Latin America in the 1820s, concentrated for the next three decades on Europe and North America, and did not lend significant sums to what is now the Third World until after the creation of the Indian Empire in 1857. Thereafter Britain was joined by France and Germany, and at the end of the century by the...

    (pp. 47-57)

    So much for the causes of financial dependence. I wish now to consider two disadvantages of this dependence that were already evident before the First World War. The first of these disadvantages is the vulnerability of debtors to international recession; the second is the speed with which the debt charges mount.

    Exporters of primary products are vulnerable to international recession, whether they borrow or not, because the prices of their exports swing very widely over the course of the trade cycle. Various authors have sought to assess whether the degree of fluctuation was greater for agricultural or for industrial countries,...

    (pp. 58-66)

    Let me now leave the problem of fluctuations and address the second big disadvantage of financial dependency, namely the speed with which the debt charges pile up.

    Domar has given us the formula for the ratio of debt charges to new annual lending.* It rise; asymptotically to a limit

    $\frac{D}{F}L = \frac{{a + i}}{{a + g}}$

    whereais the annual repayment ratio (on the diminishing balance principle),iis the rate of interest, andgis the rate of growth of annual lending. Thus, if the rate of interest is 5 percent, and annual lending grows by 5 percent, the debt charge will mount until...

    (pp. 67-75)

    The final element of the international economic order that I wish to consider is the dependence of the developing countries on imports into the developed countries for their engine of growth. When the developed countries are expanding, as in the thirty years up to 1913, the developing countries move ahead; when the developed are depressed, as they were for the nearly three decades that included the two world wars, the developing are almost at a standstill. And when the developed revive and grow faster than ever, as between 1950 and 1973, the developing also grow faster than ever.

    We even...

    (pp. 76-78)

    The preceding lectures were historical and analytical, and therefore deliberately refrained from advocating solutions. However, readers who need solutions tend to read them into a text, and to attribute to the writer positions which he does not hold. In order to minimize misunderstanding, it may help to indicate briefly what the historical record seems to suggest as areas for improving economic relations between developed and developing countries.

    1. The principal cause of the poverty of the developing countries, and of their poor factoral terms of trade is that half their labor force (more or less) produces food at very low...

  15. INDEX
    (pp. 79-82)
  16. Back Matter
    (pp. 83-83)