Unequal exchange: Systematic drain of value from Global South

THE alluring facade of capital accumulation in the global ‘core’ economies conceals a cruel reality. Its sustained prosperity is predicated on the vast systematic appropriation of labour and resources from the Global South’s peripheries and semi-peripheries. In the contemporary world, this colossal appropriation of value is orchestrated primarily through the mechanism of ‘unequal exchange in international trade’.

- By Dhanusha Gihan Pathirana

The garments and apparel sector in Sri Lanka provides a stark and concrete illustration of unequal exchange, specifically the transfer of value through wage differentials

Power asymmetry and value transfer

Core states and firms leverage their overwhelming geopolitical and commercial dominance to systematically compress wages, prices, and profits in the Global South. This effect is visible both across national economies and, critically, within global commodity chains that drive over 70% of world trade, shown by recent studies of Jason Hickel, Morena Lemos, and Felix Barbour in ‘Nature Communications’. This results in a world economy where Southern prices are systematically lower relative to their Northern counterparts, forcing Southern states and producers to export ever-increasing amounts of labour and resources, embodied in their traded goods, just to afford a comparatively lower intrinsic value of imports at higher monetary costs. This dynamic enables Northern economies to net-appropriate value, year after year, delivering enormous unearned benefits to Northern capital and consumers.

Insight of Marx

The theory of unequal exchange finds its intellectual genesis in the unfinished but profound work of Marx on international trade. Far ahead of his time, Marx conceptually anticipated what is now known as the Penn Effect and the foundational logic of Purchasing Power Parity (PPP). Long before the emergence of systematic work on PPP during World War I, or the tongue-in-cheek creation of the Big Mac index in 1986, Marx observed the inherent global inequality in value expression.