International Trade and Relations
Created | Updated Jun 18, 2003
International Trade and Relations
Introduction
The aim of this document is to look at the global economy in the twenty-first century and look at the way in which it operates.
Recently there has been much talk of globalisation of the economy as well as international corporations. These are not new; the East India Company was an international corporation, as were many other trading groups. However it is the nature of the global entities that have changed – whereas before they were at the beck and call of the royal and privileged, now they are, nominally at least, independent of individual states. However, as long as the world consists if individual states with separate economies, no entity will truly be free of nationhood.
The first philosophical movement to recognise globalisation as something integral rather than incidental to a capital economy was Marxism:
“The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere…” – The Communist Manifesto
Thus, the global nature of international corporations can be seen as not an effect of capital based economy, but a necessary part of their make up.
Commodity Exchange
One of the most central parts to any economy is that of commodity exchange, the exchanges of goods, ideas, labour etc. between party A and party B.
In a national economy it is possible to analyse it as the parties being merchants, industrialists etc. In a global economy another factor comes into play, that of nationality. This is because commodities are not freely exchanged internationally for many reasons. All countries adopt protectionist measures to make sure that their economies do not become overly reliant on outside sources. Some countries are more successful at this, whilst others simply don’t have the economic power to ensure the long-term existence of their measures. A good example of this is the ban on Tobacco products that Taiwan attempted to implement in the early 1990’s. The U.S.A. threatened economic measures if Taiwan failed to remove the restrictions. The economic power carried by the U.S.A. soon ensured these measures failed. This is one aspect of global economy that I will examine later – power.
Given the national context of international trade it is possible to apply a further attribute to the parties of the transaction. So a national transaction would read as this:
Commodity – Money – Commodity (hereafter shortened to C-M-C).
An international transaction would therefore be written as:
C(X) – M(Y) – C(Z)
X, Y, Z all stand for nations and allow us to look at the special nature of international transactions.
In a national transaction it is relatively easy to identify different levels of parties involved in transactions. Party A sells their labour commodity to Party B, Party B sells the product of A’s labour to Party C, etc.
Of course as regards labour the market is monopolised by the capital holder whilst the supplier is frequently of multiple source. The reasons for the current system are out of the scope of this essay what is important is whether or not a similar system can be seen to operate in the world market.
International Commodity Exchange
As we have seen, there is an extra variable of nationality that makes international commodity exchange distinct from national commodity exchange.
This is significant because of the different states of the economy in different nations. Economies in different nations are inter-linked but they are capable of being at different states of economic development. In South America for instance Argentina is in total economic collapse whereas Brazil has managed to avoid the total collapse of its economy.
The key to international commodity exchange is the flow of commodities between nations, what they consist of and the volumes involved. These factors all relate to economic power.
Economic Power through Commodity Exchange
The import of physical goods into a nation is one way in which economic power may be created. This is because a reliance on imported goods can be created so long as the party exporting the goods is a larger economic power than the one being imported into. In this way the smaller economic power can become reliant on technology from the larger country, but the larger country does not become reliant on the smaller country. This is because the larger country is able to export to other markets whilst the smaller country is left without the essential goods. We can see this with technology products where EDC ’s (Economically Developed Country, see endnote for explanation) produce large numbers of products but only export a fraction of them.
This could be seen as:
C(a) as 10% of production. – M (b) - C(b) as 100% of domestic market.
One party can create another type of economic reliance by importing goods from another country. By buying up large amounts of a commodity one party can raise the production of that commodity above what that country would normally create. This could be seen as:
C(a) as 100% of production – M(b) – C(b) as 20% of market.
A good example of this is the state of sugar production in 1950’s Cuba. During the 1950’s, Cuba’s sugar economy was based entirely on export to the USA. In terms of the flow of commodities, this was a success. However, it failed to take account of social state and there was a revolution in Cuba. The U.S.A., Cuba’s only real trading partner, imposed an economic blockade, including sugar which resulted in Cuba producing more sugar than the market would take off it, given the level of labour used (it tended to be high-labour, low technology). Of course, Cuba’s economy was hit hard, but the Soviet Union rescued it and it started to shift its export economy to Russia and Eastern Block countries.
However, during the early 1990’s we saw a repeat of this problem when the Soviet Union disintegrated and Cuba lost its main export market. Currently, Cuba still exports sugar, but has diversified into other areas. The effects of this are outside the scope of this essay.
As well as power, we can see international economics directly serving the interests of one country, often over the needs of another. This can be seen in the forms of commodity exchange that differ from direct exchange of goods. One commodity is that of labour. One country can export its production capacity to another and use the labour in that country. Often this is not the work of a nation state, but rather capital, as always, following the cheapest source for its supplies. One example is the production of cars for the EDC’s. Originally the cars were produced in the EDC’s themselves by the labour available in those countries. However, the economy developed and as wages rose (although it is possible to claim they decreased in ratio to profit) they began to look elsewhere for the labour supply. The increase in machinery technology meant that prices came down (as fixed costs fell) and production levels rose. The skills required to operate this machinery were also reduced and so more people could carry out the work. Had the production remained in the EDC, wages would have been forced down as the number of people able to do the same work increased. This in turn would have meant a reduced market for the goods they were producing. The solution arrives in ELDC’s. They have a good, unskilled labour supply, and, crucially, it is cheap. Therefore we see the death of production industry in EDC’s, to be replaced by a service economy based on the usage of another countries labour supply. To put this in diagram form it would read:
M(a) – C(b) – C(a)
The money from ‘a’ going to ‘b’ ‘s labour commodity to produce a commodity for ‘a’. In more recent times the commodity coming from country ‘a’ is not a good but a service such as phone support.
The above is a clear example of an economic gain for one party using another party. There are more subtle economic gains to be made though, in the form of achieving intellectual gain. This is no small matter in a capital economy; for it to develop properly a country needs not only capital but also people with skills.
Examples of this can be seen in India or even old Eastern Bloc countries where economic conditions are poor, even for skilled labour. In these situations EDC’s have provided residence and importantly, economic incentives to the skilled labour ensuring it flows into the EDC’s economy. This provides an artificial boost to one economy at the expense of another, often leaving one country in a state of massively reduced economic progress. This occurred in Cuba after the Revolution when many skilled workers were given economic incentive to move to America. This practice continues today, and the ban on Cuban immigrating forms one of the contradictions of USA foreign policy towards Cuba. A cynical observer might say that this allows the USA to both condemn Cuba by pointing to “refugees” and simultaneously utilise the skilled labour (without any of the legal responsibilities that would be enforced should America allow official immigration from Cuba).
Conclusion
This essay is not a conclusive study of the role of international capital as it only looks at its uses in foreign policy. I have also restricted its scope to the basic mechanics of how it works, avoiding the theory behind it. I have done this because the theory behind it has already been written down in Capital, Volume 1 by Karl Marx.
However, there are some interesting points that can be found when the types of international commodity exchange are looked at. Firstly, the most interesting point is that in the Imperial age, powers would conquer areas and exploit the resources there. They would, as “payment”, often modernise the infrastructure. Now, as the economies of the Imperial Nations have developed and moved away from imperialism, the improved infrastructure allowed the economies of liberated countries to develop. Now we have a situation where the world economy is capitalist. This has resulted in a new form of imperialism, with larger economies creating dependencies of both variations and intellectual commodities being exploited.
Now, instead of countries being conquered to be exploited they are conquered because they are exploited. Wars in the middle east (with the notable exception of Israeli wars) are invariably about oil as dictators are supported, denounced and destroyed as the economy needs it. In short the roles of Capital and State are reversed as the state now follows what is necessary to ensure Capital.
Bibliography
Deterring Democracy, Noam Chomsky
Capital, Karl Marx (Everyman edition).
Definitions
Capital: - money invested in order to gain more money.
Money : - money used in order to gain commodities. There is a distinction between money and Money. Money follows the definition given, “money” is the term used to denote the monetary comm. odity as a whole.
Commodity: - any good or service that is exchanged for another commodity.
EDC = Economically Developed Country such as USA or Britain. This is opposed to ELDC such as Egypt, China etc. This is not an absolute term but a relative one. Therefore, EDC’s have not reached the end of economical development (although some economists have tried to say this is the case, notably Fukuyama).
Notes of Diagrams, etc.
The percentages used in this document do not reflect actual figures except where a direct link to a historical situation is given. They are used to indicate the nature of the exchange etc.
Introduction
The aim of this document is to look at the global economy in the twenty-first century and look at the way in which it operates.
Recently there has been much talk of globalisation of the economy as well as international corporations. These are not new; the East India Company was an international corporation, as were many other trading groups. However it is the nature of the global entities that have changed – whereas before they were at the beck and call of the royal and privileged, now they are, nominally at least, independent of individual states. However, as long as the world consists if individual states with separate economies, no entity will truly be free of nationhood.
The first philosophical movement to recognise globalisation as something integral rather than incidental to a capital economy was Marxism:
“The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere…” – The Communist Manifesto
Thus, the global nature of international corporations can be seen as not an effect of capital based economy, but a necessary part of their make up.
Commodity Exchange
One of the most central parts to any economy is that of commodity exchange, the exchanges of goods, ideas, labour etc. between party A and party B.
In a national economy it is possible to analyse it as the parties being merchants, industrialists etc. In a global economy another factor comes into play, that of nationality. This is because commodities are not freely exchanged internationally for many reasons. All countries adopt protectionist measures to make sure that their economies do not become overly reliant on outside sources. Some countries are more successful at this, whilst others simply don’t have the economic power to ensure the long-term existence of their measures. A good example of this is the ban on Tobacco products that Taiwan attempted to implement in the early 1990’s. The U.S.A. threatened economic measures if Taiwan failed to remove the restrictions. The economic power carried by the U.S.A. soon ensured these measures failed. This is one aspect of global economy that I will examine later – power.
Given the national context of international trade it is possible to apply a further attribute to the parties of the transaction. So a national transaction would read as this:
Commodity – Money – Commodity (hereafter shortened to C-M-C).
An international transaction would therefore be written as:
C(X) – M(Y) – C(Z)
X, Y, Z all stand for nations and allow us to look at the special nature of international transactions.
In a national transaction it is relatively easy to identify different levels of parties involved in transactions. Party A sells their labour commodity to Party B, Party B sells the product of A’s labour to Party C, etc.
Of course as regards labour the market is monopolised by the capital holder whilst the supplier is frequently of multiple source. The reasons for the current system are out of the scope of this essay what is important is whether or not a similar system can be seen to operate in the world market.
International Commodity Exchange
As we have seen, there is an extra variable of nationality that makes international commodity exchange distinct from national commodity exchange.
This is significant because of the different states of the economy in different nations. Economies in different nations are inter-linked but they are capable of being at different states of economic development. In South America for instance Argentina is in total economic collapse whereas Brazil has managed to avoid the total collapse of its economy.
The key to international commodity exchange is the flow of commodities between nations, what they consist of and the volumes involved. These factors all relate to economic power.
Economic Power through Commodity Exchange
The import of physical goods into a nation is one way in which economic power may be created. This is because a reliance on imported goods can be created so long as the party exporting the goods is a larger economic power than the one being imported into. In this way the smaller economic power can become reliant on technology from the larger country, but the larger country does not become reliant on the smaller country. This is because the larger country is able to export to other markets whilst the smaller country is left without the essential goods. We can see this with technology products where EDC ’s (Economically Developed Country, see endnote for explanation) produce large numbers of products but only export a fraction of them.
This could be seen as:
C(a) as 10% of production. – M (b) - C(b) as 100% of domestic market.
One party can create another type of economic reliance by importing goods from another country. By buying up large amounts of a commodity one party can raise the production of that commodity above what that country would normally create. This could be seen as:
C(a) as 100% of production – M(b) – C(b) as 20% of market.
A good example of this is the state of sugar production in 1950’s Cuba. During the 1950’s, Cuba’s sugar economy was based entirely on export to the USA. In terms of the flow of commodities, this was a success. However, it failed to take account of social state and there was a revolution in Cuba. The U.S.A., Cuba’s only real trading partner, imposed an economic blockade, including sugar which resulted in Cuba producing more sugar than the market would take off it, given the level of labour used (it tended to be high-labour, low technology). Of course, Cuba’s economy was hit hard, but the Soviet Union rescued it and it started to shift its export economy to Russia and Eastern Block countries.
However, during the early 1990’s we saw a repeat of this problem when the Soviet Union disintegrated and Cuba lost its main export market. Currently, Cuba still exports sugar, but has diversified into other areas. The effects of this are outside the scope of this essay.
As well as power, we can see international economics directly serving the interests of one country, often over the needs of another. This can be seen in the forms of commodity exchange that differ from direct exchange of goods. One commodity is that of labour. One country can export its production capacity to another and use the labour in that country. Often this is not the work of a nation state, but rather capital, as always, following the cheapest source for its supplies. One example is the production of cars for the EDC’s. Originally the cars were produced in the EDC’s themselves by the labour available in those countries. However, the economy developed and as wages rose (although it is possible to claim they decreased in ratio to profit) they began to look elsewhere for the labour supply. The increase in machinery technology meant that prices came down (as fixed costs fell) and production levels rose. The skills required to operate this machinery were also reduced and so more people could carry out the work. Had the production remained in the EDC, wages would have been forced down as the number of people able to do the same work increased. This in turn would have meant a reduced market for the goods they were producing. The solution arrives in ELDC’s. They have a good, unskilled labour supply, and, crucially, it is cheap. Therefore we see the death of production industry in EDC’s, to be replaced by a service economy based on the usage of another countries labour supply. To put this in diagram form it would read:
M(a) – C(b) – C(a)
The money from ‘a’ going to ‘b’ ‘s labour commodity to produce a commodity for ‘a’. In more recent times the commodity coming from country ‘a’ is not a good but a service such as phone support.
The above is a clear example of an economic gain for one party using another party. There are more subtle economic gains to be made though, in the form of achieving intellectual gain. This is no small matter in a capital economy; for it to develop properly a country needs not only capital but also people with skills.
Examples of this can be seen in India or even old Eastern Bloc countries where economic conditions are poor, even for skilled labour. In these situations EDC’s have provided residence and importantly, economic incentives to the skilled labour ensuring it flows into the EDC’s economy. This provides an artificial boost to one economy at the expense of another, often leaving one country in a state of massively reduced economic progress. This occurred in Cuba after the Revolution when many skilled workers were given economic incentive to move to America. This practice continues today, and the ban on Cuban immigrating forms one of the contradictions of USA foreign policy towards Cuba. A cynical observer might say that this allows the USA to both condemn Cuba by pointing to “refugees” and simultaneously utilise the skilled labour (without any of the legal responsibilities that would be enforced should America allow official immigration from Cuba).
Conclusion
This essay is not a conclusive study of the role of international capital as it only looks at its uses in foreign policy. I have also restricted its scope to the basic mechanics of how it works, avoiding the theory behind it. I have done this because the theory behind it has already been written down in Capital, Volume 1 by Karl Marx.
However, there are some interesting points that can be found when the types of international commodity exchange are looked at. Firstly, the most interesting point is that in the Imperial age, powers would conquer areas and exploit the resources there. They would, as “payment”, often modernise the infrastructure. Now, as the economies of the Imperial Nations have developed and moved away from imperialism, the improved infrastructure allowed the economies of liberated countries to develop. Now we have a situation where the world economy is capitalist. This has resulted in a new form of imperialism, with larger economies creating dependencies of both variations and intellectual commodities being exploited.
Now, instead of countries being conquered to be exploited they are conquered because they are exploited. Wars in the middle east (with the notable exception of Israeli wars) are invariably about oil as dictators are supported, denounced and destroyed as the economy needs it. In short the roles of Capital and State are reversed as the state now follows what is necessary to ensure Capital.
Bibliography
Deterring Democracy, Noam Chomsky
Capital, Karl Marx (Everyman edition).
Definitions
Capital: - money invested in order to gain more money.
Money : - money used in order to gain commodities. There is a distinction between money and Money. Money follows the definition given, “money” is the term used to denote the monetary comm. odity as a whole.
Commodity: - any good or service that is exchanged for another commodity.
EDC = Economically Developed Country such as USA or Britain. This is opposed to ELDC such as Egypt, China etc. This is not an absolute term but a relative one. Therefore, EDC’s have not reached the end of economical development (although some economists have tried to say this is the case, notably Fukuyama).
Notes of Diagrams, etc.
The percentages used in this document do not reflect actual figures except where a direct link to a historical situation is given. They are used to indicate the nature of the exchange etc.
