3.3. What maintains global inequality?
What explains why the rich developed economies ("Global North") are able to continually exploit the resources of poorer and economically weaker countries ("Global South")? A team of researchers led by Jason Hickel explored this question in studies published in 2022 and 2024.
As we saw in the previous section, more than half of the monetary value added of production is generated in the wealthy countries of the Global North. The reason for this, however, is not that more or better work is done in the Global North, but that wages for the same level of work in the Global North are 8-19 times higher than in the Global South (8 x for high, 14 x for medium and 19 x for low-skilled work). In 2021, the Global North accounted for only 10% of global hours worked, but 56 % of all wages paid.
According to the researchers, the inequality of economic exchange is not about where value is created, but where it is captured. It is therefore largely a question of who has the power to determine the level of wages and the prices of goods and services. In the Global North, organised labour has been able to influence its working conditions and the level of wages; in the Global South, working conditions are much more determined by employers. This helps to explain why the same job pays very different wages in different countries.
The developed economies of the Global North also have the power to determine the prices of inputs and final goods on global markets. Large companies in the Global North may be the only major buyers of raw materials and other inputs, giving them a good opportunity drive down input prices. Patents, on the other hand, are a key tool in determining prices of the final products, allowing technology leaders in advanced economies to dictate the prices of final sold products.
In the institutions that regulate international trade and financial systems, such as the World Trade Organisation (WTO), the World Bank and the International Monetary Fund (IMF), the economies of the Global North also play a dominant role. These institutions promote free trade, which primarily benefits developed economies and prevents poorer economies from protecting their economies, for example through import tariffs. Outward financial flows and poorer credit conditions than in the developed economies also play a role in the problems of the poorer countries.
Development aid
The 2022 analysis by Hickel and partners also looks at development aid in relation to inequalities in economic exchange. When world trade prices (per input) were set to match the export prices of developed countries, the benefit to aid-giving countries from cheap imports was eighty times greater than the amount of aid provided. If, on the other hand, the calculation was based on actual average world trade prices, the benefit from cheap imports was thirty times higher. Regardless of the method of calculation, the amount of aid given is only a small fraction of the trade benefits that rich countries derive from unequal pricing.
'Developed' and 'developing' countries
The terms developed and developing countries are problematic in the sense that they are often associated with ideas of developed Western countries and poor and miserable 'other countries'. Furthermore, the development of Western societies has not always been positive and has resulted in significant ecological problems, including climate change. For example, the World Bank has moved to use a four-tier classification based on income, but the development-based terminology is still widely used in e.g. academic research literature
When talking about developing countries, one must always remember that the differences not only between developing countries but also within them have increased (Bulkeley et al 2013). In international environmental policy, it is becoming increasingly difficult to speak of developing countries as one unified group, and the differing interests of developing countries also make it increasingly difficult for them to show geopolitical solidarity with each other.
In many so-called developing countries, the environmental problems of the most affluent people are more reminiscent of those of developed countries, such as overconsumption and related waste problems. Environmental problems and risks also vary between developing countries. For example, climate change threatens different countries in different ways; for Pacific island countries such as Fiji and Kiribati, climate change and sea-level rise pose an existential threat.
More material online (in Finnish)
In Karoliina Knuuti's article from 2023, Finnish researchers and experts open up the history of development aid and the mechanisms of global inequality. Kehitysapua köyhiltä rikkaille – hyödymmekö köyhistä maista enemmän kuin ne hyötyvät avustamme? - Maailman Kuvalehti.
Knuuti's article from 2024 discusses the history and future of development cooperation also from Finland's perspective. Mitä jos Suomenkin ongelmia ratkoisivat afrikkalaiset insinöörit? – voimistuvat liikkeet kritisoivat kehitysyhteistyöalaa rasismista ja kolonialismista ja kysyvät, kuka järjestelmästä hyötyy - Maailman Kuvalehti
For reflection: how could wealthy countries best promote good development in the poorest countries? You can share your reflections and discuss with other course participants on the page linked below.
Would you like to comment something on this section? Voluntary.