The Wrong Conclusion on Comparative Advantage
Comparative advantage allowed all counties to effectively communicate and trade with each other, yet Raul Prebisch and Vijay Prashad find fault with this notion. Prebish’s essay, “The Economic Development of Latin America and Its Principal Problems,” and Vjay Prashad’s “Buenos Aires” chapter of The Darker Nations a People’s History of the Third World elude to how the First World powers, Western Europe and the United States of America, dominated Third World companions with furious power. Prebisch and Prashad all fail to recognize the ability of the First World’s ability to generate capital and social progress in foreign territory.
The United States was a savior to the Third World and the post World War II-ravaged Europe, not the power-hungry barbarians of which it has been depicted in Prebisch’s essay and Prashad’s book. The country was considered a poor example of how the Third World should conduct itself when H.W. Stinger and Prashad (paraphrasing) say,
“…the establishment economists in the Unites states and Europe as well as their leading politicians saw the development economists and the leaders of the Third World as ‘Irresponsible wild men, radical utopians who should at most be entrusted with minor extension and offshoots’ of policy already decided by the First World-dominated institutions” (Prashad 64).
Stinger neglects to fully recognize the accomplishments of the United States. Without its ability to create industry, let alone generate capital in foreign markets, Europe might not have truly recovered nor would the Third World have a solid model of a country to emulate. Europe, after a $13 billion investment, managed to completely recover its finances after the war and even, in some cases, had more money before WWII even began (65). The comment truly insults the accomplishments of the United States’ generousity.
Prebisch argues that the darker nations have been ravaged by the colonialism of the First World and are now impoverished (66). Really, it is the responsibility of the leaders of the darker nations to improve their respective economies even during harsh circumstances. For example, Sudanese dictator Omar al-Bashir has the distinction of organizing a military coup and overthrowing his own government to achieve power, supports radical Islam, has done virtually nothing to fix Sudan’s years-long Civil War, and has several refugees displaced due to the Darfur conflicts (“Profile: Sudan's President Bashir”). His actions have absolutely nothing to do with neither colonialism nor the capitalist tactics of the United States; he is just an irresponsible leader.
Also, Third World companies needed to learn how to better utilize their raw materials and distribute their finished products in the 1940s (Prashad 65). The United States and Europe tried to solve this by using a system of comparative advantage. Comparative advantage means that a country should specialize in producing what it can best produce and then distribute accordingly (67). Prashad states that Prebisch’s main argument is, “The theory of comparative advantage… stifles genuine economic development. And further, since modernization theory promotes the view that national income and investment capital must be raised form the export of raw materials, it will only entrap the new nations more deeply” (67). Prebisch believed that the other countries were being short-changed by the First World nations. The British and The United States should not be faulted for poor trading, but rather for making an attempt to provide other less fortunate nations with solid economic opportunity. Even Prashad notices that Prebisch contradicts himself when he says, “From his experience and studies, Prebisch concluded that the new nations needed to move from production of raw materials to that of manufactured goods” (65). Prebisch offers no alternative solution to comparative advantage. In contrast to Prebisch theory, thanks to comparative advantage, Niger, a troubled Third World country, is the world’s largest exporter of Uranium.
The Second World nations, the Soviet Union and China, also used similar trade tactics. Because they did not have access to the massive financial armory at the disposal of the far richer First World, The USSR and China adopted a socialist stance with various Third World countries (72). The Soviet Union could not produce new necessary products for a high demand Third World. To alleviate the demand, Prashad says, “[Great Brittain] would then ship these rusty machines to India as new and update their own physical plants in the British Isles. Indian industry, the, paid for some of the refurbished British physical plants in the 1950s. Such fraud occurred along the grain of import substitution (73). This was not fraud, this was smart business. India needed supplies and could not supply it for themselves. It was not the job of British to give the best equipment possible, all India needed to do was refurbish the equipment. Prashad seems rather critical of a charitable gesture.
Prebisch said, “We thought that an acceleration of the rate of growth would solve all problems. This was our great mistake. What was needed alongside growth were ‘changes in social structure,’ indeed a “complete social transformation” (73). Prebisch shows that he was completely oblivious his own answer: Capitalism works. Prebisch should have put aside his Marxist values and realized that capitalism has enhanced the overall economy and, as long as all parties fully participated, made the world function on the same playing field. Prebisch even states he might have even endorsed capitalism when Preshad analyzes, “This [Prebischian theory] did not mean that every region should produce everything for itself and therefore live in a state of pure autarky. On the contrary, trade is crucial because some regions have smaller markets than others, and raw materials and agricultural lands are not evenly distributed along national lines” (67). Ultimately, both authors contradict each other and inadvertently acknowledge the accomplishments of the First World’s effect on the Third World.
Works Cited
"BBC NEWS Africa Profile: Sudan's President Bashir." News.Bbc.Co.Uk. 25 Nov. 2003. BBC News. 22 Jan. 2008 .
Prashad, Vijay. The Darker Nations a People’s History of the Third World. New York City: The New P, 2007. 62-74.
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