Grasping Reality on TypePad, by Brad DeLong

3086 words https://github.com/braddelong/public-files/blob/master/lecture-inequality-text.pdf

The large populations and low levels of material wealth and agricultural productivity in China and India checked the growth of wages. Workers could be cheaply imported and employed at wages not that far above the physical subsistence level. Low wage costs meant that commodities produced in countries open to Asian immigration were relatively cheap. And competition from the Malaysian rubber plantations checked growth and even pushed down wages of the Brazilian rubber tappers as well. The late nineteenth century saw living standards and wage rates become and remain relatively low (although higher than in China and India) throughout the regions that were to come to be called the third world. And as wages in economies that were to become the global periphery were checked, the prospects for having a rich-enough middle class to provide demand for a strong domestic industrial sector ebbed rapidly.

As a result, the chain of causation went thus:

• The openness of some places where tropical goods could be produced to migration from China and India pushed down their prices in world markets.
• Low prices in the world markets meant low wages everywhere tropical goods were produced.
• Low wages meant no prosperous middle-class anywhere tropical goods were produced.
• No prosperous middle-class meant no mass domestic demand for manufactures.
• No domestic demand for manufactures meant no chance of starting industrialization.
• No chance of starting industrialization meant no building a community of engineering practice.
• No community of engineering practice meant no taking the next step and advancing in industrialization.
• No advancing in industrialization meant no walking onto the escalator to modernity and prosperity.

That, in a nutshell, is the story of the relative underdevelopment of the global south. It was not that globalization left the global south alone in the years before World War I. It was that globalization put it on a road that made its industrialization more difficult, even though the openness of world markets made it more prosperous in that pre-World war I half century seen rightly as a global El Dorado.