Omar S. Dahi and Firat Demir, South-South Trade and Finance in the Twenty-First Century: Rise of the South or a Second Great Divergence. London: Anthem Press, 2016.
Jadaliyya (J): What made you write this book?
Omar Dahi (OD) and Firat Demir (FD): We wrote this book for several reasons. We’ve been teaching development economics, international trade and international finance for over a decade and we found no book in those fields or within development studies more broadly that can serve as an introduction to both the history and current debates on South-South economic relations and how these relate to broader discussions about economic development in the global South. When Chinese President Xi Jinping claimed in September 2015 in a UN session on South-South cooperation, that “China was a developing nation belonging to the third world,” he was invoking a particular history of mobilization and economic cooperation attempts in the post-war period. Many current students of development studies or international economics are unaware of this history and its necessary to understand why such a statement may resonate (positively or negatively) in parts of the global South today. Chapter 2 of our book provides that historical context. Second, over the past decade we’ve been publishing articles on various aspects of South-South economic relations including trade, financial flows, technology transfer and institutional change in peer reviewed academic journals and we wanted to bring the findings from these articles to a broader non-specialized audience in an accessible manner.
In the 1970s and 1980s, mainstream development and trade theory viewed South-South relations with skepticism or disdain and considered part of wrong-headed developing country protectionist policies. Conversely classical and heterodox development economists as well as some dependency and world-systems analysts saw in South-South integration a potential for collective self-reliance and an alternative model for development. In the post 1990 period, the script has flipped in a way. First, South-South trade and finance has risen from being a marginal phenomenon in the global economy to being a significant force not just as a share of South country exports but also as a percentage of global trade. This has been accompanied by, in the past fifteen years, the WTO, World Bank, and other mainstream organizations becoming advocates of South-South integration. Meanwhile, criticisms have emerged on the dangers of uneven development being replicated within the global South. In this book we document this rise in South-South integration while examining the question of whether and how can South-South integration be beneficial for development.
Finally, we wanted to draw attention to the divergence within the global South between what we refer to as the “Emerging South” and the “Rest of South.” While many countries in the former group are experiencing some success in industrial and technological development, the latter are experiencing rapid de-industrialization and being locked in to primary and resource intensive product exports.
J: What particular topics, issues, and literatures does the book address?
OD and FD: Our approach examines South-South economic relations from a sympathetic yet critical perspective. In doing so, we try to answer the main questions that are crucial to a more complete understanding of South-South exchanges. What have been the areas in which developing countries have forged successful economic partnerships with one another? What are the patterns and characteristics of developing country exports in terms of structure (type of products exported and imported), intensity (amount of trade by volume and dollar value) and direction (to the North or to the South)? Is South-South trade, as many of its advocates claim, relatively concentrated in industrial and more sophisticated products and thus presents higher potential for economic development? Has South-South trade and finance benefitted all countries evenly or just a few? What are possible downsides of South-South trade and how can developing countries avoid the pitfalls and maximize the benefits?
Chapter one lays out the main arguments in the book and chapter two provides a historical context since World War II for understanding South-South economic relations and includes discussion of the Non-Aligned Movement, Regional trading agreements, the WTO and Bilateral Investment Treaties. Chapter three is a large survey and synthesis of economic theory on international trade and finance including static and dynamic neoclassical trade theory, developmentalist and structuralist approaches, North-South models of uneven development, radical political economy, and international political economy (IPE) approaches. Chapter four provides an empirical examination of North-South and South-South economic exchanges including both trade and financial flows.
Chapter five synthesizes the findings from previous chapters to explore what South-South economic exchanges imply for development policy today, asking what a non-neoliberal or ‘new-developmentalist’ economic policy might look like. The chapter broadens the discussion to include the special case of the rise of China and debates over its impact (e.g. de-industrialization, land grabs, etc.), the BRICS bank and the Asian Infrastructure Investment Bank, the impact of South-South trade on institutions in South countries. We end with an 8-point framework for measuring the channels of South-South interaction.
We recommend the whole book of course, though general readers wanting to follow the main arguments may read chapters one, two, and five. Readers interested in more in depth economic and political economy theoretical and empirical analysis should also check out chapters three and four.
J: How does this relate/depart from your previous research?
OD and FD: The general themes are in line with our previous research on South-South trade. There are two differences. The first is in contextualizing our research on the topic within the broader historical context of Third World and development studies to demonstrate more clearly the continuities and departure between the post-1990 waves of South-South cooperation with those that took place during the late 1950s to the early 1980s or the “third wordlist” period. Second, as the full extent of this post-1990s wave of South-South relations unfolded we became more critical of its outcomes. This took time to develop. For example, there was hardly any research done on the recent upswing in China-Africa relations prior to 2003/2004, now there’s a significant literature. In the past decade we’ve become more critical of the forms uneven development that are taking place within the global South and started studying ways in which the North-South divergence can be avoided within the South-South dimension. The sudden rise of China and its increasing influence in the global South has also made us more cautious in our approach to South-South relations as these exchanges are not always a win-win situation. In fact, they often involve unevenness in the bargaining power capabilities of exchanging Southern countries very much as has been in the North-South case. So while it is not a departure in terms of themes, the findings in the book are a more thorough examination of the topic that is missing from our previous articles and we think, writings of other scholars on the topic. We also examine, in addition to trade and finance, issues like bilateral investment treaties and WTO dispute settlement, institutional development, land-grabs, and global governance to give a fuller picture than that in our previous work.
J: Who do you hope will read this book, and what sort of impact would you like it to have?
OD and FD: Our book is directed towards anyone interested in international economics and development studies including undergraduate and graduate students, NGOs, practitioners, and policy makers. We believe it also contributes to debates on economic alternatives, particularly to neoliberal economic policies and so we hope it catches the eye of NGOs, activists and scholars involved in those discussions. The volume and intensity of trade and financial flows by the countries we refer to as the Emerging South cannot be ignored or taken for granted. This is why even if the ideological fervor for neoliberalism has wavered, due to critiques from social movements and reoccurring crisis, there are tremendous pressures and barriers to poorer developing countries that emanate from other sources, in this case, industrial development, technological upgrading and geopolitical power of the other South countries.
Ideally, we hope this book will spur serious discussion within the global South to take up the issue of uneven development resulting from South-South exchanges and to be more purposeful about issues of mutually beneficial economic agreements to include technology transfer and industrial upgrading. There is also the issue of global governance: who is speaking on behalf of the South? Democratization of the IMF and World Bank through increasing voting shares of China has been at the expense of decline in voting shares of African and Middle Eastern countries. We hope this book contributes to efforts at increasing representation and the voices of less powerful and poorer countries within the global South. Last but not least, we expect this book to initiate a new conversation among scholars to analyze different dimensions of South-South exchanges, preferably tackling those areas that we have not given due space in this book, including labor rights, institutional development and democratization, human rights, migration, and capabilities building.
Excerpt from Chapter One:
“In 2012, a series of posters advertising the London-based HSBC bank caught the eyes of international travelers in European, Asian, and North American airports. Hung on walls alongside moving walkways, the posters featured ironic or humorous photographs, each with a sentence above it starting with the words “In the future.” Created by the pre-eminent international advertising agency J. Walter Thompson and designed to portray HSBC as forward thinking, the marketing campaign highlighted different ways HSBC was at the cutting edge of banking and commerce worldwide.
One poster in particular is relevant to our book. The poster showed a photograph of a gray Chinese terracotta warrior with a steely gaze. Everything about his image was similar to the classic photos of the terracotta warrior statues except for one detail: instead of boots the warrior wore bright yellow and green flip-flops. Over the photo was the line, “In the future, South-South trade will be norm, not novelty.” Four sentences below the photograph elaborated on the idea: “Direct trade between fast growing nations is reshaping the world economy. HSBC is one of the leading banks for trade settlement between China and Latin America. There’s a new world emerging. Be part of it.” The HSBC poster provides an ideal entry point for a critical examination of South-South trade: the ideas conjured by the terracotta warrior photo and the poster in general are a perfect metaphor for the pervasiveness -- and the complexity -- of the economic activity that characterizes this whole vast subject.
The virtues of trade between and among countries that belong to what has long been called “the Global South” or simply “the South” are now trumpeted not only by giant corporations and major branding agencies but also by public national and international institutions. In 2003, the UN General Assembly decided to observe the 12th of September every year as the United Nations Day for South-South Cooperation, in recognition of how trade and financial exchanges between two or more countries within the global South is “an important element of international cooperation for development,” offering “viable opportunities for developing countries and countries with economies in transition.” The Assembly chose that particular day in commemoration of the adoption, in Buenos Aires on September 12, 1978, of the Buenos Aires Plan of Action for Promoting and Implementing Technical Cooperation among Developing Countries.
Meanwhile, the World Trade Organization (WTO) dedicated a major section of its 2003 World Trade Report to examining the growth of such trade (WTO, 2003). Amplifying the WTO’s message, the United Nations Industrial Development Organization (UNIDO) in 2006 published its highly significant study Industrial Development, Trade and Poverty Reduction through South-South Cooperation (UNIDO, 2006). Not to be outdone, the World Bank came up with its Global Development Horizons 2011 report dedicated to “Multipolarity,” exploring the effects of the rise of the Emerging South on the rest of the world (World Bank, 2011). Later, it focused its flagship report for Latin America in 2015 on the region’s performance, with an emphasis on South-South trade, titled “‘Latin America and the Rising South: Changing World, Changing Priorities.” (Torre et al., 2015), and the press briefing for the report called the South “new masters of the global economy.” In 2013 the United Nations Development Project (UNDP) named its 2013 Human Development Report “The Rise of the South” (UNDP 2013), and there is now a separate office for South-South cooperation within the UN itself.
The press was paying attention. The Wall Street Journal hailed the growth of South-South trade as perhaps “the opening of a new epoch of globalization” (Wall Street Journal, 2008), and The Economist Intelligence Unit dedicated a full issue of its Growth Crossings series, titled “Chain reactions,” to examining how “trade between emerging markets is reshaping global supply chains” (Economist, 2015). Eventually, the subject of South-South trade and, increasingly, South-South finance re-entered mainstream scholarly discussions, after so many years when economics departments in European and North American universities had scorned it as a relic of the bygone era of economic nationalism that followed World War II. The number of academic journal articles reflecting this phenomenon has mushroomed, and this proliferation of interest does not even count the (now slightly curbed) general enthusiasm for analyzing the BRICS – the popular acronym for the rapidly expanding economies of Brazil, Russia, India, China and South Africa.
Trade and finance between fast-growing nations are indeed reshaping the world economy -- but in what way, and to whose benefit? In the second decade of this millennium, some states are trading profitably and widely while others – typically the least developed -- are left out. And so the questions multiply. One obvious and, we think, crucial question is, Can the poorest countries of the global South truly be part of the new emerging world economic order, and, if so, how? Less obviously, but with broader implications, do South-South economic exchanges today still hold the promise of an alternative path for development, or has “South-South trade” become just another marketing slogan? Building on a decade and a half of research and publications on South-South economic relations, this book is our attempt to answer these questions. Although by now plenty of studies have examined different aspects of this subject, we are attempting what we believe is the first study of South-South economic exchanges, both in trade and finance, in a comprehensive framework.
Before describing what this book has to offer, we should ask whether or not this fascination with South-South economic exchanges is really warranted. We believe it is. From the post-World War II decades of the 1950s until the late 1980s, South-South trade represented roughly 5-10 per cent of all global trade. However, from 1990 to 2000 this number increased from 10 per cent to 16 per cent. By 2005 it was 20 per cent, and by 2013, 31 per cent of all global trade was between or among countries of the South.
Many other statistics illustrate the same economic evolution. Here are a few:
· In 1950, when international trade within the South was in its infancy, exports from the South to the rest of the world already accounted for approximately 30 per cent of all world trade, and by 2013 that share had risen to 54 per cent.
· Over the same period, the direction of those exports shifted markedly. By 2013, more than 58 per cent of all Southern exports were being shipped to other Southern countries.
· The structure of this trade has also changed significantly, as manufactured goods have begun to account for a significant portion of global South exports, both to other countries of the South and to the rest of the world. In 1970, the global South accounted for 7 per cent of global manufactures exports and only 2 per cent of the worldwide export of high-skill and technology-intensive manufactures. In 2012 its share in global manufactures exports surged to 47 per cent, and even more importantly, its share in global high-skill manufactures exports climbed to 56 per cent. Moreover, by 2012, manufactures accounted for three quarters of all South-South merchandise exports and more than half of all Southern manufactures exports to the rest of the world. While the share of high-skill manufactures was a bare 2 per cent of South-South exports in 1970, it climbed 25 per cent in 2012.
We see a similar pattern in global financial flows, as banks and industries – with frequent encouragement from their own governments and from those of their intended hosts -- have increasingly sought new opportunities in previously neglected places. The share of the global South in world foreign direct investment (FDI) inflows, for example, increased from less than 30 per cent in 1970 to over 60 per cent in 2013. During this period the South has also become a major investor in other countries, increasing its share in global FDI outflows from 0.3 per cent in 1970 -- i.e. one third of one percent -- to just below 40 per cent in 2013, and more than 60 per cent of these flows went to other Southern countries. In 2010 Southern countries from Asia accounted for 68 per cent of all mergers and acquisitions in Latin America and the Caribbean region -- three times their total accumulated acquisitions in this region over the previous two decades. As of 2013, six global South countries were among the top 20 investors in the world, China alone ranking number two in global FDI inflows and number three in outflows.
Another indication of the growing interconnections between different countries is the significant increase in the number of preferential trade agreements (PTAs) and their importance in world trade since the 1990s. From the 1950s through 2014, at least 266 PTAs were reported to the WTO, 88 per cent of them signed after 1988. All together, by 2014 these agreements accounted for 53 per cent of all world trade -- and 75 per cent of them have been between countries of the global South. A parallel development has taken root with investment flows. By 2015, 3,331 bilateral investment treaties (BITs) had been signed and were in force worldwide, 1,292 of them between Southern countries and more than half of those signed after 2000. In these tectonic shifts in global trade and finance we are witnessing a reordering of the global economy as well as of its management, whether it be the management of world finance through the IMF or development planning through the World Bank or the new BRICS Bank.”
[Excerpted from South-South Trade and Finance in the Twenty-First Century: Rise of the South or a Second Great Divergence, with author permission (c) 2016].