Does the Singer-Prebisch thesis still apply nowadays or are there alternative theories?

Question

Does the Singer-Prebisch thesis still apply nowadays or are there alternative theories?

Answer 1

Singer-Prebisch basically states that economies that rely on primary rpoducts face ever declining terms of trade, that is the value of what they export keeps dropping as compared to what they are buying.

The idea is therefore to diversify so as to move out of this 'trap'.

It has been extended in the area of immiserising growth, but the basic statistics show that they were not wrong.

However, I think that we should take a fresh look at Singer-Prebisch in the sense that we need to look at the facotrs that cause this trend. It is NOT a 'natural'/'perfectly competitive market' trend. Think about it, we are supposed to be running out of non-renewable resources, synthetics aren't doing that well, demand is ever increasing, but prices of raw materials are not increasing that much. Why do you think this is so?

The reason, I think, has to do with the fact that perfect competition is a myth, oligopoly or quasi-monopoly is a fact of life, especially in primary products. Extraction requires huge initial captial outlay and substantial knowhow; this restricts the players considerable. Therefore extractionindustries are, by their nature, dominated by a few very very large MNCs.

The resoruces might lie in LDCs, but the capital in DCs. It's a buyer's market.

A very simple and recent example is the renegotiation of the oil contracts by president Morales; he managed to increase the revenue his country gets from oil 20fold. Yes, you read correctly, 20 times, from US200m to US$4billion, via negotiation (threat of nationalisation actually, but that;s beside the point).

What I am getting at is that Singer-Prebisch is NOT a theory, it describes a state of affairs, and this state of affairs is by no means a 'natural' one, it can be changed and LDCs can change the balance.

Personally I believe that consumers have a huge role to play.

If enough of us think that countries where the resources lie should not be exploited so that some CEOs get multimillion dollar salaries, then we should put our money where our mouth is.

We should buy from organisations that are fair towards the communities and economies where the resources lie, where labour is not exploited.

If enough of us do that, then it will make financial sense for the organisations to behave accordingly.