Development, Underdevelopment, and the North–South Divide

Abstract

Historically shaped global economic structures do not support development, as orthodox economist have wrongly claimed. Starting from colonial times and based on Wallerstein’s World System theory, this Chapter analyses why the North-South divide does not disappear. It starts with what Max Weber dubbed capitalism based on the principle of looting, which transferred enormous values to the North, financing its industrialisation. Southern economies were destroyed and distorted to benefit colonialists. So far relatively few economies could shake off these distortions, essentially by not applying orthodox economic policies. Characteristic features of the present world economy are analysed. It is shown how trade disadvantages Southern Countries (SCs)—e.g. by Unequal Exchange or transfer pricing—how financial structures discriminate against SCs and their inhabitants, in particular by denying them any form of debtor protection. Tax evasion deprives SCs of resources needed to finance development. Although several SCs have specialised on helping tax dodgers, quite a few Northern Countries are also fostering tax evasion (e.g. Luxembourg, the US: Delaware). Finally, the role of international organisations, such as the IBRD, the IMF, or the WTO, or treaties such as Lomé-Cotonou in helping to hamper development and perpetuating the North-South divide is discussed.