Global Inequality, Free Trade, and Development Economics

Introduction: Technology Versus Property Rights

To understand the nature of inequality between the global north and south, one must understand the role of technology in the international system. A common assumption holds that the amount of technology available to a nation determines its prosperity — but this view overlooks the more important question of how technology is used. In the wealthiest western nations, the application of technology has been actively directed by well-regulated capital lending mechanisms. These financial instruments allow inventors, laborers, and merchants to borrow money at interest, which can later be repaid within a legal environment that protects property and contracts.

According to Weatherby, the tragedy of the third world has four culprits: dependence on the west, delayed modernization, increasing population, and the unequal distribution of wealth. He argues that even if all third world countries do not possess all four of these characteristics, each possesses at least two or three. If the lack of modernization is taken as an example, these problems can be seen as symptomatic of third world poverty rather than as root causes of it. People in developing countries are dependent on the west, yet most never see the foreign aid dollars sent to their governments — that money is spent instead on wasteful economic schemes or by ruling elites. Those governments would not exist without such transfers. It is also well established that higher standards of living encourage lower population growth rates. The question of modernization, then, requires closer examination.

In the 18th century, one of the most popular playthings of continental European royalty was the automaton. These ingenious devices were essentially wind-up toys that used clockwork to mimic natural phenomena — a butterfly, or a man playing chess. Such devices had existed in Europe since before the fall of Constantinople in 1453, when the Byzantine emperor's court featured an automatic tree populated by hydraulic-powered singing birds. Despite such remarkable examples of human ingenuity, the predominant portion of European society lived as it had for centuries: illiterate and impoverished. It was not until entrepreneurs were able to borrow money at interest to develop these technologies into mills and steam engines that their existence fomented the Industrial Revolution.

In much the same way, the developing world today exists alongside vast technological improvements — nuclear reactors in China, the Aswan Dam in Egypt — yet remains poor. According to noted economic theorist Hernando De Soto, "when you step out the door of the Nile Hilton, what you are leaving behind is not the high-technology world of fax machines and ice makers, television and antibiotics. The people of Cairo have access to all those things. What you are really leaving behind is the world of legally enforceable transactions on property rights." These property rights, De Soto argues, do not stem from a democratically elected regime or even from the privatization of large government-run industries, but from the ability of farmers and merchants to borrow against what they already own.