If the late great Argentine economist Raul Prebisch were alive today, he no doubt would wonder whether the world had turned upside down. His hugely influential “dependency” theory argued that if poor countries relied too much on commodity exports, they would never achieve the industrial depth needed to sustain rapid growth. Instead, they would become mired in a cycle of declining global commodity prices and ever-dwindling income shares.
Prebisch’s preferred policy response, protectionism, proved disastrous for the many Latin American and African countries that heeded him. But the fact is that for many years, Prebisch seemed to have made the right call on long-term commodity price trends. Relentless efficiency gains in agriculture and resource extraction pushed down prices for commodities, especially during the 1980’s and 1990’s. With few exceptions, countries that focused on commodity exports performed dismally, whereas many resource-poor Asian countries raced ahead.
Today, however, with Asia’s giants, India and China, joining the global economy, prices for oil, gold, wheat, and virtually every other commodity are exploding. While there will always be cycles – oil prices, for example, will probably fall before they start rising again – the long-run trend for many commodities will clearly remain upward for some time to come.
What many trade negotiators and other policymakers do not seem to have recognized yet, though Prebisch would have realized it instantly, is that this dramatic turn of events carries huge implications for the global balance of power. Indeed, perhaps no other aspect of economic globalization will pose greater challenges to world leaders over the coming decades.