By Ambassador Sheikh Mohammed Belal, Managing Director of the Common Fund for Commodities.
In 1992, during the U.S. presidential election campaign, a sign in Bill Clinton’s campaign office read “It’s the economy, stupid.” It was a concise reminder that the economy, with all its complexities, was the key factor shaping the political and social landscape.
Today, on October 17, as we commemorate the International Poverty Day 2024, this concept can be expanded to the realm of commodities—those essential raw materials that underpin every aspect of the global economy. “It’s commodities, stupid” could serve as an equally fitting mantra, reflecting the critical role they play in economic stability, growth, and sustainable development.
The historical record demonstrates that, during the colonial period, Western European nations depended for their development on extraction from other parts of the world. The general logic of colonisation was to integrate the Global South into the Europe-centred world economy on terms highly unequal to the South.
Argentinian economist Raúl Prebisch (April 17, 1901 – April 29, 1986) was a pivotal figure in bringing issues surrounding commodities and global economic inequalities to international prominence. His ideas, particularly through his “core-periphery theory” and his involvement in the establishment of the United Nations Conference on Trade and Development (UNCTAD), helped highlight the structural disadvantages faced by developing countries, especially those dependent on exporting raw commodities.
Prebisch and the Core-Periphery Theory
In the mid-20th century, Prebisch’s work as an economist led to the development of the Prebisch-Singer hypothesis, in collaboration with British economist Hans Singer. Their theory challenged the mainstream view that international trade benefited all countries equally. Instead, they argued that:
Core Countries: These are the industrialized, wealthier nations (in the Global North), which typically export manufactured goods.
Periphery Countries: These are the less-developed nations (in the Global South), which are reliant on exporting primary commodities like agricultural products, minerals, and raw materials.
The core-periphery model suggested that the economic relationship between the “core” and the “periphery” was inherently unequal. Prebisch and Singer observed that over time, the terms of trade for countries exporting raw materials (the periphery) tended to deteriorate relative to those exporting manufactured goods (the core). In other words, peripheral countries had to export increasing quantities of raw commodities to afford the same amount of imported industrial goods.
After Raúl Prebisch’s pioneering work on the core-periphery theory, another influential economist, Sri Lankan economist Gamani Corea (4 November 1925 – 3 November 2013), carried forward the cause of addressing global trade imbalances, particularly in the context of commodities. Corea played a pivotal role in shaping the global conversation on development and commodity trade, notably through his leadership at the United Nations Conference on Trade and Development (UNCTAD) and his involvement in establishing the Common Fund for Commodities (CFC). One of Corea’s most significant contributions was his advocacy for “buffer stock” mechanisms to stabilize volatile commodity prices, which became central to the CFC’s platform.
Corea recognized that many developing countries were trapped in a pattern of exporting raw commodities while importing expensive manufactured goods from industrialized nations, which left them vulnerable to price volatility and economic instability. These nations were price takers in global markets, with little control over the prices of the commodities they produced. This led to unpredictable and fluctuating revenues, which severely impacted their ability to invest in development and reduce poverty.
Corea’s Vision and the Common Fund for Commodities
The Common Fund for Commodities (CFC), established in 1989, was born out of the ideas that Corea championed. It sought to create mechanisms that would help stabilize commodity prices, as well as provide financial support for projects aimed at improving commodity production, processing, and trade in developing countries.
The CFC’s two-tier system incorporated Corea’s buffer stock ideas and went further by creating a first window for financing buffer stock operations and a second window to finance projects aimed at adding value to commodity production. By promoting value addition, the CFC aimed to help developing countries move beyond raw material exports and capture a greater share of the wealth generated by their commodities, thus addressing some of the core-periphery dynamics that Prebisch and Corea had highlighted.
Key aspects of the CFC’s approach under Corea’s influence included:
Price Stability: Through the buffer stock mechanism, the CFC was expected to protect commodity-dependent economies from the volatility that could lead to severe economic downturns. Stable prices allowed governments and producers to better manage their economies and invest in long-term development.
Value Addition and Diversification: The CFC has been working to implement projects aimed at increasing the value added in the commodity sectors of developing countries. This included improving processing and manufacturing capabilities, which allowed these nations to earn more from their natural resources rather than simply exporting raw materials.
Financing Development Projects: Beyond price stabilization, the CFC also provided financing for initiatives that improved infrastructure, technology, and capacity-building in the commodity sectors. This aimed to improve the competitiveness of developing nations in global markets and break their dependence on volatile raw commodity exports.
Where are we now?
In peer published research by few Euro-Asian researchers[1], it is stated that the South (the periphery) has still been the source of cheap labour and raw materials for the North (the ‘core’), and a captive market for Northern manufactured goods (Davis 2002; Chang 2008). Beginning in the 1950s, economists and historians associated with dependency theory and world-systems theory argued that this relationship continues to define the global economy in the post-colonial era (Rodney 1972; Prebisch 1950; Galeano 1973; Wallerstein 1974; Frank 1967; Nkrumah 1965). Recent empirical data confirms that high-income nations continue to rely on a large net appropriation of labour and resources from the rest of the world.
In 2015, this amounted to 10.1 billion tons of embodied raw material equivalents (accounting for 50% of total consumption in high-income nations), and 182 million person-years of embodied labour (28% of their total consumption) from low- and middle-income nations (Dorninger et al 2021). Note that these figures represent resources and labour embodied not only in primary commodities but also in high-technology industrial goods such as iPhones, computer chips, cars, designer clothes, etc., which over the past few decades have come to be overwhelmingly produced in the South.
The same research further added that the net appropriation occurs because prices are systematically lower in the South than in the North. For instance, wages paid to workers in the South are on average one-fifth the level of Northern wages. This means that for every unit of embodied labour and resources the South imports from the North, they must export many more units to pay for it.
Interestingly, this pattern was first described by Adam Smith ([1776] 1981, p. 141–145), Karl Marx ([1894] 1991, p. 344–346) and Dadabhai Naoroji (1902). It was theorised more fully by Arghiri Emmanuel (1972), Samir Amin (1976) and Stephen Bunker (1985) as a process of ‘unequal exchange’, which constitutes a ‘hidden transfer of value’ from South to North.
It is no wonder, then, that Adam Smith, often regarded as the father of modern economics, also emphasized the necessity of morality in his broader theoretical framework. While Smith is best known for his seminal work, “The Wealth of Nations,” where he introduced the concept of the “invisible hand” and laid the foundations for free-market economics, it is important to remember that he also authored “The Theory of Moral Sentiments”, a philosophical work that explores the ethical and moral dimensions of human behaviour.
Adam Smith’s Moral Philosophy: Balancing Self-Interest and Justice
In “The Theory of Moral Sentiments” (1759), Smith contended that self-interest could only lead to prosperous and fair outcomes if it were tempered by moral responsibility. The “invisible hand” of the market, in his view, would only work in a context where ethical behaviour and social norms were respected. Thus, Smith did not advocate for a purely laissez-faire economic system devoid of moral principles. Instead, he recognized the necessity of ensuring that markets operate within a moral and just framework, where the welfare of all participants is considered.
The Role of Morality in Commodities and Global Trade
Smith’s insights are particularly relevant when we consider the issues surrounding global commodity markets and the exploitation of resource-rich but economically poor countries, as discussed by Raúl Prebisch and Gamani Corea. The unequal distribution of wealth and the persistent poverty in many commodity-dependent nations reflect the failure of markets to deliver equitable outcomes. Without moral oversight, the global economic system has allowed powerful actors—whether multinational corporations or industrialized nations in the “core”—to exploit the “periphery,” trapping resource-exporting nations in cycles of poverty.
The Role of Institutions in enforcing “Morality.”
Smith’s ideas imply that moral behaviour in the economy is not automatic—it requires a social framework that encourages ethical behaviour. This is where institutions, such as governments, regulatory bodies, and international organizations (like the Common Fund for Commodities (CFC) and UNCTAD), play a vital role. These institutions help set the rules and guidelines that align economic activity with moral principles, such as:
- Ensuring fair wages for the smallholders, workers.
- Creating safeguards against monopolies and unfair trade practices.
- Promoting sustainable development and responsible resource management.
By embedding morality in the institutional framework, Smith’s vision aligns with the broader goals of international efforts to address the commodity dependence and poverty traps faced by many developing countries. The buffer stock mechanism proposed by Gamani Corea, for example, reflects this moral concern by seeking to stabilize prices and protect vulnerable producers from market volatility—a practical application of Smith’s moral insight into economic systems that sadly were deleted from the provisions of CFC long before. Ever since, the CFC struggling to remain afloat while billions of smallholders remain hungry and poor.
Conclusion: Morality as the Foundation of a Just Economy
Adam Smith’s recognition of the necessity of morality in economic life highlights that markets alone cannot guarantee justice, fairness, or prosperity. For economies to flourish in a way that benefits all participants, ethical principles must guide behaviour, both at the individual and institutional levels. This is especially true in global commodity markets, where power imbalances often lead to exploitation and deep-seated poverty, as seen in the core-periphery dynamics theorized by economists like Raúl Prebisch and Gamani Corea.
It was proven during the recent times when hunger profiteering by few multinationals pushed the price of necessary commodities like wheat, maize, corn, etc. to an all time high. Smith reminds us that the goal of economic activity should not just be the accumulation of wealth but the advancement of human welfare. A truly thriving economy, therefore, is one in which morality and market forces work hand in hand to create a system that is equitable, inclusive, and sustainable.
Here in the CFC we remain on the look out for those moral beings in The Hague and beyond to stand with the billions of smallholders and support our efforts to rebuild through the new fund-the Agricultural Commodity Transformation Fund (ACT Fund)-and the humanizing value chains concept , which we are eager to pilot.
The concept of humanizing value chains is based on the theory of benefiting smallholders and other low wage workers in ways where money will go straight to working people using technologies like blockchains, AI and other emerging technologies. The Common Fund for Commodities would like to encourage, indeed urge, relevant organisations, and persons, to explore modalities where consumers could leave a digital tip for the person who helped them to sip that steamy cup of coffee, eat that sweet chocolate or made them look so beautiful in those nice pieces of garments. We can catch the missing “morality” using this humanizing value chains concept once we all speak with our dollars as conscious consumers to send poverty to the museums.
Disclaimer:
The views and opinions expressed in this article are those of Ambassador Sheikh Mohammed Belal, Managing Director of the Common Fund for Commodities, writing in his personal capacity. They do not necessarily reflect the official stance, policies, or positions of the Common Fund for Commodities (CFC) or any other organization with which he is affiliated. The content is intended for informational and reflective purposes only and should not be interpreted as professional or institutional advice.
[1] Plunder in the Post-Colonial Era: Quantifying Drain from the Global South Through Unequal Exchange, 1960–2018: New Political Economy: Vol 26, No 6 – Get Access (tandfonline.com)
