030 Economic relations between the advanced and underdeveloped countries

It is worth at this point giving a rather crude model which summarizes the different economic relationships between developed and underdeveloped countries within the capitalist system which have been alluded to by Baran and in other writing on underdeveloped countries. In the diagram there are four characters in the economic scenario in developed countries (at the top) and in underdeveloped countries (at the bottom). The fourth category in developed countries needs some explanation. It represents the bank accounts into which capital shipped out of underdeveloped countries is placed in the developed countries; these are owned by people in the underdeveloped countries; none the less they represent a capital flow out of those countries since they are intended for use by their owners when they move to the developed countries. There is an analogous category in the diagram for the underdeveloped countries: that is, the subsidiaries of capitalist corporations from the advanced countries. Again although these are owned by corporations in the developed countries they are physically located in the underdeveloped countries.

Now we can see that economic relations do not take place between developed and underdeveloped countries but between certain people and institutions in those countries. Aid is given or lent by one state to another and amortization and interest is paid back similarly; capitalist corporations invest in subsidiaries which repatriate some of their profits; trade takes place between capitalist corporations in developed and underdeveloped countries at world market prices; and some trade takes place between different branches of international companies at internal transfer prices, there is some more trade which can take place, often between states, at negotiated prices. At the same time capitalists, no matter what their nationality, in both developed and underdeveloped countries are employing labour for wages; hence, while there are few direct relations between wage earners in developed and underdeveloped countries, indirect economic relations between them do exist.