The long-term decline in the demand for raw materials that began in the late 1970s has inevitably had important effects for the states of what was once called the Third World. If, for example, raw-materials prices had not collapsed in these years, Brazil would have had an export surplus almost 50 percent higher and would have had little difficulty in meeting the interest payments on its foreign debt. Indeed, if raw-materials prices had remained at 1973 or even 1979 levels, there would have been no debt crisis for most debtor countries, especially in Latin America.34 More important, the terms of trade—the ratio between the prices of manufactured goods and services and the prices of raw materials—are at present as unfavorable to the underdeveloped, raw-material-producing states as they were in the deflationary period of the Great Depression.
This is partly the result of abundant harvests and greater efficiencies in producing raw materials. It is also the result of the smaller—and shrinking—component that raw materials make up of finished products. An IMF study concludes that the amount of raw material needed for a given unit of economic output has been declining at the rate of 1¼ percent per year since 1900.35 In 1984 Japan consumed only 60 percent of the raw materials consumed for the same volume of industrial production in 1973.36
Several factors are responsible for this change. Industrial production is switching away from products like automobiles (40 percent of whose cost is in raw materials) to microchips (1 percent to 3 percent). Automobiles and other traditional goods are themselves using cheaper, artificial materials (steel is being replaced by plastics made of raw materials with half the cost of steel); fiberglass cables can transmit as many messages over 50 – 100 pounds of cable as are carried by one ton of copper wire.
Additionally the comparative advantage of low labor costs in the underdeveloped world is increasingly of less significance as labor costs themselves amount to a smaller percentage of total manufacturing costs. Partly this is due to increasing automation and the replacement of manual labor by machines, including robots. But this change in the components of production costs is also due to the shift from industries that were labor-intensive to those that are information- or knowledge-intensive. The manufacturing costs of the semiconductor microchip are estimated to be about 70 percent intellectual (research, development, testing, marketing) and less than 12 percent labor. About the same figures obtain for pharmaceuticals, whereas even the most highly robotized automobile plant would still find about 20 – 25 percent of its costs consumed by labor. Because raw-materials earnings and profits from labor-intensive industries are used to provide the capital for industrialization, one can wonder on what basis development can take place in the Third World when these avenues are denied them. Peter Drucker notes:
In the rapid industrialization of the nineteenth century, one country, Japan, developed by exporting raw materials, mainly silk and tea, at steadily rising prices. Another, Germany, developed by leap-frogging into the “high-tech” industries of its time, mainly electricity, chemicals, and optics. A third, the United States, did both. Both routes are blocked for today's rapidly industrializing countries—the first because of the deterioration of the terms of trade… the second because it requires an infrastructure of knowledge and education far beyond the reach of a poor country… Competition based on lower labor costs seemed to be the only alternative; is this also going to be blocked?37
The potential consequence for the society of states is a disjunction between one group composed of market-states and a second group of states whose underdevelopment hampers their making a constitutional transition to the new form. Of course, at any moment in the story of consti-tutional change, there are always examples of different models being simultaneously pursued. Many Third World states (such as Taiwan, Jordan, or Guatemala) did not become nation-states until almost the end of the era of the nation-state itself, but most had long been nation-states (though some, such as Saudi Arabia and Brunei, resemble much earlier constitutional forms).
The consequence for the society of states can be profound, however, because the unassimilated states will be unable to participate effectively in the multistate institutions and practices that this new constitutional form creates. The relationship between the G-7 and the Group of 100 (proto-market-state institutions) scarcely parallels that which exists between the U.N. Security Council and the General Assembly (with regard to nation-states). Unlike nation-state institutions with virtually universal membership based on the political equality of states, there is a price of admission to the society of market-states (though there may be “scholarships” for some). Some states will be left behind. With no stake in the system as a whole, and following a different archetype for the very basis of legitimacy of the State, these unassimilated states may form a competing, retrograde society, or simply become solipsistic, venomous states, alternately dedicated to isolation from the rest of the world and to its destruction.