From my perspective, the important message from your story is that you had an unsatisfactory experience both as a buyer and as a seller in that instance. However, you are not required to act as a buyer with that seller again, nor are you required to act as a seller with that buyer again. It appears that you, at least, learned that you still “get what you pay for”.

I have always enjoyed the colloquial versions of the First and Second Laws of Thermodynamics,
First Law: There is no such thing as a free lunch.
Second Law: The better lunch is, the more it costs.

You raise a good question, indeed, and I must admit, I have no conclusive answer.

Perhaps a short story may be of interest. I work in software development and recently a co-partner pointed out India for the development of a software which, had I developed it, would cost around 25-30k. Now, I’m not sure what the programmer in India would get, but I suppose “the price for the software” would not be “right” if the programmer in India could not sustain the same quality of life I would in my own country with 25-30k (which is roughly 6 months of quality food, housing, health care, transportation, taxes, social security, etc. for myself). Of course, you may argue housing & Co. in India is cheaper and hence the programmer in India doesn’t need that much. Maybe true to the extent that the comfort and security of my house should be comparable to that of the programmer in India.

I’m afraid this post is at best confusing, perhaps I should give some thoughts on what “the right price of things” is, IMO.

PS: Just a curiousity. The story about the software ends like this. The programmer in India didn’t have the experience with one of the technologies and so I ended what I started, for roughly a fifth of the original price. Am I nuts? Well, perhaps, but I’m doing it because right now (for me) $1 has a value more like $5 in the past and because I don’t like to see half finished projects. Is it right from the sponsor? No. My error is that I undersold my labour, skills and knowledge; the sponsor’s error is that they exploited it. Sure, from an economics perspective the equation holds, because the buyer and the seller agreed. But that’s an utterly incomplete modeling. For instance, from a personality perspective, the entire endavour only materialized because the seller was willing to give in. Now, the interesting issue is what happens next. The software is meant to make 50-100k / year. At this point, at least to me, the entire transaction is also morally questionable. I’m afraid, this is what happens where there is a big gap in power between the two parties. (Might the buyer always have more power? After all, the buyer might as well be seller to himself–by just building what is needed–while the seller badly can buy its own stuff.)

How is “the right price of things” determined in your context? You sound dissatisfied with the results of negotiations between willing buyers and willing sellers.

The conditions in the UDCs vary considerably. As a result, the poorer of the UDCs compete with the slightly less poor of the UDCs for markets, based largely on labor costs. China, despite its massive resources and ample labor availability, is outsourcing some resource extraction and manufacturing to Vietnam and other UDCs.

The most difficult things to watch, however, are: countries such as Rhodesia, which was developing, become Zimbabwe and begin rapidly regressing instead; or, countries such as North Korea, which appear willing to starve their citizens to build and feed their military; or, countries such as Rwanda, which seem bent on killing a subset of their citizens.

@Ed. I’m sure you have heard of project Desertec. I must admit, I’m unclear on the details so perhaps I shouldn’t bring up this example. However, I wonder indeed if Africa–at least the people–would be better off without Desertec (which of course doesn’t exist yet). We Europeans are going there, setting up our machinery (which I believe cannot be engineered and built in Africa to employ local people), extracting what we want. Are we leaving something? Regarding the cheap stuff. I suppose, people all over the world do want to consume cheap stuff and it can’t be cheap enough. Sure, as you point out, this creates some wealth which wouldn’t exist, I suppose this is correct. However, I think this is just a first step. I’m afraid, the pressure of “it can’t be cheap enough” affects the conditions people have to work and life with all over the world. I just wonder if we are paying the price for what we consume. I agree with your point on UDCs governments (though I have never experienced one). Then, I suppose you may argue, if things are more expensive, people would be able to buy less, which would affect the GDP and we would be in endless recession. At which point, I wonder if our entire model is flawed.

@Richard. Yes, I do agree having the option to work in a factory may make a difference. I’m not arguing this. It is our “not wanting to pay the right price of things” that I believe sets huge pressures on the conditions people must work and life. For instance, do people who work in sweatshops get health care? If not, why not? I’m going to assume they don’t and my guess is, if they would our cheap stuff would be a little bit more expensive. (But of course we don’t want this.) I agree with you, trade must likely benefit both parties to become real, though, the power to set the rules is in the hands of ODCs. Thanks for the book references.

@Andrew: I’m afraid, I don’t get your comment.

When trade is between individuals or private companies, it must benefit both parties, otherwise the exchange would not take place. This is true whether there is an imaginary line called an “international boundary” separating them or not.

Things become less clear when governments get involved, especially in resource-rich UDCs. In the United States, land owners typically own, and benefit from, the mineral rights on their property. In UDCs, governments usually own the mineral rights. In too many UDCs, “government” translates into whoever is in power at the moment. In such cases, profits from the sale of these resources all too often go into offshore bank accounts rather than going to help the citizens of the UDC.

This is true whether the companies extracting the resources are government or foreign owned. Generally, foreign private companies can extract resources more efficiently and with less waste and pollution than can government-owned entities, but either way, the profits go to the those in power.

I believe that UDCs would be best served by privatizing natural resources as well as privatizing industry. We have seen the beneficial effects of doing the latter on the Indian and Chinese economies.

For a good explanation of international trade and its impact on UDCs, I recommend Thomas Sowell’s excellent books “Basic Economics” (pages 433-491) and “Applied Economics: Thinking Beyond Stage One” (pages 238-273).

From an ethical perspective:
1) Would the residents of the UDCs be better off with less “efficient energy extraction machinery”?
2)Would the residents of the UDCs be better off without the employment provided by resource extraction and the production of “cheap stuff”?
3)Would the residents of the UDCs be better off unable to purchase “cheap stuff” for their own use; and, unable to buy our expensive stuff because they don’t have work?
4)Would the residents of the UDCs be better off without the technology developed by the “(O)DCs”?

The key ethical question, from my perspective, is whether the residents of the UDCs would be better off without the oppressive governments most of them must endure.

Could you explain me why the idea that (O)DC’s may be living on the shoulders of UDC’s–and the environment–is wrong? Would we have so much cheap stuff without the labour and resources of UDCs, without such an efficient energy extraction machinery? I think, both questions have, at least, ethical concerns.