Download Models for developing LDCs — self

The Developing World
Why are some countries Rich and some
countries Poor?
• Natural Environmental Endowments of Raw Materials etc. DO NOT
explain National Wealth
• The Theory of Environmental Determinism has problems with this
• ‘Adding Value’ to raw material is key to Wealth
• ‘Downstream Activities’ are key to wealth creation because they are nearer
the source of money.
• Processing, Manufacturing, Transporting, Advertising, Insuring, Marketing,
and Financing the flow of goods is more profitable than extracting the raw
materials they are derived from.
I. Poverty is widespread.
A. People are often malnourished
which leaves them with little energy
and little resistance to disease.
B. Unsanitary conditions, polluted
water, little health care.
C. Many unemployed or
underemployed: long hours,
manual labor, little pay ($1 a day) –
no jobs available to improve their
lives.
II.
Agriculture
A. In developing countries, 5080% farmers. In the U.S., only
1% are farmers.
B. Simple methods, handmade
tools, animate energy (people
or animals), poor, overused
soil
C. SUBSISTENCE FARMERS: just
enough to survive, not for
profit
III.
Rapid Population Growth
A. ¾ of the world’s population lives in
developing or transitional economic
situations.
B. Many children to help on the farm and
to take care of parents. Free time is
spent with family.
C. Poor health care means more infant
deaths. BUT, improving health care
means people live longer, leads to
D. OVERPOPULATION: Too many people
for the available resources.
Population Density, 2006
World Population Cartogram, 2008
"Out of every 100 persons added to the population in the coming decade, 97 will live in
developing countries." Hania Zlotnik, 2005
Total Births, 2008
More children are born each year in Africa than are born in the Americas, all of Europe
and Japan put together. Worldwide, more than a third of a million new people will be
born on your birthday this year.
Illiterate Women
The biggest gaps between male and female literacy are in Southern Asia, Northern
Africa and Southeastern Africa. In Pakistan, when the number of illiterate boys is
subtracted from illiterate girls, the result is 2.6 million ‘extra’ girls who cannot read or
write; that is 24% of women aged 15-24 there.
IV.
Capital is scarce
A. Capital is anything that
produces wealth.
B. machines, factories, roads,
harbors, communications =
INFRASTRUCTURE
C. Imports are limited – great
need but no $.
Factors of Industrialization
A. Industrialization is needed for
development. It provides
jobs and exports.
B. To succeed, countries need land,
labor, capital, infrastructure,
and a STABLE
GOVERNMENT.
Paraguay
Latin America: a case
study
Benefits to industrialization:
1. New jobs
2. Growing middle class
3. Development of
manufacturing centers
4. National pride
Challenges of development:
1. Pollution
2. Urban squalor – increase in crime
3. Foreign debt – money borrowed
to start businesses plus interest
4. Neglect of agricultural exports
5. Unemployment of rural workers
What do countries need to
develop?
S – Stable government
H – Health care
E – Economic F – Freedom
I – Infrastructure
E - Education
Improvement in PINGs
• To promote development, PINGs seek to improve the
indicators…economic, social, and demographic
• PINGs are improving, but the gap is growing
– Example: PINGs have improved income by $4,000, but PEDs have
improved by $20,000
2 fundamental obstacles to
PINGs trying to develop
1. Adopting policies that successfully promote development
2. Finding funds to pay for development
Development Strategies
• Development through self-sufficiency
– Elements of self-sufficiency approach
– Problems with self-sufficiency
• Development through international trade
– Rostow’s development model
– Examples of international trade approach
– Problems with international trade
• Financing development
•
Models of Development
– Liberal: 1) Assume all countries are capable of developing
economically in the same way, and 2) disparities b/w countries &
regions are the result of short-term inefficiencies in local or regional
markets
– Structuralist: Economic disparities are the result of historically
derived power relations w/in the global economic system; cannot
be changed easily (misleading to assume all areas will go through
the same process of development)
Development through
self-sufficiency
•
•
For most of the 20th century, self-sufficiency was the more popular of
the development alternatives
Key elements:
1.
2.
3.
Investment is spread across all economic sectors
Focus is on promoting wealth across income levels, not just the rich
Barriers are set on imports (tariffs, taxes, quotas, requiring licenses)
Example of Self-Sufficiency:
India
• India made much use of barriers to trade
• Indian businesses were discouraged from producing goods
for export
• Businesses produced goods for India
• If private companies were unable to make a profit by selling
only to India, then the government would provide a subsidy
• Led to bloated and inefficient companies, low economic
growth, policy reversed in early 1990s and growth has
accelerated
Problems with
self-sufficiency
1. Inefficient: self-sufficiency protects inefficient industries
•
Business has little incentive to improve quality, lower production
costs, reduce prices, or increase production if it doesn’t have to
compete with firms from other countries
2. Large Bureaucracy: self-sufficiency requires a large
bureaucracy to administer the controls
•
•
A complex administrative system encouraged abuse and corruption
Many resources were wasted on paying government employees
who would have been unnecessary in a free-market economy
Rostow - Stages of Growth
•
•
•
•
The work of American Walt W. Rostow
Rostow is an economic historian
This is a liberal model
Suggests that all countries follow a
similar path to development
• Countries can be placed in one of five
categories in terms of its stage of
growth:
Rostow - Stages of Growth
1. Traditional Society: a country
•
Village in Lesotho. 86% of the resident
workforce in Lesotho is engaged in subsistence
agriculture.
Copyright: Tracy Wade, http://www.sxc.hu/
that has not started
development; large amounts of
people in agriculture and
“nonproductive” activities
(religion and military)
Characterised by
– subsistence economy – output not
traded or recorded
– existence of barter
– high levels of agriculture and labour
intensive agriculture
– dominant activity is subsistence
farming
– Rigid social structure, resistance to
Rostow - Stages of Growth
2. Pre-conditions (of takeoff): the
process of development begins
when an elite group begins to
invest in technology and
infrastructure
The use of some capital equipment can help increase
productivity and generate small surpluses which can be
traded.
Copyright: Tim & Annette, http://www.sxc.hu
– Development of mining industries
– Increase in capital use in agriculture
and some commercial farming
– Necessity of external funding
– Some growth in savings and
investment
– progressive leadership moves the
country toward openness and
Rostow - Stages of Growth
3. Take off: rapid growth is
promoted in a small number
of activities (i.e. textiles, food
products)
At this stage, industrial growth may be linked to
primary industries. The level of technology required
will be low.
Copyright: Ramon Venne, http://www.sxc.hu
– Increasing industrialisation
– Further growth in savings and
investment
– Some regional growth
– Number employed in agriculture
declines
– Industrial Revolution,
Urbanization, Mass-Production
Rostow - Stages of Growth
4. Drive to Maturity: modern
technology diffuses to more
industries which experience rapid
growth and workers become more
skilled
As the economy matures, technology plays an
increasing role in developing high value added
products.
Copyright: Joao de Freitas, http://www.sxc.hu
– Growth becomes self-sustaining –
wealth generation enables further
investment in value adding industry and
development
– Industry more diversified
– Increase in levels of technology utilised
– Tech. Diffusion, industrial specialization,
international trade, modernization of
core, population decline
Rostow - Stages of Growth
5. High mass consumption:
the economy shifts from
heavy industry to consumer
goods
Service industry dominates the economy – banking,
insurance, finance, marketing, entertainment, leisure
and so on.
Copyright: Elliott Tompkins, http://www.sxc.hu
– High output levels
– Mass consumption of
consumer durables
– High proportion of
employment in service sector
– high income, widespread
production of goods and
services, Service Sector
Criticisms:
• Too simplistic – based on experience of western Europe and
American development, but might not be the same for other
countries
• Necessity of a financial infrastructure to channel any savings that
are made into investment
• Will such investment yield growth? Not necessarily
• Need for other infrastructure – human resources (education),
roads, rail, communications networks
• Efficiency of use of investment – in palaces or productive
activities?
• Rostow argued economies would learn from one another and
Rostow’s ‘Stages of Growth’
• The ‘natural’ evolution of peoples are to ‘evolve’ from
‘Hunter-Gatherer’ to ‘Agriculture’ to ‘Industrial’ to whatever.
• Is this Social Darwinism?
• Is it reasonable?
Walt Rostow’s Modernization
Model
Selected countries
up to 1960
International Dependence
•
Dependency Theory (“structuralist”)
– Political & economic relationships b/w countries & regions control
& limit the developmental possibilities of less well-off areas (e.g.
imperialism caused colonies to be dependent – this helps sustain
the prosperity of dominant areas & poverty of other regions)
– Only at later stages of development does the core have a positive
impact on the periphery (grants, loans, special economic zones,…)
International Dependence
• International division of labour – rich countries have jobs in
high value activites, poor countries have jobs in low value
activities, can be traced back to colonial and imperial
dominance
• Dominance of political decision making in the hands of a few
wealthy and powerful groups who aim to maintain the status
quo
• Such interest groups also exercise power over international
institutions and initiatives such as the World Trade
Organisation, International Monetary Fund, Kyoto talks, etc.
International Dependence
• Advice given to poorer nations
has been poor – e.g. lending to
less developed countries,
investment advice, etc.
• Inability to solve the debt crisis
and protectionism continues to
prevent development of poorest
countries
The International Dependence model can perhaps be
exemplified by the lack of progress on reducing emissions
to restrict climate change and freeing up international
trade.
Copyright: Nikita Golovanov, http://www.sxc.hu
Criticism:
• Offers causes but no solutions
Talks to move towards less restrictions on trade
have been going on for many years; progress is
slow.
We know that protectionism is disadvantageous to
developing countries but how do we go about
putting in place solutions to help solve the
problem?
Copyright: Doug Wray, http://www.sxc.hu
Development through
international trade
• A country identifies its distinctive/unique assets
• What product can the country manufacture and distribute at a
higher quality and a lower cost than other countries?
Examples of the International
Trade Approach
• The Four Asian Tigers (Dragons):
South Korea, Singapore, Taiwan, and
Hong Kong
– Influenced by Japan
– Concentrated on clothing and
electronics
• Petroleum Rich Arabian Peninsula
States:
– The increase in petroleum prices in
the 1970s greatly enriched these
countries
Problems with the International
Trade Alternative
1. Uneven resource distribution
2. Market stagnation
3. Increased dependence on PEDs
Recent Triumph of
International Trade Approach
• This approach has been adopted by most countries in recent
years
• India switched to an international trade approach
• India’s GDP grew 7% per year in the 1990s
• Manufactured goods accounted for more than 4/5 of exports
from PINGs in 2000
World Trade Organization
• Established in 1995 by countries representing 97% of world
trade
• Reduces barriers to trade:
– Countries negotiate reduction or elimination of international trade
restrictions
– The WTO enforces agreements
Financing Development
• PINGs lack money!
• Loans – mainly for infrastructure
– The World Bank
– International Monetary Fund
• Structural Adjustment Programs – in exchange for repaying
debt, lending agencies require PINGs to create conditions
favorable for international trade
Fair Trade
• Fair trade – products are made and traded according to
standards that protect workers and small businesses in PINGs
• Producer Standards
• Worker Standards
Income and Demographic Change,
1980–2004
Per capita GDP has increased more in MDCs than in LDCs during this period,
while population growth and infant mortality have declined more rapidly in
MDCs than in LDCs.
Foreign Investment Flows
Three-quarters of foreign investment flows from one MDC to another. Only one-quarter
goes from an MDC to an LDC.
Core and Periphery in World
Economy
This north polar projection of the world shows that most of the MDCs are in a core area
north of 30° N latitude. The LDCs are mostly on the periphery of this map.