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Why do ldc’s face obstacles to development? Chapter 9: Development Key Issue 4 The problem: • LDC’s need to develop rapidly • Trying to increase the per capita income as quickly as possible • Also reinvesting in social and economic changes • 2 main problems: • Successful policies for development • Finding $ to pay for policies Self-sufficiency • Encourage growth of industries (both rural and urban) within the country • Accomplished by: • • • • making it difficult to export goods High import taxes Quotas on imports Requiring licensing to sell products within the country • Ultimately this controlled GLOBAL competition • India used self-sufficiency policies for growth • Businesses that struggled may get subsidies Self-sufficiency • Problems with Self-Sufficiency • Encouraged inefficient business practices • Businesses didn’t have to innovate, adapt, grow, etc. • Successful no matter how good you did • Large role of government • Corruption and abuse of power • Illegal importing & black market goods International trade • Rostow’s Development model • Traditional Society • Most people in agriculture • Government $ goes to military (protection) & religion • Pre-Takeoff • Educated elites identify innovative economic activity • New activities (infrastructure, new technologies, etc.) promotes eventual growth • Takeoff • Rapid growth in limited, identified activities • Leads to technical advances that can be used elsewhere • Drive to Maturity • Diffusion of new technologies (i.e. Industrial Revolution) • Skilled & specialized workforce • Mass consumption • Consumer goods become the focus of economy • Tertiary jobs take the forefront Problems with Rostow • Assumes that economies will naturally pass through these stages • Global politics, war, colonialism, ethnic conflict, etc.. Go unaccounted for • Characterizes the final stage by high mass consumption, this makes environmentalists sad. • Assumes development is economic • Does not account for deindustrialization Models of Development • Dependency Theory is another Structuralist Model • Political & economic relationships between countries & regions limit the development of the less well off areas • Colonial dependencies are still in place from long ago. • Dependency theory sees little hope for economic prosperity in some traditional parts of the world International trade • Ex. of IT approach • 4 dragons: S. Korea, Singapore, Taiwan, & Hong Kong • Limited resources but produced clothing & electronics with cheap labor • Produced for MDC markets not for their own • Arabian Peninsula • Used oil profits to expand infrastructure and expand manufacturing abilities • Problems with International Trade • Uneven resource distribution • don’t have what people want • Increased dependence on MDC’s • Can’t get everything needed from revenues from takeoff industries • Market decline • Change in demographics = decrease in need for cheap goods International Trade Triumphs • Trade has grown faster than wealth • 1990’s – many self-sufficient countries converted to international trade • GDP per capita grew faster in IT countries than in SS countries • World Trade Organization (est. 1995) • Encourage trade by: 1) removing blocks (e.g. removing subsidies) and 2) enforcing agreements (including copy right laws today) • Critics say it is too powerful and favors rich corporations • Foreign Direct Investment – investment made in the economy of another country • FDI is not distributed evenly • Transnational corporations – invest outside the their headquarter country Fair trade • Alternative to International Trade • Goods and services produced and sold according to standards that protect LDC’s • Producer Standards • Cooperatives help small business owners by banding together and having more strength • Producers make more per product than commercial businesses • Worker Standards • International trade doesn’t address worker conditions • Fair trade requires minimum working conditions Financing development • LDC’s get money from MDC’s • Loans • UN developed World Bank & IMF following WWII • World Bank: • International Bank for Reconstruction and Development (IBRD) – loans for improvement from bonds & investors • International Development Association (IDA) – riskier loans from government contributions • International Monetary Fund • Loans used to protect currency & buying power • Goal of loans is to improve infrastructure and development Financing development • Structural Adjustment Programs • LDC’s plan for using a loan: • Economic goals, strategies for achieving those goals, & external financing requirements • Include several conditions (page 300) • Critics: • Cuts $ to health care, ed., & social service programs • Higher unemployment • Less support for those that need it most Sustainable Development • Global environmental change • Environmental economics • Women and development • Children and development Real-World Strategies: • Partnership with developed countries • Market mechanisms for environmental regulation • Resource conservation • Renewable resources • Loans to women and very poor (microcredit) • Women’s and children’s rights • Appropriate technology 1990s The Globalization Tapes