Why do ldc’s face obstacles to development? Chapter 9: Development Key Issue 4

The problem: LDC’s need to develop rapidlyLDC’s need to develop rapidly Trying to increase the per capita income as quickly as possibleTrying to increase the per capita income as quickly as possible Also reinvesting in social and economic changesAlso reinvesting in social and economic changes 2 main problems:2 main problems: Successful policies for developmentSuccessful policies for development Finding $ to pay for policiesFinding $ to pay for policies

Self-sufficiency Encourage growth of industries (both rural and urban) within the countryEncourage growth of industries (both rural and urban) within the country Accomplished by:Accomplished by: making it difficult to export goodsmaking it difficult to export goods High import taxesHigh import taxes Quotas on importsQuotas on imports Requiring licensing to sell products within the countryRequiring licensing to sell products within the country Ultimately this controlled GLOBAL competitionUltimately this controlled GLOBAL competition India used self-sufficiency policies for growthIndia used self-sufficiency policies for growth Businesses that struggled may get subsidiesBusinesses that struggled may get subsidies

Self-sufficiency Problems with Self-SufficiencyProblems with Self-Sufficiency Encouraged inefficient business practicesEncouraged inefficient business practices Businesses didn’t have to innovate, adapt, grow, etc.Businesses didn’t have to innovate, adapt, grow, etc. Successful no matter how good you didSuccessful no matter how good you did Large role of governmentLarge role of government Corruption and abuse of powerCorruption and abuse of power Illegal importing & black market goodsIllegal importing & black market goods

International trade Rostow’s Development modelRostow’s Development model Traditional Society Traditional Society Most people in agricultureMost people in agriculture Government $ goes to military (protection) & religionGovernment $ goes to military (protection) & religion Pre-Takeoff Pre-Takeoff Educated elites identify innovative economic activityEducated elites identify innovative economic activity New activities (infrastructure, new technologies, etc.) promotes eventual growthNew activities (infrastructure, new technologies, etc.) promotes eventual growth Takeoff Takeoff Rapid growth in limited, identified activitiesRapid growth in limited, identified activities Leads to technical advances that can be used elsewhereLeads to technical advances that can be used elsewhere Drive to Maturity Drive to Maturity Diffusion of new technologies (i.e. Industrial Revolution)Diffusion of new technologies (i.e. Industrial Revolution) Skilled & specialized workforceSkilled & specialized workforce Mass consumption Mass consumption Consumer goods become the focus of economyConsumer goods become the focus of economy Tertiary jobs take the forefrontTertiary jobs take the forefront

Problems with Rostow Assumes that economies will naturally pass through these stagesAssumes that economies will naturally pass through these stages Global politics, war, colonialism, ethnic conflict, etc.. Go unaccounted forGlobal politics, war, colonialism, ethnic conflict, etc.. Go unaccounted for Characterizes the final stage by high mass consumption, this makes environmentalists sad.Characterizes the final stage by high mass consumption, this makes environmentalists sad. Assumes development is economic Assumes development is economic Does not account for deindustrializationDoes not account for deindustrialization

Models of Development Dependency Theory is another Structuralist Model Dependency Theory is another Structuralist Model Political & economic relationships between countries & regions limit the development of the less well off areasPolitical & economic relationships between countries & regions limit the development of the less well off areas Colonial dependencies are still in place from long ago.Colonial dependencies are still in place from long ago. Dependency theory sees little hope for economic prosperity in some traditional parts of the worldDependency theory sees little hope for economic prosperity in some traditional parts of the world

International trade Ex. of IT approachEx. of IT approach 4 dragons: S. Korea, Singapore, Taiwan, & Hong Kong4 dragons: S. Korea, Singapore, Taiwan, & Hong Kong Limited resources but produced clothing & electronics with cheap laborLimited resources but produced clothing & electronics with cheap labor Produced for MDC markets not for their ownProduced for MDC markets not for their own Arabian PeninsulaArabian Peninsula Used oil profits to expand infrastructure and expand manufacturing abilitiesUsed oil profits to expand infrastructure and expand manufacturing abilities Problems with International TradeProblems with International Trade Uneven resource distributionUneven resource distribution don’t have what people wantdon’t have what people want Increased dependence on MDC’sIncreased dependence on MDC’s Can’t get everything needed from revenues from takeoff industriesCan’t get everything needed from revenues from takeoff industries Market declineMarket decline Change in demographics = decrease in need for cheap goodsChange in demographics = decrease in need for cheap goods

International Trade Triumphs Trade has grown faster than wealthTrade has grown faster than wealth 1990’s – many self-sufficient countries converted to international trade1990’s – many self-sufficient countries converted to international trade GDP per capita grew faster in IT countries than in SS countriesGDP per capita grew faster in IT countries than in SS countries World Trade Organization (est. 1995)World Trade Organization (est. 1995) Encourage trade by: 1) removing blocks (e.g. removing subsidies) and 2) enforcing agreements (including copy right laws today)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 corporationsCritics say it is too powerful and favors rich corporations Foreign Direct Investment – investment made in the economy of another country Foreign Direct Investment – investment made in the economy of another country FDI is not distributed evenlyFDI is not distributed evenly Transnational corporations – invest outside the their headquarter country Transnational corporations – invest outside the their headquarter country

Fair trade Alternative to International TradeAlternative to International Trade Goods and services produced and sold according to standards that protect LDC’sGoods and services produced and sold according to standards that protect LDC’s Producer StandardsProducer Standards Cooperatives help small business owners by banding together and having more strengthCooperatives help small business owners by banding together and having more strength Producers make more per product than commercial businessesProducers make more per product than commercial businesses Worker StandardsWorker Standards International trade doesn’t address worker conditionsInternational trade doesn’t address worker conditions Fair trade requires minimum working conditionsFair trade requires minimum working conditions

Financing development LDC’s get money from MDC’sLDC’s get money from MDC’s LoansLoans UN developed World Bank & IMF following WWIIUN developed World Bank & IMF following WWII World Bank:World Bank: International Bank for Reconstruction and Development (IBRD) – loans for improvement from bonds & investorsInternational Bank for Reconstruction and Development (IBRD) – loans for improvement from bonds & investors International Development Association (IDA) – riskier loans from government contributionsInternational Development Association (IDA) – riskier loans from government contributions International Monetary FundInternational Monetary Fund Loans used to protect currency & buying powerLoans used to protect currency & buying power Goal of loans is to improve infrastructure and developmentGoal of loans is to improve infrastructure and development

Financing development Structural Adjustment ProgramsStructural Adjustment Programs LDC’s plan for using a loan:LDC’s plan for using a loan: Economic goals, strategies for achieving those goals, & external financing requirementsEconomic goals, strategies for achieving those goals, & external financing requirements Include several conditions (page 300)Include several conditions (page 300) Critics:Critics: Cuts $ to health care, ed., & social service programsCuts $ to health care, ed., & social service programs Higher unemploymentHigher unemployment Less support for those that need it mostLess support for those that need it most

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 Sustainable Development 1990s Global environmental change Environmental economics Women and development Children and development

The Globalization Tapes