1. Why Do LDCs Face Obstacles to Development?
Ch. 9 Key Issue 4
Why Do LDCs Face Obstacles to Development?

2. Economic Systems
Capitalism: market forces of supply and demand dictate prices. Profits are encouraged. Large gaps between rich and poor. Meshes well with democracies (both have freedoms)- US, West Europe
Socialism: government control of basic items (food, energy, transportation, health care)- higher taxes needed to pay for these = redistribution of wealth- Switzerland
Communism: total govt control over everything! Same salary for everyone- no incentive to succeed; govt determines your profession. China and SU!

3. How to Develop?
LDCs must develop faster to reduce disparity between MDCs
Need to increase GDP so they have $ to spend
LDCs face two problems:
1. Which development policy (model) should we adopt?
2. Where do we find the funds for development?

4. Models for Development
Development can be achieved through:
Self-sufficiency approach
International Trade approach
Rostow’s Modernization Model (5 stages)
World Systems Theory
Sustainable development
We will discuss pros and cons of each

5. Self–sufficiency Model
Popular in first part of 20th century; India
Depending on themselves, not other countries
Limiting imports and exports with barriers (tariffs, quotas, licenses) to protect domestic businesses
“Balanced growth”
Funds equally distributed to all sectors of the economy and in all regions
Only modest gains made in development, but it was equal across country (no islands of dev.)

6. International Trade Approach*
What animal, vegetable, or mineral resource does the country have in abundance that other countries are willing to buy?
What product can we manufacture and distribute at a higher quality and lower cost than any other countries?

7. International Trade Approach
Allows for a country to specialize in relatively few local industries (oil, food, etc = commodities) to sell to the rest of the world
Money brought in from sales goes toward improving development
Trade with the international market for all other needs
Cheap labor is exploited (China)

8. Rostow’s Development Model (1960’s)
With decolonization of Asia and Africa, he looked at how currently developed countries developed- what “stages” did they go through?
Assumes that each country will follow the same path to “development” – is this possible?
The traditional economy
The preconditions for takeoff
The takeoff
The drive to maturity
The age of mass consumption
Each country is in one of these 5 stages

9. Start Here!!!!!!

10. Problems with S-S Approach
Inefficient businesses
Little incentive to improve business since they sell at high government-set prices (the gov’t guarantees demand); lack of competition stalled innovations
Large bureaucracy needed
Many gov’t agencies needed to regulate businesses
Entrepreneurs learned how to get around barriers and sell illegal imported products on black market

11. Problems with I.T Approach
Uneven resource distribution across Earth
Not all countries have commodities that other countries want to buy or prices/demand have decreased for their commodity
Increased dependence on MDCs
Since resources go to developing goods to sell to MDCs, money is diverted away from domestic needs (clothes, food)  Funds from selling commodities may be used to buy these needs back from MDCs
Market decline
Slow growth in MDCs = no new customers for LDCs

12. Success in International Trade
These countries employed Rostow’s model
4 Asian Dragons
S.K., Taiwan, Singapore, Hong Kong
Manufactured goods and sold/traded them on world market
Low labor costs = cheap goods for MDCs
Petroleum-rich Arabian Peninsula
Booming oil market led to increased wealth; will this money spur development (remember Islamic cultural issues)?

13. I.T. Approach Triumphs
Most popular model by second half of 20th century; India removes barriers
World Trade Organization (WTO)
Established to promote the IT model
Foreign Direct Investment (FDI)
Transnational corporations

15. Dependency Theory
Countries face different problems that won’t allow for Rostow’s theory
Poor countries are dependent on wealthier ones
Poor countries today are experiencing neo(new)-colonialism: wealthy countries controlling/exploiting economies of poorer ones
Dollarization in Latin America
MDCs remain dominant, LDCs remain dependent

16. Immanuel Wallerstein and Dependency Theory
World is one system- no country is independent of another
World systems theory has a three tier structure - core, periphery, semi-periphery
Periphery dependent upon the core
*Not all tadpoles can survive into toads
Capitalist’s drive for profit = domination of “weaker” countries
Capitalists will move production around the world to enhance profits, places that lose production facilities suffer

17. Wallerstein’s World-Systems Theory
International division of Labor!
Core countries
Higher education, salaries, technology = more wealth in world economy
Periphery countries
Lower levels than in core countries = less wealth
Semi-periphery counties
Processes of both are occurring; buffer zone

19. Wallerstein’s World-Systems Theory
Leads to a capitalist world economy where:
The world is “one big market”
Global division of labor between the 3 tiers
Capitalism (trade goods/services for profit; find cheap labor)
Commodification (buying/selling/trading everything)

20. Capitalist World Economy
Created by colonialism- intertwining the economies of the world; taking resources and putting colonies in a position of subservience
Is composed of “dots” (individual countries) but we must also understand the “whole.” (the world) = scale (zooming out)
Sunday Afternoon on the Island of La Grande Jatte

22. Importance of Development
LDCs must develop faster to reduce disparity between MDCs
Need to increase GDP so they have $ to spend
LDCs face two problems:
1. Which development policy (model) should we adopt?
2. Where do we find the funds for development?

23. Financing Development
LDCs lack money for development, so they get funds from MDCs in two primary ways:
Loans from banks and International organizations
Direct Investment from transnational corporations (FDI)
Neoliberalism:
Loans → better infrastructure → more businesses → more taxes to repay loan

24. Creating Funding Programs
World Bank and IMF were created by UN to promote stability and development after WWII and to avoid another Great Depression
WB: main source of loans
IMF: loans are not for specific projects
Idea is that LDCs will take money to improve their infrastructure (schools, roads, public services/goods) which will attract more foreign businesses to open or domestic business to expand
LDCs can then repay the loans through taxes collected for supplying pubic services/goods

25. Problems with Funding LDCs
Most LDCs have been unable to repay loans, especially in Africa.
Reasons for failure include:
Structured Adjustment Loans (neoliberalism): Loan with strings attached; must be used on specific project/program
Aid is wasted, stolen or used on armaments
New businesses are not attracted to country
The failure to repay loans causes:
MDCs to refuse to make further loans
Financial instability of banks in the MDCs

27. Fair Trade Is a sustainable variation of the I.T. approach
Intended to protect small business and workers in LDCs
Cut out exploitive middle men who want to maximize profits. Work directly with the producers and workers so more profits can be returned to them.
Producer standards
Cooperative farms
Worker standards
Fair wages, rights

29. Barriers to Economic Development
The World economy works to the disadvantage of the periphery, but other obstacles exists:
Social conditions- life expectancy, young dependency ratio, human trafficking
Debt- cant repay loans
Disease- high death rates; sick workers
Political corruption- using $ on other things

30. Costs to Economic Development
With increased production, the environment and culture are transformed.
Industrialization: cheap labor exploited
Export Processing Zones (EPZ): favorable tax and trade arrangements for foreign businesses
Maquiladoras in Mexico
Special Economic Zones in China- Hong Kong
North American Free Trade Agreement (NAFTA): encourage trade and cooperation between US, Canada and Mexico
Agriculture: over farming
Tourism: imposes Western culture on LDCs