9. 4 Why Do Countries Face Obstacles to Development? Standard of Living



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9.4 Why Do Countries Face Obstacles to Development?

Standard of Living

The quality and quantity of goods and services available to people and the manner that they are distributed within a population

Globalization

Expansion of economic, political, and cultural processes to a global impact and scale

Infrastructure

The basic, underlying framework or features of a system or organization

Water, electricity, communications, highways, etc

Self-Sufficiency Path To Development

Encourage domestic production of goods

Spread investment in all sectors and all regions

Reducing poverty over achieving wealthy consumer class

Discourage foreign ownership

Protect domestic businesses from international competition

Trade barriers

Tariffs – taxes on imports/exports

Quotas on imported goods

Restrict licenses for legal importers

Cons of the self-sufficiency path

Protection of inefficient businesses

Little incentive for quality

Large bureaucracy needed

Inefficiency, corruption

India’s Development Path

Restricted trade after independence in 1947

Indian businesses discouraged from making products for export

No conversion with international currency

Government subsidize if domestic consumption wasn’t profitable

Subsidy – money paid by the government to help a sector to function or keep prices low

Government approval needed for expansion of production, modernizing equipment, hire/fire workers, etc

Yielded modest development

More growth later with international trade path

Rostow’s Stages of Development

Stage one – Traditional society

Economy dominated by primary activities

Productivity, technology, and per capita income are low

Stage two – Preconditions for take-off

Preconditions for economic development

Commercialization of agriculture

Increased exploitation of raw materials

Stage three – Take-off

Foreign investment rises and jumpstarts the economy

Lots of infrastructure improvements

Stage four – Drive to maturity

Broad manufacturing and commercial bases

Stage five – High mass consumption

High mass consumption

Weakness of Rostow

Assumes consecutive progression through levels

Doesn’t account for complex factors

Global politics, colonialism, war, culture, etc

Stage five equates consumption with development

Environmental problems with that assumption

International Trade Path to Development

Rostow’s Model

Successes of the international trade path

Japan’s movement from periphery to core post WWII

Sale of needed resources to core nations brings income to growing periphery economies

Competition on the international market encourages development of industries

Cons of the international trade path

Uneven resource distribution

Increased dependence on core nations

Market decline for low cost goods

Comparative Advantage

Certain countries develop the capacity to produce certain goods and services at lower cost than others

Encourages global trade rather than protectionism

Protectionism

Policies that give preferential treatment to domestically produced goods

Taxing of foreign goods, etc

International Trade Path Examples

Four Asian Tigers (Dragons)

South Korea, Singapore, Taiwan, Hong Kong

Few natural resources, focused on exporting manufactured goods

Petroleum-rich Arabian Peninsula states

Saudi Arabia, Kuwait, Bahrain, Oman, United Arab Emirates

Huge wealth created during rising oil prices of 1970s

Used money to build large scale projects

Housing, highways, airports, hospitals, universities, telecommunications networks

World Trade Organization (WTO)

To promote the international trade path to development

Established in 1995

Created by the countries representing 97% of world trade

Negotiate reduction or elimination of trade barriers

Enforces trade agreements

Criticisms of WTO

Antidemocratic because of lack of transparency

Promotes the interest of large corporations

Question Time!

Many countries that adopt the international trade path are relatively small.

Why might a nation’s size be a factor in the early adoption of the international trade path?

Compare and contrast the self sufficiency path and the international trade path to development.

Connect Rostow’s Model to the demographic transition model.

Who would be for and against the WTO?

Financing Development

Foreign Direct Investment (FDI)

Investment from a corporation to a company in another country

2010: 40% to China, 20% to Brazil, Russia, Singapore

Loans

World Bank - mainly loans for reform and projects

International Monetary Fund (IMF) – loans to countries to stimulate international trade

Rebuild reserves

Stabilize currency

Cons – create debt (can destabilize periphery banks )

Doesn’t always stimulate more projects

Aid can be misspent

Microfinance

Small loans (around $60) to individuals to stimulate small business projects

Exmp: Grameen Bank in Bangladesh

Financing Challenges in Periphery

Sometimes countries can’t pay

The IMF and World Bank wants to avoid encouraging bad practices by cancelling debts

To apply for debt relief the country must complete a structural adjustment program

Includes economic reforms to prevent further problems

Limiting spending within budget

Making investment more equitable

Diverting from military to health and education

Encouraging efficiency and transparency

Criticisms of structural adjustment programs

Creates funding cuts to services benefitting poor populations

Higher unemployment

Less support for vulnerable populations

Financing Challenges in the Core

Inequality in the core

Lessening in the periphery but growing in the core

Percent held by upper 1%

Coping with recession

Stimulus strategy – government should spend more money to put people to work, especially to improve infrastructure

Austerity strategy – government should sharply reduce taxes and spending on programs to keep the debt from swelling

Europe’s Sovereign Debt Crisis

Adopting the Euro has tied stronger northern economies to weaker southern economies

Some in the north advocate for structural adjustment type programs like in the periphery

Some in the south advocate for stimulus programs to help their economy improve for long term benefits to the EU

Housing bubble


A rapid increase in the value of houses because very low interest rates made it possible for more people to buy

Even risky loans were being made

Then the bubble burst as demand declined, leading to a decrease in housing prices that put many investors properties “under water”

They owed more money on the house than it was worth

So they defaulted on their loans and walked away

Spread into finance, housing related industries, etc


Fair Trade

Products are made with standards to protect workers and small businesses in periphery exporters

Created to address inequality of international trade

Working standards, etc

Measuring Progress in Development

Since HDI was created in 1980 the world has made progress

Indicators are measured to observe change

Exmp: Infant mortality rate, life expectancy, and GNI per capita have improved

Millennium Development Goals

    1. Eradicate extreme poverty and hunger

    2. Achieve universal primary education

    3. Promote gender equality and empower women

    4. Reduce child mortality

    5. Improve maternal health

    6. Combat HIV/AIDs, malaria, and other diseases

    7. Ensure environmental sustainability

    8. Develop a global partnership for development

Question Time!

Which of the millennium development goals do you find most compelling to address?


Which of the millennium development goals shown here has the most limited progress?

Wallerstein’s World-Systems Theory

Immanuel Wallerstein

Three tier structure beginning in the late 15th century through the present

Core (More Developed Country, MDC)

Exploit both periphery and semiperiphery

Periphery (Least Developed Country, LDC)

Exploited by both periphery and semiperiphery

Semiperiphery

Exploited by core, exploits periphery to some degree

Seeks to explain the “capitalist world economy” as a “total social system”

In the hierarchy of power core societies dominate and exploit periphery societies

Semiperiphery

Include newly industrialized countries with intermediate standards of living

Chile, Brazil, India, China, Indonesia

Diverse economic status with extreme gaps between rich and poor

Transnational Corporations

Huge companies that do business in multiple countries

Often have headquarters in the core and low cost resources and labor in the periphery

Core-Periphery

Different concentration of power applies both nationally and globally

National

Phoenix vs Snowflake

Global

USA vs DRC

Brandt Line

Line that defines the North-South divide

Structuralist Theory

Economic disparities come from historical power relations

Cannot be changed without major change

The free market relationships between countries are unequal

Government intervention is needed to rapidly industrialize in order to break the unequal terms of trade

Import substitution – replace foreign imports with domestically produced goods

Import Substituting Industrialization (ISI)

Using domestically produced goods to reduce foreign dependency

NIMBYism

Not In My Backyard

Describes opposition from residents to new development close to them

Dependency Theory

Political and economic relationships control and limit developmental possibilities

Imperialism caused periphery to be dependent, which sustained wealth for core and poverty for periphery

Neocolonialism

The control that core states exert on periphery states

Use economic power to dictate periphery economic policies or drive periphery industries out of business

Organization for Economic Cooperation and Development (OECD)

Sometimes accused of neocolonialism

30 member countries (2/3 of world production) and over 70 periphery countries working with them

Hegemony

Rule or dominance, often politically or socially with one group over others

Hegemonic

Non-Governmental Organization (NGO)

Not run by state or local gov

Created in response to top-down, core development decisions

Goal is participatory development

Locals are engaged in development goals and how to achieve them

Seen as counter-hegemonic

Fast and slow world

Fast world

Usually core nations, with higher levels of connection due to high speed telecommunication and transportation

Slow world

Periphery nations without access to these technologies



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