The Developing World Third World

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The Developing World (Third World)
What? Poorest nations and regions of the world.
Where? Sub-Saharan Africa, much of South and
Central America, and parts of Asia. Two-thirds
of the world's population.
When? The developing world gains attention
especially after WWII. Creation of new
institutions to combat extreme poverty in the
world IMF, World Bank, institutions of the
United Nations.
Why? Lack of technology, low industrial growth,
poorly developed international trade, inadequate
education.
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The Developing World
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Least Developed Nations
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Main Issue of Economic Development Global Poverty
Related Issues Health, Literacy, Environmental
Degradation, Immigration, Political Change
Environmental Degradation
Literacy Rates
Global Poverty
Health and Disease
Revolution
Immigration
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• Main goal of economic development
• Eliminate poverty in Third World

• Measuring poverty and standard of living
• Per Capita Income, or Income per Person
• Gross Domestic Product (GDP)
• ------------------------------------------
• Population

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Differences in Per Capita Income
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General Features of Developing Countries

• Per capita income lt 735 per year or about 2 per
  day
• In many countries, only 1 per day
• Low life expectancy
• In the United States 78 years
• In Peru 70 years, in India 63 years, in Ethiopia
  42 years
• High infant mortality rates
• In the United States, 7 infants die per 1,000
  live births
• In Brazil 31 die, in Pakistan 84 die, in
  Ethiopia 116 die

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Developed Countries

• Countries in Western Europe, the United States,
  Canada, Japan, Australia, and New Zealand
• Per capita income gt 9,076 per year
• Different literacy rates, technological
  development, political systems, government
  intervention, and social programs
• For the most part, no convergence exists between
  developed and developing countries
• Signs that change is possible Newly
  Industrializing Countries (NICs) South Korea,
  Taiwan, Singapore, Hong Kong in 80s and 90s.
  China and India today.

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The big question How to change? Economic
Development as a form of social engineering
Critical and rational methods of science applied
to the problems of society
Karl Popper -- two types Piecemeal social
engineering localized social change. Example
Non-Governmental Organizations (NGOs) such as the
Red Cross and Amnesty International. Utopian
social engineering complete social change,
traced back to the Ancients, especially Plato and
Aristotle. Example Attempt of government to
control and manage society leads to totalitarian
regimes and social breakdown.
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First Theory Focus on Structural Failures in
Third World
Called Structuralist Theory
Certain structures are found in the Third World
that do not allow these societies to develop
properly.
Example 1 Finance (borrowing money)

• Lack of good financial institutions prevents
  capital from being most
• productively allocated.
• Businesses cannot get access to credit.
• Lack of a rule of law and a good legal system
  Creditors fear the inability
• to enforce repayment gt leads to fewer loans
  and fewer new firms

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Example 2 Population Growth

• In the Third World, population often grows faster
  than output
• Per capita income therefore falls.
• With falling incomes
• Little or no spending on education
• Malnutrition and poor health care

Also, high population growth rates result in low
worker productivity low output and per capita
income
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Example 3 Reliance on Traditional Agriculture

• Large percentage of population in traditional
  agriculture, low percentage in urban
  industrialized regions
• Called dual economies due to vast differences in
  urban and rural economies
• Example China -- technologically advanced
  cities surrounded by primitive agriculture.
  Argentina, Brazil.
• Low education levels --gt cannot take advantage of
  advanced technologies
• Developing countries thus typically specialize in
  labor-intensive industries like
• textiles and primitive agriculture

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Vicious Cycle of Third World Poverty

• A vicious cycle a poor country cannot adequately
  fund education, health care, or advanced
  technologies, so it stays poor.

poverty
poor education, health care, technology
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Solution for the Structuralists the Structure of
the Developing Economy MUST BE CHANGED

• State must give a BIG PUSH to development in the
  Third World, and BREAK the cycle of poverty.

• State must lead the development process, and
  create an environment for industrial growth

Goal Transform Agricultural Nations into
Advanced Industrial Nations
How? Through new state policy -- thus the
explosion of the nation-state after WWII,
especially in the developing world
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Specific Policies 1. Create Infrastructure for
Industry -- new transportation systems, new
communication systems Social Overhead Capital
(SOC) 2. Create environment conducive to
Industrial Growth Create profitable domestic
environment for industry a. Profit-enhancing
tariff structure high output tariffs, negative
input tariffs b. Raise the exchange rate make
imports even cheaper c. Direct subsidies to
producers d. In short, create a domestic market
for new infant industries
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Most importantly regulate international trade in
order to promote transformation from
labor-intensive agriculture to growing Industry
Solution Industrialization through Trade
Regulations Policy called Import-Substitution
Industrialization (ISI)
Policy followed by nearly EVERY DEVELOPING NATION
after WWII
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Following WWII, ISI policy works! Foreign
imports were replaced by domestic equivalents in
local markets. Developing nations GREW markedly
at this time Increased imports of machinery and
advanced technology (capital goods) from
developed nations. So world trade grew
substantially at this time To afford purchase of
capital goods, most developing nations borrowed
from developed nations So global finance grew
substantially at this time
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Incredible expansion of the global economy, led
in part by growth in developing world
What happens? It just stops. By the late 1970s,
the developing world enters into economic crisis

• Stoppage to economic growth
• Further increase in unemployment and poverty
• Massive debt in entire developing world as part
  of the industrialization drive Third World Debt
  Crisis

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New Criticism of ISI policies Emergence of
Neoclassical Development Theory
What is causing problems appearing in the Third
World? The STATE. Get rid of the state, and
the problems of the Third World will disappear.

• Liberalize Trade
• Free Markets
• Let the Free Market WORK

Called Liberalization Policy or Neoliberalization
Policy
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• Becomes new solution for every developing nation
  -- switch to Liberalization of Trade and
  Neo-liberalization Policy
• Cut subsidies to poor
• Stop subsidizing water and food
• Sell off national industries
• Release exchange controls
• Stop regulating foreign trade
• PROMOTE EXPORTS Export-led growth is called
  Export Oriented Industrialization (EOI).

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Key to wiping out debt in Third World. IMF and
WORLD BANK lend money for bailout, but with a
condition must liberalize economy
completely Called stabilization policy or SHOCK
therapy

• Policy seems to work for awhile
• Then collapse in most of the developing world
• Massive increase in unemployment, poverty, and
  social movements

• Except for 4 nations South Korea, Taiwan,
  Singapore, and Hong Kong THE ASIAN TIGERS

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New Understandings of World Economy Emerge 1.
Dependency Theory (esp. in Latin America) The
wealth of the developed world depends on the
non-wealth of the Third World. The development
of some nations DEPENDS ON the non-development of
others. First world nations exploit third world
nations. 2. World Systems Theory Global
capitalist system is composed of different
components or regions (i) Center or Core,
which is industrially advanced (ii) Periphery or
Hinterland, which is backward because of the
Core. Institutions in the Core (states,
corporations) exploit the Third World.