Challenges to Development

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Challenges to Development
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Dependence Theory

• Definition
• Argues that LDCs are locked into a cycle of
  underdevelopment by the global economic system
  that supports and unequal structure
• Argues that the political and economic relations
  among countries limit the ability of LDCs to
  modernize and develop
• LDCs are dependent on MDCs for financial and
  economic support
• MDCs are dependent on LDCs to remain on top of
  the world economy

• According to theory many countries are poor today
  because of their colonization by Europeans
• Extracted valuable resources from colonies but
  did not develop lasting infrastructures
• Dependency theory views the worlds countries as
  existing in a system of interlocking parts
• Each countrys actions impact other countries

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Core-Periphery Model

• core-periphery model states that the worlds
  countries are divided into three groups
• Core
• Consists of industrialized countries with the
  highest per-capita incomes and standard of living
• Examples U.S., Canada, Australia, New Zealand,
  Japan, and Western Europe

• Semi-periphery
• Consists of countries that are newly
  industrialized and have not caught up to core
  countries in level of development
• Examples Brazil, India, China
• Periphery
• Consists of LDCs with low levels of
  industrialization, infrastructure, per capita
  income, and standards of living
• Examples most Africa countries, parts of Asia
  and South America

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Wallersteins world systems

• Immanuel Wallersteins world systems analysis
  looks at the world as a capitalistic system of
  interlocking states connected through economic
  and political competition
• Argues unequal positions of countries grew out of
  early exploration and colonization that began to
  create a network, or system, of interrelated
  economies in the world

• Wallerstein argued that colonization by western
  European countries led to economic and political
  interactions among different regions (or systems)
  in the world and the inequalities that resulted
  from domination and exploitation by core
  countries of the semi-peripheral and peripheral
  regions
• Wallerstein theorized that the global core,
  semi-periphery, and periphery grew out of the
  competitive interactions among different countries

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Development through self-sufficiency

• To promote development, LDCs choose one of two
  models
• One advocates self-sufficiency
• One emphasizes international trade

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Development through self-sufficiency

• To reduce the development gap between rich and
  poor countries, LDCs must build economies more
  rapidly
• The self-sufficiency approach pushes
  under-developed countries to provide for their
  own people, independent of foreign economies
• According to this approach, a country should
  spread its investments and development equally
  across all sectors of its economy and regions

• Rural areas must develop along with urban areas
• Poverty must be reduced across the entire country
• Self-sufficiency approach favors a closed
  economic state
• Imports are limited and heavily taxed so that
  local businesses can flourish without having to
  compete with foreign companies
• Critics argue that self-sufficiency and closed
  economies stifle competition
• Competition leads to higher efficiency and
  innovation

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Example India

• India employed the self-sufficiency approach
• To import goods into India, most foreign
  companies had to secure a license which had to be
  approved by the government
• Once a company received a license, the government
  severely restricted the quantity it could sell in
  India
• Government imposed heavy taxes on imported goods
• Indian businesses were discouraged from producing
  goods for export
• Indian business required to get government
  approval for new products, set prices, etc.

• Exposed two main problems
• Protection of inefficient businesses
• Businesses could sell all they made, at
  high-government controlled prices, to customers
  on long waiting lists
• No need to improve quality, reduce prices, or
  increase production
• Also not forced by international competition to
  keep up with technology
• Need for large bureaucracy
• The complex administrative system needed to
  adminster the controls encouraged abuse and
  corruption
• Easier to get around system than try to struggle
  to produce goods
• More money made on black-market

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Development through international trade

• International trade approach pushes
  under-developed countries to identify what it can
  offer the world then direct investment towards
  building on that industry
• Eventually a country will develop an advantage
  over the rest of the world in producing that good
  or service

• A country has a compartive advantage when it is
  better at producing a particular good or offering
  some service than another country
• The place with a comparative advantage can fill
  the markets need for a good or service at a
  lower production cost than other places can
• Example
• Japan invested much money and power into
  developing a comparative advantage in high-tech
  products

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Rostows Development Model

• Walt Rostow set out in the 1950s to explain and
  predict countries patterns of economic
  development
• Rostows model consists of five stages through
  which all countries move as they improve their
  economic development
• MDCs exist in stages 4 and 5
• LDCs exist in stages 1 through 3

• According to Rostow, once a country starts
  investing in capital, it will begin to develop

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Rostows Development Model

• Rostows Moderization Model assumes that all
  countries follow a similar, five-stage process of
  development
• Stage One- Traditional Society
• Economic activity is mainly subsistence farming
  with little investment in innovation
• Called non-productive activities
• Has not yet started a process of development
• Stage Two- Preconditions for Takeoff
• As a region begins to develop, a small (elite)
  group of people initiates innovative takeoff
  economic
• Country starts to invest in new technology and
  infrastructure
• These projects will ultimately stimulate an
  increase in productivity

• Stage Three- Takeoff
• The small of new industries that begin to
  emerge in Stage Two begin to show rapid economic
  growth
• In this stage, industrialization increases and
  subsistence farming decreases in the regions
  where takeoff industries exist
• Stage Four- Drive to Maturity
• At this stage, more advanced technology and
  development begins to spread to a wider region
  and other industries (not just take-off) begin
  to experience rapid growth and workers become
  more skilled and educated
• Stage Five- High Mass Consumption
• The economy shifts from the dominance of
  secondary factory jobs to the dominance of
  service-oriented jobs that require higher levels
  of education
• In this stage, Rostow predicted that a country
  experiencing higher economic development would
  lead to higher levels of consumption

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Rostows Modernization Model

• Rostows model also considers each country an
  independent agent, rather than one piece of an
  interlocking system of countries
• Stage five assumes that higher economic
  productivity leads to high mass consumption of
  goods and services
• Some geographers argue that a highly productive
  economy might not lead to such consumption levels
  but could led to higher levels of social welfare
  activities or more sustainable activities

• Critics
• Some geographers do not think the Rostow model
  can be used to explain and predict all countries
  economic development because Rostow based his
  projections on the pattern of western European
  and Anglo-American countries
• Rostows model does not consider structural
  issues might limit a countrys ability to
  develop, such as post-colonial dependency

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International Trade Approach

• When most countries were following the
  self-sufficiency approach two groups of countries
  choose the international trade approach during
  the mid-20th century
• The Four Dragons (Tigers)
• Arabian Peninsula

• The four Asian Tigers
• South Korea, Sinapore, Taiwan, and Hong Kong (at
  time still British)
• Nicknames include four dragons, four tigers
  and the gang of four
• Characteristics
• Singapore and Hong Kong had no natural resources
  and large cities surrounded by rural land
• South Korea and Taiwan took lead from Japan
• The four dragons promoted development by
  concentrating on producing a handful of
  manufactured goods, especially clothing and
  electronics
• Developed a comparative advantage
• Low labor costs enabled these countries to sell
  products inexpensively in MDCs

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International Trade Approach

• Petroleum-rich Arabian peninsula states
• Includes Saudi Arabia, Kuwait, Oman, and the
  United Arab Emirates
• Once among the worlds least developed countries
• Transformed overnight into some of the wealthiest
  countries thanks to escalating petroleum prices
  in the 1970s
• Arabanian peninsula countries have used petroleum
  revenues to finance large-scale projects, such as
  housing, highways, airports, universities, and
  telecommunication networks
• Other industries have been aided by government
  subsidies
• Landscape also changed by introduction of
  consumer goods

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International Trade Approach

• Problems with the International Trade Approach
• Three problems have hindered countries outside of
  the Asian Dragons and Arabian Peninsula
• Uneven resource distribution
• In some LDCs dependence on one product has lead
  to economic failure
• Increased dependence on MDCs
• Build up of take-off industries might result in
  less production of food
• Has to be imported from MDCs
• Market decline
• World market for low-cost manufactured goods has
  declined sharply in recent years

• International Trade Success
• In late 20th century, most countries embraced the
  international trade approach
• India switched approaches
• Trade has increased more rapidly than wealth
• Countries switched approaches because of one
  reason- overwhelming evidence that international
  trade better promoted development
• World Bank found that between 1990 and 2005 per
  capita GDP increased more than 4 annually in
  countries oriented toward international trade
• Less than 1 for countries oriented toward
  self-sufficiency

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International Trade Approach

• Critics
• Charge the WTO is anti-democratic because
  decisions are made behind closed doors
• Only promotes interests of large corporations
• Compromises the sovereignty of individual
  countries

• World Trade Organization (WTO)
• To promote the international trade development
  model, countries representing 97 of world trade
  established the WTO
• The WTO works to reduce barriers to international
  trade in two principal ways
• First countries negotiate reduction of
  elimination of international trade restrictions
  on manufactured goods and tariffs on both imports
  and exports
• Also limitations on movement of money
• Promotes international trade by enforcing
  agreements

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International Trade Approach

• Foreign Direct Investment
• Definition
• Investment made by a foreign company in the
  economy of another country
• FDI grew rapidly during the 1990s from 130
  billion to 1.5 trillion in 2000
• Does not flow equally throughout the world
• 1/4th from MDCs to LDCs
• 1/3rd of went to China
• 3/4th from MDCs to MDCs

• SEZs
• Countries wanting to attract foreign direct
  investment establish special economic zones
• Regions that offer special tax breaks, eased
  environmental restrictions, and other incentives
  to attract foreign business and investment
• Example China
• Also- export processing zones
• Major sources of FDI are Transnational
  corporations
• Invest and operate in another country than the
  one in which its headquarters are located

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International Trade Approach

• Financing Development
• LDCs lack money to fund development
• Finances come from two primary sources
• Direct investment by TNCs
• Loans from banks and international organizations

• Loans
• Two major lenders
• The World Bank
• Split into
• IBRD (International Bank for Reconstruction and
  Development)
• IDA ( International Development Association)
• IMF (International Monetary Fund)
• Provides loans to countries experiencing
  balance-of-payment problems that threaten
  expansion of international trade
• Does not lend for specific projects
• Funding of the IMF based on each member countrys
  relative size in the world economy
• Both created post WWII to avoid disastrous
  economic policies
• Both part of United Nations

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Structural Adjustment Programs

• Loaning money to LDCs can perpetuate bad habits.
• Led to creation of structural adjustments
• Structural adjustments are requirements attached
  to a loan from a lending agency like the IMF that
  force the country receiving the loan to make
  economic changes in order to use the loan
• Includes economic goals
• Strategies for achieving objectives
• External financing requirements

• A structural adjustment includes economic reforms
  or adjustments
• Typically include
• Spend only what it can afford
• Direct benefits to the poor, not just elite
• Direct investment from military to health and
  education spending
• Invest scare resources where they would have the
  most impact
• Encourage a more productive private sector
• Reform the government
• More efficient civil service
• Most accountable fiscal management
• More predictable rules and regulations
• More dissemination of information to the public

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Structural Adjustment Programs

• Critics charge that poverty worsens under
  structural adjustment programs
• By placing priority on reducing government
  spending and inflation
• Results may include
• Cuts in health, education, and social services
• Higher unemployment
• Loss of jobs in state enterprises and the civil
  service
• Less support for those most in need

• Often structural adjustments force loan-receiving
  countries to increase privatization
• The selling of publicly-operated industries to
  market-driven corporations
• Can cause hardships for families that once
  depended on government owned or operated
  resources being sold off to profit-driven
  corporations
• Ex. Africa- water systems
• Advocates argue that structural adjustment
  programs argue that long-term economic benefits
  will outweigh the short-term side effects of
  difficult economic adjustments

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NGOs

• Non-governmental organizations
• Definition
• Organizations run by charities and private
  organizations, rather than a government agency
• provides supplies, resources, and money to local
  businesses and causes that advance economic and
  human development
• Examples
• Doctors Without Borders, Save the Children

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Fair Trade

• Fair Trade has been proposed as a variation of
  the international trade model of development
• Definition
• Means that products are made and traded according
  to standards that protect workers and small
  businesses in LDCs
• Meant to help protect workers from exploitation
  that often occurs from free trade

• Two sets of standards distinguish fair trade
• Producer standards
• Advocates work with small businesses and
  democratically run cooperatives
• Consumers pay higher prices for fair trade
  products
• Able to return a great deal of money to producers
• Leds to higher-quality products
• Usually organic
• Worker standards
• Requires employers to pay workers fair wages,
  permit union organizing, and comply with minimum
  environmental and safety standards

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Globalization

• Globalization is the term used to describe the
  increasing sense of interconnectedness and
  spatial interaction among governments, cultures,
  and economies

• New International Division of Labor
• The NIDOL breaks up the manufacturing process by
  having various pieces of a product made in
  various countries and then assembling the pieces
  in another country
• With the rise of Globalization, the original
  Fordist assembly-line concept has been split up
• Often many LDCs depend so heavily on investment
  by MDCs that these foreign corporations hold a
  large amount of power over governmental decisions

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New International Division of Labor

• Free trade vs. Fair Trade
• Free trade
• Concept of allowing MDCs to outsource without any
  regulation except for the basic forces of market
  capitalism
• Globalization
• Controversy
• Some argue that foreign direct investment is
  helping to generate increased economic
  development in LDCs, others contend that workers
  (particularly women) in those countries are being
  exploited by profit-driven companies

• Fair trade involved oversight of foreign direct
  investment and outsourcing to ensure that workers
  throughout the world are guaranteed a living wage
  for their work

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Environmental Impacts

• Sustainable development
• Will the increased rate of production and
  development be maintained while natural
  resources are being rapidly depleted?
• Sustainable development
• Definition
• a rate of growth and resource-consumption that
  can maintained from one generation to another

• Ecotourism
• Improvements in transportation more traveling
• Many exotic landscapes being transformed to
  attract tourists and the expense and destruction
  of local environments
• Ecotourism tourist operations that aim to do
  little harm to the environment

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Environmental Impacts

• Greenhouse Effect
• Geographers are concerned with the rising average
  global temperature caused in part by spread of
  industrialization and the related increase in
  consumption and pollution
• Greenhouse effect
• Cause by industrial outputs such as carbon
  dioxide and methane in the atmosphere that create
  a vapor that transforms radiation into heat,
  leading the Earths temperature to rise

• Global Warming
• The global warming theory argues that Earths
  rise in temperature is causing negative
  consequences, such as premature melting of the
  polar ice caps, which could cause a rise in sea
  levels and an interruption of oceanic patterns