Experiences Economic development Refers to the combined processes of capital accumulation, rising per capita incomes (with falling birth rates), increasing skills in the population, adoption of new technological styles, and other related social and economic changes. Measure used to trace the successes and failures of the South. Focus on countries so lessons can be learned from successes and failures in individual countries In the new century, growth has accelerated in the South and now outpaces the North. Uneven growth, however.
Quiz #11 12-1-10 Who are “tigers” of East Asia? Why are they called this? How were each of these states able to accumulate capital? Answer the following questions for both India and China? What has been the dominant type of economy? How have they integrated into the global market? Did they or do they have a comparative advantage? What is their primary industry? How are basic needs (hunger, shelter, water, medicine) compared to average in the global south? What have we learned from these cases about international development in the Global South? How have growth rates been affected in the largest countries in the Middle East and Latin America?
The Newly Industrializing Countries Before China took off, a handful of poor states called newly industrializing countries (NICS) achieved Self-sustaining capital accumulation Impressive economic growth They were semiperiphery states. Light exported goods Most successful were the “four tigers” or “four dragons” of East Asia: Korea, Taiwan, Hong Kong, and Singapore. Varied profiles Unclear whether general lessons can be learned from their success
The Chinese Experience China has 1.3 billion people. Fastest-growing economy in past two decades Between the communist victory of 1949 and the Cultural Revolution of the 1960s, Chinese economic policy was controlled by the state through central planning and state ownership. Iron rice bowl
The Chinese Experience Deng Xiaoping instituted new economic reforms. Free economic zones: open to foreign investment and run on capitalist principles. Social problems, inflation, and corruption Tianamen Square 1989 Policy of combining economic reform with political orthodoxy continued Asian financial crisis
India Takes Off India also a large country with many people and recent robust growth. Exceeded 7 percent from 1996-2008 Economy was based loosely on socialism and state control of large, unprofitable industries for decades. Developed niche in service and information sectors Unlike China, India has a democratic government (although a factious one). Implications for the rapidity of certain changes and how they were initiated Infant mortality and fertility rate
India Takes Off India relied on the identity principle China relied on the dominance principle Competing theories of economic development: do authoritarian governments help development and should democracy wait until a later stage? If India continues to succeed, however, then clearly authoritarian government is not a precondition.
Other Experiments Other sizable third world states have pursued various development strategies, with mixed successes and failures. Best results have come from Asia Indonesia, Malaysia, and Thailand Vietnam Bangladesh and Pakistan Latin America Brazil and Mexico Africa Nigeria, Ethiopia, Democratic Congo Middle East
Lessons Common themes occur throughout the largest developing countries: Trade Concentration of capital Authoritarianism Corruption
Import Substitution and Export-Led Growth One way to try to create a trade surplus is through import substitution the development of local industries to produce items that a country has been importing. Against the principle of comparative advantage Not proven effective in most cases
Import Substitution and Export-Led Growth Export-led growth is a strategy used by the NICs that seeks to develop industries that can compete in specific niches in the world economy. These industries may receive special treatment, such as subsidies and protected access to local markets. Exports from these industries generate hard currency and create a favorable trade balance.
Import Substitution and Export-Led Growth Because of both terms of trade and price fluctuations, states have looked to exporting manufactured goods, rather than raw materials, as the key to export-led growth Third world nations need to be selective in developing export-oriented industrial strategies.
Concentrating Capital for Manufacturing Manufacturing emerges as a key factor in both export-led growth and self-sustaining industrialization. Third world countries wish to increase their own manufacturing base and change the global division of labor. Difficulty in doing so: capital So they must concentrate what surplus their economies produce. This money then cannot be spent subsidizing food prices or building better schools. Political price must often be paid in short term for reducing public consumption, even in industrialized states. Poor states have limited margin for reducing consumption without causing extreme hardship.
Authoritarianism and Democracy In reality, democracy has not accompanied economic development in a systematic or general way. Fastest growing states have been authoritarian states, not democracies. Some have suggested that a strong state facilitates capital accumulation. But the theory that authoritarianism leads to economic development does not hold up. Absence of political stability; economic development in some Latin America – wave of civilian governments replacing military ones and an increase in economic development.
Corruption Corruption is an important negative in terms of economic development Has a deeper effect in poor countries There is simply less surplus to keep economic growth going. Also in third world countries incomes are often so low that corrupt officials are more tempted to accept payments. Collective action problem for states and MNCs in the global North.
North-South Capital Flows Capital from the global North moves to the South and potentially spurs growth there in several forms: Foreign investment Debt Foreign aid
Foreign Investment Foreign investment – investment in capital goods by foreigners (mostly MNCs) – is one way to get accumulation started. Crucial to the success of China Foreign investors own the facilities Can usually take profits from the operation out of the country Host government can charge fees and taxes or lease land or drilling rights. Some fear from global South regarding this activity When looking to invest, what do MNC’s look for?
North-South Debt Borrowing money Alternative to foreign investment If accumulation succeeds, it produces surplus and state can repay the loan and have profit left over. Borrowing has several advantages Keeps control in the hands of the state Does not impose painful sacrifices on local citizens, at least in the short term Borrowing has disadvantages as well Borrower must service the debt – constant drain May require new borrowing to service the debt Default Developing countries have not yet solved the debt problem South still owes over 2 trillion dollars in foreign debt
IMF Conditionality The International Monetary Fund (IMF) and the World Bank have a large supply of capital from their member states. Plays an important role in funding early stages of accumulation in developing countries and in helping them get through short periods of great difficulty. IMF conditionality agreement Condition that certain government policies are adopted Implementation of these conditions is referred to as a structural adjustment program. Agreements are often politically unpopular in global South.
Foreign Assistance Foreign assistance (or overseas development assistance) is money or other aid made available to third world states to help them speed up economic development or simply meet basic humanitarian needs. Foreign assistance is the second major source of money for third world development. Different kinds of development have different purposes: Humanitarian Political Future economic advantages for the giver (donor)
Patterns of Foreign Assistance The majority of foreign assistance comes from governments in the North. Private donations provide a smaller amount. Development Assistance Committee (DAC) Bilateral aid Multilateral aid
Patterns of Foreign Assistance: Types of Aid UN Programs Have three advantages in promoting economic development: UN perceived as a friend of the global South UN workers may be more likely to make appropriate decisions because of their backgrounds UN can organize its assistance on a global scale Major disadvantage They are funded largely through voluntary contributions by rich states.
The Disaster Relief Model Type of assistance given when poor people are afflicted by famine, drought, earthquakes, flooding, or other such natural disasters. Disaster relief is the provision of short-term relief to such people in the form of food, water, shelter, clothing, and other essentials. International norms regarding states’ legal obligations to assist others in time of natural disaster and to accept such assistance if needed are changing.
The Handout Model Helpful, but not without problems. Handouts provide short-term help and do not create sustained local economic development. Sometimes racist or paternalistic; tend to be exploitive Example: U.S. and food aid to Africa Bush administration had good idea: buy food locally in Africa, save lots of money, and get aid to the hungry faster, BUT U.S. agribusiness and the shipping companies and the U.S. charities got mad. This was money out of THEIR pockets (Iron Triangle of Food Aid). Harms long-term recovery by flooding areas with grain and hurting local farmers Harmful example: Nomadic herders of Lake Turkana – Why did the help offered fail?
The Oxfam Model Private charitable group created the model. One of seven groups worldwide descended from the Oxford Committee for Famine Relief, founded in 1942 Relies on local communities to determine the needs of their own people to carry out development projects. Attempts to reconceptualize development assistance to focus on long-term development through a bottom-up basic needs strategy. Empowerment Has only been tested on a small scale.
Confronting the North-South Gap All three models of development assistance have contributions to make. Global South needs help. Global North needs to become aware of the problem and attempt to address it.
Confronting the North-South Gap Integrated global economy brings the two hemispheres together. Information revolution puts images of third world poverty on TV sets. Growing role of UN brings North and South together. Security relations and political economy have made the issues of the global South more prominent to the global North.