Road to Development

Balanced Growth

• through Self-Sufficiency• A country should spread investment as

equally as possible across all sectors of its economy and in all regions. – Incomes in rural areas keep pace with urban

incomes– Businesses remain independent of foreign

corporations– Limit imports through tariffs and quotas

Different Routes to Success

• India followed this policy– Made imports difficult– Discouraged Indian businesses from

exporting– Could not convert Indian money into other

currencies– Encouraged production of consumer goods

for Indian citizens– Provided subsidies for struggling companies

Problems

• Inefficiency: without true competition, companies have little incentive to improve techniques, technology, products, etc

• Large Bureaucracy: needed to administer the controls – complex and corrupt

Rostow’s Development (Modernization)Model

• through International trade

• A country can develop economically by concentrating scarce resources on expansion of its distinctive local resources

• Developed by W.W. Rostow (1950s)

Rostow - Stages of Growth1. Traditional Society• Characterised by

– subsistence economy – output not traded or recorded

– high levels of agriculture and labor intensive agriculture

– Wealth allocated to nonproductive activities (religious, militaryVillage in Lesotho. 86% of the resident workforce in

Lesotho is engaged in subsistence agriculture.

Copyright: Tracy Wade, http://www.sxc.hu/

Rostow - Stages of Growth

2. Pre-conditions:– An elite group

initiates development

– Investments in technology and infrastructure

– Commercialization of agriculture

The use of some capital equipment can help increase productivity and generate small surpluses which can be traded.

Copyright: Tim & Annette, http://www.sxc.hu

Rostow - Stages of Growth

3. Take off:– Increasing industrialization

in limited areas (food or textiles)

– Foreign investment increases

– Infrastructure improvements

– Some regional growth– Economy still dominated by

traditional practicesAt this stage, industrial growth may be linked to primary industries. The level of technology required will be low.

Copyright: Ramon Venne, http://www.sxc.hu

Rostow - Stages of Growth

4. Drive to Maturity:– Develops broad

manufacturing and commercial base

– Industry more diversified

– Increase in levels of technology utilized

As the economy matures, technology plays an increasing role in developing high value added products.

Copyright: Joao de Freitas, http://www.sxc.hu

Rostow - Stages of Growth

5. High mass consumption– High output levels– Mass consumption of

consumer durables– High proportion of

employment in service sector

Service industry dominates the economy – banking, insurance, finance, marketing, entertainment, leisure and so on.

Copyright: Elliott Tompkins, http://www.sxc.hu

USA Path to Development

• Stage 5: early 20th century

• Stage 4: late 19th century

• Stage 3: middle of 19th century

• Stage 2: first half of 19th century

• Stage 1: prior to independence

Criticisms

• Assumes LDCs will achieve each level of development before advancing

• Uneven resource distribution (Zambia’s one commodity market of copper developed trouble when world copper price fell)

• Market Stagnation – MDCs market are saturated, need to increase sales in LDCs

• Increased dependence on MDCs – when concentrating resources in a “takeoff” industry, then buy necessities from MDCs

Criticisms

• Does not account for– Global politics– Colonialism– Physical geography– War– Culture– Ethnic conflict– Deindustrialization

• Cannot compare Nepal (stage 1) to Denmark (stage 5) to Saudi Arabia

• Development does not necessarily lead to high consumption, can mean social welfare

• Possible 6th stage – Postindustrial– Service replaces industry– Information replaces energy as key resource

International Trade Approach

• Some countries have switched from self-sufficiency approach to international trade– according to the World Bank – international

trade countries have seen 4% growth, self-sufficiency countries 1%

• LDCs are exporting more manufactured goods rather than agriculture or mining goods

International Trade Approach

• World Trade Organization (1995) works to reduce barriers to international trade by– Negotiate reductions in trade restrictions,

such as quotas & tariffs– Enforces trade agreements

• WTO has been criticized for being undemocratic (favor large corps over poor nations) and for threatening sovereignty

International Trade Approach

• Foreign Direct Investment (FDI) – investment made by a foreign company in the economy of another country

• Only 1/3 went from a MDC to a LDC (only 10% went to African nations)

• Transnational Corporations are major sources of FDI

Models of Development

• Liberal Models by definition– Rostow’s Model– All countries are capable of development– All countries follow the same model of

development • For countries that have developed in modern times

– only China has followed THE model of development

– Economic disparities are a result of short term inefficiencies in local or regional market forces

Models of Development

• Structuralist Models– Dependency Theory– Regional disparities are a structural feature of

the global economy • Neo-Colonialism

– Things have come to be organized or structured in a certain way and cannot be changed easily

– Old method of industrializing is no longer possible because other factors have changed

Dependency Theory

• Structuralist alternative to Rostow’s model

• Political and economic relationships between countries and regions control and limit the economic development of less affluent regions

• Dependency helps sustain the prosperity of the dominant regions and the poverty of the lesser regions

Dependency Theory

• Little hope for economic prosperity in regions and countries that have traditionally been dominated by external power (colonialism)

• Based on generalizations that pay little attention to regional differences in culture, politics, and society

World-Systems Theory

• Immanuel Wallerstein

• Divide world into – Core– Semi-periphery– Periphery

Three Tier Structure

Core Processes that incorporate higher

levels of education, higher salaries, and more technology

* Generate more wealth in the world economy

Semi-periphery Places where core and periphery

processes are both occurring. Places that are exploited by the core but then exploit the periphery.

* Serves as a buffer between core and periphery

Periphery Processes that incorporate lower

levels of education, lower salaries, and less technology

* Generate less wealth in the world economy

Core Periphery Model

• Core Regions– High levels of socioeconomic prosperity– Dominant players in global economic game

Anglo America HDI .94Japan and the South Pacific HDI .93Western Europe HDI .92

Core Periphery Model

• Periphery– Poor regions– Dependent on the core– Do not have much control over their own

affairs

Periphery Regions

Latin America HDI .78East Asia HDI .72Southeast Asia HDI .71Middle East HDI .66South Asia HDI .58Sub Saharan Africa HDI .47

Core Periphery Model

• Semi Periphery– Regions that exert more power than periphery

regions but are – Dominated to some degree by the core

Development Indicators

• Economic: GNP, PPP, per capita energy consumption

• Noneconomic: HDI, gender equity, calorie intake

Four Dragons

• Aka Four Tigers or Gang of Four• S. Korea, Singapore, Taiwan, and Hong

Kong• Lacked natural resources• Strongly influenced by Japan’s success• Concentrated on handful of manufactured

goods• Low labor costs• Sell to MDCs

Millennium Development Goals

• Adopted by world leaders in the year 2000 and set to be achieved by 2015, the Millennium Development Goals (MDGs) provide concrete, numerical benchmarks for tackling extreme poverty in its many dimensions.

The MDGs also provide a framework for the entire international community to work together towards a common end – making sure that human development reaches everyone, everywhere. If these goals are achieved, world poverty will be cut by half, tens of millions of lives will be saved, and billions more people will have the opportunity to benefit from the global economy.

Millennium Development GoalsThe eight MDGs break down into 21 quantifiable targets that are measured by 60 indicators.

• Goal 1: Eradicate extreme poverty and hunger • Goal 2: Achieve universal primary education • Goal 3: Promote gender equality and empower women • Goal 4: Reduce child mortality • Goal 5: Improve maternal health • Goal 6: Combat HIV/AIDS, malaria and other diseases • Goal 7: Ensure environmental sustainability • Goal 8: Develop a Global Partnership for Development

http://www.undp.org/mdg/basics.shtml