Challenges to Development

1. Challenges to Development

2. 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 world’s countries as existing in a system of interlocking parts • Each country’s actions impact other countries

3. Core-Periphery Model • core-periphery model states that the world’s 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

4. Wallerstein’s world systems • Immanuel Wallerstein’s 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

5. Development through self-sufficiency • To promote development, LDCs choose one of two models: • One advocates self-sufficiency • One emphasizes international trade

6. 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

7. 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

8. 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 market’s 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

9. Rostow’s Development Model • Walt Rostow set out in the 1950s to explain and predict countries’ patterns of economic development • Rostow’s 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

10. Rostow’s Development Model • Rostow’s 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

11. Rostow’s Modernization Model • 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 • Rostow’s model does not consider structural issues might limit a country’s ability to develop, such as post-colonial dependency • Rostow’s 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

12. 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

13. International Trade Approach • Petroleum-rich Arabian peninsula states • Includes Saudi Arabia, Kuwait, Oman, and the United Arab Emirates • Once among the world’s 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

14. 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

15. International Trade Approach • 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 • 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

16. 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

17. 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 country’s relative size in the world economy • Both created post WWII to avoid disastrous economic policies • Both part of United Nations

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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 Earth’s temperature to rise • Global Warming • The global warming theory argues that Earth’s 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