Chapter 13: Development: The Glue that holds together the Global Economy

1. Chapter 13: Development: The Glue that holds together the Global Economy Where are we going, what, how, why, spatially where, and for whom

2. Link between Resource Curse & Development Chap 12 Development http://www.npr.org/2011/02/25/134048260/Libyas-Economy

3. 7 points on Development 1. Definining Developing Countries • Moral High Ground 2. Goals of Development • Greed isn't enough 3. Characteristics of Less Developed Countries • What baggage they bring to the table 4. LDCs debt crisis 5. Measuring Economic Development • Divining the future 6. Defining Economic Development 7. Core--Periphery Concepts vs. Growth Pole Chap 12 Development

4. But first reality check Development for who??? Remember the Four major questions of the World Economy (chapter one) • What to produce given limited resources • How to produce it… labor, capital, technology • Where to produce it … why might it be in a give place • Who benefits and how … rich, poor, both The most important promise held out by the Global Economy is that all countries will “develop” as a result Chap 12 Development

5. 1. What's in the Word “Developing” Chap 12 Development

6. 1. What's in the Word Developing Why are words important? Words as social/political indicators, words as power…Example: • Mailman • Mailwoman • Mail carrier • Letter Carrier • Mailer • Letterer??? • Soldier • Soldierette??? Chap 12 Development

7. A. Neoclassical school's current favorite Definitions LDCs = Less Developed Countries • early step on inevitable path • "there but for the grace of God go I" • Old terms: underdeveloped, developing, primitive, traditional Chap 12 Development

8. A. Neoclassical school's current favorite Definitions IACs = Industrially Advanced Countries   • further step on path based on industrial age • allows for future post-industrial acronym • Old terms: developed, more-developed, modern, advanced Chap 12 Development

9. A. Neoclassical school's current favorite Definitions IACs and LDCs NOTE: Both terms are apologetic and yet hopeful • Some are better off • But you too can "own your own modern economy“… someday Chap 12 Development

10. B. Marxist School View of the Situation Underdevelopement • An active state that results from outside exploitation and impoverishment Chap 12 Development

11. B. Marxist School View of the Situation Capitalist (Hegemonic Imperial) Countries • parasitical exploiters • economic colonial powers Chap 12 Development

12. B. Marxist School View of the Situation “Socialist” Countries -- supposedly the solution • appear to have disappeared (if they ever existed) Chap 12 Development

13. B. Marxist School View of the Situation New rich are party's new role models By Antoaneta Bezlova  May 8, 2002atimes.comBEIJING - Newly rich entrepreneurs, despised as exploiters for much of China's communist era, have become the new role models for the Communist Party, which once defined itself as the "political party of the proletariat". Marking Labor Day on May 1, China canonized private entrepreneurs as "model workers" - an honor that in the past was deserved solely by state-sector workers. On that day, the All China Federation of Trade Unions awarded Labor Medals to four private businessmen, and declared another 17 entrepreneurs in the northwestern province of Shaanxi "model workers". Chap 12 Development

14. B. Marxist School View of the Situation • implied fraternal nations neither exploiter nor exploited • Is this possible??? Chap 12 Development

15. Conclusion • How an Issue is Framed in Words Reflects Much about the agenda underlying the Solution www.olive.kiev.ua/pro/americandream.jpg http://www.affordableamericandream.us/images/housewithfamily.gif Chap 12 Development

16. 2. Goals of Development What is the Agenda??? • "More!" Samuel Gompers, President AFL • "Love!" Timothy Leary, PhD, LSD Chap 12 Development

17. 2. Goals of Development Chap 12 Development

18. 2. Goals of Development • What exactly is the good life and the just society and the proper stance towards nature? • Very different answers will be given by people with different belief systems, or philosophies of life, or cultural explanations of the meaning of life and death. (Does this sound like Hoefstede???) Chap 12 Development

19. http://www.ted.com/talks/tim_jackson_s_economic_reality_check.htmlhttp://www.ted.com/talks/tim_jackson_s_economic_reality_check.html Chap 12 Development

20. 2. Goals of Development – Denis Goulet’s Approach A New Ethics Of Development Denis Goulet examines alternatives to one-eyed views of the good life, the just society, and our relationship with nature in his interview with Mike Gismondi of Aurora Online Magazine.A pioneer in the study of development ethics, Denis Goulet began exploring this new inter-disciplinary realm in 1956. For ten years he served apprenticeships in France, Spain, Algeria, Lebanon, and Brazil to become familiar with the sociology and anthropology of underdevelopment. He has lived among nomadic tribesmen in the Sahara; worked as a factory hand and laborer in the United States, France, and Spain; served on development planning teams for national governments; and studied social change planning at universities and research institutes. He presently holds concurrent appointments in the Kellogg Institute for International Studies, the Department of Economics, and the Institute for International Peace Studies at the University of Notre Dame. http://www.gateway.hr/index.php?folder=119&article=24 Chap 12 Development

21. 2. Goals of Development Goulet's Three • 1) Life Sustenance -- Guarantee basic needs • (See textbook #s 1,2,3,7,8) • 2) Esteem -- Individual Worth • (See textbook #s 5,9 note that doesn't perfectly fit) • 3) Freedom -- Pursuit of one's own dream to the level of one's own potential • (See textbook #s 4,6) Chap 12 Development

22. Conclusion:  Development has both economic and humanistic goals, but at times they are in a dynamic tension. • More care for the human side can result in less current term economic gain • More emphasis on the economic side can lead to greater inequality and unsustainable gains • How might either of these effect the environment or the future??? NO EASY ANSWER, MORE BELIEF SYSTEM Chap 12 Development

23. 3. Characteristics of LDCs Chap 12 Development

24. 3. Characteristics of LDCs 1) Rapid Population Growth -- result of declining death rate not yet accompanied by declining birth rate Or in the case of China -- Demographic Momentum still results in crushing large additions to the Population 2) Unemployment/underemployment 3) Low labor productivity 4) Adverse climate and/or lack of natural resources 5) Lack of capital and Investment 6) Lack of technology 7) Local Cultural Factors can impede capitalist growth 8) Political Factors can also impede capitalist growth 9) Vicious Cycle of Poverty (see model next slide) Chap 12 Development

25. Model of the Vicious Cycle of Poverty • Fig 13.16a  Basically the argument here is that low incomes are both caused by and cause rapid population growth. Why? You explain. Chap 12 Development

26. Escaping the Vicious Cycle of Poverty To escape different groups offer different solutions: • Direct investment perhaps FDI (capitalist – resource mobilization approach) • Crash program in literacy (more socialist/humanist – human capital theory) • Redistribution of existing capital (socialist/communist – end exploitation) Chap 12 Development

27. Model of escape Example of the Human Capital Approach • Fig. 13.16b Basically High Education and Good Health are mutually reinforcing and lead to greater productivity and hence maintain our Environment. • Question remains how do we START? • Who pays for the investment in: • Education • Health Services • Resource Management • Enhanced Earning Capacity -- like new labor intensive industries for Export market Chap 12 Development

28. Model of Escape Each school would answer with its own bias • Capitalist – foreign investment • Humanist – local sources would be martialled and humanitarians and foreign aid would help • Marxists – redistibution of existing capital Chap 12 Development

29. Conclusions: Many pitfalls face LDCs where, by some accounts, "The rich get richer and the poor have babies“ • Some LDCs’ pitfalls a result of their ownproblems others not • Export lead growth can cause wealth production,but for whom? Four major questions of the World Economy • Cont…. www.rivertowns.net/rustad/xru015.gif Chap 12 Development

30. Conclusions: Many pitfalls face LDCs where by some accounts "The rich get richer and the poor have babies“ • Others argue Sharing helps all • For others nothing short of revolutionwill work www.rivertowns.net/rustad/xru015.gif Chap 12 Development

31. Move to Lecture 14 • Mechanisms to start the development process Chap 12 Development

32. 4. LDCs debt crisis Chap 12 Development

33. 4. LDCs debt crisis • Basically over-extended selves in 70s and couldn't repay in high price 80s of low oil year 90s • Included oil rich and oil poor alike Chap 12 Development

34. 4. LDCs debt crisis • The Issue -- the crisis is like the person with so much credit card debt that they can't even make the minimum payment -- and even if they did they are still enslaved to debt Chap 12 Development

35. 4. LDCs debt crisis • Result of the past by mid 80s more capital flow from LDCs to AICs than reverse • IMF sets conditions for bail-out • Goal: Restore LDC growth • Reduce LDC Govt. involvement (more free mrkt) • Expand exports • Reduce imports (seen as luxury) Chap 12 Development

36. G-8 Agrees to some debt relief Aid to Africa and debt cancellation The traditional meeting of G8 finance ministers before the summit took place in London on 10 and 11 June2005, hosted by ChancellorGordon Brown. On 11 June, agreement was reached to write off the entire US$40 billion debt owed by 18 Highly Indebted Poor Countriesto the World Bank, the International Monetary Fund and the African Development Fund. The annual saving in debt payments amounts to just over US$1 billion. War on Want estimates that US$45.7 billion would be required for 62 countries to meet the Millennium Development Goals. The ministers stated that twenty more countries, with an additional US$15 billion in debt, would be eligible for debt relief if they met targets on fighting corruption and continue to fulfill structural adjustmentconditionalities that eliminate impediments to private investment. The agreement, which required weeks of intense negotiations led by Brown, must be approved by the lending institutions to take effect. http://en.wikipedia.org/wiki/31st_G8_summit#Aid_to_Africa_and_debt_cancellation Some argue this doesn’t go far enough Chap 12 Development

37. Conclusion • Success or failure still open question, Arguments against debt relief Opponents of debt relief argue that it is a blank cheque to governments, and fear savings will not reach the poor in countries plagued by corruption. Others argue that countries will go out and contract further debts, under the belief that these debts will also be forgiven in some future date. They use the money to enhance the wealth and spending ability of the rich… http://en.wikipedia.org/wiki/Debt_relief Chap 12 Development

38. Wild card what happens when the Western World Economy is Threatened? CHINA A NEW SOURCE OF LOANS AND GRANTS???? Chap 12 Development

39. 5. MEASURES OF ECONOMIC DEVELOPMENT or how do we tell who is “developed” Chap 12 Development

40. 5. MEASURES OF ECONOMIC DEVELOPMENT A. PER CAPITA INCOME (GDP/Capita) • 1. An easy to determine measure. How do you calculate this??? Chap 12 Development http://upload.wikimedia.org/wikipedia/en/e/ea/GDP_nominal_per_capita_world_map_IMF_figures_for_year_2005.png

41. Criticism per capita income Five criticisms 1) distribution not included 2) exchange rate problems 3) value of goods not always comparable across nations 4) goods and bads both included (what does this mean?) 5) growth may not be sustainable -- measures current consumption patterns not level of investment in the future  Chap 12 Development

42. B. Consumer Purchasing power -- an alternate measure – addressed criticism #3 from above slide. • Referred to as “PPP per capita”Purchasing Power Parity • What is the difference of purchasing power and "per capita income"? Chap 12 Development

43. Geographic Comparison Per capita Income • Note the subtle differences in PPP • Europe more complex • Africa more uniform, • S.America splits in two • US – Canada same Chap 12 Development PPP per capita

44. GDP – PPP table top 16 Chap 12 Development

45. Bottom dozen or so quite similar Chap 12 Development

46. C. ECONOMIC STRUCTURE 1. What kinds of jobs that appear under each of the four categories listed below? • PRIMARY EMPLOYMENT • SECONDARY • TERTIARY • QUATERNARY • Which types of employment predominates in developed countries? • Which in less developed? • What type of job will most of the students in class hope to obtain? Chap 12 Development

47. D. PRODUCTIVITY – or more with less What is productivity? Output/input Why is it so important?Squeeze more from limited resources • How does this relate to the effectiveness of the workforce? • Are AICs always more productive? • Consider energy use in Russia • Or in China vs India Chap 12 Development

48. E. RAW MATERIALS -- country's inheritance – Development Or Windfall Wealth • E. RAW MATERIALS -- country's inheritance • Does this guarantee development? Explain. Chap 12 Development

49. E. RAW MATERIALS -- country's inheritance • 1. Does this guarantee development? Petro State trap or Dutch disease. • Consider Nigeria, Venezuela, or Native Americans • Can be resource rich, income poor • 2. Development vs Sustainable Development • 3. Two approaches: • a. Sell it off • b. Combine it with technology to increase national wealth • Example countries: • Canada, Australia, S. Arabia • What happens when the Aussies sell their last load of iron ore to the Chinese? Chap 12 Development

50. F. HUMAN DEVELOPMENT INDEX • -- This basically the same process as is done in the United States to rank best cities or universities (or for you sports fans, the same college football teams, only the variables are changed but the technique is the same)  • What variables are used to create the Human Development Index (HDI). What does it describe. • What continent generally has the lowest HDI measures? What two continents have the highest level? Compare HDI to per capita income • Leave these for you to read about Chap 12 Development