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The Cultural Landscape Chapter 9: Development
Development
Beyond paradise is another world, fleetingly glimpsed by tourists traveling between the resort and the airport.
The permanent residents of the islands may live in poverty, earning less money in a year than a night's hotel bill.
They are ill fed, ill clothed , and underemployed.
This depressing view of conditions on the islands is shielded from tourists, of course.
They do not travel hundreds of kilometers to encounter misery on their vacation or honeymoon.
Tourists bring money to the islands and in the process help pay for whatever improvements can be made to the squalid living conditions.
The world is divided between relatively rich and relatively poor countries.
Geographers try to understand the reasons for this division and learn what can be done about it.
Previous chapters examined global demographic and cultural patterns.
Birth, death, and natural increase rates vary among regions of the world, and people in different regions also have different social customs, languages, religions, and ethnic identities.
Political problems arise when the distribution of cultural characteristics does not match the boundaries between states.
Chapter 8 pointed out that in the contemporary world, global military confrontation and alliances have been replaced by global economic competition and cooperation.
The second half of this book concentrates on economic elements of human geography.
This chapter examines the most fundamental global economic pattern—the division of the world into relatively wealthy regions and relatively poor ones.
Subsequent chapters look at the three basic ways that humans earn their living—growing food, manufacturing products, and providing services.
Earth's nearly 200 countries can be classified according to their level of development, which is the process of improving the material conditions of people through diffusion of knowledge and technology.
The development process is continuous, involving never-ending actions to constantly improve the health and prosperity of the people.
Every place lies at some point along a continuum of development.
Because many countries cluster at the high or low end of the continuum of development, they can be divided into two groups.
A more developed country (MDC), also known as a relatively developed country or simply as a developed country, has progressed further along the development continuum.
A country in an earlier stage of development is frequently called a less developed country (LDC), although many analysts prefer the term developing country or emerging country.
"Developing" or "emerging" implies that the country has already made some progress and expects to continue.
The first geographic task is to identify where MDCs and LDCs are located.
Geographers observe that MDCs cluster in some spaces and LDCs cluster in others.
Next, geographers are concerned with why some regions are more developed than others.
A number of economic, social, and demographic indicators distinguish regions of MDCs from regions of LDCs.
The scale of the severe economic downturn that began in 2008 has illustrated the globalization of the economy in the twenty-first century.
In the recent recession, individual countries have seen their economies severely buffered by close connections to the global economy.
A return to economic growth has necessitated taking advantage of local diversity in skills and resources.
KEY ISSUE 1 - Why Does Development Vary Among Countries?
A country's level of development can be distinguished according to three factors—economic, social, and demographic.
The Human Development Index (HDI), created by the United Nations, recognizes that a country's level of development is a function of all three of these factors.
Economic Indicators of Development
To create the HDI, the United Nations selects one economic factor, two social factors, and one demographic factor that in the opinion of an international team of analysts best reveal a country's level of development:
The economic factor is gross domestic product (GDP) per capita.
The social factors are the literacy rate and amount of education.
The demographic factor is life expectancy.
The four factors are combined to produce a country's HDI.
The highest HDI possible is 1.0, or 100 percent. The UN has computed HDls for countries every year since 1990, although it has tinkered a few times with the method of computation.
The highest-ranking countries are typically in Europe and include Canada.
The highest HDI in most recent years has been Norway's, at 0.971 in 2009.
The lowest-ranked country in 2009 was Niger, with an HDI of 0.340.
Thirty of the thirty-two lowest-ranking countries were in sub-Saharan Africa.
Gross Domestic Product Per Capita
The average individual earns a much higher income in an MDC than in an LDC.
Per capita income is a difficult figure to obtain in many countries, so to get a sense of average incomes in various countries, geographers substitute per capita gross domestic product, a more readily available indicator.
The gross domestic product (GDP) is the value of the total output of goods and services produced in a country, normally during a year.
Dividing the GDP by total population measures the contribution made by the average individual toward generating a country's wealth in a year.
For example, GDP in the United States was $14 trillion in 2009 and its population was 307 million, so GDP per capita was about $45,600.
In 2008, per capita GDP exceeded $30,000 in MDCs, compared with less than $3,000 in most LDCs.
And the gap has widened: Since 1980 GDP per capita has increased from around $15,000 to $30,000 in MDCs and from around $1,000 to $4,000 in LDCs.
Per capita GDP—or, for that matter, any other single indicator—cannot measure perfectly the level of a country's development.
Few people may be starving in LDCs with per capita GDPs of a few thousand dollars.
And not everyone is wealthy in MDCs with per capita GDP of more than $40,000.
Per capita GDP measures average (mean) wealth, not its distribution.
If only a few people receive much of the GDP, then the standard of living for the majority may be lower than the average figure implies.
The higher the per capita GDP, the greater the potential for ensuring that all citizens enjoy a comfortable life.
Types of Jobs
In addition to GDP per capita, three other economic indicators are especially useful in distinguishing between MDCs and LDCs—types of jobs, worker productivity, and availability of consumer goods.
Average per capita income is higher in MDCs because people typically earn their living by different means than in LDCs.
Jobs fall into three types:
Primary (including agriculture)
Secondary (including manufacturing)
Tertiary (including services)
Workers in the primary sector directly extract materials from Earth through agriculture, and sometimes by mining, fishing, and forestry.
The secondary sector includes manufacturers that process, transform, and assemble raw materials into useful products.
Other secondary-sector industries take manufactured goods and fabricate them into finished consumer goods.
The tertiary sector involves the provision of goods and services to people in exchange for payment.
Tertiary-sector activities include retailing, banking, law, education, and government.
To compare the types of economic activities found in MDCs and LDCs, we can compute the contribution to GDP from each of these three sectors.
The contribution to GDP among primary, secondary, and tertiary sectors varies between MDCs and LDCs.
The share of GDP accounted for by the primary sector has decreased in LDCs, but it remains higher than in MDCs.
The share of GDP accounted for by the secondary sector has decreased sharply in MDCs and is now less than in LDCs.
The share of GDP accounted for by the tertiary sector is relatively large in MDCs, and it continues to grow.
Productivity
Workers in MDCs are more productive than those in LDCs.
Productivity is the value of a particular product compared to the amount of labor needed to make it.
Productivity can be measured by the value added per capita.
The value added in manufacturing is the gross value of the product minus the costs of raw materials and energy.
The value added per capita exceeds $5,000 in the United States and $7,000 in Japan, compared to around $500 in China and $100 in India.
Workers in MDCs produce more with less effort because they have access to more machines, tools, and equipment to perform much of the work.
On the other hand, production in LDCs must rely more on human and animal power.
The larger per capita GDP in MDCs in part pays for the manufacture and purchase of machinery, which in turn makes workers more productive and generates more wealth.
Consumer Goods
Part of the wealth generated in MDCs is used to purchase goods and services.
Especially important are goods and services related to transportation and communications, including motor vehicles, telephones, and computers.
Motor vehicles provide individuals with access to jobs and services and permit businesses to distribute their products.
Telephones enhance interaction with providers of raw materials and customers for goods and services.
Computers facilitate the sharing of information with other buyers and suppliers.
Products that promote better transportation and communications are accessible to virtually all residents in MDCs and are vital to the economy's functioning and growth.
In contrast, in LDCs these products do not play a central role in daily life for many people.
Motor vehicles, computers, and telephones are not essential to people who live in the same village as their friends and relatives and work all day growing food in nearby fields.
In many LDCs, those who have these products are concentrated in urban areas; those who do not live in the countryside.
Technological innovations tend to diffuse from urban to rural areas.
Access to these goods is more important in urban areas because of the dispersion of homes, factories, offices, and shops.
In MDCs, the number of telephones is around 800 per 1,000 inhabitants, motor vehicles 400, and Internet users 400.
In LDCs, the figures are around 200 telephones per 1,000 inhabitants, motor vehicles 20, and Internet users 100.
Lower numbers indicate that people in LDCs are much less likely to have access to these products.
Most people in LDCs are familiar with these goods, even if they cannot afford them, and may desire them as symbols of development.
Because possession of consumer goods is not universal in LDCs, a gap can emerge between the "haves" and the "have-nots."
The minority of people who have these goods may include government officials, business owners, and other elites, whereas their lack among the majority who are denied access may provoke political unrest.
Technological change is helping to reduce the gap between MDCs and LDCs in access to communications.
Cell phone ownership. for example, is expanding rapidly in LDCs because these phones do not require the costly investment of connecting wires to each individual building and more individuals can obtain service from a single tower or satellite.
Social Indicators of Development
MDCs use part of their greater wealth to provide schools, hospitals, and welfare services.
As a result, their people are better educated, healthier, and better protected from hardships.
Infants are more likely to survive, and adults are more likely to live longer.
In turn, this well-educated, healthy, and secure population can be more economically productive.
Education and Literacy
In general, the higher the level of development, the greater are both the quantity and the quality of a country’s educational services.
Two measures of education for which data are regularly collect for most countries of the world are student/teacher ratio and literacy rate.
In elementary or primary school, the number of students per teacher exceeds 30 in most LDCs whereas it is less than 20 in most MDCs.
The fewer pupils a teacher has,m the more likely that each student will receive personalized instruction.
The literacy rate is the percentage of a country's people who can read and write.
The rate exceeds 98 percent in MDCs, compared with less than 60 percent in LDCs.
The MDCs publish more books, newspapers, and magazines per person because more of their citizens read and write, and MDCs dominate scientific and nonfiction publishing worldwide.
Students in LDCs must learn technical information from books that usually are not in their native language but are printed in English, German, Russian, or French.
For many in LDCs, education is the ticket to better jobs and higher social status.
Improved education is a major goal of many LDCs, but funds are scarce.
Education may receive a higher percentage of the GDP in LDCs, but their GDP is far lower to begin with, so they spend far less per pupil than do MDCs.
Health and Welfare
People are healthier in MDCs than in LDCs.
The health of a population is influenced by diet.
On average, people in MDCs receive more calories and proteins daily than they need.
But in the LDCs of Africa and Asia, most people receive less than the daily minimum allowance of calories and proteins recommended by the United Nations.
When people get sick, MDCs possess the resources to care for them.
Total expenditures on health care exceed 8 percent of GDP in MDCs, compared to less than 6 percent in LDCs.
So not only do MDCs have much higher GDP per capita than LDCs, they spend a higher percentage of that GDP on health care.
Some of that additional expenditure on health in MDCs is reflected in more hospitals, doctors, and nurses per capita.
In most MDCs, health care is a public service that is available at little or no cost.
Government programs pay more than 70 percent of health-care costs in most European countries, and private individuals pay less than 30 percent.
In LDCs, private individuals must pay more than half of the cost of health care.
An exception is the United States, where private individuals are required to pay an average of SS percent of health care, more closely resembling the pattern in LDCs.
The MDCs use part of their wealth to protect people who for various reasons are unable to work.
In these countries, some public assistance is offered to those who are sick, elderly, poor, disabled, orphaned, veterans of wars, widows, unemployed, or single parents.
Countries in northwestern Europe, such as Denmark, Norway, and Sweden, typically provide the highest level of public-assistance payments.
However, MDCs are hard-pressed to maintain their current levels of public assistance.
In the past, rapid economic growth permitted these states to finance generous programs with little difficulty.
But in recent years economic growth has slowed, whereas the percentage of people needing public assistance has increased.
Governments have faced a choice between reducing benefits or increasing taxes to pay for them.
Demographic Indicators of Development
MDCs display many demographic differences from LDCs.
The UN's HDI utilizes life expectancy as a measure of development.
Other demographic characteristics that distinguish between more and less developed countries include infant mortality, natural increase, and crude birth rates.
Life Expectancy
Better health and welfare in MDCs permit people to live longer.
Life expectancy at birth was defined as the average number of years a newborn infant can expect to live at current mortality levels.
Babies born today can expect to live into their sixties in LDCs compared to their seventies in MDCs.
The gap in life expectancy is greater for females than for males.
Males can expect to live 10 years longer in MDCs than in LDCs, whereas females can expect to live 13 years longer in MDCs.
With longer life expectancies, MDCs have a higher percentage of older people who have retired and receive public support and a lower percentage of children under age 15 who are too young to work and must also be supported by employed adults and government programs.
The number of young people is six times higher than the number of older people in LDCs, whereas the two are nearly the same in MDCs.
Infant Mortality Rate
Better health and welfare also permit more babies to survive infancy in MDCs.
About 94 percent of infants survive and 6 percent die in LDCs, whereas in MDCs more than 99.5 percent survive and fewer than one-half of 1 percent perish.
The infant mortality rate is greater in LDCs for several reasons.
Babies may die from malnutrition or lack of medicine needed to survive illness, such as dehydration from diarrhea.
They may also die from poor medical practices that arise from lack of education.
Natural Increase Rate
The natural increase rate averages 1.5 percent annually in LDCs compared to only 0.2 percent in MDCs.
Greater natural increase strains a country's ability to provide hospitals, schools, jobs, and other services that can make its people healthier and more productive.
Many LDCs must allocate increasing percentages of their GDPs just to care for the rapidly expanding population rather than to improve care for the current population.
Crude Birth Rate
LDCs have higher natural increase rates because they have higher crude birth rates.
The annual crude birth rate is 23 per l,000 in LDCs, compared to 12 per 1,000 in MDCs.
Women in MDCs choose to have fewer babies for various economic and social reasons, and they have access to various birth-control devices to achieve this goal.
The crude death rate (CDR) does not indicate a society's level of development.
The CDR is lower in LDCs than in MDCs, 8 per 1,000 compared to 10 per 1,000.
Two reasons account for the lower rate in LDCs.
First, diffusion of medical technology from MDCs has eliminated or sharply reduced the incidence of several diseases in LDCs.
Second, MDCs have higher percentages of older people, who have high mortality rates, as well as lower percentages of children, who have low mortality rates once they survive infancy.
KEY ISSUE 2 - Where Are MDCs and LDCs Distributed?
The countries of the world can be categorized into nine major regions according to their level of development—North America, Europe, Latin America, East Asia, Southwest Asia (with North Africa), Southeast Asia, Central Asia, South Asia, and sub-Saharan Africa.
In addition to these nine major regions, three other distinctive areas can be identified—Japan, Oceania, and Russia.
These regions have distinctive demographic and cultural characteristics that have been discussed in earlier chapters.
Subsequent chapters will show that the nine major regions also differ in how people earn their living, how the societies use their wealth, and other economic characteristics.
In a global economy, geographers are increasingly concerned with both the similarities and the differences in the economic patterns of the various regions.
More Developed Regions
Two of the nine major cultural regions—North America and Europe—are considered more developed.
The other seven regions are considered less developed.
This section examines the more developed regions.
The distribution of more and less developed countries reflects a clear global pattern.
If we draw a circle around the world at about 30° north latitude, we find that nearly all of the MDCs are situated to the north, whereas nearly all of the LDCs lie south of the circle.
This division of the world between more and less developed and developing countries is known as the north-south split.
The north-south split between MDCs and LDCs shows up clearly in world maps of measures of development, such as the HDI created by the United Nations.
MDCs in the north have relatively high HDis, whereas southern countries have lower indexes.
North America: HDI 0.95
The United States ranked only thirteenth in HDI in 2009.
The United States was near the top in two of the four indicators—GDP per capita and literacy rate—but lower than a number of other countries in education and life expectancy.
The education indicator suffered because of a relatively high school dropout rate, and life expectancy was lower because many households have inadequate health-care coverage.
North America was once the world's major manufacturer of steel, automobiles, and other goods, but in the past three decades, Japan and Europe as well as LDCs led by China have eroded the region's dominance.
Americans remain the leading consumers and world's largest market for many of these products.
The region adapted to the loss of manufacturing in the global economy by holding the world's highest percentage of tertiary-sector employment, especially health care, leisure, and financial services.
The relatively large number of health-care providers is a result of the service being provided primarily by the private sector in the United States.
The region also provides entertainment, mass media, sports, recreation equipment, and other services that promote use of leisure time.
North America's financial institutions played a leading role in precipitating the recent deep recession.
So-called subprime loans were made at high-interest rates to businesses and individuals who were unable to repay them.
Financial institutions also profited by selling insurance to enterprises with poor prospects and spreading the risk associated with holding the insurance among many financial institutions.
North America is also the world's leading food exporter.
Few Americans are farmers, but a large percentage of the region's workforce is engaged in some aspect of producing or serving food.
Europe: HDI 0. 93
During the Cold War era between the 1940s and l 990s, Europe was regarded as two regions—a democratic West closely linked economically and militarily with the United States and a communist East closely linked to the Soviet Union.
With the fall of communism and the breakup of many of the slates in Eastern Europe, the two parts of Europe have become much closer, and are now treated as a single world region.
The elimination of most economic barriers within the European Union makes Europe the world's largest and richest market.
European countries hold 15 of the 19 highest HDI rankings.
Within Europe, the level of development is the world's highest in a core area that includes western Germany, northeastern France, northern Italy, Switzerland, southern Scandinavia, southeastern United Kingdom, Belgium, the Netherlands, and Luxembourg.
Southern and Eastern European countries lag in level of development, resulting in an overall HDI for Europe lower than that for North America.
Europe is especially dependent on international trade, both among countries within Europe and increasingly with other regions of the world.
To pay for their imports, Western Europeans have provided high-value goods and services, such as insurance, banking, and luxury motor vehicles, including BMW and Mercedes-Benz.
The recent severe recession has exacerbated regional and national differences within Europe.
Countries most dependent on international trade have been especially hard hit.
Government officials representing the region's wealthiest core area have been accused of protecting jobs in their individual countries rather than in the European Union as a whole.
For example, cutbacks at major European carmakers, such as Opel and Renault, have been viewed as less severe in their home countries (Germany and France, respectively) than elsewhere in Europe.
In Southern and Eastern Europe, unemployment rates have been double the regional average.
European governments have also disagreed on optimal strategies for fighting the recession.
In the United Kingdom, as in North America, hundreds of billions of dollars have been spent on government projects, loans, and grants to stimulate the economy.
Most European governments have limited government spending because they fear high inflation once the economy recovers.
Russia: HDI 0.73
Under communism, the Soviet Union had a centrally planned economy.
Five-year plans prescribed production goals for the entire country by economic sector and region.
They specified the type and quantity of minerals, manufactured goods, and agricultural commodities to be produced and the factories, railways, roads, canals, and houses to be built in each part of the country.
After the dissolution of the Soviet Union in 1991, Russia rapidly converted to a market economy.
The transition proved painful.
Unemployment soared as inefficient Communist-era businesses were either streamlined or closed.
A handful of Russians—some of them gangsters—became very rich, but most Russians saw their standard of living decline sharply.
Reflecting the deteriorating standard of living in Russia, the HD! declined from more than 0.9 in the 1980s under communism to below 0.9 in the 1990s and below 0.8 after 2000.
In the first years of the twenty-first century, Russia experienced economic growth, fueled in large measure by escalating production of oil.
The severe worldwide recession caused a sharp drop in demand, however, and with it the possibility of a renewed decline in the HDI.
Japan: HDI 0.96
North America and Europe share many cultural characteristics.
North America was colonized by European immigrants, so the regions share language, religion, and other political, economic, and cultural traditions.
From the perspective of LDCs, the economic influence wielded by these two regions is closely intertwined with the global influence of European and American culture.
Japan, the third area of high HDI, has a different cultural tradition.
Japan's development is especially remarkable because it has an extremely unfavorable ratio of population to resources.
Japan became an industrial power by taking advantage of the country's one asset, an abundant supply of people willing to work hard for low wages.
The Japanese government encouraged manufacturers to sell their products in other countries at prices lower than domestic competitors.
Having gained a foothold in the global economy by selling low-cost products, Japan then specialized in high-quality, high-value products, such as electronics, motor vehicles, and cameras.
Japan's eminence was achieved in part by concentrating resources in rigorous educational systems and training programs to create a skilled labor force.
Japanese companies spend twice as much as U.S. firms on research and development, and the government provides further assistance in developing new products and manufacturing processes.
Oceania: HDI 0.90
Oceania is relatively marginal in the global economy because of its small number of inhabitants and peripheral location.
Although the HDls of Australia and New Zealand are comparable to those of other M DCs, the area's remaining people are scattered among sparsely inhabited islands that are generally less developed.
As former British colonies, Australia and New Zealand share many cultural characteristics with the United Kingdom.
Over 90 percent of the residents are descendants of nineteenth-century British settlers, although indigenous populations remain.
Australia plays an increasingly important role in the global economy because it is a leader in mining numerous important minerals, including iron ore, lead, manganese, nickel, titanium, and zinc.
Australia and New Zealand are also net exporters of food and other resources, especially to the United Kingdom.
Increasingly, their economies are tied to Japan and other Asian countries.
Less Developed Regions
Seven regions are classified as less developed.
The level of development varies widely among them.
Latin America has the highest HDI among the seven regions.
Behind Latin America, four of the five Asian regions—East Asia, Southwest Asia (with North Africa), Southeast Asia, and Central Asia—have similar HDIs.
South Asia and sub-Saharan Africa lag behind the others.
Latin America: HDI 0.82
Latin America's population is highly concentrated along the south Atlantic Coast between Curitiba, Brazil, and Buenos Aires, Argentina, especially in large urban areas including Rio de Janeiro and São Paulo, Brazil, as well as Buenos Aires.
Mexico City also ranks among the world's largest cities.
Overall, Latin Americans are more likely to live in urban areas than people in other LDCs.
The level of development varies sharply within Latin America.
Neighborhoods within the large cities enjoy a level of development comparable to that of MDCs.
The coastal area as a whole has a relatively high GDP per capita.
Outside the coastal area, development is lower in Central America, several Caribbean islands, and the interior of South America.
Large areas of interior tropical rain forest are being destroyed to sell the timber or to clear the land for settled agriculture.
Overall development in Latin America is hindered by inequitable income distribution.
In many countries, a handful of wealthy families control much of the land and rent parcels to individual farmers.
Many tenant farmers grow coffee, tea, and fruits for export to relatively developed countries rather than food for domestic consumption.
Latin American governments encourage redistribution of land to peasants but do not wish to alienate the large property owners, who generate much of the national wealth.
Latin America's economy is closely linked to that of the United States.
Mexico is especially dependent on trade with the United States.
As a result, the severe global recession has hit Latin America especially hard.
East Asia: HDI 0.77
The economy of East Asia—and the entire world, for that matter—is in the twenty-first century being driven increasingly by China.
Now the world's second-largest economy, behind only the United States, China has become the world's largest market and manufacturer.
China has been the world's most populous country throughout recorded history.
It was the world's wealthiest country from ancient times until it was passed by Europe in the sixteenth century.
As recently as the early nineteenth century. China still accounted for one-third of world GDP.
But after a century of civil wars and foreign invasions, China had fallen far behind the level of development achieved in Europe and North America in the twentieth century.
China's watershed rear was 1949. when the Communist party won a ch;! war and created the People's Republic of China.
The old Nationalist government fled to the island of Taiwan, setting up a government in exile.
Since then, dramatic changes have occurred in China's economy.
At first, priority was given to rural areas, where two-thirds of the Chinese people live.
Before communism, most Chinese farmers had been tenants, forced to pay high rents and turn over a percentage of their crops to property owners.
Most years, farmers produced just enough food to survive, but they frequently suffered from famines, epidemics, floods, and wars.
Under communism, the government took control of most agricultural land.
In some villages, officials assigned specific tasks to each farmer, distributed food to each family according to individual needs, and sold any remaining food to urban residents.
In other cases, farmers rented land from the local government, received orders to grow specific amounts of particular crops, and sold for their own profit any crops above the minimum production targets.
The system assured the production and distribution of enough food to support China's one-billion-plus population.
In recent years, farmers have been permitted to hold long-term leases on land and control their own production.
In the twenty-first century, manufacturing has been increasing dramatically in China.
With rising wealth, the world's largest population has been transformed into the world's largest market for consumer products like detergent, shampoo, and toothpaste.
And with its factories paying much lower wages than those in MDCs, China is producing two-thirds of the world's DVD players, microwaves, photocopiers, and shoes for export to other countries as well as for domestic consumption.
In partnership with the world's largest retailer Wal-Mart, China's manufacturing might is pushing down prices for consumer goods throughout the world.
At the same time, the low wages being paid to China's factory workers are driving down factory pay around the world.
The severe recession has slowed China's economic growth because of declining global demand for manufactured goods.
Weaknesses remain in China's economic performance.
Middle management is weak, quality control is minimal, banking is primitive, and legal protection is inadequate.
Rapid development is straining resources, as China has become the world's largest consumer of steel, copper, coal, and cement and the second-largest consumer of petroleum behind the United States.
China is also responsible for an increasing share of the world's pollution.
Southwest Asia and North Africa: HDI 0.74
Much of Southwest Asia and North Africa is desert that can sustain only sparse concentrations of plant and animal life.
This region—once more commonly called the Middle East—must import most products; however, it possesses one major economic asset: a large percentage of the world's petroleum reserves.
Saudi Arabia, the United Arab Emirates, and other oil-rich states in the region, most of them concentrated in states that border the Persian (Arabian) Gulf, have used the billions of dollars generated from petroleum sales to finance development.
But not every country in the region has abundant petroleum reserves.
Development possibilities are limited in countries that lack significant reserves—Egypt, Jordan, Syria, and others.
The large gap in per capita income between the petroleum-rich countries and those that lack resources causes tension in the region.
Islam, the religion of more than 95 percent of the region's population, dominates the culture of the region.
It professes some religious principles that conflict with business practices in MDCs.
In some countries, all business halts several times a day when Muslims are called to prayers.
Shops close their checkout lines and permit people to unwrap their prayer rugs and prostrate themselves on the floor.
Women are excluded from holding most jobs and from visiting public places, such as restaurants and swimming pools.
In some places, they are expected to wear traditional black clothes, a shroud, and a veil.
The low level of literacy among women is the main reason the United Nations considers development among these petroleum-rich states to be lower than the region's wealth would support.
The challenge for many Middle Eastern states is to promote development without abandoning the traditional cultural values of Islam.
The region also suffers from serious internal cultural disputes.
Iraq's long war with Iran and attempted annexation of Kuwait split the Arab world.
Southwest Asia has also struggled with terrorism.
The attitude of most people in the region toward terrorism is ambivalent.
On the one hand, very few endorse acts of violence against Americans, Israelis, and other civilians not directly involved in combat or the interpretation of Islam used to justify the attacks.
On the other hand, few supported the U.S.-led invasion of Iraq, and alternatives are sought 10 U.S.-influenced culture and development.
Southeast Asia: HDI 0.73
Southeast Asia's most populous country, Indonesia, includes 13,667 islands.
Southeast Asia's other most populous countries are Vietnam and Thailand (situated on the Asian mainland) and the Philippines (situated like Indonesia on a series of islands).
The region's tropical climate limits intensive cultivation of most grains.
The heat is nearly continuous, the rainfall abundant, and the vegetation dense.
Soils are generally poor because the heat and humidity rapidly destroy nutrients when land is cleared for cultivation.
Development is also limited in Southeast Asia by several mountain ranges, active volcanoes, frequent typhoons, and occasional tsunamis.
This inhospitable environment traditionally kept population growth low in much of the region.
Nearly two-thirds of the population live on the island of Java, which has one of the world’s highest arithmetic densities.
People have concentrated on Java partly because the island's soil, derived from volcanic ash, is more fertile than elsewhere in the region and partly because the Dutch established their colonial headquarters there.
Because of distinctive vegetation and climate, farmers in Southeast Asia concentrate on harvesting products that are used in manufacturing.
The region produces a large percentage of the world's supply of palm oil and copra (coconut oil), natural rubber, kapok (fibers from the ceiba tree used for insulation and filling), and abaca (fibers from banana leafstalks used in fabrics and ropes).
Southeast Asia also contains a large percentage of the world's tin as well as some petroleum reserves.
Rice, the region's most important food, is now exported in large quantities from India, Malaysia, and Thailand.
The region has suffered from a half-century of nearly continuous warfare.
Japan, the Netherlands, France, and the United Kingdom were all forced to withdraw from colonies they had established in the region.
In addition, France and the United States both fought unsuccessfully to prevent Communists from controlling Vietnam during the Vietnam War, which ran from the 1950s to 1975.
Wars have also devastated neighboring Laos and Cambodia.
In some Southeast Asian countries, however, notably Thailand, Singapore, Malaysia, and the Philippines, development has been rapid.
The region has become a major manufacturer of textiles and clothing, taking advantage of cheap labor.
Thailand has become the region's center for the manufacturing of motor vehicles and other consumer goods.
But economic growth in the region has slowed since the last years of the twentieth century.
Earlier economic growth had been achieved through very close cooperation among manufacturers, financial institutions, and government agencies.
In the absence of independent watchdogs and regulators, funds for development were sometimes invested unwisely or stolen by corrupt officials.
To restore economic confidence among international investors, Southeast Asian countries have been forced to undertake painful reforms that reduce the people's standard of living.
Central Asia: HDI 0.70
Most of the countries in Central Asia were once part of the Soviet Union.
With the breakup of the Soviet Union in the 1990s, regional geographers now prefer to identify a distinct region in Central Asia that encompasses eight of the fifteen former Soviet republics.
Iran and Afghanistan are also included in the Central Asia region, although these two countries are closely tied to those of Southwest Asia, discussed in the next section.
Within Central Asia, the level of development is relatively high in Kazakhstan and Iran.
Not by coincidence, these two countries are the region's leading producers of petroleum.
In Kazakhstan, rising oil revenues are being used to promote carefully managed improvements in overall development.
In Iran, a large share of the rising oil revenues has been used to maintain low consumer prices rather than to promote development.
Since coming to power in a 1979 revolution, the fundamentalist Shiite leaders in control of Iran have also used oil revenues to promote revolutions elsewhere in the region and to sweep away elements of development and social customs they perceive to be influenced by Europe or North America.
The level of development is lower in this region's other "stan" republics.
Minerals and agricultural products are their principal economic resources.
Afghanistan probably has one of the world's lowest HDI's, but the United Nations hasn't calculated it for many years because of the extended war.
South Asia: HDI 0.61
South Asia includes India, Pakistan, Bangladesh, Sri Lanka, and the small Himalayan states of Nepal and Bhutan.
The region has the world's second-highest population and second-lowest per capita income.
Population density is very high, and the natural increase rate is among the world's highest.
The overall ratio of population to resources in the region is unfavorable because of the huge population.
South Asia was a principal beneficiary of the Green Revolution, a series of developments beginning in the 1960s that dramatically increased agricultural productivity.
As a result of the Green Revolution, "miracle" rice and wheat seeds were widely diffused throughout South Asia.
But agricultural productivity in South Asia also depends on climate.
The region receives nearly all its precipitation from rain that falls during the monsoon season between May and August.
Agricultural output declines sharply if the monsoon rains fail to arrive.
ln a typical year. farmers in South Asia produce a grain surplus that is stored for distribution during dry years.
However, several consecutive years without monsoon rains produce widespread hardship.
India, South Asia's largest country, has become the world's fourth-largest economy, behind the United States, China, and Japan, and the rate of growth of its economy is second only to China's.
India is the world's leading producer of jute (used to make burlap and twine), peanuts, sugarcane, and tea and has mineral reserves, including uranium, bauxite (aluminum ore), coal, manganese, iron ore, and chromite (chromium ore).
It is also one of the world's leading rice and wheat producers.
The country has become a major manufacturer, though not as rapidly as China.
In addition, India has become a major service provider.
When you phone an airline, a help desk, or a credit card company, chances are your call will be answered by someone actually located in India.
Sub-Saharan Africa: HDI 0.51
Africa has been divided into two regions: Countries north of the Sanara share economic and cultural characteristics with Southwest Asia; south of the desert is sub-Saharan Africa.
Among the countries of this region, South Africa is a major source of minerals, including chromium, diamonds, manganese, and platinum.
Other countries in the region also contain resources important for development, including bauxite in Guinea, cobalt in the Democratic Republic of Congo and Zambia, diamonds in Botswana and Congo, manganese in Gabon, petroleum in Nigeria, and uranium in Niger. Regional wealth is comparable to levels found in other LDCs.
Despite these assets, sub-Saharan Africa offers the least favorable prospect for development.
The region has the world's highest percentage of people living in poverty and suffering from poor health and low education levels.
And economic conditions in sub-Saharan Africa have deteriorated In recent years: The average African consumes less today than three decades ago.
Some of the region's economic problems are a legacy of the colonial era.
Mining companies and other businesses were established to supply European industries with needed raw materials rather than to promote overall economic development in sub-Saharan Africa.
Africa's many landlocked states have difficulties shipping out raw materials through neighboring countries.
And in recent years, African countries have suffered because world prices for their resources have fallen.
Political problems have also plagued sub-Saharan Africa.
European colonies were converted to states without regard for the distribution of ethnicities.
After independence, leaders of many countries in the region pursued personal economic gain and local wars rather than policies to promote development of their national economies.
These frequent internal wars, as well as those between countries in sub-Saharan Africa, have retarded development.
But the fundamental problem in many countries of sub-Saharan Africa is a dramatic imbalance between the number of inhabitants and the capacity of the land to feed the population.
Nearly the entire region has either a tropical or dry climate.
Both climate regions can support some people, but not large concentrations.
Yet, because sub-Saharan Africa has by far the world’s highest rate of natural increase, its land is more and more overworked, and agricultural output has declined.
KEY ISSUE 3 - Where Does Level of Development Vary by Gender?
A country’s overall level of development masks inequalities in the status of men and women.
Gender equality exists in every country of the world, according to the United Nations.
In some countries, women have achieved near equality with men, whereas in other countries women lag far behind the level of development for men.
The United Nations has not found a single country in the world where women are treated as well as men.
To measure the extent of each country's gender inequality, the United Nations has created two indexes.
The Gender-Related Development Index (GDI) compares the level of women's development with that of both sexes.
The Gender Empowerment Measure (GEM) compares the ability of women and men to participate in economic and political decision-making.
Gender-Related Development Index
The GDI is constructed in a manner similar to the HDI.
The GDI combines the same indicators of development used in the HDI, adjusted to reflect differences in the accomplishments and conditions of men and women:
Economic indicator of gender differences: Per capita female income as a percentage of per capita male income.
Social indicators of gender differences: Number of females enrolled in school compared to number of males and percent of literate females compared to percent of literate males.
Demographic indicator of gender differences: Life expectancy of females compared to males.
The GDI penalizes a country for having a large disparity between the well-being of men and women.
For example, Hungary and Saudi Arabia have approximately the same GDP per capita, but Hungary has a higher GDI than Saudi Arabia in part because the disparity between female and male income is lower in Hungary than in Saudi Arabia.
A country with complete gender equality would have a GDI of 1.0.
No country has achieved that level.
A high GDI means that both men and women have achieved a high level of development, though women may have a slightly lower level than men.
A low GDI means that women have a low level of development and the level is substantially below that of men.
Gender Empowerment
The GEM measures the ability of women to participate in the process of achieving improvements in their status, that is to achieve economic and political power.
In every country of the world, both MDCs and LDCs, fewer women than men hold positions of economic and political power, according to the United Nations GEM scoring system.
The GEM is calculated by combining two indicators of economic power and two indicators of political power.
Economic indicators of empowerment: Per capita female income as a percentage of per capita male income and percentage of professional and technical jobs held by women.
Political indicators of empowerment: Percentage of administrative jobs held by women and percentage of members of the national parliament who are women.
A country with complete equality of power between men and women would have a score of 1.0.
As with the GDI, countries with the highest GEMs are MDCs, especially in North America, Northern Europe, and Oceania.
The lowest scores are in Africa and Asia, though lack of data prevents calculating scores for many LDCs. Every country has a lower GEM than GDI.
A higher GDI compared to GEM means that women possess a greater share of a country's resources than they do power over allocation of those resources.
The indicators presented in the previous key issues reflect sharp differences in the levels of development of MDCs and LDCs.
To promote development, LDCs seek improvements in these indicators.
Progress has been mixed.
On the one hand, key indicators look better for LDCs now than they did a generation ago.
On the other hand, the gap in key development indicators between LDCs and MDCs remains wide.
KEY ISSUE 4 - Why Do LDCs Face Obstacles to Development?
To reduce disparities between rich and poor countries, LDCs must develop more rapidly.
This means increasing per capita GDP more rapidly and using the additional funds to make more rapid improvements in social and economic conditions.
LDCs face two fundamental obstacles in trying to encourage more rapid development:
Adopting policies that successfully promote development
Finding funds to pay for development
Development Through Self-Sufficiency
To promote development, LDCs choose one of two models:
One emphasizes international trade; the other advocates self-sufficiency.
Each has important advantages and serious problems.
For most of the twentieth century, self-sufficiency, or balanced growth, was the more popular of the development alternatives.
The world’s two most populous countries, China and India, once adopted this strategy, as did most African and Eastern European countries.
Elements of Self-Sufficiency Approach
According to the self-sufficiency approach, a country should spread investment as equally as possible across all sectors of its economy and in all regions.
Such insulation from the potentially adverse impacts of decisions made by businesses and governments in the MDCs encourages a country's fragile businesses to achieve independence.
Countries promote such self-sufficiency by setting barriers that limit the import of goods from other places.
Three widely used barriers include setting high taxes (tariffs) on imported goods to make them more expensive than domestic goods, fixing quotas to limit the quantity of imported goods, and requiring licenses in order to restrict the number of legal importers.
The approach also restricts local businesses from exporting to other countries.
For many years India made effective use of many barriers to trade.
For example:
To import goods into India, most foreign companies had to secure a license, a long and cumbersome process because several dozen government agencies had to approve the request.
Once a company received an import license, the government severely restricted the quantity it could sell in India.
The government imposed heavy taxes on imported goods, which doubled or even tripled the price to consumers.
Indian businesses were discouraged from producing goods for export; Indian money could not be converted to other currencies.
Businesses were supposed to produce goods for consumption inside India.
Effectively cut off from the world economy, they required government permission to sell a new product, modernize a factory, expand production, set prices, hire or fire workers, and change the job classification of existing workers.
If private companies were unable to make a profit selling goods only inside India, the government provided subsidies, such as cheap electricity, or wiped out debts.
The government-owned not just communications, transportation, and power companies are a common feature around the world, but also businesses such as insurance companies and automakers, left to the private sector in most countries.
Problems with the Self-Sufficiency Alternative
The experience of India and other LDCs with self-sufficiency revealed two major problems:
Protection of inefficient businesses. Businesses could sell all they made, at high government-controlled prices, to customers culled from long waiting lists, so they had little incentive to improve quality, lower production costs, reduce prices, or increase production. Companies protected from international competition were not pressured to keep abreast of rapid technological changes.
Need for large bureaucracy. The complex administrative system needed to administer the controls encouraged abuse and corruption. Potential entrepreneurs found that struggling to produce goods or offer services was less rewarding financially than advising others how to get around the complex government regulations. Other potential entrepreneurs earned more money by illegally importing goods and selling them at inflated prices on the black market.
Development Through International Trade
The international trade model of development calls for a country to identify its distinctive or unique economic assets.
What animal, vegetable, or mineral resources does the country have in abundance that other countries are willing to buy?
What product can the country manufacture and distribute at a higher quality and a lower cost than other countries?
According to the international trade approach, a country can develop economically by concentrating scarce resources on expansion of its distinctive local industries.
The sale of these products in the world market brings funds into the country that can be used to finance other development.
Rostow's Development Model
A pioneering advocate of this approach was W. W. Rostow, who in the 1950s proposed a five-stage model of development.
Several countries adopted this approach during the 1960s, although most continued to follow the self-sufficiency approach. The five stages were as follows:
The traditional society. A traditional society has not yet started a process of development. It contains a very high percentage of people engaged in agriculture and a high percentage of national wealth allocated to what Rostow called "nonproductive" activities, such as the military and religion.
The preconditions for takeoff. An elite group initiates innovative economic activities. Under the influence of these well-educated leaders, the country starts to invest in new technology and infrastructure, such as water supplies and transportation systems. These projects will ultimately stimulate an increase in productivity.
The takeoff. Rapid growth is generated in a limited number of economic activities, such as textiles or food products. These few takeoff industries achieve technical advances and become productive, whereas other sectors of the economy remain dominated by traditional practices.
The drive to maturity. Modem technology, previously confined to a few takeoff industries, diffuses to a wide variety of industries, which then experience rapid growth comparable to the takeoff industries. Workers become more skilled and specialized.
The age of mass consumption. The economy shifts from production of heavy industry, such as steel and energy, to consumer goods, such as motor vehicles and refrigerators.
According to the international trade model, each country is in one of these five stages of development.
MDCs are in stage 4 or 5, whereas LDCs are in one of the three earlier stages.
The model assumes that LDCs will achieve development by moving along from an earlier to a later stage.
The model also asserts that today's MDCs passed through the early stages in the past.
The United States, for example, was in stage 1 prior to independence, stage 2 during the first half of the nineteenth century, stage 3 during the middle of the nineteenth century, and stage 4 during the late nineteenth century, before entering stage and 5 during the early twentieth century.
A country that concentrates on international trade benefits from exposure to consumers in other countries.
To remain competitive, the takeoff industries must constantly evaluate changes in international consumer preferences, marketing strategies, production engineering, and design technologies.
This concern for international competitiveness in the exporting takeoff industries will filter through less advanced economic sectors.
Rostow's optimistic development model was based on two factors.
First, in the second half of the twentieth century, MDCs in Europe and North America were being joined by others in Southern and Eastern Europe and Japan.
If they could become more developed by following this model, why couldn't other countries?
Second, many LDCs contained an abundant supply of raw materials sought by manufacturers and producers in MDCs.
In the past, European colonial powers extracted many of these resources without paying compensation to the colonies.
In a global economy, the sale of these raw materials could generate funds for LDCs with which they could promote development.
Examples of the International Trade Approach
When most LDCs were following the self-sufficiency approach, two groups of countries chose the international trade approach during the mid-twentieth century.
THE FOUR ASIAN DRAGONS.
Among the first countries to adopt the international trade alternative were South Korea, Singapore, Taiwan, and the then-British colony of Hong Kong.
These four areas were given several nicknames, including the “four dragons,” the “four little tigers,” and “the gang of four.”
Singapore and Hong Kong, British colonies until 1965 and 1997, respectively, have virtually no natural resources.
Both comprise large cities surrounded by very small amounts of rural land.
South Korea and Taiwan have traditionally taken the1r lead from Japan, which occupied both countries until after World War II.
Their adoption of the international trade approach was strongly influenced by Japan's success.
Lacking many natural resources, the four dragons promoted development by concentrating on producing a handful of manufactured goods, especially clothing and electronics.
Low labor costs enabled these countries to sell products inexpensively in MDCs.
PETROLEUM-RICH ARABIAN PENINSULA STATES.
The Arabian Peninsula includes Saudi Arabia, the region's largest and most populous country, plus Kuwait, Bahrain, Oman, and the United Arab Emirates.
Once among the world's least developed countries, they were transformed overnight into some of the wealthiest thanks to escalating petroleum prices during the 1970s.
Arabian Peninsula countries have used petroleum revenues to [inane~ large scale projects, such as housing, highways, airports, umv~rs1ues, and telecommunications networks.
Their steel, aluminum, and petrochemical factories compete on world markets with the help of government subsidies.
The landscape has been further changed by the diffusion of consumer goods.
Large motor vehicles, color TVs, audio equipment, and motorcycles are readily available and affordable.
Supermarkets are stocked with food imported from Europe and North America.
Problems with the International Trade Alternative
Three problems have hindered countries outside the four Asian dragons and the Arabian Peninsula from developing through the international trade approach:
Uneven resource distribution. Arabian Peninsula countries achieved successful development by means of rising petroleum prices. Other countries found that the prices of their commodities did not increase and in some cases actually decreased. LDCs that depended on the sale of one product suffered because the price of their leading commodity did not rise as rapidly as the cost of the products they needed to buy. For example, Zambia has extensive copper reserves, but it has been unable to use this asset to promote development because of declining world prices for copper.
Increased dependence on MDCs. Building up a handful of takeoff industries that sell to people in MDCs may force LDCs to cut back on production of food, clothing, and other necessities for their own people. Rather than finance new development, funds generated from the sale of products to other countries may have to be used to buy these necessities from MDCs for the employees of the takeoff industries.
Market decline. Countries that depend on selling low-cost manufactured goods find that the world market for many products has declined sharply in recent years. Even before the recent severe recession, MDCs had limited growth in population and market size.
International Trade Approach Triumphs
In the late twentieth century, most countries embraced the international trade approach as the preferred alternative for stimulating development.
Trade has increased more rapidly than wealth (as measured by GDP), a measure of the growing importance of the international trade approach, especially in LDCs.
Longtime advocates of the self-sufficiency approach converted to international trade during the 1990s. India, for example, dismantled its formidable collection of barriers to international trade:
Foreign companies were allowed to set up factories and sell in India.
Tariffs and restrictions on the import and export of goods were reduced or eliminated.
Monopolies in communications, insurance, and other industries were eliminated.
With increased competition, Indian companies have improved the quality of their products.
During the self-sufficiency era, India's auto industry was dominated by Maruti-Udyog Ltd., which was controlled by the Indian government.
Nursed by import duties that rose from 15 percent in 1984 to 66 percent in 1991, Maruti captured more than 80 percent of the Indian market selling cars that would be considered out-of-date in other countries.
In the international trade era, the government sold control of Maruti to the Japanese company Suzuki, which now holds only 40 percent of India's market.
Countries like India converted from self-sufficiency to international trade during the 1990s for one simple reason—overwhelming evidence that international trade better-promoted development.
The World Bank found that between 1990 and 2005 per capita GDP increased more than 4 percent annually in countries strongly oriented toward international trade, compared with less than 1 percent for countries strongly oriented toward self-sufficiency.
World Trade Organization
To promote the international trade development model, countries representing 97 percent of world trade established the World Trade Organization (WTO) in 1995.
The WTO works to reduce barriers to international trade in two principal ways.
First, through the WTO, countries negotiate reduction or elimination of international trade restrictions on manufactured goods, such as government subsidies for exports, quotas for imports, and tariffs on both imports and exports.
Also reduced or eliminated are restrictions on the international movement of money by banks, corporations, and wealthy individuals.
The WTO also promotes international trade by enforcing agreements.
One country can bring to the WTO an accusation that another country has violated a WTO agreement.
The WTO is authorized to rule on the validity of the charge and order remedies.
The WTO also protects intellectual property in the age of the Internet.
An individual or corporation can also bring charges to the WTO that someone m another country has violated their copyright or patent, and the WTO can order illegal actions to stop.
The WTO has been sharply attacked by critics.
Protesters routinely gather in the streets outside high-level meetings of the WTO.
Progressive critics charge that the WTO is antidemocratic because decisions made behind closed doors promote the interests of large corporations rather than the poor.
Conservatives charge that the WTO compromises the power and sovereignty of individual countries because it can order changes in taxes and laws that it considers unfair trading practices.
Foreign Direct Investment
International trade requires corporations based in a particular country to invest in other countries.
Investment made by a foreign company in the economy of another country is known as foreign direct investment (FDI).
Foreign direct investment grew rapidly during the 1990s, from $130 billion in 1990 to $1.5 trillion in 2000.
The level declined to $64 7 billion in 2003 in the wake of the 9/11 al-Qaeda attacks on the United States, before returning to $1.5 trillion later in the decade.
Foreign direct investment does not flow equally around the world.
Only one-fourth of foreign investment in 2007 went from an MDC to an LDC whereas the other three-fourths went from one MDC to another MDC.
And FDI is not evenly distributed among LDCs.
More than one-third of all FDI destined for LDCs went to China in 2007, one-third to all other Asian countries, one-fifth to all Latin American countries, and one-tenth to all African countries.
The major sources of FDI are transnational corporations (TNCs).
A transnational corporation invests and operates in countries other than the one in which its headquarters are located.
Of the 500 largest TNCs in 2008, 140 had headquarters in the United States and 163 in Europe.
Financing Development
LDCs lack money to fund development, so they obtain financial support from MDCs.
Finance comes from two primary sources—loans from banks and international organizations and direct investment by transnational corporations.
Loans
The two major lenders to LDCs are the World Bank and the International Monetary Fund (IMF):
The World Bank: Includes the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The IBRD provides loans to countries to reform public adm1mstrat1on and legal institutions, develop and strengthen financial institutions, and implement transportation and social service projects. The IDA provides support to poor countries considered too risky to qualify for IBRD loans. The JBRD has loaned about $400 billion since 1945, primarily in Europe and Latin America, and the IDA about $150 billion since 1960, primarily in Asia and Africa. The IBRD lends money raised from sales of bonds to private investors; the IDA from government contributions.
The IMF: Provides loans to countries experiencing balance-of-payments problems that threaten expansion of international trade. IMF assistance is designed to help a country rebuild international reserves, stabilize currency exchange rates, and pay for imports without having to impose harsh trade restrictions or capital controls that could hamper the growth. of world trade. Unlike the development banks, the IMF does not lend for specific projects. Funding of the IMF is based on each member country's relative size in the world economy.
The World Bank and IMF were conceived at a 1944 United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, to promote economic development and stability after the devastation of World War 11 and to avoid a repetition of the disastrous economic policies contributing to the Great Depression of the 1930s.
The IMF and World Bank became specialized agencies of the United Nations when it was established in 1945.
LDCs borrow money to build new infrastructure, such as hydroelectric dams, electric transmission lines, flood-protection systems, water supplies, roads, and hotels.
The theory is that new infrastructure will make conditions more favorable for domestic and foreign businesses to open or expand.
After all, no business wants to be located in a place that lacks paved roads, running water, and electricity.
In principle, new or expanded businesses are attracted to an area because improved infrastructure will contribute additional taxes that the LDC will use in part to repay the loans and in part to improve its citizens' living conditions.
In reality, the World Bank itself has judged half of the projects it has funded in Africa to be failures.
Common reasons include:
Projects don't function as intended because of faulty engineering.
Aid is squandered, stolen, or spent on armaments by recipient nations.
New infrastructure does not attract other investment.
Many LDCs have been unable to repay the interest on their loans, let alone the principal.
Debt actually exceeds annual income in a dozen countries.
When these countries cannot repay their debts, financial institutions in MDCs refuse to make further loans, so construction of needed infrastructure stops.
The inability of many LDCs to repay loans also damages the financial stability of banks in the MDCs.
Structural Adjustment Programs
The IMF, World Bank, and MDCs fear that granting, canceling, or refinancing debts without strings attached will perpetuate bad habits in LDCs.
Therefore, before granting debt relief, an LDC is required to prepare a Policy Framework Paper (PFP) outlining a structural adjustment program, which includes economic goals, strategies for achieving the objectives, and external financing requirements
A structural adjustment program includes economic “reforms” or “adjustments.” Requirements placed on an LDC typically include:
Spend only what it can afford
Direct benefits to the poor, not just the elite
Divert investment from military to health and education spending
Invest scarce resources where they would have the most impact
Encourage a more productive private sector
Reform the government, including a more efficient civil service, more accountable fiscal management, more predictable rules and regulations, and more dissemination of information to the public
Critics charge that poverty worsens under structural adjustment programs.
By placing priority on reducing government spending and inflation, structural adjustment programs may result in:
Cuts in health, education, and social services that benefit the poor
Higher unemployment
Loss of jobs in state enterprises and the civil service
Less support for those most in need, such as poor pregnant women, nursing mothers, young children, and elderly people
In short, structural reforms allegedly punish Earth’s poorest people for actions they did not commit—waste, corruption, misappropriation, and military buildups.
International organizations respond that the poor suffer more when a country does not undertake reforms.
Economic growth is what benefits the poor the most in the long run.
Nevertheless, in response to criticisms, the IMF and the World Bank now encourage innovative programs to reduce poverty and corruption and consult more with average citizens.
A safety net must be included to ease short-term pain experienced by poor people.
Fair Trade
Fair trade has been proposed as a variation of the international trade model of development.
Fair trade means that products are made and traded according to standards that protect workers and small businesses in LDCs.
Standards for fair trade are set internationally by Fairtrade Labelling Organisations International (FLO).
A nonprofit organization, TransFair USA, certifies the products sold in the United States that are fair trade.
In North America, fair trade products have been primarily craft products such as decorative home accessories, jewelry, textiles, and ceramics.
Ten Thousand Villages is the largest fair trade organization in North America, specializing in handicrafts.
In Europe, most fair trade sales are in food, including coffee, tea, banana, chocolate, cocoa, juice, sugar, and boney products.
Two sets of standards distinguish fair trade: one set applies to workers on farms and in factories and the other to producers.
Fair Trade Producer Standards
Fair trade advocates work with small businesses, especially worker-owned and democratically run cooperatives.
Smallscale farmers and artisans in LDCs are unable to borrow from banks the money they need to invest in their businesses.
By banding together, they can get credit, reduce their raw material costs, and maintain higher and fairer prices for their products.
Cooperatives thus benefit the local farmers and artisans who are members, rather than absentee corporate owners Interested only in maximizing profits.
Because cooperatives are managed democratically, farmers and artisans learn leadership and organizational skills.
The people who grew or made the products thereby have a say in how local resources are utilized and sold.
Safe and healthy working conditions can be protected.
Consumers pay higher prices for fair trade coffee than for grocery store brands, but prices are comparable to those charged for gourmet brands.
However, fair trade coffee producers receive a significantly higher price per pound than traditional coffee producers.
North American consumers pay $4 to $11 a pound for coffee bought from growers for about 80 cents a pound.
Growers who sell to fair trade organizations earn $1.12 to $1.26 a pound.
Because fair trade organizations bypass exploitative middlemen and work directly with producers, they are able to cut costs and return a greater percentage of the retail price to the producers.
In some cases, the quality is higher because fair traders factor in the environmental cost of production.
For instance, in the case of coffee, fairly traded coffee is usually organic and shade-grown, which results in a higher-quality coffee.
Fair Trade Worker Standards
Critics of international trade charge that only a tiny percentage of the price a consumer pays for a good reaches the individual in the LDC responsible for making or growing it.
A Haitian sewing clothing for the U.S. market, for example, earns less than 1 percent of the retail price, according to the National Labor Committee.
In contrast, fair trade returns on average one-third of the price to the producer in the LDC.
The rest goes to the wholesaler who imports the item and for the retailer's rent, wages, and other expenses.
Protection of workers' rights is not a high priority in the international trade development approach, according to its critics.
With minimal oversight by governments and international lending agencies, workers in LDCs allegedly work long hours in poor conditions for low pay.
The workforce may include children or forced labor.
Health problems may result from poor sanitation and injuries from inadequate safety precautions.
Injured, ill, or laid-off workers are not compensated.
In contrast, fair trade requires employers to pay workers fair wages, permit union organizing, and comply with minimum environmental and safety standards.
Under fair trade, workers are paid at least the country's minimum wage.
Sixty to seventy percent of the artisans providing fair trade hand-crafted products are women.
Often these women are mothers and the sole wage earners in the home.
Because the minimum wage is often not enough for basic survival, whenever feasible, workers are paid enough to cover food, shelter, education, health care, and other basic needs.
Cooperatives are encouraged to reinvest profits back into the community, such as by providing health clinics, child care, and training.
Paying fair wages does not necessarily mean that products cost the consumer more.
Because fair trade organizations bypass exploitative middlemen and work directly with producers, they are able to cut costs and return a greater percentage of the retail price to the producers.
The cost remains the same as traditionally traded goods, but the distribution of the cost of the product is different, because the large percentage taken by middlemen is removed from the equation.