Essay on the Development Gap between the Rich and the Poor Countries!
The following points highlight the top ten factors affecting the development gap between the rich and the poor countries. The factors are: 1. Geography 2. The State of Agriculture 3. Population Size 4. Low Levels of Human Capital Formation 5. Dependency and Unequal Exchange 6. Colonialism 7. Institutional Factors 8. Corruption 9. Economic Policies and Institutions 10. Other Factors.
Factor # 1. Geography:
While the influence of the geographical settings in which peoples evolve has been widely recognised, the nature of that influence can vary greatly. Some countries are well endowed with an abundant supply of natural resources such as petrol, iron ore, tin and gold.
What is of equal or greater importance is the crucial role of navigable waterways for transporting these and other natural resources, and the products resulting from them, to different regions of the world- creating wide cultural interactions in the process.
Access to the outside world is facilitated by navigable waterways—and access to these waterways is radically different in different parts of the world. The enormous importance of rivers and harbour to economic (and cultural) development is indicated by the fact that nearly all the world’s great cities developed on rivers and harbours long before railroads and automobiles lowered the cost of land transport.
Favourable climate is also a factor. The natural resources required for modern industry are less abundant and, in many places, virtually non-existent. These sharp differences in geographical advantages have been reflected not only in great disparities in wealth among the different regions of the world, but also in similarly large differences in skills, industrial experience, and the whole ways of life among the peoples of these regions.
Temperature and rainfall determine what crops can be growth where. Climate also affects the diffusion of knowledge and experience. Because climate tends to vary less from east to west than it does from north to south, knowledge of particular crops and animals that flourish in a particular climate likewise spread more readily from east to west than from north to south. Due to geographical diversity various regions tend to develop different knowledge and techniques.
Factor # 2. The State of Agriculture:
History amply demonstrates that settled agriculture laid the foundation for industrial development in most countries. In fact, the industrial revolution in England was preceded by an agrarian revolution. The increase in agricultural productivity in England in the 18th century not only laid the basis for, but also sustained, the first industrial revolution. The agriculture sector promotes industrial growth in various ways. It provides the purchasing power over industrial goods.
Densely populated countries are characterised by the existence of exceedingly small holdings .This largely accounts for low productivity (yield) per hectare and leads to rural poverty. The conditions of agriculture depend on various economic and non-economic factors Climatic conditions affect the conditions of production.
Physical conditions such as extreme heat and humidity lead to deterioration of soil quality and are responsible for low productivity of certain crops. It is not a coincidence that almost all developing countries are situated in tropical or subtropical climatic regions and that development ‘took off in the temperate zones.
The condition of agriculture did not improve due to urban bias in many countries which starved agriculture of resources. Even India’s planned economic development was thwarted due to neglect of agriculture and sudden shift of emphasis from agriculture to heavy industries during the Second Five Year Plan (1956-61).
Economic development was held in check in many countries because economic development was identified with industrialisation and the adoption of early development models such as that of Feldman and Mahalanobis which (laid) stress on investment in industry.
Even A.O. Hirschman in his discussion of unbalanced growth strategy completely ignored agriculture which, it was alleged has no linkage with the other sectors. The truth is that agriculture can develop in the absence of industry but the converse is not true.
Factor # 3. Population Size:
In most LDCs population size presents a problem, in the sense that high birth and death rates lead to perpetuation of poverty. This is a form of ‘accommodation to poverty’ which then perpetuates low living standards in a circular process. Growing population pressure leads fall in the per capita land availability and accounts for low agricultural productivity and less surplus generation from the agricultural sector for industrial development.
Factor # 4. Low Levels of Human Capital Formation:
Most people in LDCs are illiterate. They do not know how to use modern technology. They find it difficult to adopt western technology. As a result LDCs remain technologically backward. This is one of the causes of failure of green revolution in many poor countries. People in LDCs do not spend much money on education and human capital formation. They do not realise the basic point that education gives permanent income and luck (such as good rainfall) gives temporary income.
Factor # 5. Dependency and Unequal Exchange:
External relations among countries also play a part in the perpetuation of poverty. According to structurist and dependency theories of underdevelopment advanced capitalist countries denude the backward economies of capital and skilled labour and the former make disproportionate gains by trading with the latter.
The non-diversified production structure of an LDC makes it a poor partner international trade. Such a country normally depends only on a few staple commodities for exports and is incapable of developing new lines of trade.
Dependency leads to unequal exchange relations between rich and the poor with the poor dependent on the rich for capital and technology to equip their industrial sectors. An LDC has also to suffer very often from secular deteriorate ion in terms of trade in its transactions with the more developed countries.
This happens primarily because the exports of such a country are low-priced primary (agricultural) products, while its imports consist of high-priced manufactured goods. In general, LDCs have to pay high prices for development inputs relative to the price that they receive for their exports. Exploitation theories explain the wealth of some by the poverty of others, whether comparing nations or classes within nations.
Exploitation theories suggest that capitalists from the west make high profits by paying the people of LDCs less than their goods are really worth in the world market. Adverse terms of trade lead to balance of trade crisis and dependence on advanced countries for capital and technology often creates external debt problem. In truth, the current indebtedness of the LDCs and the deterioration of their terms of trade act as growth-retarding factors.
Factor # 6. Colonialism:
Colonialism is an extreme form of dependency. Most of the countries of Asia and Africa were British colonies for more than two centuries. They were exploited in more ways than one. Many of these countries so exploited are still poor today. Colonization’s led to various adverse consequences, including deindustrialization (decline of handicrafts) in India and thwarted the development of India’s industrial economy.
In this context a quote from Joan Robinson is quite relevant:
“Capitalist economies are surrounded by primitive economies just like nuts within a cell waiting to be cracked. When the stock of unbroken nuts gets exhausted the capitalist system collapses for want of markets.”
In fact, the present deindustrialization of England is largely attributable to loss of colonies which means loss of sources of natural resources, like raw cotton and iron ore as also markets for final goods. However, no generalisation is possible. A number of countries that were never colonised such as Ethiopia and Thailand are equally backward.
Factor # 7. Institutional Factors:
While such things as technology and natural resources are obvious factors in economic development, less obvious factors may be of equal or greater importance. The role of the government may be crucial. The presence or absence of effective government can be a major factor in economic development or retrogression.
Establishing law and order over a wide area not only enables producers to find large markets, and, therefore, take advantage of economies of scale in production, it also encourages people as well as products to move where they are most in demand.
Another, important function of government that effects economic development is its role in providing property rights—or failing to provide such rights. In most Third World countries a very small portion of total wealth is covered by property rights. So the vast, but legally un-recognised assets cannot be used the way property is used in industrially advanced countries to promote faster economic expansion.
By making property rights difficult to establish, a country’s legal system, in effect, freezes its own assets and thereby blocks its own economic development. In short, what property rights provide, in countries where these rights are readily accessible, is the ability of people to convert physical assets into financial assets, which, in turn, enables them to create additional wealth, whether individually or in combination with others. Property rights are an integral part of a price-coordinated economy, without which that economy cannot function as efficiently.
Factor # 8. Corruption:
A recent UNDP report points out that corruption in Asia, undermines democratic institutions, retards economic development contributes to government instability. Corruption hints the poor the hardest—in health and education services, for instance. Economic development has been hampered by the long neglect of these twin crucial areas—primary education and primary health.
Factor # 9. Economic Policies and Institutions:
Economic policies of the government also play an important role in determining the rate of growth and pattern of development. In 1991, India and China had very similar output per capita. But a decade later, China’s output per capita was double that of India.
China had begun the process of moving away from a government-run economy to more of a market economy. When India began making the some kinds of changes in the 1990s, its economic development became more rapid as well.
Economic development depends on the formulation and effective implementation of sound economic policies. Such policies are to be designed, implemented and monitored by strong institutions which ensure high quality governance, to reduce the degree of corruption, to ensure efficiency of the public sector and to protect private property rights.
Macroeconomic stabilisation and adjustment programmes, foreign aid and foreign investment are unlikely to spur a country’s economic development if economic and political institutions are poorly developed.
Building institutions and investing in infrastructure are essential to spur investment by nationals and foreigners in directly productive investment projects. LDCs need to develop a legal system; monetary and fiscal institutions; land, capital and exchange markets to achieve economic development. However, institution building takes time.
Factor # 10. Other Factors:
Some countries may lack the psychological conditions necessary to achieve modernisation, built on individualism and the competitive spirit, coupled with a work ethic, rationalism and scientific thought. Such conditions were present in Europe during the industrial revolution of 18th and 19th centuries. Moreover, such conditions played a crucial role in the emergence of the newly industrialised South-East Asian countries in the 1980’s.
No single factor can account for the large disparities in economic development among the countries of the world. Nor is the relative influence of any particular factor likely to remain the same over time. Although various geographic factors have played a major role in the economic opportunities available to various peoples, economic development also affects the influence of geography. The development of modern transport and communication system has reduced the role of geographic factors, which had made economic development possible in the first place.