Essay on an Underdeveloped Country | Economics

In this essay we will discuss about the problems and characteristics of an underdeveloped country.

Essay on an Underdeveloped Country

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Essay # 1. Problems of Underdeveloped Country:

Industrialisation creates its own problems and that perhaps is the reason that in many countries it is opposed.

There are many causes responsible for that which might briefly be discussed as under:

(1) Lack of Transport Facilities:

In non-industrial countries, which wish to industrialise themselves, transport facilities are badly needed. Lack of these facilities hinders the whole process. It is because even the choice of location of an industry becomes very difficult. Not only this but consumption of goods produced, as well as cost of production are dependent on location and in the initial stages of industrialisation, both these factors very much count in the spread or slowing down of whole process.

(2) Non Availability of Power:

One of the major reasons why non-industrialised and underdeveloped countries take a long time for industrialisation is that they lack availability of power. This holds growth and expansion of large scale industries and also expansion of domestic industries as well.

(3) Size Local Market:

If the local market for the consumption of goods produced by the industry is quite sufficient then the industry is encouraged and the process of industrialisation becomes both easy as well as quick. But when there is no or small local market, industrialists are discouraged, because they feel that they will have to face international market for consumption of goods. The investment then is slow and with that the whole process becomes slow.

(4) Lack of Trained Persons:

Most of the advanced countries are usually not prepared to train people of unindustrialised countries. They are not willing to part with their technical knowhow because that decreases their importance.

(5) Absence of Facilities to the Workers:

One of the problems of industrialisation is that the workers must be kept satisfied and happy so that they can produce more. To begin with each industry finds it difficult to provide many facilities to the workers with the result that good workers do not feel attracted towards industry. Thus lack of facilities discourages the workers and slows down the process of industrialisation.

(6) Lack of Repair Facilities:

To begin with in every country machines will be imported from industrially advanced countries. The plants once imported need both repairs and spare parts. For this they are to depend on the exporting nation. Many a times due to one reason or the other repair facilities are either delayed or not made available, with the result that the machines slow down and the whole process of industrialisation is also slowed.

(7) Lack of Subsidiary Industries:

When large-scale industries are set up these can successfully function only when there are also subsidiary industries which provide raw material and also use the waste sent out by these industries. In their absence cost of production goes very high and in many cases it becomes prohibitive.

(8) Rapid Population Growth:

In case population growth is not checked, industrialisation will seriously suffer. Each nation has limited resources and in case these are constantly employed for meeting the need of ever-increasing population, the result will be that no money will be available for setting up new industries and the pace of industrialisation will become very slow.

(9) Low Per Capita Income:

When the people have very low per capita income Industrialisation suffers. The people then have no capacity to set industries. Even if they manage to set up industries, they will have no purchasing power.

(10) Problem of Capital:

One more serious problem regarding Industrialisation is lack of capital. Without huge capital no new industry can be set up. In the public sector the state can set up industries only by saving money from some other item of expenditure and how far this can be done and capital raised is a very serious problem. Similarly private sector will not spend capital on industry unless it is sure that it will have its returns. As we know that capital is very shy for coming out in the market.

(11) Lack of Banking and Credit Facilities:

Industry needs heavy finances. Though the industrialists try to manage from their economic resources, yet times frequently come in the life of an industry when it is to depend on credit facilities. If these are available the problem does not arise, but if these facilities are not available, industry seriously suffers and industrialists get discouraged.

(12) Social Resistance:

In some societies industrialisation is not a welcome. The society opposes industrialisation due to one reason or the other, with the result that industrialisation in such societies becomes problematic and does not proceed smoothly.

(13) Problem of Literacy:

In most of the cases in under­developed countries the people are illiterate. They therefore, find it difficult to adjust themselves in the urban environments when they find job in the industry. Illiterate workers also take comparatively long time to pick up work in the factories.

(14) Social Restraints:

In some societies occupational mobility has social restraints. These restraints result in slow labour turnover and flow of workers to the industry so as to avoid the displeasure of the society. In such societies rate of absenteeism is also very high. This also creates problem of industrial labour instability.

(15) Lack of Industrial Leadership:

In societies where there is opposition to industrialisation, there is always lack of industrial leadership with the result that in case such nations decide to industrialise themselves, these feel considerably handicapped for want of proper leadership in the industry. Lack of proper industrial leadership also stands on the path of industrialisation.

(16) Strains on Public Administration:

In many countries public administration is usually under heavy strains. The number of competent officials available for handling the jobs is usually few, as compared with the volume of work. By over-loading there can be no efficiency and because of concentration of power in few hands, chances of corruption increase many fold. In this way industry is either neglected or becomes victim of centralisation and in both the cases industrialisation suffers.

(17) Strict Licensing System:

In many countries of the world resources are limited and it is essential that these should be judiciously used. These should be allotted in such a way that priority needs are met first of all. This is done by introducing licensing systems. When this system is applied very strictly and that too by corrupt officials, then supply becomes difficult for the industry, which finds it difficult to keep the machines running.

(18) Social Customs:

In underdeveloped and undeveloped societies, social customs also stand on the way of industrialisation. Firstly in such societies saving is wasted on performance of social customs like marriage, birth and death ceremonies and thus very little surplus money is available. Then social prestige in societies is attached to owning land and residential accommodation and in many cases to ornaments as well than sparing money for industry thereby slowing down industrialisation in the country.

(19) Unforeseen Calamities:

Then come some unforeseen and un-expected manmade and natural calamities. These create devastation, destruction and divert all national energies to avoiding these rather than setting up new industries. Such calamities when frequent give a serious setback to the programme of industrialisation.

(20) Unfavourable International Conditions:

On the attitude of developed countries very much depends on the growth of industrialisation in many undeveloped countries. They may not be very favourably inclined to spare machinery for installation; they may create artificial scarcity of spare parts; may put heavy restrictions on the export of machines and also may quote such high prices which the poor developing countries may not be in a position to afford.

(21) Inefficient Public Administration:

Usually in under­developed countries public administration system is inefficient and corrupt with the result that industrial laws are not made on time and to meet the needs of the people. If enacted these are not properly enforced by corrupt officers on duty.

(22) Defective Tax Structure:

When public administration goes in the hands of inefficient officers, then the whole tax structure becomes undependable. Such a structure might not suit the needs of industry and the industrialist might not feel tempted to set up new- industries.

(23) Lack of Natural Resources:

If the nation has no natural resources and still wants to industrialise itself, its dependence for raw material on imports increases which cannot be depended. When the supply of raw material is erratic, industry cannot progress or prosper and industrialisation becomes very difficult.

(24) Political Instability:

Each one will like to set up an industry when one is sure about the attitude of production party in power and its approach to industrialisation. Political instability makes investment of capital very shy and as such industrialisation is very much discouraged.

Essay # 2. Characteristics of an Underdeveloped Economy:

An underdeveloped economy is defined by different economists from different viewpoints. There is no any common definition available.

We give below some important definitions with their analysis:

The group of specialists appointed by the UNO, has defined an underdeveloped economy on the basis of ‘Per Capita Real Income’ considered as to be its standard measure. They say, “We use the term underdeveloped country to mean countries in which per capita real income is low when compared with the per capita real incomes of the United States. Canada, Australia and West Europe.”

This cannot be regarded as the exact definition of an underdeveloped economy as it considers the per capita income of some countries as the standard, which is an indefinite base. On the basis of this definition, even it is possible that if some developed nation has a lesser per capita income than that of these given countries, it may be also called as an underdeveloped country, which is not right from any viewpoint.

Prof. Nurkse defines an underdeveloped economy as the following, ‘”The so called underdeveloped areas as compared with the advanced ones are unequipped with capital in relation to their population and industrial resources.” In this definition Nurkse has considered the deficiency of capital as the only reason and measure of underdevelopment. Shortage of capital is only one cause among the many causes and not the only cause of underdevelopment.

One other definition is given by Prof. Jacob Viner, who considered future potentials of development of a country as the standard. According to him, “If a country which has good potential prospects for using more capital or more labour or more available natural resources or all these to support the present population on a higher level of living or of its per capita income level is already fairly high to support large population, it can be termed as underdeveloped.”

On the basis of all these definitions, we may define the underdeveloped economy as the following- “It is such an economy where the rate of capital formation is low. Peoples’ standard of living is also low. Besides this there are unused human resources and unexploited natural resources. A constant attempt is being made to use them fully and skillfully.”

Different features are seen in different underdeveloped economies, but some are common to all of them.

These are as follows:

1. Low Per Capita Income:

The per capita real income in these economies is very low when compared with the income levels of the advanced countries. It is difficult to mention the level which distinguishes between the underdeveloped and developed countries, however it can be said that in underdeveloped countries per capita income is so low that most of the population live below the normal standard of living.

According to the World Development Report 1991 of the World Bank, all the world economies can be divided into three categories:

(i) Low income economy,

(ii) Middle income economy, and

(iii) High income economy.

According to the Report the Per Capita Income in the low income economy is around 320 dollars, in the middle income economy it is 1930 dollars and in the high income economy it is around 17080 dollars. Hence, there is a very big gap between an underdeveloped country and a developed country in regard to their per capita real income.

A low income economy has a per capita income which is only two percent of the per capita income of the developed economy. In the underdeveloped countries themselves there are severe disparities, because the potential prospects of different countries also differ.

The main reasons of low per capita income in these countries are:

(i) Bigger quantity of population, or

(ii) Low level of National Income, or

(iii) Both, Low National income is caused by low productivity, low savings and investment, backward techniques, underdeveloped resources etc.

2. Dominance of Agriculture:

In an underdeveloped economy a large part of the population depends upon agriculture for living. Industries and Service Sectors provide livelihood only to a small portion of the population. This is the reason that industry and service sectors remain undeveloped. In the developed countries only 2% to 7% part of population depend upon agriculture whereas in an underdeveloped economy this percentage is around 72.

Similarly in the developed countries total National Income received only 3% contribution from the agricultural sector while in the underdeveloped countries contribution from this sector is around 35%. In the exports of an undeveloped country also there is dominance of agriculture products and agro-based raw materials. Thus the economic growth of these countries, to a great extent, depends upon agriculture.

3. Population:

In the underdeveloped countries, total quantity of the population as well as the growth rate of population is high. There are some countries where growth rate of population is low but quantity of population is much more. The main reason of over­population is that these countries adopt modern methods of sanitation and health-care, when they come in contact with the developed nations. Consequently the death-rate in these countries has declined. But these countries hesitate to adopt family planning measures because of poverty, ignorance and religious dogma.

This results in the rapid growth of population. Most of the underdeveloped countries are passing through a stage called “Population Explosion”.

Overpopulation affects in many ways, such as:

(i) A constant growth of unemployment in the country,

(ii) Peoples’ standard of living remains below the poverty line.

4. Widespread Unemployment, Underemployment and Disguised Unemployment:

There is a widespread unemployment in these countries because of overpopulation, low industrial development and lack of capital formation. There is a shortage of job opportunities caused by low industrial growth. Besides this there is a state of underemployment also in an underdeveloped economy because of the lack of job opportunities.

In other words people do not get suitable jobs, they deserve or they do not get full-time jobs. In some sectors there is disguised unemployment, which means in these sectors (especially in Agriculture) the marginal productivity of the labourer is zero. Even if some labourers are removed from these sectors, the production will remain unaffected. This situation is found only in absence of the job opportunities.

5. Lack of Capital Formation:

There is lack of capital formation in the underdeveloped countries. The main reason for this is the low per head income and dominance of consumption, resulting in a very low quantity of savings. Even those people, who save, cannot use their savings in the proper manner, as there are no banks, insurance companies and other financial institutions through which they may invest. Besides this the economic and social structure is so backward that the markets are limited and lack efficient entrepreneurs, producers and traders.

This causes low demand level of the capital. The Growth rate of capital stock is also low, in other words the rate of capital form is very low.

6. Distribution of Income:

In the underdeveloped countries there is widespread disparity in the distribution of income. Though disparity in distribution of income is also found in the developed countries but it is very low. In underdeveloped countries, a large part of Total National Income is concentrated in the hands of a few people, while the larger parts of the population have to be content with a very meagre income.

For example 20% population of India enjoys 50% of the Total National income, whereas 40% people having low income receive only 16% of it. Different studies show that more the country is developed; lesser the disparity of income is there.

7. Low Labour Productivity:

In underdeveloped countries, Labour Productivity is very Low. This is both, the cause and the effect, of low Standard of Living. Low productivity results in less national income. Income level of the population is also low, and a large part of the population lives in severe poverty. Low productivity of labour is caused by many factors (which are usually present in the underdeveloped countries) such as lack of availability of inputs other than labour, which are used by labour in the process of production, low standard of health, absence of work incentive and lack of institutional infrastructure.

8. Poverty:

It has become obvious after the study of the poverty level in underdeveloped countries that in these countries, about 35% of population has only between 50 to 75 dollars per capita annual income. This can be called the minimum standard of living. In India 37% population is below such poverty line. The worse part of the situation is that in the recent years, in spite of increase in the income of these underdeveloped countries, the volume of poverty has also been increased.

9. Foreign Trade:

In the underdeveloped countries contribution of foreign trade is meagre in the national income. The main reason is that these countries have been in the foreign rule for a long period. Consequently their foreign trade is formulated according to the wishes of their past masters. Their export trade is limited to some traditional goods, in which the agricultural products and raw materials have a major part.

Their imports are dominated by manufactured goods. These countries have foreign trade mostly with a few chosen countries or regions. Because of the greater volume manufactured goods, the level of industrialisation in these countries is low.

The other reason for their backwardness in foreign trade is the absence of sufficient technical development required for industrial production. Hence these economies are usually very much dependent on imports. Value of import is usually more than the value of exports, and these countries are usually in the crisis of foreign exchange and adverse balance of payments. In these countries government gives stress on export goods, rather than commodities for internal consumption.

10. Social and Economic Institutions:

In underdeveloped countries, there are no sufficient financial and other institutions, such as banks, insurance, and other trade and finance agencies. Money market and capital market are usually undeveloped and unorganised. One part of the economy is well developed while the others are undeveloped.

Various monetary and financial policies of the government have no effect on the undeveloped sector, which hinders the economic development. Similarly, in these economies, some social institutions like caste system, joint family system, illiteracy and superstition are present which stagnate the economic development.

11. Dual Economy:

In the underdeveloped countries dual economy is found. In the dual economy two different types of economies exist side by side. One sector of the economy is fully organised and developed, while the other is unorganised and undeveloped.

The organised sector is perfectly developed, using ultramodern techniques through foreign exchange. On the contrary the unorganised sector is undeveloped, using old outdated techniques and making exchange by barter. Unorganised sectors also hinder the development of the organised sector.

This dual economy is obvious, both in the rural and urban sectors. In the urban areas there are small and labour intensive, family industries on the one hand, and modern industries with the most advanced techniques on the other.

12. Market:

In the underdeveloped countries, Markets are imperfect and undeveloped. They are very small in size. Due to low production, the per head income in these countries is less. Consequently the level of collective demand is also low. Immobility of the resources and ignorance of the people give birth to the imperfect, ill-organised markets.

13. Weak Administrative Structure:

The administration of underdeveloped countries is not only weak and inefficient, but also corrupt. The main reasons for this are the lack of managerial efficiency and organisational facilities and the condition of polity prevailing. Due to ignorance of people bureaucrats can successfully misuse their authority and powers.

14. Lack of Technological Knowhow:

In the underdeveloped countries, even general education is not available in sufficient quantity. Technical education is almost absent. Due to poverty not much money is spent on research and invention. Even if some new technique is developed, it cannot be properly utilised due to the lack of capital resources and services of skilled personnel.

In these countries generally technology is imported from the foreign countries, as well as the skilled personnel also. As the modern techniques are absent, production is made by old redundant techniques, which causes higher production cost. Besides this there is lack of interest about using new techniques, in these countries. Due to surplus labour force, labour also opposes the use of new techniques.

15. Non-Utilization or Underutilization of Productive Resources:

In the underdeveloped economy the productive resources are either unutilised or underutilised. In spite of abundance of natural resources, these are not properly exploited. There are many reasons for this, such as lack of capital, absence of technical know-how, illiteracy and ignorance, use of age-old techniques etc. In India inspite of abundant natural resources, their proper exploitation has not been taken place.

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