Development

Chapter 10

Global Economics• Enormous gaps between the rich and poor countries of the world-25,000 die of hunger each day (most under 5).

• Some states are still subsistence based while others have moved beyond manufacturing to tertiary economies.

• Even within the wealthy or First World nations there are often areas of economic disparity within regions

Measuring Development

Gross National Product (GNP) Measure of the total value of the

officially recorded goods and services produced by the citizens and

corporations of a country in a given year. Includes things produced inside

and outside a country’s territory.

Gross Domestic Product (GDP) Measure of the total value of the

officially recorded goods and services produced by the citizens and

corporations within country in a given year.

Gross National Income (GNI) Measure of the monetary worth of

what is produced within a country plus income received from

investments outside the country. ** Most common measurement used

today.

Concepts & Approaches

• Gross National Product-all goods & services produced

by the economy per year both inside & outside the nation

• Gross Domestic Product-all goods & services produced

by the economy per year with in the nation

• GNP or GDP does not reflect regional variations-it also

doesn’t count the informal economy-black market, illegal

drug trade & underground economy

• Developed Countries-(DCs) have high levels of

industrialization, urbanization & standard of living

• Underdeveloped (UDCs) or Developing Countries are

moving toward developed status-not as highly

industrialized or urbanized with a lower standard of living

Measures of Development• National Product per person-the total

income divided by total population-Core (developed) about $25,000 while Periphery (developing) as low as $100.

• Occupational Structure of the Labor Force-% of workers in each section-high number in agriculture signals low development

• Consumption per Person-the greater the use of goods and services-the higher the development

• Transportation & Communication per person-railroad, road miles and airline connections per person as well as telephone, radio, television or computers per person

• Other Rates-

– Literacy - Caloric intake

– Medical Care - Savings per person

Issues with Measuring

Economic Development

• All measurements count the:

– Formal Economy – the legal economy that

governments tax and monitor.

• All measurements do not count the:

– Informal Economy – the illegal or uncounted

economy that governments do not tax or keep

track of.

Core-Periphery Model• Wallerstein’s new approach to

developed or underdeveloped idea

• Core-Periphery also used in a political context

• Core-the nations with a high level of prosperity with dominant economies globally

• Periphery-poor nations that are dependent on the core as markets for raw materials and sources of technology

• Semi-Periphery-better off than periphery, but still dominated by the core to some degree

Global Economic Disparities

• Much of the disparity

existed as Colonialism was

established by European

nations.

• The Industrial Revolution

increased the need for raw

materials and markets for

finished goods.

• Neo-colonialism refers to

the economic dominance of

the core over the former

colonial nations-economic

rather than political control

Conditions in the Periphery• High birth rates, moderate death rates and low life

expectancy

• High infant mortality rates-large population under age 15 yrs.

• Poor health care & shortage of doctors-disease is common

• Poor sanitation and lack of fresh, clean water

• Poor nutrition and protein deficiency

• Low per capita income with many women & children doing hard manual labor

• High illiteracy rate with low levels of education

• Great disparity between rich & poor, small middle class

• Urban areas overcrowded, lack of services, rapid urban migration

• Subsistence farming on small landholdings

Conditions That Hamper Development

• Political instability and corruption

• Exploitation of natural resources and workers regardless of consequences

• Dependence of agricultural products or primary products such as mineral resources

• Misuse of foreign assistance

• Misguided priorities

• Cultural resistance to modernization

Industrialization – Benefits and Drawbacks

• Some countries like the Soviet Union industrialized quickly with central planning-Stalin’s Five Year Plans

• All decisions were made in Moscow-no local control

• Focus on heavy industry-steel, electrical, chemical, military hardware which can produce large economic gains and many new jobs

• However, there is often little concern for worker safety or environmental problems

• Developing economies often need support from foreign companies so profits go elsewhere

Commercial Agriculture – Is bigger better?

- New methods and tools increase production

- Increased income from export of cash crops

- Land is often owned by foreign conglomerates, and the profits go overseas

- Hunger issues in the local population as more arable land is used for exports crops

- Environmental issues – lack of water, erosion, desertification

Tourism: Boom or Bust

• Significant increase in a

country’s infrastructure and

wide variety of jobs

• Hotels & other facilities are

often owned by transnational

corporations which take the

profits out of the country

• Tourism jobs can be

demeaning & dehumanizing

or even insulting

• Tourism jobs pay minimal

wages for menial tasks

Models of Development

• There are two broad models of

economic development;

– Liberal Models based on

the assumption that all

countries pass through the

same stages of economic

development and

disparity is the result of

short term inefficiencies

– The Liberal Model

assumes that all nations

are capable of the same

level of economic

development

• Structuralist Model this is

the alternate to the Liberal

Model that states disparities

are inevitable due to

structural features of the

global economy.

• These disparities can not be

easily changed-it is

misleading to assume that

all areas will go through the

same economic process of

development

Development Models

Modernization Model

Walt Rostow’s model assumes all countries follow a

similar path to development or modernization,

advancing through five stages of development,

climbing a ladder of development.

- traditional

- preconditions of takeoff

- takeoff

- drive to maturity

- high mass consumption

Models of Development

Walt Rostow created this liberal model of development in

the 1960s

1. First Stage-Traditional

1. Subsistence farms-limited technology

2. Rigid social structure

3. Resistance to change-transition triggered by external influence

2. Second Stage-Preconditions for Take-Off

1. Progressive Leadership-commercial exploitation of agriculture

& extractive industries

2. Greater flexibility-installation of infrastructure-roads, railways,

etc.

3. Greater openness to new technology

4. Greater Diversity of products produced

Models of Development

3. Third Stage-Take Off

1. Experiences industrial growth

2. Urbanization

3. Industrialization, technology & mass production

4. Drive to Maturity

1. Diffusion of technology

2. Industrial specialization

3. International trade

4. Modernization at the core

5. Population growth is reduced

5. Fifth Stage-Final Stage

1. Mass consumption-widespread production of goods & services

2. High incomes

3. Majority of workforce in service sector

Rostow’s Ladder of Development

Models of Development

• Dependency Theory is a Structuralist Model

• Political & economic relationships between countries & regions limit the development of the less well off areas

• Colonial dependencies are still in place from long ago.

• Dependency theory sees little hope for economic prosperity in some traditional parts of the world

Dependency Ratio by Country, 2005

A measure of the number of people under the age of 15 and

over the age of 65 that depends on each working-age adult.

Three Tier Structure

Core

Processes that incorporate

higher levels of education,

higher salaries, and more

technology

* Generate more wealth in the

world economy

Semi-periphery

Places where core and periphery processes

are both occurring. Places that are

exploited by the core but then exploit

the periphery.

* Serves as a buffer between core and

periphery

Periphery

Processes that incorporate lower

levels of education, lower

salaries, and less technology

* Generate less wealth in the

world economy

• Wealth disparity in

Malaysia-a women

collects her laundry at a

simple wooden house in

the Kampung Chendana

District of Kuala

Lumpur-in the

background the luxurious

Petronas Towers are less

than a mile away.

• Atlantic bumper fish are a

crucial food source in

Senegal and elsewhere in

Africa where 200 million

people depend on the sea

for food.

• World Wide 1 billion

people depend on fish for

protein-many are poor

• By 2015 Developing

countries share of world

fish production is projected

to be 81%-problem-balance

the need for revenue and

food.

the Ukita family of Japan will eat a 12 different kinds of fish and

shellfish and 3 varieties of seaweed.

Challenges to Development

Differences in

Communications

Connectivity

Around the World

Dollarization –Abandoning the local currency of a country and

adopting the dollar as the local currency.

El Salvador went through dollarization in 2001

Foreign Debt ObligationsTotal interest payments compared to the export of

goods and services.

Widespread Disease

• Malaria kills 150,000 children in the global

periphery each month.

Tamolo, India

This baby sleeps

under a mosquito

net distributed to

villagers by

UNICEF workers.

Government Instability

Areas Threatened by Desertification

Locust swarm in Mauritania devours crops

How Government Policies

Affect Development

• Governments

– get involved in world markets

– price commodities

– affect whether core processes produce wealth

– shape laws to affect production

– enter international organizations that affect trade

– focus foreign investment in certain places

– support large-scale projects

Governments &

Corporations

can create

Islands of

Development

Places within a

region or

country where

foreign

investment,

jobs, and

infrastructure

are

concentrated.

Government-created Island of

Development

Malaysian government built a new, ultramodern capital at

Putrjaya to symbolize the country’s rapid economic

growth.

• Dubai has mushroomed

from a near-empty desert

to eight lanes of traffic

between a mile of

skyscrapers on Dubai’s

Sheikh Zayed Road.

• Dubai boasts more tourists

than all of India

Corporate-created Island of Development

The global oil industry has created the entire city of Port

Gentile, Gabon to extract Gabon’s oil resources.

Nongovernmental

Organizations (NGOs)entities that operate independent of state and local

governments, typically, NGOs are non-profit organizations.

Each NGO has its own focus/set of goals.

Microcredit

program:

loans given to

poor people,

particularly

women, to

encourage

development of

small businesses.