Obstacles to Development• While there have been some

improvements to LDCs, those improvements have been even greater in MDCs.

• To catch up LDCs must rapidly increase their GDP and spend the money on improving the lives of their citizens.

• There are two main hurdles to this:– Adopting policies to increase

development.– Finding the money to pay for it.

• One-fifth of the world’s population consumes five-sixths of the world’s goods.

• Americans spend more on makeup each year ($8 billion) than is necessary to provide schools for the 2 billion that need them ($6 billion).

• Europeans spend more on ice cream ($11 billion) than would be needed to provide working toilets to the 2 billion without them ($9 billion).

Development Through Self-Sufficiency

• Most early efforts at development tried self-sufficiency.

• Elements– Nation should spread resources around evenly so every

area develops at the same pace.– Use trade barriers to protect businesses from foreign

competition.– Government ownership of utilities, communications, and

most large industries like insurance and automotive manufacturing.

Problems with Self-Sufficiency

• Inefficiency-Government protections let companies get lazy and fall behind foreign technology.

• Too Small-Some countries are too small to make a profit.

• Large Bureacracy-the maze of departments discourages entrepreneurship and increases the likelihood of corruption in government and a black market for foreign goods.

International Trade• Rostow’s Development Model

– 1. The Traditional Society-no development. Most people work in primary sector and most money goes to military or religious uses.

– 2. Preconditions for Takeoff-A small group of elites begins to invest in infrastructure and technology.

– 3. The Takeoff-A small number of industries begins to develop rapidly.

– 4. The Drive to Maturity-technology spreads to other industries. Workers become more skilled.

– 5. Age of Mass Consumption-shift from production of heavy industry (steel) to consumer goods (cars).

• Each country is somewhere on this model. MDCs are in 4 or 5 and LDCs are in 1,2,or 3.

• International trade forces industries to innovate. This mentality will diffuse to other less developed industries.

Examples of this approach.

• Four Dragons-South Korea, Singapore, Taiwan, and Hong Kong– Specialized in selling low

cost manufactured goods to MDCs.

• Arab Nations-Saudi Arabia, Kuwait, Oman, Bahrain, United Arab Emirates.– Became instantly

wealthy during the 70s with oil crises.

– Spent these profits on infratstructure.

– Some conflict between religion and business practices on MDCs.

Problems with International Trade

• 1. Uneven resource distribution-some nations have resources that aren’t that valuable.

• 2. Market Stagnation-MDCs have stable populations and economic growth can be limited.

• 3. Increased dependence on MDCs-focus on meeting their needs and ignoring the needs of your own citizens. I.E.-using land to grow cotton and not food. So you have to spend your profits buying food from MDCs rather than invest in infrastructure.

Recent Trends• Most LDCs have adopted

foreign trade since the 1990s.

• World Trade Organization-Group of nations that represents 97% of world trade.– Tries to limit barriers to trade.

– Can enforce rules and

penalize violators.

• Transnational Corporations-A company that operates in other countries than the one it is headquartered in. – Foreign Direct

Investment(FDI)-when a company invests in the economy of another country.

– Most FDI goes from one MDC to another and of the money that does go to LDCs, most of that goes to China. Less than 10% goes to African nations.

Financing Development• Loans-From either the World

Bank or International Monetary Fund.

• International Monetary Fund(IMF)-Helps developing nations cover financial gaps that could restrict development.

• World Bank-2 divisions– International Bank for

Reconstruction and Development(IBRD)-provides loans for nations to reform and improve.

– International Development Association(IDA)-Government contributions for nations that are too risky for investors.

• Many investment projects fail and LDCs have trouble repaying loans. Many nations can’t even keep up with the interest on their debts.

• Structured Adjustment Programs-if an LDC can’t repay a loan it must agree to follow a Policy Framework Paper-a guideline to reform government and adjust economic practices.

Fair Trade: When products are made and traded according that will protect workers and small businesses in LDCs.

• Producer Standards-small businesses form cooperatives so they can reduce costs and get better loans.

• Products cost more than those produced by large companies, but may be better quality and less environmentally damaging.

• Worker Standards-employers are required to pay fair wages and permit unions as well as safety standards. Many fair trade workers are women

• Fair Trade skips wholesalers who usually take much of the profits for themselves.