ch. 9 key issue 4 why do ldcs face obstacles to development?

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Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

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Page 1: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Ch. 9 Key Issue 4

Why Do LDCs Face Obstacles to Development?

Page 2: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Economic Systems• Capitalism: market forces of supply and demand

dictate prices. Profits are encouraged. Large gaps between rich and poor. Meshes well with democracies (both have freedoms)- US, West Europe

• Socialism: government control of basic items (food, energy, transportation, health care)- higher taxes needed to pay for these = redistribution of wealth- Switzerland

• Communism: total govt control over everything! Same salary for everyone- no incentive to succeed; govt determines your profession. China and SU!

Page 3: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

How to Develop?

• LDCs must develop faster to reduce disparity between MDCs–Need to increase GDP so they have $ to

spend• LDCs face two problems:–1. Which development policy (model)

should we adopt?–2. Where do we find the funds for

development?

Page 4: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Models for Development

• Development can be achieved through:– Self-sufficiency approach – International Trade approach• Rostow’s Modernization Model (5

stages) –World Systems Theory– Sustainable development

• We will discuss pros and cons of each

Page 5: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Self–sufficiency Model• Popular in first part of 20th century; India• Depending on themselves, not other

countries– Limiting imports and exports with barriers

(tariffs, quotas, licenses) to protect domestic businesses

• “Balanced growth”– Funds equally distributed to all sectors of the

economy and in all regions – Only modest gains made in development, but it

was equal across country (no islands of dev.)

Page 6: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

International Trade Approach*

• What animal, vegetable, or mineral resource does the country have in abundance that other countries are willing to buy?

• What product can we manufacture and distribute at a higher quality and lower cost than any other countries?

Page 7: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

International Trade Approach

• Allows for a country to specialize in relatively few local industries (oil, food, etc = commodities) to sell to the rest of the world –Money brought in from sales goes toward

improving development • Trade with the international market for

all other needs • Cheap labor is exploited (China)

Page 8: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Rostow’s Development Model (1960’s)• With decolonization of Asia and Africa, he

looked at how currently developed countries developed- what “stages” did they go through?

• Assumes that each country will follow the same path to “development” – is this possible?1. The traditional economy2. The preconditions for takeoff3. The takeoff4. The drive to maturity5. The age of mass consumption

Each country is in one of these 5 stages

Page 9: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Start Here!!!!!!

Page 10: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Problems with S-S Approach

• Inefficient businesses– Little incentive to improve business since they

sell at high government-set prices (the gov’t guarantees demand); lack of competition stalled innovations

• Large bureaucracy needed– Many gov’t agencies needed to regulate

businesses– Entrepreneurs learned how to get around

barriers and sell illegal imported products on black market

Page 11: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Problems with I.T Approach• Uneven resource distribution across Earth– Not all countries have commodities that other

countries want to buy or prices/demand have decreased for their commodity

• Increased dependence on MDCs– Since resources go to developing goods to sell to

MDCs, money is diverted away from domestic needs (clothes, food) Funds from selling commodities may be used to buy these needs back from MDCs

• Market decline– Slow growth in MDCs = no new customers for LDCs

Page 12: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Success in International Trade

• These countries employed Rostow’s model• 4 Asian Dragons– S.K., Taiwan, Singapore, Hong Kong– Manufactured goods and sold/traded them on world

market• Low labor costs = cheap goods for MDCs

• Petroleum-rich Arabian Peninsula– Booming oil market led to increased wealth; will this

money spur development (remember Islamic cultural issues)?

Page 13: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

I.T. Approach Triumphs

• Most popular model by second half of 20th century; India removes barriers

• World Trade Organization (WTO) – Established to promote the IT model

• Foreign Direct Investment (FDI)– Transnational corporations

Page 14: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?
Page 15: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Dependency Theory

• Countries face different problems that won’t allow for Rostow’s theory

• Poor countries are dependent on wealthier ones– Poor countries today are experiencing neo(new)-

colonialism: wealthy countries controlling/exploiting economies of poorer ones• Dollarization in Latin America

• MDCs remain dominant, LDCs remain dependent

Page 16: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Immanuel Wallerstein and Dependency Theory

• World is one system- no country is independent of another

• World systems theory has a three tier structure - core, periphery, semi-periphery

• Periphery dependent upon the core– *Not all tadpoles can survive into toads– Capitalist’s drive for profit = domination of “weaker”

countries– Capitalists will move production around the world to

enhance profits, places that lose production facilities suffer

Page 17: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Wallerstein’s World-Systems Theory

• International division of Labor!• Core countries– Higher education, salaries, technology = more

wealth in world economy• Periphery countries– Lower levels than in core countries = less wealth

• Semi-periphery counties – Processes of both are occurring; buffer zone

Page 18: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?
Page 19: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Wallerstein’s World-Systems Theory

• Leads to a capitalist world economy where:–The world is “one big market” –Global division of labor between the 3 tiers–Capitalism (trade goods/services for profit;

find cheap labor) –Commodification (buying/selling/trading

everything)

Page 20: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Capitalist World Economy

• Created by colonialism- intertwining the economies of the world; taking resources and putting colonies in a position of subservience

• Is composed of “dots” (individual countries) but we must also understand the “whole.” (the world) = scale (zooming out)– Sunday Afternoon on the Island of La Grande

Jatte

Page 21: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?
Page 22: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Importance of Development

• LDCs must develop faster to reduce disparity between MDCs– Need to increase GDP so they have $ to spend

• LDCs face two problems:– 1. Which development policy (model) should we

adopt?– 2. Where do we find the funds for development?

Page 23: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Financing Development

• LDCs lack money for development, so they get funds from MDCs in two primary ways:1. Loans from banks and International

organizations2. Direct Investment from transnational

corporations (FDI)• Neoliberalism:– Loans → better infrastructure → more

businesses → more taxes to repay loan

Page 24: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Creating Funding Programs• World Bank and IMF were created by UN to promote

stability and development after WWII and to avoid another Great Depression – WB: main source of loans– IMF: loans are not for specific projects

• Idea is that LDCs will take money to improve their infrastructure (schools, roads, public services/goods) which will attract more foreign businesses to open or domestic business to expand

• LDCs can then repay the loans through taxes collected for supplying pubic services/goods

Page 25: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Problems with Funding LDCs• Most LDCs have been unable to repay loans,

especially in Africa.• Reasons for failure include:– Structured Adjustment Loans (neoliberalism):

Loan with strings attached; must be used on specific project/program

– Aid is wasted, stolen or used on armaments – New businesses are not attracted to country

• The failure to repay loans causes:– MDCs to refuse to make further loans– Financial instability of banks in the MDCs

Page 26: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?
Page 27: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Fair Trade • Is a sustainable variation of the I.T. approach • Intended to protect small business and workers in

LDCs– Cut out exploitive middle men who want to maximize

profits. Work directly with the producers and workers so more profits can be returned to them.

– Producer standards • Cooperative farms

– Worker standards• Fair wages, rights

Page 28: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?
Page 29: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Barriers to Economic Development

• The World economy works to the disadvantage of the periphery, but other obstacles exists:

• Social conditions- life expectancy, young dependency ratio, human trafficking

• Debt- cant repay loans • Disease- high death rates; sick workers• Political corruption- using $ on other things

Page 30: Ch. 9 Key Issue 4 Why Do LDCs Face Obstacles to Development?

Costs to Economic Development• With increased production, the environment

and culture are transformed. • Industrialization: cheap labor exploited– Export Processing Zones (EPZ): favorable tax and

trade arrangements for foreign businesses• Maquiladoras in Mexico• Special Economic Zones in China- Hong Kong

– North American Free Trade Agreement (NAFTA): encourage trade and cooperation between US, Canada and Mexico

• Agriculture: over farming• Tourism: imposes Western culture on LDCs