Development Part 2: “Paths to Development”Paths to Development? • International Trade Model – Rostow’s model of development • Five stages • Why optimistic? –Eastern/Southern

Development Part 2:“Paths to Development”

What is Development?• Reread/review prior information (Part 1)• Criticisms of the “development” concept:

– One single path/trajectory toward development?• Is “industrialization” always necessary?

– Western bias (values materialism, is industry good?)

– discounts international influence• See Wallerstein’s World System’s Theory

• See p 464 – 465 for alternative discussion– Bhutan measures Gross National Happiness (GNH)

based on psychological well-being, time use, community vitality, culture, health, education, environmental diversity, living standard and governance.

UN Millennium Development Goals

• To eradicate extreme poverty and hunger• To achieve universal primary education• To promote gender equality and empower women• To reduce child mortality• To improve maternal health• To combat HIV/AIDS, malaria, & other diseases• To ensure environmental sustainability• To develop a global partnership for development

Paths to Development• self-sufficiency model

– Characteristics:• Barriers are established to protect local businesses

– Three most common barriers = (1) tariffs (tax on imported goods), (2) quotas, and (3) restricting # of importers

– “protectionism”• Distribution/pace of development = even but modest

– Investment spread across economy– Goal is to develop national industries and– reduce poverty over consumerism

• Two major problems with this approach:– Inefficient businesses are protected– A large bureaucracy is needed to regulate/monitor barriers

» costly» could lead to corruption» growth of black market

Paths to Development?• International Trade Model

– Rostow’s model of development• Five stages

Paths to Development?• International Trade Model

– Rostow’s model of development• Five stages • Why optimistic?

– Eastern/Southern European growth, Japan– LDCs have tons of resources to exploit

– Examples of international trade approach• The “four Asian dragons”

– Taiwan, Singapore, South Korea, Hong Kong• Petroleum-rich Arabian Peninsula states

Paths to Development?• International Trade Model

– Problems/criticisms (diff. from text)• single commodity

– depends on world price– could lead to loan default if price collapses– therefore, commodities are often leased/controlled by

outsiders who keep lion’s share of profits • with reliance on cash crops must buy necessities• income inequality

– result of both model and structural reform programs (later)

Self-sufficiency vs. Int’l trade approach

• International trade approach triumphs– Countries switch because evidence indicates that

international trade is the more effective path toward overall development

– Example: India

– made easier by globalization– “Neo-liberalism”

• Dominant economic/political theory by end of 20th c.• Reduce government intervention in markets

– Multinational corps., Big Business, Wall St. = Republicans– Bill Clinton, Pres. Obama, Rahm Emanuel = Democrats

» NAFTA, TPP (Trans-Pacific Partnership)

Triumph of International Trade Approach

Rostow’s “modernization”, “ladder of development” or “int’l trade” approach to

development Winners

• Multinational corporations– Low wages, higher profits,

higher stock prices– Stockholders

• Consumers– Lower prices

• In LDCs– People/regions connected

to int’l trade or the “core”• BIG Q? Will low prices

continue to offset wage stagnation?

Losers• Low skill workers (MDCs)

– Highly paid union workers in manufacturing

• Small businesses/domestic manufacturing

• Prices are undercut

• Downward wage pressure– Will wages decrease or

stagnate for skill workers as well?

• can tertiary jobs be outsourced, globalized?

International Organizations– World Trade Organization (WTO)

• Helps negotiate reductions in trade barriers = “free trade”• Eliminate restrictions on the movement of capital• Enforces trade agreements

– by allowing non-penalized retaliation or fines.• Criticisms:

– Left = anti-democratic, favors wealthy corporations, ignores the poor– Right = national sovereignty is violated (see TPP)

– Nongovernmental organizations (NGOs)• Independent non-profits (Gates Foundation, Clinton

Foundation, Carter Center)– Some funds can be misappropriated →admin. salaries, travel, etc.

• example of a successful policy = microcredit program– Loans to small entrepreneurs in LDCs (largely women) which are

guaranteed by other’s in village = 98% repayment rate

Barriers and Costs of Development• Structure and geography of the world economy

(World Systems Theory)• Social conditions

– Demographic trap • high CBR, IMR, dependency ratio leads to a lack of

funds for development which in turns leads to high CBR– Lack of education (overall and gendered)– Trafficking (domestic servants, street vendors, prostitution)

• Disease– weak labor force, orphans

• Political Corruption and Instability– dictatorship, coups, corruption discourage investment

• Financing Development!!!

Biggest problem =Financing development

• LDCs require money to fund development– FDI = foreign direct investment

• Major source = transnational corps

Foreign Direct Investment

Figure 9-30

Financing development• LDCs require money to fund development

– FDI = foreign direct investment• Major source = transnational corps

• Int’l organizations as lenders:– The World Bank

• Loans to make reforms, strengthen financial institutions, infrastructure projects

– IMF (International Monetary Fund)• Provides loans to countries with debt payment issues• Goal = protect international trade

– demand “structural adjustment programs”» realign spending priorities» eliminate govt. bureaucracy» cut jobs, pensions, reduce taxes

Public Debt by Country

Costs of Development• est. of Export Processing Zones (EPZs)

– Favorable tax, regulations, etc. for foreign firms• Maquiladoras (Mexico), Special Economic Zones (China)

• Agriculture– Diff. of modern agriculture to produce cash crops

• ↑intensification →↑desertification– Sahel (south of Sahara, shatterbelt) lost 270k sq. miles

• Tourism (mixed impact)– Brings in huge $, now > than oil

• requires infrastructure spending that could be spent on natives• creates jobs but largely low-paying, “dehumanizing”?• profits go to multinational corps.• harsh juxtaposition of tourist wealth and native poverty marks cultural

landscape

Uneven Development within States• Govt. policies can create or lessen economic

differences between regions– Infrastructure, education, subsidies, taxes and quotas

• Int’l trade benefits more “connected” regions

Uneven Development within States• Govt. policies can create or lessen economic

differences between regions– Infrastructure, education, subsidies, taxes and quotas

• Int’l trade benefits more “connected” regions• Core-periphery thinking can also apply within states

– reflects weakness of using per capita GNI– Cities/capitals/ports = Islands of Development

• concentrated economic development, foreign inv. $• Forward capitals built to draw investment to interior or

to be a centripetal force.– Brasilia (Brazil), Islamabad (Pakistan), Abuja (Nigeria)

Fair trade approach• Products are made and traded in a way that

protects workers and small businesses in LDCs• Two sets of standards

– Fair trade producer standards• Must be “small”, democratic, high product quality, use

ecologically friendly growing methods, etc.– Fair trade worker standards

• Collective bargaining, working conditions, minimum wage, etc.

• Producers and workers usually earn more• Consumers usually pay higher prices

Fair Trade Coffee• Fair trade coffee: Shade-grown coffee produced by

certified fair-trade farmers, who then sell the coffee directly to coffee importers– Often organically grown

• Guarantees a “fair trade price”– At least 40% goes to grower

• Over 500,000 registered farmers– Produced in more than 20 countries– commitment by Starbucks, Dunkin Donuts and other chains

• Demand must come from the consumer!