The North-South Dilemma
Lecture 9

Types of Development

1. World is divided into four types of development
   1. Western developed countries – rich
      1. Western Europe and North America
      2. Called the “North” countries
   2. Petroleum exporting countries – includes OPEC members
   3. Newly Industrialized Countries (NIC) – Asian tigers
   4. Less Developed Countries (LDCs) – also referred to the third world
      1. Called the “South” countries
      2. Most people live in LDCs
      3. Remain underdeveloped
      4. Large income between LDCs and the rich countries
      5. People survive on less than a $1 per day
      6. Low education levels
      7. Lack shelter, drinking water, etc.
2. Economic development – a nation to produce economic wealth
   1. A society's wealth is derived from the production of manufactured goods and services
   2. Neoliberal policies – market-oriented policies
      1. World Bank and the IMF imposed these policies for aid
      2. GATT recommends free trade and low trade barriers
      3. Policies
         1. Encourage privatization
         2. Reduce government involvement in industries
         3. Attract foreign investors
         4. Ease regulations on the private sector
         5. Devalue currency – products become competitive in the international market
         6. Reduce bureaucracies and state control
         7. Open economy to international trade
            1. Simulates competition
            2. Increases productivity
            3. Acquire new technologies
   3. Countries do not like these policies

The North-South Dilemma

1. Less Developed Countries (LDCs)
   1. Dependency Theory – LCDs are dependent on the North America-European countries
      1. Exported raw materials, food, and resources
         1. Vulnerable to volatility in the international markets
      2. Imported manufactured goods
         1. Creates a trade imbalance because manufactured goods have a higher value
         2. Money flows out of LDCs
         3. Keeps them in poverty
      3. Cannot get access to technology
         1. Tight legal controls on patents, copyrights, and licensing from Western countries
         2. LDCs cannot create competitive edge
   2. Import substitution approach – reduce importing manufactured goods to produce them locally
      1. Use trade protection
         1. Reduce the balance of payment deficit
         2. More money is flowing out then in
         3. Reduce imports
      2. Used by Brazil and Mexico
      3. Promote "home-grown" industries
         1. Processed foods, textiles, and footwear
         2. Create jobs
      4. Promote economic development
         1. Growth is sustained from internal consumer market
         2. Countries tend to be rich in resources and agriculture
         3. GDP grew between 1960s and 1990s; not as fast as Asian tigers
      5. After 1990s
         1. Declining revenues resource exports
         2. Declining agriculture output
         3. Stagnation
   3. Problems
      1. Weak infrastructure and educational system
      2. Countries borrowed from abroad
      3. Gov. created large state monopolies and expanded state-owned industries
      4. Gov. has trouble picking winners and losers
      5. Gov. fiscal problems
         1. Large foreign debts
         2. Chronic budget deficits
         3. Led to a fiscal crisis
         4. Led to high inflation – gov. forced central banks to increase money supply
            1. Example – Brazil had over 2,000% inflation rate
2. Africa
   1. The worse of the LDCs
   2. GDPs are actually decreasing over time
   3. Political survival
      1. Finance military
      2. Composed of many feuding tribes
         1. Sudan has 130 tribes
      3. Impose repressive measures on everyone
   4. Dependent on agriculture and raw resources
   5. Gov.
      1. Excessive gov. spending
      2. Agriculture subsidies
      3. Currency price controls

The New Industrialized Countries (NIC)

1. The Asian tigers – Hong Kong, Singapore, South Korea, and Taiwan
   1. Asian pups – Malaysia and Thailand
2. Export-oriented growth
   1. Gov. promotes exports
      1. Mercantilist policy
      2. Expand comparative advantage
      3. Gov. provided financing and incentives
      4. Similar to Japan
      5. Create jobs
      6. Learn from the mistakes from the industrialized countries
         1. Avoid some of the problems
   2. Encourage entrepreneurship
   3. Protect "infant" consumer manufacturing industries from foreign competition
      1. Protection on manufactured goods
      2. Allow raw materials to freely enter country
   4. Devalue the national currency
3. Rapid industrialization
   1. Manufacturing's share of GDP
      1. South Korea: 14% in 1960 to 30% by 1980
      2. Taiwan: 26% in 1960 to 40% by 1993
   2. Agriculture's share of GDP
      1. South Korea: 37% in 1960 and fell to 15% in 1980 and 7% by 1995
      2. Taiwan: 29% in 1960 to only 3.5% by 1993.
4. Requires high savings and investment rates
   1. Gov. helped establish private banks and financial institutions
   2. Investments in infrastructure
   3. Machines and equipment
   4. Adopt new production technologies
   5. Raw materials and agriculture also modernized
   6. Inflow of foreign capital
      1. Japanese investment, expertise, technology, and closer economic integration with Japan
5. Government
   1. Kept budget deficits low
      1. Lowest in the developing world
      2. Have low inflation rates
   2. Gov. is small sector of economy
      1. Strong central authority to manage their growth process
      2. Help speed transition process
      3. Not democratic countries
   3. Large gov. debt crowds out private investment
6. Education and job training
   1. Quality labor
   2. Increased economic efficiency
   3. Productivity growth
   4. Reduce the illiteracy rate
7. Problem – economic growth is subsidized by the North countries

Women in LDCs

1. Integration – women are integrated into the workforce
   1. Become wage earners
   2. Increase their independence
2. Marginalization and exploitation
   1. Women become more economically dependent on men
   2. Women used as servants, street vendors, cleaners, or subsistence agriculture
   3. Multinational corporations relocate their assembly operations in developing countries
      1. Employ young, inexperienced female workers as assembly workers
      2. More docile and more amenable
      3. Younger women replace the older women
      4. Wages are a fraction of the wages in North countries
      5. Maquiladoras of Mexico – slave factories