WHY DON'T DEVELOPING COUNTRIES DEVELOP?
Why is it that some countries and regions are more economically powerful than others? This is a very complex question. Going back in time, one interesting starting point, as argued by Jared Diamond in his book “Guns, Germs and Steel”, is that certain locations are more favorable to farming and that the domestication of crops and livestock enabled larger communities to form. This led to technological advancement resulting in Europe, and to some extent China, to industrialise, develop powerful finance sectors and be more powerful militarily. These were all key in European conquest of the Americas, Africa and parts of Asia. Money was increasingly concentrated in Europe as colonial powers extracted huge amounts of resources. For example the British are estimated to have drained a staggering total (in today’s money) of nearly USD 45 trillion from India during the period 1765 to 1938.
Apologists argue that imperial ventures developed the colonies providing work and infrastructure. However in practice workers were exploited and roads and railways provided primarily for the sole purpose of transporting resources out of the country. Many of the poorest countries in the world were colonised. Now, many decades after independence and despite often having lucrative natural resources countries remain poor. There are examples of societies that have been destroyed by conflict but are now wealthy notably Japan, Germany and South Korea. However, these all received significant investment from the United States. Let’s consider some of the reasons why poor countries remain in the poverty trap.
Globalisation is the process by which businesses or other organizations develop international influence or start operating on an international scale. This has accelerated since the 18th century due to advances in transportation and communication technology. Multinational corporations (MNCs) first started exploiting the resources of developing countries in search mainly of oil, minerals and precious metals. Very little benefit is seen by the majority of the population and corrupt leaders are prone to allow corporations to extract in exchange for personal financial gain. In recent decades, globalisation has become widespread in many sectors including manufacturing and agriculture. Electonic goods are now largely made in China and clothing in India and Bangladesh. This is attractive to corporations as labour costs are low and environmental protections weaker. In some countries, such as China and Mexico, it may have raised living standards although workers’ pay and rights are generally poor. There is also a significant brain drain issue in countries where some level of development has occurred as described in a 2002 ILO report. Another impact of globalisation has been ever increasing corporate power allowing MNCs to influence policy makers. The value chains administered in various ways by MNCs now account for 80% of the USD 20 trillion in trade each year.
Ten years ago, a new World Trade Organisation (WTO) that put developing country needs at the centre of the international trade negotiation agenda was proposed. But the WTO membership has failed to deliver the promised pro-development changes. Developing countries have been completely sidelined by the economic and political interests of global powers. One resource which exemplifies this is cotton. The Fairtrade Foundation revealed last year how the USD 47 billion in subsidies paid to rich-country producers in the past 10 years has created barriers for the 15 million cotton farmers across west Africa trying to trade their way out of poverty, and how 5 million of the world’s poorest farming families have been forced out of business and into deeper poverty because of those subsidies. The WTO has also failed to clarify the deliberately ambiguous rules on concluding trade agreements that allow the poorest countries to be manipulated by the rich states. In Africa, in negotiations with the EU, countries have been forced to eliminate tariffs on up to 90% of their trade because no clear rules exist to protect them. A significant inequality in trade is the link between market size and political weight which gives small and poor countries a marginal voice in trade negotiations. Trade is probably one of the most significant factors maintaining the poverty gap.
In 1970, the world’s poorest countries (roughly 60 countries classified as low-income by the World Bank), owed USD 25 billion in debt. By 2002, this was USD 523 billion. According to a paper Effects of Debt on Human Rights prepared by El Hadji Guisse for current UN Sub Commission on Human Rights, the developing countries’ debt is partly the result of the unjust transfer to them of the debts of the colonising states. A sum of USD 59 billion was imposed to the newly independent states in 1960. Much of the debt is associated with global western dominated institutions the World Bank and International Monetary Fund. Throughout the 1990s, Bolivia came under increasing pressure from the World Bank (an organisation dominated by the US) to privatise public goods in order to fulfill loan conditionality. In September 1999, in response to this pressure, the Bolivian government auctioned off the municipal water system of Cochabamba, a city of 800,000 residents. Bills skyrocketed from USD 5 to USD 25 a month. When poor countries are unable to make debt repayments, structural adjustment programmes are imposed opening up markets to western corporations. When the value of debt becomes “junk” countries are open to so-called vulture funds which buy up debt and then sue the country for repayments.
This term can be defined as the economic and political policies by which a developed country indirectly maintains or extends its influence over other areas or people. One aspect of this is globalisation. But there are other dramatic ways in which mainly European countries and the US exploit poorer countries even though they like to shout about the significant amounts of aid that are provided. In a 2017 Guardian article Aid in reverse: how poor countries develop rich countries | Working in development. Jason Hickel considers some of these. The data is stark. In 2012 developing countries received a total of USD 1.3 trillion, including all aid, investment, and income from abroad. But that same year some USD 3.3 trillion flowed out of them. Taking all years since 1980, these net outflows add up to an incredible total of USD 16.3 trillion. To get a sense for the scale of this, USD 16.3 trillion is roughly the GDP of the US. A significant amount of the payments relates to debt. Developing countries have forked out over USD 4.2 trillion in interest payments alone since 1980 – a direct cash transfer to big banks in New York and London. Another big contributor is the income that foreigners make on their investments in developing countries and then repatriate back home. Think of all the profits that BP extracts from Nigeria’s oil reserves, for example, or that Anglo-American pulls out of South Africa’s gold mines. Many MNCs then secretly shift their ill-gotten gains into the multitude of tax havens around the world (many under UK jurisdiction). But by far the biggest chunk of outflows has to do with unrecorded – and usually illicit – capital flight. The US-based Global Financial Integrity (GFI) calculates that developing countries have lost a total of USD 13.4 trillion through unrecorded capital flight since 1980. Most of these unrecorded outflows take place through the international trade system. Basically, corporations – foreign and domestic alike – report false prices on their trade invoices in order to spirit money out of developing countries directly into tax havens a practice known as “trade misinvoicing”. And the above figures only cover theft through trade in goods. If we add theft through trade in services to the mix, it brings total net resource outflows to about USD 3 trillion per year. Paradoxically, it has actually been argued by Angus Deaton in a 2017 Washington Post article that aid provided to support poor countries may actually harm them. His data certainly suggests this. One explanation is that if corrupt leaders of developing countries rely on aid they are less accountable to their citizens as there is less reliance on taxation.
As corporations become ever more hungry for profit, developing countries have been forced to accept predatory privatisation through conditions on loans.
Politically the West also has a history of interference in poor countries to promote corporate power and free market economics from facilitating the overthrow of progressive leaders promoting social programmes such as Mossadegh in Iran and Allende in Chile to supporting compliant pro-Western figures such as the repressive el-Sisi in Egypt.
Environmental factors can play a significant role in perpetuating poverty. Natural disasters can cause loss of infrastructure and crops as was seen recently in Haiti and Mozambique. Disease is more prevalent in tropical and sub-tropical regions particularly in sub-Saharan Africa. However, there are countries in these areas that, relatively speaking, flourish such as Brazil – one of the so-called BRICS nations. Climate is also an issue in certain countries and climate change is causing crop failures and flooding in parts of Africa and Latin America. To make climate vulnerable states viable there must be financial support from wealthy nations.
what can we do?
Putting it in crude terms, those of us in the West enjoy a good standard of living off the blood, sweat and tears of the world’s poor. Is it any wonder that there is hunger and poverty and an increasing number of economic migrants? We’ve seen how this is linked to varied systemic causes. Generally we need to be promoting fairer trade, regulating corporate power and closing tax havens. Aid must be appropriate and targeted to benefit citizens. A key factor is education. This is acknowledged as being important in China’s economic rise and success at tackling poverty. It’s also about education in the West so the public understands the history of Western hegemony.
Individual action can also make a difference. Firstly, people can support locally produced goods and avoid MNCs such as Amazon and Apple. Also prioritise buying Fair Trade goods and promote this ethical model of trade. There are also some great organisations you can get involved with such as the Tax Justice Network (taxjustice.net) which focuses on tax havens and Jubilee Debt Campaign (jubileedebt.org.uk) which campaigns on third world debt. People can also look at their climate impact and try and reduce their carbon footprint to 2 tonnes of CO2 per year. Also find out who their pensions are funding and move them to ethical, sustainable investors.
In the context of the climate crisis things are equally unfair as the West has been (and continues to be) responsible for the vast majority of emissions while the developing world is most vulnerable to climate impacts. We won’t avert the climate emergency unless we address issues of inequality and social justice.