chapter 13: development: the glue that holds together the global economy

Chapter 13: Development: The Glue that holds together the Global Economy

Where are we going, what, how, why, spatially where, and for whom

Link between Resource Curse & Development

Chap 12 Development 2

http://www.npr.org/2011/02/25/134048260/Libyas-Economy


7 points on Development

1. Definining Developing Countries Moral High Ground

2. Goals of Development Greed isn't enough

3. Characteristics of Less Developed Countries What baggage they bring to the table

4. LDCs debt crisis5. Measuring Economic Development

Divining the future

6. Defining Economic Development7. Core--Periphery Concepts vs. Growth Pole


But first reality check

Development for who???Remember the Four major questions of the World Economy

(chapter one)

1. What to produce given limited resources2. How to produce it… labor, capital, technology3. Where to produce it … why might it be in a give place4. Who benefits and how … rich, poor, both

The most important promise held out by the Global Economy is that all countries will “develop” as a result


1. What's in the Word “Developing”


1. What's in the Word Developing

Why are words important? Words as social/political indicators, words as power…Example: Mailman Mailwoman Mail carrier Letter Carrier Mailer Letterer???

Soldier Soldierette???


A. Neoclassical school's current favorite Definitions

LDCs = Less Developed Countries early step on inevitable path

"there but for the grace of God go I" Old terms: underdeveloped, developing,

primitive, traditional



IACs = Industrially Advanced Countries further step on path based on industrial

age allows for future post-industrial acronym Old terms: developed, more-developed,

modern, advanced



IACs and LDCs

NOTE: Both terms are apologetic and yet hopeful Some are better off But you too can "own your own modern

economy“… someday


B. Marxist School View of the Situation

Underdevelopement An active state that results from outside

exploitation and impoverishment



Capitalist (Hegemonic Imperial) Countries parasitical exploiters economic colonial powers



“Socialist” Countries -- supposedly the solution appear to have disappeared (if they ever existed)



New rich are party's new role models By Antoaneta Bezlova May 8, 2002atimes.comBEIJING - Newly rich entrepreneurs, despised as exploiters for much of China's communist era, have become the new role models for the Communist Party, which once defined itself as the "political party of the proletariat".

Marking Labor Day on May 1, China canonized private entrepreneurs as "model workers" - an honor that in the past was deserved solely by state-sector workers. On that day, the All China Federation of Trade Unions awarded Labor Medals to four private businessmen, and declared another 17 entrepreneurs in the northwestern province of Shaanxi "model workers".



implied fraternal nations neither exploiter nor exploited

Is this possible???


Conclusion

How an Issue is Framed in Words Reflects Much about the agenda underlying the Solution

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2. Goals of Development

What is the Agenda??? "More!" Samuel Gompers,

President AFL

"Love!" Timothy Leary, PhD, LSD



What exactly is the good life and the just society and the proper stance towards nature?

Very different answers will be given by people with different belief systems, or philosophies of life, or cultural explanations of the meaning of life and death. (Does this sound like Hoefstede???)


http://www.ted.com/talks/tim_jackson_s_economic_reality_check.html


2. Goals of Development – Denis Goulet’s ApproachA New Ethics Of Development

Denis Goulet examines alternatives to one-eyed views of the good life, the just society, and our relationship with nature in his interview with Mike Gismondi of Aurora Online Magazine.

A pioneer in the study of development ethics, Denis Goulet began exploring this new inter-disciplinary realm in 1956. For ten years he served apprenticeships in France, Spain, Algeria, Lebanon, and Brazil to become familiar with the sociology and anthropology of underdevelopment. He has lived among nomadic tribesmen in the Sahara; worked as a factory hand and laborer in the United States, France, and Spain; served on development planning teams for national governments; and studied social change planning at universities and research institutes. He presently holds concurrent appointments in the Kellogg Institute for International Studies, the Department of Economics, and the Institute for International Peace Studies at the University of Notre Dame.

http://www.gateway.hr/index.php?folder=119&article=24



Goulet's Three 1) Life Sustenance -- Guarantee basic

needs (See textbook #s 1,2,3,7,8)

2) Esteem -- Individual Worth (See textbook #s 5,9 note that doesn't perfectly

fit)

3) Freedom -- Pursuit of one's own dream to the level of one's own potential

(See textbook #s 4,6)


Conclusion:

Development has both economic and humanistic goals, but at times they are in a dynamic tension.

More care for the human side can result in less current term economic gain

More emphasis on the economic side can lead to greater inequality and unsustainable gains

How might either of these effect the environment or the future??? NO EASY ANSWER, MORE BELIEF SYSTEM


3. Characteristics

of LDCs


3. Characteristics of LDCs

1) Rapid Population Growth -- result of declining death rate not yet accompanied by declining birth rateOr in the case of China -- Demographic Momentum still

results in crushing large additions to the Population 2) Unemployment/underemployment3) Low labor productivity4) Adverse climate and/or lack of natural resources5) Lack of capital and Investment6) Lack of technology7) Local Cultural Factors can impede capitalist growth 8) Political Factors can also impede capitalist growth9) Vicious Cycle of Poverty (see model next slide)


Model of the Vicious Cycle of Poverty

Fig 13.16a Basically the argument here is that low incomes are both caused by and cause rapid population growth. Why? You explain.


Escaping the Vicious Cycle of Poverty

To escape different groups offer different solutions:

Direct investment perhaps FDI (capitalist – resource mobilization approach)

Crash program in literacy (more socialist/humanist – human capital theory)

Redistribution of existing capital (socialist/communist – end exploitation)


Model of escape

Example of the Human Capital Approach

Fig. 13.16b Basically High Education and Good Health are mutually reinforcing and lead to greater productivity and hence maintain our Environment.

Question remains how do we START? Who pays for the investment in:

• Education • Health Services• Resource Management • Enhanced Earning Capacity -- like new labor intensive industries for Export market

Model of Escape

Each school would answer with its own bias Capitalist – foreign investment Humanist – local sources would be martialled

and humanitarians and foreign aid would help Marxists – redistibution of existing capital



Conclusions:

Many pitfalls face LDCs where, by some accounts, "The rich get richer and the poor have babies“

Some LDCs’ pitfalls a result of their ownproblems others not

Export lead growth can cause wealth production,but for whom? Four major questions of the World Economy

Cont….www.rivertowns.net/rustad/xru015.gif


Conclusions:

Many pitfalls face LDCs where by some accounts "The rich get richer and the poor have babies“

Others argue Sharing helps all

For others nothing short of revolutionwill work

www.rivertowns.net/rustad/xru015.gif


Move to Lecture 14

Mechanisms to start the development process


4. LDCs debt crisis


4. LDCs debt crisis

Basically over-extended selves in 70s and couldn't repay in high price 80s of low oil year 90s

Included oil rich and oil poor alike


4. LDCs debt crisis

The Issue -- the crisis is like the person with so much credit card debt that they can't even make the minimum payment -- and even if they did they are still enslaved to debt


4. LDCs debt crisis

Result of the past by mid 80s more capital flow from LDCs to AICs than reverse

IMF sets conditions for bail-out Goal: Restore LDC growth Reduce LDC Govt. involvement (more free

mrkt) Expand exports Reduce imports (seen as luxury)


G-8 Agrees to some debt reliefAid to Africa and debt cancellationThe traditional meeting of G8 finance ministers before the summit took

place in London on 10 and 11 June 2005, hosted by Chancellor Gordon Brown. On 11 June, agreement was reached to write off the entire US$40 billion debt owed by 18 Highly Indebted Poor Countries to the World Bank, the International Monetary Fund and the African Development Fund. The annual saving in debt payments amounts to just over US$1 billion. War on Want estimates that US$45.7 billion would be required for 62 countries to meet the Millennium Development Goals. The ministers stated that twenty more countries, with an additional US$15 billion in debt, would be eligible for debt relief if they met targets on fighting corruption and continue to fulfill structural adjustment conditionalities that eliminate impediments to private investment. The agreement, which required weeks of intense negotiations led by Brown, must be approved by the lending institutions to take effect.

http://en.wikipedia.org/wiki/31st_G8_summit#Aid_to_Africa_and_debt_cancellation

Some argue this doesn’t go far enough


Conclusion

Success or failure still open question,

Arguments against debt reliefOpponents of debt relief argue that it is a blank cheque to governments, and fear savings will not reach the poor in countries plagued by corruption. Others argue that countries will go out and contract further debts, under the belief that these debts will also be forgiven in some future date. They use the money to enhance the wealth and spending ability of the rich… http://en.wikipedia.org/wiki/Debt_relief

Wild card what happens when the Western World Economy is Threatened?


CHINA A NEW SOURCE OF LOANS AND GRANTS????


5. MEASURES OF ECONOMIC

DEVELOPMENT or how do we tell who is “developed”


5. MEASURES OF ECONOMIC DEVELOPMENTA. PER CAPITA INCOME (GDP/Capita) 1. An easy to determine measure. How do

you calculate this???

http://upload.wikimedia.org/wikipedia/en/e/ea/GDP_nominal_per_capita_world_map_IMF_figures_for_year_2005.png


Criticism per capita income

Five criticisms1) distribution not included2) exchange rate problems3) value of goods not always comparable

across nations4) goods and bads both included (what does

this mean?)5) growth may not be sustainable --

measures current consumption patterns not level of investment in the future


B. Consumer Purchasing power -- an alternate

measure – addressed criticism #3 from above slide. Referred to as “PPP per capita”

Purchasing Power Parity What is the difference of

purchasing power and "per capita income"?


Geographic Comparison

Per capita Income

PPP per capita

Note the subtle differences in PPP

• Europe more complex

• Africa more uniform,

• S.America splits in two

• US – Canada same


GDP – PPP table top 16Rank Country

GDP ($)Rank Country

GDP (PPP)

per capita $ per capita

1 Luxembourg 80,288 1 Luxembourg 69,800

2 Norway 64,193 2 Norway 42,364

3 Iceland 52,764 3 United States 41,399

4 Switzerland 50,532 4 Ireland 40,610

5 Ireland 48,604 5 Iceland 35,115

6 Denmark 47,984 6 Denmark 34,740

7 Qatar 43,110 7 Canada 34,273

8 United States 42,000 8 Hong Kong 33,479

9 Sweden 39,694 9 Austria 33,432

10 Netherlands 38,618 10 Switzerland 32,571

11 Finland 37,504 11 Qatar 31,397

12 Austria 37,117 12 Belgium 31,244

13 United Kingdom 37,023 13 Finland 31,208

14 Japan 35,757 14 Australia 30,897

15 Belgium 35,712 15 Netherlands 30,862

16 Canada 35,133 16 Japan 30,615

The table below includes data for the year 2005 for all 16 members of the International Monetary Fund. Data are in United States dollars.

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita


Bottom dozen or so quite similar

Rank CountryGDP ($)

Rank CountryGDP (PPP)

per capita $ per capita

170 Afghanistan 300 170 Zambia 931

171 Madagascar 282 171 Madagascar 908

172 Niger 274 172 Sierra Leone 903

173 Rwanda 242 173 Niger 872

174 Sierra Leone 223 174 Eritrea 858

175 Myanmar 219 175 Ethiopia 823

176 Eritrea 209 176 Democratic Republic of the Congo

774 [2]

177 Guinea-Bissau 190 177 Yemen 751

178 Liberia 161 178 Burundi 739

179 Malawi 161 179 Guinea-Bissau 736

180 Ethiopia 153 180 Tanzania 723

181 Democratic Republic of the Congo

119 [3] 181 Malawi 596

182 Burundi 107


C. ECONOMIC STRUCTURE

1. What kinds of jobs that appear under each of the four categories listed below? PRIMARY EMPLOYMENT SECONDARY TERTIARY QUATERNARY

Which types of employment predominates in developed countries?

Which in less developed? What type of job will most of the students in class

hope to obtain?


D. PRODUCTIVITY – or more with less

What is productivity? Output/input

Why is it so important? Squeeze more from limited resources

How does this relate to the effectiveness of the workforce?

Are AICs always more productive? Consider energy use in Russia Or in China vs India


E. RAW MATERIALS -- country's inheritance – Development Or Windfall Wealth E. RAW MATERIALS -- country's

inheritance Does this guarantee development?

Explain.


E. RAW MATERIALS -- country's inheritance

1. Does this guarantee development? Petro State trap or Dutch disease. Consider Nigeria, Venezuela, or Native Americans

Can be resource rich, income poor

2. Development vs Sustainable Development 3. Two approaches:

a. Sell it off b. Combine it with technology to increase national

wealth Example countries:

Canada, Australia, S. Arabia What happens when the Aussies sell their last load of

iron ore to the Chinese?


F. HUMAN DEVELOPMENT INDEX -- This basically the same process as is done in

the United States to rank best cities or universities (or for you sports fans, the same college football teams, only the variables are changed but the technique is the same)

What variables are used to create the Human Development Index (HDI). What does it describe.

What continent generally has the lowest HDI measures? What two continents have the highest level? Compare HDI to per capita income Leave these for you to read about


UNDP Human Development Index


G. Other measures

There is basically a "cottage industry" in creating additional measures of development. Here is one for Happiness. Compare Mexico and US for Happiness. (next slide)


A Plateau of Happiness


Conclusions

There is no single measure that fully describes development. A combination of measures provides a more complete picture


7. Core--Periphery Concepts vs. Growth Pole

Expanding Pattern of Core



I. The two camps A. Negative -- Marxian Approach

B. Positive -- Perroux and Growth Poles (not dealt with in text)


Core--Periphery

A. Negative -- Marxian Type Approach

1. World contains few small wealthy Cores surrounded and supplied by large poor Periphery (see Figures 14.1,18, 20, 25, 26 for international & national spatial examples)

2. Core acts as parasitical appendage on the landscape

3. Cores occur at various international, national, & local levels



B. Positive -- Perroux and Growth Poles (not dealt with in text) -- more NeoClassical Approach “Growth does not appear everywhere at the

same time; it becomes manifest at points or poles of growth, with variable intensity; it spreads through different channels with variable terminal effects on the whole economy.” Francois Perroux


Growth Poles

Agrees that

1.World contains few small wealthy Cores surrounded and supplied by large “less developed” Periphery

2. Core acts and draws upon periphery for resources, labor, and capital

3. Cores occur at various scales


Growth Poles

Difference

1. This theory assumes Growth Poles are a natural evolution of world economies

2. Assumes that they are episodic and temporary – not permanent or predatory

3. Stresses the benefits to the Global Economy of such spatial constructs


Growth Poles -- Background

François Perroux, 1903-1987 François Perroux belongs to that small, strange group of unique

Frenchmen who, in spite of the Anglophone dominance of economics, still manage to occasionally infect the imagination of the economics world with their novel ideas.

At Collège de France, Perroux studied under Etienne Antonelli, the last lingering shadow of the Lausanne School. In many ways, Perroux inherited the mantle of Leon Walras and carried it to perhaps where the failed engineering student would have liked to have taken it. Like Walras, he was a Cartesian in method, a socialist in sentiment and an evolutionist in vision. His early acquaintance and interaction with other independent thinkers, such as Pantaleoni, Aftalion, Schumpeter, Morgenstern and Allais, added even more streams of flavor into his unique blend of thinking. After setting up the Institut de Sciences Economiques Appliqueées (ISEA) in 1944, he had a chance to encounter and absorb the ideas of the younger economists which converged upon it.


Growth Poles -- Background

Regional growth has been the subject of research going back to Francois Perroux' work on growth poles in the 1950s. In the US such research currently goes on under the label of "clusters" – Michael Porter of the Harvard Business School talks of the 'Diamond of Competitive Advantage'. The early literature on growth poles was concerned with the transport of physical goods and, for this reason, stressed the importance of physical proximity to the eventual success of a given growth pole. Work on clusters also stresses the importance of physical proximity, but with a much greater stress on face-to-face knowledge flows than on the flow of physical goods. (Growth-Nodes in a Knowledge-based Europe (G-NIKE), Researchers: Dr. Bertram Konert, Dirk Hermanns,

http://www.eim.org/DigWorld/Projects/ViewDigworld.php3?ID=35 )


Growth Poles & Their Impacts

1. Centers of Technology & Innovation suddenly appear on the landscape (ex. Silicon Valley)

2. Surrounding region benefits in a distance decay function (further away less benefit)

3. As original technology ages, Growth Pole faces crises Can decline (Detroit, Cleveland,... Seattle in

the future???) Can create new technology & rebirth

(Boston: textiles to computers)


The continuing Debate

Marxian critique of Growth Poles: Continued existence of Pole indicates unequal, parasitical nature of Core

Perrouxian response: Can not "engineer or create" Poles, therefore impossible to maintain them through inefficient, non-competitive relationships Simply the rich aren’t always going to be

rich


Another View from the Left

II. Wallerstein... & World Systems: Monopolies are the name of the game

"All monopolies great and small will fall... but not too far"1. International Core(s) in a Dynamic system,

alternates between: Single Hegemonic Power with few colonies Many smaller Hegemonic Powers with many

colonies


World Systems

2. Neither state is stable

Single Super Power becomes over-

extended, as it polices the world then secondary powers save policing costs and bide their time

Many smaller Powers results in rising tensions and emergence of new great power through conflict


World Systems

3. Periphery During period of one Super Power –All

countries are informally tied to Hegemonic Single Power -- few colonies

During period of many Powers -- smaller countries are formally tied to many Small Powers -- many colonies


World Systems

4. World Today (parting questions)

a. Is there a single Hegemonic Super Power?

b. b. Are there many Smaller Powers waiting in the wings?

c. Are Colonial spheres being mapped out?


Another View from the Right

III. Myrdal & Hirschman and the Local Regional Core--Periphery Mechanism – a way to explain the birth, growth and death of cores (growth poles)

1. "In the Beginning...“ (birth) there are two regions A and B each with ample factors

Labor Capital Resources


Local Regional Core--Periphery Mechanism

2. "After the Fall..." Region A emerges as a Core (growth) jumps ahead technologically causing it to fully, efficiently use its factors

of production gets "rich"



3. "Meanwhile back at the ranch..." (other region fails to grow) Region B workers and capitalists start

moving to Region A to get "rich" Resources soon follow higher demands in

Region A



4. "As the rich get richer..." (final stage of growth) More and more flows to Region A All new technology created in Region A "Circular and cumulative causation" sets in Few benefits "trickle down" to Region B Region B despairs and fails to create new

technology



5. "The Second Coming...“ (death and rebirth)

Government brings technology and capital

to Region B Region B with lower labor and resource

costs catches-up


EXAMPLES:

6. Case 1: Appalachia: New Government Interstates were built to

lure industry into the mountains Instead enabled labor to leave more easily So does Government intervention work? If

not why do we subsidize Boeing so much??? What about Bonneville Power???


Examples

Case 2: Asian Tigers & China Government "Developmental State" policies

adopted Technology imported Walls of trade barriers created Cheap labor exploited Mobilization of resources has proven highly

effective Creation of new technologies is still illusive (but for

how long???) Does China trade fairly???


Future???


Closing shot

As you read the textbook and review the study notes be sure that you look at the following issues discussed about Development Theory: Dependency Modernization World Systems


Conclusions

Development is not evenly spread across the landscape.

There are core and periphery regions The cause of core regions is open to debate At time in history there are single super

powers and at others many powers, this difference effect the status of the core and periphery

chapter 13: development: the glue that holds together the global economy

Documents

resource curse developmentchap

advanced chap

marxist school view

impoverishment chap

traditional chap

advanced countries

situationsocialist countries

developed countries