Inequality and Underdevelopment

Chapter 11

“Our world has never been more connected or more prosperous than it is today. Yet right now, one in every three of us alive today does not have access to the most basic needs for a decent life - food, education, medical care, a safe environment.”

• With so much wealth in the world, why is there still so much poverty?

• Global poverty began with military conquest, slavery and colonization that resulted in the seizure of land, minerals and forced labor.

• Today, the problem persists because of unfair debt, trade and tax policies -- in other words, wealthy countries taking advantage of poor, developing countries.

• How today's financial crisis is a direct consequence of these unchallenged policies that have lasted centuries?

• Consider that 20% of the planet's population uses 80% of its resources and consumes 30% more than the planet can regenerate.

• At this rate, to maintain our lifestyle means more and more people will sink below the poverty line.

• Can we really end poverty within our current economic system?

Poverty Facts and Statistics

• Almost half the world — over three billion people — live on less than $2.50 a day.

• At least 80% of humanity lives on less than $10 a day.

• In 2005, the wealthiest 20% of the world accounted for 76.6% of total private consumption. The poorest fifth just 1.5%

• The poorest 10% accounted for just 0.5% and the wealthiest 10% accounted for 59% of all the consumption

Global inequality and underdevelopment

• What is the (global) North-South divide? • How has it emerged, how is it reproduced,

and what can be done about it? • Has the recent era of ‘globalization’ eroded a

North-South divide and promoted some form of convergence, or poverty reduction, in the global order?

Debate over the relationship between globalization, inequality and underdevelopment: (I)

(1) Is there a shift towards convergence between rich and poor countries in the global economy? (optimists)

The argument is that poverty has been reduced because globalization presents opportunities to developing countries.

Dispersal of capital flows throughout the world The rise of manufacturing in the developng world The rise of China and India Increase in the primary commodity prices in recent

years( thus high growth rates in Latin America and much of Africa).

Debate over the relationship between globalization, inequality and underdevelopment: (II)

(2) More sceptical assessment which questions the extent to which poverty has been reduced (sceptics)

there is increase in inequality within countries and between them

Capital and high value production is highly concentrated in the developed countries

There are limits of the kind of manufacturing that has taken place in much of the developing world( India and China)

Excessive relience on primary commodity exports in the periphery.

According to that view these problems have been exacerbated by the economic downturn since 2007-8.

The Debate over the Causes of Global Inequality and Underdevelopment(1940s-1970s)

Two basic positions can be identified:

(1)Modernization

(2)Dependency theories

Modernization

• This was the mainstream theory of development which argued that developing societies- the ‘Third World’- were backward and undeveloped, and therefore in need of development (Kiely, 2013, p.150).

• This position was most famously developed by Walt Rostow(1960). Rostow suggested that all nation-states pass through similar stages of development.

• Poorer societies in 1960s were at a similar stage of development to, say, Britain in the 1780s.

• Thus we can hasten the transition to development in the poorer societies. • Development could be facilitated by poorer countries embracing Western

investment, technology and values such as entrepreneurship and meritocracy. • This theory indicates that the development and modernization could occur

through industrialization.

Critique: We should take into account the diversity among Western socities in terms of the transition to development and the reality of modernity in the 1950s.

Dependency theories

• Dependency theory challenged the view that development and modernization could occur through industrialization, suggesting that industrialization remained dependent on the West through reliance on foreign capital, foreign technology and foreign markets.

• Industrialization in the developing world was highly exploitative and reliant on cheap labour and it promoted new forms of subordination, hierarchy and dependence in the world economy.

Both sides in the debate suffered from some similar weaknesses.

They tended to over-generalize and homogenise a diverse set of countries. They made predictions concerning the inevitability of development( modernization theory) or stagnation(dependency theory). However, newly industrialized East Asian countries such as South Korea and Taiwan grew rapidly and exported to Western economies while protecting certain sectors from foreign competition to develop their own national industries.

• Changes in the global economy led to important changes in development strategy in the Third World. After the debt crisis of 1982 more neoliberal policies that encouraged trade and investment liberalization, privatization and the rollback of state intervention in the economy came into being.

• “…the optimistic and sceptical accounts of growth, poverty and inequality replicate these older debates in the new context of globalization”(Kiely, 2013, p.153).

Global Inequality and underdevelopment: the optimistic position

Main argument of this position; underdevelopment reduced in recent years, thus global inequality and absolute poverty too.

The main evidence; # or proportion of people living in absolute poverty has declined since the 1980s. This is the result of high rates of economic growth caused by policies of trade and investment liberalization.

The clear implication is that poverty is a result of insufficient globalization, and this is a policy choice made by states in developing countries. (Kiely, 2013, p.153)

Figures:1.8 billion people in 19901.37 billion people in 20051.2 billion people in 2013 “The number of people living on less than $1.25 per day has decreased dramatically in the past

three decades, from half the citizens in the developing world in 1981 to 21 percent in 2010, despite a 59 percent increase in the developing world population.”

http://www.worldbank.org/en/news/pressrelease/2013/04/17/remarkable-declines-in-global-poverty- but major-challenges-remain

• “However, despite its falling poverty rates, Sub-Saharan Africa is the only region in the world for which the number of poor individuals has risen steadily and dramatically between 1981 and 2010.

• There are more than twice as many extremely poor people living in SSA today (414 million) than there were three decades ago (205 million).

• As a result, while the extreme poor in SSA represented only 11 percent of the world’s total in 1981, they now account for more than a third of the world’s extreme poor.

• India contributes another third (up from 22 percent in 1981) and China comes next, contributing 13 percent (down from 43 percent in 1981).”

http://www.worldbank.org/en/news/pressrelease/2013/04/17/remarkable-declines-in-global-poverty- but major-challenges-remain

• “Adoption of the correct policies, which involves the promotion of a “globalization-friendly” strategy is the key point for the optimists.

• This means adopting policies that allow countries to embrace the opportunities generated by the world economy, and this in practice means liberalization.”( Kiely, 2013, p.153)

• “Liberalization means competition and specialization, rather than protection, so that tarrifs and subsidies are reduced, import controls are removed, and restrictions on foreign investment are loosened.”

The sceptical position• There are structured inequalities that constrain late developers, making it difficult to

overcome inequality and underdevelopment. Why?(1) Foriegn investment has increased but it remains concentrated in the developed world. (2)The type of manufacturing that is generally occurring in the developing world is not

necessarily overcoming underdevelopment. By the end of the 1990s, developing countries as a whole accounted for only 10 per cent of total world exports of goods with a high research and development technological complexity and/or scale component( UNCTAD 2002 cited in Kiely, 2013, p. 158). Skills and wages are low in developing countries. They do not have high value sectors* that simply means intense competition and conditions determined by cost price, which in turn means low wages.

According to optimistic, this should be seen as a necessary stage that developing

societies must pass through. In the long run, this type of competitive industrialization will lead to full employment and more developed kind of manufacturing. This was the case in earlier developers.

*Higher value production; high start-up and running costs and significant skill levels.

Why does inequality matter?What are the alternatives?

• Often the argument is that it is an inevitable feature of all societies, and it is better to have a richer but unequal society, than a more egalitarian but poorer society.

• An additional argument made is that inequality does not matter so long as people are lifted out of poverty.

Three responses to this argument

(1) It would be an unintended outcome of social interaction but efforts should be made to alleviate it. We are responsible to alleviate inequality.

(2) Inequality is socially and economically dysfunctional. It can be linked to crime and anti-social behaviour.

(3) The wealth of a specific rich individual is not caused by the poverty of a specific individual in the developing world. But both are part of a social order which encourages the concentration of capital in some areas and marginalization in others.

Alternatives to neoliberalism

• The current financial and economic crisis may lead to a new international order. More managed capitalism along the lines of the Breeton Woods order would reemerge .

• But this does not mean the end of neoliberalism.

References

• Kiely, Ray, Inequality and Underdevelopment in Beeson and Bisley, Issues in 21st Century World Politics, Palgrave, Macmillan, 2013