3.17 Developing World Forecasts

The world is commonly divided into nations of the first, second and third ranks. In the first category are the developed, industrialized countries of north America, western Europe, Japan and Australasia. In the second category are the former communist-socialist, industrial states of Russia, eastern Europe, China and some central Asian states. In the third category come the developing countries of Africa, Asia and Latin America. Some are rich (Saudi Arabia), some are poor (Mali), some are capitalist (Chile) and some communist (North Korea) — with every mixture in between.

Third world countries tend to suffer from high infant mortality, low economic development, high levels of poverty, low utilization of natural resources, and heavy dependence on industrialized nations. Many have unstable governments, exhibit high rates of population growth, illiteracy, and disease, and lack a middle class. Some 16 have a GDP per capita under $1000/year. Of the 50 countries listed in the lowest UN categories of poverty, 34 are African countries, 10 are Asian countries, 5 are Pacific island nations and one is a Caribbean nation. {1-9} {44}

SWOT Analysis

Strengths

Large labor force

Weaknesses

High levels of poverty, malnutrition and government corruption
Poor educational standards
Political instability
Excessive military spending

Opportunities

Basic improvements in all areas

Threats

Exposure to climate changes and natural disasters
Globalization
Tariffs on exported foodstuffs and local manufactures
Cheaper import substitutes
Proxy wars by the big powers

Threats: Globalization

Globalization refers to a large number of business enterprises being carried out in many different locations across national boundaries. Much more than just importing or exporting from one country to another, true globalization involves one firm procuring from, manufacturing in, and selling to many different countries. There has been an increasing trend in the world towards globalization, which is characterized by such trends such as: {2}

1. Greater free trade.
2. Greater movement of labor.
3. Increased capital flows.
4. Growth of multinational companies.
5. Increased integration of global trade cycle.
6. Increased communication and improved transport, effectively reducing barriers between countries.

Economists generally stress the interconnectedness in their definitions:

'Globalization can be defined as the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away, and vice versa.' Anthony Giddens {5}

'The concept of globalization reflects the sense of an immense enlargement of world communication, as well as of the horizon of a world market, both of which seem far more tangible and immediate than in earlier stages of modernity.' Fredric Jameson. {5}

'Globalization as a concept refers both to the compression of the world and the intensification of consciousness of the world as a whole.' Roland Robertson. {5}

Benefits

In theory, globalization offers many advantages: {2-8}

1. Lower prices for consumers.
2. Greater choice of goods.
3. Bigger export markets for domestic manufacturers.
4. Economies of scale through being able to specialize in certain goods.
5. Greater competition.
6. Greater employment opportunities.
7. Access to bigger markets.
6. Faster spread of new technologies.

Globalization is a fact, and even the Jakarta cab driver may be wearing sandals manufactured in China, and be sporting a shirt from Bangladesh and/or a watch from Taiwan. He will pass hoardings advertising electronics made in China and Korea, and have to wait behind buses made in India. Even his midday meal may include rice imported from Vietnam or Thailand.

Globalization began two millennia ago with Eurasian trading patterns. {9-10} The northern regions supplied furs and amber. The European countries, ever at war with each other, produced weapons, plus wool in the north and grain, wine and olive oil in the south. Precious metals came from many sources, but increasingly from Mexico and Peru after the Spanish conquest. The Indian subcontinent produced high-quality cotton textiles, and China was the source of tea, spices, porcelain and silks. Under this mutually-beneficial system, the Hanseatic League handled the northern European trade, the Italian trading cities sold on the goods brought from China, the medieval Islamic states grew rich on protecting the overland caravan routes, Indian fabrics found a market everywhere, and China received its ever-needed silver for currency purposes. {11} The system drew to an end when the breakup of the Mongol empire into smaller kingdoms threatened the security of inland routes, and the Atlantic nations sought cheaper, seaborne passages to China. Then came the Industrial Revolution, colonization by the western powers, trading under the self-regulating gold standard {12}, and finally the unfettered competition we know today.

So were sown the seeds of present world. Britain, industrializing first, inherited the worst industrial relations. France industrialized slowly, and its attachment to agricultural subsidies still causes difficulties. Russia industrialized too fast, and, when the Tsarist and Kerensky governments were unable to feed urban population during the First World, suffered a Bolshevik revolution. Islamic countries, deprived of trade contacts and revenues, and hampered by social restrictions, placed a higher value on religious matters. {13-14}

Only in north America did industrialization proceed fairly smoothly. Immigrants expanded into lands cleared of Indians by disease and sometimes wholesale killing, {15} shook off European hegemony, and — endowed with space, natural resources and a swelling work force through immigration — developed the mass production models that served it well during the second world war and for thirty years afterwards. {17}

Imperial China enjoyed an excellent internal trade which allowed individual families to diversify in agricultural products, and also preferred to keep its young women in the family rather than allow employment in factories: two conditions that retarded industrialization until the second half of the twentieth century. Women's status differed in Japan, where western ideas flooded in with the new Meiji government, allowing the country to industrialize quickly, defeat Russia in the 1904-5 war, and become the world's second largest economic power on recovering from its 1945 defeat. {9} {17}

Unless possessing large oilfields (Nigeria, Indonesia), both Africa and the world's former colonies stayed relatively poor. Exceptions are Canada, Australia and New Zealand, which more closely resembled America in resources and adopted similar development models. {18}

Disadvantages

Globalization has also brought problems: {2-8}

1. Exposed the less-developed countries to the forces of superpower markets.
2. Created an unlevel playing field where smaller companies lack the resources to compete effectively.
3. Made countries critically dependent on each other.
4. Linked countries so that adverse economic conditions spread quickly and may become mutually reinforcing.
5. Facilitated the spread of disease in humans, animals and plants.
6. Led to a drain of higher-skilled workers.
7. Eroded cultural diversity.

2. The present system is unstable, and places smaller countries, i.e. those outside China, the US and Europe, at a widening disadvantage. {46} From 1960 to 1995, the ratio of per capita income between the richest and poorest groups of countries increased from 30:1 to 80:1. {19}

Threats: Predatory Capital

Many countries have suffered attacks on their currencies: Britain in 1992 {20}, Mexico in 1982 and 1995 {21}, Russia in 1998 {22}, southeast Asia in 1997-8. {23} In all cases there were weaknesses ready to be exploited, but the resulting capital flight plunged the countries into difficulties, allowed assets to be acquired cheaply by foreign concerns, and enriched foreign banks and businesses.

Social unrest and foreign control of Mexican industry led to the nationalization of railroads in 1929 and 1930, and of the petroleum industry in 1938. American investment returned to Mexico in 1970s, under the Portillo government modernization and industrialization program, where GDP grew at 6-8% p.a. Beset, however, by falling oil prices, higher world interest rates, rising inflation, an overvalued peso, a deteriorating balance of payments, and disappearing foreign reserves, the government devalued {24} the peso three times in 1982, declared a moratorium on debt repayment and then nationalized the banking industry. {25} The result was capital flight, and onerous loans from the IMF, which one commentator described as 'the most concerted organized looting operation in modern history'. {26} {27} Mexico's reputation for safe investment had been restored by 1994, but the country was persuaded by the US to devalue by 13%. Before the announcement, however, some US$4 bn left the country, and the peso plunged 39%. Banks place the blame with the Mexican authorities, {21} {28} {29} but Wall Street firms were the beneficiaries, gaining ownership of financial assets previously closed to them. {27}

Such actions, presented as simple market reactions in the mainstream and textbook press, are often seen very differently by the developing world, {30} even the arm of an American policy {31-32} stated by the Clinton administration as the right of the US to use military force unilaterally to ensure 'uninhibited access to key markets, energy supplies, and strategic resources.' {33}

Threats: Tariffs on exported foodstuffs and local manufactures

Subsidies and tariffs by the rich agricultural nations create not only an unlevel playing field, locking the world into inequalities of wealth and opportunity, but close the door to markets for more sophisticated western goods. Rich countries spend $1 billion every day on agricultural subsidies. IMF and World Bank programs force poor countries to open their markets to unfair competition, often requiring them to grow export crops, which are notoriously subject to market swings. Exports to rich country markets also face tariff barriers four times higher than those encountered by rich countries. The barriers cost poor countries $100 bn a year, twice as much as they receive in aid. {39} Health requirements are often too high for poorer countries to attain — disease-free areas, inspection prior to export, maximum levels of pesticide or insecticide use — or even US farmers. {34} {38-43}

World Picture

Prior to the financial crash of 2008, the world GDP and population

Prosperity came slowly and unevenly. Per capita GDP in 1990 international dollars: {45}

Growth in the early capitalist period, 1820-70 was largely confined to the USA, Europe and Latin America. The old 'liberal order' of 1870-1913 extended growth to other counties. The period following, plagued by world wars and depressions, was poor for everyone. The golden period for global growth was 1950-73, when global GDP grew 3%/year. Growth in 1973-2003 achieved only half that.

Population in millions: {45}

With the growth in trade has come branding and advertising, and even today countries retain traditions that allow products to be sold at a premium: America for electronic innovation, Italy for hand-crafted fashion goods, and Germany for solid engineering.

Outlook

The economics of the developing world is a discipline by itself, and policies serving Chile will not serve Liberia or Mongolia. Countries often need to adopt mixed and evolving models, and find some protection from capital flight, food subsidies, unfair tariffs and rigged commodity prices, and perhaps to neoliberalism itself. {49}

Debt is a particular scourge. Original debt of developing countries in 1980 was US$618 bn. The same debt in 2007 stood at US$3.3 tn. Annual cost of servicing that debt in 2007 was US$37.5 bn., more than the UN estimate of cost of eradicating AIDs in Africa but only 1% of the price tag of the Iraq War. {5}

Dani Rodrik {6} has advised developing countries not to rely on financial markets or the international financial institutions, but first put their own house in order. Important were property rights, the rule of law, sound money, and honest public finances — indeed just what fostered the industrial revolution in England. There is no simple recipe for growth. Six key matters were export subsidies, domestic-content requirements, import-export linkages, import quotas, patent and copyright restrictions, and directed credit.

eBusiness Implications

Ready access to information over the Internet has helped a little to publicize the problems faced by developing nations, {47} and it is here that important progress will be made, if at all.

Other ebusiness implications are comparatively minor, though useful. Mobile phone applications and cloud-based computing have made much-needed expertise available to developing countries. Benefits include better assess to information on:

1. Markets.
2. Climate and pest control.
3. Distribution systems.
4. Data recording and interpretation.
5. Finance.

Simple, reliable advice can be given promptly, feedback solicited, and follow-ups instituted.

Experience is a valuable commodity in any field, and the ability of mobile phones to not only display examples but send photographs from projects in developing countries to overseas experts greatly enhances their value. Many such applications are being written. {35-36} One is the CAM project of Berkeley University which employs barcodes, camera and multimedia-driven devices for rural users and consultants. {37} Three agricultural programs are underway, and there are plans to extend these simple systems to:

Monitor energy systems.
Post-disaster relief coordination.
Civil abuse reporting.
Financial transaction processing.
Local currency systems.
Tracking disease outbreaks.
Access electronic medical records.

Sources and Further Reading

1. Countries of the Third World . Nations On Line.
2. Costs and Benefits of Globalisation. Economics Help . November 2009.
3. The Benefits of Globalization by M. Thong. Radford University student site.
4. Is Globalization Good for America's Middle Class? by Kenneth Thomas. Middle Class Political Economist. June 2012.
5. Globalization: A Very Short Introduction by Manfred Steger. O.U.P. 2009.
6. The Globalization Paradox: Democracy and the Future of the World Economy by Dani Rodrik. Norton 2012.
7. Global Capitalism: Its Fall and Rise in the Twentieth Century by Jeffry A. Frieden. Norton 2007.
8. One World Ready or Not: The Manic Logic of Global Capitalism by William Greider. Simon & Schuster 1998.
9. The Origins of the Modern World: A Global and Ecological Narrative from the Fifteenth to Twenty-first Century by Robert B. Marks. Rowman and Littlefield 2007.
10. Contours of the World Economy, 1-2030 AD by Angus Maddison. O.U.P., 2007. Historical summaries and estimates of income and populations: extensive references.
11. ReORIENT: Global Economy in the Asian Age by Andre Gunder Frank. Univ. California Press. 1998. Scholarly polemic placing China in the center of the trading world.
12. Currency Wars: The Making of the Next Global Crisis by James Rickards. Penguin, 2011. Chapter 3.
13. The decline of the Muslim Middle East, and the roots of resentment, can be traced to Islamic inheritance law by Virginia Postrel. N.Y.T. November 2001.
14. Islamic Expansion and Decline. IslamicExpansionandDecline. May 2007.
15. American Holocaust by David E. Stannard. O.U.P. 1992.
16. Land of Promise: An Economic History of the United States by Michael Lind. Harper 2012.
17. The Human Web: A Bird's Eye View of World History by J.R. McNeill and William H. McNeill. Norton 2003.
18. From Resource Curse to Blessing by Joseph Stiglitz. Project Syndicate. August 2012.
19. The Wealth of Man by Peter Jay. Public Affairs, 2000 pp. 246-7.
20. European Currency Crisis (1992-3) by Garvey Ngo and Nanacy Ramirez. California State Univ. Undated.
21. The Mexico Peso Crisis by Joseph A. Whitt, Jr. Federal Reserve Bank of Atlanta. February 1996.
22. A Case Study of a Currency Crisis: The Russian Default of 1998 by Abbigail J. Chiodo and Michael T. Owyang. Federal Reserve Bank of St. Louis. December 2002.
23. The Asian Financial Crisis of 1997 - 1998 and the Behavior of Asian Stock Markets by Urbi Garay. Univ. of West Georgia. 2003.
24. Monterrey Group digs its own grave? by Peter Ennis from Monterrey. EIR Volume 9, Number 9, March 9, 1982. Larouche.
25. 1982 Mexican Financial Crisis by Donald J. Mabry. Historical Text Archive. 2001.
26. A Century of War: Anglo-American Oil Politics and the New World Order by F. William Engdahl. Progressive Press 2012. Chapter 11.
27. The Tequila Trap: The Real Story Behind the Illegal Alien Invasion. China Daily. Julñy 2009. Unattributed but from Brown 2008.
28. Tequila Hangover: The Mexican Peso Crisis and Its Aftermath. IMF. January 1995.
29. The Mexican Peso Crisis: How much did we know. When did we know it by Sebastian Edwards. UCLAAnderson School of Management. 1997.
30. Financial Liberalisation, Stock Markets and Economic Development by Aijit Singh. The Economic Journal 107 (May), 771-782. Economic Journal. 1997.
31. They Can Never Forgive Him For Showing Courage by Dennis Small. Executive Intelligence Review. February 2004.
32 On the Looting of Nations by Mare Sarr, Erwin Bulte, Chris Meissner and Tim Swanson. Graduate Institute. June 2008.
33. The United Sates and Use of Force in in the Post-Cold War World: Towards Self-Deterrence by Stanley R. Sloan. Congressional Research Service. July 1994.
34. New barriers hinder African trade Health standards in rich countries limit continent's ability to export by Gumisai Mutume. African Renewal. January 2006.
35. The importance of the mobile phone to developing countries. Conversations for a Better World. May 2010.
36. Mobile Applications for Agriculture and Rural Development by Christine Zhenwei Qiang, Siou Chew Kuek, Andrew Dymond and Steve Esselaar. World Bank. December 2011. Many projects listed.
37. CAM: Mobile Applications for the Rural Developing World. Univ. of Berkeley. Accessed August 2012.
38. Rigged Rules and Double Standards by Amartya Sen. Make Trade Fair. March 2002.
39. Fighting Rigged Markets Promotes Equal Opportunity by Dean Baker. Center for Economic and Policy Research. Scholars Strategy Network. December 2011.
40. Rigged Rules and Double Standards by Amartya Sen. Make Trade Fair. March 2002.
41. New barriers hinder African trade Health standards in rich countries limit continent's ability to export by Gumisai Mutume. African Renewal. January 2006.
42. Barclays makes £500m betting on food crisis by Tom Bawden. Independent. September 2012.
43. Political Economy of International Crisis Economics 357L Section IV by Harry Cleaver. University of Texas. Good reading list.
44. World Investment Report 2011. UNCTAD.
45. Contours of the World Economy, 1-2030AD by Angus Maddison. O.U.P., 2007. Historical summaries and estimates of income and populations: extensive references.
46. The Changing Wealth of Nations: Measuring Sustainable Development in the New Millennium. World Bank. 2011.
47. Global Wealth Report 2011. Credit Suisse. October 2011.
48. The Atlas of Food: Who Eats What, Where and Why by Erik Millstone and Tim Lang.. Univ. California Press. 2008. Detailed, often pictorial, summaries on most aspects ofthe world's food.
49. The Poorer Nations: A Possible History of the Global South by Vijay Prashad. Verso 2013.