‘The poorest 20% of the world’s population receive only 1.0% of the global income and the richest 5% enjoys 40% of all income’ , alarming, yet no myth, is the reality gripping our world today. The question is why only a handful of the world’s population enjoy luxury and healthy development and the majority others are engulfed by the jaws of hardship and stagnancy? This is the matter that I will focus on in this paper. By looking at examples from both worlds, I will try to single out the factors that contribute to the persistent spatial inequality of economic development.
Firstly, it is important that we define the word ‘development’. In contrast to ‘growth’ , development refers to the process of improvement measured with respect to some set of criteria or values , often involving the social, environmental and political well being of the country. Economic growth does not necessarily ensure development, but development in most cases does need growth. The developed countries of the world include Britain, The United States, Japan, Switzerland, France and Germany , whereas the developing countries (in some cases underdeveloped) include countries like Mozambique, Angola, Burundi, Brazil, Argentina and Bangladesh. To show the extent of the inequality, the ratio of GNP per capita between Switzerland and Mozambique in 1990 is 408:1 . To add more to this mind-boggling fact, the U.S in 1986 enjoys US$17 480 of GNP per capita, Norway around US$15 400 and Japan, US$12 840. If we compare these figures with some of the developing nations’ GNP e.g. Ethiopia (US$120), Burkina Faso (US$150) and Nepal (US$150) , we can see just how severe the situation is. Now, let us contemplate on the factors responsible, focusing primarily on why LDC’s (Less Developed Countries) remain in such a situation.
The volatile character of international trade is one of the main factors on the list. Dependence on the export of primary products and raw material e.g. copper, iron ore, timber, sugar cane and coffee which are declining in demand and are becoming less favoured in the world market (with the exception of oil exporting countries) compared to manufactured goods remains the most feasible explanation. Moreover, alternatives for these products e.g. synthetic rubber and plastic killed off further hopes for a revival. Since 1955, LDC’s export of agricultural raw materials, which made up 20.5% of their total exports have fallen drastically to only 7.6% in a span of 30 years (1989). Tanzania never profited from its increasing yield of cotton in 1986 as prices of cotton were cut by half, and Thailand wasn’t successful when it increased its rubber output by 31% as the price of rubber dropped. Furthermore, advances in technology and trade protectionism adopted by developed countries targeting particularly LDCs add more insult to their wound where LDCs will find it hard to find a good market to sell their goods. This was demonstrated by the U.S where in 1980 it imposed 144 new quotas on textile from 36 countries, most of them LDCs , which dragged them further into hardship
Apart from trade, loans made by developing countries from bodies such as the World Bank and the International Monetary Fund also play important roles in their ongoing plight, plunging them in an almost infinite debt crisis. The trend in developing countries is to loan money heavily with distant hopes that they are able to accelerate development overnight. Often, poor management of budgets, unwise government spending and corruption will result in unsuccessful attempts to lay out the foundation for development to take place. It is reported in 1991 that LDCs owed more than US$1 Trillion to developed countries’ banks and governments. Brazil’s debt amounted up to US$116.5 Billion (27% of its GNP), Argentina’s debt was approximately US$63.7 Billion, which was about US$1950 for every man, woman and child where it was responsible for Argentina’s seemingly incurable economic crisis and Panama had up to US$6.7 Billion on its shoulders which was 27% more than their national earnings! . This means that almost all of the revenues earned by these countries will be used to settle their debts, leaving only little for education, medical care and social betterment.
Foreign aid, a blessing in disguise, more politically motivated than one would think, is another factor which maintains the gap between the developed and developing nations. Peter Gottschalk and Sheldon Danziger in their article published in the American Economic Review echoed this when they said,
“Foreign capital and foreign “aid” thus fill up the holes that they themselves created. The real value of this aid however is doubtful. . . The gravity of the situation becomes even clearer if we consider that these credits are used to finance North American investments, subsidize foreign imports which compete with national products, introduce technology not adapted to the needs of underdeveloped nations. . . the hard truth is that underdeveloped countries have to pay for all the “aid” that they receive”
