1 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Chapter11 Inequality Among Nations by Gordon Laxer

Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 1

ChapterChapter 11 Inequality Among Nations11 Inequality Among Nationsby Gordon Laxerby Gordon Laxer


There are two broad perspectives on why some countries are poor:

• The Western-centric perspective: some countries are poor because Western capitalist institutions and values have not penetrated them deeply enough.

• The anti-imperialist perspective: some countries are poor because capitalism has penetrated them too deeply and it is in the interests of rich countries to keep them poor.

TWO PERSPECTIVES ON TWO PERSPECTIVES ON DEVELOPMENTDEVELOPMENT

THE TWO PERSPECTIVES THE TWO PERSPECTIVES SUMMARIZEDSUMMARIZED

Causes ofThird WorldProblems

Mostly Internal Mostly External

Linkages toWestern

CountriesGenerally Beneficial Generally Harmful

Solutions forDevelopment

The Western-CentricPerspective

The Anti-ImperialistPerspective

More Western Linkages:adopt markets, profitmotive, democracy

Optimistic PessimisticPrediction

Fewer Western Linkages:abandon capitalism, rely

on own economic andpolitical resources

Copyright © 2004 by Nelson, a division of Thomson Canada Limited.


• Economists usually measure growth and standard of living using GNP (gross national product) or GDP (gross domestic product) – the value of all goods and services produced in a country in a year.

• But increases in GNP do not necessarily indicate an increase in material well-being for most people since the benefits of the increase may go only to the wealthiest.

UNEQUAL DEVELOPMENT UNEQUAL DEVELOPMENT AND UNEQUAL BENEFITSAND UNEQUAL BENEFITS


UNEQUAL DEVELOPMENTUNEQUAL DEVELOPMENT

Recent GNP growth at the global level has been accompanied by:• widespread poverty;• longer working hours;• absence of democracy;• discrimination;• pollution;• poor education; and• persistent inequality.


HUMAN DEVELOPMENTHUMAN DEVELOPMENT

• Human development is an alternative indicator of well-being. It measures opportunities to:

• work and earn income;• gain an education;• obtain health care;• live in a healthy environment; and• enjoy democracy, equality, and

freedom.


PEOPLE LIVING ON LESS THAN PEOPLE LIVING ON LESS THAN $1 A DAY$1 A DAY


UNEQUAL BENEFITS OF UNEQUAL BENEFITS OF DEVELOPMENTDEVELOPMENT• Inequalities exist not only between rich and poor

countries, but also within countries, rich and poor.

• Among the most inegalitarian countries is Brazil, but inequality remains substantial even in rich countries like the United States and Canada.

• Women in Third World countries are the hardest hit by underdevelopment in terms of income, workload, health, etc.


THE MAJOR PLAYERSTHE MAJOR PLAYERSThe main actors shaping global development include:

• transnational corporations

• powerful states, in particular the United States and its allies

• supranational institutions, such as:

• the IMF and the World Bank

• the G7, EU, and NAFTA


THE HISTORICAL RECORD ITHE HISTORICAL RECORD IThe current division between rich and poor countries is a recent phenomenon.

• In 1750, China and India were the largest producers of manufactured goods (including crafts), accounting for more than half of global manufacturing. • The countries that would later constitute the Third World accounted for 73% of global manufacturing, including crafts. • But by 1913 the Third World accounted for only 7.5% of global manufacturing.


• Since the Industrial Revolution, dominant states have imposed capitalism through:

• empire and unequal trade;

• the forcible capture of markets;

• the manipulation of treaties and other special arrangements; and

• superior technology.

• Capitalist industrialization and imperial domination are the major forces behind today’s inequalities between countries.

THE HISTORICAL RECORD IITHE HISTORICAL RECORD II


PERSPECTIVES ON PERSPECTIVES ON DEVELOPMENT: LIBERALISM DEVELOPMENT: LIBERALISM AND NEO-LIBERALISMAND NEO-LIBERALISM

• Liberalism equates capitalism with freedom and distrusts governments. Its core principles:

• Self-interest promotes the common good.• Profits of private firms maximize innovation and

efficiency.• Freedom in the market maximizes human freedom.• Free market dynamics separate productive from

unproductive firms.• The state inhibits growth.• Poor countries advance if global markets are kept

free.


VOTING POWER AT THE VOTING POWER AT THE WORLD BANK AND THE IMFWORLD BANK AND THE IMF


LIBERALISM IN PRACTICE LIBERALISM IN PRACTICE TODAY ITODAY I• Poor countries have been compelled to adopt

structural adjustment programs (SAPs) in exchange for foreign loans. Requirements:

• Lower debt by cutting public expenditures and balancing budgets.

• Encourage exports by deregulating businesses and devalue currencies.

• Encouraging investment by allowing foreign ownership and control.

• Sell off public enterprises and secure private property monopolies under law.

• Allow markets to set interest rates.


• SAPs have not worked. In sub-Saharan Africa:• investment fell;

• economic growth slowed;

• deficits rose as a percent of GNP;

• a larger proportion of export earnings went to debt repayment; and

• consumption fell.

• Why? Partly because devaluation led to fewer U.S. dollars earned for the same level of exports.

LIBERALISM IN PRACTICE LIBERALISM IN PRACTICE TODAY IITODAY II


CRITIQUE OF LIBERALISMCRITIQUE OF LIBERALISM• Liberalism cannot explain why so few

countries have risen to First World status, even if they followed liberal doctrine.

• Liberalism ignores that First World countries achieved their status without adhering to liberal doctrine.

• Liberalism is blind to inequalities of power and how they affect equality of opportunity.

• Liberalism justifies the privileged position of the already powerful.


PERSPECTIVES ON PERSPECTIVES ON DEVELOPMENT: DEVELOPMENT: MODERNIZATIONMODERNIZATION• Modernization theory adds to liberalism the idea that

the Third World needs to adopt “modern” values in order to prosper, such as:

• protection of individual and property rights;• urbanization, literacy, and modern health care;• secularization and nuclear families;• political participation, elections, independent

mass media, and civil service operating on the merit principle; and

• value choice, objectivity, achievement, and future orientation over ascription.


CRITIQUE OF CRITIQUE OF MODERNIZATION THEORYMODERNIZATION THEORY

• While representing an advance over liberalism, modernization theory naively suggests that the Western way is the only path to development.

• However, some cases of successful development, notably Japan, adopted many traditional non-Western values and institutions in their development drives.


GERSCHENKRON AND GERSCHENKRON AND “ECONOMIC “ECONOMIC BACKWARDNESS”BACKWARDNESS”

• Gerschenkron held that only early industrialized nations (e.g., England) could rely on free markets for capital accumulation leading to development.

• To compete against early industrialized nations, “backward” countries (e.g., Germany) required industrial investment banks.

• Still more “backward” countries (e.g., Russia) required state involvement to compete against industrial nations.


CRITIQUE OF CRITIQUE OF GERSCHENKRONGERSCHENKRON

• Gerschenkron ignored the capacity and motivation of powerful industrialized countries and transnationals to retain the status quo.


DEPENDENCY THEORY IDEPENDENCY THEORY I• Dependency theory argues that:

• core economies produce a diversity of goods and are productive in all sectors, and

• peripheral economies specialize in producing few goods and are unproductive in many sectors.

• In peripheral economies, the export sector is controlled by transnational corporations that define the terms of trade.

• This leads to unequal exchange and growing dependency of poor countries.


• Consequences of dependency:

• Local needs and local markets tend to be neglected.

• A crippling foreign debt is accumulated.

• Marxist proponents of dependency theory stress that it is in the interests of external (Western) and internal (domestic) elites to keep countries underdeveloped.

DEPENDENCY THEORY IIDEPENDENCY THEORY II


THREE TYPES OF COUNTRIES THREE TYPES OF COUNTRIES

IN DEPENDENCY THEORYIN DEPENDENCY THEORY Peripheral Countries Core Countries

• rich, powerful • economically

diversified• relatively free of

outside control

• poor, weak

• economically specialized

• relatively little control over their economic environment

Semi-Peripheral Countries

• intermediate on all dimensions listed above


CRITIQUE OF CRITIQUE OF DEPENDENCY THEORYDEPENDENCY THEORY

• Many cases add weight to dependency theory.

• However, the theory does not see the possibility of Third World development without revolution.

• In fact, the Third World is becoming more differentiated. Some developing economies are branching out into new products and enjoying a rise in well-being.


CASUALTIES DUE TO ARMED CASUALTIES DUE TO ARMED CONFLICT BY REGIONCONFLICT BY REGION


GLOBAL DISPARITIES IN GLOBAL DISPARITIES IN INCOMEINCOME


ECONOMIC BREAKTHROUGHECONOMIC BREAKTHROUGH

How did Japan, Sweden, South Korea, and a few other late developers achieve First World status? By means of:

• domestic economic control;

• substantial state involvement in the economy; and

• fostering a strong national identity.


DEVELOPMENT IN DEVELOPMENT IN THE THIRD WORLDTHE THIRD WORLD• Kerala, a poor state in India, represents a different

kind of successful development.

• Although poor materially, Kerala made great strides in terms of life expectancy, literacy, infant mortality, fertility control, and female labour force participation.

• Kerala’s gains are due to mobilized peasants and workers pushing the state to support the public distribution of food, fair land distribution, health care, education, and equality for women.


SUPPLEMENTARY SLIDESSUPPLEMENTARY SLIDES


FOREIGN AID, DEBT, AND INTEREST FOREIGN AID, DEBT, AND INTEREST PAYMENTS OF DEVELOPING PAYMENTS OF DEVELOPING COUNTRIES, 1992 and 1999 (IN $ U.S. COUNTRIES, 1992 and 1999 (IN $ U.S. BILLIONS)BILLIONS)

65 4983 129

1667

2572

0

400

800

1200

1600

2000

2400

1992 1999

aidinterest (estimated at 5%)debt

$ U.S. Billions

Year

Aid as percentof interest: 37.7%

Aid as percentof interest: 78.3%

0

5000

10000

15000

20000

25000

30000E

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& P

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Sout

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GROSS DOMESTIC PRODUCT PER CAPITA, GROSS DOMESTIC PRODUCT PER CAPITA, WORLD REGIONS, 1975-2000 (2000 WORLD REGIONS, 1975-2000 (2000 PURCHASING POWER PARITY, $U.S.)PURCHASING POWER PARITY, $U.S.)

Copyright © 2004 by Nelson, a division of Thomson Canada Limited.

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1 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Chapter11 Inequality Among Nations by Gordon Laxer