2 The Problem of Poverty Poverty is Increasingly an International Issue Prior to Postwar Period, the Largest Income Gaps Were Within Countries.Since World War II, Inequality Between Countries Has Become More Important.
3 Source: Peter Lindert and Jeffrey Williamson. 2001 Source: Peter Lindert and Jeffrey Williamson “Does Globalization Make the World More Unequal?”NBER Working Paper 8228.
4 Average Annual Per Capita Growth Economic IndicatorsPer Capita GNP1999Average Annual Per Capita GrowthWorld$5,0201.6Low-Income Economies$4201.8Middle-Income Economies$1,9802.4High-Income Economies$26,440Source: World Bank World Development Indicators, Washington, D.C.: The World Bank.
5 Quality of Life Indicators Life Expectancy at Birth, 1999Adult Literacy (Percent of people above age 15)World66Low-income59M: F: 52Middle Income69M: F: 80High Income78M: F: 95Source: World Bank World Development Indicators, Washington, D.C. The World Bank.
6 People Living on $1 Per Day (Millions) 199019992015East Asia and Pacific452267101Excluding China925420Europe and Central Asia7189Latin America and the Caribbean746158Middle East And North Africa6South Asia495522411Sub-Saharan Africa242302426Total1,2761,1751,011Total Excluding China916961931Source: World Bank World Development Indicators, Washington, D.C.: The World Bank.
7 People Living on $2 Per Day (Millions) 199019992015East Asia and Pacific1,084885472Excluding China285252187Europe and Central Asia449858Latin America and the Caribbean167159162Middle East And North Africa598580South Asia9761,0951,214Sub-Saharan Africa388489690Total2,7182,8122,675Total Excluding China1,9192,1792,390Source: World Bank World Development Indicators, Washington, D.C.: The World Bank.
8 Why the Income Gap? No Mystery to Raising Income Rising Incomes Come From Rising ProductivityProductivity Comes From InvestmentThus, Portion of Income Must be SavedSavings Must Be Invested in Productivity-Improving ThingsPhysical CapitalHuman CapitalIncome Gap Thus Suggests a Problem in this Mechanism of Wealth Creation.
9 Three “Theories” of Poverty The Poor are Poor Because they are Powerless and Exploited (Marxist Theories).The Poor are Poor Because they are Inefficient (Liberal Theories).The Poor are Poor Because they are Poor (Vicious Cycle Theories).
10 Powerless and Exploited: The Structuralist Argument The World Capitalist System Divided into the Core and the Periphery.Core: Produce and Export Manufactured GoodsPeriphery: Produce and Export Primary CommoditiesCapitalist System is Systematically Biased in Favor of Core and Against Development of the Periphery.International Trade is Primary Mechanism of Exploitation.
11 Terms of Trade Between Core and Periphery Terms of Trade: Volume of Exports Needed to Acquire a Given Volume of Imports.Secular Decline in Terms of Trade:Yearly Increase of the Export Cost of Imports.Falling Commodity Prices (Exports) and Stable Manufactured Goods Prices (Imports).Caused By...Terms of Trade for Primary Producing Countries: 0.87%: -0.42%: -0.52/ -0.84%Reason For Poverty:Gains from Productivity Improvements Are Transferred to the CoreGains Not Translated into Higher Wages in Periphery.No Savings to Finance Investment.Source for Terms of Trade Data: James M. Cypher and James L. Dietz The Process of Economic Development. Page 87.
12 Solutions to Structuralist Diagnosis of Poverty Adopt a Development Strategy That Would Restructure Periphery Economies.More Emphasis on Domestic Market, Less on ExportsMore Emphasis on Producing Manufactured Goods, Less on Primary Commodities.Structuralists Believed that Reform and Active Government Management Would Be Sufficient.Marxists Believed Radical Break with Global Capitalist System Would Be Required.
13 Developing Country Responses, 1945-1980 Domestic Response:Import Substitution Industrialization.Substitute Local Production for ImportsMost Developing Country Governments Adopted this Development Strategy.
14 Import Substitution Industrialization Heavy Government Intervention to Shift Resources from Agriculture to IndustryTaxation of Agricultural SectorSubsidization of Manufacturing IndustriesVariety of InstrumentsHigh TariffsExchange RatesTaxes and SubsidiesState-Owned Industry
15 International Response, 1960-73 Group of 77 Formed in Early 1960s to Press for Reform of International Economic SystemSeek UN Conference to Examine Relationship Between Trade and Development.Results in UN Conference on Trade and Development (UNCTAD) in 1964Used UNCTAD to:Try to Reduce GATT’s Role in International TradeTry to Create Greater Role for UN in TradePreferential Access to Advanced Countries’ MarketsCreate Commodity CartelsNot Very Successful
16 The New International Economic Order,1973-1982 The Oil Shock and Commodity PowerCommodity Power Leads to Demands for The New International Economic Order (NIEO)Increase LDC Manufacturing to 25% of Total World Manufacturing by 2000LDCs Manufactured about 9% in 1978Specific Demands:Increase LDC Control of Natural ResourcesCheaper and Easier Access to Northern TechnologyIncreased Foreign Aid (.7% of North’s GNP)Eliminate LDC DebtGreater Influence over IMF and World Bank