- Why is there uneven development? Why doesn’t Papua New Guinea just buy mechanized farm equipment? Or build factories? Can PNG afford to?
- Are LDCs poor because they are not developed? Or not developed because they are poor?
Barriers to Economic Development - Social Conditions
- Demographic factors (CBR, Life Expectancy, Dependency Ratio, etc)
- Inadequate Nutrition
- Lack of Sanitation (sewage systems, clean water, health care)
- Lack of access to Education
- Lack of Gender Equality
- Disease
Barriers to Economic Development - Foreign Debt
- The money one country owes to another country, as a result of loans and/or a negative balance of trade. – a negative balance of trade means that country buys more than they sell
International Trade Trade Barriers - the EU’s internal market is about removing barriers to free movement of goods, services, people and capital
- the flow of goods and services in the world economy is also important
- organizations have been set up to encourage the removal of barriers to free global trade
Why the stress on free world trade? - The world economy went into a deep depression in the 1930s, as many countries closed their barriers to trade with other states. This led to:
- Mass unemployment
- Social upheaval
- Rise of fascism and World War II
How to prevent chaos happening again? - Global powers set up bodies to support international trade
- International Monetary Fund
- World Bank
- All countries encouraged to join these organizations, or face exclusion from benefits of free world trade
What do the IMF and World Bank do? - IMF:
- Lends to countries with balance of payments problems – countries that can’t make their payments
- Pushes for economic reforms – reforms such as allowing free trade or reduce wasteful spending
- Reports on policies in member states
- These are short-term emergency loans when a country is about to go bankrupt. Usually associated with LDCs, but recently Greece and Spain have consulted the IMF due to the Euro zone crisis.
What do the IMF and World Bank do? - World Bank:
- Aims to help development by advising and lending – with many conditions – such as reducing wasteful spending or focusing on a particular area of production
- Countries encouraged to lift import and export barriers, cut subsidies and remove price controls – encouraging free trade
- These are longer term loans, used to put in place infrastructure or other big projects.
Criticisms of IMF - IMF only lends money if countries agree to:
- Sell their resources cheaply
- Cut public spending
- Critics say this serves to increase the problems of poverty in poor member countries – many times the country ends up paying more money to pay off the debt than they invest in education or health care
Criticisms of World Bank - Loans depend on countries agreeing a ‘Structural Adjustment Programme’
- Leads to rapid increase in price of goods in country
- Increases poverty
- Lower investment and cut social spending
- Little evidence that these policies work
- These criticisms are similar to the criticisms of the IMF
What about the World Trade Organization (WTO)? - The WTO deals with the rules of trade between countries
- It developed from the General Agreement on Tariffs and Trade (GATT)
- WTO agreements set the ground rules for international commerce – Designed to ensure free trade and to prevent unfair trade advantages
Why so much outrage over globalization? - Other than the criticisms raised earlier, opponents of globalization point to:
- Falling share of world trade taken by developing countries – MDCs getting richer, LDCs staying poor
- Subsidies and tariffs set by rich developed economies: USA steel tariffs, EU agricultural subsidies are two of the culprits
- Keeps the peace no wars over trade disputes
- Disputes handled constructively
- System based on rules rather than power – designed to give LDCs a fair chance
- Freer trade cuts the cost of living
- Gives consumers more choice
10 Benefits of the WTO - Trade raises incomes
- Trade stimulates growth, inc. employment
- Basic principles makes system more economically efficient
- Shields governments from narrow interests
- Encourages good government
Ten Arguments against the WTO - Only serves interests of multinational corporations
- Is a stacked secretive court – favoring multinational corps
- Tramples over labor and human rights – b/c favors multinational corps
- Is destroying the environment - ditto
- Is killing people
Ten Arguments against the WTO - US adoption of WTO was undemocratic – WTO can enact rules which conflict with existing US laws and the WTO law stands the US law must be removed
- Undermines local development and penalizes poor countries
- Is increasing inequality – Favors MDCs who mostly own the multinational corps
- Undermines national sovereignty
- The tide is turning against free trade and the WTO
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