Poverty and development

Sahel Famine 2012

What does poverty mean?  Is it straightforward to define?  Might it be better to start with discussing the issue of hunger? There are different approaches to development.    With the end of the Cold War neo-liberal economic and political philosophy came to dominate development thinking across the globe; the so-called Washington consensus.  The World Trade Organisation, the IMF and the World Bank are important actors here. However, there are those who are critical of this model.  In particular, various NGOs have advocated different methods of development, which stress more sustainable growth and grassroots involvement.

The UN has set some Millenium goals. Is aid effective?  Some argue that aid is wasteful and counterproductive.  There are charges that it fosters corruption and upholds repressive regimes.   There are others who argue that aid can change things.

Poverty And Development

Key themes:

Theories of poverty and development

Nature of poverty – absolute and relative poverty; monetary definitions of poverty (e.g. 1 dollar a day) vs capacity/opportunity-based definitions of poverty (human development (UN’s Human Development Index), human security, human rights), etc

Theories of development – ‘orthodox’ theory of development as modernization (‘development as growth’; economic liberalism; virtues of free market and free trade; linear process of development from ‘traditional’ to ‘advanced’ societies); internal obstacles to growth (backward culture that discourages enterprise; autocratic rule), etc); ‘alternative’ theories of development (‘development as freedom’; ‘bottom-up’ development; views from global South, etc).

Trends in global poverty and inequality

North-South divide – from Three-Worlds model to North-South divide; trends in global inequality since 1970’s (fragmentation of the global South; emerging economies; sub-Saharan Africa as the Fourth World); decline in between-country inequality and increase in within-country inequality; impact of global economic crisis on the global South.

Implications of globalization for poverty and equality – arguments that globalization reduces poverty and narrows inequality (provides inwards investment; TNC bring benefits (jobs, higher wages, new technology, training and skills development; career opportunities, etc): economic restructuring and prospect of export-led growth, etc). Arguments against globalization (TNCs interested in cheap labour and have no long-term commitments; domestic demand ignored in chase for cash crops and export markets, etc).

Promoting development

‘Orthodox’ or liberal strategies for promoting growth – impact of the World Bank and the IMF on development and poverty-reduction; ‘structural adjustment’ programmes and their impact on the developing world (the ‘Washington consensus’ and its implications for the world’s poor); degree to which the World Bank and IMF have responded to criticism; the radical critique of ‘orthodox’ development (external obstacles to development; biases within the global economy and the institutions of global economic governance, etc.

Aid and development – campaigns to increase international aid (work of NGOs and anti-poverty movement; Millennium Development Goals; G8 Gleneagles agreement, etc); arguments in favour of international aid (humanitarian relief; infrastructural project build economic capacity; counters dependency, etc; arguments against international aid (creates dependency; corruption and oppressive government prevents aid getting to the poor; donor self-interest, etc).

Debt relief and ‘fair’ trade – nature of debt crisis of 1980s; significance of debt relief (progress made in cancelling debt; arguments for and against debt relief); idea of ‘fair’ trade and differences between ‘fair’ trade and free trade (critique of impact of WTO). (Note: essay questions will not be set just on debt or on fair trade.)

Unit 4D Global Poverty and Development

Short Answer Questions

Why is the divide between the North and the South still growing? (15 marks)

The gap between the industrialised, relatively rich countries of the global north, and the relatively poor countries of the global south is huge.

The North (including the rich countries of N America, W Europe and Japan plus the former Soviet bloc) contains only 20% of the world population, yet consumes 60% of world production.

The South (including Latin America, Africa, the Middle East and most of Asia) has 80% of the world population, but consumes only 40% of world production.

Many argue that the divide is growing, as the North continues to absorb more and more of global production, yet the South remains stuck in a poverty trap of low income, leading to low levels of saving, which restricts investment.

Low levels of investment in turn restrict the development and progress of firms, thereby restricting income growth, and therefore savings etc.

There are a number of reasons for the lack of development in the South, which candidates should be able to describe and illustrate.

These include: political leadership (ineffective policy making, wasteful government spending and corruption), political instability (including civil war and violence), debt, lack of resources, restricted access to western markets, economic dumping (EU food), and natural disasters (earthquakes, famines, floods etc).

Better candidates will suggest that the divide is not growing in some regions, particularly in South and East Asia, where a number of states have experienced rapid economic development and where consumption levels are also rising (S Korea, Thailand, Singapore etc).

It could also be noted that a number of states in the North have seen a fall in living standards since 1990 (notably many former communist states).

Better candidates may also wish to criticise the behaviour of the North in failing to address this imbalance, such as the limited success of the Jubilee 2000 project, and the Structural Adjustment Programme of the IMF.

Why is sustainable development a contested concept? (15 marks)

Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Sustainable development focuses on developing strategies which promote development without environmental degradation, exploitation or pollution.

It is a contested concept for a number of reasons. Some oppose sustainable development because it focuses attention on ‘needs’ thereby reflecting concern for basic human needs such as reducing poverty, rather than the usual economic mantra of satisfying economic ‘wants’.

Sustainable development has won support from a number of groups, such as environmentalists who are more concerned with tackling problems such as pollution, climate change, and threats to habitats and biodiversity.

It also won approval from those who fear present patterns of economic and population growth are unsustainable and that the Earth is close to its ‘carrying capacity’.

Overall, sustainable development has become popular with the political left wing, with anti- capitalists and with environmentalists.

It has been criticised by those who feel that sustainable development restrains economic growth and human development.

It is regarded as a luxury which only the wealthy can afford, and which hinders the development of the poorest people on the planet.

Explain the ‘orthodox’ (economic liberal) approach to development. (15 marks)

In the ‘orthodox’ view of development, poverty is understood as a situation in which people suffer because they do not have the money to satisfy their basic material needs.

It is often therefore calculated in terms of GDP per capita, implying that development is closely linked to economic growth.

In this view, development is seen as a process through which ‘backward’ traditional societies are transformed into ‘modern’ ones through a process of industrialisation and a spread of market or capitalist economic structures.

As the principal source of economic vigour is the free market, development occurs as obstacles to competition and entrepreneurialism are removed (often linked to traditional values and authoritarian government).

The ‘orthodox’ approach is therefore often associated with a ‘top-down’ reliance on expert knowledge and external intervention in order to stimulate market reforms.

Such an approach has been particularly associated with the IMF and the World Bank through the dominance of the so-called Washington consensus.

What is the North-South divide, and why is it sometimes said to be an outdated idea? (15 marks)

The idea of a North-South divide was popularised through the work of the so-called Brandt Reports (1980, 1983).

It highlighted the tendency for industrial development to be concentrated in the northern hemisphere and for poverty and disadvantage to be concentrated in the southern hemisphere, although the terms ‘North’ and ‘South’ were always essentially conceptual rather than geographical.

The concept of the North-South divide also drew attention to the ways in which aid, developing world debt and the practices of transnational corporations helped to perpetuate structural inequalities between the high-wage, high-investment industrialised North and the low-wage, low- investment, predominantly rural South.

The idea has been seen as outdated because of development trends in the South and through the emergence of new patterns of poverty and disadvantage.

Many Southern countries have made substantial economic and social progress in recent decades, notably China, India, the Asian ‘tiger’ economies and also parts of Latin America.

These emerging economies are no longer seen to be structurally disadvantaged within the global economy.

The other trend has been for poverty and disadvantage to be concentrated more narrowly in sub-Saharan Africa in particular. Moreover, the term has sometimes been abandoned through a recognition that poverty and under-development are highly complex phenomena with wide-ranging economic, cultural, social and political causes.

What is neocolonialism, and how has it been used to explain global inequality? (15 marks)

Neo-colonialism refers to a process through which the developed world controls developing states through a process of economic domination, as opposed to direct political control.

Neo-colonialism has been used to explain global inequality in a number of ways. These include the following:

Neo-colonialism is seen to operate through structural inequalities in the global economy, through which ‘core’ countries have benefited from being able to use ‘peripheral’ countries as a source of raw materials and cheap labour, while advanced technology and capital remains concentrated in ‘core’ areas.

Neo-colonialism also operates through the activities of transnational corporations which take advantage of the poverty, corruption and absence of effective government in much of the developing world to expand profits that are exported to their ‘home’ country.

Neo-colonialism is also seen to operate through the free-market policies of institutions such as the World Bank and the IMF, particularly through the imposition of Structural Adjustment Programmes which force developing countries to open up their economies to world competition by liberalising areas such as trade, investment and regulatory practices.

How and why have strictly economic conceptions of development been criticised? (15 marks)

Concepts of development can be linked not only to economic measurement but to other measurements.

Development is often measured in terms of changes in gross national product (GNP) per capita and comparative GNPs between countries.

A country can be said to be developing if its GNP is increasing.

The World Bank has conventionally used the standard of ‘a dollar a day’ as a measure of gross under- development or absolute poverty.

However, there are problems with measuring development in purely economic terms. These include the following:

GNP per capital fails to indicate whether wealth disparity in a country is increasing or decreasing. In short, GNP per capita may only arise because the rich are getting richer.

Economic measures of development fail to take account of the level of political freedom and protection for civil liberties. Economic well-being may increase while citizens are politically oppressed.

GNP per capita does not demonstrate whether people’s basic needs are being met. From this perspective, poverty and development are better understood in terms of ‘human development’, which takes account of people’s access to education, levels of gender equality and so forth.

Development is thus defined in terms of capacity and freedom.

Explain the advantages and disadvantages of cancelling debt in the developing world. (15 marks)

Writing-off developing world debt is usually justified on the grounds that debt entrenches poverty and global inequality.

In particular, due to a combination of debt and poor economic performance, many developing-world states found that they were channelling more and more money into their escalating debt repayments at the expense of building schools and hospitals, investing in the economic infrastructure and helping to alleviate poverty.

Moreover, the developing world’s level of indebtedness has been seen as a manifestation of unfairness, linked either to the pursuit of profit by Northern banks or to conditions that accompany loans designed to facilitate the workings of global capitalism rather than address the needs of the world’s poor.

Debt relief may nevertheless have disadvantages.

These include the instability that writing-off debt may cause to the world’s financial system. An additional concern is that writing-off debt sends a very dangerous message to poorer countries about the need to uphold financial disciplines.

Apart from anything else, there is no assurance that if money is not being spent paying off debt that it will be put to more economically and socially worthwhile uses.

Distinguish between the ‘orthodox’ view of development and the ‘alternative’ view of development. (15 marks)

The ‘orthodox’, or economic liberal, view of development understands poverty squarely in economic terms and implies that development can be equated with economic growth, an increase in GDP.

The central mechanism, from this perspective, for promoting growth is a free-market system, with under- development being explained in terms of blockages that prevent the establishment of market capitalism.

The ‘alternative’ view of development tends to reflect the ideas of the global South. It adopts a humanistic view of poverty, based on opportunity and empowerment, rather than an economic model.

It also tends to stress factors such as self-reliance, ecological balance (sustainable development), social and cultural inclusion and the recognition that global poverty has a structural character, stemming, in part, from disparities in the international trading system.

What was the debt crisis of the 1980s and how much progress has been made in resolving it? (15 marks)

The ‘debt crisis’ developed in the 1970s and 1980s, as poorer countries (starting with Mexico in 1982) announced that they could no longer service their debts, meaning that many

Northern banks were faced with the possibility of collapse. More seriously, Southern countries due to the size of their debts and their poor economic performance, channelled more and more money into their escalating debt repayments at the expense of building schools and hospitals, investing in the economic infrastructure and helping to alleviate poverty.

Even though loans from the World Bank and the IMF were provided on favourable terms, debt escalation in the developing-world was dramatic.

The debt crisis has not only been explained in terms of economic backwardness, but also of changed borrowing strategies amongst western banks.

Attempts to resolve the debt crisis include the provision of loans by the IMF and World Bank, often linked to the implementation of structural adjustment programmes, designed to promote growth and enable debtor counties to pay off their debts, and the righting off of debt through so-called ‘debt relief’.

For example, in 1989 the USA launched the ‘Brady bonds’, which underwrote a proportion of Latin America’s debt overhang from the 1970s and 1980s.

Under the HIPC Initiative, negotiated in 1996, the World Bank and the IMF agreed to extend the opportunity for debt relief to 40 of the world’s poorest countries; by 2006, 29 countries were enjoying debt relief.

The G8 Gleneagles deal in 2005 significantly accelerated the pace of debt relief, through the agreement to provide 100 per cent cancellation of debt owed to the IMF and the World Bank; by 2006, this covered 21 countries, with plans to include up to 43 countries.

Essay Questions

‘Corruption is the grease that lubricates the squeaky gate.’ Discuss the extent to which corruption hinders or promotes development. (45 marks)

Corruption occurs whenever the public and private sectors meet or whenever a public official has control over something which has value and discretion to determine its allocation to the private sector.

Corruption = Monopoly + Discretion – Accountability.

Defenders of ‘the giving of financial incentives’ to government officials argue that a bribe is a necessary payment to speed up the bureaucratic minefield which exists in many Less Developed Countries (LDCs).

The bribe is therefore the oil or grease which enables the inefficient bureaucracy to work more smoothly.

Of course some defenders will accept that deregulation will reduce the need for corruption, and so good governance will aim to deregulate as well as improve transparency, accountability and openness.

However, until such governance is widespread, it can be argued that the payment of bribes is essential for an economy to operate.

Bribery leads to economic waste and inefficiency because resources are allocated to the activities which yield the greatest bribes, commissions or kickbacks. Investment becomes geared towards large defence projects and ‘white elephants’ rather than economic development, education or health.

Foreign suppliers tend to be favoured over local ones because they tend to be more discreet and/ or able to pay large bribes: A vicious circle of increasing corruption results.

‘The IMF and the World Bank have failed the world’s poor.’ Discuss. (45 marks)

The IMF and the World Bank are the leading international bodies responsible for promoting development and poverty reduction. However, their performance in these respects has been a matter of considerable controversy. Opponents of these bodies have advanced a number of criticisms, including the following:

The commitment of these bodies to economic liberalism has been reflected in the use of Structural Adjustment Programmes (SAPs). These, it is alleged, inflict more harm than good on developing countries and increase their dependency on powerful Northern economies.

Pressure to accept SAPs undermines state sovereignty. A primary emphasis on economic reform means that little attention is given to human rights or to environmental considerations.

On the other hand, the work of bodies such as the IMF and the World Bank has been seen as beneficial to the world’s poor for a number of reasons. These include the following:

The market-based approach adopted by the institutions of global economic governance has proved itself to be highly effective in promoting growth and prosperity, as demonstrated by the routes to prosperity adopted by developed societies.

Since the late 1980s, the IMF and the World Bank have taken the issue of poverty reduction more seriously. This has modified their approach to SAPs which are now more flexible, seek to promote country ownership and are better adapted to particular needs and circumstances.

SAPs have clearly worked in a number of cases; for example, in South Korea. No country is obliged to accept IMF and/or World Bank aid, suggesting that countries do so only when they calculate that, on balance, such loans bring benefit. After all, the IMF and the World Bank are the principal source of funds for developing states.

‘Globalisation has increased, not reduced, global poverty.’ Discuss. (45 marks)

Globalisation in its economic form refers to the construction of an interlocking global economy and the declining capacity of states to function as independent economic entities.

The impact of globalisation on poverty and global inequality has been controversial. Globalisation has been seen to increase poverty for a number of reasons. These include the following:

Globalisation is based on structural inequalities and injustices, notably ones in which ‘core’ developed states exploit dependent ‘peripheral’ states that are essentially used to produce primary goods. By its nature, globalisation therefore widens the gap between the North and the South, with sub-Saharan Africa being particularly disadvantaged.

During the period of accelerated globalisation in the 1980s and 1990s, most evidence suggested a growth in between-country inequality, providing empirical evidence to support the notion that globalisation amounts to a form of neo-colonialism.

There is evidence that globalisation has promoted widening within-country inequality, both in developed societies and in developing ones.

However, supporters of globalisation argue that it has reduced poverty and global inequality. This has happened for a number of reasons including the following:

Globalisation stimulates all economies, including those of developing countries because it brings increased entrepreneurialism, inward investment, improved technology and access to foreign markets.

Liberals argue that trade and market competition are the primary route to development in all societies.

Developments in the global South suggest that many societies have benefited from an engagement with globalisation, notably examples include the Asian ‘tiger’ economies and the dramatic economic emergence of China and India.

In such cases, increased growth and prosperity has been closely associated with taking advantage of export opportunities and inward investments that have been provided by globalisation.

On the other hand, countries like North Korea, that have remained outside the global economy have suffered from widespread poverty and low growth.

To what extent is international aid effective? (45 marks)

Foreign aid refers to aid provided to support poverty reduction and development in other countries. It is either a multilateral aid, provided through international bodies or NGOs or bilateral aid which operates on a government-to-government basis. There is nevertheless considerable debate about whether foreign or international aid works, in the sense of reducing poverty and stimulating development. The key argument in favour of foreign aid is that its purpose is to help poor countries overcome structural biases within the global economy that threaten to lead to perpetual under-development.

A reliance on free trade and market forces, in other words, is not sufficient; it will not ‘raise all boats’. Some, indeed, argue that it is a moral duty to provide foreign aid, based on the recognition that the wealth and prosperity of the North has been, in substantial part, built on its treatment of the South.

Foreign aid is most effective when it is targeted on long-term development projects and is orientated around capacity-building for the future. Examples include aid provided to improve the economic infrastructure, boost food production and improve health service and education, particularly primary education.

Major recipients of aid in the past such as China, India, Brazil and Thailand have developed strategic aid programmes themselves.

Aid can also be justified in the form of emergency relief, when it has a direct impact through alleviating a humanitarian crisis.

However, foreign aid has also been criticised as ineffective and even counter-productive. There is little reliable evidence that aid boosts economic growth and contributes to poverty reduction.

Aid, indeed, may entrench patterns of global inequality rather than challenge them, discouraging initiative and self-reliance within recipient countries and strengthening a culture of dependency. Moreover, aid distorts markets, even ‘hollowing out’ an economy by effectively displacing local businesses and industries, or at least constraining their growth.

The plight of sub-Saharan Africa is commonly used to illustrate such points. Corruption and authoritarian rule also often prevent aid getting through to the people who need it; instead, aid may foster corruption and deepen oppression, as autocratic rulers use aid funds to support their own affluent lifestyles and to strengthen political control and subvert opposition.

Finally, foreign aid is often structured by donor state self-interest rather than the needs of recipient countries. Aid is often linked to the extension of political influence, trade agreements or the ‘dumping’ of surplus produce.

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