Chapter 10: Developing Countries

Freedom and Equality in the Developing World

Old versus New Terms

• The old terms
  • Third World: Cold War—era classification
  • Global South: Latin America, Southeast Asia, and Africa
• Current terminology
  • Developing countries: lower- and middle-income countries

To Clarify…

• Middle-income and low-income countries are both considered “developing countries”.
• Countries that aren’t in “the rich countries club”.

Income Categories of Development

• Middle-income countries: historically less-developed countries that have experienced significant economic growth and democratization
  • Also known as newly industrialized countries (NICs)
  • Per capital GDP (PPP) between $4,000 and $13,000
  • Some are very comparable to developed democracies.
• Lower-income countries: countries that lack significant economic development, political institutionalization, or both
  • Sometimes also known as less developed countries (LDCs)
  • Per capital GDP (PPP) below $4,000

Comparing Freedom and Equality in Developing Countries

• Many differences
  • Economics: Some are growing and breaking out of the poverty trap, others are being left behind.
  • Regime type: Some are democracies, others nondemocracies.
  • Various cultures, state capacities, ethnic, national, or religious institutions, etc.
• Many (but not all) share legacies of imperialism.

Imperialism and Colonialism

A Common Legacy

• Empires: a single political authority that has under its sovereignty a large number of external regions or territories and different peoples
• Imperialism: a system in which a state extends its powers to directly control territory, resources, and people beyond its borders
  • Dominated by European powers (1500s to 1900s)
  • Driven by economic, strategic, and cultural/religious motives
• Imperialism often led to colonialism
  • Colonialism: an imperialist system of physically occupying a foreign territory using military force, businesses, or settlers.

In Focus: Imperialism…

• Is a system in which a state extends its power beyond its borders to control other territories, resources, and peoples.
• Was propagated by European powers from the sixteenth to the twenty-first centuries.
• Is driven by economic, strategic, and religious motives.
• Often led to colonialism, the physical occupation of foreign territories.

The History of Modern Imperialism

• Emerged in response to technological advances
• European powers extend control over
  • Latin America (Spain and Portugal)
  • Middle East (Ottomans, later France and United Kingdom)
  • Africa (France, Portugal, Belgium, and United Kingdom)
  • Asia (United Kingdom and Portugal)
• Major wars end the age of imperialism

Institutions of Imperialism

Exploring the State

• New (and often artificial) borders
• Exporting bureaucratic structures
  • National language (often the imperial power)
  • Police and military
  • Taxation
  • Legal systems
  • Public goods: roads, schools, and hospitals
• Consequences have been mixed

Exposing the State: Consequences

• New infrastructure
  • But built mainly for resource extraction
  • Inequality between cities and countryside
• Increased education
  • For some of the population (inequality)
  • Education → exposure to nationalism → resentment
• “Institutional limbo”
  • Incomplete imposition
  • Trapped between traditional Western institutions

Social Identities

• Ethnic and national identities
  • Created new categories
  • Colonial power structures favored certain groups
  • Example: Tutsi in Rwanda
  • Would provide basis for later independence movements; set stage for post-independence conflicts
• Gender roles
  • Imperial gender roles imposed on colonies
  • Mixed impact; depends on region and imperial power

Major Changes in Political and Social Institutions

• The state, as a form of political organization, was imposed on much of the world outside of Europe.
• Ethnic and national identities were created where none had existed before colonization.
• Gender roles from the imperial country were often imposed on colonies.

Dependent Development

• Extractive colonies: Built to extract resources from colonies and send them back to the metropole (colonizing power)
  • Most colonies in Africa, Asia, and the Middle East
• Settler colonies: A lot of Europeans settled
  • US, Canada, Australia, New Zealand, South Africa
  • Better set up for success in the long run
• Importing cash-based economies
• Little free trade, tended toward mercantilism
  • Colonies produced primary commodities only
  • Finished goods sold by imperial center
  • Little development of local and regional industry
  • Limits on trade with rival empires
  • Business monopolies controlled economies
  • United East India Company (Dutch); British East India Company
• Urbanization and infrastructure expansion

Major Changes in Economic Institutions

• Traditional agricultural economies were transformed to suit the needs of the imperialist power.
• Economic organization under imperialism impeded domestic development in the colonies.
• Free trade was often suppressed, as colonies were forced to supply goods only to the imperial country, creating extractive economies in the colonies.

The Challenges of Post-Imperialism

Post-imperial Challenges

• The broad goals
  • Build state capacity and autonomy.
  • Create nations and citizens.
  • Generate economic growth.
• Some countries have done better than others at meeting these goals.

Capacity and Autonomy: A Review

• Capacity: the ability of the state to carry out basic tasks, including
  • Defending the country
  • Making and enforcing rules
  • Managing the economy
  • Collecting taxes
  • Building infrastructure; providing education and healthcare
• Autonomy: the ability of the state to wield its power independently of the public

Why a Lack of Capacity?

• Absence of a professional bureaucracy
  • Imperial power vacuum
• Politicization of bureaucracy
  • Clientelism, rent-seeking, and corruption

Why a Lack of Autonomy?

• Patrimonialism
  • State captured and exploited
  • Some operate under kleptocracy: “rule by theft”
  • 1990s: Nigerian officials steal over $1 billion
  • 2016: U.S. government seizes $1 billion in assets stolen by people chose to Malaysian prime minister.
• International pressures
  • More powerful state and international actors shape state’s political decisions.

Wrapping It Up: Why Weak State Autonomy and Capacity

• Absence of professional bureaucracy (following departure of foreign imperial bureaucrats).
• Clientelism, rent-seeking, and corruption in the handling of state jobs and revenue.
• Sovereignty often compromised by external actors (other states, international organizations).

The Consequences: Compromised Freedom and Equality

• More criminality and corruption
• Increased political and economic inequalities
• Greater civil and communal conflict
• Inability to respond to disasters and crises
• Loss of government legitimacy
  • May lead to greater political instability

The Challenges of Creating Nations and Citizens

• Challenge 1: Build a single national identity in high diverse societies.
• Challenge 2: Address gender inequalities.

Nation-State Failures: The Conflict Risk

• Causes of ethnic/religious conflicts:
  • Inequality in wealth
  • Political dominance of one group over others
  • Clientelism and patrimonialism → increases ethnic disparities
• Examples of patrimonialism in practice
  • Sunni rule in Shia-majority Iraq under Saddam Hussein
  • Alawite monopolization of power in Syria

The Challenges of Building a Unified Nation-State

• Ethnic and religious divisions among different groups in heterogeneous societies (often exacerbated by economic inequality).
• Arbitrary political boundaries imposed by imperial powers.

The Struggle of Women: Property Rights

• The problems:
  • Laws favor male ownership and deny women access to land or capital.
  • Economic/cultural barriers to change: men fear less of their authority.
• Example of reform failure: Nicaragua
  • Land law reforms beginning in 1980s sought to implement women’s joint ownership.
  • Local inheritance customs make implementation difficult.
  • Consequences: husbands engage in “asset violence” and property blackmail.

The Struggle of Women: Gendercide

• The causes: poverty + culture/legal traditions that favor males
  • Economics and laws favor male holding of resources.
  • Dowry tradition: girls are viewed as an economic burden.
• The consequences for women:
  • Discrimination: less investment (such as health and education) in daughters
  • Gendercide: sex-selective abortions; neglect of girl babies; bride burnings; witch killings
  • Examples: 40 million missing girls in India; 60 million in China

The Challenge of Generating Economic Growth

• Imperialism left a legacy of unsustainable economies
  • Focus on primary commodity production
  • Had to import finished goods
• Many developing countries started from system of trade imbalances and debt
• Neocolonialism: Indirect form of imperialism in which powerful countries overly influence the economies of less-developed nations

Breaking the Cycle: Three Paths to Economic Growth

• Two distinct mercantilist economic policies were applied throughout the developing world:
  • Import substitution
  • Export-oriented industrialization
• These are also known as structural-adjustment programs.

Import Substitution: The Basic Idea

• Import substitution: a mercantilist strategy for economic growth in which a country restricts imports in order to spur demands for locally produced goods
• Where implemented: Latin America, Africa, parts of Asia
• Policy tools: trade protectionism and intervention
  • Tariffs and nontariff trade barriers
  • Widespread subsidies
  • Government-owned and parastatal companies

Import Substitution: The Final Evaluation

• Complete policy feature
• Problems it created
  • Business uncompetitive, could not function without state protection
  • Corruption
  • Poverty remained unchanged or increased
  • Middle-income trap: a situation where countries experience economic growth but are unable to develop at a speed necessary to catch up with developed countries

Export-Oriented Industrialization: The Basic Idea

• Export-oriented industrialization: a mercantilist strategy for economic growth in which a country seeks out technologies and develops industries focused specifically on the export market
• Where implemented: Asia
• Policy tools: strategic investment to build an export-based market
  • Capitalize on the product life cycle.
  • Strategic government subsidies
  • Tariffs and other trade barriers

Export-Oriented Industrialization: The Final Evaluation

• More successful than import substitution
• Some challenges
  • May be prone to corruption
  • As economy develops, this strategy becomes more expensive.
  • Rising labor costs undermine product life cycle advantage.
  • Economic dependencies are increased.
  • Success of domestic companies rely on international demand.
  • Lack of domestic markets undermines market diversity.

Structural Adjustment Programs: The Basic Idea

• Structural-adjustment program: a policy of economic liberalization adopted in exchange for financial support from liberal organizations; typically includes privatizing state-run firms, ending subsidies, reducing tariff barriers, shrinking the size of the state, and welcoming foreign investment
  • Also called neoliberalism and Washington consensus
• Where implemented: countries receiving loans from World Bank or IMF
• Major goal: Minimize government intervention to allow a free market to emerge.

Structural Adjustment Programs: The Policy Tools

• Privatize state-run firms, sell off state ownership in parastatals.
• End subsidies.
• Reduce tariff and other trade barriers.
• Shrink the size of the state (including welfare spending).
• Remove restrictions and pass policies to encourage foreign investment.

Structural Adjustment Programs: The Final Evaluation

• Its success depends on the country.
  • A good option in overly bureaucratic states
  • May undermine growth in countries struggling with human capital crises, geography challenges, or infrastructure weaknesses
• Other issues
  • Criticized as neocolonialism
  • Political instability: Frustration over policy triggered anti-IMF riots in Egypt (1977) and Greece (2010-2012).

Wrapping It Up: The Three Paths to Growth

• Import Substitution
  • Based on mercantilism
  • State plays a strong role in the economy.
  • Tariffs or nontariff barriers are used to restrict imports.
  • State actively promotes domestic production, sometimes creating state-owned businesses in developing industries.
  • Criticized for creating “hothouse economies,” with large industries reliant on the state for support and unable to compete in the international market.
• Export-Oriented Industrialization
  • Based on mercantilism
  • State plays a strong role in the economy.
  • Tariff barriers are used to protect domestic industries.
  • Economic production is focused on industries that have a niche in the international market.
  • Seeks to integrate directly into the global economy.
  • Has generally led to a higher level of economic development than import substitution.
• Structural Adjustment
  • Based on liberalism
  • State involvement is reduced as the economy is opened up.
  • Foreign involvement is encouraged.
  • Often follows import substitution.
  • Criticized as a tool of neocolonialism and for its failure in many cases to bring substantial economic development.

Puzzles and Prospects for Democracy and Development

Dynamic Growth and Major Challenges

• Major improvements
  • Life expectancy improving
  • Infant mortality dropping
  • Fast GDP growth
• Challenges preventing growth
  • Ethnic conflict
  • Natural resources and the resource curse
  • Poor governance

Making a More Effective State

• Major goal: build good governance and improve the rule of law
• Possible strategies
  • Reform judicial institutions, police, and civil service.
  • Strengthen constitutional courts.
• Critics: Institutional reform should NOT be the starting point.
  • Argue that rule of law norms need to emerge first, and only then will real institutional change occur.

Developing Political Engagement

• Major goal: Nurture civil society and citizen engagement.
• Possible strategies
  • Emphasize local issues.
  • Expand mass media.
• Critics: Political engagement does not guarantee good politics.
  • May instead fuel clientelism.

Promoting Economic Prosperity

• The challenge of the informal economy
  • Informal economy: a segment of the economy that is not regulated or taxed by the state
• The benefits and drawbacks of a large informal economy
  • Very flexible
  • Tends to employ women
  • Lack of revenues, which weakens state capacity and public goods
  • More difficult for firms to grow

In Sum: The Challenges of Development

• Developing countries are a very diverse group that includes both middle- and lower-income countries.
• While there are many differences between these countries, many share a common legacy of imperial rule. Imperialism has shaped these countries’ political, social, and economic institutions.
• Developing countries struggle with building capacity and autonomy; these political challenges undermine economic and social stability.
• Regarding social cohesion, some developing countries struggle with ethnic or religious divides. Gender inequality is also a major problem, with potential serious repercussions if left unaddressed.
• Following the end of imperialism, states sought to grow their economies by pursuing one or more of the following policies: import substitution, export-oriented industrialization, or structral adjustment programs (neoliberalism/Washington Consensus).
• Major goals for developing states today are creating more effective governance, developing political engagement, and promoting economic growth. There is no “one size fits all” policy to achieving any of these goals.

Key Terms

1. Colonialism - an imperialist system of physically occupying a foreign territory using military force, businesses, or settlers
2. Developing countries - lower- and middle-income countries
3. Empire - a single political authority that has under its sovereignty a large number of external regions or territories and different peoples
4. Export-oriented industrialization - a mercantilist strategy for economic growth in which a country seeks out technologies and develops industries focused specifically on the export market
5. Imperialism - a system in which a state extends its powers to directly control territory, resources, and people beyond its borders
6. Import substitution - a mercantilist strategy for economic growth in which a country restricts imports in order to spur demands for locally produced goods
7. Informal economy - a segment of the economy that is not regulated or taxed by the state
8. Lower-income countries - countries that lack significant economic development, political institutionalization, or both; also known as less-developed countries (LDCs)
9. Microedit - a system in which small loans are channeled to the poor through borrowing groups whose members jointly take responsibility for repayment
   10. Middle-income countries - historically less-developed countries that have experienced significant economic growth and democratization; also known as newly industrializing countries (NICs)
   11. Middle-income trap - a situation where countries experience economic growth but are unable to develop at a speed necessary to catch up with developed countries
   12. Neocolonialism - an indirect form of imperialism in which powerful countries overly influence the economies of less-developed countries
   13. Neoliberalism/structural adjustment programs/Washington Consensus - a policy of economic liberalization adopted in exchange for financial support from liberal organizations; typically includes privatizing state-run firms, ending subsidies, reducing tariff barriers, shrinking the size of the state, and welcoming foreign investment