No te comas el cuento Experiencias de la LI como producción contra-

Ing. Richard Woltemar

Faculty of International Relations University of Economics in Bratislava

e-mail: [email protected]

Abstrakt

S rastom chudoby v menej rozvinutom svete (s výnimkou Číny), ľudia týchto krajín sa usilovne snažia dosiahnuť rozvoj na potlačenie ľudskej chudoby. Tento druh rozvoja, ktorý sa prejavuje v málo rozvinutých krajinách, má veľký vplyv na globálnu ekonomiku. Je veľmi dôležité, aby rozhodnutia týkajúce sa budúceho vhodného rozvoja obsahovali všetky globálne premenné, zahrňujúc environmentálne a sociálne faktory. Úloha, ktorú budú hrať menej rozvinuté krajiny v budúcnosti v globálnom prostredí, bude veľmi záležať na lokálnych rozhodnutiach, ale takisto na rozhodnutiach v rozvinutom svete. Medzinárodná komunita musí tesne spolupracovať v záujme nájdenia vyrovnaného riešenia na problém, ktorý má dopad na každého.

Kľúčové slová

chudoba, dlh, obchod, investícia

Abstract

As poverty in the less developed world (with the exception of China) is soaring, the people of these nations are becoming more hungry for development in order to alleviate human misery. The type of development that occurs in the poorer countries of the world has a great impact on the global economy. It is essential that decisions be made that consider all the global variables, including environmental and social factors, when deciding what type of development is appropriate. The role that the less developed countries play in the future of the global environment will depend a lot on decisions made domestically, but also on those made in the developed world. The international community must work together in order to find equitable solutions to a problem that has implications for everybody.

Keywords

Introduction

There is considerable income inequality among countries. The richest 20% of the world's population receive about 86% of the world's income.1

Most LDCs are characterized by the large number of poor people, identified as those living on less than US$ 2 a day. For instance, in the period 1995-1999, for the group of LDCs for which data is available, 81 per cent of the population lived on less than US$ 2 a day, while 50 per cent lived in extreme poverty, such as less than US$ 1 a day. An extrapolation of these patterns indicates that, with a total LDC population of 613 million people, the number of people living on less than US$ 1 a day in all LDCs was 307 million, while the number living on less than US$ 2 a day amounted to 495 million.2

Economic growth requires that also less developed countries (LDCs) use their existing resources more efficiently and that they expand their available supplies of resources. The physical human and socioeconomic conditions in these nations are the reasons why LDCs experience different rates of economic growth. Many of them possess inadequate natural resources. This limited resource base is an obstacle to growth. Also the agricultural products, which they typically export, are subject to significant price variation on the world market creating variations in national income.

The circumstances for human resources in DVCs are difficult for three main reasons:3

DVCs tend to be overpopulated and have high rates of population growth. These growing populations reduce the DVCs' capacity to save invest and increase productivity. They also overuse land and natural resources and the migration of rural workers to cities creates urban problems.

DVCs often experience both unemployment and underemployment, which wastes labor resources.

DVCs have low levels of labor productivity because of insufficient physical capital and lack of investment in human capital.

LDCs have an inadequate amount of capital goods and so they find it difficult to accumulate the capital. Domestic capital formation occurs through saving and investing. The potential for saving is low in many of these countries because the nations are too poor to save. It is so called “vicious circle of poverty”.4

1 _{Lipková, Ľ.: Ekonomika rozvojových štátov, p.9}

2 _{OECD Development Co-operation Report 2006 – Volume 8, No. 1}

3 _{http://www.tutor2u.net/economics/content/topics/development/development_ldcs.htm} 4 _{Lipková, Ľ.: Ekonomika rozvojových štátov, p.14}

Also the infrastructure is poor in many LDCs, the technological advance is slow. Although these nations might adopt the technologies of industrial nations these technologies are not always appropriate for the resource endowments of the LDCs so they must learn to develop and use their own technologies. In poorer countries, problems are often related to a lack of means to apply the proper technologies to production and the need to provide basic requirements for a rapidly growing population. 5

Role of the government and developed countries

There are differing views about the role that government plays in fostering economic growth in these countries. The positive view holds that in the initial stages of economic development government action is needed to help overcome such obstacles as the lack of law and order entrepreneurship and infrastructure. Government policies may also assist capital formation and help resolve social and institutional problems. Problems and disadvantages with government involvement in promoting growth include bureaucratic impediments corruption misadministration and the importance of political objectives over economic goals. Central planning does not work because it restricts competition and individual incentives, which are important ingredients in the growth process. Also corruption plays a significant role in the mix of problems.

Industrially advanced nations of the world can help the DVCs (LDCs indeed) develop in a number of ways:

They can lower the trade barriers, which prevent the DVCs from selling their products in the developed countries.

5 _{Binger, A.: The poverty reduction challenge in LDCs, CDP Background Paper}

low level of savings and investment low average incomes low accumulation of capital low labour productivity

Loans and grants from governments and international organizations such as the World Bank also enable the DVCs to accumulate capital. This foreign aid has been criticized because it increases dependency bureaucracy and corruption. For these reasons and because of the end of the cold war foreign aid to countries of the third worlds is declining.

DVCs can also receive flows of private capital. These flows come from banks corporations and financial investment companies. This kind of investment is only short–term profit oriented and so very risky.

Debt Crisis6

In the 1980s DVCs experienced a debt crisis in which they found they could not repay their loans. The factors contributing to this crisis were high prices for imported oil a tight monetary policy in the United States an appreciating dollar and unproductive investments. The flow of private lending and investments in DVCs virtually ceased during this period.

In the 1990s the flow of private lending and investing increased as DVC debts were restructured and some DVC economies were reformed to control budget deficits and inflation. More of the flows are now in the form of direct foreign investment in DVCs rather than loans to their governments; however the flow of most private capital goes to selective nations and it is still not certain that the debt crisis is over in encouraging economic growth in DVCs are directing foreign aid to the poorest of the LDCs reducing tariffs and import quotas providing debt relief allowing more low- skilled immigration and discouraging brain drains and limiting arm sales to LDCs.7

LDCs vs. trade protectionism

One of the main reasons why poor countries remain poor is the operation of the global trade system. It is clear, that the way that global trade works is dictated by the world’s richest countries. This can be seen in the operation of tariffs.

Through organisations such as the World Trade Organisation, poorer, less developed countries are told that they cannot have tariffs, because they are not allowed to protect their own companies from free competition with companies from richer countries. However, the same rule does not apply to the richer countries. They are allowed to protect their companies through the use of tariffs.

6 _{Lipková, Ľ.: Ekonomika rozvojových štátov, p. 42}

Nowhere is this clearer than in the field of agricultural "protection". Rich countries impose high tariffs on farm goods imported from other countries, for example through the operation of the Common Agricultural Policy (CAP) in the European Union, altough there can be seen a shift in the EUs CAP. However, many of the poorest countries in the world are dependent on exporting primary, agricultural products for their survival. Yet if these poorer countries wish to export their goods to wealthier countries, they first have to pay the high tariffs, which are designed to force up the price of their goods so that agricultural producers in the richer countries can compete with them. Yet again, one can see a shift to change in this kind of protectionist policy, as it is bringing more problems than benefits. For example, NGOs are doing everything to bring balance to the trade between developed and developing countries.

While such protectionist policies may protect producers in the richer countries, they represent a nightmare for those who seek to export goods from poorer countries. Faced with high tariffs, poorer countries have to firstly find alternative markets for their exports. Then, the same supply of exported goods will have to be absorbed by a smaller overall export market. In order to get rid of the supply, poorer countries may well have to reduce the prices of their exported goods.

The hypocrisy of the richer countries is that they demand the poorer countries do not follow protectionist policies themselves. If poor countries decide to make it harder for the richer countries to access their markets, in order to protect domestic producers, the wealthier countries will then use their economic clout to demand that they be given access to the poorer countries’ markets.

However, if poorer countries from LDCs allow companies from wealthier countries to access their markets, they should insist that these companies invest in and train local workers. Multi-national corporations often bring foreign workers into poorer countries, which prevent domestic workers from gaining valuable skills. Profits are also often repatriated back to richer countries. Poorer countries should demand that multi-national corporations use domestic workers and pay domestic taxes on their profits, as a pre-condition of being allowed access to the fruits of their markets.

The most obvious solution to this problem is to end the protectionist policies of the wealthier countries. All countries, rich and poor, will benefit from the greater trade that results.

Exploitation and a “supply-cut”8

A further problem with world trade is that less developed countries believe that they are being exploited by more industrialised countries, who buy raw materials at a low price and return manufactured goods at a much higher price.

This is a particular problem for less developed countries because they need manufactured goods, such as machinery, to increase their productivity and to release people from manually working on the land. The way less developed countries acquire these manufactured goods is to sell primary products (such as farm produce) to the rest of the world and use the revenue to import machinery. However, prices in primary products have gone down, and at any rate are subject to fluctuation. This is because primary products such as bananas and coffee are produced in different quantities depending on the seasonal harvest, and consequently any earnings from these products tend to fluctuate season to season.

The core problem for less developed countries is that they do not have enough control over the prices of primary products. If less developed countries could fix the prices of these products at a certain level, to reflect how much the products are valued in richer countries, then the less developed countries would not be exploited and would have larger revenues to invest in manufactured products. The way to "fix" the price of any product is to control its supply. The lower the supply of the goods, the greater the demand and the greater the price.

In order for such a price-fixing scheme to work, it is essential that most or all of the poorer nations that produce a primary product participate in the scheme. For example, if only one coffee-producing nation decided to restrict the supply of coffee on the market, that would have only a limited effect on price. However, if all the coffee-producing nations participated in a cartel or commodity stabilisation scheme where the supply of coffee was controlled, then the price of coffee would increase without a consequent decrease in demand, and the export earnings of the poorer countries would be stabilised.9

If the poorer countries seek to stabilise prices in this way, then that would be different to the kind of protectionism practised by richer countries. The markets of the poorer countries would still be completely open to the richer countries.

8 _{Casellim M.: Some Reflections on Globalization, Development and the Less Developed Countries, CSGR}

Working Paper

9 _{Casellim M.: Some Reflections on Globalization, Development and the Less Developed Countries, CSGR}

Lack of investment and possible solutions10

The driving force of economic development in most of the less developed countries is the inflow of foreign capital. Development projects in these nations are financed through (as above mentioned) loans, aid and foreign direct investment. One of the most important sources of development funds in the poorer countries is of course the World Bank.

A significant source of capital inflow is through foreign direct investment. A major problem for LDCs is that they do not have enough domestic resources to devote to investment and training. There is also a lack of investment in infrastructure such as transport, roads, power, telephone systems and urban housing. This further means that businesses in poorer countries find it difficult to operate on a large, nationwide scale in order to reduce their costs.

There are a number of ways to resolve this problem:

Trade reforms - The trade reforms discussed above would lead to poorer countries

having greater resources at their disposal to invest in order to grow.

Productivity growth - One endemic problem in many countries is corruption, which

causes inefficiency and wastes resources. Less corruption would result in more productivity growth, as resources already available would be used more efficiently. Productivity growth would boost domestic economies in developing countries, and it is vital for these countries to build their own domestic economies alongside foreign investment and trade. A poorer country should not be dependent on foreign investment at the expense of its domestic economy, as there is always the danger of foreign investors leaving.

Redistribution of wealth - The fairest way to tackle the lack of investment in poorer

countries would be through a simple redistribution of wealth from the richer countries to the poorer countries. The disparity in wealth between the rich and the poor is obscene, and equity demands that this injustice cease. An argument against redistribution of wealth is that because money is mobile, a large tax in one country will simply lead to the money being shifted elsewhere to escape the tax. Consequently, less tax will be actually be raised.

This argument is flawed for a number of reasons. Firstly, it assumes that some kind of "tax haven" exists where money can be shifted to in the event of high tax rates in one country. There would be no such haven if every state in the world had harmonised rates of tax. It is also possible to levy taxes in exchange for access to

markets. No matter how high the tax rate, companies will pay that tax rather than face being denied access to the market and to any profits altogether.

Aid - Another way of redistributing wealth is through aid. The only problem with aid

is that it is normally paid for through taxes, which are largely paid by those on average incomes. It is the grossly wealthy, rather than those on modest incomes, who should subsidise the reconstruction of poorer countries.

Investment in less developed countries will lead to their economies improving and

more trade taking place. More trade will benefit all countries in the world, both rich and poor.

How to handle the population growth?11

One obvious danger for prosperity is rapid population growth in the poorer countries. The lack of state pensions in poorer countries means that people often have large numbers of children to provide them with security against old age, when they are no longer able to work. The result, however, is that precious resources in poorer countries are stretched even further simply to enable everyone to survive.

With free trade and investment, the economies in poorer countries should develop to the point where state pensions are available for all. This safeguard should check the levels of population growth. In the meantime, campaigns of education in poorer countries, funded by richer countries, should continue. There should also be a programme of incentives for poorer people to have only one or two children- such as state maintenance and education of their children until they are adults, for example. Poorer countries simply do not have the resources to fund these programmes of education and maintenance, so again the money should come through redistributing wealth from richer countries. If this redistribution does not occur, the price will be continuing absolute poverty and suffering in less developed countries.

Is borrowing a solution ?12

A further means of investment in poorer countries is for those countries to borrow money. However, borrowing to grow should only be a last resort. In the past, less developed countries borrowed to finance imports of goods such as machinery. However, the lending terms were tough, and combined with rises in interest rates, many countries found themselves in massive amounts of debt. Simply to pay the

11 _{Lipková, Ľ.: Ekonomika rozvojových štátov, p.58}

interest on this debt, imports had to be cut and any export earnings were used to pay off debts, when these earnings should have been used to fund desperately needed investment.

Past experience suggests, then, that poorer countries should be very wary of borrowing money to fund growth. If poorer countries do get into debt, then considering the suffering the people of those countries will already be enduring, the debt must be written off by all creditors, or at least rescheduled. Governments and