Why Poor Countries are not Catching up
One
of the myths about globalisation that has been systematically punctured
over the past decade is that it would lead to greater convergence of
incomes between countries. In fact the period after 2000 has been one
of even more uneven development in the world economy than in the past.
It
has become evident that those analyses that still try to peddle this
line rely essentially on the fast economic growth of China and to a
lesser extent India, who together make up more than one-third of the
world' population. And even so, greater rural-urban inequality within
these two countries makes a completely optimistic result hard o establish.
However, on the question of the convergence between the richest and
poorest countries, it would be impossible to have a debate. The data
is unambiguous that the poorest and least developed countries (hereafter
LDCs) have not performed well over this period, and the gap between
them and both the richest and the middle income countries has grown
substantially.
Of course, it is true that even among LDCs, there has been a wide distribution
of outcomes. For example, the best performer, Bangladesh, grew at a
very respectable annual rate of 2.6 per cent per capita between 1980
and 2002, while the worst performers (Djibouti, Sierra Leone, Haiti)
all had per capita income losses of between 40 and 50 per cent. But
there were only three clearly good performers among LDCs: Bangladesh,
Lesotho and Uganda. The group of LDCs as a whole shows no movement towards
higher per capita incomes and nearly half of them had negative growth
rates.
What explains this growing divergence? What are LDCs not only failing
to catch up, but even experiencing patterns of growth that widen the
gap between them and richer countries? A recent study by the economist
Branko Milanovic (''Why did the poorest countries fail to catch up?'',
Carnegie Papers No 62, Trade Equity and Development Project, Carnegie
Endowment for International Peace, 2005) tries to identify the factors.
This study at least helps to establish what was not responsible. Mainstream
economists, when faced with such reality, have a typical response: ''The
reforms have been too slow, or too limited, or not deep enough.'' But
Milanovic shows that even when ''reforms'' (which are basically more
neoliberal policies) have been slower or less extensive than in other
middle income developing countries, this could have played at best a
minimal role. In fact, even this limited conclusion is unwarranted,
since Milanovic suggests that neoliberal reforms in these countries
started a decade after those in middle income countries, whereas actually
most LDCs (especially those in Sub-Saharan Africa and Central or Latin
America) have been engaged in policies of privatisation and liberalisation
from the early 1980s, typically due to pressure from multilateral aid
institutions.
Similarly, the study shows that the LDCs did at least as much trade
liberalisation as other countries. The average level of protection measured
by tariff rates is not different for LDCs than it is for other countries,
so this too is unlikely to have been a cause of poor countries' bad
performance. The lower ratio of trade to GDP was therefore probably
a result of lack of development, rather than a cause of it.
The study also finds that the reliance on multilateral lenders is unlikely
to help the poorest countries. (It could be added that this is also
because such reliance comes with greater insistence on the very policies
that have been associated with earlier lack of growth and development.)
There is another important insight: that the much-touted positive roles
of democracy and higher education on economic growth are very difficult
to discern on the basis of the empirical evidence alone. ''Indeed, it
could be that both are primary goods, desirable in themselves, instead
of purely instrumental goods acting as tools for higher income. In that
sense, democratization and better education in poor countries are worthy
goals, but neither seems to be an instrument for economic development
- particularly so if other enabling conditions, like peace, are not
present.'' (page 26)
Instead, the study highlights another potentially important reason for
the slow economic growth of the LDCs: the implications of political
and social instability. Milanovic points out that one key factor associated
with low growth is war and civil strife. The poorest countries have
lost, on average, some 40 percent of their output through much greater
frequency of war compared with the rest of the world. According to him,
if we take the effect of wars alone, we find that the entire relative
decline of the LDCs compared with the middle-income countries can be
thus explained. In other words, had prevalence of war among LDCs been
at the same level as elsewhere, the LDCs would have at least kept pace
with the rest of the world.
This interesting conclusion of course begs a further question: why are
there so many more wars and civil conflicts in these LDCs? It is worth
noting that most LDCs are not poor in terms of natural resources: many
of them are sites of major reserves and ongoing extraction of important
ores and minerals, as well as producers of agricultural commodities
that require very specific natural conditions. In fact there have been
those who have argued that it is precisely this natural wealth that
has been a curse for these countries, attracting national and international
bees to the honey pot in the scramble for accessing or controlling such
resources. It is no secret that local conflicts have been stoked by
outside, and imperial, interests.
Aside from such considerations, however, there is another sense in which
we should not be surprised at the higher levels of violence in LDCs.
When substantial populations are at the margin of subsistence, even
small changes in territorial access or economic policies can have major
implications for life and basic conditions of living. So struggles over
even what appear to be relatively minor issues are fought aggressively
and bitterly, because often what is at stake is sheer survival.
So, in a very basic sense, the extent of political conflict and instability
in particular countries also has material foundations, even though the
links are not always so apparent. And this vicious spiral in turn can
be traced to certain kinds of neoliberal policies characteristic of
current imperialism, which are affecting not only the world economy
but especially these particular countries.