Why are Underdeveloped Countries Underdeveloped - Essay Example

? Development of the poorest nations on earth has proven to be a daunting challenge for the wealthiest nations. For decades, trillions of dollars in aid have flowed from wealthy to poor nations in an effort to spur development. Governments, religious charities and international organizations such as the International Monetary Fund and the World Bank have each tried in their own way to improve the lot of the poorest people. Yet development lags and some are arguing that the traditional means of attempting to spur development in these places simply does not work. The wisdom of direct relief payments and loans is being questioned. There appears to be a “giving” fatigue that is setting in amongst the wealthiest individuals, governments and organizations. The feeling that no amount of money can really spur true development in the poorest nations is disheartening, but real. Some scholars are suggesting that the root causes of the lack of development must first be addressed before real development can take place. The economic geographer Paul Collier suggests that there are four traps that developing nations fall into that keeps them in a perpetual state of underdevelopment and poverty (2007). The problem of eliminating poverty on the national and personal level then, is much more complicated as a result of these traps when considered individually or collectively. Nations that continue to struggle to meet the most basic demands of their citizens despite ample aid are hampered by conflicts and civil wars; corrupt governments, a dependence on natural resources for revenue and unfortunate geographical positioning. Conflict is the first and most prevalent trap that developing nations find themselves facing. Civil wars are common among the poorest nations for several reasons. One stems from the fact that in the poorest nations, there is always a political elite that concentrates wealth in the hands of the very few. This disparity, coupled with high unemployment rates among young men creates a situation where individuals view armed conflict as a legitimate means of accomplishing social justice (Hookway, 2000). Rebels in the Philippines were emboldened after European nations paid large sums of money to free hostages they had taken. Soon, many were scrambling to join the rebels, not because they were ideologically opposed to the current regime in Manila, but because they wanted to cash in on kidnapping tourists. As will be discussed later, the wealth of natural resources is also something that spurs conflict. Precious metals and minerals are often the target of rebel forces in developing nations. The real purpose of many civil wars in developing nations is for control of oil wells or diamond mines. The unequal opportunities for obtaining wealth in the developing world makes armed conflict very attractive to unemployed young men. The costs of warfare are felt for many years after the war is over. Some estimates state that on average, an economy shrinks at about 2.3% each year during a civil war (Collier and Hoeffler, 2005). If the conflict continues for a decade, the country will be 23% poorer than when the strife continued. With economies that grow slowly as a result of underdevelopment, the poorest nations may be looking at a decade of growth being consumed by the conflict. The propensity of fall back into armed conflict only heightens the effects of conflict on developing nations. A second trap that keeps the poorest nations poor is depending on resource extraction and exports for a large portion of national income. The more diverse the national economy, the more able the economy is to resist recession (Kirk, 1997). Diverse economies have been linked to greater political and economic stability. Depending on one commodity, such as oil or gold, is risky because it exposes the nation to boom and bust cycles. A good example of this was experienced in Nigeria. The discovery of oil in the Niger Delta was thought to be a great boon to Nigeria. Development activities began in earnest in the 1970’s and by the 1980’s Nigeria had become one of the greatest exporters of oil in the world. During these early days of exportation, oil process soared. Revenue streamed into Nigeria (Moser, 2004). Much of the revenue was wasted on government projects that did little more than fuel cronyism and corruption. Some did, however, trickle down to average citizens. The standard of living for the entire nation improved steadily for the first half of the decade. This ended when worldwide oil prices crashed in 1986 (Youssef and Ibrahim, 1987). Suddenly, the revenue that was driving the improved living conditions stopped. Most damaging to all of this was the Nigerian government’s penchant for borrowing money from the IMF during the period when oil revenue was at its peak. When the price crashed, the money was not there to pay back the bank. Reforms were instituted that hurt average Nigerians. They started to see their improved living conditions erode. Dependence on commodity exports places developing nations at the mercy of the global marketplace for that commodity. This is not a good situation for producing long-term, sustained growth and development. Another problem with dependence on exporting natural resources is it appears to actually suppress the development of democratic institutions. Very few nations that generate most of their revenue through exporting oil or other valuable natural resources are democracies. It is much easier and efficient to control the nation and the economy by establishing an authoritarian regime. As a result, freedoms are repressed and inequality encouraged. This creates the prime circumstances for the aforementioned conflict trap to develop. Cronyism and corruption are also closely related to an overdependence on natural resources for state revenue. This is the third reason that many developing nations never break out of the cycle of poverty and achieve developed status. Corruption is perhaps the most effective way of staunching the good intentions of international aid. It in ways small and large, it bleeds off vital revenue from every project that will improve the lives of everyday citizens in these nations. Everything from permitting to contracting in the poorest nations is infused with the understanding that without bribes and kickbacks, no work will proceed and no aid will be spent. So aid money is diverted to handle the kickbacks and bribes to the remaining portion might do some good. Unfortunately, in some developing countries, the amount of corruption all but chokes the flow of money. In one study, for every $100 in aid money intended for medical relief in the nation of Chad, only $1 actually made it to the intended destination (Wane and Gauthier, 2007). Corrupt government officials had siphoned off the other $99. Bad governance in nations such as Chad does not revolve simply around corruption. Sometimes, small developing nations simply lack the expertise in macroeconomic policy that is needed to put the nation on the right path. The problem with listening to experts is they occasionally tell very powerful people things they do not want to hear. Many of the rulers in underdeveloped nations are incredibly wealthy, so they do not want to see anything change in their nations (Munthali, Matagi and Tumwebaze, 2010). In the case of Malawi, President Hastings Banda was informed that the nation was headed towards economic ruin unless he reformed some of his policies. President Banda arrested him and put him in jail for over a decade. The economy of Malawi subsequently went into rapid decline yet Banda held onto his personal control over the nation. A final reason that developing nations remain poor is due to unfortunate geographic locations (Faye, Sachs and Snow, 2004). Countries that are landlocked are hampered in their ability to generate revenue through exporting to wealthy nations on a massive scale. This is especially true if their neighbors are engaged in conflicts or are hopelessly corrupt. This completely restricts access to ports that could be used for trade. As a result, the nation’s economy is constricted and limited to the citizens of the nation and their easily accessible neighbors. This is especially true in Africa, where 30% of the population lives in resource scarce nations that are landlocked. The reasons suppressing growth in developing nations are many and complex. The solutions are no less difficult to quantify and administer. One possibility for helping these developing nations may be found in the trade policies of the wealthiest nations in the world. Trade policies that encourage the development of exporting industries in the developing world may be a better tool that giving direct aid to these nations. Direct aid is easy to siphon off due to corrupt government officials. Aid money given to nations that are engaged in protracted conflict often seeks ways to divert the aid money towards military spending instead of the aid’s intended institutions. Trade policies would be a sort of transfer payment from wealthy to poor nations that involves the developing of industries in those poor nations. Competition for market share in the West will encourage greater economic growth and diversity in developing nations. In exchange for this, Western nations may make demands for more invasive international laws intended to root out corruption form these governments. By establishing laws and positive trade policies, the wealthiest nations may be able to help the poorest nations develop in a prolonged, intelligent and sustained manner. Bibliography Collier, P., 2007. The Bottom Billion. New York: Oxford University Press Collier, P, & Hoeffler, A 2005, 'Resource Rents, Governance, and Conflict', Journal Of Conflict Resolution, 49, 4, pp. 625-633, Academic Search Complete, EBSCOhost, viewed 3 April 2012. Faye, M, McArthur, J, Sachs, J, & Snow, T 2004, 'The Challenges Facing Landlocked Developing Countries', Journal Of Human Development, 5, 1, pp. 31-68, Academic Search Complete, EBSCOhost, viewed 3 April 2012. Hookway, J 2000, 'Ransoms Exacerbate Rebellion in Philippines', Wall Street Journal - Eastern Edition, 11 September, Academic Search Complete, EBSCOhost, viewed 3 April 2012. Kirk, J 1997, 'ECONOMIC PULSE: New Jersey; Diversity Propels New Jersey In Region Stung by a Recession', New York Times, 23 September, MasterFILE Premier, EBSCOhost, viewed 3 April 2012. Moser, K 2004, 'The Paradox of Plenty? The Political Economy of Oil in Natural Resource Dependent States', Conference Papers -- International Studies Association, p. N.PAG, Academic Search Complete, EBSCOhost, viewed 3 April 2012. Munthali, A, Matagi, L, & Tumwebaze, C 2010, 'Remuneration discrepancies in the landlocked economies of Malawi and Uganda', International Journal Of Psychology, 45, 5, pp. 341-349, Academic Search Complete, EBSCOhost, viewed 3 April 2012. Wane, Waly and Gauthier, Bernard 2007, Leakage of Public Resources in the Health Sector: An Empirical Investigation of Chad, World Bank Policy Research Working Paper No. 4351. Available at SSRN: http://ssrn.com/abstract=1014511 Youssef M., Ibrahim, S 1987, 'OPEC Price Stability Seen as Imperiled', New York Times, 7 December, MasterFILE Premier, EBSCOhost, viewed 3 April 2012. Read More