The Massive Gulf Between Countries - Coursework Example

In the present day, why are some countries rich and other countries poor? By In the present day, why are some countries rich and other countries poor? The massive gulf between countries of the first and third worlds has continued and amplified in the globalisation era. Why and how did the world acquire this current status of disconnection? Since the late 1970s, social intellectuals have been enthralled by this query. In the Wealth of Nations (1991), Adam Smith disagreed that the greatest direction for national success is a free-market economy wherein extensive liberty in the production of revenues is permissible by the government. For more than 200 years, Smiths assumption has been vindicated by the remarkable victory of capitalist financial systems in North America, Western Europe and East Asia and by the miserable breakdown of socialist schema in the eastern part of Europe and the former Soviet Union (Sachs, Mellinger and Gallup 2000). The ever-changing world system of economy aggravates discrimination and inequality in the Third World. Foreign ventures carry further wealth for the already highly-industrialised rich nations as manufacturing employments are lost to the underdeveloped nations. Hunger and poverty, being the most crucial dilemmas facing the Third World today will continue to prevail unless the gulf between the two nations is mended. This paper will explain the standpoints of the theories of Third World Dependency on the First World; the Capitalism and Protectionism by the Rich Nations; and Globalisation of markets. The uneven distribution of world income will likewise be presented, as well as the debt crisis that worsens the economic conditions of the deprived civilisations. Moreover, it will attempt to explain the gap between the developed and underdeveloped countries, which when not quickly bridged may aggravate hunger and poverty in the Third World and may cause the economic collapse of both worlds. Unequal Distribution of World Income The greatest distinct gauge of a nation’s success is gross national product (GNP) per capita or gross domestic product (GDP) per capita– the overall worth of a countrys economic production, divided by its population (Sachs, Mellinger and Gallup 2000). Figure 1 below shows the world distribution of GDP per capita obviously exposing the immense gap between the first and third worlds. Figure 1: World Income Distribution Source: United Nations Development Programme 1992 The richest countries or the highly industrialised nations of the world include the United States, majority of Western Europe, Canada, Australia, New Zealand, and Japan. These countries have high per capita output and highly developed market economies based on the huge supply of capital goods, innovative technologies, and a highly-educated labour force. The developing countries include 107 non-industrialised nations mostly dedicated to agriculture. These countries have low literacy rates, elevated unemployment, rapid population increase, insufficient and primitive resource equipment and manufacturing technologies, and low productivity levels. Over 60 percent of the world’s population lives in these countries. The developing countries are divided into two groups: (1) the "middle-income" developing countries with an average yearly per capita output of $2,000 in 1999, with a variation from $756 to $9,265 per capita and (2) the poorest group with low-income and an average output per capita of only $410 and a variation up to $755. India and the sub-Sahara African nations belong to this group (Economic Growth in the Less Developed Countries n.d). Figure 2: Regional Income Distribution Source: http://www.leastof.org/about/helppeople Figure 2 above shows per capita income of every individual in the globe by regions, with the altitude indicating the number of people. More than 33 % of individuals suffering in tremendous scarcity are living in Africa. 420 million of the 630 million in Africa experience severe poverty. Experiencing extreme poverty are 330 million or 23% of people living in South Asia; 480 million or 20% of people in East Asia; 40 million or 8% of people in Latin America; 10 million or 2 % of people in Eastern Europe; and 0% in the United States, Western Europe, Canada, Japan and the other industrialised countries of the Organization for Economic Cooperation and Development (OECD) (Those Most in Need n.d.). The Poor Nations’ Dependence and the Rich Nations’ Capitalism The Theory of Dependence supports that global poverty began from the exploitation of the richest nations to the poorest nations. The colonisation of the countries of North America, Africa, and Asia transported considerable affluence to Europe and the United States. Decades later, colonialism has been withdrawn, however, despite political freedom; economic freedom has not been achieved (Macionis and Gerber 2005). Global inequality is best explained in Wallersteins view of the capitalist world economy. According to Immanuel Wallerstein, an American sociologist, the world system of economy is governed by capitalism and is not within the powers of the poor countries. Being the foundation of the existing world economy and maintaining dependency of the Third World, the First World is attributable to global poverty. The foremost reasons for dependency are: (1) limited production; export-oriented economies focused mainly on raw materials; (2) deficiency on technological knowledge and industrial inability; and (3) heavy indebtedness to the highly industrialised countries, International Monetary Fund (IMF), World Bank and World Trade Organization (WTO) (Macionis and Gerber 2005). The profound indebtedness and economic dependence of the Third World to the First World clearly implied undying characteristics of the gap between the highly industrialised countries and the underdeveloped countries, thus the helpless strangulation of the deprived civilisations of the world. The Third World debt dilemma is just an outcome of the displaced social systems reluctantly developed by the West in the South. This crisis and its unfavourable conclusion are leading to a slow perish and underdevelopment of the Third World in a post-modernisation era. The abuse and exploitation of the Less Industrialised Countries by the Industrially Advanced Countries is a grave obstacle in social justice and unbiased growth in economic development (Uche 1994). The poorest nations of the world are burdened of debt and trade policies of the International Monetary Fund (IMF), World Bank and World Trade Organization (WTO). The refusal of the world’s richest nations to annul debts leaves the Third World in poverty and misery, with no funds to finance daily survival needs and to spend on infrastructure (“Third World Debt”2010). Some Alarming Facts. Annually, there are 7 million children who die of poverty and hunger due to debt crisis. Everyday, since 1999, $128 million is transferred from the poorest nations to the richest nations for debt settlements: $53 million from East Asia and the Pacific; $38 million from South Asia; and $23 million from Africa. If all debts by Third World countries are written-off, it would only cost one penny per day for every person in the First World countries for two decades (“Third World Debt” 2010). Third World poverty and First World success are two inseparable economic elements. Considerable changes in social and industrial systems in the Third world emerged as capitalism and domination of the First World spread. The Westerners strived for more accumulation of wealth at the expense of the poor nations. Dependency opponents say that the exploitation of the indigenous resources and labour weakened and impoverished the Third World. Consequential of this poverty is the South’s total dependency on the West. Critics have a different opinion: It is not the South that is dependent on the West; but rather, it is the West that is completely reliant on the South for economic growth and success (Joshi 2005). The dependency scheme, as seen by detractors, is in fact an underdevelopment at the expense of development. Weakened economies, diminished resources and destroyed civilisation were left of the Third World whereas power, affluence, and fame were reaped by the First World. The asymmetrical exchange crafted global economic inequality, even more widening the gap between the poor nations and the rich nations. This trend, as seen by the two groups of nations, is bound to persist (Joshi 2005). Globalisation and Global Inequality Non-supporters of globalisation believe that the international free trade benefited the First World at the expense of the Third World (Joshi 2005), whilst supporters assert that the Third World achieved better living standards and developed economies through the liberalised trade, modern and innovative technologies, and extended media brought about by globalisation (Held and McGrew 2000, Stiglitz 2002). The global capitalist world is shaped with inequalities. Rich countries rule the international free market. The most affluent 1% of the global population has assets equivalent to the wealth of 57% of the poorest populace (Chua 2003). As the First World experienced unimaginable economic growth, the Third World suffered more decreased living standards. In the United States, the per capita individual consumption raised by 1.9% annually from 1980 to 1998, whilst the African sub-Sahara decreased by 1.2% per year covering the same period (Sachs 2001). Globalisation and the growth of the international trade created poverty and inequality, according to critics, with fifty percent of the global population living on lower than two dollars per day and over one billion individuals living on below $1 per day (Chua 2003). However, proponents believe that poor governance, modernisation backwardness, and cultural limitations are the main causes of a nation’s decreasing economic status (Smith 1991). In the past, the peripheral countries (poor nations) supply raw materials and cheap labour to the core countries (rich nations). The core profited by selling the inexpensive, labor-intensive consumable goods for much higher costs. Constant demand for these consumables definitely guaranteed a sustained market for the highly priced products, thereby benefitting mostly the core. Sadly, the exportation of hard-laboured, high-priced products to poorer nations caused more scarcity for these poorer states through the more reduced exchange of local money in their own economies (Smith 1994). Globalisation today has created considerable transformations to the connection between the rich and poor nations. The materialisation of modern communication technology generated a marketplace with limitless and immediate information transfers around the world. The rich nations subcontract large fractions of their production base to poorer nations. Because they have controlled power on information technology, the dominating nations may continue their authority of global trades through abuse of the poor countries’ cheap labour force and weak environmental laws. Peripheral states serve as both end users of high-priced commodities and inexpensive labour for the manufacture of goods sold by the more affluent nations at a much higher cost in world markets (Dunklin 2005). Globalisation institutions such as the World Bank and the International Monetary Fund (IMF) influence the continuation of this connection between rich and poor nations. Countries belonging to the First World, the World Bank and the IMF pressure the weak-economy and less-developed nations to liberalise their trade whilst guaranteeing that the weaker industrial sector of their own economies do not collapse. A perfect example of this double standard has been evident in the United States’ aggressive protection of its domestic timber and steel industries and its sugar industry. The U.S. requested an exemption from an agreement. Whilst submission to an agreement proposed by rich nations cannot be forced upon the poorer nations, submission is seemingly the best alternative because of the poor’s dependency on the rich, the World Bank and the IMF for economic assistance through loans and secure coalitions with the powerful nations. The implemented policies by the global financial institutions usually favour the wealthy nations. Terms of loans frequently subject the weaker nations to surrender to the neo-liberal capitalistic rules of the West. These rules usually cause the premature liberalisation of nations with underdeveloped markets (Stiglitz 2002). The IMF’s neo-liberal policies oblige the poorer nations to the reduction of governmental rules and elimination or lessening of directives to draw attraction to foreign investors. So as to be able to regularly pay their loans to the IMF, these poor states are compelled to raise their exports. Due to too many nations entering the international trade, they are forced to lower the prices of their goods, which is why the Third World nations remain in their low status (Stiglitz 2002). Protectionism by the First World In 2002, it was made public in the National Security Strategy of the United States of America that free trade is not merely a theory of economy but likewise a moral principle of the Bush Administration. According to President Bush, the U. S. will raise hopes of a democratic government, economic growth, open markets, and liberalised trade to all parts of the globe (Marquardt 2003) However, this so-called “moral principle” was contradicted by the same administration when the U.S. tried to protect its local steel industry by imposing high protectionist tariffs on imported steel, amounting to 30% of its cost. This unjust trade practice clearly violated the ideals of global agreements and free trade (Marquardt 2003). Because of the global economic recession, industries of every nation suffered economic instabilities. The rich nations’ implementation of high tariffs on foreign product imports amplified their market allocations given that end users would prefer purchasing the cheaper, domestic commodities than the high-priced imported goods. Raising more controversies is the fact that countries involved with their domestic free trade are exempted from these taxes (Marquardt 2003). The United States’ financial assistance to its agricultural industry has led to overproduction, thereby affecting a global decline in the prices of agricultural products. Trade protectionism has defended domestic industries from foreign competition. In Europe, the European Unions European Common Agriculture Policy (CAP) caused excesses and overproduction of agricultural goods. Japan’s subsidy programmes with its local industries shielded its economy from further rivalry with other countries. Protectionism by the United States, European Union and other nations belonging to the First World with the main objective of safeguarding their domestic industries from foreign competition could possibly bankrupt and collapse the industries in the Third World countries which are powerless to grant their own domestic industries with the same economic security and protectionist safeguards (Marquardt 2003). In the 1990s, the economic weaknesses abused by the present trends on free trade have further expanded the gulf between the rich and poor countries. The government administrations of the wealthy nations, in order to reign over global free trade, breached the free trade theory, reaping considerable benefits at the expense of the Third World and at the same time, defending their economies from free trade’s downside. Contrary to the First World’s glory, the poor nations suffer all the drawbacks of free trade and confront hardships in obtaining its gains (Marquardt 2003). 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