Problems in Less Developed Countries - Essay Example

Problems Faced by Less Developed Countries Introduction This paper deals with the problems faced by developing countries (or the less developed countries) and the positive and negative effects of economic growth in these countries. In particular, the paper deals with some of the key areas that include population growth, scarce capital and corruption of institutions among others. The objective of this paper is to highlight the problem in each of these key areas and then examine how economic growth can alleviate and also exacerbate the same. The references for this paper are from books associated with economics and the study of developing countries. Population Growth Among all the developing countries, population growth remains one of the reasons for these countries to remain poor. To take specific examples, both India and China have historically been among the poorer countries because of their huge populations. It was only after the economic liberalisation and opening up of their respective economies that these countries began on a growth trajectory similar to that of the developed countries. Ever since India became independent from the erstwhile colonial rule of the British in 1947, one of the cornerstones of its policy has been to reduce population. The efforts of the Indian government in this regard have been mixed due to a combination of ignorance, tradition and other factors that are largely due to the lack of economic growth. The deadly combination of low income coupled with large families makes for social instability and poor human development. This has had a cascading effect on the employment and the social welfare programs of the government – though well intentioned- have not had the desired effect. On the other hand, ever since India started liberalising its economy in the 1990’s, the rate of population growth has fallen marginally leading to optimism that the endemic problems associated with population growth can be tackled, after all. With access to education for the women, it has been easy to empower them to take decisions regarding reproductive health and raising of children in a “modern” or a manner that is healthy. This has led to low mortality rates and voluntary participation in birth control programs. In this context, China with its rigorous application of the “one-child” norm has been far more successful in fighting the menace of population growth. Resource capital It has been often stated that one of the reasons for the under-development of certain regions has been due to the “tyranny of geography”. This is true in the case of many of the less developed countries. Because of the non availability of resources, many countries have traditionally been at the bottom of the economic ladder. Some examples are the South East Asian countries, who till they started on a path of export led growth were stagnant in economic development. The countries of South Korea, Thailand and others do not have abundant resources. Instead they focussed on what economists called the “human capital” for their development (we shall see more of this in the next section). Thus economic growth in the form of development of sectors that are not “resource intensive” has given these countries a lead over the others. In contrast, several other regions of Asia and Africa have suffered due to lack of resource capital when they started on a path of economic development. However, the negative side of economic growth is that there has been an indiscriminate pillage of the natural resources in many of these countries leading to degradation and loss of competitiveness. Scarce Human Capital It is a corollary of poor economic growth that the human development in terms of the social indicators also lags behind the developed countries. Because of lack of access to education and other social needs, the populace of the less developed countries often lack the skills to compete in the global economy. The countries like the South East Asian “tiger economies” circumvented this by investing heavily in the “human resource” component of development thereby giving them an edge over many of the countries that even now do not have a skilled workforce and thus are unable to reap the advantages of globalisation. On the other hand, high economic growth creates its own demand for skilled resources that many countries often lag in the supply side. Once a country starts on the path to economic development, the needs of the economy in terms of requirement for human capital increases and the country has to keep pace with the demand by augmenting the social infrastructure and thus be able to retain the competitive edge. An example of a country that has made good use of the development of human capital is India which with its Services sector growth has ensured that the overall growth rates for the economy remain high. Despite the fact that the overall social indices are somewhat poor, the availability of skilled resources has benefited the services sectors like the Software and the Outsourcing industry. Poor Infrastructure Among the many ills that the less developed countries face, Infrastructure or the lack of it is one of the most prominent factors for poor economic growth. It is a vicious cycle as massive investments are needed to develop the infrastructure and poor countries cannot afford the same. And unless infrastructure is improved, the economies cannot “take off” in a significant way. Thus, it becomes a loop or a cycle of stagnation that cannot be broken without assistance from the multilateral funding institutions like the IMF and the World Bank. It is instructive to learn from the experiences of China that has managed a “leap of growth” due to its ability to ramp up its physical infrastructure to a large extent and then reap the benefits of being the “factory to the world” in the manufacturing space. In contrast, countries like India that are attempting to get into the high growth mode have seen that infrastructural constraints have been dragging the country down when the other sectors like the Information Technology industry are posting high rates of growth. Regional Conflict The best examples of countries that have had poor economic growth due to regional conflicts are the African economies that are perpetually at war with each other and within themselves. Despite the availability of resources in the Western African countries, the state of civil war in many of these countries has made the economic development of them stunted. Poor economic growth brings with it the attendant problems of scarcity and competition for these scarce resources with the result that there is often an internecine battle among different ethnic groups for the same resources. Thus, these countries do not find a way out of the regional conflicts without intervention by the United Nations and other regional powers and that too the peace brokered by them is often fragile and prone to disruption. On the other hand, high rates of economic growth fuel a different kind of conflict, namely the race for the spoils of growth and this can be seen in some of the South Asian countries, which, despite having high rates of growth are dogged by conflict arising. Corrupt systems and Institutions This is an endemic problem in many of the countries that became independent from the colonial powers in the latter half of the 20th century. Poor economic growth leads to bad governance and a lack of respect for the rule of the law. Compared to the western countries where the institutions were established centuries ago and there is a broad consensus among civil society on the nature of governance and the welfare state, in many of the less developed countries, the institutions are under attack from vested interests and the common person pays a price for bad governance. This is one area where poor economic growth is directly linked to red tape and the systems of governance fail when it matters the most. In many of the rural areas in India, the governance mechanism has broken down and there is a “parallel government” run by the militias of the powerful. Due to the lack of economic development in these regions, the populace has no choice except to bow down to these interests. References 1. Economic development and Opportunity: Amartya Sen and Jean Dreze 2. Development Economics: Debraj Ray 3. Development thought after World War II: Encyclopaedia Britannica 2001 Read More