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Developing Countries | Why We Must STOP Helping Them
What will help end poverty in the developing world?
Many politicians, economists and philanthropists in the developed world seem to think they know the answer.
Despite their certainty, the developed world’s ideas about poorer countries is based on false ideas.
1. Structural Problems
One misconception is that poverty in the developing world is caused for structural reasons: reasons such as having difficult terrain, or having an inhospitable climate.
But, if this were the case, then many other developed countries would be struggling economically. For example, the mountainous countries of Switzerland and Austria seem to be doing rather well, relatively speaking. Another example is the city of Venice, where nobody would have thought it ideal to build a city upon nothing but water, reeds and marshland. Yet, this city became one of the major global trading hubs during the last millennium.
2. Lacking entrepreneurial spirit
Another false belief, is that the developing world lacks the entrepreneurship of the developed world. In the developed world, only around 10% of people are self-employed. On the other hand, in the developing world, self-employment makes up 30-50% of the workforce. Entrepreneurship stems from ideas and the ability to take risks. But, in order to take risks, you must first have resources (which developing countries don’t). So, this belief is completely erroneous.
Developed Countries Must Accept Responsibility for Causing Poverty
The truth is this; the reason for developing countries remaining poor is because of us developed countries. Free market economics and simply allowing production decisions to be made on the basis of costs is what causes poverty elsewhere in the world.
Quick Case Study - Nike
Take for example, Nike; they produce sports clothing all over the world. Many factories are located in the Far East: for example, Vietnam, China and Indonesia. Even though Nike employ over a million people globally, a large proportion of their workforce cannot afford their products. This is because a pair of Nike trainers is primarily aimed at western markets.
Because of this business structure, those working in the east will always find it difficult to purchase a pair of Nike trainers. A unit of labour, though essential, represents a small part of the production process; once a business factors in all of their back-end costs and adds in their mark-up, the price is far beyond affordable for those who actually produced the trainers.
Quick Case Study - Sub-Saharan Countries
Another example is Sub-Saharan countries in the 1960s and 1970s. During these two decades, countries in this region of Africa were experience respectable growth rates. Their economies were protected by their governments (protectionist policies). One example of a protectionist policy they used was subsidisation. The reason for government subsidisation was to keep their countries globally competitive. However, in the 1980s, western governments forced these countries to open their markets, and as a result, their domestic economies failed.
Learn more about protectionist policies
Quick Case Study - How did the West Become So Rich?
In order for us to grasp why other countries are so poor, we have to look back in time to figure out why we’re so rich.
In the 19th century, western countries heavily protected their economies from foreign competition. The United States, for example, placed tariffs on imported goods as high as 50%. Another policy from the 19th century was that foreigners were forbidden from becoming financial directors.
Once wealth was established in western countries, there became an increasing movement towards free trade in the 20th century. Why? Because it made more economic sense to exploit workers abroad. They accept lower wages and work in worse conditions.
Knowing this, why don’t developing nations just follow this strategy?
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