1.1 Introduction
Gapminder Instituteâs founder, Hans Rosling (1948â2017) is fondly remembered. He playfully refuted the conventional wisdom about developing countries, i.e., that they were a hopeless lot, characterised by corruption, squalor, endless poverty, inadequate health care, and low literacy rates. In short, the assumption was, said Rosling, that there was no hope that these countries would ever develop, let alone shed their poverty. Supported by statistical evidence, Rosling demonstrated in his TED lectures and in Factfulness that a lot of progress has been made over the past 50 years.1 Even âhopelessâ sub-Saharan Africa (SSA) took-off, economically speakingâthe impossible appeared to be possible! Indeed, SSA is making progress.
Not only is the developing worldâs past economic record pretty impressive, the same can be said about progress made in poverty alleviation, life expectancy, sanitation, and literacy. For example, the number of the worldâs poor declined from 1.9 billion in 1990 to 836 million in 2015. China alone managed to lift 600 million people out of extreme poverty over the past forty years. The average child born in 1950 lived 48 years; now this child can expect to live 71 years. Over two billion people have gained access to safe drinking water and toilets. More children go to school. This good news is a reflection of the Millennium Development Goals (MDGs) that have been achieved, thanks to the collective efforts of recipient and donor countries.
What is a typical Third World country? Thirlwall and Pacheco-LĂłpez offer a number of similarities and obstacles of Third World countries:
- A high proportion of the labour force engaged in agriculture with low productivity.
- A high proportion of domestic expenditure on food and necessities.
- An export trade dominated by primary products and an import trade dominated by manufactured goods.
- A low level of technology and poor human capital.
- A high birth rate coupled with a falling death rate.
- Savings undertaken by a small percentage of the population.2
The Third World, as originally conceived in the early 1950s, has fallen apart. Some countries- in particular East Asian countries, which used to form an integral part of the Third World, took off, while others have not done so well. Unfortunately, quite a number of developing countries deteriorated into fragile or failed states.3
On 14 August 1952, French historian Alfred Sauvy introduced the term Third World in an article in LâObservateur, a French newspaper. Sauvy distinguished the First and Second World as, respectively, the advanced Western world and the Soviet-bloc. In Sauvyâs distinction, the Third World consisted of Latin-America, Africa, and Asia. After the first oil price hike by oil producing countries in 1973, a âFourth Worldâ emerged, consisting of Most Seriously Affected (MSA) Countries. In addition, oil and natural gas rich countries received a separate categorisation.
Despite the similarities presented above, the Third World was more heterogeneous than one would think at first sight. After all, it included giants such as India and tiny countries such as Malawi. It also included relatively well-developed countries like Brazil, but also undeveloped Nepal. In other words, the term Third World was to some extent defined by what it was not: it was not Europe, it was not America, and neither was it the Soviet Union. Yet, as Branko Milanovic argues, the term was by and large not unreasonable as it allowed us to organise the world in a rather tidy fashion. It also corresponded broadly to a division in economic policies. The Third World was dominated by âdevelopmentalistâ policies, where the state played an active role. State-led development and import substitution were guiding principles in countries as diverse as Brazil, Turkey, India, Tanzania, and Ghana.4
A principal explanation for a low level of development is low productivity. When dealing with productivity, economists use the term total factor productivity (TFP).5 Poor countries typically produce raw materials or, at best, semi-processed goods, with low productivity. Their agricultural productivity is also lowâless than one-twentieth of the level of developed countries.6 What these countries lack is the appropriate type of industrialisationâin particular labour-intensive manufacturingâwhich would boost their TFP.
Now, what explains this low productivity? There are many possible explanations, ranging from erroneous economic policies, corruption, weak protection of property rights, a lack of entrepreneurial spirit and of a strong work ethic, a lack of credit, problematic access to national and international markets and better technology, and lack of a properly educated and healthy population. There are also political explanations: the elites simply block others from economic opportunities. They monopolise their favoured position in order to maintain the status quo.
History also plays its part. During the first wave of globalisation (1870â1914), colonies and other poor countries did not industrialise. In fact, these countries deindustrialised due to the undermining influence of European countries, which had benefitted from the Industrial Revolution. Before the Industrial Revolution, colonies and other poor countries had levels of industrial activity more or less similar to Europeâs. But Europe achieved a sixfold increase in industrialisation levels between 1750 and 1913, while Asia and Latin America witnessed a decline to less than one-third of their initial level of industrialisation.7 And this is where the development gap began.
The only non-Western country that managed to industrialise before 1914 is Japan, promoted by well-educated businessmen and a government intent on modernising Japan after the 1868 Meji Restoration. Poor countries, like Japan, were able to develop as long as they combined the efforts of a forward-looking government that designed and implemented sound economic policies, and a group of dynamic entrepreneurs. Roughly a century later, this was understood by other Asian countries, starting with the four Asian Tigers: Hong Kong, Taiwan, Singapore, and South Korea. Their remarkable economic development refuted neo-Marxist development theories, stating that developing countries would be barred from development.
Around 2050, three of the five largest economies in the world will be in Asia: China, India, and Japan. America obviously belongs to the top five. The question is who will be number fiveâwill it be Germany, Indonesia, Russia, or Brazil? And what will this development imply for the worldâs geopolitical order? This is what Bruno Maçães projects:
The new world order shares with the last decade of the previous century the belief in the inevitability of interdependency and connectivity, but it combines it with the recognition of division and conflict, where borders become increasingly diffuse but cultural and civilizational differences do not, giving rise to a permanently unstable compound of heterogeneous elements.8
1.2 Global Economic Development
Economic growth of developing countries does not happen in isolation; it is influenced by developments in the world economy. From the start of the decolonisation process in 1945 and up to 1973, when OPEC suddenly increased the price of oil fourfold, the world economy enjoyed a Golden Age of robust economic growth, triggered by reconstruction of war-damaged infrastructure, the Marshall Plan, and Americaâs accelerated TFP.9 This period was one of unparalleled prosperity. World per capita GDP grew by 2.9% per year. World GDP rose 4.9% per year, and world exports increased nearly 8%. This dynamism could be observed in all regions. However, the acceleration was greatest in Europe and Asia.10 The mood was optimistic; commodity prices soared, from which newly independent developing countries benefitted: between 1950 and 1970, developing countriesâ real per capita income grew at an average rate of 2.1% per year.
The United Nations declared the 1960s the Development Decade. In 1961 the G-77 nonalignment movement among developing countries was established. In 1964, the United Nations Conference on Trade and Development (UNCTAD ) was established, providing a forum for developing countries to strengthen their hand in international trade negotiations. The Kennedy Round (1964â1967) included attention for trade interests of developing countries. Before this Round, President Kennedy launched in 1961 the Alliance for Progress , a $20 billion economic aid programme for 22 La...