1990s >> 1997 >> no-1109-january-1997

From ‘Third World’ to One World

For a long time, economists’ expectations about what would happen to the “developing” or “third world” were shaped by an influential theory first put forward by the economist and MP David Ricardo in the last century. According to his theory of “diminishing returns”, national economies, as they grew, could be expected to slow down and eventually to come to a halt. The corollary of this was that the poorer nations could be expected to catch up because their rates of growth would be faster.

Ricardo, however, exaggerated any “diminishing returns” problem and did not take account of a number of important factors. Foremost among these was the influence which states can exert on trade patterns through protectionism, dumping and all the other long-used tactics of developed states, and the economic blocs which they form to protect their interests. Also, huge initial amounts of capital are required before a company can even begin to compete in many world markets, and the emergence of such companies is near impossible in small, poor nations.

History has forced economists to question the Ricardian theory. Average growth for 16 rich countries surveyed by the Economist (25-31 May) has slowed since the early 1970s in particular, but it is still above the average. As for the supposed faster growth among the developing world, “if there is any discernible pattern . . . it is the opposite: poorer countries have tended to grow more slowly”.

Interestingly, the UN Development Programme administrator, James Speth. believes “the world has become more economically polarised” and that “if present trends continue, economic disparities between industrial and developing nations will move from inequitable to inhuman” (Observer, 21 July).

As a result, many of the world’s poorest countries have seen average incomes decline and increased polarisation. The wealth of many nations has actually declined in recent years. Eighty-nine countries are reporting lower per-capita incomes than they were 10 years ago.

During the 1980s average real incomes were reported to have fallen by 10 percent in most of Latin America and 20 percent in sub-Saharan Africa. In many urban areas wages have fallen by as much at 50 percent.

The 1980s’ decline in average incomes in many developing countries has continued in the 90s: in 1990, average per capita income fell by over 2.5 percent in Latin America and by over 2 percent in Africa.

The UN Human Development Report states that the poorest 20 percent of the world’s population have seen their share of world income fall from 2.3 percent to 1.4 percent over the past 30 years (Guardian, 29 July). In sub-Saharan Africa, the number of families who are unable to meet their most basic needs has doubled in a decade (Fairer World Statistics). Furthermore. according to OXFAM projections, the future looks little brighter for the rest of Africa, the Middle East, South and Central America.

A World Bank report only tells half the story when stating that “flows of private capital to poor countries have quadrupled to $170 billion a year in the past five years. Over a third of the world’s foreign direct investment now goes to them”. This investment was actually targeted at eight countries who receive two-thirds of this investment, while most others have been left by the wayside.

In stark contrast to the hopes of charity organisations such as UNICEF, overseas dcvelopment aid (ODA) can be relied upon even less as a substantial source of help for poorer states. In 1993, ODA fell 8 percent from 1992 levels to US$56 billion (20-20 Plan, UNICEF pamphlet).

The significance of all this is that it dispels the illusion of there being an inevitable and ongoing sense of progress within global capitalism. And any “progress” that does occur is sure to bypass the world’s poorest. Ricardo got it wrong—inequality and uneven development are fundamental features of the capitalist system. Nearly 200 years after he wrote, this is more apparent than ever.

Dan Greenwood