Abstract
This introductory chapter tells the story of the Third World—how it started and how the Third World gradually evolved into a growing number of emerging economies, a fairly steady number of middle-income countries, and a dwindling number of low-income countries. The influence of global political and economic developments on the evolution of Third World countries is presented. This also goes for the contributions of successive generations of development economists. Growth patterns, the gap between rich and poor countries, and inequality of income and wealth within countries are described. This chapter’s last section deals with the question to what extent international trade and globalisation contributed to the development of Third World countries.
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Notes
- 1.
Rosling, H., Rosling, O. and Rosling-Rönnlund, A. (2018) Factfulness; Ten Reasons We’re Wrong About the World- and Why Things Are Better Than You Think. London: Sceptre.
- 2.
Thirlwall, A. and Pacheco-López, P. (2017) Economics of Development; Tenth Edition. London: Palgrave Macmillan, 38–39.
- 3.
During the first lecture, Dani Rodrik always asks his graduate students: Would you rather be rich in a poor country or poor in a rich country? The standard answer is: Rich in a poor country. Wrong!, says Rodrik. The average poor person in a rich country still earns three times more than the average rich person in a poor country. And disparities in other aspects of well-being, like infant mortality, go the same way. Source: Rodrik, D. (2011) The Globalization Paradox; Democracy and the Future of the World Economy. New York: W.W. Norton, 135–136. Branko Milanovic observes: ‘Today, it is much more important, globally speaking, whether you are lucky enough to be born in a rich country than whether the income class to which you belong in a rich country is high, medium, or low’. Source: Milanovic, B. (2011) The Haves and Have-Nots; A Brief and Idiosyncratic History of Global Inequality. New York: Basic Books, 113.
- 4.
Ibid., 209–210.
- 5.
Production (or output) growth is created by growth in capital, labour, and technological progress. An example: suppose capital growth is 10, labour also grows by 10 units, and the growth of output is 12; then TFP is 2. Angus Maddison observed that one cannot judge the economic performance of nations only by the yardstick of per capita GDP, total factor productivity provides a strong indication thereof as well. Source: Maddison, A. (1995) Monitoring the World Economy 1880–1992. Paris: OECD, 26.
- 6.
Economics of Development, 145.
- 7.
There is a new wave of deindustrialisation ongoing. It can be observed that labour absorption capacity of the manufacturing sector is shrinking over time and that the point of beginning deindustrialisation is moving to earlier stages of the development process. Dani Rodrik coined this phenomenon premature deindustrialisation.
- 8.
Maçães, B. (2018) The Dawn of Eurasia; On the Trail of the New World Order. London: Allen Lane, 5.
- 9.
‘The rate of progress [of TFP; PdH] accelerated further in 1950–1973. Thus there was a 60-year boom in technical potential which was to be of tremendous significance for the performance of the world economy in the twentieth century.’ Source: Monitoring the World Economy 1820–1992, 71.
- 10.
Ibid., 73.
- 11.
Over the years, on average only around 0.3% was in fact spent.
- 12.
Deepak Lal and Hla Myint argue that cyclical instability is unlikely to be harmful for growth, but if for some reason there is a fiscally induced inflationary crisis during these cycles there could well be damaging effects on growth performance. Source: Lal, D. and Myint, H. (1996) The Political Economy of Poverty, Equity, and Growth. Oxford: Oxford University Press, 222. On page 226, the authors add that there appears to be a link between increasing public indebtedness, rises in money supply, and accelerating inflation in countries that suffer from a growth collapse.
- 13.
Gold, D. Peace Dividends and Development; Retrospectives and Prospects. Newark: Rutgers University, (2001), 3–4.
- 14.
In September 1999, the IMF established the Poverty Reduction and Growth Facility (PRGF ) to make the objectives of poverty reduction and growth more central to lending operations to poorest member countries.
- 15.
Under the topping up scheme, countries that unexpectedly suffered economic setbacks, due to external factors, such as rising interest rates or falling commodity prices, were eligible for increased debt forgiveness above the decision-point level.
- 16.
Luce, E. (2017) The Retreat of Western Liberalism. London: Little Brown, 83.
- 17.
Perspective on Global Development; Rethinking Development Strategies. Paris: OECD, 2018, 1.
- 18.
Economics of Development, 20.
- 19.
Hausmann, R., Pritchett, L., Rodrik, D. Growth Accelerations. Cambridge: NBER Working Paper Series 10566, June 2004.
- 20.
Maddison, A. (2006) The World Economy; Volume I: A Millennium Perspective. Volume 2: Historical Statistics. Paris: OECD, 19.
- 21.
Little, I. (1982) Economic Development; Theory, Policy, and International Relations. New York: Basic Books, 271.
- 22.
Easterly, W. (2002) The Elusive Quest for Growth; Economists’ Adventures and Misadventures in the Tropics. Cambridge: The MIT Press, 60.
- 23.
Milanovic, B. (2016) Global Inequality; a New Approach for the Age of Globalization. Cambridge: The Belknap Press.
- 24.
Ibid., 123.
- 25.
‘Since these countries started as very poor, their high growth was globally equalizing. A lot of their citizens were brought closer to the income levels enjoyed by Europeans and Americans. …..Moreover, the recent strong acceleration of growth in India has meant that the world now has two strong ‘engines’ (China and India) of downward pressure on population-weighted intercountry inequality’. Source: The Haves and Have-Nots, 101.
- 26.
Free Exchange. In: The Economist, 3 August 2019, 64.
- 27.
The Retreat of Western Liberalism, 21.
- 28.
Bloomberg reports that in 2017 the world’s richest 500 people saw their wealth increased by 23% ($1000 billion). In January 2017, Oxfam calculated the wealth of the poorest half of the world’s population. It amounted to $400 billion, which is less than half of the increase in wealth of the richest 500 people. One conclusion is unavoidable: the international economic system has not brought about a more equitable income and wealth distribution in the world. This development may become politically unsustainable, as Confucius once observed: ‘Inequity is worse than scarcity’. However, taxing the wealthy is not necessarily the most appropriate reaction to the challenge, since the revenues are not that impressive. For example, Switzerland’s revenue from its wealth tax is the equivalent of 1% of its GDP. In addition, there are problems regarding the proper estimation of wealth; there is tax avoidance, and wealth can be stowed away in an overseas tax haven. The Economist of 6 July 2019 observes: ‘Most of the rise in the share of the income of the top 1% of households since the 1970s has resulted from growing disparities between winners and losers in the labour market, not growing income from wealth…. A wealth tax will not solve the inequalities that are most plainly visible: those caused by the growing dearth of opportunity for people without college degrees and without expensive houses near successful cities’, 11. Developing countries can introduce other measures, such as a fair, progressive income tax regime and an effective tax collection system. A part of the ensuing additional revenues can be invested in easing access to secondary and higher education by poorer sections of society, and in financing social safety nets for the poorest.
- 29.
Economics of Development, 74.
- 30.
Dollar, D., Kraay, A. (2000) Growth is Good for the Poor. Washington: World Bank.
- 31.
Economics of Development, 75.
- 32.
Garrett, G. Globalization’s Missing Middle. In Foreign Affairs. Vol. 83 No. 6. November–December 2004, 89.
- 33.
Lin, J. (2015) Demystifying the Chinese Economy. Cambridge: Cambridge University Press, 253.
- 34.
Source: The Fund for Peace’s 2018 Fragile States Index. The numbers mentioned represent fragile or failed states scoring between 100 and 80 points.
- 35.
Of the 30 low-income countries, 25 are SSA countries, 2 Asian countries, 2 from Oceania, and 1 Latin American country. Regarding lower middle-income countries: 11 are from SSA, 6 are Asian and 3 Oceanian countries, as well as 1 from the Middle East.
- 36.
Ghani, A. and Lockhart, C. (2008) Fixing Failed States; A Framework for Rebuilding a Fractured World. Oxford: Oxford University Press.
- 37.
Meier, G. (2001) The Old Generation of Development Economists and the New. In Frontiers of Development Economics. Ed: Meier, G. and Stiglitz, J. New York: Oxford University Press. Other authors proposed different distinctions. For example, Little distinguished in Economic Development structuralism from neoclassical economics. He wrote on page 19: ‘Chenery does not hesitate to say that “the initial set of structural hypotheses was formulated in the 1950s by writers such as Paul Rosenstein Rodan, Ragnar Nurkse, W. Arthur Lewis, Paul [sic] Prebisch, Hans Singer and Gunnar Myrdal.” Little added on page 20: ‘The structuralist sees the world as inflexible. Change is inhibited by obstacles, bottlenecks, and constraints.’
- 38.
In From Keynes to Piketty (2016), I included a summary of Karl Polanyi’s classic The Great Transformation (1944). Polanyi (1886–1964) was an anthropological economist. He developed the Substantivist school of thought. Source: De Haan, P. (2016) From Keynes to Piketty; The Century that Shook up Economics. London: Palgrave Macmillan, 164–172.
- 39.
The repeal of the Corn Laws in England is a telling example. David Ricardo campaigned for the repeal of the Corn Laws in which he, and others with him, was successful in 1846 when they were indeed repealed. Industrialists benefitted from them to the detriment of the landed gentry.
- 40.
For example, under its standard GSP system, the EU imported Euros 31.6 billion from 23 beneficiary low-income and lower middle-income countries in 2016.
- 41.
Economics of Development, 519.
- 42.
These poorest developing countries enjoy the freedom to undertake policies that limit access to their markets or provide support to domestic producers or exporters in ways which are not allowed to other members, and they are provided with more time to meet their obligations or commitments under the WTO agreements. By the way, Michalopoulos rightly wonders why countries like Singapore and China, registered as developing countries by the WTO, would really need preferential treatment for their exports to penetrate developed country markets. Source: Michalopoulos, C. (2017) Aid, Trade and Development; 50 Years of Globalization. London: Palgrave Macmillan, 135.
- 43.
Ibid., 137.
- 44.
Globalization, Growth and Poverty; Building an Inclusive World Economy. Washington: World Bank Policy Research Report, January 2002, 5.
- 45.
In 1980, the US represented 22% of the world economy. To date this percentage is down to 15%. In 1980, all traditional industrial economies contributed 60% of the world’s GDP. Now they contribute around 30%.
- 46.
UNIDO’s Industrial Development Report 2018.
- 47.
Olson, M. Big Bills Left on the Sidewalk: Why Some Nations are Rich, and Others Poor. In The Journal of Economic Perspectives, Vol. 10, No. 2 (Spring, 1996), 15.
- 48.
Global Economic Prospects and the Developing Countries. Washington: World Bank; 2002.
- 49.
Rodrik, D. (1998) The New Global Economy: Making Openness Work. Policy Essay No. 24. Baltimore: Johns Hopkins University Press.
- 50.
Perspective on Global Development; Rethinking Development Strategies. Paris: OECD, 2018, 1.
- 51.
Milanovic, B. (2005) Can We Discern the Effects of Globalization on Income Distribution? In World Bank Economic Review, 19(1): 21–44.
- 52.
Ravallion, M. (2006) Looking Beyond Averages in the Trade and Poverty Debate. In World Development, 34 (8): 1374–1392.
- 53.
Global Inequality, 20.
- 54.
Lang, V., Mendes Tavares, M. (2018) The Distribution of Gains from Globalization. IMF Working Paper, WP/18/54.
- 55.
Ibid., 38. However, Lang and Mendes warn that the results of the regressions undertaken should be interpreted with caution, among others, because they are based on a dataset that had not been subjected to scholarly scrutiny.
- 56.
As for TPP, China is pushing the Regional Comprehensive Economic Partnership as an alternative to TPP.
- 57.
Dumping is not only applied by industrial countries; it is applied by developing countries as well.
- 58.
Stiglitz, J. (2006) Making Globalization Work. New York: W.W. Norton, 96.
- 59.
Economics of Development, 518.
- 60.
On p. 268 of The Globalization Paradox, Rodrik proposes a temporary work visa scheme of rich countries that would expand their labour force by less than 3%. Skilled and unskilled workers from developing countries would be allowed to work in rich countries for a limited period, say, 5 years. This would produce an estimated gain of $360 billion annually for the world economy. In addition, Michael Clemens of the Centre for Global Development estimates that if everyone who wanted to emigrate were able to do so, global GDP would double.
- 61.
The Haves and Have-Nots, 163–164.
References
De Haan, P. (2016). From Keynes to Piketty; The Century That Shook Up Economics. London: Palgrave Macmillan.
Easterly, W. (2002). The Elusive Quest for Growth; Economists’ Adventures and Misadventures in the Tropics. Cambridge: The MIT Press.
Free Exchange. (2019, August 3). The Economist.
Fund for Peace. (2018). Fragile States Index. Washington: The Fund for Peace.
Garrett, G. (2004). Globalization’s Missing Middle. Foreign Affairs, 83(6), 84.
Ghani, A., & Lockhart, C. (2008). Fixing Failed States; A Framework for Rebuilding a Fractured World. Oxford: Oxford University Press.
Gold, D. (2001). Peace Dividends and Development; Retrospectives and Prospects. Newark: Rutgers University.
Hausmann, R., Pritchett, L., & Rodrik, D. (June 2004). Growth Accelerations. NBER Working Paper Series 10566. Cambridge: National Bureau of Economic Research.
Lal, D., & Myint, H. (1996). The Political Economy of Poverty, Equity, and Growth. Oxford: Oxford University Press.
Lang, V., & Mendes Tavares, M. (2018). The Distribution of Gains from Globalization. IMF Working Paper, WP/18/54. Washington: International Monetary Fund.
Lin, J. (2015). Demystifying the Chinese Economy. Cambridge: Cambridge University Press.
Little, I. (1982). Economic Development; Theory, Policy, and International Relations. New York: Basic Books.
Luce, E. (2017). The Retreat of Western Liberalism. London: Little Brown.
Maçães, B. (2018). The Dawn of Eurasia; On the Trail of the New World Order. London: Allen Lane.
Maddison, A. (1995). Monitoring the World Economy 1880–1992. Paris: OECD.
Maddison, A. (2006). The World Economy; Volume I: A Millennium Perspective. Volume 2: Historical Statistics. Paris: OECD.
Meier, G. (2001). The Old Generation of Development Economists and the New. In G. Meier & J. Stiglitz (Eds.), Frontiers of Development Economics. New York: Oxford University Press.
Michalopoulos, C. (2017). Aid, Trade and Development; 50 Years of Globalization. London: Palgrave Macmillan.
Milanovic, B. (2011). The Haves and Have-Nots; A Brief and Idiosyncratic History of Global Inequality. New York: Basic Books.
Milanovic, B. (2016). Global Inequality; A New Approach for the Age of Globalization. Cambridge: The Belknap Press.
OECD. (2018). Perspective on Global Development; Rethinking Development Strategies. Paris: OECD.
Olson, M. (1996). Big Bills Left on the Sidewalk: Why Some Nations are Rich, and Others Poor. The Journal of Economic Perspectives, 10(2), 3–24.
Ravallion, M. (2006). Looking Beyond Averages in the Trade and Poverty Debate. World Development, 34(8), 1374–1392.
Rodrik, D. (1998). The New Global Economy: Making Openness Work. Policy Essay No. 24. Baltimore: Johns Hopkins University Press.
Rodrik, D. (2011). The Globalization Paradox; Democracy and the Future of the World Economy. New York: W.W. Norton.
Rosling, H., Rosling, O., & Rosling-Rönnlund, A. (2018). Factfulness; Ten Reasons We’re Wrong About the World – And Why Things Are Better Than You Think. London: Sceptre.
Stiglitz, J. (2006). Making Globalization Work. New York: W.W. Norton.
Thirlwall, A., & Pacheco-López, P. (2017). Economics of Development (10th ed.). London: Palgrave Macmillan.
UNIDO. (2018). Industrial Development Report.
World Bank. (2000). Dollar, D., & Kraay, A. Growth Is Good for the Poor. Washington: World Bank.
World Bank. (2002a). Global Economic Prospects and the Developing Countries. Washington: World Bank.
World Bank. (2002b). Globalization, Growth and Poverty; Building an Inclusive World Economy. World Bank Policy Research Report. Washington: World Bank.
World Bank. (2005). Milanovic, B. Can We Discern the Effects of Globalization on Income Distribution? World Bank Economic Review, 19(1), 21–44.
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de Haan, P. (2020). Introduction. In: Whatever Happened to the Third World?. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-39613-8_1
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