Economists and sociologists have studied economic inequality between countries, trying to understand the causes of underdevelopment. Some see it as a type of historical setback that can be overcome by passing through certain stages as developed countries have already done. Others see it as a situation characterized by a dualism that paralyzes society; the dominion of a privileged minority and the submission of a poor majority that lives in traditional conditions, and the economy; an archaic agriculture that coexists with a modern economy geared toward the exterior. Third parties make underdevelopment a situation of misery and blockage, a product of the development of rich countries, leaving underdeveloped countries dominated, plundered, and corrupted by their colonizers.
Characteristics Of Underdevelopment
Even though there are marked differences between countries, this diversity of ideas obliges one to describe underdevelopment. One fundamental characteristic is rapid demographic growth, a situation caused by immersion in the first (reduction of rate of mortality) and in the second (reduction of rate of natality) phases of demographic transition, bleak life expectancy, and a particularly young social makeup; correspondingly suffering from nutritional and medical deficiencies, illiteracy, underemployment, and low living standards.
Another trait of these countries is the dominance of the primary sector, with a mediocre industry yielding low outputs and a confined tertiary sector, which as a whole cannot absorb the surplus of farm labor. Depending on the North/South exportation of a few raw materials, they also have a trade debt. Their savings are insufficient with the added inconvenience that capital should be used on services for an increasing population. To develop, they must take on a large external debt that converts the rate of demographic growth into the contrary of that of the gross domestic product (GDP). In this framework, transportation is insufficient, regional differences are clearly pronounced, and industrial regions are lacking, which furthermore concentrate on the coast just as the sprawling and anarchic housing development.
The phenomenon of underdevelopment has been named many ways by international organizations according to changing theories or expectancy of reaching development. While in 1949, the U.S. president Harry Truman (1884–1972) assigned his country the mission to favor “the improvement of living conditions and economic growth in underdeveloped regions,” the French economist and sociologist Alfred Sauvy (1898–1990) termed poor countries as Third World in 1952, in clear reference to the Third Estate of the French Revolution (1789). As development theory rhythms were changing, this term evolved: during the 1960s, the term least developed countries (LCD) emerged, as did the terms developing countries (contrasting the North/South and the center/periphery, especially in the 1970s, the Fourth World in the 1980s, and in the 1990s, prior to development, some countries are called emerging markets.
The question arises of how to measure if a country is underdeveloped. It is often considered that a low GDP per capita (GDP/pc) is a symptom of underdevelopment. In 2005, the World Bank distinguished three country groups by income: a first division gathered countries with an average income of less than $875; a second division separated into two groups with an mid-range income, and GDP/pc of $876 to $10,725; and a third division of countries with a GDP/pc of more than $10,725. Countries are considered underdeveloped when their income is less than $875 and some in the middle subgroup up to $3,466. However, this indicator has its defects, because it does not show how the average income is distributed, and the U.S. dollar does not have the same value in a rich country as it does in a poor one.
That is why, in the wake of the work by Amartya Sen (Nobel Prize winner in economics in 1998), the United Nations Development Programme (UNDP) created the Human Development Index (HDI) that synthesizes life expectancy at birth, adult literacy rate, the gross combined rate of registration in primary, secondary, and postsecondary education, and GDP/ pc in purchasing power parity in U.S. dollars (PPP in US$). The maximum HDI rating a country can receive is 1.00. From 177 countries analyzed, three uniform groups can be formed producing the following indicators: the 70 countries of High Human Development had an average of 0.897 HDI in 2005 (average GDP/pc in PPP in US$ of $23,986), 85 countries of Medium Human Development had 0.698 HDI (average GDP/ pc in PPP in US$ of $4,876), and 22 countries of Low Human Development had 0.436 HDI (average GDP/ pc in PPP in US$ of $1,112). By way of comparing, the Organisation for Economic Co-operation and Development (OECD) gave an average for its countries with 0.916 HDI (GDP/pc in PPP in US$ of $29,197).
Theories Of Underdevelopment
Underdevelopment is subject to theoretical dispute. For some, it is merely a setback in development. For others, it is a product of history, stressing the economic exploitation inherited from colonization, and solving it by means of adapting to modernity its economic and social structures. Since the 1980s, in the face of the inefficiency of approaches of the dependency theory or neo-Marxism and the development of some Asian countries (newly industrialized countries), liberal thinking, with some clarifications, has been reclaimed.
Former outdated approaches cited ethnic and geographical, and cultural and institutional theories. The first used Joseph Arthur Comte de Gobineau’s (1816–82) thesis formulated in An Essay on the Inequality of the Human Races (1855), in which he affirmed that indigenous people’s genetic inheritance was a determinant cause of underdevelopment.
There are authors who explain underdevelopment in geographical terms—the idea being that natural conditions, poorness of soils, and aridity of climates determine the situation.
With respect to ethnic determinism, it seems to fail to convince when regarding civilizations that in other times were capable of initiating growth mechanisms (the Pyramids of Egypt, the Great Wall of China, and Machu Picchu). Neither geographical position nor resource endowments seem sufficient to explain areas that were developed in the past and now are not (Egypt and Morocco during the Roman Empire), while others currently with mediocre resource endowments are developed (Australia and New Zealand).
A cultural and institutional theory defends the idea that to promote development, sociocultural and institutional action (the state) are necessary. The best-known approach is that of Max Weber (1864–1920) in his work The Protestant Ethic and the Spirit of Capitalism (1904), where he alleges that puritan ethics, defined as a rational conduct to reach economic success, influenced the development of capitalism. Later clarifications claim that existing inefficient institutions are due to the incompatibility between traditional culture and one necessary to develop. For example, the absence of a true right to private property in sub-Saharan Africa or certain fatalism before natural hindrances and poverty impede innovation. Theodore Schultz (1902–98) demonstrated that the continuity of poverty in such countries is more a result of a rational method similar to that of the West, rather than a problem generated by institutions.
Rostow, Gerschenkron, Nurske, And Singer
Currently, the most prominent theories are the liberal (modernization theory), the dependency, and the Marxist, and the neo-Marxist theory. The liberal position was defended by Walt W. Rostow (1910–2003), adviser to President Lyndon B. Johnson from 1963 to 1968. In his work The Stages of Economic Growth: A Non-Communist Manifesto (1960), he made a lineal analysis of growth considering underdevelopment as backwardness with respect to developed countries. He indicated that if a country with a retarded development (preindustrial) wanted to develop, it could do so by undergoing the relevant phases, and copying Western methods of development. Considering the phases a country must pass through to industrialize itself, Rostow established a model of five stages, the last three being “take-off,” “drive to maturity,” and the “age of high mass consumption.”
This analysis was soon criticized. For Alexander Gerschenkron (1904–88), development did not follow the stages described by Rostow because less advanced countries could skip stages by employing high technology created by developed countries, an advantage of being backward, to shorten the process. On the other hand, it was argued that undeveloped countries also need institutional instruments to channel that industrialization. Likewise, Simon Kuznets (1901–85), Nobel Prize winner in economics in 1971, criticized the theorization of Rostow, considering problematic the selection of five stages and its limits, the measurement of leading sectors of the economy, and the parameters utilized to quantify political and institutional structures. He showed that no Western economy had experienced the take-off stage nor doubled its gross fixed capital formation (GFCF).
In the 1950s, Ragnar Nurske (1907–59) formulated the doctrine of “the vicious circles of poverty.” It described a situation in which diverse factors that are interconnected produce a stagnation from which it is difficult to escape. Poverty would originate from insufficient incomes and too-low savings to finance a productive investment; the weakness of demand, the narrowness of the domestic market, and the impossibility to stimulate the demand of the state (by means of the Keynesian multiplier) are supplementary obstacles to the increase in productivity. “A country is poor because it is poor”; however, supporting himself on Keynesian analysis, Nurske recognized that an exterior intervention could break that “vicious circle.” That intervention would make the initiation of development possible by means of international aid and a balanced growth strategy: investments in economic and social infrastructures (the government’s role) and development of productive investments.
These ideas were defended by Hans W. Singer (1910–2006), who stated, “an undeveloped country is poor because it has no industry and it has no industry because it is poor.”
Classical Models
During the 1950s and 1960s, classical models of structural change acquired relevance, one of which is the “dual economy.” Arthur A. Lewis (1915–91), in his work Economic Development With Unlimited Supplies of Labour (1954), considered a characteristic of underdeveloped economies as the coexistence of two sectors, one archaic—rural and overpopulated with marginal productivity of insignificant exploits—and the other modern—urban and industrial with foreign capital and high productivity. Under these conditions, surplus labor from agriculture could transfer to the industrial sector without diminishing traditional production. Hence, profits from modern entrepreneurs would allow the accumulation of capital and investment, and the increase of labor demand, production, and employment. The structural change would proceed until solving development backwardness in which the total surplus of labor from the rural sector was absorbed by that of the industrial.
In the same sense, the U.S. author Albert O. Hirschman (1915– ) saw an unbalanced form of growth in “dualism,” where a series of disproportionate advancements in a sector was followed by other sectors trying to reach the same. This permits a bottleneck mechanism to extend the field of induced investment and foment decision making and new investments. In this manner, the key to growth is an original investment that brings posterior investments.
Theory Of Dependency
A second group of theories that explain underdevelopment are joined under the denomination of dependency theory. They are a group of varied economic models that try to explain the difficulties that some countries find to develop.
A first stage of the review of this theory can be drawn from the “thinking” of the Economic Commission for Latin America and the Caribbean (ECLAC), which was formed in the 1940s and 1950s. Propelled by the Argentinean economist Raúl Prebisch, it assembled around itself a group of Latin American economists and sociologists: Celso Furtado, Juan Loyola, Aníbal Pinto, Osvaldo Sunkel, and the Spanish sociologist Juan Medina Echerarría. Its reflection took as a starting point the dissatisfaction that the neoclassical theory caused, and considered it as inadequate to promote development in the Third World.
ECLAC addressed economic and social problems from a historical and holistic (development and undevelopment are a single process) perspective, set on the basis of the center/periphery model. Structures of peripheral countries were different from central countries, those being heterogeneous (export agriculture and unsophisticated subsistence agriculture), and specialized (exportation of few primary products, absence of industry, enclaves of modern sectors, and demand for imported manufactures).
In this structure, “development and underdevelopment were connected processes in a single global economy” in which the center (production and export manufactures) and the periphery (production and exportation of primary products) complemented each other within the international division of work. This asymmetrical relation accentuated international inequalities. In the opinion of ECLAC, free trade increased inequality, besides producing a deterioration of the real relation of interchange for the periphery’s specialization in primary products. It defended the interior market as a path to growth (industrialization as substitute for importation [ISI]), an act that had certain success until the 1970s with improvements in health services and education in many LCDs.
Marxist And Neo-Marxist Viewpoints
From this stance, development/underdevelopment thinking evolves toward Marxist and neo-Marxist positions that considered economic exploitation inevitable. Karl Marx (1818–83) first considered the importance of colonies for the development of capitalism, but around 1875, he changed focus, insisting that barriers were generated by the very fact of colonialism. Despite these antecedents, Marxist analysis of underdevelopment was further advanced by Vladimir I. Lenin and prolonged by Rudolphe Hilferding.
In the mid-20th century, Paul A. Baran published The Political Economy of Growth (1957). In this work, he defended that underdevelopment was a historical product of colonialism and imperialism, and dependence originated from harmful international economic relations. Capitalism was an obstacle for progress in the Third World in such a way that an ant capitalist revolution (the construction of socialism) was the only means to develop.
This focus was made popular in the 1960s and 1970s, although divided in tendencies. A first group of neo-Marxist authors were Andre G. Frank (Capitalism and Underdevelopment in Latin America, 1967) and Samir Amin (Imperialism & Unequal Development, 1973) among others, which denied the possibility of sustained economic growth in the periphery and proposed the development of underdevelopment. They also described the negative evolution of the real relation of the interchange of manufactured goods/ primary products for underdeveloped countries.
Another group was formed by C. Furtado (Development and Underdevelopment, 1961), O. Sunkel (El Subdesarrollo Latinoamericano y La Teoría del Desarrollo, 1970), and others as they reformulated the key dependentist approaches of ECLAC, admitting that economic growth was possible, although there would be contradictions between dependency and national development. And finally, the thesis from F. H. Cardoso and E. Faletto (Dependencia y Desarrollo en América Latina, 1969), for whom dependency permitted development of the periphery, although conditioned by contradictions and inequalities common to peripheral capitalism; the only possibility thereby was an “associated dependent development.”
Since the crisis of 1973, developmental thinking evolved toward more liberal positions, putting in doubt interventionist state policies. At the same time, strategies of open development were successful in the newly industrializing countries (NICs) in Asia (Hong Kong, South Korea, Singapore, and Taiwan in 1970; and currently, China, India, Malaysia, the Philippines, Thailand, and Vietnam). Socialist countries saw themselves sinking as a confirmation of their development strategies’ failure.
In the 1990s, national limits were seen as dissolving with the appearance of a global village, where private businesses became developmental agents in nations. The theory of globalization appears to describe how investment and employment are shifted (outsourced) from industrialized countries (center) to underdeveloped ones (periphery), permitting their own development (except in sub-Saharan Africa).
However, the problem of underdevelopment continues without a solution. The 1997 crisis of the NICs in Asia shows the limits of a liberal economy and compels the return of the state in economic life. With exception to South Korea and Taiwan, the NICs remain deposits of labor and poverty. Reasons other than dependency theory are being sought to justify the difficulties of development found in the lack of freedom and internal democracy, corruption, the squandering of resources, excessive military costs, the incompetency of authorities, the nationalization instead of privatization, or the emphasis on heavy industries instead of agriculture and light industry.
It is difficult to speculate over the future of underdevelopment theory, although there exists a certain consensus that underdeveloped countries will evolve in the framework of a globalized economy. In this setting, liberals have achieved the acceptance that economies need to be oriented toward the exterior; defenders of dependence theory have accepted state intervention in the economy and, a third position, that sees social questions and the fight against poverty priorities in the development process. This mix can be summed up by a well-known quote of the 1960s by Deng Xiaoping (1904–97) that summarizes the position of many countries: “I don’t care if it’s a white cat or a black cat. It’s a good cat so long as it catches mice.”
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