Economic Issues 17.0 ECONOMIC STRUCTURES explain how economic structures may change over time

Transcription

1 Economic Issues Unit 3 (Outcomes 17-20) Social Studies 3211 January ECONOMIC STRUCTURES In this outcome we will 17.1 explain how economic structures may change over time 17.2 explain how colonialism influenced the economic development of countries (c ) 17.3 explain how neo-colonialism may influence a country s economic development 1

2 17.1 ECONOMIC STRUCTURES Complete the introductory activity Changing Economies and place it in your folder ECONOMIC STRUCTURES Economy is a term used to describe systems and procedures put in place in a country to help people satisfy people s needs and wants. When we discuss the economy, there are a number of concepts we will focus on, but to start we will look at the general make up of economies. The economy is made up of various sectors (parts) that together generate wealth through trade and providing employment for people. There are three sectors we will focus on: Primary Secondary Tertiary 2

3 17.1 ECONOMIC STRUCTURES 1. Primary sector: This involves the collection or extracting of raw materials (resources) from the Earth through farming, fishing, mining, and forestry. Examples include: Farmer takes plants from the land. Fisher takes fish from the ocean. Miner takes ore from the ground. Forester takes trees from the forest ECONOMIC STRUCTURES 2. Secondary sector: This involves turning a raw material or resource into a finished product for people to buy. Also called the manufacturing or processing sector. Examples include: Cows butchered into roasts, steaks and packaged for sale at the grocery store. Trees milled into lumber or pulped to make paper. Fish gutted, filleted, put into frozen dinners, sold at markets. Ore refined into steel or copper wire. 3

4 17.1 ECONOMIC STRUCTURES 3. Tertiary sector: This involves providing a range of services to people to make aspects of their lives easier or to improve the quality of their lives. Also called the service sector. Examples include: Nurses, doctors, mechanics Lawyers, teachers, waitresses Hairdressers, repair and sales people Computer technology design / research company 17.1 ECONOMIC STRUCTURES Identify the economic sectors referred to in the graphics. Tertiary Primary Secondary 4

5 17.1 ECONOMIC STRUCTURES Economic structure is a term that describes a country s economy is terms of how much wealth is generated by each sector. Two common measures of this is to compare (1) the percentage of GDP produced by each sector of the economy or (2) the percentage of the workforce involved in each economic sector. How would you describe more globalized and less globalized countries in terms of economic structure? 17.1 ECONOMIC STRUCTURES The tertiary sector has become the most important in terms of wealth generation to countries around the world. Services include a wide range of jobs and activities, much larger than primary, or secondary activities. Countries with the greatest percentage of their labour force involved in the tertiary sector tend to be more globalized. The tertiary sector can involve tourism, culture, and communications technology, so it is an important sector for Periphery countries to develop. They may in a sense skip the secondary sector to some degree as they seek more economic development. 5

6 17.1 ECONOMIC STRUCTURES 17.1 STAGES OF ECONOMIC DEVELOPMENT The economist Walt Rostow suggested in 1960 that a nation will go through 5 stages of economic development, each with identifying characteristics: 6

7 17.1 STAGES OF ECONOMIC DEVELOPMENT Stage 1: Traditional Society Based on subsistence agriculture Population, social and economic systems are limited to natural controls (climate, disease outbreaks, etc..) Often dictatorships or monarchies (one ruler) Society changes very slowly Canada before 1850 Far periphery (Burundi) today Stage 2: Establishing Conditions for Take-off Society obtains wealth or savings Savings are invested into vital economic sectors (transportation, communication, natural resources, etc..) Development of a national purpose with a more effective central government Canada after 1850 s Far periphery (Suriname and Toga) today 17.1 STAGES OF ECONOMIC DEVELOPMENT Stage 3: Economic Take-off Economy changes as new technology is introduced Agricultural changes from mostly subsistence to mostly commercial Manufacturing (secondary) becomes more important Tertiary sector begins to expand in the cities Canada by 1900 Near core (Bolivia) & New core (Argentina) Stage 4: Drive to Maturity Sustained economic growth Economic growth grows faster than population growth Economy becomes more diversified with more manufacturing and services Technology improves efficiency of primary and secondary industries More money is invested in the economy Canada by 1950 New core (Malaysia & Poland) 7

8 17.1 STAGES OF ECONOMIC DEVELOPMENT Stage 5: High Mass Consumption Most people have more money than needed to survive There is a growing demand for additional consumer goods and services More money is now invested in social programs (education, healthcare, etc..) Canada 1950 s to present New core (South Korea & urban China and India) While this model of economic development is true for many countries that exist in the core today, there are some whose economies have developed very differently. The Near Core and Far Periphery generally have lower levels of globalization as a result of factors which have prevented them from progressing along Rostow s stages. Two significant issues that have been contributing factors to this are colonialism and neo-colonialism. Complete Economic Structures activity 17.0 ECONOMIC STRUCTURES In this outcome we will 17.1 explain how economic structures may change over time 17.2 explain how colonialism influenced the economic development of countries (c ) 17.3 explain how neo-colonialism may influence a country s economic development 8

9 17.2 COLONIALISM Countries that have followed the 5 stage model of economic development tend to be Old Core countries today. Many Periphery countries have had their economic development delayed for a number of reasons, chief among them is colonialism. Colonialism - When one country rules another and develops trade with that country for its own benefit. Some examples of colonialism include: Spain and Portugal explored sea routes to South Africa, India, Japan and China in hope of finding spices and exotic goods. They colonized territory as they went. France and Great Britain expanded to North America. US took control of Cuba and the Philippines. Japan attempted to control areas of Korea and China. The key belief in colonialism is that the colony only exists to serve the purposes of the colonizer COLONIALISM 9

10 17.2 COLONIALISM Beginning in the 1800s, the countries of Africa would be a target for European powers wishing to expand their territory and gain greater access to resources and wealth. This delayed the economic development of these territories as the benefits of trade and production went to the colonial power COLONIALISM The colonialism is divided into two distinct periods: How did the Industrial Revolution influence colonialism? 1. The colonies provided the raw materials needed by industry in the home country. 2. The colonies provided a market for the finished products of industry. 1. Pre-Industrial Revolution: Colonies were sources of products not available at home. Example: Canada supplied furs to Great Britain. US supplied cotton and tobacco to Great Britain. 2. Post-Industrial Revolution: Raw materials were sent from the colonies to the mother land in exchange for manufactured goods. The colonies became captive markets for goods produced by the colonizers. 10

11 17.2 COLONIALISM Colonialism operated on the mercantile System (mercantilism) an economic system of trade in which the mother country viewed its colonies as sources of raw materials as well as captive markets for its manufactured goods. Colonies were considered to exist for the economic benefit of the mother countries. Colonies could not operate their own economy or trade with other countries. Colonies could not compete with the mother country. i.e., the colony could not sell the same goods as the colonial power COLONIALISM Central to the operation of the mercantile system was the work of concession companies (also known as joint-stock companies): a company created by a country to develop trade in its colonies. was often funded by groups of investors, who shared the cost of start up and profits. often traded in particular products (e.g., coffee, tea, cocoa, or sugar from African colonies. had political power as they often governed remote parts of the empire and served as representatives of the colonial power. 11

12 Land tenure the manner in which land is held. Traditionally land was shared amongst community members, but now it was privately owned. A few people owned most land, others had little or none. Plantations large farming operations used to grow crops. Companies owned the best land. Landless local population were used as cheap labour. Cash crops a crop grown for sale rather than for personal use (e.g., tea, coffee, sugar, cotton). Local people became dependent on imported food, as they rarely produced their own. Trade and manufacturing restrictions on colonies delayed the growth of, or destroyed local manufacturing. Sometimes led to armed conflict. (13 colonies of US) Colonial primary and manufacturing industries paid little attention to environmental protection (expansionist worldview) IMPACTS OF COLONIALISM When colonies became independent they were ruled by poorly trained local officials who often were not even elected. Colonial powers created new countries that did not take into account tribal or cultural boundaries. A cultural group was often divided among several countries. Colonizers imposed their language on people in colonies. Often became an official common language in a country. Introduced cultural traditions into the colony. Sports like cricket is played in former British colonies. Sometimes led to the loss of native traditions. Colonizers built transportation systems for commercial not local needs. Roads, railways and ports to ship products but did not serve the most populated areas ECONOMIC STRUCTURES In this outcome we will 17.1 explain how economic structures may change over time 17.2 explain how colonialism influenced the economic development of countries (c ) 17.3 explain how neo-colonialism may influence a country s economic development 12

13 17.3 NEO-COLONIALISM Colonialism operated as an official policy of European countries up until the mid-20 th century. It declined for some of the following reasons: After the Second World War, an increasing desire for freedom and a movement against unfair fascist rule developed, which led to colonial powers granting independence to colonies. A growing sense of nationalism and pride in colonies and their own ways of life drove a desire for colonies to control their own futures. Colonial powers realized the growing costs associated with managing colonies (in some cases they were spending more operating a colony than what they received from trade with it) NEO-COLONIALISM Neo-colonialism control of one country by another based on economic dominance rather than political dominance. Any sort of economic interaction between a core country and a periphery country can be considered neo-colonialism, due to the imbalance in economic standing between countries. Examples: A wealthy country may give aid (financial or other) to a poor country, if the poor country buys its manufactured products. The World Bank reduces a country s debt if it maintains wilderness areas. 13

14 17.3 NEO-COLONIALISM How is colonialism and neocolonialism similar and different? 17.3 NEO-COLONIALISM Who benefits the most from neo-colonialism? Transnational corporations large companies with many areas of business that operate in two or more countries. (also called transnationals or multinationals) Many of these companies are on the Global 500 a list of the 500 largest companies in the world that is published annually. 14

15 17.3 NEO-COLONIALISM Complete The Global 500 and place it in your folder NEO-COLONIALISM The size and scope of transnationals can be seen through the example of Ford. We think of Ford as a company that produces its own brand of automobile, but Ford is ranked 21 on the Global 500 list as of 2017 with an annual revenue of $151,800,000,000 Ford operates its own vehicle line, but the company owns other big name companies worldwide. E.g., when you buy a Mazda, you are actually purchasing a Ford product. 15

16 17.3 NEO-COLONIALISM The size of a corporation is based on sales, profits, assets and capitalization. Capitalization total value of all a company s stock. (# of shares x share price) Most of these companies are based in Old Core countries and have operations the world over. In a sense, they have replaced the old colonial power dominance of previous centuries: These companies are so important to job creation in Periphery countries that they can often control decisions these countries make about the development of their economies NEO-COLONIALISM The visual to the left shows that some transnationals have yearly revenues that are greater than the Gross Domestic Product (total value of a country s goods and services produced in a year) of whole countries. 16

17 17.3 NEO-COLONIALISM As you can see, the majority of transnationals are still located in the Old Core, but this may change somewhat in the future. Why? As New Core and Near-Core Periphery countries globalize, they will likely establish their own transnationals that will influence economic development in the Periphery. For example State Grid is based out of China (a rapidly globalizing country) and had an annual revenue of $315 billion in 2016 and employs nearly a million people. Chinese companies hold 3 of the top 4 Global 500 positions in NEO-COLONIALISM Transnational corporations often provide many different goods and services. What does General Electric provide? Refrigerators Electrical equipment Aircraft engines Trains Plastics Medical-imaging equipment Nuclear reactors Financial services TV and Movies (NBC Universal) Water treatment plants For many corporations the best places for them to expand their markets are outside the core, where they can be more influential and avoid restrictions that may be placed on them in the Old Core. 17

18 17.3 NEO-COLONIALISM What are possible benefits and challenges to the increased activity of transnational corporations? Benefits of Transnationals 1. They produce goods and services at affordable prices. Challenges of Transnationals 1. Local cultures become dominated as more core products are used worldwide. 2. The jobs they provide allow the economies of many countries to grow. 3. Encourages economic development in periphery nations. 4. Allows the sharing of new technology worldwide. 2. A single country s laws do not apply to a company operating in many countries. 3. Best jobs and the majority of profits go to Core countries. 4. Periphery countries sacrifice the environment and provide cheap labour to get these jobs NEO-COLONIALISM A factor that contributes to greater success of transnationals and continued dominance of neo-colonialism in the world is free-trade. Free-trade trade that occurs without the restrictions caused by tariffs and nontariff barriers. Tariff a tax on imported goods. Tariffs make cheap imports more expensive and allow domestic manufacturers to compete for customers. A non-tariff barrier is any other restriction placed on goods that allow domestic companies greater opportunity to succeed. An example of this is a quota, which is a limit on the number or value of goods that can be traded. 18

19 17.3 NEO-COLONIALISM Sometimes organizations form that help protect the economic interests of certain countries or promote free-trade: World Trade Organization international organization responsible for coordinating and promoting trade in the world. It develops rules for trade with the goal of keeping trade running smoothly. European Union made up of 27 European nations, which have made free-trade agreements to encourage economic globalization of its members NEO-COLONIALISM North American Free Trade Agreement (NAFTA) a treaty signed in 1994 by Canada, the United States, and Mexico that phased out most trade restrictions among the countries. Cheap labour costs and growing levels of wealth in Mexico has made it an attractive new market for North American business. Free Trade of the Americas (FTAA) a proposed free trade agreement involving all of the nations of the America s other than Cuba. Asia-Pacific Economic Cooperation (APEC) organization of 21 nations around the Pacific Rim proposing a free trade agreement. 19

20 17.3 NEO-COLONIALISM On a sheet of paper, create a chart like that one below to brainstorm possible strengths and limitations of the trend towards greater free-trade in the world. Strengths of Greater Free-trade Limitations of Greater Free-trade Strengths of Greater Free-trade 1. Comparative Advantage the economic advantage that one country has over another because it can produce goods more cheaply (cheap labour, lots of raw materials, cheap transportation). 2. Cheaper goods without tariffs increasing the price of goods they can be sold for less. 3. Competition goods from other countries will make domestic companies be more efficient and lower prices in order to compete. 4. Interdependence free-trade among countries lessens the chances of armed conflict between them. 5. Economic Growth it allows a larger export market for goods from Core and Periphery nations. 6. Sharing of capital and technology it promotes the introduction of money and technology into Periphery and Near-Core countries. Limitations of Greater Free-trade 1. Threat to domestic industry competition from cheaper foreign goods can put domestic companies out of business. 2. Relocation of industry domestic industry can move to a country with cheap labour, causing a loss of jobs at home. 3. Dependence on a few products specialization (focusing on one product) through comparative advantage can make an economy vulnerable if demand falls for those goods. 4. Protection of vital industries some countries still protect industries even when promoting free-trade, countries that don t are at a disadvantage. (U.S. and agriculture or lumber) 5. Loss of economic control a country may give up control of its trade to an international organization, which can tell the country what it can or cannot do. 6. Lower standards some countries may lower their environmental, labour or safety standards in order to compete. 20

21 17.3 NEO-COLONIALISM Video Adam Smith: Ideas that Changed the World NEO-COLONIALISM Complete Growth of Free-Trade in the World and place it in your folder. 21

22 18.0 In this outcome we will 18.1 explain the implications of economic globalization 18.2 explain the implications of economic disparity 18.1 The implications of economic globalization Economic globalization can provide both benefits and challenges for countries, not only economically, but socially as well. Based on what we have studied so far this year, what are some social benefits of globalization and what are some social challenges? Countries that are more involved in the global economy tend to be wealthier and their citizens tend to have a higher quality of life (the standard of health, comfort, and happiness experienced by an individual or group) 22

23 18.1 The implications of economic globalization To see how countries quality of life has been influenced we examine various economic and social indicators for countries. As we have already examined in the first unit of this course, we can learn much about how a country is doing by examining the indicators. Some examples of indicators: Economic Indicators Social Indicators GDP per capita Oil consumption per person per year Number of transnationals based in a country Physicians per 1000 people Internet users per people Average education level attained Individually, such indicators do not tell much about a country, but when you begin to put many of these indicators together for a country you begin to see the implications of globalization The implications of economic globalization When discussing quality of life, we must consider both economic and social indicators of development as one may influence another. A country with a low GDP per capita (economic indicator) may indicate a relatively weaker economy with less financial resources to fund health care, thus influencing quality of life. 23

24 A country with a high number of internet users per 100,000 (social indicator) may indicate a greater access to education, which can increase the number of people employed in the technology sector, increasing the average income of a country The implications of economic globalization We will examine this indicator for the next activity. Quality of Life Index (higher is better) is an estimation of overall quality of life by using an empirical formula which takes into account purchasing power index (higher is better), pollution index (lower is better), house price to income ratio (lower is better), cost of living index (lower is better), safety index (higher is better), health care index (higher is better), traffic commute time index (lower is better) and climate index (higher is better). 24

25 18.1 The implications of economic globalization Economic globalization can have implications for both Core and Periphery countries. Greater wealth for Core countries Continued exploitation Periphery countries (resources, labour) Economic benefits to Periphery countries (job creation, infrastructure) Shifts in global power to New Core countries. (e.g. from Europe to China) Greater share of the worlds wealth benefits a small percentage of the world s population. Gradual shift from resource based to tertiary economies Extreme poverty Wealth disparity 18.1 The implications of economic globalization As economic globalization develops in the world, Core countries tend to receive the greatest benefit from economic relationships. 25

26 18.0 In this outcome we will 18.1 explain the implications of economic globalization 18.2 explain the implications of economic disparity 18.2 The implications of economic disparity Economic disparity can be defined as an inequality in which some people or countries are much better off economically than other people or countries. One of the main criticisms of globalization is that it tends to increase the economic disparity. Most people will admit that globalization has created more wealth and economic growth but that that growth and wealth has not been shared equitably. 26

27 18.2 The implications of economic disparity More than 70 percent of the world s adults own under $10,000 in wealth. This 70.1 percent of the world holds only 3 percent of global wealth. The world s wealthiest individuals, those owning over $100,000 in assets, total only 8.6 percent of the global population but own 85.6 percent of global wealth The implications of economic disparity Western and European countries host the lion s share of the world s millionaires. More than 70 percent of the world s millionaires reside in Europe or North America, with 43 percent of these millionaires calling the United State home. The only non- Western nations with a significant share of millionaires: the industrial powerhouses Japan, China, and Korea. 27

28 18.2 The implications of economic disparity Ultra high net worth individuals people worth more than $30 million hold an astoundingly disproportionate share of global wealth. These wealth owners own 12.8 percent of total global wealth, yet represent only a tiny fraction of the world population The implications of economic disparity The world s 10 richest billionaires, according to Forbes, own $505 billion in combined wealth, a sum greater than the total goods and services most nations produce on an annual basis. 28

29 18.2 The implications of economic disparity GDP per capita (ppp basis) is an economic indicator that takes the total value of goods and services produced by a country (gross domestic product) and divides it by the population (per capita) using an equivalent currency (purchasing power parity). What does this map show about economic disparity between countries? 18.2 The implications of economic disparity Reasons for economic disparity between the Old Core and the Periphery countries can be seen as a result of the damage done during the colonial past. Economic structure of a colonial power that was focused on the export of cash crops for export and not to grow the local economy. Infrastructure of a colonial country was focused on extraction of resources and the export of products. (e.g. railroad that connects a mine with a port, but does not connect two neighbouring cities) In the maps we see that most economic development has only taken place in regions where the British originally placed a railroad not in regions that British did not think were important. 29

30 18.2 The implications of economic disparity The borders for many former colonies were drawn by Europeans. After gaining their colonial independence the people who made up the populations of these countries were composed of competing interest groups based on ethnic background or religious affiliations. This leads to conflict (war and civil war)that has hurt economic development The implications of economic disparity For core countries the economic disparity also leads to the use of periphery countries as a cheap labour market as people will work for low wages, producing goods at a fraction of the labour costs of a core economy. Core countries benefit from the inexpensive goods produced in these markets. The periphery countries benefit from employment in these factories. Do you think that this is a fair exchange in terms of the benefits for each country? 30

31 18.2 The implications of economic disparity Economic disparity can also occur within countries and can be measured by the Gini index which give a general value of how equally wealth is distributed in a country. A value of zero in the Gini coefficient represents perfect equality. It is generally found that Old Core countries usually have lower Gini index values due to economic responses by government to reduce inequality (ex. social assistance, transfer payments). Which province is the most fair and the least fair in wealth distribution based on these values? 31

32 18.2 The implications of economic disparity These Gini values can then be compared to other countries. New core countries often have not developed the types of economic responses (e.g. social programs, health care) that may redistribute wealth. As a result these countries usually have very high regional economic disparity. What countries have the highest inequality as measured by the Gini index? 32

33 18.2 The implications of economic disparity Now experience what this economic disparity can look like for real people around the world. Go to this website: Choose a family in the poorest, in the middle and the richest and compare their lives to yours In this outcome we will 19.1 differentiate between selected economic systems 19.2 develop possible responses / solutions to economic disparity which impact quality of life 33

34 19.1 The economic system a country uses often seeks to address issues of disparity by focusing on key economic ideas. There are four types of economic systems that can exist: 1. Traditional economy is based on agriculture, fishing, hunting and gathering or a combination of these, to provide for the needs of people. 2. Market economy an economic system in which the prices of all goods and services are determined by supply and demand (free enterprise). 3. Command economy an economic system in which the supply of goods and services are determined by government as part of a total plan. 4. Mixed economy an economic system that combines elements of both free enterprise and government intervention What are the benefits and challenges of each economic system? 1. Traditional economy is based on agriculture, fishing, hunting and gathering or a combination of these, to provide for the needs of people. Benefits Everyone has a job to do People support each other Only produce what is needed Very little waste Challenges People are resistant to change do things like always done Production of goods is low, lower wealth Lower standard of living 2. Market economy an economic system in which the prices of all goods and services are determined by supply and demand (free enterprise). Benefits Competition leads to efficiency and lower prices Profit is incentive to produce a wide variety of goods and services Can respond to market demands quickly Challenges Inequality minority can have majority of the money Need for profit can lead to damage to environment What is produced is not always what is needed but what will sell Basic needs not always provided to everyone 34

35 19.1 What are the benefits and challenges of each economic system? 3. Command economy an economic system in which the supply of goods and services are determined by government as part of a total plan. Benefits Basic needs of population are met Poverty and inequality are avoided Government can use resources where needed Challenges Little incentive for private business / work ethic Limited choice in goods and services No competition little incentive for efficiency or innovation 4. Mixed economy an economic system that combines elements of both free enterprise and government intervention. Benefits Government can intervene in economy when needed Profit and social concerns are encouraged Challenges Government rules can increase price of goods Providing social benefits is expensive for government 19.1 World economies usually fall somewhere between market economy and command economy. In reality, there have never been pure market or command economies. Mixed economies are far more common. It s a matter of how far to either side of the spectrum a particular country s system falls. 35

36 19.1 Complete Economic Systems and place it in your folder Each of the above economic systems involve ideas about which groups should take responsibility for economic issues, like disparity. Essentially, the question comes down to this: How much involvement or say should government have in the economy? Your answer to this question will place you somewhere along the economic continuum. 36

37 19.1 More recently (since the early 1900s) two economic ideologies have developed that link economic ideas with actions taken by groups participating in the economy: 1. Progressive Thought The belief that government should step in to solve social and economic problems. 2. Neoliberal Thought The belief that private individuals and business should have a greater role in controlling economic activity. COMMAND ECONOMY Progressive thought calls more on this side of the continuum MARKET ECONOMY Neoliberal thought falls more on this side of the continuum 19.1 During the 1930 s the Great Depression occurred (caused in part by too much goods production and false sense of security in investments), which resulted in a considerable downturn in the economy. Businesses began to fail as they did not make enough revenue to match their perceived worth on the stock market. They downsized and mass layoffs occurred, which in turn resulted in decreased demand for goods and services. With this, even more businesses failed and even more layoffs occurred. John Maynard Keynes, an economist, said that government should step in and spend tax dollars on projects to create jobs, thus increasing demand for goods once more and stabilizing the economy. As businesses start to recover, they will naturally increase production and hiring of workers. An example of this is The New Deal in the USA (1933). This economic ideology is referred to as Keynesian economics and is the origin of progressive thought. 37

38 19.1 Since the 1980s, there has been a change in dominant economic ideology to that of neoliberalism. Neoliberal thought encourages the following: a freer market with a lack of tariffs or other trade barriers greater emphasis on free trade deals less government involvement in the economy greater freedom for transnationals large companies to provide key services for society, like electric development and public utilities, highway construction, and to be predominantly responsible for job creation What are the benefits and challenges of each economic ideology? 1. Progressive Thought The belief that government should step in to solve social and economic problems. Benefits Challenges Government can provide social programs for people. (health care / employment insurance) Government money can jumpstart the economy. Tariffs (taxes on imported goods) can protect industries from international competition. Reduces trade among countries. Increases the amount of money governments spend. Increases the amount of taxes collected by government. 2. Neoliberal Thought The belief that private individuals and business should have a greater role in controlling economic activity. Benefits Encourages economic globalization (easy movement of goods, production, capital, labour and resources). Developing world can find a market for goods. Reduces government spending. Challenges Loss of local jobs to cheap foreign labour. Companies must compete with foreign companies and goods. Needed services (inexpensive housing / healthcare) are not provided. Governments still protect certain industries. 38

39 19.0 In this outcome we will 19.1 differentiate between selected economic systems 19.2 develop possible responses / solutions to economic disparity which impact quality of life 19.2 To understand what responses can be useful in addressing problems related to economic disparity, it is useful to consider the causes (we have already discussed some of these) 1. Impact of colonialism had negative economic affects on nations. (lack of manufacturing industries) 2. Lack of investment without the money needed an economic take-off (manufacturing, services) will not occur in periphery nations. 3. Population growth economic growth in periphery nations has not kept up with higher population growth rates. 4. Infectious disease malaria, tuberculosis and HIV / Aids often kill the young adults needed to improve the economy. 39

40 Foreign debt many poor nations spend billions repaying high-interest loans and don t have money to spend on economic development, education and healthcare War many nations, especially in Africa, spend too much money either fighting foreign and civil wars or increasing its military to prevent the next war. 40

41 Leadership issues many poor nations have had leaders with little interest or skill in improving their citizens economic life, but often stole billions for themselves. Corruption can be a significant issue. The visual on the left shows some of the lowest ranked countries by Corruption Perception Trade inequalities core countries use quotas and often place a higher tariff on products from periphery nations to increase their price, while subsidizing domestic products that well undersell periphery products on the world market. 41

42 Lack of local control periphery nations lack the power to control their own affairs. Many decisions that affect them are made by the UN, the World Bank, transnational corporations and Old Core countries These causes together produce conditions that many countries in the Periphery have trouble addressing. A major concern of the United Nations is extreme poverty when people have to live on less than one dollar a day (US$). 42

43 19.2 In 2000, the United Nations established the Millennium Development Goals project to improve lives around the world. One focus of this was reduction of poverty worldwide. In 2015, the UN updated these goals and adopted the Sustainable Development Goals, outlining 17 areas of global concern. Poverty is the first of these goals and its target is set at eradication of extreme poverty worldwide by So, in light of these causes of disparity and the importance of eradication of extreme poverty, what must change? Below are some responses to economic disparity: 1. Economic control Periphery countries currently reply on the export of their raw materials, but must find way to control their own economies for their own benefit. They must develop their secondary and tertiary sectors to aid in wealth production. 2. Population control Demographic transition has occurred slowly in many Periphery nations, causing economic benefits to be spread too thin across growing populations. If population growth can be reduced, money can be better used to reinvest in the economy, jobs, and people. 43

44 Infectious disease Reducing the spread of disease through investment in healthcare and education will mean a higher number of productive citizens that can work and help curb economic difficulty. 3. Foreign debt Periphery countries debt has increased in recent decades, making it harder to get ahead economically while paying this debt. Debt forgiveness by Core countries can help reduce this Working together European countries have developed the European Union to strengthen their own economies and local interests through cooperation. In 2001, the African Union was established to start down the road to this goal. The organization seeks to establish free trade, a central bank, and a common currency among 55 African member states. 6. Reducing corruption Honest, democratic governments and low rates of corruption have been slow to develop in Periphery nations, but they are growing in number. Good government with long-term economic goals will help these countries stabilize politically and economically. 44

45 Development Assistance When money moves from wealthier countries to poorer countries as a form of foreign aid, it is called development assistance. This can take two forms: official development assistance (ODA) is foreign aid delivered by governments private development assistance (PDA) is foreign aid delivered by non-governmental organizations (NGOs), which are not linked to governments and are non-profit (e.g., Oxfam, World Health Organization, etc.) While these methods help, there have been reductions in the amounts of money Core countries contribute (aid fatigue). This is because: There has been slow growth economically and socially from aid contributions, meaning much is wasted Money supports the aid industry organizations and not those who need it It is used politically to gain popular favour Aid is too often diverted to the rich in recipient countries (corruption) Remittances Money sent home by people working in foreign countries has a vital role to play in reducing economic disparity. It is one of the most significant ways that wealth is transferred from wealthy to poor countries. All countries involved can make remittance payments easier for migrants by adopting official remittance programs. 45