Chapter 18 Development and Globalization

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2 Chapter 18 Development and Globalization 1. Levels of Development 2. Issues in Development 3. Economies in Transition 4. Challenges of Globalization Do the benefits of economic development outweigh the costs?

3 1. Levels of Development Economists divide the world s s nations into different categories according to their level of development Development - the process by which a nation improves the economic, political, and social well-being of its people Developed Nations - a nation with a relatively high average level of material well being Less developed - relatively low level of material well being newly industrialized countries - less developed country that has made great progress toward developing its economy

4 Measuring Development Per Capita GDP - a nation s s gross domestic product divided by its population Energy Consumption amount of energy that a nation consumes is closely linked to its level of industrialization Industrialization - organization of an economy for the purpose of manufacturing Labor force sign of low development is a large share of workers are involved in agriculture literacy rate - over the age of 15 can read or write life expectancy - the average life span of an individual Infant mortality rate the number of deaths that occur in the first year of life per 1,000 live birth.

5 Per Capita GDP of Selected Nations, 2005 United States United Kingdom New Zealand Israel South Korea Saudi Arabia Mexico Russia South Africa Argentina Iran Albania China Philippines Mali U.S. Dollars in thousands

6 Characteristics of Developed Nations Quality of life levels of consumer spending are high in developed nations, U.S. has an average of 2.8 television sets, and more than 60% of households have computers High Productivity agricultural output is high, but relatively few people work on farms; more people work in industry and services Urbanization and Infrastructure developed nations tend to be urban rather than rural. Most of their populations live in cities and towns and have done so for many years

7 Characteristics of Less Developed Countries Low productivity - subsistence agriculture - farming in which a person makes enough for his or her family; requires heavy labor leaving this people to work in industry and service low quality of life lack of education, housing and diet are of poor quality, limited access to healthcare Have low per capita GDP

8 2. Issues in Development In 1789, the English economist Thomas Malthus predicted that rapid population growth would become a serious problem. The power of population is indefinitely greater than the power in the earth to produce subsistence for man.... The food therefore which before supported seven millions, must now be divided among seven millions and a half or eight millions. The poor consequently must live much worse, and many of them be reduced to severe distress. Rapid population growth remains one of the most pressing issues facing many less developed nations. Some nations hinder development due to illiteracy and poor nutrition

9 Rapid Population Growth A measure of how rapidly a country s population increases in a given year Population Growth Rates of Selected Nations, 2007 Yemen Chad Guatemala Cambodia India Venezuela Haiti United States Taiwan Sweden Austria Czech Republic Japan

10 Limited Resources and Capital In parts of Africa, Asia, and Latin America, physical geography is a serious obstacle to development. Natural Resources are not evenly distributed throughout the world Physical capital low productivity is due to lack of physical capital; without capital industry can not grow Education and Training lack of human capital also hinders development Nutrition and Health - (Malnutrition -inadequate nutrition) Primary School Literacy Rate Country Female Male Female Male United States Peru Indonesia Nigeria Yemen Chad Niger ,1 42.9

11 Political Obstacles Political factors may also limit or even reserve a nation s development Many LDC s are former colonies of European powers. Civil War and social unrest plague many countries. Finally, economic policies in many LDC s have favored small minorities

12 Financing Development Building an infrastructure, providing services, and creating technology and industry all require these funds through a variety of means Internal Financing - capital derived from the saving of a country s s citizens foreign investments - capital that originates in other countries foreign direct investment -the establishment of a business by investors from another country foreign portfolio investment -purchases made in a country s financial markets by investors from another country

13 International Institutions World Bank largest provider of development assistance is the World Bank, founded in 1944; raises money on world financial markets and also accepts contributions from the wealthier member nations United Nations Development Program dedicated to the elimination of poverty; one of the largest sources of grant funding for economic and social development International Monetary Fund debt rescheduling - agreement between a lending nation and a debtor nation that lengthens the time of debt payment and forgives part of the loan stabilization program - agreement between a debtor nation and the International Monetary Fund in which the nation agrees to change its economic policy to match IMF goals

14 Non governmental Agencies Independent groups that raises money and used it to fund aid and development programs 18% 2% 3% 3% 3% 3% 3% 4% 5% 49% Iraq Afghanistan Sudan Columbia Egypt Ethiopia Congo, Democratic Republicq Nigeria Pakistan Jordan 8% Others

15 3. Economies in Transition For many nations, economic transaction has meant moving from central planning to a market-based economy. Change is always challenging

16 Toward a Market Economy A government can privatize business in several ways Privatization - sale of transfer of government-owned owned business to individuals Protecting Property Rights moving to a market economy also requires changes in its legal system; the government must create laws that protect private property, a person s s right to own and transfer property Citizens Attitudes in centrally planned economies, security makes people feel safe, but in free market, there is incentive to work harder

17 Transitions in Russia Fall of Communism in the late 1980 s, Mikhail Gorbachev began a series of dramatic political and economical changes to revive the country s s stagnant economy. A Painful Transition Russia s s new president, Boris Yeltsin, promised a rapid progress to a market economy; however lack of distribution of wealth, concentrated in the cities, billions of aid form the World Bank but mismanaged and corrupted and the nation experienced severe debt Russia in the New Century Tight controls from the central government with rising oil prices for Russian oil allowed Russia, by 2007, to become the world s s seventh largest national economy, and much of their foreign debt has been paid

18 Growth in Asia Asia, the world s s largest continent, home to 4 billion people over 60% of the world s s population Provides a huge workforce and a huge market for the rest of the world (United States) China - the economic power of the world; the death of Mao Zedong and the new leader, Deng Xiaoping began using tools of the free market to increase productivity India - the world s s second most populous nation after China; in the 1990 s, India began to invite foreign investment and promote other free market practices; high expansion in high- technology industries

19 Challenges in Africa and Latin America Persistent Poverty in Africa south of the Sahara Desert, most nations face the obstacles of lower developed countries. Economies largely based on subsistence farming; low literacy rates, inadequate health care and nutrition In Latin America,, the two biggest success stories are Brazil and Mexico - abundant resources and both have taken steps to make their economies more diverse Brazil exports iron ore and timber and its land and climate are highly suitable for growing coffee and soybeans; discovery of large oil reserves in 2007 turned Brazil into a major oil- producing power Mexico has reserves of oil and silver and produces rich crops of cotton and coffee; diversified its economy by promoting industry

20 4. Challenges in Globalization Globalization - the increasingly tight interconnection of producers, consumers, and financial systems around the world

21 Causes of Globalization Rapid Transportation and Communication innovations which allow greater movement of products, people, and ideas (airplanes and internet) today s s communication s s revolution has also sped the pace of globalization has made the world smaller Expansion in the Free Market many nations have moved away from communist or command economies and pursued free market Trading Blocs creation of these blocs have changed the nature of competition in the global market; the U.S. is the world s s most productive single economy, against any single country, but combined output is another questions

22 Issues in Globalization Arguing against globalization is like arguing against the laws of gravity. Koffi Annan,, the U.N. Secrtary.. Well, Mr. Annan,, it sure has had its impact on the United States Interconnected Financial Markets many American financial firms lost money in 2007, or went out of business, as a result of making too many risky home mortgage loans; investors began to invest in European and Asian exchanges and not American Multinational Corporations sparked much controversy; multinationals helped the development of Eastern Europe after the fall of communism, but hurt America Job Loss outsourcing has led to loss of jobs in America

23 Population Shifts Rural to Urban - farm to city Country to Country - leave less developed countries and go to better ones remittances - cash payments sent by workers who have migrated to a new country to family members brain drain - migration of the best educated peoples of less developed countries

24 Challenges Ahead Developed v. Developing leaders in LDC s and even newly industrialized countries argue that international trade and financial policies favor the wealthier nations. Environmental Protection rapid development throughout the world can cause serious environment problems sustainable development - the goal of meeting current development needs without using up resources needed by future generations deforestation -large scale destruction of forests

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26 The United States and the World Economy Globalization poses challenges even for the world s s most successful economy our own. For the United States to compete in global markets, American workers must be ready to meet changes in the workplace. WE MUST CONTINUE INNOVATION AND EDUCATION Adapting to a changing workplace information and service drives our nation; need to educated in service rather than industry the pressure to compete Globalization has made economic competition more intense and affects business relationships and creates road blocks the pressure to innovate the countries that develop new products or processes can quickly gain a share of the world market

27 Measures of Development Measure Per capita GDP Population Growth Rate Literacy Life Expectancy Infant Mortality Labor Force Settlement Consumer Goods Energy Consumption Developed Countries High Low High High Low Large percent manufacturing, service Urban High Plentiful Less Developed Countries Low High Low Low High Subsistence agriculture Rural Low Scarce