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North-South system describes relations among the market economies of the western world (mainly located in the northern hemisphere), and the third world economies of Africa, Asia, and Latin America. As has already been noted, the terms North and South are used to designate the two major economic spheres in the world economy: a wealthy North made up of Economically Developed Countries, (EDCs), and a less wealthy South composed of Less Developed Countries (LDCs). The two geographical designations result from the fact that most EDCs lie to the north i.
. North America and Europe, while most LDCs are further to the south, in Africa, Asia, and central and South America. The North/South divide is not absolute in a geographical sense. The economic factor is the most objective distinction between North and South. Unlike the Western system, which is composed of relatively similar and equal state actors, the North-South sub-system is one of disparity and inequality between the North and South in terms of gross national product per capital (GNP).
The countries of the North tend to have more diverse economic bases; they rely for their income on the production of a wide variety of manufactured products and the provision of diverse and sophisticated services. Southern countries, on the other-hand, depend on fewer products mainly agricultural produce and other raw materials for their income. The Global South is sometimes described as ‘the zone of turmoil’ in large measures because, in contrast with peaceful and democratic North, most of the people in the South face chronic diseases, tyranny and anarchy.
In ost of the countries of the South where conditions of dictatorship and dismal financial prospects exist, the chances The growing disparity 3 of civil wars and conflicts with each other rise. A large scale of misery and marginalization is evident across the Global South, from which only a fraction of its countries have begun to escape. The patterns of global trends show that more than sixty countries today are worse off than they were and are falling further behind the levels achieved by the countries in the Global North. The underdevelopment prevailing in the Global South can be explained by a combination of factors. Read about lifestyle of the poor and rich
Few theorists explain this underdevelopment by examining primarily the internal causes such as the political turmoil prevailing in these countries. On the other hand, few theorists have analyzed international causes such as the position of the developing countries in the global economy. (Kegley, 2008)
Empirical structural change analysts emphasize both domestic and international constraints on development. The domestic ones include economic constraints such as a country’s resource endowment and its physical and population size as well as institutional constraints such as government policies and objectives.
International constraints include external technology, capital and international trade. However, international constraints play a vital role in explaining the wide gap between the Global North and South. A disturbing feature for the newly awakened world conscience is that the pace of progress of few leading countries is accelerating rapidly, the rich are becoming richer and the poor are becoming poorer relatively. During the years when 1952-6 when India launched its First Five Year Plan its income rose by hardly ?1, whereas Britain’s income per head rose by nearly
Cumulative growth, even at slow rates over years, can have The growing disparity 4 astonishing results. Development and underdevelopment is often attributed to misdistribution of natural resources or geographical disadvantage of certain countries. This view is somewhat faulty; possession of certain resources can be advantageous but in themselves resources are not decisive. Brazil and Denmark are best examples for this. Brazil, despite having plentitude of mineral resources, diverse topography, mineral wealth, climates and soils remains underdeveloped.
Whereas, Denmark, although lacks minerals and energy resources and is small in size has developed its economy to an extent that it is one of the richest countries of Europe. Great area, diversity of relief and availability of mineral resources merely gives potentiality. Perhaps, the most important factors are the human ones; the willingness to work hard and explore and the technological know how are the factors by which these natural resources become active elements in economies. (Mountjoy, 2007)
Similarly, Rostow and Harrod-Dommar models implicitly assumed the existence of structural, institutional and attitudinal conditions (e. . well-integrated commodity and market money, developed transport facilities, a well trained and educated workforce, the motivation to succeed and an efficient bureaucracy) in the underdeveloped or developing countries. In many cases they are lacking, as are complementary factors such as managerial competence, skilled labor, and the ability to plan and administer a wide range of development projects. The structural change analysts are somewhat optimistic that the ‘correct’ mix of economic policies will generate patterns of growth amongst the countries of the South.
On the other hand, the analysts of the International constraints are somewhat pessimistic. The growing disparity 4 The international-dependence models view developing countries caught up in a dependence and dominance relationship with the rich countries. Persistent inflow of foreign aid and investment which ‘allegedly’ improves the condition of the developing countries is in fact detrimental to development as it would eventually lead to dependency. It is assumed that underdevelopment is the result of the dominant influence exercised by developed capitalistic countries.
The decisions made in the developed world can effect the lives of millions of people in the developing world in several ways. It is the characteristic of the Less Developed Countries that a very large proportion of their exports consist of primary products. Although the East Asian countries and the ASEAN countries have been making rapid progress with industrialization and increasing exports of manufactured goods, the LDCs have been slow in this regard. Export of primary products is affected by the rate of world economic growth and price movements abroad.
After the Second World War, several less developed countries adopted a policy of industrialization by promoting the creation of large private and public firms. For this reason, the governments of these countries have introduced tariff protection (tax on imports) and quotas (limits on the quantity of imports) of various kinds. These policies were motivated mainly by two reasons. First, the growth of the manufacturing industry is often associated with sustained process of growth. Second, the development of the heavy industry was considered fundamental for the manufacture of modern weapons.
Such policies of tariff protection and high quotas are severely criticized by several economists including Quesnay and Smith. Since the Second World War leaders of countries like The growing disparity 6 Korea, Singapore, Hong Kong, Brazil, China followed the recommendations of Quesnay and Smith and their exports have increased tremendously. (Labini, 2001) For several years there was a widespread protection in developed nations against the manufactured export of LDCs. International trade barriers have been pervasive. Although WTO rules eliminate several formal barriers but many implicit barriers remain.
The policies followed by the developing countries have also affected their ability to export primary commodities. But developed country policies have also had important effects. Foods produced in developing countries which compare with domestic production in the developed countries encounter barriers in these countries and often have to compete with their subsidized exports. The Common Agricultural Policy of the EEC as well as Japanese restrictions affect, in particular, sugar, cereals, vegetable oils and oilseed, beef and veal, wine, and tobacco; while the United States limits the importation of sugar and, to a lesser extent, oilseeds. Valdez and Zietz, 1980). According to one analysis almost 80% of the 1959-61 exports of Less Developed Countries were competitive with identical products, close substitutes or synthetics produced by developed countries. (Kravis, 1973)
These few examples clearly indicate how the trade policies of the developed countries are detrimental for the progress of already striving countries of the South. It has been estimated that a 50 per cent reduction in the developed countries’ trade barriers on foods would lead to an eleven per cent increase in the exports of these commodities from the developing countries. Valdez and Zietz, 1980). This figure understates, however, the impact of the developed countries’ agricultural policies on The growing disparity 7 developing country food exports by excluding the effects of export subsidies. Yet subsidies to food exports have increased over time, in particular in the European Economic Community, contributing to a decline in the world market shares of the developing countries. With respect to trade issues, many of the less-developed countries have created the greatest recent resistance to the global pressure to reduce trade barriers through World Trade Organization (WTO) agreements.
The main problem relates to agricultural products. Many of these countries have experienced a severe downturn in their domestic agricultural acreage because local producers cannot compete with agricultural exports from major countries such as the United States. They have persuasively argued that it is not a fair playing field because in Europe, Japan and the United States, agriculture receives sizeable government subsidies. Third world countries cannot afford to similarly subsidize their own domestic agricultural industries. OuldMey, 2003) Poor nations and their advocates argue that trade is a benefit for richer nations at the expense of poorer nations. They complain that the agricultural subsidy policies of the rich countries flood their markets with artificially low cost agricultural products, thus ruining domestic agricultural industries. They also argue that World Bank lending policies force poor countries to adopt economic policies which benefit only their wealthy trading partners and leave them with an overwhelming burden.
The need for rapid increase in the export earning of the developing countries is recognized universally. The external loans and grants cannot constitute a permanent basis The growing disparity 8 for economic development and sustained growth. As mentioned by an economist, ‘ A country that tries to promote growth while ignoring its exports, may succeed in the short run, especially if it can count on an inflow of capital but it will be hard-pressed to sustain growth over a longer period of time. (Ram, 1970) But even the most vigorous efforts made by the developing countries to boost their trade are hardly met with any success because the export of manufactured and semi-manufactured goods by them has to meet several obstacles raised by the developed countries; the most objectionable being the high tariffs on the goods manufactured from the primary products. In 1963, the imports of iron ore from developing countries into the developed countries were worth $ 402. 5 million, but imports of iron and steel manufactures were worth $ 19. 3 million.
While the tariff rates on iron ore were zero percent and on iron or steel manufactures were upto hundred percent in USA and upto thirty percent in EEC countries. On the other hand, even the traditional exports such as coffee, tea, cocoa and tobacco have to face high revenue duties and fiscal charges. (Ram, 1970) The main reason proposed by the developed countries for high tariffs and restrictions is by the virtue of the low level of wages enjoyed by developing countries they enjoy a comparative advantage in the world market for their manufactures.
The advanced countries are afraid that the abrogation of these restrictions will disrupt certain industries e. g. cotton textile and clothing but these fears are highly exaggerated. Firstly, the United Nations estimated that the imports of manufactured goods from the developing countries accounted for only one percent of gross national product of the industrialized countries. So even if these imports increased several times The growing disparity 9 they would have absorbed only a very small share.
Secondly, in 1961, the volume of manufactures imported by developed countries from developing countries were worth about $ 1. 4 billion, as compared to the imports from the manufactured countries, that worth $ 33. 8 billion. Thus, even if the imports from the developed countries were to be doubled they would still be insignificant compared to the trade amongst the developed countries. (Ram, 1970) It is widely observed that the policies of export promotion appear to have contributed more to gross national product’s growth as compared to import substitution policies. Todaro and Smith, 2005)
According to the believes of the trade pessimists, the exports of the less developed countries grow slowly because of the shift from low technology, material intensive goods to high technology, skill intensive goods.
The slow growth in demand for the traditional exports means that export expansion results in lower export prices and a transfer of income from poor to rich nations. Secondly, the developing nations have their ‘static’ comparative advantage in primary products, which means that export promoting policies tend to inhibit industrialization. Trade optimists on the other hand argue that the rade liberation generates rapid export and economic growth because free trade provides a number of benefits.
Firstly, it promotes competition, improved allocation of resources and economies of scale in areas where developing countries have a competitive advantage. As a result, costs of production would be lower.
Secondly, pressure for increased efficiencies, quality improvement, and technical change is generated, thus raising the productivity.
Thirdly, The growing disparity 10 trade also helps in accelerating overall economic growth and helps attracting foreign capital and expertise which are scarce in LDCs.
Fourthly, it also promotes equal access to scarce resources, which improves overall resource allocation.
It can be said that neither trade is beneficial nor it has adverse effects all the time. It basically depends on the fluctuations in the world economy. Thus when the world economy was expanding rapidly during the period 1960 to 1973, the more open-economy LDCs clearly outperformed (in terms of aggregate export and economic growth) then the more closed economy nations. But when the world economy slowed down during the period 1973-1977, the more open economies had a more difficult time. Todaro and Smith, 2005)
However, trade has always been one of the major determinants of the unequal growth of productive resources in different nations. This phenomenon especially applies to resources most crucial to the growth and development, e. g. capital, entrepreneurial abilities, scientific innovations, technological development and the technical skills of the labor. The rich nations as a result of their better endowment with vital resources have created necessary conditions and economic incentives for their further growth.
Whereas, developing countries, endowed with abundant resources of unskilled labour, excel in products that extensively use unskilled labour and for which world demand is unfavorable. This leads to increasing stagnant situation of these poor countries. Static inefficiency becomes dynamic, and a process is set in motion in which trade exacerbates already unequal trading relationships, distributing the benefits to people who already have and increases the physical and human resource underdevelopment that characterizes most poor nations.
Recent studies have shown that the terms of trade continue to decline The growing disparity 11 in the South because the benefits of the technological progress and productivity improvement in the North are distributed in the form of higher income and better lifestyle to northern workers and capitalists, whereas, in the South these are distributed in the form of lower prices to the consumers.
The vast political, economic and social differences separating the Global North and Global South suggest that the countries in the Global South are increasingly vulnerable, insecure and defenseless, and that these conditions are a product of both internal and international factors. These challenges bring Global South in a contested debate with the Global North. The globalization of trade and finance threatens to expand many poor Global South countries’ economic vulnerabilities.
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