Poverty Impeding Development

In the 1980s, the advent of some newly-industrializing countries (NICs) in east Asia, such as Taiwan and South Korea, was generating excitement around the world that the gap between the least developed countries (LDCs) and the developed countries (DCs) then had a viable bridge through foreign direct-investment; that is, what had been a dichotomy was becoming a spectrum. The hope that globally-circulating capital might raise even the LDCs out of poverty. Of course, there was scarce any thought that the combined pollution of an economically developing world would raise global air and sea temperatures above 1.5C. Human beings are too near-sighted for that, and, of course, there is the allure of profits and higher salaries and wages. Also, the sheer inexorability, or stubborn persistence, of poverty in scaring off rather than being lifted up from foreign-direct investment may have been minimized by the hope. Roughly forty years later, Oriana Bandiera of the London School of Economics spoke on the theory that economic opportunities are impacted by how much wealth a person has at the outset—the alternative theory being that the opportunities are just as good for the poor as for the rich because differences are due to exogenous (i.e., outside) factors. The micro-level condition of a country’s poor impacts the attractiveness of a country to foreign direct-investment.

Poor people are more likely to be doing casual, self-employed work than running a small business or raising livestock, according to Bandiera. Wage-labor tends not to go to the poor. Sustenance-level casual work, which is not as regular as wage-labor, is typically not enough to accumulate savings, which could be spent on training or education, or to buy livestock or equipment to increase production of crafts such that economies of scale might be realized. A bimodal structure thus emerges with equilibria being at subsistence level and middle-class, but not in between them. In terms of public policy, craft-oriented small-business loans can perhaps increase the number of poor people who can enter the interim space between the two equilibria. Only governments would be willing to take the risk, and should be willing to make sure that the loans are not spent on consumption, for pressing consumption needs are part of the reason why the poor do not save money on an ongoing basis.

Similarly on the macro level, the Asian NICs were distinguished from the LDCs in Latin America in the 1980s because only the former group had governments strong enough to withstand the political pressure from the people for increased government spending for consumption. Strong states, even if they are authoritarian rather than democratic, can resist popular pressure to exhaust government coffers by expanding entitlement programs. That by 2025 several E.U. states had deficits and debts greater than the limits prescribed by the Stability and Growth Pact and those governments faced no real accountability from the E.U.’s federal government adds support to the argument that democracy may be at odds with sustained and balanced fiscal policy unless, as the U.S.’s Thomas Jefferson and John Adams agreed, the citizenry who vote (i.e., the electorate) are educated and virtuous.  

In terms of business, enterprises in LDC’s tend to be smaller than those in developed countries (and NICs). Smaller organizations are less competitive in trade because they cannot realize the benefits of economies of scale. Such organizations also have less job-specialization and job variety. Bandiera even referred to the labor of such companies as a “disassociated group of self-employed.” Additionally, the CEOs of those enterprises tend to be managers more so than leaders, meaning that those CEOs spend more of their time oriented to functions inside the organizations and less time oriented to external stakeholders and even society as a whole. Visionary leadership is something that the head of a small business in a developing country cannot afford.

Even in business schools in developed countries, the business field of business environment has a place similar to that of Pluto in the solar system. Situating the field of business ethics within business environment is logically and conceptually dubious—but not to worry; few “scholars” of business ethics have actually studied philosophy, of which ethics is a subfield. One business ethics “scholar” at MIT told me in 2024 that ethics is actually situated in sociology rather than philosophy. Being in the humanities, I only smiled and wished her well. Rather than copy the business systems of developed countries, perhaps LDCs should grow their own varieties. The question is perhaps whether the governments should first not only invest in infrastructure, but also underwrite small-business loans to a sufficient portion of poor households before enticing foreign direct-investment. After all, forests develop in stages.

East Asia and Latin America: Economy & State

In the fall of 2011, the economic troubles in the developed countries were starting to hit fast-growing developing economies like China, Brazil and Indonesia. The governments of the developing countries were “girding themselves,” according to the Wall Street Journal, “to offset any economic and financial damage.” China’s government, for example, increased the investment of its sovereign wealth fund in Chinese banks. In September, China’s exports to the E.U. grew at 10 percent, compared with 22% in August. China’s increase in imports was also weaker, which did not bode well for emerging markets in Latin America and elsewhere that supply commodities for China’s construction industry.  Yet IMF projections depicted an interesting distinction between the projected increase of real GNP in Latin America and the developing Asian economies. The projections for 2011 were 4.7% and 7.9 percent, respectively. For 2012, the projections were 4.0% and 7.7 percent, again respectively. What can explain this pattern wherein Asian newly industrialized economies (NICs) were expected to fare better?

Economists might point to the regions having different mixes of industries as behind the difference in projected growth—some industries more affected by the global downturn than others. Economists might also point out that domestic markets are more mature, and thus resistant to external shock, in the Asian NICs. Political economists would likely bring up the strong/weak state variable, hence bringing in the element of government to explain the difference in the projected economic growth rates.

In their democratic incarnations, Latin American governments have been less resistant to popular pressure for increased government spending on consumption. This has come at the expense of government investment such as infrastructure projects attractive to foreign direct investment. In other words, the governments of the Asian NICs have had a stronger state in the sense that the governments have been better able to resist the demand by people for increased entitlement spending at the expense of investment oriented to industrializing. Such investment can include education/training and transportation networks. Managers at a corporation looking for a country in which to locate a factory, for instance, are apt to size up the local and regional transportation infrastructure with an eye to being able to bring in supplies in a timely manner and send off products—both to the domestic market and other markets. Also, the government of a poor country hoping to develop economically via attracting foreign direct investment invests in training facilities and attempts to reduce corruption, as foreign companies appreciate locally-trained labor and not having to pay bribes to government officials in return for being able to conduct business. Officials of strong states are less capricious, and thus less corrupt.

Asian NICs were able to industrialize in the last two decades of the twentieth century more so than Latin American countries in part because of a strong state—meaning more resistant to spending tax revenue away on immediate consumption at the expense of infrastructure investment. This “state” variable was salient in the scholarship of international political economy when the Asian tigers were pulling away from the Latin American economies in the 1980s.

Lest it be presumed that a strong state is necessarily better simply because it can be useful in industrializing a “LDC” (low developed country) into a NIC through foreign direct investment, it is also possible that a government that is more resistant to popular pressure can also be more resistant to democracy. If republics are susceptible to profligacy in spending on consumption while dictatorships can resist such pressure and attract foreign direct investment, then a sad tradeoff could exist between liberty and wealth. Of course, as many dictatorships have shown, the wealth garnered from licensing commodity extraction (e.g., oil drilling) can be quite concentrated domestically. The tradeoff may not reach the people.

Perhaps ideally, the state is weak, or pliant, at election time, when governmental sovereignty bows to popular sovereignty. As the government turns to governing, the state hardens up in resisting the passions of the masses for immediate gratification. The resistance entailed in governing can be oriented to a people’s best interests rather than to oppressing the masses. The IMF projections may indicate that the Asian NICs came out of the twentieth century better constituted than the Latin American countries in this regard.

Source:

Alex Frangos and Patrick McGroarty, “Troubles of West Take Toll on Emerging Economies,” The Wall Street Journal, October 14, 2011. 

Ebola in Liberia: The Government’s Fault?

With the Ebola virus “spreading like wildfire” in Liberia, “devouring everything in its path,” Brownie Samukai, the state’s defense minister, went on to tell the U.N. Security Council on September 9, 2014 that “Liberia is facing a serious threat to its national existence.”[1] With more than half of the epidemic’s deaths in that state—1,224 out of at least 2,2296 in West Africa as of September 6, 2014—and new cases “increasing exponentially,” the World Health Organization (WHO) declared that “the demands of the Ebola outbreak have completely outstripped the government’s and partners’ capacity  to respond.”[2] Meanwhile, the International Monetary Fund (IMF) reported that the illness had severely handicapped the mining, agriculture, and service sectors of the state’s economy.[3] Quite understandably, pleas for the government to do more peeled like frightened bells across the state. “The patients are hungry, they are starving. No food, no water,” a terrified woman told journalists. “The government needs to do more. Let Ellen Johnson Sirleaf do more!”[4] Even if valid, such blame is hypocritical to the extent that the people themselves had been refusing to do what is necessary to stop such a virus from spreading.

Concerning the validity of woman’s charge that the government was not doing nearly enough, Samukai pointed out that the “already weak health infrastructure” was overwhelmed.[5] That is to say, the government had to deal with an already-insufficient healthcare system. Why insufficient? Two theories of development give different answers. According to dependencia, or dependency theory, the infrastructure of a colony is oriented to getting commodities out to the colonizer rather than to developing an internal, web-like system. Roads of a coastal colony, for example, are prioritized that go from the interior to the coast, where ships can pick up the goods and transport them to the core economy (e.g., Europe). The colonists and even their successors cannot be blamed for the lack of internally-oriented infrastructure, yet at some point after a sufficient amount of time as a sovereign state the lack of any progress is surely blameworthy.

The modernization theory says that what holds a developing country back is not its colonial infrastructure, but, rather, things like tradition and ignorance that a people stubbornly cling to even when offered a better way. Superstition, for example, may keep people from working on certain days while tradition has it that a person should stop working as soon as he or she has enough for subsistence living. This inverse of the Protestant work ethic can keep capital from accumulating to the point that reinvestment can broaden an agrarian economy to include manufacturing industries. Rigidly sticking with the custom that puts child labor above education, a people can keep its young from becoming professionals, business entrepreneurs, and managers. Quite understandably, executives of foreign corporations are hesitant to start operations where such a base labor pool exists and reinforces itself.

Taken together dependencia and modernization theory can account for the weak health infrastructure in Liberia and other former colonies in Africa. Health-care of the natives had not been a priority of the colonizers. Additionally, education and investment, as well as even foreign direct investment, may be lacking even though they would contribute much to building a sound healthcare system.

Applied to the Ebola outbreak, we can look beyond the government and healthcare infrastructure to apply modernization theory to the people themselves. The funeral custom, for example, of touching the body the deceased friend or relative is great for the virus, which spreads by touch rather than air. Even so, the African who have this tradition stubbornly and/or ignorantly held to it even as the epidemic was spreading. Additionally, villagers took to hiding sick residents rather than allowing visiting healthcare workers to take the infected people to makeshift treating facilities out of fear that people go to die at such places; meanwhile, the villagers themselves could become infected. In some cases, villagers even attacked the visitors, stubbornly ignoring their pleas.

Scared villagers in Liberia stand far away from the healthcare worker, even as they risk getting the virus by rubbing up against each other--ignoring the worker's pleas. (Image Source: The Washington Post)

Simply maintaining a distance from other people, rather than continuing to touch them, would have done a lot to smite the Ebola. Especially sordid is the assumption that the healthcare workers and government officials don’t know what they are talking about, especially if the person also assumes that he or she cannot be wrong—such as in knowing that touching a dead body brings with it benefits that can keep the person healthy or safe. Ignorance that cannot be wrong, backed up by tradition, can indeed be a silent killer, the odor of which can only be pleasing to the Ebola virus. Blaming the government rings hollow from such a putrid drum, even if officials could be doing a better job in mopping up the mess.

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[1] Abby Ohlheiser, “Ebola Is ‘Devouring Everything in Its Path.’ Could It Lead to Liberia’s Collapse?” The Washington Post, September 11, 2014.

[2] WTO, “Ebola Situation in Liberia: Non-Conventional Interventions Needed,” September 8, 2014; Elahe Izadi, “Ebola Death Toll Rises to 2,296 as Liberia Struggles to Keep Up,” The Washington Post, September 9, 2014.

[3] Anna Yukhananov, “IMF Says Ebola Hits Economic Growth in West Africa,” Reuters, September 11, 2014.

[4] Abby Ohlheiser, “Ebola.”

[5] Ibid.