Nature of Inequality Between the North and Term Paper
- Length: 11 pages
- Subject: Economics
- Type: Term Paper
- Paper: #83026105
Excerpt from Term Paper :
nature of inequality between the north and south, he has to understand the role of technology in the international system. Someone who would say such a thing overlooks the fact that it's not the amount of technology that counts, but how you use it that matters. In the wealthiest western nations, the use of technology has been actively directed by well-regulated capital lending mechanisms. These financial instruments allow inventors, laborers, and merchants to borrow money at interest that can later be repaid within the context of a legal environment that protects property and contracts.
According to Weatherby, the tragedy of the third world has four culprits: dependence on the west, delayed modernization, increasing population, and the unequal distribution of wealth. He argues that even if all third world countries don't possess these qualities; that each possesses two or three of them. If the lack of modernization is to serve as an example, these problems can be seen as symptomatic of third world poverty rather than as causes for it, although I would argue that the people in developing countries are dependent on the west. Most such people never see the west's foreign aid dollars; they are spent instead on wasteful socialist economic schemes or at Harrods. Their governments wouldn't exist without them. It's also common knowledge that higher standards of living encourage lower population growth rates. What then of modernization?
In the 18th century, one of the most popular playthings of continental royalty in Europe was the automaton. These ingenious devices were essentially wind-up toys, and would use clockwork to mimic natural phenomena such as a butterfly, or a man playing chess. Such devices had existed in Europe since before the fall of Constantinople in 1453, when the emperor's court featured an automatic tree populated by hydraulic-powered singing birds. Despite the presence of such examples of human ingenuity, the predominant portion of European society lived as it had for centuries; illiterate and impoverished. It was not until entrepreneurs were able to borrow money at interest to develop these technologies into mills and steam engines that their existence fomented the Industrial Revolution. In much the same way, the third world exists despite vast technological improvements, such as nuclear reactors in China or the Aswan Dam in Egypt. According to noted economic theorist Hernando De Soto, "when you step out the door of the Nile Hilton, what you are leaving behind is not the high-technology world of fax machines and ice makers, television and antibiotics. The people of Cairo have access to all those things. What you are really leaving behind is the world of legally enforceable transactions on property rights." These property rights, De Soto argues, don't stem from a democratically elected regime or even from the privatization of large government-run industries, but from the ability of farmers and merchants to borrow against what they already own.
In the United States and other western countries, the greatest asset owned by most people is their home. An American homeowner has a deed to his property and he can borrow against it if he wants to start a small business. In developing countries, crippling bureaucracies and the lack of an infrastructure to support the establishment of contracts renders this impossible. In addition, the establishment of a legal business calls for private citizens to go through innumerable measures in order to establish a small business.
Instead of encouraging the development of a lending infrastructure to support the lower class, the west has responded to these matters by issuing development loans and foreign direct investment. According to the late Lord Peter Bauer, issuing development loans is worse than doing nothing because it allows governments to engage in costly social programs that do little. For instance, in Africa price controls were introduced in order to make produce affordable to the consumers that lived in large cities. Farmers answered this by growing roses, which were sure to fetch a premium in the flower markets of the west with the advent of air shipping. As a result, the massive over-production of food lead to starvation conditions in many countries. Instead of being spent on, lent to, or given away to the poor people in these countries that had an arguable need for it, this money was squandered by political leaders. Again and again, Lord Bauer saw the mis-management of money lent by the west to developing nations, whether it was spent on villas in Spain by formerly communist Russian political cronies or on an international airport in the tiny home village of Zimbabwe's late President Mobutu.
In Understanding Russians, by Matthew Maly, the laws of post-communist Russia are characteristic of undeveloped, non-contrarian nations:
1. all-encompassing, to regulate everything, so that a bureaucrat can squeeze a bribe from every inch of legal territory under his or her control;
2. vague, so that everything would depend on the interpretation and goodwill of the bureaucrat;
3. unpublished, so that one needs a bureaucrat just to find out what, if anything, one can do
4. very severe, so as to scare a citizen into giving more; not enforced, so that people could live.
According to Maly, Russian law reflects the Russian view of property: it is "suspended in air" by the conflicting claims that beset it on all sides. Only one with the power to repel all other claimants may retain real property for the sake of using it to generate a revenue. In Russia, this role is played by the countries oligarchs, which many claim were created by the west so that American businesses would have a finite and easily recognizable number of people to deal with. This explains Weatherby's vast difference between the wealthy and the poor; as apparent on Tverskaya in Moscow as it is in Mexico City.
De Soto compares the experience of third world countries to that of the early experience of the United States, where a plot of land might be alternately owned by someone who bought it from the local Indian tribe, or another to whom it was presented by the king as a part of a sea-to-sea grant, neither of whom may not have even seen America. When the dust settled, this land was owned by the federal government, which was the first organization to allow settlers to own land legally. De Soto notes that the establishment of a system of recognized and transferable ownership was developed in order to protect ownership, which is why it is hard for many to grasp its significance in the world economy: it allows ordinary men and women to borrow money against collateral.
De Soto's economic foundation conducted studies of several large developing nations, including Peru, the Phillippines, Haiti, and Egypt. They found that in Peru, 53% of city-dwellers lived in illegal dwellings, and 81% of people in the country lived and farmed as squatters. If capitalized, this property would be worth 74 billion dollars; 5 times the value of the Lima Stock Exchange before its 1998 crash, 11 times the value of government industries that could be privatized, and 14 times the value of all Foreign Direct Investment spent on Peru in its entire history. In the Phillippines this property, which 57% of urban dwellers and 67% of rural dwellers live in, would be worth 133 billion dollars; 4 times the value of the Phillippines Stock Exchange, or 14 times the total amount of Foreign Direct investment ever spent there. The total estimated value of all such property worldwide is estimated at being 9.3 trillion dollars; equal to twice the total supply of money in the United States, or the total market capitalization of the 20 largest stock exchanges in the world combined.
Free trade provides a comparative advantage to different economies because it encourages products to be developed in the economies that are best suited for developing them. The lack of free trade enhances the negative effects of shortages in raw materials, which is especially inherent in agriculture. Whereas a bad crop in a country that actively engages in trade results in little more than mortgage woes for indebted farmers and the profit of commodities brokers, in a country hampered by trade restrictions it can result in famine and mass starvation. Conversely, poor countries stand to lose from trade when the international organizations that arbitrate trade disputes call for the strict enforcement of intellectual property rights, especially with respect to the un-licensed reproduction of medicines that fight life-threatening diseases.
In order to develop a thorough understanding of free trade, we must look at its origins. David Ricardo, a member of Parliament and close friend of John Stewart Mill, developed the theory of comparative advantage in the early 19th century. Using the example of two nations (Portugal and England) and two commodities (wine and cloth), Ricardo mathematically demonstrated how trade would benefit both nations even if Portugal had an absolute cost advantage; that is, England would still do better even if Portugal could produce both wine and cloth cost effectively. Ricardo argued that there are…