Why poor countries remain poor

DEC 24 -

Only three countries have been able to graduate from the LDC (least developed country) status in the past three decades. This shows how difficult it can be for these countries to extricate themselves from their sorry state. Last week, a three-day meeting of the least developed countries (LDCs) of the Asia-Pacific Region held in Kathmandu discussed this and other topics. The gathering was a follow-up to the Programme of Action for the Decade 2011-2020 as adopted by the Fourth UN LDC Conference held in Istanbul in Turkey three years ago.

Focused on the three broad issues of aid, trade and debt, the meeting embraced an array of other issues concerning sustainable development of the LDCs. It emphasized efforts to lift more countries from the LDC category by the end of 2020. That’s very admirable. This is why the LDCs deserve special global attention and well targeted support measures to lessen global extreme poverty by accelerating economic growth and overcoming their vulnerabilities.

Bottom billion

There are still 48 LDCs in the world characterized by a very low per capita income, low level of human development and vulnerabilities to economic development. These countries are beset by problems of hunger, disease and impoverishment worsened by violence and instability. Out of the approximately one billion people living in these countries, about three-fourths live on below one dollar a day. They are deprived of basic needs of nutrition, shelter, health and education. They represent the world’s abject poverty and are referred to as the “bottom billion”.

Today, debates on the desperate situation of the bottom billion are gaining more attention. About seven years ago, an Oxford University economist Paul Collier argued in his famous The Bottom Billion that while most countries have pulled out of poverty, why have the bottom billion got stuck? His answer was the different traps that mired them in extreme poverty. He stated that “poverty is not intrinsically a trap” because all societies used to be poor.

He pointed to four reasons for the bottom billion being in the state they are in today. These are traps caused by conflicts in such countries; misutilisation of the “rents” earned from their natural resources; landlockedness causing poor transport links to the coast and overseas markets; and bad governance. Although Collier’s writing is explicitly based on the poorest countries in Africa, some LDCs in the Asia Pacific region are no exceptions to this. Corresponding to Collier’s view, a Columbia University economist and advisor to the Millennium Development Goals (MDG), Jeffrey Sachs, has in one of his writings described the bottom billion as being “shocking, morally intolerable and dangerous - a breeding ground of disease, terrorism and violence”.

Why LDCs fail

Just two years ago, a new development thought has been explained by two leading academics Daron Acemoglu and James Robinson in Why Nations Fail. It contrasted with what has been commonly thought about the economic hardships as ascribed to differences in geographical location and climatic variation.

Acemoglu and Robinson have revealed that the countries with “inclusive institutions” which created a virtuous circle of innovation, economic expansion and more widely-held wealth can prosper regardless of where they are located geographically and influenced by common cultural values and climate. They have argued that countries with institutions which are designed to extract incomes and wealth from one subset of society to benefit a different subset are caught in the poverty trap. These norms have, therefore, suggested that the development thought cannot be observed in isolation anymore and needs a broad approach consisting of non-economic factors to break the poverty trap in the LDCs. Particularly, this calls for transformation from the conventional economic thought of the “vicious circle of poverty”, which emphasised investment as being key to development as the countries with low income had low savings and investment that led to low production and ultimately to low income.  

Rich country hypocrisy

No doubt, there is a need to change the development concept to accelerate the LDCs’ economic growth. Equally important is altering the rich country attitude towards development assistance to the LDCs as they have not lived up to their promises. More than four decades ago, rich countries had pledged 0.7 percent of their GDP for development assistance to the poorest countries under the auspices of UNCTAD. Unfortunately, most of them did not even get close to the targeted figure. Instead they down-sized the original aid commitment target to 0.15-0.20 percent of an individual rich country GDP.  

On the trade front, the rich country commitment to grant complete duty-free, quota-free access to LDC exports to their markets has still not happened. While some rich countries are still reluctant to grant this facility, those who have provided it have imposed non-tariff barriers through stringent administrative and standard requirements. If this has inhibited the promotion of comparative advantage sectors in the LDCs, the tariff hike in the rich countries has discouraged the product diversification drive of the poorest countries. Similarly, the rich countries’ farm subsidies have increased the plight of the LDCs’ farm exports. The only sector that performed satisfactorily was debt relief among some poor countries that were heavily in debt, especially in Africa, as pushed by the Jubilee 2000 Campaign. However, the LDCs without heavy debts such as Nepal are untouched by the debt relief initiative.   

Poor country inefficiency

Is rich country hypocrisy an impediment to the development of the LDCs? It would be unfortunate to see the situation only in this way as the LDCs are equally responsible for their backwardness. They have lacked ownership of and primary responsibility for their own development. Their interests are conflicting in a number of development areas. They have been unsuccessful in devising a comprehensive programme for renewed and strengthened global partnership. The lack of interest of some LDCs in participating in the Kathmandu Meeting well reflected their inadequate ownership of their own development programmes. These issues should be addressed with much care when the LDCs gather next time.

(Shakya specializes in the economic and trade interests of Nepal and the LDCs)

Source: The Kathmandu Post