Grade Distribution,

Test Three Test 3

80

70
Average: 83.9
Mean: 82.84
60

50

40

30

20

10

0
60 61 65 66 70 71 75 76 80 81 85 86 90 91 95 96 100
 Cumulative Distribution
90
80
Average: 82.8
70
60 Cumulative Mean: 80.76
50
40
30
20
10
0
65 66 70 71 75 76 80 81 85 86 90 91 95
Global Poverty II

Lecture 23
 The New International
Economic Order,1973-1982
The Oil Shock and
Commodity Power
Commodity Power
Leads to Demands for
The New International
Economic Order (NIEO)
 Increase LDC
Manufacturing to 25% of
Total World
Manufacturing by 2000
 LDCs Manufactured
about 9% in 1978
Specific Demands:
Increase LDC Control of
Natural Resources
Cheaper and Easier
Access to Northern
Technology
Increased Foreign Aid
(.7% of North’s GNP)
Eliminate LDC Debt
Greater Influence over
IMF and World Bank
The Shift to Market-Based
Liberalism, 1982-2001
“The Poor are Poor Because They Are Inefficient.”
Development Requires Societies to Allocate Their
Resources to those Activities that Yield the Highest
Possible Return.
Best Achieved By Allowing Markets to Make
Decisions About Resource Allocation.
By Relying Upon the Government Rather than the
Market to Allocate Resources under ISI, Developing
Countries Realized a Smaller Return on their
Resources Than They Would Have Realized Had
Markets Played the Central Role.
Inefficient Resource Use
Under ISI
Over-Taxed Productive Over-Subsidized Un-
Sector (Agriculture). Productive Sectors
Agricultural Production (Manufacturing).
Fell as Consequence. Manufacturing Was Too
Capital Intensive.
Exports Fell Because
Agriculture was Most Factories Ran at 50% of
Important Export. Capacity.
Food Imports Rose. Goods Were Not
Competitive in International
Government Revenues Market.
Fell.
Ghana and Fruit
Ghana and Cocoa as an Processing as an Example.
Example.
 Rent Seeking
Government Permits Required For All Imports.
Government Does Not Satisfy All Requests for Import Permits.
Import Permits Are Therefore Valuable:
 People Holding Import Permits Can Buy Goods at Low World
Prices, Sell Them at Home at Higher Domestic Prices, and Pocket
the Difference.
 The Price Difference is A “Rent”—An Above Market Return.

People Dedicate Their Lives to Capturing the Rents Created By This

System. They Become “Rent Seekers.”
Consequences of This System
Bureaucratic Delay
Bribery and Corruption in Government Agencies: A Market for Permits
Misallocation of Productive Resources
 Strong States
Import Substitution Required A Strong State
Strong States Are Risky
“Good” Dictators Use State Power For Public Good
 Extract Resources From One Sector and Invest
Them in Other Productive Sectors
“Bad” Dictators Use State Power For Their Own Gain
 Extract Resources From One Sector and Spend
Them on Palaces, Private Jets, Pink Champagne,
and Perfume Baths (e.g., Mobutu in Zaire)
Temptation to Use State Power to Own Profit Appears
Hard to Resist
Liberalism Ascendant
Since Late 1980s Developing Country Governments
Have Embraced Liberal Development Strategies
Dismantle ISI at Home
 Sell Government-Owned Industries
 Stop Taxing Agriculture to Subsidize Manufacturing
Embrace Liberal International Trade
 Reduce Tariffs and Liberalize Imports
 Target Export Sectors for Development
 Join “Free Trade Areas”
A 180 Degree Turn in Development Strategy
 Figure 4.1: Average Tariffs, Developing Countries
Source: World Bank
35.0

30.0

25.0

20.0
Percent

15.0

10.0

5.0

0.0
1980 1985 1990 1995
 Why the 180?
ISI Running Out of Steam By Early
1970s.
Success of East Asian NICs Suggests
the Viability of Alternative Strategy.
The Debt Crisis and Northern Control
Over Financial Flows.
A Realist Perspective on the Last Fifty
Years of North-South Relations.
 Who Is Right?
Structuralists Have a Point
 Life in Global Capitalist System is Difficult for Developing
Countries
 Vulnerable to Terms of Trade Shocks
 LDC Industries Can’t Easily Compete Against Core Country Firms.
 Structuralists Exaggerate Degree to Which Poverty is
Caused by Capitalist System
Liberals Have a Point
 Government Policy Did Make Things Worse Rather Than
Better in Most Countries.
 Liberals Exaggerate Degree to Which and the Speed at
Which Markets Will Raise Incomes in Developing Countries.