GROWTH IN
THE UNDERDEVLOPED
COUNTRIES

In the United States, economic growth is the road to raising further our already high standard of livin . But for 2 billion people who live in the economically “underdevoleped” countries, economic growth is a necessity if they are to escape from the bitter poverty which has been their lot through history. Per capital g.n.p. in the United States in 1967 was about $3,900. In the under developed countries it averaged less than $150.

Table 18-1 classifies the nations of the world into three groups, depending on their per capita annual g.n.p.’s in the early 1960’s. “Highly de veloped” countries are those with per capita g.n.p.’s above $800. The “intermediate” group are countries where the figure was between $300 and $800. The underdeveloped nations are those with per capita g.n.p.’s below $300.

The figures in Table 18-1 are very rough. They probably substantially underestimate in come levels in the poorer nations on two counts. First, incomes there may be underestimated rela tively because so much home-produced food and clothing does not go through the market. Second, prices of the staples that form the standard of living of the masses there are generally very cheap compared to items bought by higher-income families; thus, conversion of, say, Indian rupee incomes into U.S. dollars at the official exchange rate which is based on prices of a wide range of commodities will tend to give a misleading picture of actual comparative living standards. But even if the per capita incomes in the poor nations were doubled to adjust for these possible underestimates, the underdeveloped nations would still appear desperately poor. For most of the world, poverty is far and away the number one economic problem.

Worse, this huge gap between rich and poor nations is widening rapidly, not closing. The following table for the United States and India since 1960 tells the story. Although it shows the extremes, it suggests the spectacular rate at which the Western industrial nations are pulling away from the underdevoleped world. A 2 per cent annual increase on the U.S. base of $3,900 means a $78 increase in one year, equal to the entire per capita g.n.p. in India. In India, the same 2 per cent increase, if it could be achieved, would be about $1.50 per capita.

Why do these vast differences in standards of living exist? Why is the gap between the rich and the poor widening even further? Why have per capita incomes not grown at all over the past century for hundreds of millions of the poorest people? The theories of economic growth presented in Chapter 15 can help us answer these questions, and most of the rest of this chapter is devoted to applying the same central theory of economic growth to the underdeveloped countries as was applied to the United States in Chapters 16 and 17. But, as we shall see, the situations are vastly different.

Development of these economically “backward” countries has become the most explosive socio-economic problems of our times. Poverty is a source of acute discontent for hundreds of millions of people aroused by their nationalistic leaders. In China and India alone there are nearly a billion and a quarter people—two huge nations awakening to their potential power and to the fact that poverty and misery may not be the inescapable lot of the masses in the Orient. A great change is moving Asia, Africa, and Latin America, a change compounded of growing nationalism and a desire for economic progress and power. We neglect their drive for economic development at our peril, even if we have no humanitarian interest in their plight. A revolution of rising expectations—of economic progress, individual status, and national prestige and power —is sweeping the underdeveloped nations.

Are the Underdeveloped Countries
Really “Backward”?

Although economists sometimes refer to regions with low output per capita as “backward,” some social scientists protest against the imposition of our standards on other societies. The warning is well taken. Some societies may prefer to devote themselves to aesthetic values and leisurely living rather than to accumulating material possessions. Perhaps they are happier than the Western industrialized states. Part of our material wealth may be pointless in the eyes of other nations. Cars that crowd the highways; elaborate subways to get us around the teeming cities we have created; work-filled days and activity-filled nights. All these raise the g.n.p., but do they really increase our happiness?

But having taken this warning to heart, remember that poverty and hunger are very real and unpleasant facts for hundreds of millions of people in other lands. The number of economies that have rejected additional material goods when given a practical choice is small indeed. It is precisely the leaders of the newly awakening “underdeveloped” countries who protest most violently against the poverty, disease, and misery that envelop the masses in their countries, and who resent most bitterly the wide gap between their poverty and the affluence of the industrialized nations. Today the drive for increased material well-being dominates economic thinking around the world.