Shortage of Copital
and Primitive Technology

The stock of capital explains much more. No underdeveloped country has a large stock of capital goods per capita; every well-to-do nation does. Modern factories, machinery and equipment, highways, hospitals—all arc scarce in the underdeveloped nations. Without them, high output per capita is very difficult.

The reason is easy to see. When nations are poor, they find it hard to save. Saving in India or Tanganyika means cutting back an already pitifully low standard of living. Saving in America is easy. The underdeveloped country can divert resources from producing consumption goods to investment only through greater want and privation. Yet without capital goods it can never hope to raise the standard of living of the masses very much.

Capital investment of over $20,000 per factory worker in America was cited above. In the poorest nations, the comparable figure is only a few dollars. Gross capital formation is only 5—10 per cent of gross national product in such poor nations as Paraguay and Nigeria. In the well-to-do nations it runs 15—20 per cent, and in the very rapidly growing nations, like Japan and Austria, up to 30—40 per cent. It is easy for the rich to become richer. The poor, like the queen in Through the Looking Class, must run as fast as they can merely to stay in the same place, as population grows constantly.

Closely related, most underdeveloped countries have little modern technology. Human beings and beasts do virtually all the work in agriculture. Handicraft methods dominate in small-scale industry in the towns and cities. To the illiterate native of Kenya or Yemen, Detroit’s mass-production methods and Pittsburgh’s steel mills have little relevance. For him the problem is to learn to use a hoe or plow.

It might seem easy for the backward nations to leap ahead by importing the readily available know-how of advanced nations. But most modern technology is expensive; without heavy capital investment it is out of the question. And much modern technology is related to large-scale production which demands mass markets that don’t exist in the underdeveloped nations. Where economic development is beginning, sometimes wild contrasts exist in the dual economies. In the cities of India and Venezuela, some of the world’s most modern oil refineries and chemical plants loom against the sky. Fifty miles away there is the most primitive agriculture, unchanged for a thousand years.

Overpopulation
and the Labor Force

In one fundamental sense, overpopulation is the crux of the underdeveloped economies. The population is so large that, given the natural resources and capital available, there is barely enough output per person to maintain life. And when total output increases because of improved technology or capital accumulation, population seems to increase nearly as fast, so there is little improvement in the average standard of living. This is not the picture in all the underdeveloped economies, but it is in most.

In recent years, total production has risen at substantial rates in many of the underdeveloped nations, apparently at 3—5 per cent per annum in Latin America, Africa, and southeast Asia. This is near the growth rate of total output in the industrialized countries. But per capita incomes have risen little in most underdeveloped nations because population has grown nearly as fast as output.

What are the facts about population? In most underdeveloped economies, the annual birth rate is between 30 and 50 per thousand people; in the United States and western Europe, the comparable rate has generally declined to around 15 to 25 per thousand. But in the underdeveloped economies until recently death rates typically ran from 25 to 35 per thousand, compared to 10 or below in the Western world. Malthtis’ specter of famine as population outruns the food supply has always been near, aided by inadequate diet and low resistance to disease. Since it is the difference between birth and death rates that determines population growth, population growth rates in the two types of economies have until recently not been grossly different, running around 10 to 15 per thousand (1 to 1/2 per cent per year).

Since World War II, this picture has changed dramatically. Western methods of disease prevention have drastically reduced the death rate in many underdeveloped countries, especially the rate of infant mortality. DDT alone has saved millions of lives through checking the spread of infectious disease. In Ceylon, the death rate was cut almost in half in three years by the virtual elimination of malaria. During the 1940—1950 decade, the death rate declined by 46 per cent in Puerto Rico, 43 per cent in Formosa, 23 per cent in Jamaica. But birth rates have dropped only slowly in most cases. The result is a population explosion in the underdeveloped nations. In Mexico, Ceylon, Venezuela, and El Salvador, population has been growing at 3 per cent per annum recently, a rate that means a doubling every 25 years. China’s growth rate is nearly 2.5 per cent. I-Icr population of over 750 million is growing by 15—20 million every year, and at the present rate will reach 1 billion before 1980.

FIG. 18-2 The underdeveloped nations
have the fastest-growing populations. For
the whole world, the birth rote is about 34
per thousand and the death rate about 11.
(Source: United Nations. Figures for 1964.)

Figure 18-2 shows this contrast dramatically. Note the high birth rates in most underdeveloped countries, and their rapid rates of population growth implied by the big spread between birth and death rates.

In many underdeveloped nations, most of the population is illiterate. New methods that involve even the simplest changes often meet barriers of superstition and inadequate understanding—for example, use of chemical fertilizers and crop rotation. In Africa, only about 25 per cent of all children between S and 18 go to school, about 40 per cent in Asia. In the United States, the figure is over 95 per cent.

FIG. 18-3 The degree of literacy is highly
correlated with the extent of economic de.
velopment, as both cause and effect.
(Source: UNESCO. Figures for various
dates in the 1950’s and 1960’s.)

Figure 18-3 shows the strong correlation between literacy and living standards. Plotting daily newspaper circulation per 1,000 inhabitants against per capita income gives an even more striking correlation (though here the causal chain may run strongly from income level to newspapers as well as the other way).

The absence of even qualified clerks and minor administrators poses a major problem for any commercial or business activity. The habits of honesty, reliability, and efficiency in work which we take for granted are the foundation of economic activity as we know it in the Western world. In some of the poorest nations, witch-doc-tors, primitive customs, even cannibalism, are still more common.