The reasons why some countries are so poor- and some solutions

Trade

Protectionism

Poor countries could become prosperous if they were allowed to trade and compete with companies from richer countries on an even playing field. However, wealthier nations, such as the member states of the European Union, are keen to prevent fair competition, because they want to protect their own uncompetitive and inefficient traders. This ‘protectionism’ operates primarily through the use of tariffs and subsidies.

A tariff is essentially an additional fee a trader from a poor country has to pay before he can sell his goods in western markets. Western countries use tariffs because they know that companies from poor countries will not be able to afford the tariff, and will effectively be barred from trading in western markets. This leaves those markets to be exploited by traders from wealthier countries, protecting them at the expense of the livelihood of traders from poorer states.

Richer countries may also choose to subsidise the production of goods by their own companies. These companies can then sell their products at low and competitive prices, and retain government subsidies as their so-called ‘profits’. Although this amounts to more protectionism for western producers, it acts as a double whammy for producers in poorer nations. They cannot make a decent wage exporting their products because of high tariffs, and they may not even be able to sell their goods to their own people, because of the influx of cheaper, subsidised produce from richer nations.

The hypocrisy of the richer countries is that they demand the poorer countries do not follow protectionist policies themselves. If poor countries decide to make it harder for wealthy western nations to access their markets, in order to protect domestic producers, the wealthier countries will then use their economic clout to insist that they be given access to these markets. For example, rich countries may refuse to give aid to impoverished nations, or impose even more stringent trade protection policies, if they are not allowed the free access they desire.

The most obvious solution to this problem is to end the anti-competitive, protectionist policies of the wealthier countries, so as to enable companies from poor nations to be able to fairly compete. All countries, rich and poor, will benefit from the greater trade that results.

Exploitation

A further problem with world trade is that less developed countries believe that they are being exploited by more industrialised countries, who buy raw materials from them at a low price and return manufactured goods at a much higher price.

This is a particular problem for developing countries because they need manufactured goods, such as machinery, to increase their productivity and to release people from manually working on the land. The way these countries acquire these manufactured goods is to sell primary products (such as farm produce) to the rest of the world and use the revenue to import machinery.

However, prices in primary products have gone down, and at any rate are subject to wild fluctuation. This is because primary products such as bananas and coffee are produced in different quantities depending on the seasonal harvest, and consequently any earnings from these products tend to fluctuate season to season.

The core problem for developing countries is that they do not have enough control over the prices of primary products. If these countries could fix the prices of such products at a certain level, to reflect how much the products are valued in richer countries, then they would no longer be exploited, and would have larger revenues to invest in manufactured products. The way to "fix" the price of any product is to control its supply. The lower the supply of the goods, the greater the demand and the greater the price.

In order for such a price-fixing scheme to work, it is essential that most or all of the poorer nations that produce a primary product participate in the scheme. For example, if only one coffee-producing nation decided to restrict the supply of coffee on the market, the effect on the price of coffee would be limited. However, if all the coffee-producing nations participated in a commodity stabilisation scheme where the supply of coffee was restricted, this would have a significant impact on increasing the price of coffee, which would consequently increase the export earnings of poor, coffee-producing countries.

If poor nations sought to increase their income in this way, this would be different to the kind of protectionism practised by richer countries. The markets of the poorer countries would not be protected by tariffs but would still be open to non-subsidised goods from the developed world. The poorer countries would simply be ensuring that they derived the maximum profit from their own resources- a practice open to rich and poor nations alike.

Lack of investment

A major problem for poor countries is that they often do not have the resources to sufficiently invest in their own economies. There is a lack of investment in infrastructure such as transport, roads, power, telephone systems and urban housing. This means that businesses in poorer countries find it difficult to operate on a large, nationwide scale in order to reduce their costs.

Investment could be increased not only through trade reforms, but also by reducing corruption. Corruption is a cause of poverty, in that massive amounts of funds that could be used for the public good are frittered away by private individuals or organisations, but also a result of poverty, as in countries where resources are scarce to begin with, people are more likely to turn to corruption to increase their incomes. Apathy towards this problem must be replaced with strong enforcement measures to protect public revenue against corruption. It is common sense that with less corruption and more funds available to be publicly invested, the domestic economies of countries ravaged by corruption are bound to dramatically grow. Developing countries do need strong local economies, and cannot be dependent on foreign investment and foreign trade alone, as foreign investors can leave and take their investments with them at any time.

Through trade reforms and a reduction in corruption, the prospects for prosperity are boundless. Poorer countries could embark on export-led growth, by exporting new manufactured products that they are able to develop using revenue made by selling primary products. Such a transition will further enrich the economies of both exporters and importers alike. Not only will there be economic growth in the less developed countries, but the supply of their exports to richer countries will lead to increased competition in those countries, cheaper goods, and greater prosperity there as well.

Population growth

One obvious danger for prosperity is rapid population growth in some developing countries. The lack of state pensions in these countries means that people often decide to have large numbers of children, in order to provide them with security when they are too old to be able to work. The result, however, is that precious resources in poor countries are stretched even further, simply to enable everyone to survive.

With trade reforms and investment, the economies in poor countries should develop to the point where state pensions are available for all. This safeguard should check the levels of population growth. In the meantime, education campaigns in the developing world, focusing on the advantages of family planning, should continue and be expanded.

A further solution to the problem of population growth in certain areas of the world is to permit free migration to whichever countries have the space to allow this. If people were free to move around the world, then those from poorer nations would move to wealthier countries, and there would be a consequent equalisation in world income distribution. This is because those moving to richer countries would benefit from their newly found prosperity, whereas those left behind in the less developed countries would also prosper, as there would be fewer people to compete for resources and therefore greater income for each worker.

While some of those in wealthy nations would balk at this suggestion, it would benefit those in the richer countries as well. The populations in these countries are becoming increasingly elderly. The state pensions of elderly people need to be financed somehow, but without immigration, there would be a lack of young, working people to provide labour and taxes for the treasury. Immigrants could step in to grasp their historic mantle and boost the economies of the richer nations, as they always have done.