Stages of Eco nomic Development From the preceding exercise you now have a bet-ter understand ing of what happens as a country develops, but p rhaps nOt what m ight cause one country's eco nomy to grow whi le another's stag-nates. Many attempts have been made to explain why th is happens. Perhaps the best known of chese is the model for economic gwwth proposed by Xialt Ros row in the 1960s. Rostow suggested that a country goes through fi e stages as its econ-omy develops .

e oT-aditional So y

Cou ntries in th is stage have an economy dom-inated by su bsi stence agriculture. Because of this , they have a severely limited potencial for both econom ic and pop ulat ion growth . ocial and conomic progress arc li m it d by natural controls sllch as drough ts and outbreaks of dis-eas e. G over nment stru ctu res of te n fea ture absolute monarchies or d icta to rsh ips . and are in fl exible be ause th ey are used to op rating in condition that change vcry little over centuries. Examples of traditional societies include Britain beFore about 17 50 Canada befo re 1880, and ma ny of today's Fifth World co untries.

Stage 2: Establishing the P -econditlons for T / off At a certain point, anJ fo r a varie ry of f'easons, a country will reach a stage where it is able to starr rh uansicion to , mol' 'omplex, advanced econ-omy. This happened fi rst in Great Britain at the beginning of the Industrial Revolurion in 1750. The transition was somewhat di fferent in Britain than in the nations that reached this stage later. T he conditi ons that prepared the country for

economic takeoff had to be developed in Britain because there were no external models to fol-low. When the remai nder of Western Europe (and, later, other countries) m oved to tl1is stage, they could choose amo ng a variery of exam ples to follow.

Rostow bel ieved that the takeoff stage could be rcached only if a society was able to ach ieve a surplus of wealth, which he called savings, that could be invested in vital economic sectors li ke transporta tion, comm u nications, and natural resource exploitation. The achievement of these cond itions sugges ts that the society is sta rring to develop a sense of national purpose. Parr of th is development is the cr arion of mo re effec-tive, res p onsi ve ce n tral govern m ents. Many Western European nations were at this stage in the late 1700s and early 1800s. C anada was there in the m id-1S00s. Some Fi fLh World and many Fo u rth World coun tries are now at this stage.

e 3: Eca l"'In"lic Takeoff T his is the stage at which a country's economy starts to change dramatically in response to the inrroducrio n o f important t ch nological inno-vations. Agricul ture changes from primari ly sub-sistenc to pri marily com mercial. Manui:1ctu ring becomes a more impomll1t pan of the economy. T he teniary sector of the ecol1' my xpands in n.:spo ns to the growth of citics and rhe num-ber of paid workers who beco me customers for service providers. Great Bri tain reached this stage first, in the very la te 1700s. oumrics li ke France and rhe U nited States were there by 1860, with Canada reaching takeoff by 1900. M any Fou nh W orld and poorer T h ird orld nat io ns arc at th is stage now.

C h'1plCl 1 1: Eco n mi c Iss lle> 17 L

After a counrry' economy takes there is an e tended period of sustained growth. Economic gain outpaces popubtion growth, so per cap ita wealth increases. The economy becomes more d i ersifi ed with a continued expansion of manu-facturing and a variety of services. Modern, efficient production m ethods corne inro use. An increas-ing percentage of rhe nat io n's weal th is invested in devdoping the economy. Historically, a coun-try's economy would reach marurity about 50 ro 60 years after its takeoff. H ence, G reat Britain's economy reached matu rity in the 1850s, with France and tbe Uni ted States following around 1910 and C anada by the 1950s. More recently, economies like those of Hong Kong, Singapore, and South Korea were able to rea h maturity more quiclJy dun was the norm before World War II.

In this final stage, many peo ple have incom es that are greater than necessary for buying essen-tials such as shelter, food, clothing (Figure 11-4). As a result, there is a growi ng demand fo r addi-tional consumer goods and services . The society is also wealthy eno ugh to invest in socia l pro-grams such as improved health care systems and educational op pormniries . This stage occurred fIrst in the ni ted States in rhe 1920s; C anada fo ll ow d shor tly a fter. M ass consu m pti o n economies developed in W estern Europe and Japan in the years following World War II.

Rosrow's model presents only one explana-tion for variations in the economic development an d quality of life of different countries. H is model describes development as he saw i t in Europe and orch America. Elsewhere, economic development may not occur in the same way.

Figure 1 1-4 Left, picking tea in Assdrn, II/dia; right, a shopping matt in Banga/ort', fndia. Economic groUJth, .from the stage of the traditional society to the stage of high "nass consumption, fimdamf!l1ttllly changes the way in whicb pf!op/e live.

172 Unit 3: Econo mi c Issues

HI a c I Colon I lism P t

Colonialism domi nated the world 's economic system for more than four centuries until the second hal f of the 20th century. Its impact was so profo und that, even today, it affects the eco-nomic, social, and political systems of much of the world. If we are to understand the economic progress and problems of most of the developing wo rld today, we have to go back many years to look at the beginnings of the colonial penod, which can be tied to (he need to establish reliable trade ro utes between Europe and East Asia.

U ntil the middle of the 15 th century, trade for spices and other commodities was conducted overland via the famous Spice Road. In 1453, the Byzantine mpire, centred in Constantinople (now Istanbul), co llapsed and travel over the Spice Road became d ifficult. Europeans therefore sought to discover sea routes ro India, the islands of southeast Asia, Japan, and C hina. Spain and Portugal quickly became dominant in these explorations. Columbus's first voyage to America on behalf of Spain occurred in 1492; by then, Portuguese explorers had already sailed to South Africa and India. T here was a fear that the rivalry between these nations, as they expanded their exp 'ditions and trade, might lead [ war.

T he remarkable solution to this problem was the Treaty onordesilbs in 1494. This treaty, which was brokered by the pope of the day, defused the rival ry by d ividing the non-Christian world arbi-trarily between the two countries at a north- south line about 2100 km west of the Cape Verde Islands (wh ich are off the west coast of Africa) . T he fact that this treaty totally ignored the righ ts of all the people affected by it indicates the central belief of colonialism- tha (he colon ies existed only to meet the needs of colon izers.

M any E utopean co untri s ha llenged the cL ims of Spain and Po rtugal and established their own colorues. Some lik > Sweden, Belgium,

and the N etherlands, had only a few, while oth-ers, like France and G reat Britain, developed immense empires that were many times the size of the mother co un try (Figure 11- 5). While most empires were created by European coun-tries, the U nited States and Japan scrambled to develop empires near the end of colonial period in the late 19th and early 20th centuries. In the case of the United States, this meant taking con-trol of countries like C uba and the Philippines that had been part of the disintegrating Spanish Empire until the end of the 19th century. In the 20th century, Japan expanded its control into areas of Korea and China.

To many observers, World War II occurred as a result of the desires of Germany and Japan to expand their economic control over ever-larger areas of their neighbours. Germany used its pro-claimed need for lebensraum (living space) to justify its invasion of the Soviet Union. Japan had no particular desire to go to war against the United States. Their attack on Pearl Harbor in 1941 was an att mpt to neutralize the power of the U Pacific Fleet, so that Japan could invade and take con trol of the rich oil fields of the Du tch East Ind ies (now Indonesia).

D id you

Under the Treat y of Tordesillas, Spain go t the area to the we>t of the north-sout h line, which opened the door for it to develop its immense empire in the Amer-ic s. Port gal got the easter-n par-t of the world, which led t o the development of its colonies in !\ frica, India, and China (Macau). An anomaly t o thiS pattern is that Portugal colonized Brazil. since Brazi l's easter-n-most point crossed t he magrc line.This IS why BraZIl is the only country in Latin America with Por1:uguese as its official language.

Chapte r 11: Economi c Iss ues 173

PACJFIC ( -tAN

AR nC(1Cf.AN

o f orm r Europea n colon ies

NORTi-i ATUlNTlC ' .

OCEAN

SOUTH A7L,;t·JTIl

OCEAN

INDIAN OCEAN

or AN

PACIFIC; CCEAN

\' .

Figure 11-5 MallY independent Ilfltiow oftodaJs world were once colonies of the European power:.

Th colon ial p riod (Figure: 11 -6) can be d ivided inco two d is t inct p riods, roughly iden-t ified as p re- and pos t- Ind ustr ial RevolU[ ion. In the carlie r period. colon ies were principally een as sources of useful products th at were not

availab le at h ome. Fo r example, Canada sup-plied Great Britain with furs and lum ber, whi le the southern United Stares provided co rron and robacco. Colonies also provided novel pr duct:; like coffee, tea, sp ices, and even potatO s.

Wh ile colo nies provided useful and at rimes essemial products, during the firs t colonial period they o tten were no t as p rofitable as they might have been. The solution to rh is probl m was the introduction of a system rhat tied colonial pos-sessions more closely to the imperial power. Under the mercantile system of the 17th and early 18th cen Hies period, colonies were considered to exist on ly for t h . economic benefi t o f rh m other

174 Unir .1: 1-. u no rn ic [" li es

'-< o .... QJ

..0 E ;:l z

/ Industrial Revolution '/

f\ 1500 1600 1700 1800 1900 2000

Year

1 1-6 Time/im: of Europet:1n colonialism in different countries

country. Thi rn am rhar not only was rhe colony a ource For raw materials; it also was seen as a captive marker for the man uFactured goods pro-duced in the mother ountr),. T his rigid sys tem did not allow rhe colony to operarc in irs own eco-n mic imeresrs. For exarnple, it was not allowed to sel l it raw mar rials to the highes t bidder or to buy the cheapest m an uractured goods, since all trade had to be with the colonial mas ter.

The colo ny was also prevenred from com-peting with rhe mo ther cOli n ry. T his was the ca:;c with India's conon indusrr . India had been a maj r prod ucer and exponer of ha nd-woven conan clo th before the Indusrrial Re olution. In fact , for many years Great Britain had had ro impose a duty on the import of Indian cotton cloth to pro tect irs do mestic tex tile indus try. To prevenr competition, Bri :lin Forced the destruc-tion of Ind ia's cotton industry. The resulr was thar by tbe middle of the 1800s, India no longer exp rted cot ton textiles and, in fac t, im port ' c! one-quarter f all the cotton clo thing produced in Britain.

Concession Companies One of thc important ways that European coun-tries developed their empires was by establish-ino- concession companies. C ountri es crea ted do:ens of these corpora tions to trade in partic-li t r pans of the wo rld , or to trade in particular products . ]n many cases, the companies were also given the responsib il ity to act as rhe gov-ernment in remote parts of rhe empires. Many of these companies, like the nglo-Belgian India Rubber C ompany, are little mor th an minor historical foornotes ; but some, li ke Canada's Hudson's Bay C ompany, arc r membered as vital parts of the histories of the court uies and regions ill which they operated (Figme 11-7).

T h · Rr itish East India Con pa ny was per-haps the most famous concess ion of al l. Founded in 1600, its charter gave It a monopoly to trade in India, Southeast Asia, and China un til 1833 . "The Company," as it was often cal led, had tremendous power. It operated its own Reet of armed rransporr sh ips and forti-fied trad ing posts. It was responsible for the infa-

Figure 11-7 Inuit WOltlf.'71 "aui t1 sled fOlded with pefts/Tom tilt' wharfjtJ Pallgnirtll7lg, NWT. to tilt' HluiJons Bay .l A t 1946 Vm ' ('is concession com"an1J is The Ba'll. tbe same compollY wIJOSI' stores yOIl may ompany IUOrf'IJOtISe, UgflS . H., I, r J J'

uisit at your local mal!.

C hapter J J: Economic Iss ues 175

D id you

The tea that Amencan colonists dumped Into Boston Harbour-during the Boston Tea Party In 1773 was Ollnese tea that: had been shipped first to England and then to the Thu-teen Colonies by the Bntlsh East India Company

mous opium trade from India to China that helped to pay for the tea that the East India C ompany sold successfully in Britain and else-where. More importantly, the company's polit-ical activities did much to expand the British Empire. At home, its financial success provided much of the wealth that spurred Britain's early economic takeoff.

In some ways, these concession companies could be likened to the high-flying, hi-tech com-panies of our time. Each was tied to the eco-nomic growth of its day, in both a positive sense and a negative one. Great fortunes were there to be made, but company stock prices could rise or fall to ridiculous levels and investors could lose everything. For example, the South Sea Bubble stock collapse in 1720 was so infamous that it is still remembered today, almost three centurics later.

Impacts of Colonialism T he largest colony in the Commonwealth of

ations-today's British Empire- is Bermuda, with a pop u lation of only about 60 000. O bviously, the great colonial empires are gone, but rI eir impacts continuc. While some im pacts of colonial ism were positive (for example, Canada inherited its govern ment;u and legal systems from Britain), most impacts proved negative in the years after these co unrries achieved independ-ence. T hese are so me of he ongoing economic, social, and polit ical effects of colon ialism.

176 Unit 3: E( ono mi c Issue>

Traditional land tenure practices were destroyed. In many parts of the world that became colonies, the concept of private own-ership of land had been unknown and land resources were shared. This was the situation in Canada, for example. The European system in which land \vas privately owned was intro-duced. Private ownership implied that a few people could own a great deal of land, while many others would not own enough to sup-port themselves, and some had no land at all. Frequently the best land came to be owned by concession companies or European settlers, often in the form of large plantations. T he local popLJation was pushed off this land. These dispossessed farmers were then used as cheap labour on the plantations and in other indus-tries. This practice was widespread in Africa. Land that had been used to grow food for local people came to be Llsed for growing crops that would be sent to the mother country. T hese cash crops varied widely from colony to colony but included such commodities as tea, coffee, sugar, bananas, cacao (used to make chocolate), jure (used to make rope, sacking, and mats), cotton, and silk. The result of this change was that some areas that had been self-sufficient in food became dependent on imports. T he growth of local manufacturing was delayed and distorted by artificial trade controls. T he case of textile manufacturing in what is now India and Banglad sh is an excellent example of th is. The trade, taxation policies, and manu-facturing restrictions on the Thirteen Colonies led dir -crly to the American Revolution in 1776. Colonial m ining, forestry, and agricultural and manufacturing developments paid little, if any, att ention to envi ro n m ental protection . Environmental problems cominued in many cO Ll nrries long after independence. Foreign po li t ical systems were imposed on colonies. Rarely d id these sysrems recognize and respect the trad itional poliricaj systerns of (he

colony. A good exam p le can be seen in Canada, where there has been a long history of confl ict between the federal government an d those of various Aboriginal groups. In recent yea rs, th e federal government has started to work more closely with hereditary or elected chiefs and to accept th val id ity of Aboriginal legal traditions , such as healing circles (Figure 11-8). C olo ni a l powers were unable to s upply eno ugh of their own people to manage, con-trol, a nd protect their colonies. As a result, they established el ite groups among the local resid nts. These lites were train ed to take less important administrative jobs and to serve as enlisted men in the army. Members of these cl ites often en ded up running the former

colonies when they became indep en dent coun tries, whether they were represen tati ve of the population or not. For example, an army sergeant-major named ld i Amin became the murderous dictator of Uganda. Countries were created from land areas that d id not match t raditional tri bal or cultural boundaries. ational boundaries were drawn on maps to meet the need of competing col-onizers. T his situation is most clearly seen in Africa. For example, the Yoruba were a h ighly organ ized people living in many small king-doms throughout what is now southwestern N igeria and Benin. O wing to colonialism, today's Yoruba in igeria commonly speak English, while those in neighbouring Benin commonly speak French. An argument can

Figure I 1-8 The Aboriginal healing irde brings together aLL thuse concerned about thl' wrongdoer and involved in the offor/te. ommllt/ity elders, the Jnmilies ajfectt'd, poLice, and a judge attempt to reaeb an agreement on the m ost appropriate consequences Jor a wrong/itt act.

C haprer 1 1: Econ o mi c Issues 177

be made char the histo ri al co nflict betvvecn the English dnd French in C macia has its roots in aUf colond historv. Colonizers im posed th elf cu lture and lan-guage o n the people living in the lands they took over. T his ;Krio n had both posi tive and negative impacts. T he co loni al languages-for most of the world , English, Spanish , or French-provided a common of com -mun ica tion in a country tha t migh t have many languages (such as India, which has 14 major languages and over 1000 m ino r lan-guages and dialects). In many cO ll nt ries , the colonial language has even become the official language because it was o fte n the only com-m o n lan guage in the new co u tltry. C ultural impo rts also ha ve p ro ve n impo rt an t . Fo r example, cricket is a popular pas time in pb ces as diverse as [he West In dies, India, Australia, and So uth Africa. On the oth er hand, th e dom inan e of the colonial culture can make the local culrures appear in ferio r. Local peo-ple who speak the colonial language ancl have Eu ropean-sty le educations often end up do m-in ating the poli tical and business life of the co un try. T h e globalization that is occurri ng today only serves (0 make this siruation worse. C olon ize rs bu ill an infras truc ture that served their commerc ial needs. Roads, railways, and pons were buil t t develop raw materials and service export industries. Often th ese did nor serve the m ost populated

Current Economic rnloniali m T he old form of co lonial ism has been elim i-nated , but various Forms of infonnal imperialism have replaced it. For example, in the C old War dec:1des im mediatel y after 'World War II , as part of their bank to dominate the world , both the

nit d Sta tes ancl th Soviet U nion supported many client states among the form r colonies. In retu rn for finan cial and m ili wry aid, the devel -oping nation W:l S expected 1O supporr the poli-cies of its benefactor (c.g., in the United N ations) an d to de velop its econ o my follow in g the patro n's m ode l. In some cases, coun tries would even shift fro m one sphere of infl uence [0 the o ther as the superpowers fought for do mina llce. Fo r example, in 1956 when the United States, fo llowed by Britain, decided no t to guarantee a loan to Egypt to cover the costs of bui ld ing the Aswan H igh Dam, the Egyp t ian government accepted an otTer from the Soviet Union for aid .

After the breaku p of th e Soviet U nion in 1989 and the ri sc of th e free-m arket or capital-is t system , this new form of imperial ism took on a d ifferen t face. In [he absence of a polit ical che II ng , economic do m inance becam e m ore important. This dom inance has some things in com m on with colonialism, but in some impo r-tant ways it is quite d ifferen t. T hese fea ures are summarized in Figure 11- 9.

Colonies' Role Colonial Period Post-colonial Period

Source of raw materials Yes Yes

Source of manufactured products No. compet ition not wilnted Yes. because of cheap labour supply

Market for manufactured goods Yes Yes

Colonial pOINer Ti-ansnatlonal corporation

Figure 11-9 In the posi-m/fillla! period, the cliiefbm e}iciarici of f'collomic (Iaill/t ies in thefi!rmer colonies arc not the colonia! pawL'/:(, but transnatIO nal

]78 Un i l [cono n)i c I s, uc>

Economic Systems O ver the pas t century, economic decision mak-ing by rhe world 's na tions has occurred along a co nt in uu m betwee n two ex tremes (Figure 11- 10) . At one extreme is a free market econ-omy, whi le at rhe other is a command econ-omy. In a perfect free market, the price of all goods and services is determin ed by the rela-tionship between supply and demand. In a com-mand economy, on the other hand, the supply and price of goods and s rvices are de termined en ti rely by the government as part of a totally planned economy.

In reality, there have never been counrries that have had either a free market economy or a command economy in their pur "s t forms. Governments of all types have learned that, in spite of the poli ti al philosophies under which they operate , they will end up with a mixed economy th at combines elements of both free enterprise and government intervention. Some m ixed economies have a limited role for free mark ts, whi le in o th ers, the market is domi-nant and the role of government is minimized.

1he leaders of the former Soviet Union found ou t soon after the Russian Revoilltion in 1917 that they could not have the perfect command economy that they had envis ioned. The Sovie t

government artempted to run the country in this way, for example, by taking over landown-ers' estates, but within JUSt a few years, the coun-try .vas fa c ing a severe food shortage. T he government had to compromise its principles and give farmers the right to grow food on small private plots and to sell this production at mar-ket-determined prices. Similarly, the govern-ments of counrries like Canada and the United Stare;, whose economies are nominally free mar-ket, have found that the market cannot be relied on to provide all goods and services. Some activ-ities, like operating the military, maintaining a police force, and protecting endangered species, are best provided by governments.

The fu ndamental question when we th ink about mi ed economies is exactly how large a role government should play. Tbi is hardly a new ques-tion. Adam Smith, the founder of modern eco-nom ics, published a famous book in 1776 called The Wealth of Nations, which advoca.ted the idea of economic liberalism. H is contention was that mercantilism shou ld be abolished and rhe eco-nomic system should be allowed ro operate with-out government intervention. The economic ideas of Smith and his disciples remained dominant in the Western world unril the early 1900s.

Free Market Economy Mixed Economy Command Economy

INCREASED FREE ENTERPRISE

INCREASED GOVERNMENT CONTROL

Figure 11-10 All the world)' economies foil ,'umewhere on the continullm between iee cfl/erpri;e tlnd government control.

C bapter 11 : Economi c lssll es 179