Characteristics of underdeveloped countries
The terms "underdeveloped", "less developed", "backward", and
"poor" and "developing" are generally used to refer to low income
countries. The countries which have low standard of living because of
their low per capita incomes are known as underdeveloped countries.
Countries are classified into developed and underdeveloped countries
according to their per capita income. For example, in 1949, high income
countries with 18% of world population enjoyed 67% of world income,
whereas low income countries which had 67% of world population got
only 15% of world income. The rich countries include United States,
Canada, Western Europe and Australia. The poor counties cover most
of Asia, Africa, south eastern Europe and Latin America. And there were
middle income countries with a population of 15% which got 18% of
world income. They consisted of countries such as Argentina, South Africa,
Israel and former soviet Russia. The poor countries are collectively
referred to as the Third World.
Even in 1973, the Third World with 77 percent of the world population
subsisted on only 22 per cent of the world income. Even the meagre
income is maldistributed within these countries and the bulk of the
population live in abject poverty. According to Meier and Baldwin, an
underdeveloped country has six basic economic characteristics. They
are : (1) it is primary producing ; 2) it faces population pressures ; 3) it
has underdeveloped natural resources ; 4) it has an economically backward
population ; 5) it is capital deficient and 6) it is foreign trade oriented.
1) Primary production: The UDCs produce mostly raw materials
and foodstuffs. A majority of the population will be engaged in agriculture.
Some poor countries depend upon non – agricultural primary production
(eg. minerals like tin, copper, aluminium and petroleum). And agricultural
productivity is low. So rural incomes are low. There is pressure of
population on land.
2) Population pressures: Generally, there is over – population in
many poor countries. Population pressures take many forms. First, for
example, they have rural underemployment. This is sometimes referred
to as disguised unemployment. That is, there will be more number of
people working on the farm that what is really necessary. The marginal
productivity of the extra hands will be almost zero. Second, high birth
rates create a large number of dependent children and lastly falling death
rates with high birth rates will bring about a large increase in population.
3) Underemployment: Natural resources in poor countries are
underdeveloped. They are unutilized, underutilized or misutilized.
4) Economic Backwardness : The economic backwardness of the
population in the poor countries is reflected in low labour efficiency, factor
immobility, lack of entrepreneurship, economic ignorance and so on. The
population is ruled by customs and traditions. And people are not
"economically motivated". The tax system is marked by inefficiency in
collection and there is tax evasion. The governments in these countries
are generally "weak, incompetent and corrupt".
5) Capital Deficiency : Capital deficiency is an important
characteristic of poor countries. Capital formation or investment is low
in these countries. According to Ragnar Nurkse, low capital formation is
one of the basic causes of poverty in these countries. Low capital formation
leads to low productivity. Low productivity results in low incomes and
low incomes result in low savings and low savings lead to low capital
formation. Thus, it forms a vicious circle of poverty.
6) Foreign Trade Orientation : Some of the poor countries depend
heavily upon foreign trade. For example, in 1952, cotton contributed
about 90 percent of foreign exchange earnings of Egypt. A risk involved
here is if there is some serious economic problem in the importing nation,
the country which depends on export of one or two commodities will be
affected badly. And in the early stages of development, UDCs depended
upon imports.
India as UDC : India, has most of the typical characteristics of an
underdeveloped country. Nearly 65 to 70 percent of its population
depends upon agriculture. And agricultural productivity is low. There are
population pressures. There is underdevelopment of natural resources
and economic backwardness. Until recently, there was capital deficiency.
That is why, we had to borrow heavily from foreign countries and
international institutions like I.M.F. and World Bank. So we may describe
India as a typical underdeveloped country. Nowadays, they call it a
developing economy.
Role of the State in Economic Development
The State plays an important role in the economic development of
nations. Japan, after 1870 and soviet Russia after world war I are good
examples. But the economic development of the U.K. and the U.S.A.
took place under a system of market economy and laissez faire policy.
For underdeveloped countries, laissez faire policy is a luxury. The State
has to play the role of an entrepreneur in the underdeveloped countries.
Nowadays, it is agreed that the governments in these countries have to
play a dominant role in implementing plans for economic government. In
fact, government is regarded as a factor of production in poor countries.
For example, India is a mixed economy with a public sector and private
sector. Until recently, the public sector played a major role in economic
planning.
Through Five Year Plans, the State has been making attempts to
achieve the goals of increasing economic growth, rapid industrialization,
expansion of employment opportunities and reduction of inequalities of
income and wealth.
The government plays a very big role in the field of social services
like education and health. Investment in education and health promote
human capital formation, which is as important as physical capital
formation. Education and health increase productivity of labour.
These are the days of globalization, liberalization and privatization.
We invite foreign investment on a large–scale. But they want good physical
infrastructure like good transportation, postal and telecommunications,
power facilities, and water supply. All these things are referred to as
social overhead capital. The government has to make huge investment in
these things. Not only that, there is shortage of entrepreneurs in these
countries. So the government has to encourage them.
There is shortage of foreign exchange in UDCs. The government has
to take steps such as promotion of exports, making investment attractive
for foreigners through fiscal measures.
If development is left to market forces, there will be not be balanced
regional development. So the government formulates policies and
programmes in such a way that there is a balanced regional development.
And the State has to regulate and control monopolies. Thus, the State
has to play a dominant role in economic development.
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