Poverty and development

Orthodox approach to development

Poverty is understood as a situation in which people suffer because they do not have the money to satisfy their basic material needs. It is often therefore calculated in terms of GDP per capita, implying that development is closely linked to economic growth.

Development is seen as a process through which ‘backward’ traditional societies are transformed into ‘modern’ ones through a process of industrialisation and a spread of market or capitalist economic structures. As the principal source of economic vigour is the free market, development occurs as obstacles to competition and entrepreneurialism are removed (often linked to traditional values and authoritarian government). The ‘orthodox’ approach is therefore often associated with a ‘top-down’ reliance on expert knowledge and external intervention in order to stimulate market reforms. Such an approach has been particularly associated with the IMF and the World Bank through the dominance of the so-called Washington consensus, a neo-liberal approach to politics and one that favours trade liberalisation, deregulation, fiscal austerity.


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North-South divide, outdated?

Popularised through the work of the Brandt Reports (1980, 1983). Highlighted the tendency for industrial development to be concentrated in the northern hemisphere and for poverty and disadvantage to be concentrated in the southern hemisphere. ‘North’ and ‘South’ conceptual rather than geographical. Concept of the North-South divide also drew attention to the ways in which aid, developing world debt and the practices of TNCs helped to perpetuate structural inequalities between the high-wage, high-investment industrialised North and the low-wage, lowinvestment, predominantly rural South, particularly through the use of SAPs. 
Outdated because of development trends in the South and through the emergence of new patterns of poverty and disadvantage. Many Southern countries have made substantial economic and social progress in recent decades: China, India, the Asian ‘tiger’ economies and also parts of Latin America. These emerging economies are no longer seen to be structurally disadvantaged within the global economy. Poverty and disadvantage now concentrated more narrowly in sub-Saharan Africa.

Moreover, the term has sometimes been abandoned through a recognition that poverty and under-development are highly complex phenomena with wide-ranging economic, cultural, social and political causes. Multi-dimensional poverty index, person is impoverised if scoring 33.33% on 10 weighted povery measures (not just GDP)

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Debt crisis of 1980s and resolution

Debt crisis started as poorer countries (like Mexico in 1982) announcing that they could no longer service their debts, meaning that many Northern banks were faced with the possibility of collapse. Southern countries due to the size of their debts and their poor economic performance channelled more money into their escalating debt repayments at the expense of building schools and hospitals, investing in the economic infrastructure and helping to alleviate poverty. Even though loans from WB and IMF were provided, debt escalated. 

Resolutions included implementation of SAPs, designed to promote growth and enable debtor counties to pay off their debts by implementing neoliberal fiscal policies (trade liberalisation, deregulation, etc.) For example, in 1989 the USA launched the ‘Brady bonds’, which underwrote a proportion of Latin America’s debt overhang from the 1970s-80s. Under the HIPC Initiative, negotiated in 1996, the WB and IMF agreed to extend the opportunity for debt relief to 40 of the world’s poorest countries; by 2006, 29 countries were enjoying debt relief. The G8 Gleneagles deal in 2005 significantly accelerated the pace of debt relief, through the agreement to provide 100 per cent cancellation of debt owed to the IMF and WB: by 2006, this covered 21 countries, with plans to include up to 43 countries.

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Neo-colonialism and global inequality

Neo-colonialism refers to a process through which the developed world controls developing states through a process of economic domination, as opposed to direct political control. Neo-colonialism has been used to explain global inequality in a number of ways:

Neo-colonialism is seen to operate through structural inequalities in the global economy, through which ‘core’ countries have benefited from being able to use ‘peripheral’ countries as a source of raw materials and cheap labour, while advanced technology and capital remains concentrated in ‘core’ areas. E.g. Chinese investment in Africa has boosted African oil and mining sectors in exchange for advantageous trade deals. 

Neo-colonialism also operates through the activities of transnational corporations which take advantage of the poverty, corruption and absence of effective government in much of the developing world to expand profits that are exported to their ‘home’ country. E.g., Firestone in Liberia.

Neo-colonialism is also seen to operate through the free-market policies of institutions such as the World Bank and the IMF, particularly through the imposition of Structural Adjustment Programmes which force developing countries to open up their economies to world competition by liberalising areas such as trade, investment and regulatory practices. E.g. Malawi 1990s

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Criticisms of economic conceptions of development

Economic indicators such as GNP per capita between countries provides some insight into development, e.g. WB uses a povery line as a measure of under-development - those living under $1.90 a day are classified as living in absolute poverty. This is criticised on a number of grounds:

GNP per capita fails to indicate whether wealth differences in a state are inreasing or decreasing. GNP per capita may only rise because the rich are getting richer, thus it failts to account for those living under the poverty line. E.g., despite a GNI of 5.731 trillion PPP dollars (2011), Inida had 23.6% people living under the poverty line. 

Fails to consider the level of politics freedom and protection of civil liberties. Economic well-being may increase by citizens may be politically opressed. E.g. North Korea have a GDP of 12.38bn USD (2011) but its population are subject to human rights violations, e.g. an esitmated 200,000 prisoners are incarcerated in camps due to 'political crimes'.

Does not demonstrate whether people's basic needs are being met. Would be better understood in terms of 'human development' e.g. access to education, gender equality, doctor per person etc. MPI measures poverty in terms of number of deprivations - a person is considered poor if deprived in at least 33.33% of 10 weighted indicators.

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Adv & disadv of cancelling debt

Writing-off developing world debt is usually justified on the grounds that debt entrenches poverty and global inequality. In particular, due to a combination of debt and poor economic performance, many developing-world states found that they were channelling more and more money into their escalating debt repayments at the expense of building schools and hospitals, investing in the economic infrastructure and helping to alleviate poverty. For instance, when Nigeria borrowed $5bn in 1985, they were expected to pay back $28bn after having already paid back $16bn due to compound interest rates. Moreover, the developing world’s level of indebtedness has been seen as a manifestation of unfairness, linked either to the pursuit of profit by Northern banks or to conditions that accompany loans designed to facilitate the workings of global capitalism rather than address the needs of the world’s poor.
Debt relief may nevertheless have disadvantages. These include the instability that writing-off debt may cause to the world’s financial system. An additional concern is that writing-off debt sends a very dangerous message to poorer countries about the need to uphold financial disciplines. Apart from anything else, there is no assurance that if money is not being spent paying off debt that it will be put to more economically and socially worthwhile uses.

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Orthodox vs alternative view of development

The ‘orthodox’, or economic liberal view of development understands poverty squarely in economic terms and implies that development can be equated with economic growth, an increase in GDP. The central mechanism, from this perspective, for promoting growth is a free-market system, with underdevelopment being explained in terms of blockages that prevent the establishment of market capitalism.  

The ‘alternative’ view of development tends to reflect the ideas of the global South. It adopts a humanistic view of poverty, based on opportunity and empowerment, rather than an economic model. It also tends to stress factors such as self-reliance, ecological balance (sustainable development), social and cultural inclusion and the recognition that global poverty has a structural character, stemming, in part, from disparities in the international trading system.

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Justifications for international aid

International aid refers to the transfer of goods or services from one country to another as an attempt to benefit the recipient state. Aid can be either bilateral or multilateral. There are a number of justifications for aid which students could explain.
There is a view that structural inequalities in the world economy can be countered through aid. International aid helps to overcome the structural advantages that certain states have. Typically the flow of aid will be from the North to the South and will go someway towards fulfilling the moral obligation to help less prosperous areas. Aid may also help to make up for a perceived advantage that global North has developed through an historic exploitation of global South.
Aid may benefit global North by helping to develop global South states as future trading partners with a corresponding increase in mutually beneficial trade. Aid encourages trade
International aid may include humanitarian assistance in periods of humanitarian crisis, disaster, civil war etc. There is a growing view that the international community has a responsibility to intervene where emergency intervention is required. For instance, after the earthquake in Haiti in 2010, the USA, through USAID, has given around $712 million overall in aid. (Liberal view of saving strangers).

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Colonialism and neo-colonialism

Colonialism is the practice of establishing control over foreign territory and turning it into a colony as a form of imperialism. Colonialism tends to be associated with the historic examples of the western powers, particularly between the 15th and 19th centuries with key targets being Africa, Asia and South America. Colonialism involved military and political dominance with open and overt actions.

Neo-colonialism involves economic domination with a less open and more covert dominance without direct political control, as, for example in so-called US dollar imperialism. The weapons employed in neo-colonialism may be structural dominance in key international financial institutions such as the IMF, WTO and World Bank, control of market philosophy (free trade), TNCs exploiting third world countries (Firestone in Liberia). Dominant global powers have maintained control over the lesser powers with a shift from colonialism to a more subtle variant of neo-colonialism.

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Dependency theory and global inequality

Dependency theory is based on the neo-Marxist perspective, which suggests that traditional imperialism gave way to neo-colonialism or dollar imperialism in the period following the end of World War 2. Dependency theory can be linked to worldsystem theory in which economically advanced core areas dominate peripheral areas, dependent on agriculture and primary production.
Many regard the relationship between the global South and global North as still being one of dependency. The South is still dependent on the North for foreign direct investment, manufactured goods, skills and technology, and developing countries are forced to sell primary products such as coffee or cocoa at prices which do not reflect their true value. 
International aid is given in order to obtain political concessions and financial institutions from the North, such as the International Monetary Fund and World Bank provide highly conditional loans or use debt to force states to open their economies to trade and multinational firms.

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Relationship between corruption and poverty

Corruption is a failure to carry out ‘proper’ or public responsibilities due to the pursuit of private gain, usually involving misappropriation of aid.

Aid can be channelled through recipient-country governments and bureaucracies where power is concentrated in the hands of an elite and where accountability is undeveloped. Corrupt leaders can divert resources towards a privileged few rather than towards the majority. Aid can even be used to strengthen the power hold of authoritarian regimes through subverting opponents (Honduran president siphening money from public expenditure and donating it to phantom comapanies whom in turn "donated" phantom cheques to the president which funded his entire presidential campaign to keep him in power.)

Arguably corruption can lead to poverty, but poverty can also lead to corruption. This is particularly true of low-level corruption, e.g. in Nigeria police are more likely to take bribes because they live in poverty. 

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Disagreements about causes of poverty

‘Orthodox’ view of development is based on the perspective that poverty is understood as a situation in which people suffer because they do not have the money to satisfy their basic material needs. Calculated in terms of GDP per capita, implying that development is closely linked to economic growth. This view suggests that development is a process through which ‘backward’ traditional societies are transformed into ‘modern’ ones through a process of industrialisation and a spread of market or capitalist economic structures. This view argues that free market capitalism should be the focus for development and that a ‘top-down’ reliance on expert knowledge and external intervention can provide the stimulus to growth. This tends to be the view of Global North.

Criticism of the ‘orthodox’ model is associated with the ‘alternative’ view of development. This view tends to focus on the ideas of Global South and is linked to elements such as self-reliance, social and cultural inclusion and ecological balance. There is a view that global poverty and development are linked to structural disparities in the international trading system. 

Critics may also argue that economic reforms associated with the ‘orthodox’ model’ can actually be counterproductive. The Washington Consensus, linked to the orthodox model, is seen by some as providing a benefit to the developed rather than the developing world. The structural adjustment programmes (SAPs) have been a central focus of criticism. (Malawi 1990s)

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