economic difficulties caused by borders with their neighbors that restrict the easy flow of goods, capital, and people.
According to Ricardo Hausmann, professor of the practice of economic development at the John F. Kennedy School of Government at Harvard University: “If current trends persist, countries that face high transportation costs and a high dependence on tropical agriculture will be left far behind, mired in poverty and income inequality. Will the rest of the world find this outcome morally acceptable?” Hausmann believes that the world has tried to help these countries, but its efforts have been insufficient, as shown by the widening gap between the rich and poor. He calls for more “globalized governance.” By this he means more international agreements to make borders less of a barrier to people, goods, and capital. He also calls for international support for development projects that improve the transportation systems within and between countries, and, lastly, he calls for international aid in health and agricultural technology that benefits the tropical world.57
Conclusions
The market approach to development places emphasis on the seemingly strong motivation individuals have to acquire more material goods and services. When people are freed from external restraints, the market allows them to use their initiative to better their lives. The release of creative energy that comes with the market approach is impressive. At the beginning of the twenty‐first century most countries throughout the world were following it, at least to some degree, as the Western capitalist countries became the models to imitate. While the economic recession at the end of the first decade of 2000 has caused many countries to question a complete market approach, the model nevertheless is employed by many nations today.
With the collapse of communism and the breakup of the former Soviet Union, the state approach to development received a serious blow. The reliance on the state to create wealth was discredited. Yet in no country of the world is a state without some significant state functions relating to the economy. Within the capitalist world there is a debate among nations regarding how much involvement government should have in directing and guiding the economy. Traditionally, Japanese and European capitalism relied on more government involvement than did capitalism in the United States.
This debate became of upmost importance in 2008 when the US market system nearly collapsed and a depression in the United States was prevented only by massive financial support by the national government of parts of the banking and insurance industries and automobile corporations. Alan Greenspan, the head of the Federal Reserve that monitored the economy and that had been given credit for the unprecedentedly long period of economic growth the United States had gone through, admitted to Congress that the model of the market economy he was following had an unknown flaw in it. This admission was rather shocking. If the chief “overseer” of the US economy didn’t really understand how it worked, who did? Greenspan, who had favored loose government regulation of the economy, went from being a laissez faire economist to one who now called for much tighter government regulation of the economy. As mentioned in this chapter, the unprecedentedly deep recession in the United States spread throughout the world and slowed the efforts to help millions of people escape from extreme poverty. Yet as the chapter’s section on the UN’s Millennium Development Goals shows, economic growth was still strong enough in the developing world to enable the United Nations to meet the goal of halving extreme poverty to 15 percent by the year 2015.
Even after the seemingly total victory of the market approach over the state approach in the 1990s, the state approach is not dead; what is dead is the total or near total reliance on it as the best way to create wealth. But the economic crisis of 2008–2009 indicated that the world is still struggling to find the right balance between the market and state systems.
Today’s globalization is still driven by market forces focusing on economic growth. That growth has done much to reduce world poverty. But large and vocal protests at international meetings dealing with aspects of globalization have drawn attention to some of the negative aspects of globalization. More emphasis on human governance appears to be needed. The United Nations Development Programme stated the need as follows: “When the market goes too far in dominating social and political outcomes, the opportunities and rewards of globalization spread unequally and inequitably – concentrating power and wealth in a select group of people, nations, and corporations, marginalizing the others.” The UNDP believes that markets should continue to expand but that more governance is needed: “The challenge is to find the rules and institutions for stronger governance – local, national, regional and global – to preserve the advantages of global markets and competition, but also to provide enough space for human, community, and environmental resources to ensure that globalization works for people – not just for profits.”58
There are dangerous signs that all is not well. Economic growth is reducing poverty and the market approach has produced that reduction better than the state or blended approaches. The reduction of extreme poverty is universally praised, as it should be. No human being should have to live as the very poor live today. As the poor obtain new wealth, they tend to consume more goods and services. (The growing middle class in China is a good example of this with its desire for automobiles.) But rich nations historically have relied on fossil fuels to provide the energy needed to make their goods and provide their services. We now know how that kind of energy is placing a tremendous strain on our world; it is changing our planet in ways that will seriously hurt much of the life on the planet, both in rich and poor nations alike. This will be discussed more in our chapter on climate change.
The bottom line is that while achieving a certain level of economic wealth unquestionably affords critical opportunities to improve livelihoods, we cannot presume that economic wealth alone will lead to the development outcomes we desire. The classical use of the term “development” has defined progress by the increased growth of material goods by any means possible and this purely production‐based notion of “development” is increasingly seen as not viable. It is for that reason that we focus in this book on sustainable development pathways that direct our attention toward human well‐being, while considering both the costs and benefits of the growth of material goods and services.
Further Reading
1 Bardhan, Pranab, “Does Globalization Help or Hurt the World’s Poor?” Scientific American, 294 (April 2006), pp. 84–91. The answer according to this short article is that it does both. Bardhan discusses how to maximize the help and minimize the hurt.
2 Bhagwati, Jagdish, In Defense of Globalization (Oxford: Oxford University Press, 2004). The argument of this economics professor at Columbia University is that globalization has been overwhelmingly a good thing and its few downsides can be mitigated. His thesis that globalization leads to economic growth and economic growth leads to the reduction of poverty is the foundation for his belief that poor nations are not hurt by globalization but actually need more of it.
3 Chua, Amy, World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global Instability (New York: Anchor Books, 2003). A professor of law at Yale University, the author, who is a friend of globalization, argues that as the market and democracy have spread into the less developed nations, ethnic hatred and violence have increased, along with anti‐Americanism. Chua explains why and identifies the urgent need for a greater sharing of the economic wealth that globalization has brought to various minorities.
4 Collier, Paul, The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It (Oxford: Oxford University Press, 2007). Focusing mainly on Africa, where Collier states 70 percent of the world’s poor live, he focuses on what he sees as the four main causes of poverty: civil war, the curse of rich resources, a landlocked location, and bad government.
5 Collins, Daryl, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven,
