Answer to Question #245470 in Economics for sammy

Question

Discuss the assertion that the underdevelopment of developing countries is self-afflicted

Answer 1

Indicators of the level of economic development demonstrate the development or backwardness of the country. The institutional theory explains their root causes. But what are the consequences of backwardness faced by economic agents in carrying out their activities in backward countries?

First of all, this is the lack of capital and knowledge. In addition, to fuel exporting countries and export-oriented economies (mainly China and the countries of Southeast Asia), other less developed countries usually have a low gross saving rate, which lowers their gross capital formation rate (this is the ratio of investments in real capital to GDP), and for industrialization, as economic history shows, the latter rate must be high. The lack of knowledge is evidenced by the low level of education of the population of most less developed countries, which prevents the establishment of modern production in them.

Why does the backwardness of economic institutions lead to a low level of capital accumulation and a low educational level? As for capital, its growth is best done where private property predominates - its owners use and accumulate their capital better than the state, landlords, or community. With regard to education, we can say that the independence of economic agents requires high knowledge from producers. How else can manufacturers, in conditions of consumer sovereignty, actively compete with other competitors for a buyer, how can they successfully establish new production in conditions of free enterprise?

Other consequences of economic backwardness are low international competitiveness of the bulk of products produced in backward countries, massive poverty of their population, high birth rate combined with high mortality, low social protection - the lack of pensions and affordable education and medicine. In a word, these are the problems that economic institutions have generated for humanity over the millennia of its existence within the framework of traditional society. Such problems often lead to suicide due to the inability to find a way out of the difficult economic situation in the family.