Unit 1
Unit 2
Development Economies
Causes of Poverty
We have now established that there is a significant difference between the standards of living experienced in various countries around the world. A common question that is asked by students at this stage of their study of Economics is whether or not it would be possible for everyone to maintain a very high standard of living. Unfortunately there are some problems with this idea, and as a result it seems unlikely that it will ever be achieved. While we can aim to increase overall living standards, aiming for absolute equality simply isn’t possible.
Access to resources/infrastructure
Australia is a lucky country. Geographically very large, and as we live on an island the land border is clearly defined (although there are certainly some issues about the exact location of the sea border). With such a large area it is inevitable that there will be valuable minerals under the ground in certain areas. Over time we have found coal, iron ore, gold, diamonds, uranium, bauxite and many more. Each of these can be extracted and sold, and each time we do that we add to the overall wealth of the country (and, by extension, the people living in the country).
Smaller states can’t hope to compete in this regard. Even a relatively wealthy country like Japan does not have access to the same natural resources that we have here. This means that they have been forced to invest wisely in capital resources. Since the end of World War II, Japan has operated one of the largest economies in the world, due mainly to their investment in capital.
Population size
In 2009 the Australian population increased to exceed 22 million for the first time. Recent estimates suggest that it is likely that the population will increase to between 35 and 40 million by 2050.
In contrast, the population of China is over 1.3 billion people. That is about sixty times as many people as live in Australia. (And keep in mind that the overall land size of the two countries is relatively similar.) This means that the government of China needs to find a way to provide access to basic resources and facilities for a much larger number of people. To gain access to a school, the government needs to ensure that there are classrooms, teachers, textbooks...and even a curriculum! When you begin to think of the many things that help to ensure that we have a high standard of living, you will soon see just how insurmountable the job must seem in high population countries.
Even with the same number of resources, the simple fact that they must be shared among a larger number of people helps to ensure that low population countries are more likely to perform well in any measure of relative living standards.
Governance Issues
The government of any country must ultimately take responsibility for the way in which the economy is managed. Even in a market economy in Australia, when the government believes that a certain economic decision will result in a lower standard of living for some people, they can intervene to change the outcome. This is why, for example, the Australian government places a very high tax on the purchase of cigarettes.
The government in Australia is strong. We have an established system of democracy, and everyone of legal age is able to have their say. While we may not always agree with the outcome, we accept it because the process is open and fair. This is not the case in every country in the world. In 2002 the World Bank reported that there was a strong statistical link between good governance and economic development. Stable countries like Australia were performing well, while less stable countries were finding it more difficult to make economic progress.
For example, Robert Mugabe is the current President of Zimbabwe, a position that he has held since 1987 (after being Prime Minister from 1980 to 1987). Although the country does hold regular elections, the process and outcome of these elections is frequently disputed by international observers. During the years that he has been in power, the people of Zimbabwe have experienced falling living standards, including a dramatic reduction in both income per capita and life expectancy. Despite this, in 2008 Mr Mugabe himself was able to purchase a residential property in Hong Kong for around US$6 million.
Education
On a personal level, many studies have shown that the longer a person remains in formal education the higher their lifetime earnings will be. If we extrapolate that to an international level, it is logical that countries that have a strong system of education are more likely to have high living standards. This means that it is important that the curriculum is fair and appropriate, access is inexpensive (or free), and both boys and girls are able to attend.
While we take these things for granted in Australia, they are not universally true. In many countries war has made it impossible for anyone to attend school. For example, young people living in the Sudan or Afghanistan are more likely to be fighting than attending classes. In other countries it is not culturally acceptable for girls to attend school past a certain age.
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