３.

Generate new research ideas

In recent years there have been large protests for greater democracy in
Hong Kong, which came under Chinese control after a century of British
rule. If we were to speculate that Darden and Grzymala-Busse’s theory
helps explain these protests, what kind of evidence would we want to look
for?

10 DEVELOPING COUNTRIES

White coffee beans dry in the sun at a Fair Trade coffee farm in Jimma, Ethiopia. The attempt to
promote “fair trade” between richer and poorer countries is an example of the complexities facing
political-economic development in the developing world.
What are the causes of poverty and wealth?

U
p to this point, we have repeatedly considered the role of economic and
political institutions in helping (or hindering) development and democracy.
These institutions are of particular concern among the poorer or
developing countries, where for many a basic standard of living remains far out of
reach. How to promote development? And where should those changes begin?
One example that many of us have direct experience with is Fair Trade. At some
point, probably everyone reading this has purchased something labeled “Fair
Trade” that was produced in the developing world. Most likely it was a cup of
coffee with beans originally harvested in Latin America or Africa, but Fair Trade–
certified goods run the gamut from coffee and tea to seafood and sugar, from
flowers to basketballs. Fair Trade seems like a clear opportunity for producers and
consumers to overcome economic and political barriers and create a more
beneficial relationship to promote development. Is this the case?
Before we can consider that question, we should understand exactly what Fair
Trade means. The idea goes back as far as the 1960s, but a labeling organization
was not developed until the late 1980s. The Fair Trade mark is meant to certify that
goods meet certain standards in several areas. Laborers are to be guaranteed basic
working conditions, such as minimum wages and a ban on child labor. Farmers are
also organized as cooperatives to pool resources and distribute the premium
earned from Fair Trade goods. Environmental standards deal with such practices as
the use of pesticides. In return, Fair Trade buyers provide long-term contracts and
financing to producers and agree to a fixed higher price. In 2018, $9 billion in Fair
Trade coffee and other foods was sold worldwide, and over a million and a half
individuals in 75 countries were involved in the production of Fair Trade goods.
As Fair Trade consumption has grown in the developed democracies, so has
scrutiny of the system. One argument is that premiums paid through Fair Trade keep
inefficient farmers in operation although they would be better off working in some
other part of the economy. Others suggest that premiums do not trickle down to the
producers but are eaten up by the overhead costs of administering a cooperative.
Unfortunately, much of this debate has been driven by ideological preferences or
anecdotes.
More recently, a deeper study of Fair Trade raised some significant questions
about the impact of the certification system. Researchers at the University of London
conducted a four-year study of Fair Trade production of coffee, tea, and flowers in
Ethiopia and Uganda. Some of their findings were disturbing. Contrary to
assumptions, many of those involved in producing Fair Trade goods were not farm
owners but hired workers, including children. These wage laborers often made less
than those at typically larger non–Fair Trade farms. Moreover, premiums tended to
be gained by a minority of larger farms, meaning the poorest farmers and laborers
got far less from the arrangement. Schools, clinics, and other benefits built by
cooperatives were often denied to wage laborers.
Do the Ethiopian and Ugandan cases undermine the Fair Trade model? Beyond
Africa, Fair Trade has been used extensively in Latin America, where it first began.
Studies there do show positive benefits for many farmers, though, as in Africa,
wage laborers do not enjoy similar benefits, and cooperatives often suffer from the
same kinds of inequality that cooperatives in Uganda and Ethiopia do. In short,
evidence suggests that Fair Trade does provide benefits, but it is not an easy answer
to problems of development.
Interestingly, both the African and Latin American cases suggest that profits and
other benefits are more equitably distributed when Fair Trade production takes
place at a larger scale. This idea may go against our beliefs that large businesses
are by nature unjust while small-scale production is more fair and equal. But
research suggests that larger firms have greater resources at their disposal, can
provide a wider array of benefits, and can be held accountable via unionization
and regulation. The image of a family harvesting coffee may have a strong visual
and emotional appeal when we buy our latte. But it may distract us from the role of
strong institutions as a foundation for large-scale development.1
■Describe the key characteristics and future prospects of developing countries.
■Explain how imperialism and colonialism have affected developing countries.
■Examine the difficulties and successes of post-imperial countries.

Freedom and Equality in the Developing World

TABLE 10.1

Developing Countries, 2020

Imperialism and Colonialism
IN FOCUS
Imperialism . . .
■ Is a system in which a state extends its power beyond its borders to control other territories, resources,
and peoples.
■ Was propagated by European powers from the sixteenth to the twenty-first centuries.
■ Is driven by economic, strategic, and religious motives.
■ Often led to colonialism, the physical occupation of foreign territories.

TIMELINE

1494 Following European discovery, Spain and Portugal partition the Americas
between their two empires.

Indigenous groups (Aztecs, Incas) are defeated by imperial powers in Central

1519–36
and South America.

1602–52 The Dutch begin to establish control over parts of the Indonesian archipelago
and southern Africa. English settlement begins in North America.

Wars of independence in Latin America; Spanish and Portuguese rule is brought

1810–25
to an end.

1839–58 United Kingdom expands control into Asia, notably Hong Kong and India.

The Berlin Conference; Africa is rapidly divided among European powers,

1884
notably France, Portugal, and Belgium.
 1939–45 World War II catalyzes the eventual decolonization of Asia and Africa.

1947 Independence of India; first major decolonization of the twentieth century.

1956–68 Independence of most British, French, and Belgian colonies in Africa after local
rebellions against imperial rule.

1975 Independence of most former Portuguese colonies in Africa and Asia.

1997–99 Hong Kong (United Kingdom) and Macau (Portugal) returned to China.

Institutions of Imperialism
Exporting the State
Social Identities
IN FOCUS
Political and Social Institutions of
Imperialism
■ The state, as a form of political organization, was imposed on much of the world outside of Europe.
■ Ethnic and national identities were created where none had existed before colonization.
■ Gender roles from the imperial country were often imposed on colonies.
Dependent Development
 IN FOCUS
Economic Institutions of Imperialism
■ Traditional agricultural economies were transformed to suit the needs of the imperialist power.
■ Economic organization under imperialism impeded domestic development in the colonies.
■ Free trade was often suppressed, as colonies were forced to supply goods only to the imperial country,
creating extractive economies in the colonies.

The Challenges of Post-Imperialism

Building State Capacity and Autonomy
 IN FOCUS
Challenges to Building State Autonomy
and Capacity in Developing Countries
■ Absence of professional bureaucracy (following departure of foreign imperial bureaucrats)
■ Clientelism, rent seeking, and corruption in the handling of state jobs and revenue
■ Sovereignty often compromised by external actors (other states, international organizations)

TABLE 10.2

Corruption Index, 2019

Denmark

Canada

United Kingdom

Japan

France

United States

Taiwan

Botswana

South Korea

South Africa

India

China

Indonesia

Brazil

Note: The corruption index is based on national surveys regarding the overall extent of corruption (size and
frequency of bribes) in the public and political sectors. Rankings: 1–180; some countries share rankings.

Source: Transparency International, www.transparency.org/cpi2019 (accessed 3/2/20).

Pakistan

Mexico

Russia

Iran

Nigeria

Zimbabwe

Venezuela

Somalia

Note: The corruption index is based on national surveys regarding the overall extent of corruption (size and
frequency of bribes) in the public and political sectors. Rankings: 1–180; some countries share rankings.

Source: Transparency International, www.transparency.org/cpi2019 (accessed 3/2/20).

Creating Nations and Citizens
IN FOCUS
Challenges to Building a Unified Nation-
State
■ Ethnic and religious divisions among different groups in heterogeneous societies (often exacerbated by
economic inequality)
■ Arbitrary political boundaries imposed by imperial powers
Generating Economic Growth
IN FOCUS
Three Paths to Economic Growth

Based on mercantilism. State plays a strong role in the economy. Tariffs or

nontariff barriers are used to restrict imports. State actively promotes domestic
IMPORT production, sometimes creating state-owned businesses in developing
SUBSTITUTION industries. Criticized for creating “hothouse economies,” with large industries
reliant on the state for support and unable to compete in the international
market.

EXPORT-ORIENTED Based on mercantilism. State plays a strong role in the economy. Tariff barriers
INDUSTRIALIZATION are used to protect domestic industries. Economic production is focused on
industries that have a niche in the international market. Seeks to integrate
 directly into the global economy. Has generally led to a higher level of
economic development than import substitution.

Based on liberalism. State involvement is reduced as the economy is opened up.

STRUCTURAL Foreign investment is encouraged. Often follows import substitution. Criticized
ADJUSTMENT as a tool of neocolonialism and for its failure in many cases to bring substantial
economic development.

Puzzles and Prospects for Democracy and Development

Making a More Effective State
Developing Political Engagement
Promoting Economic Prosperity
 INSTITUTIONS IN ACTION

Why Did Asia Industrialize Faster than

Latin America?
The rise of Asia over the past four decades as a global exporter, producing increasingly sophisticated goods
over that time, presents an interesting puzzle, especially when we compare the region’s economic
development with that of Latin America. In 1970, Brazil’s and Argentina’s per capita GDP at PPP were
between $2,500 and $3,500, higher than South Korea’s or Taiwan’s. By 2019, while these Latin American
countries had GDPs between $16,000 and $21,000, the GDPs of South Korea and Taiwan had soared to
between $40,000 and $55,000. How did these Asian countries come from behind and grow so much
wealthier than many of their Latin American counterparts? A simple explanation—such as a correlation
between democracy and speed of economic growth—does not work, since all of these states were
authoritarian during most of the last 50 years. What, then, might be the explanation?
There are several theories regarding Asia’s faster growth. According to one argument, which we can
describe as geostrategic, the major difference between Latin America and Asia lies in their relationships to
the United States and how their political-economic institutions were shaped by these relationships. Latin
America’s experience of U.S. influence during much of the nineteenth and early twentieth centuries has
been described as neocolonial. In this interpretation, the subordinate relationship of Latin America to the
United States effectively prevented the development of industries that could reach an export capacity and be
competitive in world markets. Instead, economic development was dominated by foreign (U.S. and
European) goods and foreign investments that concentrated on the production of consumer goods for the
small upper and middle classes rather than on broader industrialization.
In contrast, following China’s 1949 revolution, the United States viewed Asia as under direct threat from
communism and as a result supported industrialization policies—through preferential trade agreements—that
limited foreign direct investment and promoted export-oriented growth. Whereas Latin American markets
were influenced (if not dominated) by Western investments, Asia’s drive toward industrialization and export-
led growth was fueled by state investments. While this argument can help explain why the regions’
economies developed so differently, it doesn’t account for a country like Mexico. There, for much of the
early twentieth century, foreign investment was limited by the state, and rapid industrial development
resembled that of Asia later in the century.
A second argument concentrates on domestic politics and institutions within these regions. One area that
has attracted a great deal of attention is land ownership and land reform. In many countries, agriculture is a
powerful economic and political force. This is especially the case where agriculture takes the form of large
landholdings, which concentrate power in relatively few hands, so that much of the population works land
they do not own. Where such landowners are powerful, states may find it difficult to raise funds and build
capacity and autonomy. Urbanization and industrialization are held back by the interests of landed elites
(who often oppose the rise of both).
In the case of Latin America, economies dominated by large landholders and estates, known as latifundia
(haciendas, in Spanish), developed as part of Spanish and Portuguese colonialism to produce commodities
such as sugar and coffee on a large scale for export. Independence from imperialism did not destroy this
agricultural system, however, and latifundia economies remained in Latin America as landed elites continued
to dominate economic and political institutions. Latin America’s economy developed more slowly, therefore,
not because it lacked integration with the global economy or exported fewer goods but because the nature
of its exports—agriculture and natural resources—did not provide a strong foundation for industrial
development.
In Asia as in Latin America, much of the agricultural land was originally concentrated in a small number
of estates. However, in places like South Korea and Taiwan, one of the first steps the state took after gaining
independence was to enact widespread agricultural reform to break the landed elites’ monopoly and
empower the peasantry. A central motivating factor was the desire to stave off peasant-backed communist
revolutions like the ones that happened in China and North Korea, where land reform was a key promise of
the Communist Party. This argument in many ways takes us back to the geostrategic issue, though the critical
issue here is the role of political elites in Asian countries in bringing the old feudal order to an end. As in
the case of our first possible explanation, however, this argument has flaws. The emphasis on the
overwhelming power of the latifundia needs to be balanced by a consideration of the fact that Latin America
has become an overwhelmingly urban region—over 80 percent of its population now lives in cities.
Moreover, as mentioned earlier, many Latin American countries did develop a significant industrial base,
even in the absence of land reform.
What, then, is the solution to our puzzle? We cannot draw clear conclusions, though certain factors seem
significant. The institutional legacies of imperialism do appear to be stronger in Latin America than in Asia,
although the economic policies in the two regions have been influenced differently by postwar international
politics. This intersection of institutions and policies may explain what moved Asia and Latin America down
different paths of development that will continue to influence their future.a

Workers collect sugar cane on a plantation in the Dominican Republic. A cane cutter earns
approximately four U.S. dollars per ton.

１. What role did foreign direct investment in Latin America versus state
investment in Asia play in the regions’ differing paths?

２. How did the legacy of colonialism and its institutions affect Latin America’s
industrial development?

３. How did concerns about communism influence both the Asian countries’
relationship with the United States and their own approach to land reform?
In Sum: The Challenges of Development
 Earn a better grade on your test. InQuizitive personalizes your learning path
to help you master the concepts from this chapter and practice applying them to
examples from the text and beyond.

How Can Countries Avoid the Middle Income Trap?

There has been a great deal of discussion in recent years regarding the idea of the middle income trap, which
we mentioned earlier. The concept is relatively straightforward, and in some ways it can be connected to the
discussion of different paths of industrialization that we have already considered in the chapter. As seen in the
figure below, developing countries, after a period of rapid growth, remain stuck at a middle income level
(under $15,000 per capita GDP at PPP), unable to sustain a rate of growth that would lead them to become a
high income economy. These countries find themselves squeezed between those economies that are able to
rely on cheap labor and those that have become high-tech innovators. A more extreme version of the middle
income trap concerns not the relative distance between wealthier and poorer countries—both are growing but
the poorer countries can’t catch up—but the fact that some middle income countries may eventually confront
minimal or even negative economic growth.

Developing Countries Stuck in the Middle Income Trap

Source: World Bank and Development Research Center of the State Council, the People’s Republic of China,
China 2030: Building a Modern, Harmonious, and Creative Society (Washington, DC: World Bank, 2013), p.
12.

In short, the idea of a middle income trap suggests that while it may be easy for poor countries to boost their
economies, it is much harder for them to sustain growth to bring them to a high income level. The evidence for
the middle income trap seems strong: a World Bank study found that of 101 middle income economies in the
1960s, only 13 had become high income by 2008.a South Korea, which in 1950 had a GDP per capita at PPP
under $1,500, is thus an economic anomaly. This suggests that while sound economic policies may be able to
cut absolute poverty, it is much more difficult to narrow the inequality gap between countries in the long run. It
also suggests that countries like China may find it much harder to grow wealthy past their initial phase of
development, something we will touch on in our discussion of globalization in Chapter 11.
How can countries avoid the middle income trap? There may be several factors. One possible area is a
commitment to higher education. Strong higher education institutions seem to correlate strongly with greater
economic development—70 percent of South Koreans between 24 and 35 have college degrees, compared
with 40 percent in Argentina and only 20 percent in Brazil, helping facilitate the transition from a labor-to
knowledge-intensive economy. Another factor is one we have spoken of at length—the rule of law. Countries
with stronger protection of individual and property rights and lower levels of corruption also create an
environment more conducive to innovation and investment. In short, establishing “inclusive” institutions that
benefit a wide range of society (as opposed to more clientelist or patrimonial ones) may be the key to
economic transitions, as opposed to traps.

１. Connect related arguments

Can we draw any connections between the idea of the middle income trap
and our earlier discussion about import substitution and export-led
growth?

２. Consider the policy implications