Why Global Development Matters? Research Paper Example

Economic development is the process by which a group of people improve their economic standard of living, lifting some out of poverty and others farther from it. Usually when people talk about development they are referring to countries at the low end of the economic continuum where the majority of a population lives in standards below the global poverty line. The study of development would therefore exclude a country like the United States of America, which has one of the highest standards of living on the planet. So, if economic development efforts do not directly influence citizens of the United States, how should they feel about them?

To some people, economic development represents a threat to the United States. These people have a world view that sees global economics as a zero sum game. Gains made by developing nations must necessarily come at the expense of developed nations, like the one we reside in. Others may not take a negative view, but feel indifferent to the efforts of economic development. If it is not the growth of the United States in question, how can it matter to the people in this country? Both of these views are ones that should be avoided. Not only is global development something that we should celebrate, but it should be the number one goal behind our international policy. This is because America prides itself on selfless policies and also because it improves American national security efforts. However, the most effective reason to support global development is because it is a boon to the American economy.

The idea of American exceptionalism is one that gives the people of this country great satisfaction. It states that the United States is the only country on Earth who consistently puts the well being of others in front of its own. This dates back to its founding, where Americans established a democratic government that promoted suffrage and equality to an extent unseen at that point. This sparked a wave of democracy over the coming years. American foreign policy has often been seen as an extension of this, with the country twice going to war in Europe to save the continent and spending half a century using their muscle to fight the spread of communism across the globe.

There are likely many good arguments that state that the United States has not always acted as a selfless city on the hill. However, what is important is not whether the United States has always upheld this tradition of exceptionalism, but that it is a source of pride and something Americans strive for. With the large amounts of the world living in poverty right now, ignoring it is not something that can be done by any country holding itself to this kind of standard. This means that even if the dominant opinion is that development will actually harm the United States, there is no way for the country to ignore this issue and still see itself as a selfless country unlike the rest of the world. Global development is important because the idea Americans like to have of themselves requires they put emphasis on it.

A more pragmatic reason to focus on global development is that of national security especially against terrorism. Since 2001, the dominant aim of American foreign policy and perhaps of all the government has been counter terrorism. This includes two extremely costly wars and the expansion of an intelligence gathering apparatus that does not come without its own price. Yet, terrorism is usually committed by those who feel pessimistic about their own economic futures. Perhaps a better use of the funds dedicated to these anti terrorism efforts would have been on development efforts that would have eliminated the anger that creates the desire for terrorism. The idea here is that those people who feel hopeless economically are much more likely to turn to terrorism. A better economy means fewer people wanting to turn to terrorism and perhaps a safer world for the United States, accomplished more cheaply than the current methods involving military and intelligence efforts.

One example of the connection between economic success and the reduction of terrorism can be found in Northern Ireland, long home to a series of conflicts between Protestants and Catholics. From the 1960s to the 1990s on, groups of paramilitary fighters fought guerilla wars against each other for control over the Northeastern portion of the island. The 1990s saw a series of ceasefires and the end of violence came which came largely in 1994, with a peace agreement known as the Good Friday Agreements. While some may point entirely to these agreements and negotiations for the continued peace they have seen, another theory relates to Ireland’s economic developments. The country was referred to as the Celtic Tiger for most of the past twenty years, due to its enormous growth rates. Perhaps this is what made the two sides so willing to both negotiation and, more importantly, honor peace agreements.

Perhaps the most persuasive argument against America having an interest in global development comes from those who believe in the zero sum theory. This argument is often presented in a very similar manner to the lump of labor fallacy. People making these arguments state that development in a nation like China means Americans lose their jobs to the Chinese. Therefore, Chinese development can only come at the expense of countries like America, meaning that it is actually something America should look to avoid. This argument is incorrect and goes against some of the truths that have been established in economics over the past two centuries.

The easiest way to check this theory would be empirically. If the advancement of a developed nation meant the devolution of a developed, the United States would suffer when developed nations prospered. To check this, one can compare the growth rate of the two most prominent developing nations, China and India, to the United States. The zero sum theory would be proven if growth in the India and China grew when the United States was shrinking and vice versa. In other words, there should be a strong inverse correlation between developed growth rates and developing growth rates.

There seems to be some sort of link between the growth of the two developing nations and the United States. India and China have higher growth rates in every year, but this is to be expected, as developing nations routinely have the highest annual growth rates. Both China and India drop off in 2008, when the United States faced a recession and negative growth. This suggests that they are somewhat positively related, as opposed to the inverse relation one would find in a zero sum world. The graph is hardly sufficient to prove that global development improves the national economy, but it does make it substantially more difficult to argue the opposite.

One of the main problems with the proposed empirical method is that there are many variables. While an increase in the Indian economy might be good for the United States, the United States could be affected negatively by any number of things that make it difficult to observe the effect from India. This is what makes the measurement of a developing economy’s effect on the United States too difficult to prove that there is a positive impact. For this reason, the theoretical side of the equation is where more information can be ascertained on the relationship.

The theoretical side of the zero sum argument can be summed up quite easily. The world needs a certain level of input which each employed person contributes to. Therefore, employing an extra person to produce a certain good would needlessly create a surplus, meaning that it will not be done. A producer knows how many people they need to employ and will make sure to employ that many in their work and will specifically look for workers who demand the least payment to produce that much. This quite obviously means that work will end up in the country with a suitable infrastructure that is demanding the least payment for their work. However, this is a misguided view.

What this line of reasoning misses is that when work goes to a person in a developing nation, they receive income, which they spend. Therefore, they raise global aggregate demand meaning the world does not have a fixed maximum input as is implied in the zero sum argument. For example, as more and more Chinese move into middle class lifestyles, they will be able to afford transportation more easily. This will mean they demand more air travel and through the derived demand theory, more airplanes will be needed to meet the increased demand in China. This will benefit a company like Boeing who are operated and do most of their manufacturing in the United States. So, while the first step in the economic development process may result in American jobs flowing to China, a subsequent step involves new jobs being created in America. These new jobs represent global economic growth that is not possible under the zero sum model of global economics.

One way global development helps the United States is by increasing potential trade partners. Great numbers of economic models suggest that trade allows each country involved to become more wealthy through trade gains. A country developing usually means it must develop some sort of competency in the manufacturing of a product or through a specific service or research area. For example, if a country develops the ability to produce a crop more efficiently than the United States, we can purchase that crop from the country and use the resources previously dedicated to domestic production of that crop to something else that they can either consume or trade. The result of economic development is a new market from which they can buy goods more cheaply as well as a new market to sell goods America produces well.

The first writer to present a theoretical framework in favor of these sort of gains came from Adam Smith in his seminal work The Wealth of Nations. He proposed the idea of comparative advantage in which two different countries had different abilities to produce various outputs. For example, one country could be better at production that uses both machine inputs and human inputs. However, it is still in their best interest to specialize in whichever they have a relative advantage in and use their surplus in that good to trade for the second good. This model is overly simplistic since it has only two goods, but it shows how the two countries can specialize in one area, trade for the other and come out above. Smith’s model disproved the zero sum theory, known as Mercantilism in his day, that support an anti development stance held by some critics.

A more detailed model that also supports the benefits from trade that must come from development is the Heckscher-Ohlin model. Its addition to the basic Smith model is in how comparative advantage is determined. This is shown by how abundant the factors of production are in the respective countries. The United States is perhaps the most capital abundant nation on Earth, while others have resource abundances, and some countries have their abundances in cheap labor. Therefore, the part of development where basic manufacturing jobs move down the economic spectrum is in fact normal and a positive development for both countries. This is because developing countries are practically guaranteed to have relative abundances in cheap labor compared to developed nations. Moving these jobs there certainly displaces workers in the short term, but ultimately allows Americans to focus on production they are best suited for while also providing a new market for those goods.

So, if global development is important for the United States for economic and security reasons while also imperative for national identity, what can the American government do to promote it? There are several policies currently underway which need to be strengthened as well as ones which are not undertaken. For example, foreign aid and debt relief both from the United States and inter governmental organizations such as the International Monetary Fund are effective policies, but not as successful as they could be. On top of that, United States trade policies are often used for development and protection for industries in the domestic markets, but perhaps they should be geared more towards global development. Finally, the private sector can be encouraged to influence the developing nations through avenues such as investment and innovation.

Before one tries to picture what the perfect American policy towards global development is they must analyze carefully the current policy. This includes both having an understanding of what is being done and how effective they are when it comes to promoting development. First of all, the last half century has been a great time for global development with many human beings escaping from poverty. For example, over the last fifty years, the world wide life expectancy has risen eighteen years, settling at sixty-five in 2005. On top of that education rates have increased in each region of the world while income has increased along with it (Center for Global Development). Perhaps most importantly, the proportion of people living under the global poverty line is twenty-five percent lower than it was in 1981 (Shah).

This progress does not mean that the job is done. In fact, some would argue that almost all of this progress has been made in the two prominent developing nations, China and India. Plenty of global regions have seen stagnating poverty rates masked only by the hundreds of millions lifted out of poverty in the world’s two largest countries. This is not to say that what is happening in China and India is not one of the great developments of our time. Just that if current trends hold up, poverty may finally be eradicated in those regions while Sub Saharan Africa does not see its share of the benefits.

As of 2009 the sum of United States foreign aid given is twenty-six billion dollars annually. This is one of the most potentially effective policies the United States has in terms of global development. Not only can the developing nations build infrastructure and fight disease with the aid, but the source of it has the additional benefit of improving the outlook on America across the world. However, the top two nations for foreign aid are currently Israel and Egypt, neither of whom qualifies as developing nations. While the most readily available answer is to shift funds away from strategic defense allies, it is unlikely this idea will be politically amenable. The current total of aid is below one percent of the total federal budget despite the vast importance of these programs. Foreign aid must become a more prominent part of the budget and this additional money should be directed towards developing nations and not necessarily allies. Ultimately, the development will have an effect on national security greater than any sort of weapons building.

Another key area that can be used to promote development is the trade policy of the federal government. As shown above, free trade helps development while that development can circularly benefit the United States itself. For this reason, it would seem that free trade would be a goal of the United States at all times, but there are numerous roadblocks to that goal. Special interests often lose out in the short term when trade becomes free and due to their outsized power they can block these initiatives.

The most prominent example of this may come in terms of the current agricultural policy in this country. In most developing nations the majority of people do not have the capital to do any type of work other than labor intensive farming. This means that agricultural policy is perhaps the best chance we have as a country to pass policy in favor of development. Unfortunately, the exact opposite is happening. The American government subsidizes many labor intensive crops allowing them to be sold at a price below the true cost of production. This floods the international market with low cost crops that third world farmers cannot compete with. This policy is present in the United States and many other developed Western nations and is one many of the developing nations protest at World Trade Organization negotiations and has held up the Doha round of negotiations for years (Agence France Presse). Reversing this policy and ending these subsidies would do wonders for the developing world while improving America’s standing with the world.

Another area where the United States can improve is by using its outsized power in the organizations such as the International Monetary Fund to push them towards more pro development policies. When a country needs to turn to the IMF for aid it is almost always with strings attached from the IMF. While these policies are well intended, in some cases the implementation costs of the changes almost cancel out the aid and the whole process is self defeating. While rule of law policies, liberalization, and infrastructure development can all help by promoting both foreign and domestic investment, the way the IMF is trying to undertake these reforms must become more realistic.

The two most important areas for development are likely in the healthcare and education sectors of a country. They are especially important because they are the keys to human capital. Education develops that capital and healthcare is essential for promoting lives of a length that does not waste the investment education puts into capital. In “India: Economic Development and Social Opportunity” authors Jean Dreze and Sen Amartya points out that this type of education is also essential for promoting a political awareness and involvement necessary to backup a well functioning economy. This in turn is essential for providing the people their proper human rights that people depend on.

In conclusion, global development is the most important thing for the American government to promote. American ideals depend on trying to aid the vast portion of the world that do not enjoy the quality of life we do. On top of that, it is in our security and economic interests to promote this. The economic interest can be seen by the numerous economic models pointing towards free trade as a way for Americans to get goods cheaper while also expanding foreign markets to our domestic goods. The ways to promote this development include reforming the international organizations responsible for development, fixing policies designed for small segments of American producers instead of consumers and the majority of the world, and finally either increasing the level of foreign aid or giving more of it to the countries that need it for development instead of defense allies.

References

“China/India/United States GDP – Real Growth Rate.” Economic Statistics. Web. 08 Apr. 2012. <http://www.indexmundi.com/china/gdp_real_growth_rate.html>.

Drèze, Jean, and Amartya Sen. India, Economic Development and Social Opportunity. Delhi: Oxford UP, 1995. Print.

“FY 2009 Congressional Budget Justification for Foreign Operations.” U.S. Department of State. Web. 08 Apr. 2012. <http://www.state.gov/f/releases/iab/fy2009cbj/>.

“Rethinking U.S. Foreign Assistance.” U.S. Assistance : Center for Global Development : Initiatives: Active. Web. 08 Apr. 2012. <http://www.cgdev.org/section/initiatives/_active/assistance>.

Shah, Anup. “Poverty Around The World.” – Global Issues. 12 Nov. 2011. Web. 08 Apr. 2012. <http://www.globalissues.org/article/4/poverty-around-the-world>.

“WTO Calls On US to Cut Farm Subsidies | Common Dreams.” Common Dreams. Agence France Presse, 29 Sept. 2010. Web. 08 Apr. 2012. <http://www.commondreams.org/headline/2010/09/29-3>.