3.5.8.2  Developing Economies

 (The latest version of this page is at Pattern Descriptions.  An archived copy of this page is held at https://www.patternsofpower.org/edition02/3582.htm)

Aid alone cannot solve the problem of poverty.  The next steps, of encouraging economic growth, are needed: 

·      Wealth creation is dependent upon appropriate economic governance: particularly in the regulatory structure (3.3.1) and macroeconomic policies (3.3.8).  Leland B. Yeager listed several factors which are vital for developing industries:

“…venturesome business enterprisers, a social and ideological climate not hostile to business enterprise, capital for productive investment, a tax system that encourages enterprise and productive use of resources, and—perhaps—governmental development of education and health programs and certain public utilities.” [1]

·      Poor infrastructure is often an impediment to growth.

·      Rural areas have development needs that differ from those of urban areas, so self-sufficiency can be a practical approach.  The Barefoot College in India has demonstrated and taught how local generation of power and rainwater collection, for example, may be more practical (and lower cost) techniques than attempting to emulate the national infrastructure of wealthy countries.[2] 

·      One of the problems that poor countries face, in getting their economies to grow, is lack of the finance to make the initial investments.  When foreign companies set up in less developed economies they are, in effect, bringing with them wealth creation opportunities which could not otherwise be realised.  There is a need for secure property rights, to attract these companies, who usually come for their own self-interest rather than any charitable intent.  And even if the profits return to the countries of the owners, the employees’ share of wealth and the resulting consumer demand can make a huge contribution to a developing economy.

·      New forms of Foreign Direct Investment (FDI) are emerging:

‒      Paul Romer suggested that charter cities – separately-governed enclaves within poorer countries, like the flourishing of Hong Kong on the edge of China – might provide centres for economic growth and models for governance.[3]

‒      Saudi Arabia has leased some farmland from Ethiopia, in what might be seen as a revival of an older model of foreign ownership.[4]  That agreement suited both governments.

These mechanisms can all contribute to economic growth in developing countries, but substantial growth then depends on trade with the rest of the world.

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