LDCs want a larger share of the world’s income and wealth. Half the world’s population has
an annual income of scarcely more than £220 per person.
LDCs complain that (a) markets for their primary products are controlled by the north; (b)
northern protectionism is hampering their prospects for industrial development; (c)
borrowing is too expensive; (d) austere and unpopular domestic policies are being forced
upon them; and (e) simple justice dictates that rich countries should take practical steps to
close the gap.
In the world’s poorest countries, population growth is faster than the rate at which supplies
of other factors can be increased. Hence labour productivity is low and, after provision for
consumption, there are few spare resources to increase human and physical capital. It is
hard to break out of this vicious circle.
The downward trend in real prices, price volatility and danger of extreme concentration in a
single commodity have made LDCs reluctant to pursue development by exploiting a
comparative advantage in primary products. Buffer stocks and cartel supply restrictions
have proved difficult to organize, with the conspicuous exception of OPEC.
LDCs are increasing their export of manufactures. Although the LDCs begin from a small
base, their market share could quickly become much more significant.
Industrial countries are tempted to protect their declining manufacturing industries. They
would do better by encouraging adjustment towards industries in which their comparative
advantage now lies.
Structural adjustment policies aim to improve incentives and the efficiency with which
existing resources are used.
LDCs ran large deficits, financed by external borrowing. Larger debts and high interest rates
led to threats of default and an international debt crisis.
Increasing financial market integration in the 1990s led to large capital inflows to LDCs.
When investors grew scared, many LDCs faced drastic crises.
Trade may help the LDCs more effectively than aid. Migration would help equalize world
incomes. Rich countries may reconsider their immigration policy once they need young, taxpaying
workers.
