How do neocolonialism, dependency and debt slow the development process?

1. How do neocolonialism, dependency and debt slow the development process?

2. Term coined by James Blaunt in “Theory of Development’ Neocolonialism is when a country or corporation exerts political or economic influence over a country or area Bank, investment, aid, exports and trade are mainly controlled by MEDCs Neocolonialism often involves the exploitation of countries labour and resources by TNCs and MNCs (hence term NEOcolonialism) Neocolonialism

3. Why do MNCs relocate? • MNCs have to pay cost of transporting goods and taxation and trading costs so why relocate? • Source of cheap labour and low land rents • Exploit local resources – MNC may need cheap raw materials • Less government regulation (gas leak at Union Carbide in Bhopal India) enables MNC to cut costs • Low trade union influence as people want to keep their jobs • Looking for new export routes and new markets

4. Advantages for LEDCs More jobs, may lead to improvement in quality of life for workers Greater income, overall GNP of country increases Investment in improving infrastructure (may attract further investment as a result - Myrdal) Disadvantages for LEDCs Benefits only short term – MNC will move on leading to high unemployment e.g. Brazil MNC exploiting countries finite resources for own benefit LEDC not developing own trade links for long term development Environmental damage creates long term problems e.g. cattle ranching in Brazil Local companies may lose out Positives and Negatives

5. Nike – Case Study • Internationally recognised product – made bid to have tick projected onto moon • Reputation for excellent sports good. But do they have a good reputation in terms of employment? • Uncovered they are exploiting labour and resources. E.g. workers in Vietnam low wages and work in hot and crowded conditions • Enables company to maximise already high profits

6. Dependency • Countries are dependent on one another in a number of ways • TRADE (both supply and demand) • Political support • Aid • Labour

7. Trade • Economic power over LEDCs now takes the form of GATT (General Agreement on Tariffs and Trade) and WTO (World Trade Organisation) • LEDCs reliant on MEDCs to buy their export goods (particularly agricultural and raw materials)

8. AID • Aid can take different forms: multilateral aid (IMF), bi-lateral aid(government) and NGO aid. Aid can be short term or long term. Depending on the project aid may increase autonomy or dependency • Aid may be tied to purchase of donor goods • Short term aid encourages dependency e.g. Bangladesh depends on food aid from USA

9. MEDCs also depend on LEDCs • USA depends on countries like China and Vietnam as source of cheap labour • MEDCs very dependent on OPEC countries as source of oil – does this lead to political involvement? • MEDCs depend on countries like Brazil as source of other natural resources such as oil, trees, coal • LEDCs are source of agricultural products which are hard or more expensive to grow in their own environment

10. Case Study • Carribbean Island of St Vincent – main export is bananas • Trade mainly with the UK as Britain set up a tariff and quota system to protect them from Central American growers in the 1950s • Growers only get 30HK$ for boxes which sell for over 400HK$ in the UK – where does the money go? • Now WTO has ruled tariff and quota system unfair – Caribbean growers will now lose out to cheaper mass banana growers

11. Debt Origins of the Debt Crisis 1960s USA spent more than it earnt • USA printed more $ leading to a drop in $ value and drop in oil value • 1973 oil prices went up leading to surplus of cash worldwide which got invested in banks • Interest rates for investment went down as money was lent out too quickly • To recoup losses banks targetted LEDC countries for loans • By mid 70s general prices had gone down and LEDCs found that they could not use exports to pay off debts

12. Third World Debt • Third World countries owe HUGE amounts of money • Acronym HIPC – Highly Indebted Poor Country • Many cannot even keep up with payments on interest rates • Latin America owes 4000 billion HK$ and Africa owes 1800 billion HK$

13. Structural Adjustment Programmes • Attach conditions to loans by WB and IMF • Attempt to reform economy in order to improve financial performance • E.g devaluation of currency, raise interest rates, privatizing public companies • Aim is to enable countries to meet debt repayments • Can result in local hardships

14. ZAMBIA By the mid 1980s, President Kaunda turned to the International Monetary Fund for help. Aid was granted, but only under severe conditions: the government had to announce a rise of up to 70 percent on prices of basic foodstuffs and had to float the currency. As a result, the cost of living skyrocketed, which touched off nationwide, violent protests in the following years, killing thousands of people. Further price hikes in the early 1990s led to more rioting, and a coup attempt was targeted against Kaunda

15. Problems in LEDCs • Public investment in these countries is minimal e.g. health care • Encourages LEDC countries to develop ‘irresponsibly’ e.g. overfishing and deforestation • Increased drugs trade e.g. 41% of Bolivian workforce employed in drugs • War – financial implication of debt crisis heightens conflict e.g. Somalia and Sierra Leone

16. MEDCs in debt ARGENTINA • Defaulted on their debts in 2001 led to agreement with IMF on rescheduling their debts • Since then has again attracted further investment • Will owe 76.6 billion US$ by the end of this year • Argentina is trapped in a cycle of borrowing further money in order to pay off debts

17. Solutions? • Debt Cancellation • Debt relief e.g. Tanzania has had 20% of it’s debt written off but still has huge repayments to make • Rescheduling debt • Further borrowing linked with Structural Adjustment Policies