How to Reduce the Economic Woes of Third World Countries

The slums of Brazil, shanty-towns of India, refugee camps in Ethiopia and `cardboard-houses' of Indonesia have something in common. They reflect the squalor and the degree of poverty that exist in many Third World countries today. The Third World countries lag behind Developed countries like the United States and West Germany in technological progress and industrialisation. As a result, they lose out to the Developed countries in terms of per capita national income.

The main cause for their economic woes stems from the relative poverty of their economies as compared to those of the Developed countries. A generally low level of income in Third World countries will lead to a low level of savings. Since savings are a prerequisite for investments in physical capital like machinery, a low level of savings will, in turn, lead to a low level of capital formation in the country. Capital, however, is needed to boost the productivity and efficiency of each worker, and the lack of capital in the economy can only mean a stagnation of the economy: production at low levels. A low level of output can only be expected to generate low returns for the producers, thus resulting in low incomes for the workers, igniting another round of poverty: a vicious cycle.

In addition to these economic woes are pressing social problems and trends which call for immediate attention and will inevitably cost Third World governments a hefty sum to alleviate. Such problems, 1ike the rapid growth of the population, seem inconsequential at first glance, but analysis show that, if not arrested promptly, this rapid growth could lead to serious social and economic problems for the country, If this happens, unemployment and poverty will increase as the population grows at. rates much higher than the economy.

Because these economic and social problems are self-reinforcing in nature, successful solutions to these can only be achieved by breaking the chain of effects at several points.

It is obvious that the governments of these Third World countries cannot do this without some external help because of the magnitude of the costs involved and the impoverished state of their economies. For this reason, foreign aid from the Developed Countries is probably the only way a developing Country can revamp its social and economic structure on a large scale. Such aid can come in the farm of `soft loans' where special low interest, rates are offered, as grants or gifts where the government is free to use the cash provided, or as aid packages where the foreign donor sends an advisory board to help the government in deciding what and how the aid, which may also be in the form of goods and technological expertise, should be used. The foreign aid here can also be used to supplement the low savings to build up the country's stock of capital and help break the poverty cycle. .

Another way in which these economic woes may be alleviated is to provide employment by building up the level of industrialization in the country. This will not only serve to create more ,jobs for the population but will also help improve the country's balance of payments if they export these manufactured goods, and earn foreign exchange.

All these efforts, however, may go to waste if pressing social problems are not addressed. This is because the population could grow at a higher rate than the economy and this could offset any gains from economic growth. The number of jobs created would not be enough for the growing population, and with more people, the national income would have to be spread over a wider base, resulting in less for everyone.

The government, therefore, should also concentrate its funds and efforts in educating people on birth control and the use of contraception. This has been fairly successful in Indonesia where rural clinics are equipped with contraceptives which are given away free on request. Such a policy will only be successful if the population has received some form of education. Birth control and education policies should thus be promoted hand in hand. Education is also important if industrialisation is to take place because workers need to be taught the skills of how to operate the machinery in order to increase their productivity.

We see, therefore, that in order to reduce their economic woes, the governments of Third World countries need to not only address the economic concerns of the country but also provide the initiative to restructure they social and physical infrastructure, for these changes to be successful.