Friday, November 26, 2010

Why advanced countries should help the least developed countries?

Advanced economies like US, Japan, EU, etc. have exerted a lot of efforts and taken a lot of risks while climbing the ladder of economic reform. They, accordingly, believe that they should not expose themselves to risk any more, especially if this risk is related to the least developed countries of the world. They support the values of free market and work hard in transforming the theories of free market and capitalism to the developing countries to help them develop. However, they are not taking any tangible steps towards helping those least developed countries practically, despite the fact that advanced industrialized countries’ success cannot be assured and secured without supporting the growth of the least developed countries.  

Now, what should countries like EU and US do to help least developed countries climb the ladder? First of all, they should stop sending funds to least developed countries in the form of international development aid to these countries. Instead, they should use those funds to encourage and increase the number of investment projects in least developed countries, either directly or indirectly by offering certain incentives to investing countries. This would be of a great benefit for both sides and will definitely encourage the least developed countries to improve its status to rise to competition level. They say give a man a fish feed him for a day; teach a man to fish, feed him for a lifetime!

Second, yet most important, is to remove the “iron curtain” of tariffs and taxes on international trade, particularly exports, coming from the least developed countries. I once read a very interesting study by Thomas Hertel and Will Martin, arguing that global economy revenues will increase by 70 billion dollars per year – 75% of which will go to developing countries – if the international trade tariffs were lowered by 40%. The advanced countries should work on lowering the tariffs barrier, if not removing it completely, on the exports or other international trade activities from least developed countries.

Now the question is why the advanced industrialized countries should help the least developed countries to climb the ladder. There are claims that this would increase the number of competitors and threaten the advanced countries’ dominance over the global market. That is because the least developed countries will be able to offer low prices for certain products that were for so long controlled by the advanced countries, because in developing countries, operation expenses and labor salaries are much lower.

The answer is, simply, that helping the developing countries to have better access to international market would save the advanced countries from this claimed risk. The least developed countries have less operation expenses because they work with dilapidated equipments and they pay low salaries because the workers there are less educated and less interested in improving their skills. They are not motivated to do.

Thus, when the advanced countries open more space for the least developed countries to compete at the international market by applying the main two steps, mentioned above, among other steps of course; the least developed countries will spontaneously encourage workers to improve their skills use advanced equipments. Accordingly, they will incur higher operation expenses, which will force them to provide competitive prices on their products within the range, which would not threaten the advanced countries or destabilize the global free market.