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Understand What Makes a Country Rich or Poor

School project? Or just want to increase your general knowledge? Whatever the reason, this article will teach you to understand what makes a country rich or poor!

Steps

  1. To understand a country's wealth, you must understand its naturally-occurring resources.

    "Coffee can be produced only under certain climatic conditions. It is grown mainly in Brazil, partly in Central America, to a much lesser degree in Africa (Abyssinia, British Central Africa, German East Africa), and in Asia (Dutch India, British India, Arabia, Malakka). Cocoa can be produced only in tropical countries. Rubber, a product playing a very large part in modern production, also requires certain climatic conditions, and its production is limited to a few countries (Brazil, Ecuador, Peru, Bolivia, Guiana, etc.).

    Cotton, a product occupying the first rank among all fibrous plants due to its importance in economic life is produced in the United States, India, Egypt, China, Asia Minor, and the Russian Central Asia territories. jute, which takes the second place, is exported from one country only, namely, from India. If we take the production of minerals, we find the same picture, since we deal here to a certain extent with what is known as the natural resources of a country.

    Coal, for instance, is exported from countries with large coal deposits (England, Germany, United States, Austria, etc.); kerosene is produced in countries having an abundance of oil (United States, the Caucasus, Holland, India, Roumania, Galicia); iron ore is extracted in Spain, Sweden, France, Algeria, Newfoundland, Cuba, etc.; manganese ore is to be found mainly in the Caucasus and Southern Russia, India, and Brazil; copper deposits are in abundance mostly in Spain, Japan, British South Africa, German Southwest Africa, Australia, Canada, United States, Mexico, Chile, and Bolivia." - Imperialism and the World Economy, Nikolai Bukharin, 1917
  2. A country's economic system is based on how it allocates its resources. Resource allocation is a problem which all societies have been confronted with, and it consists of the following three questions:
    • Which goods and services should be produced with society's resources?
    • How should they be produced?
    • Who should get them?
  3. Economic Ideologies. There are many ways for allocating resources, and they include ideologies as follows:
    • Traditional economy- resources are allocated according to the long-lived practices of the past. These economies were the dominant method of resource allocation in human history and still remain strong in tribal societies in parts of Africa, South America, Asia, and the Pacific. They are stable and predictable, but leave no room for innovation or advancement.
    • Command economy- resources are allocated mostly by explicit instructions from some higher authority. These are also called centrally planned economies. The government usually controls all resource allocation in this type of economy.
    • Market economy- resources are allocated according to individual private profit.
    • Mixed economy- By far the most common economy. This is where some resources are centrally distributed and some resources are privately allocating according to profit.
    • Participatory economy- where economic actors can participate in the economy. Defined by Michael Albert and Robin Hahnel.
    • Inclusive Democracy- Economic democracy in a stateless, moneyless and marketless economy. Defined by Takis Fotopoulos.
  4. Another very important aspect to understand is economic growth. Economic growth is the increase in production of goods and services that occurs over long periods of time. When the annual output of goods and services has risen faster than the population, you have economic growth.
  5. Look at exports and debt. "In 1810, India was exporting more textiles to England than England was exporting to India. By 1830, the trade flow was reversed. The British had put up prohibitive tariff barriers to shut out Indian finished goods and were dumping their commodities in India, a practice backed by British gunboats and military force. Within a matter of years, the great textile centers of Dacca and Madras were turned into ghost towns. The Indians were sent back to the land to raise the cotton used in British textile factories. In effect, India was reduced to being a cow milked by British financiers.

    By 1850, India's debt had grown to 53 million pounds. From 1850 to 1900, its per capita income dropped by almost two-thirds. The value of the raw materials and commodities the Indians were obliged to send to Britain during most of the nineteenth century amounted yearly to more than the total income of the sixty million Indian agricultural and industrial workers. The massive poverty we associate with India was not that country's original historical condition." - Michael Parenti, Against Empire
  6. Economists monitor economic growth by keeping track of the real gross domestic product (real GDP). Real GDP is the total value of all final goods and services produced for the marketplace during a given period, within the nation's borders. When real GDP rises faster than the population, output per person rises, and so does the average standard of living. In other words, the higher the real GDP, the richer the country.
  7. The real GDP depends on
    • The amount of output the average worker can produce in an hour
    • The number of hours the average worker spends at the job
    • The fraction of the population that is working
    • The size of the population
  8. A vital part of a nation's wealth is its inflation rate. Inflation is costly to society. If inflation rises too fast, people are no longer willing to hold on to money and will begin bartering with each other for goods and services, wasting valuable time and resources. In other words, high inflation rate slows economic development. This is why stable prices (a low inflation rate) are an important macroeconomic goal.
  9. The higher the price of net exports, the wealthier the economy is. Nex exports are a country's total exports minus its total imports. So when a country produces more than it purchases, it earns more money, and as a result, it becomes richer.

Video

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Tips

  • Fair Trade and Make Povery History are campaigns which will be able to provide international economic information about trade and debt.

Sources and Citations

 

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