The "rest of the world"; the underdeveloped world, and in recent years, the "emerging economies" of places like Indonesia and Malaysia. Also known as "The South", "North" roughly being the old Cold War power blocs: the "first world" of Western industrialized nations (or the "Me First!" world of gluttonous use of the planet's resources), and the "second world" of the Soviet bloc and China.

This term was originally coined by French economist and demographer Alfred Sauvy. It is taken from the French first estate (the nobility), second estate (the clergy), and third estate (everyone else, the commoners). A rallying cry of the French Revolution was "Tiers 'etat" (3rd estate), signifying the revolution was for and by the lower class. When this term was coined by a Frenchman, therefore, it conveyed not just poverty and exclusion from power, but revolutionary potential. The third world ("Tiers Monde"), deprived and despised like the third estate, might one day rise to take their due.

The term ‘Third World’ is often applied to countries which have "colonial histories, and which are in the process of developing economically and socially from a status characterized by low incomes, dependence on agriculture, weakness in trading relations, social deprivation for large segments of society, and restricted political and civil liberties."

The term and its frequently used counterparts – ‘developing countries’, ‘south’, ‘poor countries’ and so on – are often seen as the terminology of comparative politics – expressive not of a concept or definition, but an attitude towards that concept. This can be problematic with regards to an objective analysis of development issues, as, to many, the term ‘Third World’ holds various normative implications. As it carries these assumptions, it is necessary to consider how useful the term ‘Third World’ is, as a definition in itself and with regards to development.

The idea of a ‘Third World’ originated during the Cold War atmosphere of the 1950s. Outside of the great American and Soviet power blocs, there developed a ‘non-aligned’ movement of countries who wished to remain politically and economically sovereign. The ‘First World’ was the capitalist United States and her satellites, the ‘Second World’ the USSR and the Eastern Bloc, so became the non-aligned states the ‘Third World’. As most industrialized states were part of the First World, and the Second World was determinedly industrializing, the majority of Third World countries were agrarian primary producers. From this emerged a kind of solidarity movement, ‘Third Worldism’, to protect from being enveloped by either Western free markets or the Soviet planned economy. It is clear that by this definition that the end of the Cold War leaves the term ‘Third World’ irrelevant, as it required “the existence of a bipolar global system, shaped by antagonism between the ‘First World’ of developed capitalist states, and the ‘Second World’ of developing socialist states.”

However, with the post-1945 emergence of development as a distinct field of study, coupled with many newly independent or created nations, the grouping and the term ‘Third World’ remained, reclassified less by political allegiance , and more by the characteristics shared by Third World countries as percieved by First Worlders: compared to the First World, the Third World is ‘underdeveloped’.

My original definition contains a range of characteristics of Third World countries – social, political and economic. It is clear that not all countries that are regarded as third world countries demonstrate all these traits, for example the Middle East oil states’ economies are not overwhelmingly agrarian and, as demonstrated with the 1973 oil price hikes, have considerable power in trading relations. This could imply that in fact the Middle East oil states are in fact not third world countries – in which case, very few countries actually do belong to the third world, as few demonstrate those characteristics. However, it can be said that whichever data are used… (GNP, literacy rate, life expectancy etc.)… a similar pattern emerges and the startling imbalance in the world’s wealth is revealed. This emphasizes the trend that exists among perceived third world countries, that they all retain at least some of the characteristics of other Third World societies.

This explanation of what constitutes third world in itself acknowledges the diversity and varying characteristics of countries that comprise the ‘Third World’ – illustrating the problem with the term: it “has become a convenient omnibus term for the world’s underdeveloped countries” , portraying them as a homogenous bulk. In this way, the term is then “insulting to the diverse range of polities, cultures, histories and ideologies found within it” , and as Bauer argues, condescending to present the Third World as a “uniform stagnant mass devoid of character” . In short, the term collates a range of countries under the sole inner principle of underdevelopment .

The extent to which these countries are homogenized can be problematic with regards to development issues: Stiglitz in his celebrated "Globalization and its discontents" emphasizes the inefficiency of the outcomes of the International Monetary Fund issuing ‘standard’ packages to third world countries, without differentiating between and tailoring to their individual circumstances: “When crises hit, the IMF prescribed outmoded, inappropriate, if “standard” solutions, without considering the effects they would have on the people in the countries told to follow these policies.”

However, although the term ‘Third World’ homogenizes a diverse group of countries, there can be a danger in the over emphasis of each case as unique. The latter attitude can lead to a situation in which common causes of economic problems and so on that are not confined within state boundaries are missed in development analysis: if there is a danger in excessive generalization and the imposition of a false uniformity across space and time, there is an equal and opposite danger in the insistence that everything is utterly unique… While the claim that many of the constituent features of politics and the driving forces around the world are unique and specific to each region is not to be dismissed out of hand, it should still be tested against the available evidence. Clearly the term can be useful for development analysis.

With regards to the term’s use in international discourse, presenting a commonality between the perceived ‘Third World’ states can be beneficial as united they may possess more political and economic strength than they would as individual actors. Finer even argues that whether or not they present themselves as such, the Third World states are a significant grouping of countries, “not a rag-bag, a miscellany, a mere residual category… It is significant that it lies outside Europe, that most of it lies south of the Fortieth Parallel; that nearly all its component states are agrarian, possibly with some extractive industry, but with little heavy industry, that most of them are much poorer, per capita, than their neighbours to the north; that all were either dependencies or subjected to deep diplomatic and economic penetration by Western powers.” In this way, it could be argued that the term is useful as a label for a particular group of countries with similar experiences, both in the international arena and development. However, the extent to which ‘Third World’ generalizes can conceal what are individual circumstances and identities of grossly diverse countries, falsely grouping them. For this reason, the term is unhelpful.

Nevertheless, it is necessary to consider whether the term was useful in its previous form to denote the countries as a solidarity movement separate from the superpowers. Although the end of the Cold War left the idea of a non-aligned ‘Third World’ redundant, it is important to consider whether it was functional at the time, or to use nowadays in a historical sense considering a specific past entity. The existence of such a significant grouping in this sense would be useful as it would enable the reflection on a history as a ‘Third World’ country, in the same manner in which a history as a colonized country is taken into consideration. Orthodox Cold War historians tend to see the Third World as something that never really existed, as they saw non-alignment as a clandestine movement of countries towards the Soviet bloc: "in the strict sense they are not a homogenous bloc separate from the two advanced power groups, for in their poverty they seek patronage and help, and lean to one group or another". Whether or not this was actually the case, it is clear that the perceived third world countries were not a united bloc internally, as “the deep internal divisions within the Third World significantly reduce the credibility of the solidarity.” There were definite and deliberate groupings of countries outside the superpower blocs, such as the pan-Arabist movement which lead to the Arab League, various pan-African movements, and of course the non-aligned movement; however, barring the definition of ‘Third World’ as the actual non-aligned states, there was no pan-Third World movement.

In fact, it appears that much of the so-called solidarity of the Third World was imposed from the outside – by the First and Second worlds – and they themselves didn’t view the ‘Third World’ as a united front . For many Third World countries the idea of a bipolar world was always a distortion, as particularly in South East Asia, China had a huge influence, and what appeared to the West as a united communist front of China and the USSR was in fact clearly a rift-ridden turbulent relationship. The singular influence of the Soviet Union was not vast for the South East Asian countries, who perceived China as a separate superpower on its own, therefore to have a united front against the pressures of the USA and USSR was not a particularly conceivable idea. Furthermore, Mao Tse-Tung himself did not see the First-Second-Third world idea in the same terms as originally defined: he saw the First World as the USSR and USA, the Second World as their satellite states, and their former colonies as the Third World . This demonstrates how First World-centric the boundaries between the ‘worlds’ are: in this way it makes it difficult for the terms – particularly ‘Third World’ – to be credible, due to the degree of variation in the ways in which they are understood. ‘Third World’ therefore is useful only to understand a Western perception of a group of countries, which were not a particularly significant grouping in any case!

The term ‘Third World’ is clearly unsatisfactory as it carries an implicit generalization that does not distinguish or allow for variety among the huge range of countries it encompasses. However, it is a clear improvement for political correctness over terms such as ‘primitive’ and ‘backward’ . It is also preferable to many Modernization Theorists' terms such as 'underdeveloped', which imply backwardness in other societies than Western ones: the very terminology which designates ‘developing’, ‘underdeveloping’ or ‘emerging’ societies is impregnated with teleology which identifies part of Europe and the USA as ‘developed’. In this way, ‘Third World’ could be the most appropriate term to use as it holds least implication of inferiority of those countries to which it refers. Still, a single term that has two definitions which refer to the same group of countries cannot be productive in analysis, as each time the term is used it must be further defined. Whether these countries should be grouped at all is highly questionable, given the inadequacy of the ‘Cold War’ definition, that the countries did not see themselves as any kind of significant grouping, likewise nor do those who value the individuality and diversity of countries regardless of their economic and political status.

Sources: Allen, C and Willims, G (ed). Sociology of Developing Societies: Sub-saharan Africa (London: Macmillan, 1982)
Cammack, P; Pool, D and Tordoff, W. Third World Politics (London: Macmillan, 1988, 1993)
Debray, R. A Critique of Arms, vol 1 (London: Penguin, 1974)
Finer, S. Comparative Government (London: Penguin, 1970)
Hilhorst, J. and Klatter, M (ed). Social Development in the Third World (Kent: Croom Helm, 1985)
Leftwich, A (ed). Democracy and Development (Cambridge: Polity Press, 1996)
Leftwich, A Redefining Politics (London: Methuen, 1983)
Mountjoy, A (ed). The Third World: Problems and Perspectives (London: Macmillan, 1978)
Smith, B. Understanding Third World Politics (London: Palgrave/Macmillan, 1996, 2003)
Worsley, P The Three Worlds (London: George Weidenfeld & Nicolson, 1984, 1988)
United Nations Website: http://www.un.org
International Monetary Fund Website: http://www.imf.org
World Bank Website: http://www.worldbank.org

"Outline and judge the arguments of the ‘pessimists’ and the ‘optimists’ with regard to the consequences of closer economic relations between the ‘West’ and the ‘Third world’ following from colonialism."


The purpose of this essay is to outline the arguments of the 'pessimists' and 'optimists' regarding the consequences of closer economic ties between the West and the Third World as presented by D.K. Fieldhouse and assess their validity. I first discuss the basic theoretical arguments for free trade as formulated by the classical economists, and then assess how well that theory has worked in practice. Secondly, I consider the optimist position based on protectionist notions. I then discuss the theoretical arguments of the pessimists, focusing on the classical Marxist theory of Luxemburg and the 'Unequal exchange' argument put forward by Emmanuel and Sau, and assess the validity of their claims. I conclude by arguing that the optimist position based on free trade principles is the strongest of the ones I consider.

The optimists

The optimist position regarding closer economic ties between the West and the Third World is divided by Fieldhouse into the free trade position and the protectionist position (Fieldhouse, 1999; 1). There are three basic points in the free trade arguments for the optimist position that increased economic ties between the West and the Third World have been - or at least should be - beneficial. These are: specialization, comparative advantage and 'vent-for-surplus' (Fieldhouse, 1999; see also, Sachs et al., 1995 and Ingham, 1995). The argument for specialization was put forward powerfully by Adam Smith: "The greatest improvement in the productive powers of labour ... seem to have been the effects of the division of labour" (Smith, 1993: 11). The division of labour means that different sections of the labour force specialize in different parts of the production process. Thus, each can concentrate on improving the techniques used in their niche, resulting in greater efficiency overall. This principle can be expanded to the international economy. Specialization in certain products means a country can concentrate its resources - labour, capital, education and so forth - on those products. This in turn means that it can make those products cheaper and better that would otherwise be possible, thus increasing overall productivity in the world economy (Fieldhouse, 1999; for the classic discussion of this, see Smith, 1993).

Comparative advantage, a notion first put forward by David Ricardo, is based on the idea that certain countries are better suited to produce certain goods than others (Fielhouse, 1999). Thus, Finland and Sweden produce timber products, but Cuba produces coffee and tobacco. It would be absurd for it to be the other way round, since the climates of the respective countries are well suited for one type of product but totally unfit for the other.

The third theoretical advantage of increased economic ties between countries is the ability to sell products they cannot consume themselves to others. This is called 'vent-for-surplus', a notion put forward by Adam Smith. 'Vent-for-surplus' allows countries to get a higher income from the products they produce, since the surplus does not go to waste (Kurtz, 1992; Fieldhouse, 1999).

All of these advantages require free trade to operate fully. Free trade should thus result in economic growth, and the effects of closer economic ties between the West and the Third World should be positive. This argument seems theoretically sound, but does it work in the real world? Sachs et al. have presented a powerful argument for the benefits of free trade to developing countries. In the period 1966-1990, for instance, economies which were always open to foreign trade constantly outperformed permanently closed economies (Sachs et al., 1995: 37). Another example of the benefits of free trade is that the economies of developing countries which were open to foreign trade grew at an average annual rate of 4.49 percent in the period 1970-1989, while closed economies grew at the rate of 0.69 per cent per annum. Sachs et al. note that open developing economies tend to converge with open developed economies, since their growth rate was over two percentage points higher than that of open developed economies. There is no convergence between closed developing economies and closed developed economies, however, since the latter grew at slightly higher a rate than the former (Sachs et al., 1995: 36; 2).

Similar results have been presented by David Dollar and Aart Kraay. According to their data, the group of countries which they call 'globalizers' has cut tariffs 22 per cent on average in the last twenty years, whereas 'non-globalizing' countries only cut tariffs 11 per cent. The first group had an average growth rate of 2.9 per cent in the 1970s, 3.5 per cent in the 1980s and 5.0 per cent in the 1990s. The economic growth of those adopting more protectionist polices actually declined - from 3.3 per cent in the 1970s to 1.4 per cent in the 1990s, with a drop to 0.8 per cent in the 1980s (Dollar & Kraay, 2002: 2). Free trade not only seems to promote economic growth in Third World countries, but also decreases global inequality (3).

The theoretical optimist position based on protectionism argues that there are several benefits for colonies and Third World countries to be gained from the type of economic system that France imposed on its colonies. This meant preferential treatment of colonial products in France and French products in the colonies (Fieldhouse, 1999). How might this benefit Third World countries?

Fieldhouse lists several reasons. First, weak economies are vulnerable to international competition, and therefore need to protect themselves. Second, the colonies or later, Third World countries, were largely dependent on exporting a small number of primary goods. The world market for these is unpredictable. Therefore a closed economic system with the metropolis gives the developing country a much more secure income. It was also in the interests of the metropolis to promote economic growth in the colonies, since they could thus become markets for the imperial power's own products. The metropolis might therefore buy colonial products at uncompetitive prices. The closed imperial economic system might encourage investment since there was a guaranteed market for goods (Fieldhouse, 1999).

The greatest theoretical difficulty with the protectionist argument is that by artificially biasing the economy towards producing certain products, it might promote inefficiency. Protection of certain colonial products meant that the colony was less likely to change the products it produced, or diversify its economy. Thus, colonies and later Third World countries became largely dependent on a few exports, and price fluctuations might cause considerable economic hardship. In some cases, preferential treatment for ex-colonies has been continued, and many have adopted protectionist policies. It seems that the theoretical objections to such policies apply in reality as well. As I have already pointed out, many studies show that open economies grow faster than their protectionist counterparts (4).

The pessimists

The 'pessimist' position regarding closer economic ties between the West and the Third World is, greatly simplified, that the effects of this closer relationship have been, on the whole, detrimental to the economic developed of the Third World. It is clear that many Third World countries are exceedingly poor despite centuries of contact with the West. I will concentrate on Luxemburg's classical Marxist critique of free trade and the 'Unequal exchange' position argued for by Emmanuel and Sau, since both of these reject the theoretical assumptions of the classical economists.

Rosa Luxemburg's analysis of closer economic ties between the West and the Third World is based on the theoretical observation that in a capitalist society, there will necessarily be a surplus of produced goods since the proletariat is unable to buy all the goods available and the capitalist class is unwilling to do so. The conclusion, resembling the 'vent-for-surplus' notion, is therefore to export this surplus. However, this surplus must be sold to non-capitalist, in practice Third World countries, since the capitalist countries are unable to absorb the surplus themselves. Western countries also gain the primary materials they need from this exchange. However, this exchange is not done in a mutually beneficial manner. Capitalism transforms the peasantry in the Third World country into a proletariat working in mines, factories, or on plantations, thus extracting the maximum amount of wealth for the benefit of the West and leading to poverty in the Third World (Fieldhouse, 1999).

I think Luxemburg's historical analysis does have some merit. For instance in Latin America, her description of the effects of closer relations between the West and the Third World corresponds closely to the historical reality. However, the problem is her Marxist determinism. Surely the fact that there has been exploitation of Third World countries by the West does not mean the Third World will stay in perpetual poverty. The rise of many Asian economies give weight to my point (see Maddison, 2001: 142-149).

The argument about 'unequal exchange' is even more untenable than Luxemburg's. It is premised on the Ricardian and Marxist notion that the value of a product is determined by the cost of the labour needed to produce it. Emmanuel and Sau point out that wages are considerably lower in Third World countries than in the affluent West (Fieldhouse, 1999; Sau, 1978). Products made in the West are more expensive than those produced in the Third World, since the latter mostly specializes in primary products. The exchange of goods between the West and the Third World is unequal since a Third World country must export much more in terms of hours of labour to buy Western imports than a Western country has to export in order to buy goods of equal value. Resources which might be used for economic development in the Third World are therefore used to make up for the gap (Fieldhouse, 1999). According to Sau "The Third World's ... most important endowments ... are given out in unequal exchange with imperialism." (Sau, 1978: 165)

This argument is highly dubious. Perhaps a Third World country has to spend more hours of labour on paying for imports, but why would this matter? It's the same as saying that Mr. A is condemned to poverty since he earns half the amount Mr. B does. Obviously Mr. A is going to stay poorer than Mr. B, but this tells us nothing of Mr. A's absolute level of wealth. Also, this is all assuming that Mr. A cannot change his job or get a better education or get better at his job. Similarly, the 'unequal exchange' theory assumes that Third World countries are unable to change the products they manufacture to ones that give them a greater comparative advantage and that they cannot make their economies more efficient by adapting new technologies or educating their workforces.

The argument put forward by Emmanuel and Sau also fails to explain why some countries such as the white settler colonies of North America or Australia and some Asian countries have been able to develop highly sophisticated economies. Perhaps the world economy favours Western interests, but this should simply lead to slower growth in Third World countries than in the West rather than keep less developed countries in perpetual poverty. The statistics of growth rates in developing and developed countries presented above refute even this point. It is quite obvious that some other explanation of Third World poverty than 'unequal exchange' needs to be found.

Conclusion

Of the positions I have considered, free trade seems the strongest. It is theoretically sound, and free trade policies in Third World countries tend to foster higher economic growth and bridge the gap between the underdeveloped and the developed world. Protectionist economic policies have failed to create sufficient growth, and there are theoretical problems with them. The pessimist arguments I have considered fail in theory, so it is hardly to be expected that they would work in reality. Indeed, I have shown that they fail in practice as well.

Still, the fact remains that after centuries of contact and trade with the West, large parts of the Third World remain impoverished. Latin America has been trading with the West for over five hundred years; surely this is ample time to reap the benefits of comparative advantage. However, the evidence I have used suggests that the pessimists are missing the point. The enduring poverty of the Third World has been caused not by free trade, but by the lack thereof. Many developing countries were under protectionist economic regimes during colonialism, or have adopted such policies after independence. Many have seen dramatic economic growth after they have opened up their economies. There may be many factors which contribute to the economic success of Third World countries; free trade is one of the most important.

Where does this leave the debate between the optimists and the pessimists? The pessimists I have discussed are in the wrong, but I think there is considerable justification for pessimism about the effects of closer economic ties between the West and the Third World. This is not because of any theoretical problems of closer economic integration, but because of actual policies adopted by both Western imperial powers and the Third World countries themselves. In itself, closer economic ties between the West and the Third World are a good thing.


NOTES

1. My concern here is merely with the economic aspect of this relationship; my criterion for judging the arguments on both sides of the debate is therefore whether this closer relationship has fostered economic development - i.e. economic growth - in the Third World. See Easterly, 2001 for a discussion of the importance of economic growth in reducing poverty in Third World countries.

2. The obvious problem with this thesis is the definition of an 'open' economy. The definition used by Sachs and his colleagues has been challenged by Francisco Rodriguez and Dani Rodik. However, there are counterarguments to this criticism, and Rodriguez and Rodik do not dispute the basic findings of Sachs et al. (for a discussion of Rodriguez and Rodik's argument, see The Economist, 1999). Thus, I think the statistics used by Sachs et al. are sufficiently reliable for the purposes of this essay.

3. Even though free trade seems to promote economic equality between countries, this does not necessarily mean inequality within countries is decreased by free trade policies leading to economic growth. See Meier & Rauch, 2000: p. 36, p. 38.

4. This hardly refutes the 'infant industry' argument put forward by John Stuart Mill. Historically, a lot of the industrialization and economic growth attained by Western Europe and the United States happened under protectionism. A more recent example which could be used to defend this argument is the case of the East Asian 'tiger' economies. I think this argument is strong, but I do not think it refutes - or is intended to refute (at least as argued for by Mill) the basic argument for free trade. Defending or criticising it is beyond the scope of this essay.

5. Emmanuel's solution to Third World poverty is that less developed countries restrain from international trade. This would probably be economic suicide, since exports form a large proportion of the GDP of these countries. If one accepts Emmanuel's basic argument about the inequality of trade, a better solution to it would be to adapt more efficient technology in Third World manufacturing and thus narrow the gap in labour hours paid.



Bibliography

Dollar, David & Kraay, Aart (2002) 'Trade, Growth, and Poverty', The World Bank Group (from worldbank.org, http://wwwwds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2002/08/23/000094946_02082304142939/Rendered/PDF/multi0page.pdf)

Easterly, William (2001) The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics (Cambridge, The MIT Press)

'The never-ending question', The Economist, July 1st, 1999 (from economist.com, http://www.economist.com/displaystory.cfm?story_id=323173)

Fieldhouse, D. K. (1999) The West and the Third World (Madison, Blackwell Publishers)

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Mill, John Stuart (1994) Principles of Political Economy (Oxford, Oxford University Press)

Ricardo, David (1971) On the Principles of Political Economy and Taxation (Harmondsworth, Penguin Books)

Sachs, Jeffrey D., Warner, Andrew, Aslund, Anders & Fischer, Stanley (1995) 'Economic Reform and the Process of Global Integration', Brookings Papers on Economic Activity, vol. 1995, No.1, pp. 1-118.

Sau, Ranjit (1978) Unequal Exchange, Imperialism and Underdevelopment: An Essay on the Political Economy of World Capitalism (Calcutta, Oxford University Press)

Smith, Adam (1993) An Inquiry into the Nature and Causes of the Wealth of Nations (Oxford, Oxford University Press)


Another essay written for a Politics course at the University of York.

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