Will Developing Countries Ever Catch Up With Developed Countries? | SPJIMR

Will Developing Countries Ever Catch Up With Developed Countries?

R Jayaraman

Author: R Jayaraman

Date: Thu, 2016-08-25 13:04

India is a 2 trillion economy now. Britain is a little higher with Germany being a little further ahead. India still remains an anachronism in that more than 25 % of its GDP is from agriculture, while the contribution from agriculture in all developed economies is around 2 %. Our GDP per capita is one of the  lowest. In spite of this, India is ranked  number 2 in terms of PPP! It is as if leading economists took pity on developing countries and found out a metric to give some sense of respectability to some of them, at least. How else could India be placed so high ? Scoring high on PPP, in the case of India, indicates that the country may be poor, but the prices of goods are so low that the population – or large parts of it – is able to make do. Should one accept this evaluation of the economy, because based on this, India has been denied concessional loans from the World Bank and other international development banks?

Even after almost fifty years since the world war II ended, many countries are yet to find their feet in changing over to the industrial way of life. While some have made the transition, like some south Asian countries such as Thailand, Malaysia, Singapore, Hong Kong, many continue to be burdened with high poverty levels, steep population growth, plunging currency parity in world markets and an inflation that shows no signs of flagging. African countries are perhaps the hardest hit, followed by many South American countries. However African countries do not share either a nearness or a border with the US, many  South American ones do – and that ADDS TO THEIR PAIN. Ask any Cuban.

In all these countries the GDP growth rates required to catch up with the developed countries are so steep that their leaders have given up on the economy and keep themselves busy with other matters. Economy is a losing game and, as per the old adage, “success has many fathers, failure is an orphan". What will happen to these countries? Isn’t there any way for these nations to give a better standard of living to its people by rapid industrialisation? Or should they choose some other path – a path which perhaps finds no legitimacy in the current capitalistic orientation dominated western model of living? Should they choose a semi industrial, semi agricultural growth path?



The writing correctly summarize the dilemma faced by developing countries. In the era of increased global pressure and connectivity, they are trying to match the developed countries on progress parameters but miserably fail to do so. Many developing countries are facing problem very different from that of the developed countries. Countries such as Japan, Germany are facing depleting population whether on the other side countries like India, Indonesia are facing severe resource crunch due to population explosion. In such situation measuring the progress of the countries on the same scales decided by developed industrialized world is injustice to these countries. Developed world have achieved there parameters after journey of around 200-250 years post industrialization while many developing countries are in their 60s-70s after getting freedom from crutches of colonialism. In such cases developing countries should formulate their own parameters for growth and development and continue their progress. Bhutan is enlightening example in this context. Instead of running around fancy figures of GDP,GNP they have started to measure GNHI (Gross National Happiness Index) which was enshrined in the country’s 2008 constitution which states that “the State shall strive to promote those conditions that will enable the pursuit of Gross National Happiness.” Such country specific independent measures of progress should be promoted as every country is unique and has it’s sets of unique problems and opportunities. Design thinkers has way to go in this field!!

For a developing country to catch up to a developed country, it must not only grow, but grow faster than the developed country. While It is possible for such accelerated growth to occur through rapid industrialization, but there are many country-specific factors that directly affect a developing country's ability to catch up to developed countries. They range from growth of productivity, labour force participation rate, standard of living, infrastructure, political environment etc. I also believe that a huge onus of driving this also lies with the people of the country. Education primarily is the most essential quality that helps to empower the people of the country to communicate and achieve a common objective and is thus an extremely important driver for the developing to developed country journey. This is a common observation in all the developing countries. The one area that is still a struggle is education. Also, being a vicious circle, lack of education leads to increased poverty and disparity of income which leads to the 2nd most hindrance in a countries journey to achieve a developed nation status. Maybe if the path chosen is that of streamlining lack of education, poverty, a more driven and focused effort with individuals who know and can fathom the importance of this change working towards achieving a developed nation status can be undertaken. A semi-industrial, pro-human development approach should be a path adopted to see a qualitative shift in reducing this gap.

All through our education we have learnt ‘India is a developing country’ which brings to thought, will it ever be recognized as a ‘developed country’? And what is the criteria to qualify as a developed nation? Are these criteria set by the developed nations to meet their convenience? If this is the case it would be more logical for developing nations to set their own criteria. It gets very difficult for developing nations to meet the criteria set by the giant economies, as even a single step gone wrong could ruin the effort of years. India can be seen as an example, where the step of demonetization and GST together led to a growth rate of 5.7%, weakest growth rate since the first quarter of 2014. These steps would probably have a positive effect in the long run and it is worth the wait. Another question to bring our attention to is, are the developed countries developed in the true sense? Considering the parameter of crime rate, USA has a very high crime rate. Another aspect could be unemployment, again US has a good percent of unemployed individuals every year. So, aren’t the developed nations also falling short? As also said in the article, maybe a good strategy for developing nations could be establishing a path which would help them use their resources aptly and generate output for their people. In this race of matching with the developed nations we are leading nowhere, better we set a different goal all together. Every nation has a different potential given different kinds of resources they possess hence expecting the same output from all makes little sense. Hope the coming generation gets to learn, ‘India is a developed country in the true sense’.

Dear Sir, at the outset, let me thank you for such an impressive article on economic conditions of Developing and Developed Countries. The question -Will Developing Countries ever catch up with Developed Countries? will remain unanswered because you have rightly pointed out that leaders of developing countries have given up on the economy and they keep themselves busy with other matters. Political institutions has great impact on the development of a nation. Industrial revolution happened in England instead of any other country because England had the best political institution that time. We have been hearing that if the 20th century belonged to developed countries of North America and Europe then 21st century will be of developing countries such as India, China and Brazil. But development is the crucial word which draws boundary between two countries-developed or developing. According to the World Bank reducing poverty is the main purpose of the development. After the World War 2, many nations have had significant growth however only few have been able to catch up with developed countries in terms of per capita income. From 1940s till 1990s poor countries grew slowly, falling farther behind to rich ones in income. Only few countries such as South Korea and Singapore were able to gain rich status. Since 2000, developing nations such as India and China are economically growing and managing growth rates of above 10% per year. With such continuous growth rates, developing nations can converge with developed nations and that would mean higher standard of living and good economic and political power. But this growth is limited to few countries since many countries still have not opened their domestic market to international markets. These countries also have barriers in technology and availability and allocation of resources. The quote is also true in this context that “success has many fathers but failure is an orphan”.

Your article raises very fundamental questions about the plight of the billions of people living in the developing economies of the world and the future of these economies vis a vis the developed ones which have a clear edge over them. I believe the solution to this problem is not the staple diet solution of economists - liberalisation, privatisation and globalisation. Each economy faces a unique problem. In his recently published book, ‘The Rise and Fall of Nations’ renowned economist, Ruchir Sharma talks about the winds of change in the global economy post the 2008 US subprime crisis. It is essential that any economy which wants to develop catches the tailwinds of these changes and becomes a superpower. Most developed economies are ‘developed’ today either because of massive natural resources- a country such as South Africa and Australia. On the other hand, economies such as Singapore are dependent on trade and commerce. The United Kingdom became developed only through means of world domination in the 20th century. Our very own country, India was the largest economy in the world before the East India Company systematically looted the economy to serve British interests. The point I am trying to make is that the road to greatness for any economy can never be through dependence on another. Rather, it is the other way around. Global dominance is also global independence. What does it take for a developing economy to become developed? An entrepreneurial psyche: For an economy to become developed, massive investments in people in the form of education, healthcare and the risk-taking ability of citizens is necessary. In India, if a person goes bankrupt, it is virtually impossible for him to get back to business because of the archaic laws on bankruptcy. In the US, it is absolutely normal for a person to face bankruptcy. The legal system allows the person to borrow money again to start a new venture. The thinking behind this is that the majority of people wanting to do fair business should not be prevented from expressing their entrepreneurial ability just because a small number of people would go bankrupt for the purpose of defrauding banks and financial institutions. This is where the legal framework has led to a negative psyche of risk taking and entrepreneurship. Developing a USP: Look at every economy as a company and developing a unique selling proposition becomes relevant. The United States has a USP of being the most technologically advanced and productive country. China has managed to become an exporter of cheap goods, the United Kingdom till now was a financial hub- there are chances of that changing thanks to BREXIT with the rise of Dublin. When we look at developing economies, such as India, we do not see any USP in the making. What is India’s USP? I cannot think of any. People talk about demographic dividend to India in terms of a large young population. Such a population, which is largely uneducated is a demographic curse. Merely being a large market for goods and services is a bad idea for a USP. Developing countries need to introspect sometimes to look at the systemic challenges that they face. Looking towards developed economies is not always the best alternative.

Angus Maddison, the famous British economist historian estimated that in 1000 A.D, the combined share of India and China’s GDP was about 50% of the global GDP. While the share of many western economies remained very low. However, over the years the trend started to reverse and many western countries have now become very developed while third world countries like India, China etc. continue on their journey from being developing to developed. We are currently a 2 trillion dollar economy and the eighth largest economy in the world. By 2030, India is predicted to be the fifth largest economy in the world. On purchasing power basis, India is the second largest economy in the world only behind China. Despite so many bright spots, we are faced with the paradox of being an advanced economy and still being one of the poorest in the world. I will disagree with you sir on your view that PPP is not a fair measure for the size of an economy. Infact, given the disparities in exchange rates and inflation, I feel it is a better method than measuring the economy on nominal basis. Our case to World Bank and IMF for loans and grants should not be on the basis of size of economy but the per capita income. Any expenditure by these organisation in developing capital assets is going to have a multiplier effect which is going benefit the whole world. I completely agree with your view sir that even after 70 years of World War 2 and emergent of third world economies, the state of many countries is such that it leaves much to be desired. Our own neighbours in the subcontinent and many Asian countries continue to battle with high poverty, low investment and poor quality of life. Africa has remained a dark continent till date, and given the political instability in many African countries, situation is becoming worse. Developed countries continue to behave unfairly with many poor economies despite the injustices committed by them in past; More often than not, these countries become pawns and proxies in the hands of rival superpowers. Many Middle East countries and Afghanistan are an example of that. I agree with your view that for many countries the magnitude of inequality has reached such high proportion that it is impossible to bridge the gap. Many such countries who are highly rich in natural resources continue to be plundered by the developed economies. Many countries continue to be haunted by the choices they made in past and turnaround being highly unlikely. All the questions asked by you in the end are highly pertinent and emphasises the need of careful planning and strategies for growth. The margin of error is very small. I feel this blog very rightly sums up the challenges faced by developing countries on their transition. As pointed out by the blog, they are often not helped by the injustices meted out by the developed economies who continue to take decision in their own self-interest. I feel the time has come when all the developing economies need to unite and raise their voice collectively. They need to speak about the unfair treatment meted out to them. A step in this regard has been taken by countries like India and China in important forums like UN and WTO. These breakout countries can act like role models and help create a more equitable world.

Prof. Jayaraman brings forth a valid argument by stating that the developing countries are still relatively poorer (Per capita Income), and display of any total GDP/PPP Per capita figures as an achievement, is only a tool for self- appreciation; a façade which covers the myriad problems afflicting these economies. But, not ruling out this valid point, any positive GDP/PPP figures do give a lot of hope & psychological boost, to the people of these countries, to push themselves forward. India, for example, is now the world’s sixth largest economy with a GDP of $ 2.59 tn, as per the World Bank report and is going to edge past its colonial masters, the UK, by the end of the year. But, the country has 1.21 bn people and its per capita income (Nominal) stands at only about $ 1940. So, what can we do about countries like India and the ilk? From where can we draw solutions from? They may come from the History! Till about 1750s, India was one of the largest economies in the world, contributing close to 25% of the world GDP. It was called the ‘Golden Bird’ and its products were world famed. The country has had huge trade surpluses for centuries through export of spices, finished cloth (‘light woven air’, it was called), and diamonds; all exotic products to that time period. It also had a thriving shipbuilding industry. There were accounts of Roman Establishments worrying about their riches syphoning off to India, because of the love of their woman towards Indian Cloth. India, thus essentially provided what the world desired & craved for, taking very few in return. This is despite the fact that it had one of the largest populations of that time. Then how come Indians achieve that richness and advancement, which seems difficult now? It is because, India was a hotbed of skilled people, who created exotic products, which were taken to the world by merchants in Indian built ships, which in turn were financed adequately by an established network of local people. In short, a presence of sound educational and financial systems! The rulers funded richly the universities like Nalanda, Takshila, and Vikramshila etc. where students from the world over studied. The big temple complexes in India were also education centres, not just spiritual centres. They served a dual purpose & were present right across the homes of the people, providing easy access. This resulted in the creation of a large knowledgeable population with high moral standards & thus a stable society. The adequate local financing available, financed the skilled craftsmen, peasants, merchants etc. to produce products and then to export. The resulting money on exports came back into the economy, making the system work like a well-oiled machine. Thus, the learning’s from Ancient India to Modern India and the ilk, are that they should spend more on Education and encourage Individual/SMEs (Small and Medium scale Enterprises), through adequate financing. The educational infrastructure should go to every nook and corner of the country like the ‘temple complexes’ providing accessible and affordable education, in the form of ‘community colleges’ in the US & ‘skill enhancement centres’. Governments should support with adequate funds to create world-class universities of yesterday like ‘The Nalanda’, to provide cross-functional education and focus on innovation. The population should be encouraged to innovate & produce products, the world desires, like the ‘light muslin cloth’ or the ‘iPhone’ of the modern day, which shall bring huge trade surpluses. Industrialization should be decentralized through support for SMEs rather than purely going for High scale Industries. The financial infrastructure should be expanded enough to provide the financial support to every citizen, through banking services. Thus, on the whole, history can provide us with a lot of lessons on how to go about things, provided we have the interest to see from where we have come from. These lessons can be modified and applied to the current times, for we know these lands have done it before, for centuries. But, the only thing that requires here is ‘Conviction’ and if every country starts working on building these capacities, they becoming developed economies is just a matter of time!

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