Is the poverty of the South is a consequence of the policies and actions of the North?

The North South divide is a concept coined by Willy Brandt who was a member of an influential group looking at development in the 1980s. It illustrated the economic disparity between the rich North and the poor South. Since then there has been great efforts from the North to reduce this disparity through aid, trade etc. These characteristics are fitting of the orthodox view which supports economic growth as the drive to development. However, this essay will argue that the consequences of the actions and policies of the North has been limiting economic growth, and thus keeping poverty rampant in the South.

Actions of the North in causing and prolonging poverty across the South are evident in the previous centuries. Historically this manifested in the North colonising the South to exploit the South which nurtured long-term poverty. Examples of exploitation saw India’s share of the world’s economy fall from 23% prior to British colonialisation, to 4% following independence. This was done through destruction of local industries, such as the hand loom industry of India, to benefit Britain’s own industrialisation by Britain importing raw materials from India to send the finished products back to India. The era of colonialism represents states adhering to the Machiavellian idea of being amoral to obtain the greatest benefit for themselves. This did benefit the North and create conditions for the poverty cycle, and so this policy of the North could be said to be a significant reason as to why the South is poor.

However, independence has not seen the South tackle poverty. For, they themselves limit development despite the North attempting to reduce poverty. This is mostly due to corruption. Indeed, as much as $1 billion of the $8 billion donated in the past 8 years has been lost to corruption. Activities of corruption includes use of shell companies to escalate profits, to government officials who cream of a percentage of all aid money. Consequently, 35% of companies have been deterred from otherwise attractive investments due to the host’s country’s level of corruption, which further inhibits development. Marxists may blame this on the bourgeoisies who seek ways to exploit the proletariats which is manifesting as corruption because of the capitalist system. As such, the North’s efforts to help the South are in fact somewhat ineffective due to the corrupt nature of the South.

Although, neo-colonialists may argue that the South remains poor as the Western dominance of financial institutions has resulted in a new form of colonialism. These financial institutions adhere to the Washington consensus, which prevents many countries of the South, such as Ghana, from the using protectionist measures to protect their industries. This is because loans given by the IMF and the World Bank requires many countries in the South to keep their markets open to EU dumping that accelerates structural decline by destroying many local industries. As local industries fail to compete with the cheap imports, the economy suffers from the poverty cycle and so long-term poverty ensues.

Yet, some argue that overall these financial institutions are beneficial for the South. This is primarily because they provide programmes such as the Heavily Indebted Poor Country Initiative. This rids damaging debts which cripple(d) many poor countries of the South. Having a high figure of debt to GDP ratio means that there is a need for high taxes to service the debt and government spending is limited because a large proportion of the tax revenue if used for the debt. So, by freeing up these poor countries, such as Uganda, Cameroon, Chad etc. these financial institutions have helped the government redirect its revenue towards consumer and capital spending, which will therefore enable development and economic growth. This shows that the notion that these financial institutions are being dominated by the North so they benefit and the expense of the South is not wholly true. Such transnational support fits with cosmopolitanism which argues that we ought to not be restricted by borders when it comes to helping others- a notion echoed by the utilitarian Peter Singer.

The implication of the Northern policy of globalisation has had devastating effects for the South. This is because globalisation has increased TNCs ability to exploit the South. This has been keeping the South poor. Indeed, outsourcing by TNCs manifests in using sweatshops to improve profit margins. These sweatshops have terrible working conditions, such as in Dhaka where workers are locked in rooms to work 20+ hours shift yet are paid so little. This allows TNCs, such as GAP and H&M, to increase the disparity between the rich and the poor and so keep the South poor while increasing the affluence of the North. Such negative implications are the main reasons as to why Joseph Stiglitz, the former chief economist of the World Bank, argues that globalisation has not been benefitting all equally; instead, ‘the rules of the game are increasingly being stacked against the workers’.

Hyperglobalists believe that globalisation has made a significant impact. Many argue this impact has been positive and, in a way, that the North South divide may even be now obsolete. Indeed, globalisation has helped boost trade and allowed firms to access the benefits associated with global demand. This has helped developing economies, such as China and Mexico, to enjoy great economic growth- rates of which are often more than double that of the growth of Northern economies. LEDCs are now narrowing the disparity because of the policy paramount to the North- globalisation. BRIC countries now enjoy 20% of the gross world product, and MINT economies are also making significant gains. Hyperglobalist credit the prosperity to be the effect of globalisation, so globalisation is helping eliminate poverty in the South and rendering the disparity as meaningless.

In summary, for long the North has acted to exploit the South for its own benefit. Arguably the current era sees exploitation still much alive through various international institutions. However, the poverty of the South cannot be solely blamed to policies and actions of the North, whether current or historical, as it is largely also due to the policies and actions of the South. Moreover, the division due to policies of the North (FDI, globalisation etc.) are making the division increasingly obsolete.

Abdul Khan