The following are the main obstacles to the development of underdeveloped countries.
(1) Vicious circles of poverty:
There are circular relationships known as the ‘vicious circle of poverty’ that tend to perpetuate the low level of development in under-developed countries. Ninkse explains the idea in these words:
“It implies a circular constellation of forces tending to act and react upon one another in such a way as to keep a poor country in a state of poverty. For example, a poor man may not have enough to eat; being underfed, his health may be weak; being physically weak, his working capacity is low, which means that he is a poor, which in turn means that he will not have enough to eat, and so on. A situation of this sort relating to a country as a whole can be summed up in the proposition: “A country is poor because it is poor”.
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The basic vicious circle stems from the fact that in under developed countries total productivity is low due to deficiency of capital, market imperfections, economic backwardness and underdevelopment. However, the vicious circles operate both on the demand side and the supply side.
The demand side of the vicious circle is that the low level of real income leads to a low level of demand which, in turn, leads to a low rate of investment and hence back to deficiency of capital, low productivity and low income. Low productivity is reflected in low real income.
The low level of real income means low saving. The low level of saving leads to a low investment and to deficiency of capital. The deficiency of capital in turn leads to a low level of productivity and back to the low income. Thus the vicious circle is complete from the supply side. The low level of real income, reflecting low investment and capital deficiency is a common feature of both the vicious circles operates on the demand side and supply side.
A third vicious circle encompasses under-developed resources and the backward people. The development of natural resources depends upon the character of human productive resources.
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The more economically backward the people are the less developed will be the natural resources. Through illiteracy, lack of skills, deficient knowledge and factor immorality, the resources will remain unutilised, causing underdeveloped to perpetuate itself.
(2) Market imperfections:
A characteristic feature of a perfect market is that the available aggregate resources in an economy tend to shift to their best possible use. A factor will shift from one use to another in which it tends to be better utilised. This system results in an ideal allocation of resources in the economy and leads for economic development. But in the under-developed countries such types of perfect markets are almost absent. An optimum allocation of resources cannot be achieved. In other words, because of market imperfections, an under-developed countries is compelled to produce at a level lower than its capacity.
The major forms of market imperfections are:
(i) factor immobility (ii) price rigidity; (iii) ignorance of market conditions (iv) rigid social structure; and (v) lack of specialisation. These factors combine to keep up the composition of total output and the productive structure of the economy fixed and no growth over time;
(3) Socio-cultural constraints (Structural problems):
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As Nurkse has said, “Economic development has much to do with human endowments, social attitudes, political conditions and historical accidents. Capital is a necessary but not a sufficient condition of progress” Broadly speaking, underdeveloped countries possess social institutions and display such attitudes as are not conducive to economic development.
(4) International forces:
Among the international forces, the major factors are international trade and investment. The following ‘disequalising forces’ made the gains from trade go mainly to the more developed countries leaving the exporting countries under-developed.
First, international trade promoted ‘dual economies’ in the underdeveloped countries. Trade helped in the development of the export sector, but it did not contribute anything towards the development of the other sectors of the economy. Secondly, foreign investment merely entered and developed the natural resources for export. It largely kept away from the domestic sector of the economy.
Thirdly, there has been a secular determination in the terms of trade for the under developed countries. The benefits of technological progress have been gone disproportionately to the advanced industrial countries. The deteriorating terms of trade imply that an under developed country has to pay more in terms of its exports for a given volume of imports.
To sum of, the problems of under-development are the result of market imperfections, vicious circles, socio-cultural constraints and various international forces all working together. A concentrated effort on all these fronts is required to attain development.