Why Are Economic Gaps Between Rich and Poor Countries Widening?

The economic disparities between countries are among the most pressing challenges facing the modern world. These disparities are the result of a long history of inequalities in natural resources, political systems, economic structures, and social practices. Such gaps manifest in differences in living standards, job opportunities, education, healthcare, and infrastructure between wealthy and poorer nations. Despite technological advancements and global economic growth, these gaps continue to widen in some regions, making it essential to understand the underlying reasons behind them.

Numerous studies have attempted to explain why some developing nations succeeded in joining the ranks of advanced economies in the 20th century while others failed. In his book “Rich World, Poor World: The Struggle to Escape Poverty,” published in 2024, Ali Allawi, the former Deputy Prime Minister of Iraq, emphasizes the role of international politics and analyzes the impact of colonialism, the two World Wars, the Cold War, the collapse of the Soviet bloc, and the rise of China as an economic and geopolitical power on economic development. He also highlights the role of ideology in shaping development policies and its various schools of thought, covering over a century of developmental experiences around the world. The book focuses on global economic disparities and discusses the reasons some poorer countries struggle to achieve the necessary economic development.

Post-War Recovery:

The book discusses how World War II (1939-1945) caused immense destruction on human, economic, and political levels, resulting in millions of dead and wounded, along with physical devastation that affected many cities in Europe and Asia, leading to global economic decline. The post-war world needed to rebuild on multiple fronts: economic reconstruction, political system restoration, and the reformation of the international system.

The “Marshall Plan” was one of the most famous American initiatives for reconstructing Western Europe after the war, aimed at providing financial assistance to European countries to accelerate their economic recovery and prevent the spread of communism. This shift to a post-war peace phase required international coordination and cooperation among major powers, which was largely achieved with the establishment of new international organizations such as the United Nations, the International Monetary Fund, and the World Bank.

Following the war, there arose a need to restructure the international economic system in a way that would protect the world from falling into crises similar to those experienced during the Great Depression. The “Bretton Woods Agreement” in 1944 was a key milestone in this context. This agreement established a new international monetary system, with the U.S. dollar as the primary reserve currency, organized international assistance for financing the reconstruction of war-torn economies, and laid down rules for international trade aimed at ensuring trade stability between nations, creating a foundation for the World Trade Organization that seeks to facilitate fair trade.

From Empires to Development:

The author addresses the disintegration of major colonial empires that dominated many regions of the world over the previous centuries, reflecting the profound changes that occurred after World War II at the beginning of the national liberation and independence phase. Before the war, colonial empires like Britain, France, the Netherlands, and Spain controlled vast parts of the world, relying on the exploitation of natural resources in colonized countries and employing local powers to serve the economic interests of imperial states.

One of the most significant negative repercussions of colonialism on colonized nations was the establishment of monocultural economies, which led to a lack of strong local industries or advanced education. This economic structure was unable to meet the needs of the populations of these countries after independence, resulting in economic backwardness and poverty post-decolonization.

In the post-World War II period, many countries focused on rebuilding their war-devastated economies; however, this phase was not limited to mere reconstruction but gradually expanded into ambitious developmental projects aimed at transforming economies and modernizing infrastructure, with a focus on sustainable development and improving living standards.

Japan stands out as a prominent example of transitioning from reconstruction to development, as it began to develop industrial strategies, supporting local companies to focus on exports and relying on strong planning policies, such as developing heavy industries and technology, which transformed Japan into a global economic power within a few decades.

As for developing countries, with the independence of many nations in Asia and Africa after the war, they concentrated on building and liberating their economies from dependency. The new nations faced significant challenges in infrastructure, education, and health; hence, many adopted developmental strategies, including central planning, public sector development, and support for local industries to reduce reliance on former colonial powers. Over time, sustainable development emerged as a central goal, emphasizing poverty reduction, health and education improvement, and sustainable provision of water and energy.

The Population Explosion and the Green Revolution:

In the mid-20th century, countries faced challenges related to population growth and food security, turning to agricultural innovation known as the Green Revolution as a primary solution to avoid famine and achieve self-sufficiency. Despite the environmental and social challenges accompanying this transformation, the Green Revolution was essential to meet the growing food demand and improve the lives of millions worldwide.

However, alongside its considerable successes, this innovation brought about several challenges, such as heavy reliance on chemicals; the intensive use of fertilizers and pesticides led to soil degradation and groundwater pollution, adversely affecting the environment and creating economic disparities. Wealthy farmers benefited disproportionately from the Green Revolution as they could afford to buy modern seeds and equipment, while many smaller farmers struggled with rising costs and water consumption, with excessive irrigation depleting water resources in some regions. This spurred movements advocating for sustainable agriculture that focus on using techniques to minimize environmental harm and ensure long-term viability.

In this context, the book addresses the complex relationship between natural resource exploitation and economic growth, along with the challenges arising from over-reliance on these resources, leading to their depletion. It discusses how some countries benefitted from their natural resources to achieve an economic boom but faced crises due to their heavy dependence on these resources. It also touches on the concept of resource limits and the environmental and economic crises that arise from excessive and unsustainable consumption. The book affirms the need for rational resource utilization and policies that balance economic growth and environmental protection to ensure a sustainable future for upcoming generations.

The increasing concern over climate change and resource depletion has led to the emergence of sustainability movements promoting the use of renewable resources and moving away from fossil fuels. Countries and companies began investing in renewable energy such as solar and wind, and electric vehicles became a popular alternative to reduce reliance on oil. There’s also a growing emphasis on reducing consumption, recycling materials, and achieving greater efficiency in resource use to meet the needs of current generations without depleting resources available for future generations. The circular economy model has emerged as an alternative to the traditional economic system, focusing on recycling and waste reduction. This model helps reduce resource depletion and ensures the sustainability of their use.

On another front, the shifts toward economic liberalization and free markets in developing countries during the 20th century resulted in an economic boom that brought several positive effects, including economic growth, job creation, improved efficiency and innovation, and an expanding middle class. However, it also raised challenges related to economic inequality, escalating debt, and environmental sustainability.

Free market policies have been criticized by some economists, who argue that these policies focus on the interests of large corporations and industrialized nations at the expense of developing countries that lack strong economic structures. Environmental activists have also criticized policies that lead to the exploitation of natural resources without considering environmental impacts, as free markets sometimes contribute to the degradation of natural resources and pollution.

Wobbling Toward Disaster:

The book discusses a critical period that the world experienced at the end of the 20th century and the beginning of the 21st century, where new global economic and political challenges began to emerge, and many countries faced successive crises that destabilized them. The author clarifies the reasons that made the world “wobble” toward disaster, whether economically, environmentally, or politically, illustrating the transformations that led to exacerbated crises now threatening the global system.

With globalization and the liberalization of financial markets, capital began to flow between nations at an unprecedented rate. Despite the benefits of economic globalization, this rapid capital influx also increased the vulnerability of the global financial system. The Asian financial crisis in 1997 and the global financial crisis in 2008 are prominent examples of the consequences of market failures.

While globalization spurred economic growth, the benefits of this growth have not been evenly distributed among all countries or even within segments of the same society, resulting in increasing economic disparities between the rich and the poor. Certain sectors benefitted more from globalization, while the global financial crisis triggered a series of economic collapses for banks and businesses that negatively impacted the global economy and led to a prolonged economic recession. These crises eroded trust in the international financial system and severely impacted developing markets.

The book also discusses the evolution of authoritarian regimes in the age of globalization, highlighting how some countries opted for authoritarian policies to tackle economic and political challenges instead of embracing democracy or political openness. Through his analysis, the author concludes that although these regimes have achieved certain economic successes, the associated challenges of repression, corruption, and social inequality, along with pressures resulting from the evolution of globalization, may hinder their long-term sustainability.

The Giant Awakens:

The book addresses a pivotal historical phase at the end of the 20th century and the start of the 21st century, during which the world witnessed a remarkable economic rise of large countries that were considered developing or somewhat closed off from the global economic system. In this context, the book focuses specifically on China and India, explaining how they achieved substantial developmental leaps, transforming into two global economic powers. This rise is characterized by the emergence of “economic giants” who have shifted the balance of power in the global economy and reshaped the economic map.

The book provides a comprehensive analysis of how China and India succeeded in achieving a massive economic transformation, propelling them into the ranks of the largest global economies. It outlines the steps of reform and economic openness, and the challenges faced by both countries, including how they harnessed technology and demographic factors to support their development. It also discusses their growing role in global politics and the challenges they must confront to maintain sustainable growth. Furthermore, it highlights how new economic powers such as China and India have become key drivers of globalization in the 21st century.

In conclusion, the author paints a grim picture of the future that the world may face if negative trends dominating the global economic and political system continue. He addresses significant challenges such as financial crises, climate change, and geopolitical tensions that could lead to disaster. He concludes that economic development is not inevitable and is not merely the result of available resources or geographical location; rather, it arises from a series of political, social, and economic choices that influence nations’ trajectories. He argues that strong institutions, effective education, investment in technology, and adaptability to global changes represent the cornerstones of success for nations capable of breaking the chains of poverty. Conversely, the absence of good governance, ongoing conflicts, mismanagement of resources, and dependency on aid or basic commodities are factors hampering any serious attempts to escape the cycle of poverty.

Source:

Ali A. Allawi, “Rich World, Poor World: The Struggle to Escape Poverty”, Yale University Press, Apr 2024.