The First World Will Soon Be the Only World
The Babies Born Today in the Poorest Developing Nations
It is commonly reported that the birthrate is much higher in the developing countries than developed countries, and therefore the developing world's population will grow relative to the developed world's population. What this ignores is economic growth is transforming developing countries into developed countries.
In the past few decades the rise of countries like South Korea, Poland, and others to developed status and immigration from the Third world to the First has largely balanced the higher birth rate of the Third world. With the elevation of Russia to developed status the developed world began to grow much more quickly than the world as a whole. With the very rapid economic growth rate of China, India, and much of the rest of the Third World we will see the developing world shrink and the developed world grow over the course of this century.
We can reasonably hope that most of the children born in the world's poorest countries will die in what the World Bank calls high income, or developed countries. Furthermore, the history of the last few decades suggests that high income countries are rich enough to support extremely stable democratic governments, which are always at peace with one another even if they fight wars against countries that are not democratic.
Many people may regard this as far too optimistic, so before I show why it is reasonable let me quickly point out why it is at least plausible.
Before proceeding a few definitions. In this essay developing counties are the Third World and developed countries are the First World. I use both terms so the webpage can be found using either term.
Also the World Bank calls low and middle income countries developing, and high income countries developed. The threshold between the two groups is $12,615 US dollars.
Current Success of the Developing WorldEven the marginally well informed know that China has been growing rapidly, more than doubling its economic output per person every decade, for about three and a half decades. China has close to one quarter of the Third World's population, so China's success is a large part of the total picture. China's growth is based on labor intensive industrial exports, and is similar to the rapid growth of Japan, South Korea, Taiwan, Hong Kong, and Singapore. So China is following a proven formula that has rapidly transformed several Third World nations into First World nations.
India is about one fifth of the Third World, and through Internet outsourcing it has gotten fairly close to super growth. India averaged close to six and a half percent per capita growth 2000-2011 according to World Bank figures. Between China and India 45 percent of the Third World has at least approached super growth. What was once the miracle of Japan and then a few other East Asian Tigers has been the norm for almost half of the Third World.While the rest of the Third world has not been doing quite as well they have been growing fairly rapidly and more rapidly than they have in the past. In the 2000-2011 period per capita Gross Domestic Product, GDP, in the developing countries (low and middle income combined) grew 5% per year. With compounding that means doubling every fourteen years.
Furthermore, the rate of growth is accelerating. Annual growth in total GDP was about two percent higher in the 2000-2011 period than it was in the 1990-2000 period. Given that population growth was lower this means that the growth rate for the Third World close to doubled.
The economic growth is wide spread. The World Bank splits the Third World nations into three income groups, low income, lower middle, and upper middle. The World Bank also divides the Third World nations into six geographic regions (1) East Asia and the Pacific, (2) Europe and Central Asia, (3) Latin America and the Caribbean, (4) the Middle East and North Africa, (5) South Asia, and (6) Sub-Saharan Africa. All categories, both those based on income, and geography, showed positive per person growth in the 2000-2011 period. Also, all nine categories showed more rapid growth in total GDP in the 2000-2011 period than the earlier 1990-2000 period.
The success was not universal on the national level, total GDP in Zimbabwe actually declined during the 2000-2011 period, and GDP per person declined in a few other countries in the same period. But this represents the political turmoil and other difficulties of a few individual nations, the trend for the whole, and the nine different categories was toward accelerating growth.
The growth of the Third World before the current long economic slump was very impressive, perhaps the best ever. Even the First World's current slump has not stopped the rapid growth of the Third World, though admittedly it has slowed the rapid growth some. When the First World finally pulls out of this slump, the Third World's growth will accelerate, and the Third World is quite likely to achieve even faster rates than before.
How the Third World Will Join the First WorldThe recent success of the Third World suggests we can have a solid hope that developing nations will develop. Let us go deeper and understand how, nations that seemed mired in poverty are now growing.
Over the last several decades light industry has been a major route into the First World. A major difficulty with this route has been that the people of the First World rarely wear more than one pair of underwear at a time. As there is limited demand for the products of low skill, light industry, most countries had to more or less wait while light industry transformed a few countries at a time, for example, China.
The rapid growth of India based on Internet outsourcing suggests there maybe a second route. So while a large portion of the Third World can grow to First World status through light industry, another large portion can take this second route, the Internet, without hindering the first group.
In fact quite the contrary, if the countries that are growing through outsourcing buy the light industrial goods of the light industrial exporters then the new group, the outsourcers, will actually help the old group, the light industrial exporters, to grow.
Finally, the success of these two routes is pushing up natural resource prices which is providing a third route to the First World, the export of natural resources.
Several routes to success means that Third World nations may not have to wait their turn, or at least wait as long, to get on a path to rapid development.
Furthermore, there is a race between the higher birth rate of the Third World as compared to the First World and the assent of Third World countries to First World status through economic growth. The opening of new routes to the First World, particularly through the Internet, may dramatically shift the advantage to economic growth. The population of the Third World will decline as the excess of births over deaths in Third World countries is more than matched by people physically moving to developed countries, and Third World economies achieving First World status.
Light IndustryLight industry has been crucial to the rapid assent of Japan, South Korea, Taiwan, Hong Kong, and Singapore, and is currently playing a central role in the rapid development of many more, most notably China.
The rapid growth of China has driven up the wages in China until China has now been priced out of some low level, labor intensive, industries. These are the light industries that started China's rapid growth three and a half decades ago. These labor intensive industries are fleeing the relatively high wages of China's coastal areas into China's cheaper interior and are also moving to other nations: Bangladesh, Pakistan, India, Indonesia, and Vietnam.
This does not mean that the advanced coastal areas of China are suffering mass unemployment. More sophisticated industry have come in, hired workers, and driven up the wages, this is why the less sophisticated industries are fleeing, and will continue to flee in the future.
Eventually, and with super growth that will not be too long, the wages in the interior of China will be too high and the low level light industry will flee to other countries. As this happens it will not be a case of a country of 300 million, the United States, shedding its light industry. It will be a country of 1.3 billion, China, shedding its light industry. Many of those jobs will be going to low income countries whose combined population was less than 900 million in 2010.
Furthermore, when jobs migrate from more advanced to less advanced countries they multiply. It takes more labor to make the same product in the poorer country, so more jobs are gained in the poor country than the somewhat richer country lost.
What is more, eventually China will start importing the light industrial goods that fueled its earlier rapid growth. In another decade China and a number of Third World Nations with large populations may become developed nations. We may have in excess of three billion consumers living in the developed countries, as opposed to the close to one billion consumers we had quite recently. This will further stimulate the poor developing economies that are producing light manufactured goods.
Other centers of light industry in Asia are already experiencing rapid growth. Vietnam seems to be approaching super growth, while Indonesia and Bangladesh appear to be accelerating. Light industry has over and over again been the secret to very rapid growth so we may reasonably hope that poor Asian nations that already have labor intensive industries will be enjoying super growth in another decade.
As wages rise in labor intensive Asian industries the capitalists will eventually have to search elsewhere for cheap labor, and that means Africa. A few years ago Niger needed our help to avoid starvation. This may not be the last time that the desperate cry goes out of Africa for help, but the end of that desperation is coming. We do not need to teach Africa "how to fish." We need to tide sub-Sahara Africa over until it is Africa's turn to grow rapidly through light industry.
When Africa becomes the new center for low wage labor intensive industry its growth may even exceed China's experience. When the capitalists tell the workers that they will need to accept lower wages or they will move to a poorer county, the African workers will be able to say, sorry, you are at the end of the line, Jack. From here on the wages of the women who make underwear will go up, not down. Rapidly increasing productivity will be coupled to rising wages to produce even faster growth.
Actually something like this seems to be already happening in Bangladesh and Cambodia. Workers have been forming unions, demanding more pay and better conditions, and winning actual victories. In America unions began winning victories when the nation had already reached upper middle income status. America was backward on this, in other countries the victories might have started at lower middle income status. But for workers in the apparel industry, which we expect to be one of the last to unionize to win victories in low income countries is amazing. This reflects the shortage of workers.
Today most people live in Third World nations and relatively few live in the First World. So there are many workers to produce the t-shirts and relatively few to wear them. The explosive growth of China, and the rest of the Third World may change that. As this happens the differential between Third World and First World wages will probably shrink.
It has been argued that the people or conditions of many Third World nations are not right for industry. My argument is that the world economy is competitive. In the past those nations could not compete with China and its deadly combination of low wages and relatively high efficiency, but as Chinese wages rise those nations will become competitive.
Here is a web page that goes into more detain on why light industry is so important to development.
Internet OutsourcingIndia provides other reasons for hope. Rapid growth through the Internet may mean that Indian wages will be too high to compete for the jobs that China is shedding. Just as oil and other natural resource wealth has prevented many natural resource nations from competing in light industry the Internet may prevent India from competing in light industry. This may greatly speed the growth of other Third World nations that are less successful in Internet outsourcing. Some nations will thrive on the Internet, others will get along on natural resources, and many of the others will thrive with light industry.
As India's growth has not held up quite as well as China's in the current slump, India may not be able to make it to developed status just on outsourcing. The hope expressed above looked reasonable when I originally came up with the idea, but now it looks like India will need light industry in addition to outsourcing to grow quickly. This may slow the movement of industry to sub-Sahara Africa. But when we consider that China had more than 220 billion dollars worth of textile and clothing exports in 2011, and that wages in China are rapidly becoming too high to compete in textiles, apparel and similar low level industries, there may well be plenty of light industry for both India, sub-Sahara Africa, and the other countries.
Furthermore, Internet outsourcing has and will in the future provide foreign exchange for many developing countries, which will allow them to buy the capital goods they need to build their industry and develop. So Internet outsourcing will add another push to the growth that is coming from light industry and natural resource exports.
If a country can provide the proper conditions for either Internet outsourcing or light industry in a single city within their territory, people can move to that city to take the jobs. One does not have to enforce peace, or provide infrastructure for a whole country. Each country will probably be able to set up at least one place where its talented and educated citizens can be employed on the Internet, and those with nimble fingers can sew underwear.
Rising Natural Resource PricesFinally, the demand for natural resources from China and India is pushing up natural resource prices, which is helping many Third World nations grow rapidly. Russia has had years of very rapid growth based largely on rising oil prices. Much of South America is thriving on green gold, soy beans. Prices are high because China wants oil and soy beans.
Of course these higher prices will have to be paid by rising Third World countries like China and India, but most of the oil, soy beans, and other natural resources will be sold to the First World, so the rising prices will enrich the Third World at the expense of the First World. As the high income developed countries are almost twelve times as rich as the middle and low income developing countries the redistribution of income is a very good thing.
Of course the First World will react. Europe and Japan, where gas has been much more heavily taxed than it is in the USA, have much smaller cars and fewer light trucks. We can expect Americans to move to smaller cars and away from trucks as the price of gas rises faster than inflation, and gas and other natural resource prices may come down as they have in the past. But to achieve that the First World will have to conserve enough to more than balance the rapidly growing Third World demand.
Furthermore, the present rising natural resource prices are an early indicator of the future. As more countries become First World nations the price of First World products will fall relative to the cost of Third World products, which will lift still more Third World countries into the First World.
The End of the Third WorldWhen the billion plus people of China start importing the underwear that they are now exporting then the low income category will be rapidly emptied, and in time the lower and upper middle income categories. The Third World will end.
This is perhaps a pessimistic view of the future. Just as the low wage, labor intensive industries became one engine of rapid development several decades ago, and Internet outsourcing has recently become another engine, new engines of growth may develop. But even with the engines we have now the Third World's days are numbered.
In ConclusionThe future is, as always, uncertain. Nevertheless, a good deal of optimism is justified. The huge and until recently growing gap between rich and poor nations is likely to be temporary. It seems to be shrinking now. We have reason to hope that will continue and even accelerate.
There will need to be considerable adjustment in the First World. The increased prices for oil which are a result of increased demand from China, India, and the Third World, illustrate the basic point that we will have to share access to the world's resources. The First World will have to meet the challenge of reinventing the technology of a rich society so that we can provide a comfortable life style with fewer resources and less harm to the environment.
Furthermore, many First World industries will move to the Third World. Industrial production of consumer goods will be concentrated in the Third World. The First World will pay for them with capital goods which will enable the Third World to rapidly increase its productivity and achieve First World status. In the process many First World workers will loose their jobs. The pain of readjustment in the First World will be real, but relatively minor compared to terrible suffering the Third World poor currently experience.
Will First World countries fall to Third World status? Many people fear this, but the history of many decades suggests it is unlikely. The richer First World countries with broad based industrial economies tend to grow at about two percent a year. There are recessions where income per person declines a few percentage points. In the past we knew that growth could slow for a decade as it had for Japan, Finland, and Sweden. Because of the current slump we now know that most First World countries simultaneously can suffer slow growth. But as most broad based industrial economies are several times as rich as the $12,615 threshold between developed and developing countries and really serious economic decline is unknown in broad based rich industrial countries there is little reason to fear First World nations becoming Third World Nations. Of course oil rich nations and even a natural resource producer like Argentina move up and down between high and middle income depending on the prices of their exports. But the broad based industrial nations are unlikely to suffer any serious decline. Once a First World nation always a First World nation.
Other Economics PagesI have written a web page with a list of First World Nations, countries which have high incomes according to the World Bank and Free according to Freedom House. I also examine issues of political and economic stability and peace.
Economics QualificationsUnlike the other pages on this web site, the above essay is related to my education. I have a Bachelors and a Masters in Economics. I passed the orals on a PhD, which means I was advanced to candidacy. This is why I have received the little know degree, the PhC. But the committee was unfortunately not impressed by the dissertation. I taught economics full time at Saint John's University for seven semesters as a lecturer.
Implications for CharityThere are also implications for charity. As argued above the major need maybe to tide the poor over until the world economy lifts them out of poverty.
I have my own version of the old saying about charity and fish. Give a man a fish, and he eats for a day. Teach him to fish, and the river will be over fished, the fishery will collapse, and all the fishermen will starve.
The problem in recent decades has been that the First World has only so many backs that need to be covered with t-shirts and the Third World has had too many hands to make those t-shirts. If we taught them to be more efficient it might simply make things worse as the extra supply drives down the prices of t-shirts and the wages of the workers who make them. On the other hand, if people simply take advantage of our charity to sit around and contemplate their navels at least they will not be driving down the wages of the other Third World workers.
Only so many people could use light industry to become rich at any one time, so the problem was not to change the behavior of the Third World, but to open First World markets so more Third World nations could develop. We seem to have made a lot of progress on that score and now the Third World is developing.
Still if bad Third World government policies, or backward traditions prevent the people of a few Third World nations from grabbing opportunities those opportunities will probably be grabbed by other nations and little will be lost in the over all growth of the Third World.
All of this suggests that we can safely follow the advice of Jesus and simply feed the hungry and cloth the naked. The healing is proceeding nicely, make the patient comfortable.
You can disagree in my guest book. If you leave an email address I am likely to get back to you.
You will find more development economics and economics in general on my economics index page
Last updated September 23, 2013