Brandon asked in Social ScienceEconomics · 1 decade ago

Will the world economy collapse if the third world modernizes?

Every developed nation (US, Europe, Japan) has a trade deficit with developing nations. That is they import more materials than they export. Therefore is it possible for all nations to one day be developed? Does the system require that resource rich countries remain impoverished?

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  • Grist
    Lv 6
    1 decade ago
    Favorite Answer

    The world economy might collapse, but for reasons other than alterations in trade deficits. Increases in population, scarcity of natural resources, increases in pollution and environmental destruction, accelerated global warming, increases in competition for those scarce resources, tensions resulting in more global conflict, use of atomic weapons, a nuclear winter - that's all she wrote folks.

  • Anonymous
    1 decade ago

    No the 'system' doesn't work quite that way. Countries rich in natural resources do not need to be impoverished. And, conversely, countries lacking in natural resources do not either. ie Japan.

    Your premise isn't real sound, or at a minimum, needs to take into consideration some other factors. The world economy is not a net zero sum equation. That is to say, when one country makes money, another country doesn't necessarily have to 'lose' the same amount.

    Think of it in terms of value added. When goods and services are produced, and they are developed, refined, enhanced, modernized, etc. we say they have value added to them. And this can and usually does take place within one country and without another countries involvement.

    Secondly, the term 'developed' is a nebulous statement. If we compare ourselves (just about any country) to a hundred years previous we can almost certainly see where progress has been made. It is even more dramatic to do so with an earlier millenium. So to expect to define when a country is 'developed' is not like walking through a doorway. You are either inside or outside. It is an evolutionary and developmental kind of thing.

    The day will never come when one can look around and say all countries are now developed. The ancient Greek and Roman empires I am certain thought themselves as developed. Compared to todays standards they had hardly begun.

    Lastly, when a country has a trade deficit it isn't necessarily a bad thing. Think of it as leveraging other resources. Similar to you leveraging your good name, credit rating and possible equity you have accrued in other assets when you wish to borrow some money. Example: your house is worth $100,000. You owe $25,000 on the mortgage. You use the $75,000 equity to borrow money for something else. Maybe a car. You have leveraged the equity in your home to purchase the car. And this is a good thing and wise financial manuver. It is an efficient use of the asset.

    The worst thing that can happen in the world economy is for nations to quit trading with each other. And, to a lesser degree, limit the trading that occurs or restrict it through tarriffs etc. It has been proven that isolationism is very detrimental to an economy. In fact, look at what we do when a country is disciplined by other countries, eg North Korea. We place trade sanctions on them via the United Nations. The more freedom an economy has, the healthier it is. The more restrictive it is, the problems it endures.

    Oh yah. I believe in the capitalist system and free market economies. It's what the world is running on. It makes the world go around.

  • 1 decade ago

    No the world economy will not collapse if the "third world" modernizes, actually the economy might collapse if it doesn't. The one "negative" side effect of a modernizing third world is that people will pay a little more in some western countries, the standard of living there will go down a bit. However that standard of living is overly high,especially in western europe and the US so it's lowering to a more moderate level will not be so horrible a thing. This will cause some intitial slowing of economic growth but will quickly even out.

    what would cause the collapse of the world economy would be to erase the trade deficit with the third world countries, if that were done through trade barriers then the world economy would collapse, as it stands that deficit is what is developing the third world.

    I think it's a good thing, but needs more work.

  • As long as corruption stays in fashion things will never improve in all of the third world.

    Take South Africa, where I sit here writing this.

    I could'nt have written it an hour ago because we had no power. Why no power.

    Well a power station in the Cape about 1000km away had a problem so the entire country had to start shedding loads and cutting off towns.

    Whats my point, well this country has been gifted with billions of dollars from overseas and is rich in minerals and come to it tourism wealth.

    In fact the USA is the largest benefactor and the new Ambassadour could not get a meeting with our health minister for three months. Only when he complained about it in a Sunday newspaper article did he get results! Thats how we treat a country that donates many millions of Rand.

    We are in no way a third world country.

    Even so infrastructure is collapsing fast here.

    Another good example, here in the town where I sit a new textile factory is opening, an overseas company is being given all sorts of deals for bringing employment. Even to the point of removing that factory from South African labour laws. Now is that the way to develop? Encourage sweat shops?

    I think I've lost the thread. The third world is a lot further behind than people that have never left the first world would believe.

    So far behind that there will always be a gap.

    Sorry for the rant.

    Perhaps if more of the third world had oil.

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  • 1 decade ago

    In simple terms, no it will not and cannot be possible for all nations to be equally developed. It is possible for a country to become more modernized and "developed" than others over the course of time. However, with that said, it will always be the countries with the highest levels in three areas that will maintain the highest development potential. These three areas are education of the citizenry, resource acquisition, and economic freedom.

    The statement that developed countries have a trade deficit with undeveloped countries is highly limited in it's point of view. For example, the U.S. might have a trade deficit with a country like South Korea but if a person looks at the whole economic picture of resources, financial aid packages, food supplies, military training and support, etc., the trade deficit goes away.

    The system does not require a resource rich country to carry a trade deficit as illustrated by the U.S. through much of it's history. However, due to fiscal irresponsibility, the growing international world market, and freedom of business to seek the lowest labor costs even if that means out-sourcing, it is a trap for more developed nations to carry a deficit with less developed nations.

  • 1 decade ago

    No, because a "trade deficit" isn't really a deficit. You and I incur no debt if a third party buys or sells goods from another country.

    It may be possible for all nations to be developed, but the cost of living would be higher. Even if every country were developed, each one would still have comparative advantages in different areas. This is why trade is beneficial to both parties.

    The system in no way requires resource rich countries to be poor. The US is extremely rich with many natural resources, and we're not exactly impoverished.

  • 1 decade ago

    No, that wouldn't be the cause of any collapse that might occur (maybe a refusal to grow, e.g. mid-east countries). Third worlders are not buying (importing) much of anything right now; but if they get enough money, they will increase demand. Many globalists promote job growth - or redistribution - as a contribution to world peace. Well, maybe - but there's no guarantee!

    The third world may even begin selling things to the first and second worlds that can't be made there - cheaper or otherwise - just as is now the case with foods and products that cannot be grown just anywhere. So, yes, poor countries can grow their way to "developed" status.

    Everyone in the U.S. once had outhouses, but the wealthiest had someone to "tend" them and carry it all outside! Now the poorest can stay indoors. So - over time - contrasts that seem so clear at first may not hold up.

    One day manufacture, mining, vending and agriculture will be entirely automated - like accounting. The internet has in a sense automated a small portion of even law and medicine - the professions with the strongest unions! People will have to do what people do best (we may not yet know what that is) to earn a "living" but it will involve (produce) things beyond necessities. Necessities would become so available, some will choose not to work; it will be without the welfare stigma, because no one else is supporting them. Boredom and drive (and greed, etc.) will motivate the rest to choose the creativity of work.

    Such a world is sufficiently in the future to allow the poorest countries to convert their resources - in whatever form - to be competitive globally and "catch up" - so, no, they need not remain impoverished.

  • 1 decade ago

    No. Part of the problem does not have to do with third world countries remaining impoverished due to them not being developed but the governments these nations have in place.

    While most third world countries want to improve living standards for their people, the bottom line is that most see that with poverty comes control. This prevents the common citizen from having a say in how their country is ran. Having a developed nation only makes the job of governing harder for the leader who only really cares about themselves and how much power they have.

    As for the statement about resource rich countries you only have to look at Canada for example of how this is not the case.

    This country is not only not impoverished but in fact one that the United States depends on. Even if the US continues to have their trade deficit grow, Canada can find new markets to sell their natural resources to. Many of the other nations are also in the same situation.

    Therefore, as you can see, as the world modernizes, the economy will still keep right on going the way it has. Competition only improves the quality of life in the long run but that can only occur when the corrupt governments are forced out. Only then, will we know the answer as to if the world economy will collapse due to too much of a good thing.

  • Anonymous
    1 decade ago

    If the Third World modernizes it would mean more competition but that would also result in improved productivity. More cutting edge research gets done and new research and technology has the potential to change our lives for the better.

    Remember that most of the jobs now moving to the third world are low end, manufacturing and technology jobs. This does put a pressure on the unskilled and semi-skilled in the developed countries and forces them to work harder and upgrade skills. This is a good thing because new drugs, new technologies become available to all of us as a result of the increased efficiency. The third world buys most of it's medicines, weapons, ipod's, computers from first world nations so there is a balance maintained.

    Eventually the world may polarize into the intelligent and the not so intelligent and we may set-up a new class system based on intellect. However, we may instead discover new chemicals and medication and genetic re-engineering to make not-so-intelligent and hardworking people more intelligent evening out the difference between skilled and un-skilled.

  • 1 decade ago

    No. Absolutely not. Think of it in terms of a family. If only one parent works and then the kids grow up and move out and the other starts working does the family income collapse? No. The family gets wealthier. Maybe they get enough to buy a rental property and make even more money. Wealth begets wealth. The more wealth you have the more that you can do. For instance in the U.S. as we got wealthier, we moved ahead in industry, technology, education and food production. We then moved our wealth around the world. Our market supported flourishing economies everywhere. The more we had the more we could buy. The more we bought the more others could have. The more they have ... etc. It is not a one winner one loser mindset. More like everyone wins. But the key is to see wealth as more then just money. Wealth is measured in technology, ability, food production, manufacturing capacity etc. To answer your other question do resource rich countries need to remain inpoverished, the answer is no. They will still be able to sell those resources whether they are impoverished or not. If the resources are being used to quickly, alternatives will have to found. Wealth and techonolgy make that more realsitic. If every country has meaningful wealth then the possibilities are greater that those alternatives will be found.

    Hope that makes sense

  • Most of the trade of developed nations is with each other, not developing nations. Just think, do you buy more products from Japan or Ghana, Germany or Bolivia? The developing countries are relatively minor players in the global economy. In a modern economy, most of the value of the products produced is due to intellectual capital and technology, not raw materials.

    So in fact, many raw material producing developing countries run trade deficits not surpluses, because they have to buy finished goods that they can't produce themselves, and most of the value is in the technology and intellectual capital, not the raw materials.

    However, if a developing country is running a trade surplus, there will be a flow of funds into the country, which can be used to fund development. Even if there is a deficit, the developing country can invite foreign investment and make up the difference.

    The important thing for you to note is that it is not raw materials sales that make a country developed and rich, it is the development of a modern legal system, capitalist system and property rights system which allows private enterprise to flourish, and development of the intellectual capital of the population.

    In 1956, South Korea was a developing country completely leveled by war. Now South Korea is a developed nation producing cars, electronics and computer chips. They completely modernized the country and enriched the population by rigourously pursuing education and private enterprise, and by constructing a legal system where property right and investment are protected.

    In fact most of Asia excluding Japan were developing nations 50 years ago. Now large middle classes exist in China, India, Taiwan, Singapore and Thailand. Their rise has created business for the developed nations of Europe and North America, since middle class people have money to buy things. Just think of all the American companies trying to sell their products in the Chinese market. As I said, the biggest producers of wealth are developed nations selling to one another. Which is why the global economy has led to higher personal wealth in the developed countries like the US.

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