How do neocolonialism,
dependency and debt slow the
development process?
Neocolonialism
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Term coined by James Blaunt in “Theory of
Development’
Neocolonialism is when a country or corporation
exerts political or economic influence over a country
or area
Bank, investment, aid, exports and trade are mainly
controlled by MEDCs
Neocolonialism often involves the exploitation of
countries labour and resources by TNCs and MNCs
(hence term NEOcolonialism)
Why do MNCs relocate?
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MNCs have to pay cost of
transporting goods and taxation
and trading costs so why
relocate?
Source of cheap labour and low
land rents
Exploit local resources – MNC
may need cheap raw materials
Less government regulation
(gas leak at Union Carbide in
Bhopal India) enables MNC to
cut costs
Low trade union influence as
people want to keep their jobs
Looking for new export routes
and new markets
Positives and Negatives
Advantages for LEDCs
Disadvantages for LEDCs
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More jobs, may lead to
improvement in quality of life
for workers
Greater income, overall GNP of
country increases
Investment in improving
infrastructure (may attract
further investment as a result Myrdal)
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Benefits only short term – MNC
will move on leading to high
unemployment e.g. Brazil
MNC exploiting countries finite
resources for own benefit
LEDC not developing own trade
links for long term development
Environmental damage creates long
term problems e.g. cattle ranching
in Brazil
Local companies may lose out
Nike – Case Study
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Internationally recognised product – made bid to have
tick projected onto moon
Reputation for excellent sports good. But do they have a
good reputation in terms of employment?
Uncovered they are exploiting labour and resources. E.g.
workers in Vietnam low wages and work in hot and
crowded conditions
Enables company to maximise already high profits
Dependency
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2.
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Countries are dependent on one another in
a number of ways
TRADE (both supply and demand)
Political support
Aid
Labour
Trade
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Economic power over LEDCs now takes
the form of GATT (General Agreement
on Tariffs and Trade) and WTO (World
Trade Organisation)
 LEDCs reliant on MEDCs to buy their
export goods (particularly agricultural
and raw materials)
AID
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Aid can take different forms: multilateral
aid (IMF), bi-lateral aid(government) and
NGO aid. Aid can be short term or long
term. Depending on the project aid may
increase autonomy or dependency
 Aid may be tied to purchase of donor goods
 Short term aid encourages dependency e.g.
Bangladesh depends on food aid from USA
MEDCs also depend on
LEDCs
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USA depends on countries like China and Vietnam
as source of cheap labour
 MEDCs very dependent on OPEC countries as
source of oil – does this lead to political
involvement?
 MEDCs depend on countries like Brazil as source
of other natural resources such as oil, trees, coal
 LEDCs are source of agricultural products which
are hard or more expensive to grow in their own
environment
Case Study
• Carribbean Island of St Vincent – main export is bananas
• Trade mainly with the UK as Britain set up a tariff and
quota system to protect them from Central American
growers in the 1950s
• Growers only get 30HK$ for boxes which sell for over
400HK$ in the UK – where does the money go?
• Now WTO has ruled tariff and quota system unfair –
Caribbean growers will now lose out to cheaper mass
banana growers
Debt
Origins of the Debt Crisis
1960s USA spent more than it earnt
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3.
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USA printed more $ leading to a drop in $ value and
drop in oil value
1973 oil prices went up leading to surplus of cash
worldwide which got invested in banks
Interest rates for investment went down as money was
lent out too quickly
To recoup losses banks targetted LEDC countries for
loans
By mid 70s general prices had gone down and LEDCs
found that they could not use exports to pay off debts
Third World Debt
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Third World countries owe
HUGE amounts of money
Acronym HIPC – Highly
Indebted Poor Country
Many cannot even keep up with
payments on interest rates
Latin America owes 4000 billion
HK$ and Africa owes 1800
billion HK$
Structural Adjustment
Programmes
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Attach conditions to loans by WB and IMF
 Attempt to reform economy in order to
improve financial performance
 E.g devaluation of currency, raise interest
rates, privatizing public companies
 Aim is to enable countries to meet debt
repayments
 Can result in local hardships
ZAMBIA
By the mid 1980s, President Kaunda turned
to the International Monetary Fund for help.
Aid was granted, but only under severe
conditions: the government had to announce
a rise of up to 70 percent on prices of basic
foodstuffs and had to float the currency. As a
result, the cost of living skyrocketed, which
touched off nationwide, violent protests in the
following years, killing thousands of people.
Further price hikes in the early 1990s led to
more rioting, and a coup attempt was
targeted against Kaunda
Problems in LEDCs
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Public investment in these countries is minimal
e.g. health care
 Encourages LEDC countries to develop
‘irresponsibly’ e.g. overfishing and deforestation
 Increased drugs trade e.g. 41% of Bolivian
workforce employed in drugs
 War – financial implication of debt crisis
heightens conflict e.g. Somalia and Sierra Leone
MEDCs in debt
ARGENTINA
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Defaulted on their debts in 2001 led to agreement
with IMF on rescheduling their debts
 Since then has again attracted further investment
 Will owe 76.6 billion US$ by the end of this year
 Argentina is trapped in a cycle of borrowing
further money in order to pay off debts
Solutions?
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Debt Cancellation
 Debt relief e.g. Tanzania has had 20% of it’s
debt written off but still has huge
repayments to make
 Rescheduling debt
 Further borrowing linked with Structural
Adjustment Policies