[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

798 ∂ CHAPTER 36 DEVELOPMENT AND TRANSITION
redistributed to the peasants. Such land reforms were a precursor to the remarkable
growth in Taiwan and Japan. In other countries, such as the Philippines and
Peru, the land reforms have been only partially successful.
Over the past fifty years, most LDCs have experienced gradual urbanization.
Those who live in the cities have a much higher standard of living, including access
to better education and health facilities. The marked differences between the cities
and rural areas have led some to refer to these economies as dual economies. While
there are large income disparities between rural and urban sectors, disparities
within the urban sectors are equally large: government workers and those few lucky
enough to get jobs in manufacturing earn many times the average wage. These
high wages attract migrants from the rural sector, often resulting in high urban
unemployment (exceeding 20 percent) in some cities.
One reason for the poverty in LDCs is a lack of resources. These countries have
less physical capital per capita and less human capital, with high illiteracy rates and
a low average number of years of schooling. The lower levels of physical capital per
capita are not the result of low saving rates—in fact, the saving rates of most LDCs
are considerably higher than the rate in the United States. Because of their high
population growth rates, they have to save a lot just to stand still.
High population growth rates have another effect. They have increased enormously
the proportion of the young, who depend on others for their income. And
they have made the task of improving educational levels even harder, creating a
vicious circle. Typically, less-educated women have larger families, in part because
they are less likely to be informed about family planning but also because the opportunity
cost of having children is lower—they forgo less income. If educational levels
can be improved, this vicious cycle can be turned into a virtuous cycle: moreeducated
women have smaller families, lowering population growth rates. Between
1980 and 2000, the average population growth rate for countries with 1980 per capita
incomes below $1,000 was 3.3 percent per year. For those with 1980 per capita
incomes between $1,000 and $3,000, it was 2.6 percent per year; with 1980 incomes
over $3,000, only 1.3 percent. These lower rates reduce the proportion of the young
and make the task of further improving educational levels easier.
Low educational levels and lack of capital prevent these economies from availing
themselves of much of the most advanced technologies. With important exceptions,
they specialize in low-skill labor-intensive industries (those whose products
require much labor relative to the amount of equipment they employ), like textiles.
These problems are compounded by institutional failures. The lack of good financial
institutions means that what capital is available may not be invested well; the lack
of financial markets means that businesses cannot obtain some of the inputs they need;
and the lack of good legal systems means that creditors find it difficult to force a
recalcitrant borrower to repay, and consequently are willing to lend only at high
interest rates that can compensate them for their risk. All these failures inhibit the
entry of new firms and the expansion of old firms.
Many LDCs also are marked by high levels of inequality. Their limited incomes are
shared even more unequally than are the incomes in the more advanced countries, leading
to high levels of poverty. Throughout the developing countries as a whole, the number
in poverty, living on less than $2 a day, was 2.8 billion at the end of the twentieth century,
and the number in absolute poverty, living on less than $1 a day, was 1.2 billion.