Why Are Poor Countries Poor and Stay Poor?

July 9th, 2013 Posted in Economy|Mortgage 101

Why Are Poor Countries Poor

Why Are Poor Countries Poor?

Although it sounds like an easy question to answer, in reality this is not something so simple. There could be hundreds of bizarre reasons why some countries are poor and stay that way. Also, this is one of the most controversial and debated topics on earth, and everyone can come up with their own arguments. Today, I will discuss my own three reasons to touch base on this.

1. Lack of Specialization

If you look at majority of the poor countries on earth, you will see that most of them are agricultural or are a raw material-based society where the majority of the population make a living based on agriculture or raw material production. If they want to produce these more to make money, it simply won’t happen due to the diminishing returns to scale. It simply means that if poor countries will produce more to make more money, they will actually make less money. This is because when you produce something that does not require any specialization or innovation, producing more without increased productivity will lower its prices – and each additional worker assigned to produce without productivity and innovation will produce less than the person before. Thus, producing more will decrease prices – making things even worse.

2. Corruption

Regardless where you look at, from Bangladesh to Burundi or Philippines to Paraguay, one thing all these countries have in common is corruption. There is corruption everywhere on most of the world’s poor countries, including in all levels of government, police, and the very anti-corruption departments that are supposed to look after corruption. When the government can not guarantee the basic rule of law, everything falls apart in the society. Think of this: Why would be a police officer interested in catching a robber who just killed a businessman for $100? He won’t – because he knows if he tries to prosecute the robber, he would lose his job as the robber looks after interests for one of the ministers. So it makes more sense for the police officer to grab $20 (of the $100 the criminal robbed) and let him go. It’s a win-win situation for all, except the businessman who just lost his life for such a small amount. Find it hard to believe? If you are from one of the top least corrupt countries on the Corruption Perception Index list, you will have a hard time believing it. But if you are one of the worst corrupt countries on the same list, you already know that this is very common in your country.

3. Poverty Itself

This may sound little a bit bizarre, but poverty itself may be the reason that prevents countries from getting out of poverty. Populations in poor countries are engaged in securing enough income to feed their families. It’s not an option for lots of them to enhance their knowledge in education, science & technology, arts, specialized skills, etc. to go beyond their boundaries to earn more income. If you look at it on a larger scale, the same applies to the government level. Government does not have enough money to invest in research and development to secure a better future and higher standard of living for their citizens. Even though if there was enough money, government would not spend it for the benefits of its citizens because politicians are occupied stealing money from every possible resource to buy properties, increase their bank balances, and securing higher education for their kids in 1st world countries. If you look at the high-ranking government officials in any of the poor countries, you will find out that their families and children are going to the universities in countries such as Canada, America, Australia, and so on. These families and children do not rent to live in those 1st world countries – they own their properties and drive high-end cars that even impossible to afford for many people in the first world countries.

What I have discussed so far are just some of the highlights from many reasons why some countries are poor and will remain poor. Actually, this topic can be neverending, as there are so many other factors that can come into play. However, my belief is that corruption is one of the most important factors (if not the most important) that makes countries poor and keep them poor for good. If you think deeply, you will see that most of the obstacles poor countries have (that keep them poor) can be easily avoided if bad people stop stealing money, which will stop the leakage that drains out the money. You can not fill up a tank, regardless how much water you pour in, if there are holes in the tank. It does not matter if you buy new tanks, color the tanks, use better material to build better tanks – because you are ignoring the basic fact, which is you have to close the leaks in those tanks first.

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