For the first time in history, almost the entire world is now sharing the same economic system. Communism began to fall in the late 1980s, and since then, capitalism has spread to most corners of the world. The basis of a “pure” capitalist economy is free trade, also called “open trade”. There are benefits of open trade for both rich and poor countries. For developed countries such as Japan and England, free trade brings with it more competition, which in turn brings advantages such as lower prices and more choices of products for consumers. For developing countries, open trade means that people have access to essential goods such as food, clothing, and fuel (for transportation and heat). An open economic system can be a key to improving the lives of people in both poor and rich countries because it can reduce poverty and improve living conditions.

“Leaking boats”

This is apparently very good news. Optimists often say that “the rising tide lifts all boats.” What do they mean by this? Imagine a harbor filled with boats – some small ones, some medium-sized, and some huge ships. As the ocean tide comes in every twelve hours, the water rises and literally lifts all boats – both large and small. In economics, this expression means that in good economic times, poor countries benefit as much as rich countries do. However, pessimists point out that many of the “small boats” seem to be “leaking” – have holes in them – and so are going down instead of up. In other words, the gap between rich and poor – the economic difference between them – is wider than it was in the past. The contrast can be startling. A former U.S. president, Jimmy Carter, once put it this way: “Globalization, as defined by rich people, ... is a very nice thing ... You are talking about cell phones, you are talking about computers.” However, he went on to point out that this “nice thing ... doesn’t affect two-thirds of the people of the world.” In fact, according to the World Bank, more than 1.1 billion people live on less than a dollar a day.

The influence of Geography

Why is this happening? What causes this gap between rich and poor? Many of the poorest countries are at a disadvantage because of geography, which is the root of several problems. First, a country that is landlocked, with no access to an ocean, has a disadvantage because it cannot easily transport its products to other parts of the world. Second, many – but not all – countries in tropical regions (near the equator) have the disadvantage of heavy, heavy rains that often wash nutrients from the land. Without these nutrients in the soil, agricultural development is more difficult. Another obstacle for many countries is the problem of infectious diseases such as malaria, schistosomiasis, and dengue fever, which are found only in tropical climates. It goes without saying that people weak with disease cannot contribute to the economy of the country.

Protectionist Policies

Another cause of the growing gap between rich and poor countries is protectionist policies. In other words, many rich countries have governmental plans that give special help to their own people, so trade isn’t actually completely “open”. One example of protectionist policies is an agricultural subsidy. This is money that a government gives to farmers; unfortunately, governments in poor countries can’t pay these subsidies to their farmers. Therefore, the farmers in rich countries have a competitive edge in the global market. Other protectionist policies are “hidden”. For example, Country X (a rich nation) might say their trade is open. However, it will not buy products from Country Y (a poor nation). Why? It says that Country Y does not have high enough health or safety standards.

A way out

It may sound as if the situation is hopeless for developing countries ever to have a competitive edge in global trade – but perhaps not. East Asia, for example, has found far more economic success than Africa has. The key to success seems to lie in each government’s economic policy. Malaysia and Thailand have the same tropical climate as many African countries, but their economies – unlike those of Africa – are growing fast. The reason? Their governments have created an economic climate in which people can move from agriculture to manufacturing. Geography is not the terrible obstacle to manufacturing that it is to farming. To help new entrepreneurs, these governments pay careful attention to areas such as infrastructure (harbors, railroads, and so on) and telecommunication. In other countries, such as India, information technology (infotech) is driving the economy in some cities. Computer technology doesn’t depend on geography, but it does require educated workers. Therefore, education must be a priority. In addition, governments of developing countries must work with developed countries and persuade them to drop protectionist policies. Clearly, it is possible for government policy to prepare a path out of poverty in even poor countries.