The stubborn gap between rich and poor nations

In 1973, the United Nations requested a team of researchers headed by Wassily Leontief and Anne Carter to undertake a massive study of the world economy with two goals in mind. The first was to investigate the impact of resource and environmental issues on the International Development Strategy (IDS), a program adopted by the General Assembly in 1970. The second was to develop a global economic model that can be used by the United Nations and outside researchers to help in the analysis and development of plans for implementing United Nations programs.

The preliminary report, entitled The Future of the World Economy: A Study on the Impact of Prospective Economic Issues and Policies on the International Development Strategy, was released in October 1976. It was hailed by some observers as an answer to the "doomsday economics" typified by Limits to Growth (the first of the Club of Rome's studies) and as a blueprint to help close the gap between rich and poor nations within a reasonable time period. The truth is somewhat less dramatic and heartening.

A number of the study's conclusions contradict the simplistic versions of the doomsday thesis. Even on the basis of conservative assumptions about reserves, technology, recycling and substitution possibilities, the world's endowment of resources and energy are found to be generally adequate to meet requirements until the turn of the century, although costs of extraction may rise. Although the task of feeding the rapidly increasing population of the planet and of improving diets in all regions will be formidable, there appear to be sufficient unused arable land and water in developing countries to produce all the food they require. And technologies exist for abating the emission of most pollutants to reasonable levels at costs that can be afforded in most countries. These findings are similar to those of several studies published by Resources for the Future. But the Leontief study adds to the credibility of these findings because it is based on a careful look at probable developments within each of fifteen regions of the world, whereas the RFF studies are for the most part concerned primarily with the United States and treat the rest of the world as a unit.

Outlook. When one looks at the growth rates assumed in the UN study and at the requirements necessary to achieve them, a less sanguine picture emerges.

• The gap in per capita gross domestic product (GDP) between the rich and the poor, which was 12-1 in 1970, would not begin to diminish even by the year 2000 if IDS targets for developing countries are extrapolated. To reduce the gap to 7-1 by 2000 would require an increase in the growth rate of GDP for developing countries from the already high 6 percent called for, by the IDS to 6.9 percent, while the developed countries grow at a 3.6 percent rate.
• To improve nutrition standards without increasing their import dependence, developing regions must increase food production by 4 to 5 percent per year. These are rates that have been sustained for more than a decade or so by only two or three developed countries. They would require massive investments in research and development, irrigation, fertilizer production, transportation, storage, credit institutions, and education. In many countries, land reform and other difficult social and institutional changes would also be necessary.
• To raise GDP growth rates to about 7 percent would require that approximately 30 percent of each year's output be invested. This rate is far in excess of current ratios, or even the minimum 20 percent target recommended by the IDS, and would require difficult institutional and political changes in many countries.
• Despite projections that the export earnings of developing countries will increase rapidly, the study finds that these high growth rates, coupled with what are expected to be modest increases in net aid and capital inflows, will lead to a balance of payments deficit on the part of developing countries of some $190 billion in 1970 prices. To eliminate this enormous gap by reducing growth rates would mean that developing countries would grow by only 5.4 percent. To eliminate this gap without reducing growth rates would take the combined effect of a more rapid improvement in terms of trade between primary producers in manufacturing countries, decreased imports and increased exports of manufactured goods, and substantially larger aid and capital inflows

Thus, to accelerate development in poor countries requires "far reaching internal changes of a social, political, and institutional character," plus "significant changes in the world economic order," all of which is physically doable but exceedingly difficult and doubtful.

The picture becomes even more problematic if one looks beyond 2000 and includes environmental problems other than those associated with industrial pollutants. Sometime between 2000 and 2025, production of crude petroleum and natural gas may no longer be able to keep up with the growth in demand, necessitating further substantial increases in price unless technological innovations of an unforeseen order occur in the interim. Such a development would be particularly serious for poor countries that lack other energy forms such as coal. And even if industrial pollutants can be controlled, environmental problems associated with intensive development of agriculture, irrigation, and nuclear power are much more serious and less tractable.

The model's limitations. Many of the conclusions reached by the Leontief study are based on an extraordinarily large and detailed model of the world economy, one embodying fifteen regions, forty-five economic sectors, and more than nine resources and eight pollutants, all tied together through a complex linkage mechanism including exports and imports of some forty classes of goods, services, and financial flows. Needless to say, the data available to implement such a model and project its coefficients over time are inadequate, requiring many ingenious sleight-of-hand adjustments by the research.

For example, each country is assumed to have a certain share of world exports and to import commodities in proportion to its level of output. Over time, these exports and imports are varied by assuming that developing countries will behave in the future in the same way that countries with higher levels of income have behaved in the past. Relative price changes are projected by assuming that the North American input-output tables for different time periods are appropriate for the rest of the world. But prices so derived are used only to develop estimates of the balance of payments deficit for different times. They do not affect the pattern of trade, production, or consumption. Although this procedure permits gaps in knowledge about behavioral functions in different countries to be bypassed, the result implicitly assumes that something like today's pattern of comparative advantage will continue in the future, despite projected changes in relative incomes, technology, and prices—the principal determinants of this pattern.

Given these and other necessary short cuts, how much faith can be placed in the conclusions reached? Little, so far as the specific quantitative results are concerned. For example, the very sizable balance of payments gap projected in many scenarios arises in part from the absence of any mechanism for altering the quantities of imports and exports on the basis of the projected changes in prices. Nevertheless, most of the qualitative conclusions appear to be reasonable and consistent with other studies. If they are anywhere near being correct, and if the difficulties of implementing the necessary political and institutional changes to achieve higher growth rates are as great as they seem, the future for
the resource-poor developing countries looks bleak indeed, far more so than the brave statements by the advocates of the New International Economic Order would have us believe.

Despite the model's limitations, the researchers are to be congratulated on developing a valuable framework for absorbing, organizing, and manipulating large bodies of data about the world economy.