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Question #5

Q:  Capital is the most basic economic need of countries in the South.  Why is this such an important need, and how might LDCs acquire more capital?

            Without capital LDCs cannot build infrastructure, industrialize, or take care of their people.  Nations cannot take care of their people without infrastructure and industries cannot exist without supporting infrastructure.  Infrastructure requires large infusions of capital, which LDCs cannot raise through taxes because their citizens are extremely poor.  In the past, LDCs have raised most of their capital through loans.  The problem now is that the interest on the loans is such a burden that a large part of their economy goes towards simply paying off the interest.  Private investment is unreliable because LDCs are prone to violence and past attempts by LDCs to nationalize private assets and pull other shenanigans.  Private investment is not aimed at improving the host nation; it is focused on turning a profit.  Usually it turns a profit at the expense of the host nation and adds very little to the national economy.  Unfortunately, when economies go sour private investors withdraw their money instead of increasing their investments; this makes recessions worse and hampers economic recovery from a recession.  Trade is a reliable source of income.  However, LDCs are reliant on primary products, which do not bring very much money on the open market as compared to manufactured goods.  Indeed, while the value of manufactured goods has increased, the value of primary products have actually decreased, decreasing the amount of income most LDCs receive.  Foreign aid is the most obvious form of capital investment, however this usually gets wasted and rarely helps build useful infrastructure.  Except for food donations, foreign aid is usually used for useless symbolism that does not actually help the people.  Though, if all EDCs raised their foreign aid donations to the .7 percent of GDP recommended by the UN many LDC problems could be solved or ameliorated.  My proposal is to focus foreign aid on a few nations that change every five years.  This concentrated foreign aid is likely to produce enough capital to build the infrastructure for an industrial economy.  After a nation is a newly industrialized country the foreign aid should phase out over a period of five more years and shift to a neighboring nation.  By shifting to a neighboring nation the EDCs would build regions of self-sustaining prosperity.  If these prosperity regions were not created there would be islands of prosperity that would likely fail after several years.  Nearly all EDCs have another EDC sharing a border with them or are close allies with another EDC.  Prosperity cannot flourish in the wilderness; it needs nearby wealthy nations to be sustainable.

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