The biggest threat the first world prosperity is facing is the rising competition from the third world or developing countries. In the past years, the world’s dominant economies have become a lot less powerful as we can see that both the Japanese and German economies are stuck in a recession that they cannot understand, making them incapable of recovering from it.
Many economists had lost their interest in analyzing the most important economic battle till date between America and Japan as they are noting a new battle that is emerging in the global economy, this battle is between the advanced countries and the rising economies of the third world. In the past years, we have seen a very disappointing performance of the developed countries whereas the developing countries are rising at an alarming rate with great success. This can turn into a significant threat for the advanced countries in the future. Rapid economic growth was first started in the 1960s in a few small Asian nations, and this growth has now spread across a wide arc in East Asia. Poor countries with large populations are also witnessing economic growth in recent years. Countries like China and Indonesia who were nowhere in the competition, have become a threat to the advanced countries. India, a country with a vast population, is now in the race to compete with advanced economies as it is one of the world’s largest economies.
People may think that the world should welcome this change in the global economy as many people who were suffering from a lower standard of living and extremely poor conditions are now seeing some improvements in their lives with a better standard of living. Poor countries that are on the verge of becoming a developed country are having great business opportunities. Despite welcoming the change in economic development, influential people in the west fear this development as it can be a threat to the first world countries.
Previously there were two types of countries, firstly there were rich countries with high productivity and high wages, and secondly, there were poor countries with low productivity and low wages. But now some states are seeing a combination of high productivity and low wages, and the vital thing to note is that this type of country is developing at an alarming rate.
Till now, the third world has not become a threat to the U.S. economy, but according to many researchers, it is not too late when the third world developing countries will become a significant threat to the U.S. The first threat that will strike the U.S. economy will be the low wage imports from the developing countries. Current economic problems in the U.S. are due to the emerging competitions from third world countries. A country like China, who was nowhere in the race a few years ago, is now becoming a challenge for the U.S. economy.
However, the truth is that the change that is occurring now is negligible, but it is not much longer when this threat will be an actual problem for the existing advanced countries.
Let’s discuss some points on this argument:
The idea that the rising of developing countries, also known as third world countries, is turning to be a threat for the advanced countries somewhat feels like right in today’s situation. Let us understand this argument in a more precise way, suppose someone has started developing some skills which I possess from years, maybe he is not as efficient as me but is interested in working for a part of my wage. Isn’t it showing that I have to decrease my standard of living or choose to leave the job?. This is the idea of those who fear that developing countries will take over the advanced countries after some years.
Some researchers say that this story is misleading. They think that if productivity rises in the third world, then the average standard of living prevailing in the world will improve as a whole because the surplus output should go somewhere. Let us see this in another way, if you think that the foreign competitors will lower their wages to decrease the cost of production in order to provide cheap goods they also increase our purchasing power by taking this business plan hence, this will balance the whole thing, and there is no fear of adverse effect.
A Complex Web Of Feedback Relationships
Everyone knows that there is a way to deal with complex systems. In order to understand a complex system you need to build a model after acquiring all the knowledge about how the system works, you have to go step by step to understand a complex system so the first start with a start simple model then gradually move into some realistic models, this will help a person to understand the policy correctly.
In this article, I will adopt the same steps to understand the effect of growing economies on the wages and jobs of the advanced countries. I will start with some impractical view of the global economy and gradually bring down some practical facts to understand the topic more efficiently.
In the end, I think we will answer the question of whether the rise of the third world is becoming a threat to the first world prosperity:
A World With One Good
Imagine a world with one good only; all the countries produce the same good. The only difference is that some are more productive than others. In this world, there will be no distinction between skilled and unskilled workers. The wages will depend on how productive labor is; the more one produces, the more he gets compensated. In this world, the consumer price index will include only one good and depend on the laborers’ productivity.
An increase in productivity in one country will not affect the wage rates in some others because wages will depend on production.
One of the problems in this model is that it doesn’t include foreign trading, which is killing the competitiveness atmosphere between the countries; this is not good for the economy.
Everybody thinks whether wages rise with productivity, yes, history shows that with the increase in production, the wage rates also increase. Wages in Japan, South Korea, increased when the rate of output started growing.
From this model, we get to know that with the increase in production, output also increases, which increases someone’s income; this shows that there will be no impact on the wages of advanced countries with the rising of developing countries.
A World With Many Goods
This is more realistic than the previous model. This shows that each country possesses a particular product specialization, which is why there is foreign trading. There is an exchange of hi-tech goods as well as low valued assets.
In this type of world, there may be a negative or positive impact on the rest of the world if any country’s production increases.
Let’s say there are two regions, northern and southern. There are three types of goods: A, B, and C. northern produce A, southern produce B, and they both provide C. In this type of situation, productivity change in A and B goods will not affect either of the regions. Still, a change in productivity in good C in one region will affect the other. When one of these regions increases the price of the good only, they can produce; this will also affect the other region as they have to pay more for the same product.
From this model, we learned that increase in productivity in the third world doesn’t affect the first world, but when the prices of the products imported from the third world increase due to their development, it affects the first world.
Secondly, when the third world increases the productivity of a particular good which has a lot of competition in its market all over the world and sells those products at a lower price, the first world countries in order to survive the competition are forced to reduce their prices which in turn reduces their income.
International Investments In Third World Growth
Investors are finding it profitable to invest in third world countries because they are in the developing stage, and the cost of factors of production is low as compared to advanced countries. Even investors in advanced countries are investing in developing countries for more return.
This will cost a lot of jobs in the advanced countries, for example, due to an international deal made by the U.S. investors recently, 50000 workers lose their jobs. This will force the advanced countries to lower their wages. Thus this model shows that there is a threat to the first world.
The view that the development of third world countries is a threat to first-world prosperity is still a theory, and a lot of researchers are analyzing this argument in order to get an appropriate answer.