The meaning of the word “development” has been debated. Indeed, the World Bank has essentially stopped using the terms “developing” and “developed”—first because they are fraught with misunderstanding; but also because countries no longer fit neatly into one of the two categories. Plus, there are disputes about how to measure standards, with GDP very much out of fashion, while “multiple modernities” has become a focus of controversy about what to count and how to achieve it. Nations can succeed in some ways but not in others. It’s not a smooth divide, nor is it a smooth path.
The manifestation of being underdeveloped is that the economic conditions are inferior. As a result, health, education, and standard of living are also inferior; the crime rate is high; women are treated as second-class citizens; and the country is often stuck in a continuous cycle of trying to develop without success.
The usual remedy is to give the country economic aid to stimulate economic activity.
I suggest that that is, at best, a Band-Aid® that merely provides symptomatic relief. It will not help the country to raise itself beyond underdevelopment.
From my experience consulting to several underdeveloped countries, I have developed an opinion on the causes of being underdeveloped and how to address them.
We know from physics that a system’s energy is fixed. A country is a system. Like any other system, it has fixed energy.
To move a country from “underdeveloped” to “developing” requires energy—dedicated, focused energy—and anything that wastes the available fixed energy undermines the country’s ability to dedicate that energy to development.
What are the factors that waste energy?
The first is a lack of social integration, which can be caused by tribal wars, religious intolerance, and extreme wealth disparity, among other factors. The lack of integration causes conflicts that divert limited energy away from development.
In fact, tribal or ethnic and religious diversity, or a war, are the ultimate obstacles to any progress.
The second reason is a lack of entrepreneurial spirit in the local population. This can be an enormous issue. I will explain this point in more detail:
To achieve economic growth, people must be willing to dedicate time, money, and their own energy to creating an economic entity. Such people, by and large, make plans for the long term. They are not envisioning the company, the factory, or the enterprise over the next one or two years. Instead, they may dream of dedicating their lifetimes, or even multiple generations, to the project.
In underdeveloped countries, as in all countries, the development of humanity begins with a nomadic culture, with planning that is very short-term. Their time horizon is months, not years; they probably cannot plan what they’ll do and where they’ll be for longer than the next season.
The same holds true for the next step in human evolution: the agricultural society. They also plan from one season to the next. For an industrial society (and I am not talking about a mama and papa taco stand)—for industrial entrepreneurship—a multi-year horizon is required.
When I ask rank and file people in underdeveloped countries their plans for the future, at most they can envision the next year. Beyond that, they go blank. Compare that to the Jewish people, who are known for their entrepreneurial spirit. As soon as a baby is born, the joke goes, the mother is already planning to raise a doctor or scientist. His future is decided the moment he is born.
A Jewish immigrant comes to America penniless. He does menial work and saves his money to send his child to college. That child, in turn, sends his own child to get her masters’ degree and the third generation attains a Ph.D. Some become Nobel prize-winners.
The Jewish society, like all other entrepreneurial societies, takes a multi-generational view of life. Notice how the Chinese dedicate their energy resources to giving their children the best education they can. And as a result, look how fast China moved from underdeveloped to super-developed. Their planning processes and expectations are long-term.
By contrast, the populations of underdeveloped country have only a limited vision of the future. They basically live from day to day: The very day they get their paycheck, they rush to spend it—not necessarily for survival but for pleasure—and hardly can make it to the next payday. Gypsies are the most extreme example of this behavior: They find it impossible to imagine the day after tomorrow.
With such short-term vision, it is not possible to develop a business that’s sustainable enough for economic development.
The third reason is lack of law and order, a deficiency of security and governance.
These causes of economic growth are missing because underdeveloped countries have not yet experienced industrialization, at which stage planning, order, and discipline are necessary for success. In an agricultural society, entrepreneurship and law and order are not as crucial as in an industrial society.
The fourth cause of being underdeveloped is organized religion.
One day I was working with a client in Mexico, in Tasco, a city known for its silver mines. Standing on the terrace of the Holiday Inn hotel overlooking the city, the company’s CEO said to me: “Look at the city and tell me what you see.”
I gave some answer, which he did not find satisfactory.
He continued, “Look how enormous the church is and how small the houses are.
“Now think about Wall Street. The church is small, while the business offices are in a high-rise.”
The problem is that the church gives the underdeveloped population false hopes: “Donate, pray, accept, and worship the religion, and God will help you and save you.”
So poor people pray and hope. They climb the stairs of the church on their knees, praying for forgiveness for their sins. In the process, they accept that their destiny is being poor. Karl Marx called religion the opium of the masses.
The four causes I listed all waste energy, which is necessary for building a sustainable, developed country.
The developed countries donate money to the underdeveloped countries, but I feel it does not work. With corruption, much of that money gets lost somewhere, and whatever isn’t lost ends up supporting small enterprises with limited economic potential.
Just throwing money at the problem can even have negative side effects. By that I mean that from the outside it looks like something is being done to help. The statistics indicate some economic growth, but note that that growth is centered in a small part of the society, usually with a foreign minority who have the entrepreneurial spirit, who know how to build a business because they are willing to take risks and look at the long run. Examples are Indian, Chinese, and Jewish immigrants to a country. Because their wealth stands out, the local population starts to resent them, and often these minorities get kicked out of the country—which halts economic growth.
Another form of pseudo-economic growth is when foreign companies come and build factories in underdeveloped countries. It looks good. The GNP statistics improve. But these foreign companies come to underdeveloped countries specifically to capitalize on cheap labor. They function as enablers that perpetuate the poor country’s underdevelopment: The population is not improving, nor is the underdeveloped country becoming self-sustainable to continue its growth. On the contrary, the foreign investors keep the locals poor and undereducated and continue benefiting from cheap labor. The situation culminates someday in a revolution. At that point the enabling companies are kicked out and the entrepreneurial spirit disappears. The country soon returns to being underdeveloped.
What to do?
If money is being donated by developed countries, it should be used to help the country overcome its tribal, religious, and ethnic conflicts—to do whatever is needed to bring tolerance, Mutual Trust and Respect to the warring segments of the society.
Second, modify the underdeveloped country’s educational system, to teach children long-range thinking and risk-taking.
Third, develop a judiciary system that is well paid and well regulated—both to avoid corruption and to help bring law and order to the country.
Finally, reorganize religious norms to give to people rather than take from them. Religions need to preach self-reliance and encourage entrepreneurship.
With such a foundation, any economic assistance provided, instead of being wasted, will become the seed of an opportunity to grow in fertile soil.