GLOBAL FINANCE

and South Korea, many nations suffer from intractable problems that
economic theory has difficulty in either explaining or curing. The key
issues are inter-related.

» Food it is generally recognized that human activity is the prin-

cipal cause of the endemic malnutrition and periodic famines that
devastate parts of the developing world. Poor farming methods, a
lack of environmental controls, bad transport infrastructure, a failure
to stockpile food, and military action to cut food supplies have
been significant features of the famines in countries such as Biafra,
Ethiopia, Somalia, and Rwanda.

» As we have seen, the developed world does not allow a free market

in its own agriculture, with a tendency to keep prices high and
encourage surpluses through subsidy. Many LDCs have taken the
opposite approach: keeping food prices artificially low for the benefit
of their politically-active urban populations. The problem is that
farmers reduce their output and switch to other crops. For example,
Mexico used to keep domestic corn prices low to maintain a cheap
price for tortillas, the staple food of city dwellers. Farmers switched
to crops free of price controls and corn shortages increased to the
point that it had to be imported.

» Developed world farming is highly productive overall: one US farmer

can produce enough to feed 80 people. In contrast, most LDC farmers
can barely feed their own immediate families. Low agricultural
productivity in LDCs may often be due to the extreme difficulty
that farmers face in introducing new cultivation methods. Better
seeds, machinery, fertilizers, and irrigation systems are expensive and
without a stable system of agricultural bank lending, a poor farmer
may well be making a rational choice when he decides to ignore new
technologies rather than take on a very risky debt burden. An urgent
need for land reform is also a factor in some regions, particularly in
Latin America where 2% of landowners possess 75% of the farmland.
In China, for instance, allowing farmers to own their own land and
sell their produce has had a dramatically increased output.

» Development strategies until the 1970s the majority of LDCs and

their advisers believed that the key to economic development was to
industrialize. Trying to mimic the structures of developed economies,
however, is increasingly seen as ineffective and in recent years more