TASK 5

Economic Obstacles

1. Underdeveloped Financial Systems

In contrast to the financial systems in developed countries which are able to mobilize private saving and allocate those savings to the most productive areas, many developing countries’ financial systems are unorganized, fragmented, lack of transparency and are dependent on external sources of capital.

These factors are difficult for the government to regulate the monetary supply or to control foreign exchange reserves. This leads to a monetary system in which the wealthy will have access to the capital while the vast majority of society is forced to rely on an unorganized, unregulated monetary system which limit the people’s access to capital and increase the cost (interest rate) of capital.

Example: corruption in financial system in Indonesia.

2. Lack of Economic Freedom

Economic freedom is the absence of government coercion or constraint on the production, distribution or consumption of goods and services beyond the extent necessary for citizens to protect and maintain their liberty. Government rules and regulations have a significant impact on economic development. When the government interferes in the market for reasons other than the protection of person and property, it undermines economic freedom.

Determining the exact boundary between control and freedom is open to debate. To promote equality, the government should ensure that all of the society enjoys the benefits of the economic growth and in some cases, to strengthen the power of the state; the government should have historically placed a wide variety of constraints on economic activities.

However, as can be seen in many developing states, limiting economic choices and interfering with the production, distribution and consumption of goods and services will slow the economic growth of a country.

Example: A Washington D.C. based NGO, the Heritage Foundation is annually ranks the world’s economies according to 50 economic variables in the following 10 categories:

I. Banking and finance
II. Capital flows and foreign investment
III. Monetary policy
IV. Fiscal burden of government
V. Trade policy
VI. Wages and prices
VII. Government intervention in the economy
VIII. Property rights
IX. Regulations
X. Black markets

Economic freedom leads to the higher level of income and contributes to the economic development.

Social obstacles

1. Population Growth

In many developing countries, the population is growing faster than the ability of society to provide the education and skills which necessary to improve the economic growth of the countries. In addition to this, a rapidly growing of population will lower the per capita of income growth especially for those who are already poor and live in the rural areas and depending on the agricultural-based economy.

Example: In India, the population is big and it is hard for the country to develop. The richer becomes rich while the poorer becomes poor.

2. Lack of Access to Education

Since human resources are ultimately determine the characters and paces of economic development, a poorly educated workforce will limit the increasing in productivity and competitiveness and thus slowing the economic growth.

There are 2 major factors which limit the educational access:

• Poverty
• Rapidly expanding population

The former prevents poor families from sending their children to school and later dilutes educational expenditures and diminishing their effectiveness.

Example: In Africa, the education is hardly to develop because the country itself is not developed due to poverty.