Low, Middle & High Income Countries Research Paper Starter

Low, Middle & High Income Countries

(Research Starters)

As industrialization, Urbanization, and capitalism have spread around the world, wealth and income gaps between countries have become more pronounced. Many different theories have been developed to explain this increasing inequality between countries. Some theories, such as the culture of poverty thesis and modernity theory, suggest that lower-income nations are merely less developed than wealthier nations and could become equal with wealthier countries by shifting to a more modern value system and/or industrializing. Competing theories such as dependency theory and world systems theory argue that the wealthier countries have deliberately shaped modern capitalism to maintain their wealthier, more powerful global position.

Keywords Capitalism; Colonialism; Core/Semi-periphery/Periphery; Culture of Poverty; Dependency Theory; International Division of Labor; Mode of Production; Modernization; Primary Sector; Secondary Sector; Tertiary Sector; Surplus Value; World Systems Theory

Global Stratification: Low, Middle


As the world becomes more interconnected through the processes of globalization, the impact of industrialization and capitalism has been felt unequally around the world. Some nations have amassed great wealth while others are mired in poverty, with stagnant economies and low average standards of living. Wealth can lead to an overconsumption of resources within a nation; poverty can lead to a multitude of problems from poorer health and higher mortality rates to political instability. Inequality between nations can also cause instability between nations and can cause (or result from) the abuse of power and exploitation. Understanding the causes of inequality between nations is necessary to create political and social programs that address these problems.

What is Income?

Immanuel Wallerstein (2004) identified five types of income in the global economy:

  • Wage-income, which are wages paid for one's labor.
  • Subsistence activity, which he defines as any work done to further one's existence; for example, cooking for oneself or one's family.
  • Petty commodity, a kind of piece-work approach to production.
  • Rent, and
  • Transfer payments, made because of an obligation (personal or governmental) (pp. 32–34).

Categorizing World Income

The World Bank categorizes countries by computing the average wealth of each nation's inhabitants; that is, it divides the annual gross national income (the output of goods and services each year) by the country's population, and then ranks the country as low, lower-middle, upper-middle, or high-income. This is useful for comparing average incomes, but does not tell much about the actual distribution of income within each nation.

Many of the highest-income countries industrialized in the early days of the industrial revolution. The wealthiest countries include Western Europe, Australia, the United States, and Canada. Asian countries such as Japan and Taiwan, which industrialized later but caught up rapidly, have also moved into this category. Countries from the former Soviet bloc, oil-exporting nations in the Middle East make up much of the middle-income category. South American nations such as Chile, Venezuela, and Argentina are at the upper end of the middle. Much of Africa (excluding the northern nations) and countries in Asia and Eastern Europe with less industrialized economies fall into the low income category. These countries may have rural populations who are moving into rapidly growing cities; low standards of living; and exploding populations ("Country Classification," 2008; Giddens, Duneier, & Appelbaum, 2005; "International Comparisons," 2008).

As of 2003, the World Bank reported that only 15 percent of the world's population lived in high income countries, but these countries took in over 80 percent of the world's income. About 40 percent of the world's population lived in low-income countries, but they shared less than 4 percent of the world's wealth. About 44 percent of the world's population lived in middle-income countries, but they only earned 16 percent of the world's income (Giddens, Duneier, & Appelbaum, 2005). The World Bank has projected that by 2015, only 13 percent of the global population will live in high-income countries, with 62 percent living in low-income countries and 25 percent in middle-income countries.

While individual countries may move up and down in these categories from year to year, global inequality is fairly entrenched, even though the global standard of living as a whole has risen. Depending on which set of statistics are consulted, one can get the impression that the gap between high and low income countries is expanding, or that it is shrinking. This is because many countries have seen significant economic growth (China and India are the prime examples) while many countries are still struggling (Sernau, 2006).

Historical Inequalities

Industrial societies are those in which the dominant mode of the production of goods is through the use of machines in manufacturing. Historically, as countries have industrialized, they have also become wealthier, developed a highly specified division of labor, become more bureaucratic, urbanized, and seen a declining reliance on subsistence agriculture.

Most early nations were monarchies with agricultural economies. States controlled economic activity within their borders in many ways, by making rules controlling the flow of people, capital, and goods in and out of the nation; codifying a system of property rights; structuring economic exchange; and trading with other states (Wallerstein, 2004).

Some areas of the world have always been richer in natural resources than others, and history shows civilizations rising and falling in terms of wealth and technological development. However, modern inequalities between nations are different from past inequalities for several reasons:

  • They take place within a system based on modern nationhood;
  • They take place under a modern system of capitalism and a global economy;
  • Industrialization changed the nature of global inequality, as it raises the standard of living for industrialized nations;
  • The inequality was shaped by the global spread of colonialism (Maddison, 2007).

Exploration and subsequent colonialism offered obvious advantages to Western European nations. They found new supplies of raw materials from metals to foodstuffs, found land on which to expand, and found a new source of labor to exploit through the slave trade. While patterns of colonial contact and interaction varied, generally colonialism's impact on colonies' economies was more negative than positive: it often replaced older agricultural forms with plantation agriculture, monoculture, or other forms of agricultural production that eliminated the colony's ability to be self-sustaining by siphoning off surplus value to the colonizers (Maddison, 2007). Often this economic exploitation took place in the presence of political oppression, racial exploitation, slavery, and other forms of domination. The cumulative effect of colonialism thus stunted the economies of colonies, and many former colonies retain the footprint of their reorganization under imperialism.

Further Insights

Theories of Inequality between Nations

Modernization Theory

Modernization theory is the idea that low-income countries will become higher income once they move through the stages of urbanization, industrialization, and modernization that have characterized the high income countries' development. This approach became popularized by W. W. Rostow in the 1960s, shaping US foreign policy toward developing nations. There are many assumptions embedded in this idea: that the transition from traditional agrarian societies to modern capitalism is inevitable, that it constitutes a distinct forward progress, and that cultural...

(The entire section is 3548 words.)