Traditional Economies

In the decades since independence, developing nations experienced enormous changes. The changes began during the age of imperialism as a money economy replaced traditional economies. Traditional economies rely on custom and tradition, and tend not to change over time. In traditional economies, most people rely on farming, fishing or hunting and use barter to trade for needed goods.

A traditional economy is often called a subsistence economy, where people produce enough for their own need but little surplus. Although vast numbers of people continue to live at subsistence level in rural areas, most developing countries have seen rapid urbanization and have tried to develop agriculture and industry.

Moving Toward Modernization

Leaders in developing world set ambitious economic goals. They wanted to increase food output, develop industry, construct roads, airports, and railroads, and build power plants. To achieve development quickly, some leaders adopted command economies in which the government made most economic decisions and owned most industries.

Developing nations needed vast amounts of capital to finance projects to modernize their economies. After independence, some political leaders tried to speed development by replacing traditional and market economies with government-led command economies. This meant that governments owned most businesses and controlled farming.

Although command economies were meant to promote rapid growth, they often failed. Command economies tended to be inefficient, stifled innovation or change, and restricted freedom. Governments experimented with redistribution land to give land to peasants, but in many cases, this move did not increase productivity. Since the 1980s, most developing nations have made far-reaching market reforms.

In addition, many developing nations fell into heavy debt. Developing nations needed vast amounts of capital to finance modernization projects. Most borrowed from the industrial world. When prices for their export crops or products were high, they were able to pay interest on their debt. But when prices for their exports fell, they fell heavily into debt.

This chart compares developed and developing nations on a number of measures.

Analyze Charts

What generalization can you make about the age distribution in developed and developing countries, based on the data in this chart?

The 1973 oil crisis followed by a global recession hit developing nations hard. Soaring oil prices and falling exports plunged them into financial disaster. Many nations were unable even to pay interest on their huge debts. To ease the debt crisis, international lenders pushed debtor nations to make market reforms. Governments had to privatize, or sell off, industries, ease restrictions on trade, and promote other economic freedoms.

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