What Is the Third World?

What Is the Third World?

Let me explain to you that the term 'Third World' is an outdated one, originally used for nations not aligned with the major Cold War powers, and now it's commonly but imprecisely applied to developing or low-income countries.

Historically, it referred to economically underdeveloped nations unaffiliated with world superpowers during the Cold War. This classification, which I find now considered outdated and derogatory, grouped countries into First, Second, Third, and Fourth World categories based on economic standing. Today, you should use terms like 'developing,' 'underdeveloped,' or 'low- and middle-income country (LMIC)' to describe these nations' economic conditions more accurately.

Characteristics of Developing Nations

You need to know that classifying countries as First, Second, Third, and Fourth World was a concept created soon after World War II in 1945 and used until the Soviet Union's collapse in 1991.

Nations are often characterized by their economic status and key metrics like GDP, GDP growth, GDP per capita, employment growth, and unemployment rate. In developing countries, low production rates and struggling labor markets are usually paired with relatively low education levels, poor infrastructure, lack of sanitation, limited health care access, and lower living costs.

These developing nations receive attention from the IMF and World Bank, which offer grants and loans to improve infrastructure and economies. Both organizations refer to them as lower-middle or low-income countries.

As an investor, you might find LMICs interesting for growth opportunities due to their high risks and returns. Although they often underperform economically, innovation and industrial advancements can drive rapid improvements.

Evolution of Global Economic Classifications

The terms First World and Third World originated during the Cold War. First World countries were industrialized and aligned with NATO and capitalist views.

Second-world countries had communist systems, mostly allied with the Soviet Union, including Eastern European satellite states and some in Asia.

Third World countries referred to Asian and African nations not aligned with the U.S. or Soviet Union. Now, with the Soviet Union gone, the definition is outdated and may be offensive.

Alfred Sauvy, a French demographer, anthropologist, and historian, coined the term during the Cold War. He observed countries, many former colonies, that didn't share Western capitalism or Soviet socialism. Sauvy wrote 'Three worlds, one planet' in a 1952 article for L'Observateur.

Global Economic Hierarchies

Today, most nations are classified as developed, emerging, or frontier. The old world segmentations mostly fit into these categories.

Developed countries are the most industrialized with the strongest economic characteristics. Emerging market countries show significant strides in economic growth areas, though their metrics aren't as stable. Frontier markets often mirror the old Third World and show the lowest economic indicators.

Alternative Classifications for Developing Economies

The World Trade Organization offers another system, dividing countries into developing and least developed. Without set criteria, countries self-nominate, but others can contest.

Each classification offers opportunities, with projects to boost trading and infrastructure.

As an offshoot, the Human Development Index (HDI) from the United Nations assesses social and economic development based on education, life expectancy, and gross national income per capita.

The World Health Organization and United Nations use Least Developed Countries (LDC) for 44 countries with low socioeconomic indicators, reassessed every few years. Indicators combine gross national income, human assets like nutrition and education, and economic vulnerability like population size and disaster preparedness.

What Is the First World?

The term First World means highly industrialized nations with capitalist economies. Though outdated, today's list would include Japan, North America, Western Europe, and arguably some Eastern European, South American, and Asian nations.

What Is a Frontier Nation?

Investment professionals use 'frontier nation' for countries poised for fast economic development, offering high rewards at high risk.

The Bottom Line

The term 'Third World' is an outdated and offensive relic of the Cold War, used for nations not aligned with capitalist or communist blocs. Today, use 'developing,' 'low-income,' or 'frontier' to represent their statuses and growth prospects. Understanding these helps you navigate economic opportunities in low- and middle-income countries, acknowledging the dynamic nature of global development.