Underdevelopment occurs when some resources are not used to their full socio-economic potential, with the result that local or regional development is slower than it might be. As a system of self-reproducing hard-core poverty and stagnation, it is a complex system of mutually supporting internal and external factors that allow the less developed countries only a lop-sided development process. It hinges on the industrialized world's uneven economic conditions and the changes in the structure of the international division of labour since the Second World War; includes the division of the world into rich and poor countries as well as the disparities with in poor countries between their rich and poor inhabitants; and is convolutedly linked to the developing countries' deteriorating trade position.
The economic and social development of many developing countries is being held back by backward economies and social systems in which peasants and intermediate urban strata predominate. Almost all the developing countries suffer from large-scale hidden and partial unemployment exacerbated by an increase in population due to the decrease in child mortality. Their unequal trade situation stems from their dependence upon primary products (usually not more than three) for their export receipts. These commodities are often: in limited demand in the industrialized countries (for example: tea, coffee, sugar, cocoa, bananas); vulnerable to replacement by synthetic substitutes (jute, cotton, etc); or are experiencing shrinking demand with the evolution of new technologies that require smaller quantities of raw materials (as is the case with many metals). Prices cannot be raised as this simply hastens the use of replacement synthetics or alloys, nor can production be expanded as this rapidly depresses prices. Consequently, the primary commodities upon which most of the developing countries depend are subject to considerable short-term price fluctuation, rendering the foreign exchange receipts of the developing nations unstable and vulnerable. Development thus remains elusive.
Underdevelopment severely affects potential growth and stability for virtually all the world's developing countries (which include the majority of independent countries in Central and South America, Africa, the Middle East, and Asia; the main exceptions being South Africa, mainland China, Taiwan, and Israel). Most of these countries were colonies or semicolonies of the the imperialist powers or were dependent on them.
As the industrialized countries continue to rely on their economic superiority and on their monopoly associations in the developing countries, they take advantage of the growing indebtedness of the underdeveloped nations (particularly as regards to the scientific and technological advancements the underdeveloped countries are so eager to participate in) and try to keep them in a subordinate, underdeveloped position by strengthening the system of neo-colonialism.
The core problem is not the lack of development or stagnation, rather there has been too much development of an inappropriate kind.