South Africa is classified as a Third World country yet some of us seem to only have First World problems – that was so lame!

Seriously though the terminology of First World and Third World is quite well known. That said how many of us actually know what lies in-between? What really is a Second World country?

In order to understand the terminology, we need to look at the actual origins of it. Let’s rewind back to the beginning of the Cold War, where the terms were used based on geo-political divisions. As you may recall (or have learnt in History at school) the Cold War was all about 2 groups. The creation of NATO (formed by the US and its western allies) and the Warsaw Pact (a defense treaty between several communist states in Eastern Europe) divided the world into these 2 spheres. What is commonly referred to as the US vs USSR or America vs Russia or Capitalist vs Communist conflict.

In 1952 a French demographer called Alfred Sauvy coined the term “Third World” to refer to all countries outside of this political divide.

Demographer is someone who studies the quantitative and geographical side of human populations

The countries that were not aligned and not involved in this political divide were typically your African, Middle Eastern and Asian countries. As logic would dictate the 2 spheres were also given names.

The democratic capitalist Western countries were called the First World and the socialist-communist states and allies became the Second World.

. . .but this has changed its meaning in recent years as you know.

The terminology over the years has moved away from the geopolitical definitions and into more of an economic indicator. First World countries are associated with Developed Markets (DM), which have large industrialised economies. The Third World still refers to “everyone else” and is a catch-all for countries that display:

  • more poverty,
  • less technologically advancement,
  • dependence on the “developed countries,”
  • have unstable governments,
  • high rates of population growth,
  • illiteracy and disease,
  • a lack of a middle class,
  • a lot of foreign debt,

or some combination of these (although this list is not exhaustive). These Third World countries are referred to as Emerging Markets (EM).

The forgotten and neglected Second World still refers to the original communist and former communist countries. There is not a direct economic reference like the new connotations for Third and First World.

Due to there not being an economic connotation to Second World countries, the Third World and Second World are often blended together. This is called Emerging Markets (EM). Although EM is is normally associated only with Third World countries it includes all the ex-communist states making up your Second World.

Remember Emerging Markets will have some characteristics of a Developed Market but do not satisfy all the requirements.

Lets take a moment to look at what Emerging Markets and Developed Markets mean today, and specifically the often heard term BRICS.

BRICS – The Emerging World

The largest Emerging Markets by GDP are your BRICS nations. These are made up of Brazil, Russia, India, China and South Africa. BRICS nations main objectives are cooperation between the member nations. This includes development, provide financial assistance, support various projects, grow infrastructure etc.

It all began in 2001, when Jim O’Neill, then Chief Economist of Goldman Sachs, coined the acronym for Brazil, Russia, India and China as the largest emerging markets economies “BRIC”. He expected them to grow faster than developed countries and to play an increasingly important role in the world, which proved to be true as they quickly ramped up nominal GDP. In 2009, BRIC held it’s first summit as an actual mandated and member based organisation. In 2010, we as South Africa asked to join and were accepted thus transforming BRICs into BRICS.

The long and the short of it

In today’s world we have forgotten the Second World and replaced the terminology with Emerging Markets and Developed Markets. Developed Markets are expected to have less growth potential but are considered safer than their Emerging Market counterparts. This is due to their mature industries, advanced technological developments and more educated workforce. As such you may hear that Emerging Markets are often referred to as risk-on investments. While your safer investments like the dollar and US in the Developed Markets are referred to as risk-off investments.

While First World and Third World terminology is now not as common as the Developed Markets and Emerging Markets terminology, it all seems to overlap. Understanding it is crucial to grasping the macroeconomic lingo.

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