Globalization and Poverty
Many people today reveal their concerns over the fate of the world’s poor by attributing their present plight to globalization cycles. They assert that globalization often weakens the position occupied by poor countries, thus exposing the poor nationals to harmful and unfair competition from the developed world. This concern remains understandable, especially as illustrated by the glaring gap between the poor and the rich in recent decades. Nevertheless, revealing the direct link between globalization and poverty demonstrates a complex task. This arises from the fact that globalization has multiple aspects of integration with each contributing towards variable effects. Equally, poverty exists as a multidimensional phenomenon measured in various ways, including a country’s average, consumption capacity or overall well-being (Samman, 2013). In addition, many people have often experienced poverty for various reasons. In light of this, attributing the increases in global poverty to globalization obligates proving its dominant influence in leading to poverty.
Globalization leaves countries more economically integrated through trade and investment activities. If globalization were to cause a rise in poverty levels, then economically integrated countries should accomplish less. To the contrary, countries that become integrated into the global economy, including China, Brazil and India, demonstrate progress. Others in sub-Saharan Africa, that remain relatively isolated experience declines. This exhibit barely settles the contention that globalization causes poverty, but it casts doubt on the argument for isolated countries (Alkire & Sarwar, 2009).
Globalization demonstrates a catch-all arena, where arguments linking it to poverty may arise from the generalization of specific instances where grand global developments lead to impoverishment. For instance, though most governments assume debt from the private capital market sources, decline in the demand of their commodity depresses prices. This situation compels them to seek funding from the global institutions, such as the World Bank and IMF for them to service their due loans (Tibaijuka, 2013). Such countries agree to the conditions provided for the financial aids that often demand internal reforms. The provisions may impose hardship on their nationals, consequently tempting to conclude that globalization leads to poverty.
This research embraces a focus on economic globalization to examine the differing schools of thought on the aforementioned issues. It examines whether the evidence in the current debate favouring those holding that economic globalization is essentially positive, alongside the position that the process creates a race to the bottom driving more people into poverty.
The Globalization Process
The world system today has seen the term world market, global economy and globalization appear in sound-bites of media personalities, politicians and the unemployed individuals alike. While the initial two terms are known, few understand the history of the globalization process. Globalization involves the interaction and integration process arising among individuals, organizations and governments of various nations driven by international investment, world trade and information technology. The process draws and influences through its effect on the immediate physical environment, culture, political systems and economic prosperity, alongside the physical well-being in the societies. Globalization demonstrates a process of change comprising the flow of multitude elements: technology, capital, cultural ideas, people, and knowledge (Ritzer & Atalay, 2010). The implication of the aforementioned flow presents a continuous catalyst for social, cultural, economic and political adjustments. For this, Thomas Freidman a renowned foreign affairs writer with the NewYork Times asserts in The Lexus and The Olive Tree book that globalization presents the essential development and prosperity of international affairs since the end cold war.
The globalization of the economy today reveals an amplification of the interdependencies, collaborations and interconnections among various national states. This derives from the tendency to accomplish economic objectives exceeding the national borders. While this forms the obvious truth of defining globalization, it is essential to demonstrate the systematic proves to modern globalization (Radescu, 2002).
The globalization process traces its origin to the early fifteenth century following the evolution of capitalism. Equally, most cite the exploitation of the third world nations in Latin America, Asia and North America during colonial settlement as the inception of globalization. The process has its roots in the emergence of imperialism as most economies opened up favouring the first world countries at the expense of exploiting the undeveloped countries. At this point, nature depended largely on the perception of the imperialist rulers. They had the mentality of creating distinctions amongst individuals on the basis of social strata. This enabled them an easier exploitation platform where they would extract raw materials, manpower and other production factors to sustain their administrative and military needs. This allowed the richer countries to prosper while pushing poor nations towards poverty (Economy Watch, 2010).
The second globalization stage targeted inter-imperial commercial activities. This is characterized by the need to expand international trade. The national organizations sought expansion of their activities and operations in the external market, encouraged by the development of transport networks between 1870- 1914. Additionally, the liberalization witnessed in the 19thcentury sets the perfect ground for international trade and investment. The primary actors included the European imperial powers, the USA and Japan, which joined hands to form groups at regional levels. The governing powers generate cooperation and active competition across the commercial sphere leading to the birth of multinational corporations. These entities strove to gain control of their target markets, which led to interconnections that exploited the markets of most third world countries effectively. Although this enlarged their profits under an organized, self-sustaining principle, the expansion of national economies collapsed with the start of World War I (MacEwan & Miller, 2011). This forced most states experiencing incoherent economic policies embrace protectionist measures that significantly slowed the economic growth.
The process of globalization resumed following the liberalization of international trade. The period arising between 1950 and 1980 arose from the influence of the General Agreement on Tariffs and Trade (GATT) aiming to aid economic recovery. The reduction of tariffs allowed powerful economies to achieve huge expansion of exports. To the contrary, countries occupying the opposite pole committed to the export of basic products, therefore missing on benefits attributed to huge capital inflow (Radescu, 2002). This resulted in large differences between the developed and underdeveloped countries.
The final stage beginning in 1980 is fuelled by the accentuated development of telecommunication and exploration of cosmic prosperity. The period referred to as economy without borders depends on the increasing speed presented by modern technology. This aids long-distance transaction following the creation of the World Trade Organization (WTO). This organization facilitates the establishment of a legal platform to accomplish maximal liberty for commercial operations without undesirable effects. This translates to the current wave of opening economies both domestically and internationally. As many governments adopt free-market economic platforms, more productive potentials and opportunities in international trade and investment have increased (Obama, 2011). It allows corporations build foreign factories and establish complete production and marketing operations with franchised partners. This leaves globalization with a defining feature of accomplishing an integrated industrial and financial business structure.
Technology emerges as a principal driver of the globalization process besides the liberalization of market systems. Technological advances dramatically transform the economic scope that allows a level ground of collaboration and international dependency. For instance, information technologies have proven essential in allowing economic actors to identify and pursue emerging economic opportunities, including informed analyses of the world economy trends, asset transfer and collaboration with far-distance partners. This translates globalization into a deeply controversial scope where proponents assert that it allows economic prosperity and raised standards amongst poor countries and citizens (Obama, 2011). Oppositely, globalization is negatively criticized as the international free market system benefit multinationals from the developed nations at the expense of underdeveloped enterprises, local cultures and common individuals. This leads to increased resistance to the globalization taking the shape of a popular demand to manage the present wave of globalization comprising the flow of goods, ideas capital and other production factors (The Levin Institute, 2014).
An Inevitable Process
The emergence of globalization demonstrates an inevitable epitome of progress where optimal utilization of resources has led to the accommodation of economic prosperity and social growth in absolute and relative means. Initially, the process towards the present globalization generates a point of unity among people in pursuit of common goals. This reveals in the aforementioned process of globalization, where today’s economic system results from inevitable processes and factors pulling the world towards into collaborations, interdependence and connection. For example, liberalization efforts are essential to accomplish easier trade and strike the balance of needs, demand and supply forces. In addition, individual nations derive positive engines of economic growth and development. This yields an inevitable force exhibited by economists and politicians in facilitating unfettered free trading and market ideologies since the end of Cold War (Shah, 2006). This fuels the wheel of the globalization harder to accomplish even wider platforms supporting international trade.
The media platforms yield frequent debates on the realities of the cyclic economic globalization process. This translates to the examination of the successes and failures that either the proponents or opponents often cite to reveal its good or ill influence. The two sides bury their contention into the agreement that globalization is inevitable and neither a single individual nor a group will stop its relentless march. It represents the process of expanding economic liberty beyond the national borders. The proponents of free markets tend to view globalization as an invisible hand, leading to greater prosperity and essential self-regulation (Shah, 2006). This is supported by both economic theory and decades of a proven hard-earned experience where most nations have realized that the spread of the free market system and institutions offer the best hope of sharing the fruits of prosperity amongst a wider circle of mankind.
Contrary to the world destruction view shared by opponents of globalization, the reality of good things accomplished is a reality of its inevitability. The desire to establish and sustain a more efficient market where market forces of supply and demand strike balance, international connectivity is essential. The collaboration allows countries centre on productions they derive comparative advantages. The efficiency derived from the balance between supply and demand initiates economic growth. The link established in the global economy triggers a platform spurring growth in all the connected economies (MacEwan & Miller, 2011). In view of this, the after-effects of success felt across the world due to globalization would hardly been achieved in isolated economies.
The quest of sustaining peace following the disastrous events of World War II mandated to conduct mass adjustments to factors that would enhance the standard of living. This commitment has seen various factors, including political decisions; imperial processes and social adjustments arising in the last decades pull the world system towards interconnectivity. This results in partnerships between various countries and organizations. This yields stable relations where agreements are reached and upheld thus sustaining all in a world-cooperation. This illustrates globalization as a process where countries seeking stability and security have to subscribe to achieve the economic growth and political peace (Shah, 2006). Furthermore, raising the standard of living amongst nationals compelled countries to seek globalization as it allows improvement of infrastructure and employment platforms that enable people live at higher global levels every day.
Globalization is often seen in quickening the pace of international commerce, increased flow of foreign direct investments and growth of gross domestic product. This expansion does not result from restrictive grand designs through protectionist platforms imposed by isolating countries. The debt crisis that struck in1982 and the lost decade yielded a painful hangover for third world nations that sought economic prosperity by shunning foreign direct inflow and subsidizing the infant domestic industries. Unlike the failed policies of isolating from globalization in sub-Saharan Africa, the dramatic improvement of living standards in the deregulated economies of the Four Tigers of East Asia demonstrates no requirements to control globalization. The relative success of an open economic policy in Hong Kong, Taiwan and Singapore, contrasted to protectionism should spur a global movement towards globalization (Griswold, 2012). However, countries should blend in the benefits of unilateral liberalization but should seek the modification of globalization that yields faster economic growth, reduced poverty levels and fertile soil to nurture democracy.
1. Methodologies Used to Measure Globalization
Although Ravaillon (2003) suggested that the choice of measurement in examining poverty levels and inequality does not matter, it is essential to recognize the applicable methods. Here, the measurements applied involve those utilized by the World Bank as the analysis is based on its findings. The measurements include the percentage living below the national poverty line, below the one dollar and two dollars levels. The Gini coefficient targets the difference arising between the income pairs and the absolute differences. This focuses on examining the inequality levels. Lastly, the Kuznets ratio is used to examine to study the income distribution between developed and developing countries (Samman, 2013).
2. Relative versus Absolute poverty
Poverty denotes the state in which an individual is unable to meet the minimal living standards comprising minimal income, imputed value in household production or consumption of purchased products. Given that poverty involves a multidimensional challenge resulting from economic, political and environmental elements, the income level would present a reliable proxy to determine the adequate consumption point, and thus poverty.
The debate on the link between globalization and poverty demands the use of the conventional poverty line. Initially, the relative poverty line is measured annually in regards to the average level of income within the population. On the other hand, absolute poverty is determined in reference to the monetary value attached to the bundle of necessary products and services adjusted annually to reflect the variation in prices and bundle composition (Griswold, 2012). The relationship emerging between the poverty level and globalization demonstrates that high poverty levels are reported in high globalization areas. This implies that countries witnessing low levels of globalization experience poverty reduction when they embrace further globalization. However, as a country experience, a rise in its globalization index its nationals will experience a reduction in poverty though at a slower pace. Using a model of four sub-indices, including economic integration, political engagement, and technological connections alongside personal contacts, the results demonstrate a negative relationship between the globalization process and poverty levels (Griswold, 2012).
Furthermore, testing the nature of globalization to various poverty measures shows no difference arising neither in relative nor in absolute terms. It demonstrates that globalization yields a positive force in reducing poverty levels, though insignificant in influencing income inequality. This shows that income inequality rarely depends on the globalization coefficient as multiple elements among them regional heterogeneity influence its levels. Finally, testing the relationship for non-linearity portrays diminishing returns to benefits derived from globalization. This shows that a reduction of poverty will arise in further globalization for countries experiencing a low level of globalization. It demonstrates that isolated countries discarding protectionist policies to embrace globalization witness, high poverty reduction. However, the rate of reduction diminishes in further globalization (Shah, 2006). This translates to the conclusion that as countries scale the globalization index, embracing further globalization will reduce the poverty levels but at a gentler pace.
3. Winners and Losers
The process of globalization leaves the long-suffering consumers in previously protected nations from the global competition as the greatest beneficiaries. Opening the market system to global competition expands the choice of improved quality products and services while exerting downward pressure on existing price levels (Samman, 2013). This translates to immediate gains delivered to workers as the real value of their wage increases. Equally, this illustrates the transfer of wealth from the formerly protected producers to the newly liberated consumers (Griswold, 2012).
The gain derived by consumers exceeds the resulting loss felt by producers, allows the economy to recapture the deadweight through efficiency gains. Consumers in countries protected from global competition often experience the curse of poor serves, overpricing and low-quality products. This results from the absence of real competition to trigger domestic production that meets consumer demands. Embracing globalization in a freer market opens the domestic market to imports where consumers access a larger range of products and services. This improves their overall standard of living.
Engagement in the global economy allows the domestic producers in the Low Developed Countries access wider ranges of intermediate inputs of improved quality at lower acquisition prices. Additionally, it facilitates a platform where domestic industries leap huge benefits from operating on scale to serve the global demand, rather than confining to the limited domestic market (Griswold, 2012).
Upholding the openness allows the underdeveloped countries capture the latecomer advantage of importing the latest technology off the shelves. This saves such countries from incurring huge cost of conducting up-front research and development. Subsidiaries of the multinational organizations located in the LDCs, bring new production techniques and management training that collectively fosters the human capital of the host nation (Shah, 2006). Globalization demands governments to enact and uphold sensible economic policies that meet the Golden Straitjacket concept. The concept obligates the ruling authorities to make the private sector the core of their economic growth, low inflation rates, price stability, declined bureaucracy, unrestricted foreign investment, and balanced budgets. This yields individual freedom amongst citizens that translate to more checks on abuse of governmental power. It implies that countries imposing anti-market policies and restrictive foreign investment policies experience huge costs for their misplaced policies (Griswold, 2012). This leaves closed economies as losers compared to closed economies.
The sour side of globalization arises from the increased global competition that smaller companies experience the difficulty of competing with the borderline monopoly of multinational companies. The situation leaves firms from the underdeveloped countries, crushing when they fail to live to the competition. Equally, globalization yields a platform where other countries may derive a comparative advantage and produce efficiently (Shah, 2006). This displaces the ineffective producers from business.
The Bretton Woods institutions play an important role in facilitating a better globalization process. They help in restoring the benefits of establishing global integration and enhancing international economic cooperation. Similarly, they have in their mandates a common desire to promote broadly-shared prosperity (The Levin Institute, 2014). The World Bank targets the creation of long-term investments, building institutions, social prosperity, environmentalism and poverty issues. The IMF concentrates on accomplishing smooth functioning of the monetary system and macroeconomic reforms sustain economic growth. It embraces economic governance by mitigating the negative effects emerging from globalization through stable international financial systems (The Levin Institute, 2014). It partners with the world poorest nations through the help for self-help principle to fight poverty. The IMF and World Bank have often faced criticism in the Washington Conesus. First, they placed too intrusive conditions compromising the sovereignty of the recipient countries. Secondly, the one-size-fits-all provisions were imposed without establishing the relevant understanding of the distinct nature of the individual economies. There lacked a sequential implementation process that would allow a beneficial connection to the emerging reality of the affected countries (The Levin Institute, 2014). this demonstrates the exportation of the Western approach to achieve market liberalizations and free trade for developing countries to illuminate the industrialized nations.
The Free Trade Debate
The free trade involves the platform of making trade easier to accomplish a balance between needs, supply and demand. This forms a simplified commitment to create a positive engine for development. While this equals the capitalism success of enhancing technological innovation and generating wealth, the monopoly is criticized for causing destructive corporate-led globalization. The idea of striking a free market creates a self-balancing platform for market forces and economic prosperity, the realities of the globalization yield increasing concerns (Shah, 2006). Although many in the developing world welcome the ideas of globalization under a free market, they demonstrate their wariness of the realities. They demand globalization that accomplishes real peace, stability and a powerful economic process benefitting all. They contend that the globalization process to secure a free world market, must not allow the politically and economically powerful countries submerge the weaker countries from the peripheral regions. Likewise, they demand adjustments to the globalization process to eliminate draining the smaller countries and decrease the inequality gap between the rich and the poor (Shah, 2006). The concerns raised to reveal the criticism of the present form of globalization termed as free-market capitalism to benefit the economically powerful countries.
The present globalization expresses the pursuit of financial gains through neo-liberalism ideologies of humans motivated by greed and self-interest. The form embraces the competitive behaviour in corporate-led globalization that favours societies structured around the cooperation motive. The influence of the contemporary free market system yields a survival-for the fittest ground that overlooks the human perspectives of social wellbeing of all by factoring in materialism.
The present globalization process illustrates a state where powerful countries enacting policies through global institutions to accomplish a free market system. The process portrays a continual repeat of the old mercantilism witnessed throughout history, but nicely dressed as globalization (Shah, 2006). For instance, it illuminates the position of ancient city-states where Venice and Genoa used their powerful navies and treaties to control trade activities. This has evolved into modern-day corporate-led globalization, where the powerful multinationals determine the standards guiding industrial policies (Shah, 2006). Where the developed nations design the rules to international trade policies, it subjects the weaker and less developed countries to losing in the exchanges.
The form of globalization process today results in institutionalizing a platform, striking the balance of power between states. This translates to a free trade where globalization has hardened the sovereignty of some powerful nations while reducing the autonomy of the weaker nations. This triggers the criticism of the worldwide free market where players in possession of power and knowledge enact rules that obligate compliance for others. While globalization generates hope for the world’s poorest in opening trade, promoting economic trade and reducing trade, it yields an unfortunate negative side. This fuels the opponent assertion that removing barriers in developing to enhance free trade causes imbalance that favours industrialized countries. Globalization translates into an inevitable process that has destroyed many customs leading to an increased gap between the rich and the poor but creates a positive impact of reducing poverty levels.