What Is the Relationship between Globalization, Poverty and Inequality - Coursework Example

What is the relationship between globalization, poverty and inequality? Since 1980s the integration of the global trade, investment and immigration has steadily materialized in the spirit of globalization. The emergent global is seen as ideal because such structural integration of the international economy encouraged the mobility of wealth creating assets, launched the renaissance of the market system, increased the need opportunities with the global market, created competitive pressures that prompted the sourcing and production of goods, and provided the ease of environment allowing for fast, cost-effective transborder trade and communication. (Tharackan, Bulcke and Plasschaert 1998, p. 81) However, people started to criticize globalization as it labored forward. In the history of this phenomenon, there emerged several debates in regard particularly questioning its economic, political, social and cultural effects. One of the most controversial of these is that the global economic integration is starting to contribute a major part in the increasing incidence of poverty around the world. Specifically, there is the claim that globalization is beneficial only to the rich countries and rich population than to the poor. This paper will outline the relationship between globalization and global inequality and global poverty. In the process, it is expected that the forces that underpin globalization and the issues that concern the evolution of the global political system and the development of governance would be demonstrated. Background There are earlier waves of globalization that occurred prior to the globalization that we have today. The period between 1820 and 1914, for instance, demonstrated an increase in the ratio of trade to gross domestic product driven by the development of steam shipping and by the start of the French and American trade partnership. According to David Held and Ayse Kaya, the world during this period reached levels of economic integration comparable in many ways to those of today, adding further: From the end of World War II to about 1980, industrialized countries restored much of the integration that had existed among them. They negotiated a series of mutual trade liberalizations under the auspices of the General Agreement on Tariffs and Trade (GATT). (p. 76) This does not mean, however, that globalization originated during this period alone or that it is a recent phenomenon. Essentially, globalization does not have a starting point. Rather the trend had a long gestation period with no particular timeline of conception. Jan Scholte cited three phases of globalization to date. To quote: First, global consciousness began to tease secular imaginations half a millennium ago. Second, supraterritoriality made its initial more substantial appearances from the middle of nineteenth century and spread at a mostly gradual rate for the next hundred years. Third, global relations have mainly proliferated and attained their greatest significance since the 1960s. (p. 62) While the concept of globalization is not entirely novel and that its incidence, as this paper has pointed out, occurred in earlier periods of human history, the internationalization of business and capital trade from 1960s onwards are unprecedented, with the added dimension of increased international migration and the integration and openness that characterized the modern global economy. The role of China was important in hastening globalization since the trend for global integration became speedier after its market started to open to the world in 1978 and revamped its economic policy, a development that coincided with the oil crisis, which, for its part, contributed greatly to the external debt crises that swept Latin America and in other Third World countries. These developments affected the way other economies in Latin America, South Asia and Africa developed their own strategies. According to Held and Kaya, this complemented globalization because the majority of developing economies shifted from an inward-focused strategy to a more outward-oriented one. (p. 76) And the rest is history. What must be underscored with the evolution of globalization is that today it has so permeated the globe that it became the international system that strongly influences domestic politics as well as the foreign relation policies of virtually every country. Globalization and Poverty The World Bank – the main barometer for the global poverty evaluation said through the then bank’s president James Wolfensohn (2002), “Over the past 20 years the number of people living in less than $1 a day has fallen by 200 million, after rising steadily for 200 years.” (p. 6) In the organization’s World Development Report 2005, it reported that nearly half of the world’s people live on less than $2 a day and the 1.2 billion barely survive on less than $1 a day.” (p. 189) However, there are those who do not believe in these figures. For instance, Robert Wade argued that the World Bank’s new methodology of poverty measurement does not result into the true and accurate state of poverty across the globe. He specifically cited the new $PPP1.08 international poverty line as faulty since it significantly lowered national poverty lines in 77 percent of the 94 countries for which data are available, containing 82 percent of their population. (in Held and Koenig-Archibugi, p. 20) Wade’s point is that the new poverty line would not be representative of the real situation due to the fact that the global average consumption patterns, on which the international poverty line is based, geared toward services whose relative prices are much lower in poor than in rich countries, allows the false impression that the increase in the cost of the basic consumption of goods required by the poor is lower than it is. This makes sense since the poverty line is generalizing poverty and disregarding variables such as the differences in consumption patterns, the differences between the cost of living between urban and rural areas, and so forth. Considering the above variables, it is difficult to determine which side is true, whether poverty is being eradicated or whether it is worsening. This is particularly frustrating because the true trend could finally confirm whether globalization leads to an increase in global poverty or that it improves peoples’ lives. Although this paper recognizes the validity of Wade’s argument, the current figures on the global poverty trends per the World Bank estimates, although may not be accurate, is too large to ignore and that, generally, it shows a positive development. Furthermore, this aspect may be different from the issue of inequality generated by globalization and hence would be discussed separately. Left to its natural course, globalization could indeed reduce poverty. The very concept is promising and is actually better than most economic models of international trade. With the integration of the global market, national borders are eradicated and opportunities are created with the faster flow of financial capital and goods, which are further buttressed by innovations in technology and communications. Held, writing with Koenig-Archibugi, declared: evidence from the current wave of globalization thus confirms the predictions of neoliberal economic theory – that more open economies are more prosperous, that as any one economy liberalizes it experiences a faster rate of progress, and that those who resist economic liberalization must be acting out of special interests. (p. 18) Despite the above facts, however, new issues emerged that demonstrate the possible weakness of globalization. The developments today points to the fact that the movement is being taken advantage by transnational corporations in such a way that freedom in international trade becomes a tool to maximize profits at the expense of the environment, public safety and labor protection. Along with the idea about the domination of the corporations of the global market, comes the proposition that globalization is spiraling out of control. This is reflected in the so-called danger signals outlined by Abbas Ali (2000), identifying the misery caused by the current globalization trend: 1. Wages and social environmental conditions tend to fall to the level of the most desperate. 2. Lower wages and reduced public spending means less buying power, leading to stagnation, recession and unemployment aggravated by the accumulation of national debt. 3. The reduction of the individual’s and communities’ capabilities to shape their own destiny. 4. The rise of transnational corporations, the world’s most powerful economic actors that are not subjected to any degree of corporate accountability. 5. The production of chaotic and destructive rivalries. (p. 113-114) Globalization and Inequality A good number of literature available on the subject would point to a relationship between globalization and inequality. There is a lack of empirical evidence that would support this, particularly on the causal relationship of these two variables, but there is circumstantial legitimacy in such a claim. Goethals, Sorenson and Burns, stated that currently, the level of income inequality in the world stands at least as high as inequality in the most unequal nations. (p. 575) This is further supported by statistics that paints a disturbing scenario: 900 million people residing in the Western world enjoy 86 percent of the world’s consumption expenditures, 79 percent of world income, 58 percent of world energy consumption and 74 percent of all telephone lines and that by comparison, the poorest 1.2 billion of the world’s population have to share only 1.3 percent of world’s consumption, 4 percent of world energy consumption, and 1.5 percent of all telephone lines. (Held 2004, p. 34) It is, hence, not difficult to understand the link especially with the idea that in the vastness of the global economic system, the economic elite and the powerful economies tend to dominate. A specific argument that demonstrates the role of globalization in the incidence of inequality concerns the policy distortion that is prevalent among developed countries. There is a tendency among the economic elites to harm the investment climates of poor countries. This is illuminated in the tariff barriers being set in place on goods that could help alleviate poverty in the Third World. In addition, developed countries are also notorious for their support and subsidies on domestic industries. Talking about its repercussions, the World Bank stressed: Tariff escalation is particularly harmful because it reduces opportunities for developing countries to diversify away from commodities by expanding into higher-value-added products. It has been estimated that removing the various distortions imposed by developed countries could deliver gains to developing countries of $85 billion in 2015 0 or more than four times the development assistance currently provided for investment climate improvements. (World Bank p. 190) David Held also pointed to the “rapidly diverging patterns of life chances between men and women” stressing that this and the other points, as raised by this paper, underscore that while globalization may work for some countries, for some regions, for some people, it certainly does not work for all. (p. 37) Conclusion These – the arguments outlined by this paper - are not to say that globalization is now a global menace that it became the main culprit behind the incidence of global poverty. After all, it operates in specific contexts and is still influenced by policy interventions on national and transnational levels. Furthermore, poverty and inequality has been an offshoot of human development starting from the rapid human industrial activity. If one looks at the current problems produced, the solutions lie not in the replacement of the economic model but in correcting the flaws. For example, international rights and standards must be established or the enforcement of code of conduct that would govern international corporations and institutions. Furthermore, it is important to underscore that globalization is an evolving phenomenon. The problem that produces inequality, (i.e. the tariff reduction and subsidies on certain industries) are still being discussed and negotiated by countries, undermined by the influence of industrialized economies and the independent bilateral and multilateral trade agreements that are consequences of politics and client. Presently, these still remain as agenda languishing on bargaining tables. The flaws of globalization are not fundamentally structural. Instead, most of it comes from the failure of states to commit to the idea that it espouses. Countries, especially the rich economies, are still resistant to eliminate trade barriers, opting to protect domestic industries. Then, there is the lack of a governing mechanism that would regulate the conduct of multinational corporations to prevent their excesses and made them accountable for their acts and force them to follow international standards - not just in the context of business, production, wage, human rights, - but also in the area of ethics. References Ali, Abbas. Globalization of business: practice and theory. New York: Routledge, 2000. Goethals, George, Sorenson, Georgia and Burns, James. Encyclopedia of Leadership. SAGE, 2004. Held, David. Global covenant: the social democratic alternative to the Washington Consensus. Wiley-Blackwell, 2004. Held, David and Kaya, Ayse. Global inequality: patterns and explanations. Polity, 2007. Held, David and Koenig-Archibugi, Mathias. Taming globalization: frontiers of governance. Wiley-Blackwell, 2003. Scholte, Jan. Globalization: a critical introduction. Palgrave Macmillan, 2000. Tharakan, Matthew, Bulcke, D. and Plasschaert, Sylvain. International trade, foreign direct investment, and the economic environment: essays in honour of professor Sylvain Plasschaert. Palgrave Macmillan, 1998. Wolfensohn, James. A case for aid: building consensus for development assistance. World Bank Publications, 2002. World Bank. World Development Report 2005: Investment Climate, Growth and Poverty. World Bank Publications, 2004. Read More