Factors to Evaluate a Poor or Rich Nation - Essay Example

Globalization and Development Poverty has many meanings; different countries will find that they need to select poverty indicators according to theirindividual circumstances. In most countries, the level of income per household or their level of consumption of the most marginalized members of the society will be an important factor in determining the level of poverty. The information of the level of poverty can be determined through the presence of data on access to some basic human needs. Access to basic needs such as sanitation, electricity, water, and children’s school attendance can be used to determine the levels of poverty. Other factors such as the incidences of crime and violence, or discrimination against a specific group in the society can indicate the levels of poverty (Hentschel & Seshagiri, 2000). Per capita income or consumption of a household is normally used to measure the level of poverty in any country. Such assessment aims at finding whether house holds are able to buy basic needs, for instance, basket of goods at a given point in time. There are several ways of defining the contents of the basket but in most cases, it is assumed that the basket should contain a minimum of goods essential for the survival of the household. Such goods should include food with their correct nutritional values, housing, water, clothing and transport among other goods. The worth of this basic basket is in most cases referred to as “poverty line”. Poverty line normally helps to differentiate the part of a population that is capable of affording basic needs or that part of a population that has an income level from the part of a population that does not (Hentschel & Seshagiri, 2000). According to Buchman (2004) economic globalization is claimed by its supporters that it benefits every country that each country ultimately grows rich. However, anti-globalization movements argue that it is the rich nations that benefit. The general economic globalization does seem to have only helped the rich nations in achieving their high revenue base. From the days of industrial revolution, rich countries have benefited from economic globalization than the poor nations. In the recent past, some poor nations have become significantly poor due to economic globalization. It is worth noting that the structure and the politics of economic globalization currently favor the rich nations. If let in the current state; the rich will get richer while the poor will get poorer. The gab between the poor and the richer has always grown wider and wider, this has been evident since the start of the industrial revolution. According to the United Nations Development Program (UNDP), the gap between the richest five nations and the poorest nation’s 3:1 per capita income. By 1913, the gap had increased to 11:1. Further, by 1950, the gap had reached 35:1, and in 1973 44:1. However, by 1992, UNDP reported that the per capita difference between the richest and poor nations had reached its highest, at 72:1 (Mishkin, 2008). Wealth and income are the defining factors in determining whether a given nation is rich or poor. These are the measures in evaluating the performance of economic globalization. For several years now, wealth, finance and trade have all become much more concentrated around industrialized nations of west Europe, East Asia and North America. Further, it is argued that 1.2 billion people in the world live below US$1 per day. This shows number of very poor human beings in the world. Further, about 2.8 billion in the world live on $2 or less per day (Schott, 2001). Several factors determine the level of poverty in any country. In most poor countries, one such evident factor is the inadequate access to wealth. Apart from inadequate access to wealth, poor nations also lack access to other essentials in life. These include inadequate access to water, medicines and good nutrition. In addition, most people who live in poor countries rely on subsistence farming (Schott, 2001). In reference to the distribution of wealth creating technology, poor nations lag behind. In most rich countries, close to half of the population have access to internet. Poor countries such as India, only 1 percent of the population has got access to the internet. Further, Africa has got few internet connections than New York City. On telephone connectivity, there is a telephone for every two people, but in poor countries, there is one for every 200 people (Picciotto & Weaving, 2004). In many poor countries, the benefits of economic globalization have been very unevenly distributed. In china, the recent economic booms have not benefited most of the population; only a quarter of china’s population has seen the benefits of the economy while about 800 million of china’s 1.2 billion people still live in poverty (Warren, Keeney & Winters, 2006). Much of the difference that exists between the poor and the rich nations has been due to the concentration of the world’s manufacturing in the hands of rich nations (Singer & Ansari, 1988). The past 25 years of economic globalization has led to a huge concentration of the world production that has brought about the economic ability of the rich nations. Currently, most of the world’s industrial activities occur in the Western Europe, East Asia and North America. However, there is no hope of this situation changing in the near future (Warren, Keeney & Winters, 2006). Like global manufacturing, global flows of trade and capital are also highly concentrated around Western Europe, East Asia and North America. And, like the concentration of global manufacturing, this concentration has also contributed significantly to the ongoing poverty of much of the world’s population (Powell, 2008). World Bank statistics indicate that 16 percent of the world’s population lives in high income countries. These countries imported roughly 76% of goods and services and exported about 73% of the same (Powell, 2008). Buchman (2004) asserts that in 1997, high income countries provided 90 percent of the world’s foreign direct investment, but 68 percent was invested back into other high incomer countries (Powell, 2008). Another factor taken into consideration when assessing whether a nation is rich or poor is the third world debt crisis and world (Brady, 2009). The third world debt crisis has been a globalizing force on ensuring that the poor countries remain poor. Poor countries cannot sign up for a loan from the World Bank or the IMF. They have to agree to a package of structural adjustment measures put in place to open them up to global market place. These measures include tariff cuts, minimal controls on foreign investment, currency devaluation and low government spending. It is not only on debt that poor countries have lost out (Baumol & Blinder, 2011). These counties have been very poor in the way they handle international trade. Poor countries normally view international trade as the rich nation’s affair. Rich counties account for larger share of international trade, further, the world’s trade is increasingly balanced in their favor. The trade deficits of poor countries have continued to rise while the trade deficits of richer countries have continued to decrease. In addition the trade surpluses of the rich countries are also increasing. Rich countries’ governments also planned and implemented economic growth oriented strategies. Such strategies included export oriented industrialization (EOI) which was aimed at increasing the pace of industrialization by promoting export of goods (Kjolberg & Wickson, 2010). This would ensure that they enjoy an international comparative advantage. The governments of rich countries are able to provide its citizens and investor’s preferential credit allocation and tax breaks to export oriented industries. In addition, the rich countries had tamed accounting without budget deficits; they were also able to keep inflation in check in order to stabilize their currencies value for export promotion (Usher, 2005). At least half of the poorest countries in the world depend solely on the export of raw material. In 1996, 23 poor countries derived 80 percent or more of their export income from just one export commodity or raw material (Nafziger, 2006). Exports have proved to be economically harmful to poor countries because these exports have over the years tended to fetch lower prices around the world. Raw material dependency has had great consequences to most African countries. Most poor countries have not yet embraced industrialization in their economies (Usher, 2005). In addition to the government’s contribution to economic progress in rich countries, these countries were also able to enjoy high rates of private savings and investments. Rich countries were able to have quality, and highly educated human capital at cheaper labor costs. High rates of domestic savings enabled rich nations to be less dependent on foreign aid. Investing in the education sector ensured that they receive quality services from the labor work force (Matsuyama, 1996). Conclusion Poor economies in the world should also move capital from the private money markets to banks. This can be done by raising interest rates of saving accounts. The ultimate benefit of this strategy is that it is capable of being an important source of domestic investment. In addition, it is vital to state that high interest rates on bank accounts attract citizens to deposit their money at bank instead of using their income at the private money market. Since banks give loans to investors, high interest rates to savings imply that extra cash will be available to fasten domestic investment for new investors (Mat-suyama, 1996). Poor countries should note that in order to improve their economies several factors must be put into place. These factors include non interference of the state into the running of the economy, zero tolerance to corruption, investing in technological advancement and improving the levels of education. All these factors when carefully taken into consideration, automatically leads to faster economic growth. Replacing imports without putting necessary measure such as technological advancement in industrialization leads to the production of substandard goods that cannot compete both locally and internationally (Matsuyama, 1996). References Baumol, W. & Blinder, A. (2011), Economics; principles and policy, London, Cengage Learning. Brady, D. (2009), Rich Democracies, Poor People: How Politics Explain Poverty, Oxford, Oxford University Press. Buckman, G (2004). Globalization: Tame it or Scrap it?: Mapping the alternatives of the Anti-Globalization Movement. Pp 80-90. Hentschel, J. and Seshagiri, R. (2000). The City Poverty Assessment: A Primer, New York: World Bank Publications. Kjolberg, K. and Wickson, F. (2010). Nano Meets Macro; Social perspectives on Nanoscale Sciences and Technologies, New York, Pan Stanford Publishing. Matsuyama, K. (1996), Why are there rich and poor countries: symmetry-breaking in the world economy? New York, National Bureau of Economic Research. Mishkin, F. (2008), The Next Great Globalization: How disadvantaged nations can harness their financial systems to get rich. Princeton, Princeton University Press. Nafziger, E. (2006), Economic Development, Cambridge, Cambridge University Press. Picciotto, R. and Weaving, R. (2004). Impact of Rich Countries’ policies on poor countries: towards a level playing field in development cooperation, New York, Transaction Publishers. Powell, B. (2008), Making poor nations rich: entrepreneurship and the process of economic development, Oakland, Stanford Economics and Finance. Schott, P. (2001). Do rich and poor countries specialize in different mix of goods? : Evidence from product-level US trade data. New York, National Bureau of Economic Research. Singer, H. and Ansari, J. (1988). Rich and poor countries: Consequences of international Disorder. London, Rutledge. Usher, D (2005). Rich and poor countries: A study in the problems of comparison of real incomes. London, Translantic Arts, Incorporated. Warren, T. Keeney, R. and Winters, A. (2006). Distributional effects of WTO agricultural reforms in rich and poor countries, New York, World Bank Publications. Read More