Globalization and Poverty: Winners and Losers - Research Paper Example

 Globalization and Poverty Abstract Globalization is a much argued topic in present times. Some experts argue that it is another name for Imperialism. Others say that it is not an inevitable process and can be reversed through alteration of economic policies. Globalization has brought the world together through open markets and economic integration which has allowed the poor individuals of developing nations to open trade relations across the globe. Free trade is another area of debate among the economic experts which give equally convincing arguments in favor and against free trade. World economic organizations like World Bank are of the view that globalization has led to drastic decrease in absolute poverty across the world. However, many experts believe that these figures tend to paint a rosy picture and are against the ground realities. Moreover, it is almost impossible to identify winners and losers of globalization process as individuals of the same region are affected in a different manner. Globalization and Poverty Introduction More than one-sixth of the world’s population is living under extreme poverty (Chiras, 2004). According to reports, almost half of the sub-Saharan populace is dwelling in poverty and seems to be untouched by the process of globalization. However, reports of World Bank pose a different and somewhat unrealistic picture. According to World Bank’s President, after a steady rise in the poverty level for almost 200 years, the number of people living below poverty line of $1 per day has fallen by more than 200 million. Moreover, the percentage of people living in total poverty has also dropped from 29% to 23% from 1990 to 1998 (Bitzenis, 2009). However, these figures do not corroborate with the ground realities. For one, they do not provide the correct figures and contain a huge error margin. Moreover, the open markets and free trade have not benefited the poor corn farmers of Mexico and the destitute farmers of Ethiopia who continue to suffer at the hands of poverty while the developed nations remain entangled in the debates regards pros and cons of globalization. Globalization Process Globalization is a process through which government agencies, people and companies interact with each other through information technology. International trade is considered as the main driving force behind globalization. The process affects every part of our daily lives, our culture, our environment, economic and cultural development, the political system of nations and well beings of mankind around the world. However, globalization is not a new phenomenon. Human beings have performed various trade exchanges for over thousands of years at great distance such as the famous Silk Route which joined Central Asia and Europe in the Middle Ages. Similarly, many corporations and people have invested in each other’s economies for many centuries. In reality, the present globalization process is similar to the one which prevailed prior to start of World War One. This contemporary brandish of globalization has taken drive from the national policies which have led to opening of economies in the domestic and international market. Many nations across the globe have taken on free market monetary and economic systems through immense increase in production and nurturing novel opportunities for investments and international trade. This phenomenon has sparked generally after the Second World War and particularly in the past two decades. Many regional and governmental organizations have actively reduced barriers to trade through investments, promotion of trade in goods and international economic agreements. These new opportunities were received well by foreign investment countries which established factories and other marketing and production understandings with the overseas partners. Therefore, international business and industrial structure became a defining characteristic of globalization. Globalism or Imperialism? Many critics of globalization believe that it is not a new concept; and in fact it is just a synonym for Westernization or Imperialism (Rubin, 2004). Here, it is first pertinent to highlight the concept of Imperialism. Imperialism is a methodology imposed by ruling class to gain political control over the subordinate civilization which does not fall under the geographical boundaries of the metropolitan. This control is exercised to gain a variety of military, social, commercial and economic benefits. Sometimes, Colonialism is interchangeably used for Imperialism although this process includes formation of colonies in the empowered states along with exercise of political control to gain military, social and economic benefits. Experts believe that Globalization and Imperialism are closely related (Dewitt & Hernandez, 2003). Indeed some are of the view that Imperialism is the basic cause that generated the force behind globalization. Nayan Chanda, author of many books on Asian politics and editor of Far Eastern Economic Review, is of the opinion that apart from imperial states, there were many other factors which are responsible for interconnecting the world over time (2007). Of these, he identified four broad categories namely warriors, preachers, traders and adventurers (Chanda, 2007). However, generally speaking, all these groups of individuals were subjugated within the realm of nations and empires. All these groups either represented their empire nations or acted as subjects of another power’s empire. The latest phase in the process of globalization is labeled as Modern globalization by many which is just a part of a very long history of the process (Nederveen Pieterse & Kim, 2012). Varying time periods are proposed by the historians for its start and end point who also divide the history of globalization into many phases. However, it is undoubtedly not a novel process which is unique to our time. Modern globalization process is a continuation of more appropriately, an elaboration of the previous phases. Most of the forces which played an important role in uniting the world in earlier phases are still playing their part. The coffee houses of the yester years have been replaced by multinationals like Starbucks and the old communication channels like telegraphs have been replaced by smart phones. However, the view that globalization is another form of Imperialism is not completely true. Although it can be observed that rich nations are mostly dominant, it must also be noted that formerly poorer nations like India, China and South Korea have emerged as challenging rivals. Similarly, Brazil and South Africa both exploit the global economy and also get exploited by it. Moreover, this view also neglects the other non-economic proportions of globalization. The transitional flow directions are not one-sided; things seem to flow in all the directions which negate this point of view. Inevitable Process: One of the most difficult questions to answer about globalization is “is it inevitable”? Analysts and experts have varying opinions about the question. Jagdish Bhagwati, Senior Fellow, Council on Foreign Relations, and University Professor, Columbia University and author of In Defense of Globalization opines that Globalization means cheaper transportation and communication facilities for the people which can always be reversed (Bhagwati, 2007). Same phenomenon stopped the first wave of globalization from 1870-1914. However, the modern wave of globalization currently being experienced by the world is probably non-reversible primarily for two reasons. Firstly, globalization forces migration of the people from one land to another which results in availability of larger work-force of the countries. Secondly, multinational companies have become a part of our daily lives and governments have tailored their policies with respect to these multinationals. On the other hand, Antonia Juhasz, Project Director, International Forum on Globalization suggests that it is not an inevitable process. According to Antonia, globalization is merely a set of policies chosen by government entities to accomplish an integrated model of economic growth which can always be changed with an alternate set of policies (International Economy, 2004). Measuring Globalization Measuring globalization is a difficult job due to its uneven expansion and lack of globally accepted definition. Various methodologies have evolved to measure globalization which has given rise to a lot of indicators which tend to gauge the process. For ease of accessing, the process is subdivided into four domains namely Social, Economic and Political globalization (Germain & Kenny, 2005). Various variables have emerged for the measurement of these sub-indices. Most importantly, Economic globalization is measured in terms of Trade (import and export of items proportionate to GDP), Foreign Direct Investment or FDI (Inflows and out flows of FDI proportionate to GDP), Portfolio Investment (Inflows and out flows of Portfolio Investment proportionate to GDP) and Income (Publishing, 2009). Impact on Relative and Absolute Poverty One of the biggest concerns of the people across the globe is the impact which globalization has on poverty. It is an ongoing debate which has brought into light the opinions and strong reasoning of many experts on the subject. Poverty is characteristically calculated by selecting a line of poverty which shows the minimum income required to meet daily expenditures. According to World Bank standards, poverty lines of $1 and $2 per day are taken as a reference for calculating poverty in developing countries (Padró, 2004). Poverty in a country is calculated either as percentage of people living below the reference poverty lines or as the number of people who fall in the category of being poor. According to studies, the absolute number of people earning less than $1 per day has declined from 1980s to 1990s whereas, number of people earning less than $2 a day have not declined during the same period of time. It has frequently been observed that people who oppose globalization gauge poverty in absolute terms of individuals who are poor whereas, those in favor of globalization prefer poverty incidence. Globalization process offers a powerful opportunity for huge poverty reduction across the globe due to the fact that it helps in development of an environment which is conducive to quick economic growth and diffusion of knowledge. However, poverty reduction through globalization remains a topic of debate for many poor nations primarily due to policies and structural facets with world and national economies. The income distribution across the world has remained uneven particularly for poor nations like Africa. Moreover, there is evidence that globalization openness leads to inequality within a country. China is a strong example of this case scenario where the outward coastal provinces reap less benefits of globalization than the central provinces. Globalization’s Institutions According to neoliberal economic theory, poverty has fallen for the first time in more than one and a half century and income of all the individuals across the globe has become almost equal (WADE, 2004). It further suggests that this has become possible due to increased economic integration and liberalization of economies. This trend is augmented by the current wave of globalization which has led to quick progress rate, open economies and prosperous nations. Evidence also suggests that the divide between rich and poor nations is being slowly eroded and the economic hierarchy is getting flatter as the globalization progresses. This empirical evidence also corroborates the grounds for international economic organizations e.g. World Bank, World trade Organization (WTO) and International Monetary Fund (IMF) which are entities who ensure a level playing field for all the nations in the economic zone, irrespective of the national policies on local markets. This argument is also supported by economic powerhouses e.g. UK & U.S. Treasury departments and economic opinion makers e.g. The Economist and The Financial times. Free Trade Debate Free Trade is considered another poverty reducing agent by many analysts. The World Trade Organization (WTO) was primarily established to provide level playing field to all the countries for international trade and open market. Free Trade entails that a country would not be able to restrict its businesses to purchase resources and raw materials from within the country or a set of specified suppliers. All the businesses across the globe would have an open opportunity to do business freely and with anyone in the open market without any restrictions. This phenomenon however has been a subject of heated discussions amongst the analysts. The proponents of free trade argue that as free trade allows specialization of trade among the countries, it increases international output (Estévez, 2008). Due to open markets, countries are able to specialize in different fields and hence gain comparative advantage. Amalgamating economic and moral arguments in favor of Free Trade brings another important argument which suggests that open economies are extremely helpful in reducing poverty on a global level and opposition of free trade means support for economic injustice. Amongst the first opponents of free trade was Friedrich List who in 1841 suggested that free trade tends to slowdown a country’s own economic progress as it gets locked in serving the needs of other countries (De Vogli, 2013). Another argument, which is mainly voice by the poor-men-advocates, suggests that free trade tends to favor the developed nations in certain areas e.g. intellectual property rights which are protected by developed nations, consequently hampering the generic production of items of vital items such as lifesaving drugs. According to World Bank’s President James Wolfensohn, after a steady rise in the poverty level for almost 200 years, the number of people living below poverty line of $1 per day has fallen by more than 200 million. Also according to the World Bank president, the percentage of people living in total poverty has also dropped from 29% to 23% from 1990 to 1998 (Bitzenis, 2009). These figures are however, somewhat bloated and unrealistic. There are few reasons for this assumption. Firstly, globalization process has resulted in an uneven reduction of poverty. Although the number of poor individuals living under $1 per day has reduced dramatically from 40% in 1981 to 21% in 2001, this has mainly been made possible due to the reduction of poor in Asian countries, especially in China (Wade, 2004). Despite decrease in relative poverty across the world, the individuals living below $2 a day has increased globally. In fact, the poverty in absolute and relative terms has increased in African continent (Aina & Chachage et al., 2004). Moreover, many experts believe that there is a huge error margin in calculation of absolute poverty by World Bank. Firstly, the $1 poverty line defined by World Bank for any given base year is converted into local currency value of each country and then absolute poverty level determined by comparing the purchasing power of $1 equivalent by the currency of each country through household surveys. This process by itself induces an error margin because of its sensitivity towards accuracy of household surveys. Secondly, World Bank has itself invalidated the often cited survey of absolute poverty between 1981 to 1998, by introducing a new methodology for calculating absolute poverty in late 1990s (Wade, 2004). This new method has made the previous figures incomparable. Lastly, for China and India, World Bank calculated these figures through benchmarking exercises to estimate PPP income values in 1985 and 1993. In both these exercises, China declined to participate and the figures for the country had to be guess-timated through survey in few small cities. According to a survey, almost one sixth of the total population of the world remains to dwell in extreme poverty (Chiras, 2004). The situation is alarming primarily because the open markets and current wave of globalization tends to have no impact on these poor individuals. This is augmented form the reports of Mexican farmers who state that they are unable to sell anything and the farmers in Ethiopia who are merely net buyers of food. Reports also suggest that extreme poverty in African sub-Saharan region has almost doubled in last twenty years from 170 to 310 million (Harrison, 2006). Past two decades analysis shows that almost half of the region’s populace lives in extreme poverty. The individuals of this region have not seen much of the foreign investment although they export huge quantities of agricultural products in unprocessed forms. According to studies on Columbia and India, globalization tends to benefit the poor individuals only if trade restructuring is carried out in combination with plummeting hindrances in mobility of labor. The Zambian poor farmers would only profit from open markets if they enjoy greater access to technical knowledge and other corresponding inputs. Similarly, Mexican corn farmers received income support from governmental agencies in 1990s which doubled their real income. Globalization would not have much impact on Ethiopian food crisis if the aid would not have been well targeted (Harrison, 2006). Therefore, it can be stated that associated policies are needed to spread the benefits of free trade across the poor individuals. Winners and Losers It is almost impossible to label a specific group of individuals or a class of nations as winners or losers as a result of globalization. The analytical results do not allow simple generalization in this case. Sometimes it is possible that even within a country or a region, farmers experience different impacts of globalization. The small and medium corn farmers of Mexico were deprived of almost half their income in 1990s and on the other hand the large farmers gained a lot in terms of financial wealth. Globally, the daily wages poor employees gained from the direct foreign investment and trade reforms however, other sectors which were formerly protected got exposed to international competition and saw poverty graphs on the rise. It may also happen that with a single region or same country, the agricultural producers of daily used commodities may see a decline in profit whereas, the urban or rural consumers may experience income gains on same commodities. The cost and risks associated with globalization are considerable for developing countries with fragile economic conditions. Globalization depicts its negative side at the time when world is faced with economic and financial crisis. The developing countries in general and the poor individuals of developing countries in particular are most susceptible to the frequent financial and economic crisis associated with globalization. Conversely, the benefits of globalization are not essentially shared in equal terms by the world population. Although many analysts are cautious in blaming globalization for poverty especially that faced among the poor individuals of developing countries, the most buoyant of the experts cannot completely dismiss the concerns which the global community faces about globalization. Globalization has undoubtedly adversely affected the income distribution and poverty around the world. Strong anti-globalization movements and passionate debates have been generated among global experts due to this phenomenon. Conclusion: The above discussion also suggests that globalization does not lead to clear identification of winners. Some of the people within a region or a country clearly benefit from open markets and free trade whereas, some people of the same region and engaged in same kind of the business are clearly at loss due to globalization. The Mexican corn farmers are a clear example of the case in point. References Aina, T., Chachage, C. & Annan-Yao, E. (2004). Globalization and social policy in Africa. Dakar, Senegal: Council for the Development of Social Science Research in Africa. Bhagwati, J. (2007). In defense of globalization. Oxford: Oxford University Press. Bitzenis, A. (2009). The Balkans. Farnham, Surrey, England: Ashgate. Chanda, N. (2007). Bound together. New Haven: Yale University Press. Chiras, D. (2004). Environmental science. [S.l.]: Jones & Bartlett Learning. De Vogli, R. (2013). Progress or collapse. London: Routledge. Dewitt, D. & Hernandez, C. (2003). Development and security in Southeast Asia. Aldershot, Hants, England: Ashgate. Estévez, A. (2008). Human rights and free trade in Mexico. New York, N.Y.: Palgrave Macmillan. Germain, R. & Kenny, M. (2005). The idea of global civil society. London: Routledge. Harrison, A. (2006). GLOBALIZATION AND POVERTY. Massachusetts: NATIONAL BUREAU OF ECONOMIC RESEARCH. International Economy (2004). 'Is Globalization of the world economy inevitable?. The International Economy, 69. Nederveen Pieterse, J. & Kim, J. (2012). Globalization and development in East Asia. New York, NY: Routledge. Padró, F. (2004). Statistical handbook on the social safety net. Westport, CT: Greenwood Press. Publishing, O. (2009). OECD Reviews of Innovation Policy Mexico 2009. Paris: Organisation for Economic Co-operation and Development. Rubin, B. (2004). Hating America. New York: Oxford University Press. WADE, R. (2004). Is Globalization Reducing Poverty and Inequality?. London: London School of Economics and Political Science. Read More