Relationship between Globalization and Poverty - Report Example

GLOBALIZATION AND POVERTY-A COMPARISON OF CHINA AND UK Relationship between Globalization and Poverty The Issue of poverty and human rights has been in existence for generations. These are felt both in developing and developed states. Despite the fact that many interventions have been put in place, the poverty problem has remained to be predominant in many parts of the world. Poverty is an issue regarding human rights. This is because poor people are in most cases denied access to a range of human rights. The World Bank (2013) reports that approximately 2.5 billion people in the world are extremely poor. These human beings are deprived of necessities such as foods and sufficient nutrition, sanitation, water, education, shelter and health care. He continues that around a third of the world population die from poverty related reasons: 18 million per year including 10 million children who are less than five (5). Globalization is linked to poverty in various ways. In one spectrum, it has assisted in raising the living standards for many individuals in the world perspectives. In another spectrum, it has contributed to increased poverty for many people in different parts of the world. Small organizations and developing countries have not been fully capable of updating their technology the same way as large corporations, and developed nations. Further, globalization may affect a country’s GDP or GNI either positively or negatively. This impact depends on a country’s policies and regulations as well as strategies to counter the negative forces of globalization. For instance, an open door policy of liberalized trade will ensure intensive trade and many businesses in the country, which will add to the country’s GND through increased revenue. In terms of GNI, the government policies and strategies may assist in collected revenue from the country’s citizens leaving in Diaspora. While globalization is significant for the success of the global market, it also has a darker side which may not be visible for many. It has come to be of benefit to most developed nations, some developing nations as well as large organizations. As I have said above, globalization has an impact on the economy of a nation. Its contribution to the economy may be either positive or negative, and this subsequently influences the economic status of citizens. Simply stated, globalization has reduced poverty in some nations while at the same time increasing it in other nations. This paper compares this impact on two developed nations China and UK in terms of their GDP, Consumer price index, and the Gross national Income Per Capita. The Impact of Globalization on China and UK China Since ancient times, China has been having an open policy where considerable trade relationship have been established in Asia, Africa, Europe and many parts of the world. For instance, Zheng He, one of the earliest leaders in the history of the country was involved in great diplomatic undertakings while he was in power (600 hundred years ago). His regular voyages to western nations for diplomatic purposes were actually the beginning of unprecedented voyages and diplomatic endeavors by Chinese leaders. The economic reforms and new policies that have facilitated an opening to the outside world have resulted into a number of measurable outcomes in terms of benefits. For instance, since embracing an open policy in 1980s, the country’s Gross Domestic Income increased by 9.5% from 1980 to 2000. In 2001, the country’s GDP was 1.2 trillion, and was rated as the seventy in the world. China’s purchasing power parity was $4.5 trillion in 2012, making it the second largest economy globally after U.S. During the same year, the GDP per capita was $3,800. (World Bank, 2013, 2). China has been known to extensively liberalize its economy. The country has departed from its counterparts in East Asia, which have its investment in foreign direct (FDI) so as to protect its domestic industry and the liberal FDI strategy used in Latin America in the same developmental stage since there development state is regarded as eschewed. China seems to be taking a “liberalized two step” which means liberalization methods with regulations that differ across its different sectors of economy. During 1970s, a rich person in China was one who had 10,000 yuan(1,205 US dollars). Presently, people with such amount of money are common, especially in urban towns. This title is therefore, no longer considered as conspicuous. A report by the UN and World Bank issued in 2009 pointed out that the number of poverty-stricken people in many parts of the world is increasing. However, the report stated that China was an exception. The number of poor people in rural areas decreased from 280 million in 1990 to 30 million in 2010. Poverty incidences dropped from 31.7% in 1990 to about 3% in 2010. The official poverty line in rural areas was found to be low, actually Y635 (US$ 80) per capital income per year (Hsueh, 2013, 23). At the end of 2012, fixed telephone users in China were more than 200 million, rating the country first globally in fixed telephone use. During 1990s, very few people in China had knowledge on the internet. Presently, more than 50 million in China are surfing the internet. China has continued to experience a huge decrease in poverty of its population since 1990s. For instance, people with a per capital income of less than 668 renminbi equivalent to US$80.71 have typically gone down by more than 10% according to the statistics from the state council of China on poverty reduction (Hsueh, 2013, 45). UK Similar to its Chinese counterpart, UK is also among the most open economies in the world. The present state is different from say, twenty years ago when there were no foreign exchanges in the country. However, unlike the positive impact which globalization has caused on Chinese citizens, the cost and benefits of globalization in UK perspective is unevenly distributed. This may be attributed to the fact that the experiences of people are shaped by their own local culture, resources, history and capacities (Hogarth et al, 2009, 56). The financial crisis in UK has resulted into an increased number of poor people in the country. This crisis has only shown the speed by which changes in the international level can negatively affect work, and the general economy of some nations. The financial crisis in the country was largely fuelled by the crisis in the financial market. Many banks had a false notion that their businesses could be boosted through attracting clients with mortgages. However, many clients failed to pay for the mortgages since they could not afford them. In UK, the rate of unemployment significantly rose from 1.5 million in mid 2007 to more than 2.5 million by 2010. In general, the employment rate for men was adversely affected in comparison to those of men. It has also been forecasted that more worse effects in employment, and poverty will be anticipated in the country for the near future (Hossain, et al . 2009, 56). It should be considered that unemployed people are economically disadvantaged since they do not have the purchasing power. The high rate of unemployment in the country has been largely instigated by increased taxes on corporations, which has led to many firms moving away to other countries with favorable taxes, hence leaving many people with no jobs. Measures of Globalization and Poverty in China and UK a) GDP China Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a specific period. China is ranked second after U.S in terms of World economy by nominal GDP and purchasing power. With regard to growth, it is the fastest with the growth rate of 10% per annum over three decades. The country with the population of over one million people is the second largest importer of goods and largest exporter in the world. Based on per capital basis, it is by nominal GDP ranked 87 and 91 by GDP in 2012(International Monetary Fund, 2012). The country is much industrialized especially in the coastal regions. The continual growth of the nation’s economy has necessitated more focus by the authorities on maintaining effective measures that enhance that growth (World Bank, 2012). In essence, Chinese leaders seems to have learned from the Henan Famine that occurred in 1943-1944 and which greatly hampered the country’s economy. However, the government at that time had failed to remedy the food deficiencies but only making it worse by unrelenting taxes. Though this famine had resulted into the death of more than five million people, the occurrence was kept a secret from the outside world for approximately twenty years. At the end of 2013, China’s GDP was recorded to have improved by 1.80% over the previous quarter, which was standing at 8.2 trillion. From 2010 to 2013, the growth rate in GDP for China averaged 1.99, reaching a record high 2.60% in the second quarter of 2011. It reached a record low of 1.40% in the first quarter of 2012. For the past three decades, the economy of China has changed from being a centrally planned system that was mostly closed to global trade to an open market oriented that has a swiftly growing private sector. The following table shows China’s growth rate from 2011 to 2014 (World Bank, 2014, 1). Figure 1.1 indicates China’s GDP growth rate since 2011-2014 (Hsueh, 2013, 35). Table 1.1 Chinas GDP from 1950-2010 GDP Index in real terms GDP Rmb billion at current prices    GDP per head Rmb Real annual growth rate (%) 1950 100.0 67.9 119 1951 115.6 82.4 142 15.6 1952 120.5 85.9 144 4.2 1952 128.6 91.0 150 6.8 1953 147.9 102.8 165 15.0 1954 155.5 106.8 168 5.1 1955 188.6 130.7 200 21.3 1956 205.2 143.9 216 8.8 1957 204.6 145.7 218 -0.3 1958 148.7 159.0 185 -27.3 1959 140.4 161.9 173 -5.6 1960 154.7 160.3 181 10.2 1961 183.0 145.4 208 18.3 1962 214.2 171.6 240 17.0 1963 237.1 186.8 254 10.7 1964 223.6 177.4 235 -5.7 1965 214.4 172.3 222 -4.1 1966 250.6 193.8 243 16.9 1967 299.3 225.3 275 19.4 1968 320.2 242.6 288 7.0 1969 332.4 251.8 292 3.8 1970 358.6 272.1 309 7.9 1971 366.9 279.0 310 2.3 1972 398.8 299.7 327 8.7 1973 392.4 294.4 316 -1.6 1974 422.2 320.2 339 7.6 1975 471.6 362.4 379 11.7 1976 507.5 403.8 417 7.6 1977 547.1 451.8 460 7.8 1978 575.5 3,386.2 489 14.2 1979 629.0 4,529.5 525 17.1 1980 698.9 6,593.5 580 19.9 1981 805.8 717.1 692 15.2 1982 912.1 896.4 853 13.5 1983 989.7 1,020.2 956 8.8 1984 1,103.5 1,196.3 1,104 11.6 1985 1,228.2 1,492.8 1,355 11.3 1986 1,279.8 1,690.9 1,512 4.1 1987 1,333.5 1,854.8 1,634 3.8 1988 1,454.9 2,161.8 1,879 9.2 1989 1,660.0 2663.8 2,287 14.2 1990 1,877.5 3,463.4 2,939 13.5 1991 2,114.0 4,675.9 3,923 12.6 1992 2,304.3 5,847.8 4,854 10.5 1993 2,530.1 6,788.5 5,576 9.6 1994 2,745.2 7,446.3 6,054 8.8 1995 2,959.3 7,834.5 6,038 7.8 1996 3,169.4 8,206.8 7,159 7.1 1997 3,422.9 8,946.8 7,858 8.0 1998 10,965.5 8,622 8.3 1999 12,033.3 9,398 9.1 2000 13,582.3 10,542 10.0 2001 15,987.8 12,336 10.1 2002 18,386.8 14,040 9.9 2003 21,087.1 16,084 11.1 2004 24,661.9 11.4 2005 31,404.5 9.6 2006 34,506.9 8.7 2007 40,201.2 10.4 2008 32,069.2 9.4 2009 21,087.2 16,084 11.2 2010 31,404.7 9.7   Source: Chinas National Bureau of Statistics, http://www.chinability.com/GDP.htm The period of 1958-1960 was characterized by partial restoration of the market economy especially in rural areas. This is what facilitated the faster development and growth of the market economy. Also between 1978-1980, the government smashed the communes, and restored family farming, subsequently improving agricultural outputs and the general GDP. The present preliminary estimates point that China’s GDP reached 56,884.5 billion yuan at the end of 2013. The value added in the primary industry was 5700.7 billion yuan (10%), the secondary industry figures for the same year were 24,969.5 (44%). The rising GDP in China has boosted the country’s economy and subsequently increasing the number of employed people to 769.79 million as per 2013. This was a 2.74 million more from the figures realized in 2012. The number of employed people in urban centers was 382.50 million. This was 11.38 million more. In the year 2013, the per capital total income of urban households was 26, 955 yuan. The normal growth was 9.8% and real growth was 7.1. This is an indication that the country had employed the benefits of globalization in improving the nation’s economy as well as people’s welfare (World Bank, 2014, 2). UK UK like China is also among the most open economies in the world. Though, the country had very strict controls on foreign trade, such strict controls were abolished between 1990-2000. This has seen opening of UK markets, liberalization of trade, and deregulation of financial markets. This process of globalization has had an impact on the UK economy. In terms of GDP, UK is ranked 6th globally. This means that its GDP is slightly lower than that of China. In 2013, UKs GDP expanded by 0.70% over the previous quarter. Similar to its Chinese counterpart, services is the biggest sector in the country’s economy, accounting for 76% GDP. Figure 1.2 indicates UK’s GDP growth rate from 2008 to 2014 From the figure, it is clear that the GDP growth rate between 1998 to 2003 was minimal while the highest was recorded between 2007-2009. Between 2010-to 2013, the growth rate was almost stable. The effects of the global financial crisis in the country may have exhilarated this lack of growth in GDP during 1998-2003.. Further, GDP growth rate from 2007-2009 portrays a percentage change in the adjusted GDP value in comparison to the previous behavior. UK economy is depended on foreign trade and which is integrated in the global economic aspects. For instance, the national exports in 2013 were equivalent to 25% of the gross national GDP (Trading Economics, 2014, 1). However, globalization has presented a number of challenges relating to institutional, political and social aspects, which the country has been unable to deal effectively. These challenges have accelerated the extant conflicts from the previous era, and subsequently affecting the development and wellbeing of individuals and social groups. The slow growth of the nation’s GDP has put the country in an awkward position. Increased taxes and the failure to provide employment avenues for the country’s populace are among the serious issues affecting the citizens. Consumer Price Index China As at February 2014, the consumer price index (CPI) in China decreased by 102 index points. From 1986 to 2014, consumer price index (CPI) in the country averaged 105.75 points, reaching a record high of 128.40 Index Points in 1989 and a record low of 97.80 index points in 1999. The CPI in China changes in terms of prices paid by users for the goods and services (Trading Economics, 2014, 1). Figure 1.3 shows the statistics in China’s consumer price index from Jul 2012 to Jan 2014. Figure 1.3 China’s Consumer Price Index from Jul 2012 to Jan 2014 As depicted from the graph above, China’s consumer price index was highest between 2004- 2009. It should be noted that this was the time when the financial crisis affected the country and its GDP. However, the CPI stabilized between 2011 to 2013 owing to the measures put forward to curb the financial crisis. The weakening of the CPI between 2011-2013 was attributed to the falling food prices and the general cost of living in the country. Further, this weakening of the CPI could be attributed to low inflation. The cost of living in the country has dipped to 0.2% on a monthly basis and therefore reducing poverty levels in the country . The high CPI index in 2009- 2012 could be attributed to global financial crisis that has been felt in the country. In general, the reading on China’s price index portrays the weakening of inflation and subsequently a reduction of poverty. This is an indication of the government’s firm control in the government economy. China has also been worried about the global financial crisis, which has also affected the country. Among these effects are the decreases in Chinese exports, stalling in domestic industrial production and climbing rate of unemployment. However, the Chinese government has respondent by imputing financial packages to affected sectors in order to encourage growth and domestic consumption. It has also removed quotas on loans, increased credit for major projects to assist small businesses, and rural areas, and set aside for infrastructure construction. These and many other measures have helped China to cope with the global financial crisis effectively. UK Similar to China, the consumer price index in UK is also employed as a measure of inflation in the country. Additionally, the bank of England uses the consumer price index in making decisions related to interest rates. Figure 1.1 Portrays UKs Consumer Price Index from 2010 to 2014 From figures on the table above, it is apparent that the consumer price index in UK has been consistently rising from 1998 to present. This therefore indicates high inflation rate in the country. The combination of the cuts in public spending, and economic stagnation in UK has causes a substantial hardship on people especially those who thrive on poverty (ONS, 2014,1). In essence, this has amounted to a rise of prices for essential commodities and services, public service cuts, weakened labor rights and a housing crisis. The increasing rate of consumer price index is instigated by the high rate of food prices, which has reached a record high of 30.5% in five years. Another factor is the rising national wage bill, which has also reached a record high of 12.1 % (ONS, 2014,1). This has also led to high inflation level in the country. The fluctuations in economic supply and supply of money have also contributed to high inflation. Owing to this crisis, the UK government should make differential political choices that are aimed at protecting its citizens from the effects of poverty, stimulating economic recovery and set the county on a path to social and economic recovery. Gross National Income Per Capita by Atlas Method Gross National Income or GNI refers to the national income generated, which is converted to US dollar by using the World Bank atlas method. It is the sum of the benefit by all resident and foreign producers, plus any product taxes minus subsidies. This is usually converted to U.S dollars. Table 1.2 shows the GNI for China and UK as at 2013 Table 1.2 : A comparison of GNI for China and UK and the World average level. From table 1.2, it can be seen that the GNI figures for UK is much higher in comparison to China from 2004-2012. The higher figures may be attributed the large number of people in Diaspora, and the variety of foreign sources accumulated by UK. However, the China’s GNI has been steadily rising over the years in comparison to its UK counterpart, which has been almost the same state. Figure 1.4 Line Graph Showing gross national income per capita between China and UK Source: Trading Economics GNI is used to measure the income, which a county receives from both its domestic and foreign sources. GNI may relate to the gross National Product, which is used in measuring the output from a country’s citizens, and businesses of a particular nation, irrespective of where they are located within the country or overseas. From table 1.2 above, it is clear that the Gross national income, Atlas method for China is higher (7,731.3), and supersedes (by almost three times) that of United Kingdom (which is 2,444.9). This is despite the fact that the population density of UK per square kilometer is higher than of China. This also translates that China is collecting more money from its local and foreign citizens in comparison to its UK counterpart. It also means that China is effectively utilizing its local and foreign revenues as its income generation. Figure 1.2 Indicating China’s unemployment rate From this figure, it is apparent that the rate of unemployment in China was highest in between 2009- 2011. This is also the time of the financial crisis, which affected many industrial sectors in the country, thus forcing many people out of work. However, the control of the situation between 2011 to date has stabilized the level of unemployment in the country. The rise in the number of people who are perceived as earning the middle class income is a factor that shapes growth and development in the specific countries. Additionally, the rise in the per capita income results in increased demand for consumer products, financial services, and lifestyle goods. This is the same case with luxury goods. These are indicators of reduced poverty levels in a country. Figure 1.3 UKs Unemployment rate According figure 1.3, UKs unemployment rate was low between 2001 to 2007. However, the rate rose steadily between 2010-to 2013. This aspect may be attributed to the country’s failure to formulate and implement effective policies and strategies to counter the negative globalization forces just as China has done. Conclusion From this case, it is apparent that exploitation of the benefits of globalization by the Chinese government has led to improved economic conditions in the country. Adoptions of policies that are aligned with the aspect of globalization have led to the reduction in the number of people living in extreme poverty. This has been attributed to the efficient resource use by the government and citizens. On the other hand, UK is found to have little interest for the general equity of its citizens. This is depicted by the high rate of unemployment, poverty, rising food prices, and the general economic inequality of its citizens. It becomes interesting that despite the increased rate of globalization, inequality, and poverty rates have been rising in developed countries such as UK. This can be attributed to their failure in formulating and implementing effective policies and strategies to counter the negative globalization forces just as China has done. The GNI and GDP for UK is lower and moving at a relatively low rate in comparison to China. We have already noted that a healthy GDP and GNI is an indication of a favorable economic climate of a country and this indicates that China is more economically healthier when compared to UK. On the other hand, consumer price index for China was shown as being weaker than that of UK. This is an indication of the low rate of inflation in China than UK. In general, poverty level in China is streamlined in comparison to UK. 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