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Globalization: An Anti-Poverty Program or not?

Despite the fact that the definition of globalization has been attempted by hundreds of authors and distinguished speakers on the topic, the word continues to mean very different things to different people. In light of this, we do not attempt any general definition of globalization, but rather explain what is meant by globalization in the context of this paper. In this paper, globalization refers to global economic integration, or ‘economic globalization’.

Economic globalization, including increases in trade, foreign investment, and migration, is widely agreed to be occurring through a combination of improvements in technology and decreased transportation costs, and deliberate policy choices on behalf of many national governments to liberalize their economies and participate in the development of global institutions. Thus the policy aspect of economic globalization is an aggregate outcome that results from the choices of Pessimists Economic globalization is a surprisingly controversial process.

Surprising, that is, to the many economists and policy makers who believe it is the best means of bringing prosperity to the largest number of people all around the world. Proponents of economic globalization have had a tendency to conclude that dissent and criticism is the result of ignorance or vested interest.

They have argued that anti-sweatshop campaigners do not understand that conditions in the factories owned by multi-nationals tend to be better than those in comparable domestic firms; that environmentalists are denying the world’s poor of the right to develop freely; and unionists in developed countries are protecting their interests at the expense of the workers in poorer parts of the world. Bhagwati (2000, p. 134) provides a good example of the way that some proponents of globalization have reacted to critics:

“No one can escape the antiglobalists today….. This motley crew comes almost entirely from the rich countries and is overwhelmingly white, largely middle class, occasionally misinformed, often wittingly dishonest, and so diverse in its professed concerns that it makes the output from a monkey’s romp on a keyboard look more coherent. ” “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone. ” John Maynard Keynes

“This powerful network, which may aptly, if loosely, be called the Wall Street-Treasury complex, is unable to look much beyond the interest of Wall Street, which it equates with the good of the world. ” Jagdish Bhagwati, 1998 The reason why so many people form negative priors about the impact of globalization on the poor is because people observe Globalization as a process through which power is distilled upward and away from the poor, towards a global elite. This global elite includes technocrats, politicians, and most controversially, transnational corporations.

John McMurtry (2002, p. 202) provides a lucid and impassioned example of this type of concern in his article “Why the Protesters are Against Corporate Globalization”. “The ultimate subject and sovereign ruler of the world is the transnational corporation, operating by collective prescription and enforcement through the World Trade Organization in concert with its prototype the NAFTA, its European collaborator, the EU, and such derivative regional instruments as the APEC, the MAI, the FTAA, and so on”

The second half of the answer is that few non-economists believe that this power, self-interested global elite will make decisions that maximize long-run benefits to the poor. Indeed, the assumption is more commonly that the elite will make decisions that are good for the elite, and that what is good for the elite is almost invariably bad for the poor. Consider the following quote from the WTO overview on the website of Global Trade Watch.

“The WTO and GATT Uruguay Round Agreements have functioned principally to pry open markets for the benefit of transnational corporations at the expense of national and local economies; workers, farmers, indigenous peoples, women and other social groups; health and safety; the environment; and animal welfare. In addition, the WTO system’s, rules and procedures are undemocratic, un-transparent and non-accountable and have operated to marginalize the majority of the world’s people. ”

While these statements are somewhat lacking in balance, they do hint at a number of important policy questions that have attracted some academic interest, but are serving of much more. Of all these questions, the one on which the gap between public concern and academic interest has been the greatest is the role of big business. A reading of the many websites set up to criticize globalization reveals that this issue is the most widely held concern of the general public with regard to globalization.

However, if you don’t have time to surf the web, evidence of this may easily be found in the titles of the two best selling ‘anti-globalization’ books; David Korten’s When Corporations Rule the World”, and Naomi Klein’s “No Logo”. However, the role large, multinational firms and consequences for market and political power in a global economy have received relatively little attention from economists. However, critics believe globalization exacerbates the problem of corporate power in three ways.

Firstly, it facilitates the expansion of the richest and most powerful corporations into countries whose governments are more susceptible to capture, and whose populations are far less empowered than those in their home countries. Secondly, it involves the strengthening of supra-national institutions, to which they believe large corporations have disproportionate access. The WTO is the most often criticized international institution in this regard, and the Trade Related Intellectual Property Rights (TRIPS) agreement is the most often criticized outcome of this perceived influence.

Thirdly, globalization is believed to exacerbate the problem of excessive corporate political power because it is believed to make big business to get even bigger, and power is believed to be proportional to size. Proponents of globalization often hold a much more optimistic view of the impact of globalization on corporate political power. They argue that corporate input to policy-making can be constructive, and that globalization actually decreases the likelihood of policy capture by industry.

The latter point, is supported by the observation that globalization is often associated with increased accountability and openness of national governments, and increased competition for national monopolies. The result, they claim, is a reduction in government capture. Bardhan (2003) and Bhagwati (2002) also note that one of the fundamental differences between globalization’s proponents and critics is that the former consider the impacts of market liberalization within a framework of perfect competition, while the latter consider it in the context of highly imperfect competition.

Thus, while much economic research has considered the ability of globalization to reduce the market power held by previously monopolistic domestic firms, many critics see globalization as a mechanism by which the oligopolistic reach of the transnational corporations spreads to the furthest corners of the globe. A classic example of this belief was the debate in India in the mid-1990s. Many small farmers were suffering at the same time as many poor consumers were facing rapidly increasing food prices. The culprits, some claimed, were the rapidly expanding foreign agribusinesses who were acting as ‘middle-men’ in the food supply chain.

For critics of globalization these priors tend to be negative because they see globalization as a process by which power is taken from the poor and given to the rich and powerful, particularly to transnational corporations. It argues that poverty and inequality are not uniquely defined concepts, and shows that the impact of globalization on each varies according to the definition that is used. The opinions of the poor also seem to suggest that the impact of globalization on their lives is less positive than measures of changes in their average income would suggest.

Graham (2001) reports that the perceptions of the poor and middle-class of their welfare change from national integration and liberalization are systematically below what is suggested by their measured income change. Similarly, as Clare Short and James Wolfenson say in the foreword to “Voices of the Poor”: “What poor people share with us is sobering. The majority of them feel they are worse off and more insecure than in the past. ” People’s self-perceptions, of course, are always prone to subjectivity and bias. So, what do external measures of poverty’s ‘other dimensions’ suggest about the impact of globalization?

As proponents of globalization like to note, there have been significant improvements in literacy rates, life-expectancy and infant mortality over the last 25 years. As with the monetary measures, however, the use of numbers rather than incidence tells a somewhat less laudable story. For example, while the world rate of illiteracy fell by a third between 1980 and 2002, the total number of illiterate adults in the world decreased by a mere 1. 4% over the same period. Similar patterns hold for other measures such as infant mortality, and access to clean water and sanitation.

Proponents also point out that the period of globalization has been accompanied by the spread of democracy, a factor very important to voice and empowerment. In contrast, as explained in the previous section, many critics believe that voice and empowerment are among the first casualties of globalization. They believe that globalization shifts decision-making to higher and higher levels of government, well beyond the potential for meaningful democratic participation from the poor. These two opinions are not, however, as incompatible as they at first appear.

Proponents of globalization seem to be talking about whether or not the system is in each country is fundamentally democratic, while critics of globalization are talking about the realities of voice and participation within those countries that are already ostensibly democratic. Proponents also point out that the period of globalization has been accompanied by the spread of democracy, a factor very important to voice and empowerment. In contrast, as explained in the previous section, many critics believe that voice and empowerment are among the first casualties of globalization.

They believe that globalization shifts decision-making to higher and higher levels of government, well beyond the potential for meaningful democratic participation from the poor. These two opinions are not, however, as incompatible as they at first appear. Proponents of globalization seem to be talking about whether or not the system is in each country is fundamentally democratic, while critics of globalization are talking about the realities of voice and participation within those countries that are already ostensibly democratic.

With regard to time horizon, Kanbur suggests that critics of globalization have at once a shorter term and a longer-term world-view than many of its proponents. The shorter-term view is the one that leads critics to feel particularly concerned about the loss of income by certain subgroups as a result of globalization-induced changes in the economy. This short-term view is contrasted with the medium term perspective of economists. In the medium term it is argued that globalization will promote new industries, and better jobs will become available to replace those.

According to critics of globalization, the pertinent question is whether the people who lost their livelihoods in the short term are likely to be the same ones that gain a new and better source of income in the medium term. In the case of middle aged or older people, or where lacks of education and poor geographical mobility limits access to new opportunities, it may be the case that the losers remain losers, for the rest of their life. Seen in the worst light, those middle class white kids protesting in the street in their wealthy countries are trying to stop something that has made many of the world’s poor better off.

Seen in the best light, they are trying to give a voice to those who otherwise have none, and pushing policy-makers to think harder about how to soften those sharp edges of globalization. Optimists The links between globalization and poverty are indirect. To be sure, as developing countries have become increasingly integrated into the world trading system over the past 20 years, world poverty rates have steadily fallen. Yet little evidence exists to show a clear-cut cause-and-effect relationship between these two phenomena.

As pointed out by Besley and Burgess (2003), poverty can be reduced by growing the economy or through improvements in the income distribution or both. If a country is growing slowly or not at all, then measures that improve the distribution of income will reduce poverty. Besley and Burgess (2003) calculate that a one standard deviation reduction in inequality in sub-Saharan African would reduce poverty by more than half. If openness to trade is associated with increasing inequality, then the growth gains from trade could be wiped out for those at the bottom of the income distribution.

In other words, if the gains from trade are highly unequal, then the poor may not share the benefits. Many of the studies in this volume suggest that globalization has been associated with rising inequality, and that the poor do not always share in the gains from trade. Many of the studies in Globalization and Poverty in fact suggest that globalization has been associated with rising inequality, and that the poor do not always share in the gains from trade. Other themes emerge from the book.

One is that the poor in countries with an abundance of unskilled labor do not always gain from trade reform. Another is that the poor are more likely to share in the gains from globalization when workers enjoy maximum mobility, especially from contracting economic sectors into expanding sectors (India and Colombia). Gains likewise arise when poor farmers have access to credit and technical know-how (Zambia), when poor farmers have such social safety nets as income support (Mexico) and when food aid is well targeted (Ethiopia).

The evidence strongly suggests that export growth and incoming foreign investment have reduced poverty everywhere from Mexico to India to Poland. Yet at the same time currency crises can cripple the poor. In Indonesia, poverty rates increased by at least 50 percent after the 1997 currency crisis in that country, and the poor in Mexico have yet to recover from the pummeling of the peso in 1995. Without doubt, Harrison asserts, globalization produces both winners and losers among the poor. In Mexico, for example, small and medium corn growers saw their incomes halved in the 1990s, while larger corn growers prospered.

In other countries, poor workers in exporting sectors or in sectors with foreign investment gained from trade and investment reforms, while poverty rates increased in previously protected areas that were exposed to import competition. Even within a country, a trade reform may hurt rural agricultural producers and benefit rural or urban consumers of those farmers’ products. But proponents of Globalization believe the poor are more likely to share in the gains from globalization when there are complementary policies in place.

The relationship between globalization and poverty is complex, according to Ann Harrison, a number of persuasive conclusions may be drawn from the studies in Globalization and Poverty. One conclusion is that the relationship depends not just on trade or financial globalization but on the interaction of globalization with the rest of the economic environment: investments in human capital and infrastructure, promotion of credit and technical assistance to farmers, worthy institutions and governance, and macroeconomic stability, including flexible exchange rates.

The existence of such conditions, Harrison writes, is emerging as a critical theme for multilateral institutions like the World Bank. More research is needed to identify whether labor legislation protects only the rights of those few workers who typically account for the formal sector in developing economies, or whether such legislation softens short-term adjustment costs and helps the labor force benefit from globalization. Anti-sweatshop activism suggests that selective interventions may be successful in this regard.

Harrison next notes that while many economists predicted that developing countries with great numbers of unskilled workers would benefit from globalization through increased demand for their unskilled-intensive goods, this view is too simple and often inconsistent with the facts. Cross-country studies document that globalization has been accompanied by increasing inequality within developing countries, suggesting an offset of some of the reductions in poverty.

Globalization and Poverty yields several implications. First, impediments to exports from developing countries worsen poverty in those countries. Second, careful targeting is necessary to address the poor in different countries who are likely to be hurt by globalization. Finally, the evidence suggests that relying on trade or foreign investment alone is not enough to alleviate poverty.

The poor need education, improved infrastructure, access to credit and the ability to relocate out of contracting sectors into expanding ones to take advantage of trade reforms.

Bibliography 1. Besley, Timothy and Robin Burgess (2003), “Halving Global Poverty”, Journal of Economic Perspectives, Volume 17, Number 3, Summer, pages 3-22 2. Bhagwati, Jagdish (2004) In Defense of Globalization. Oxford University Press, 320 pages

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