This essay discusses the issue of Globalization, and specifically seeks to determine whether it has a positive or a negative effect on the creation of wealth (and therefore a reduction of poverty) in developing countries. A selection of the many and often opposing opinions on this topic is covered in the essay, so that this writer may be in a position to take an informed view.
Bardhan (2009) recognizes that whilst there are many strong opinions on the contentious subject of globalization, there are also different meanings attributed to the term. He explains that some interpret globalization as being the worldwide expansion of new technologies like I.T. and communications, and the movement of capital, while others see it as the expansion of outsourcing by companies based in affluent countries. Yet another interpretation of globalization is what some refer to (in a derogatory sense) as “the tentacles of corporate capitalism or US hegemony.” However, in this essay, as in Bardhan’s paper, the meaning given to globalization is mainly that of economic globalization as in expanding overseas trade and investments, based upon which the essay will discuss the effects of globalization on the wealth attracted to the developing countries; and how for the poor people in those countries their incomes and access to services, facilities and resources are affected as a direct or indirect result.
The Effects of Globalization on the Poor
Bardhan believes that for the 25 years or so following World War II, policies of the governments in most of the developing countries blocked the forces of globalization, but things have changed more recently, opening up these countries to the impacts of globalization. Giving examples of China and India – the two largest world nations – he notes that as a share of GDP the figures for China showed a rise from 23 to 46 percent, and for India the equivalent rise was from 19 to 30 percent (both for the period 1980 to 2000).
In Bardhan’s view, whether the effects of globalization actually benefit the poor in such countries is a complex issue and depends upon the individual nation’s domestic politics and economic structures, although in general he considers the overall effects are to cause additional hardships for the poorest of the population in the short-term, before longer-term adjustments in the domestic situation filter down to their level in society.
Bardhan also stresses that the international investment that should be the subject when discussing globalization should be the long-term investment such as in plant, equipment and technology, rater than the short-term type of investment that can actually cause severe hardship to the poor. He cites the 1997 speculation against the Thai currency which in just one year caused a 50 percent increase in the poor of Thailand. He also refers to the effects in Indonesia of the financial crisis in Asia when real wage levels fell by 44 percent. As a consequence of these and similar events, Bardhan claims that many economists are now of the opinion that control over short-term capital flows is required, especially in countries with weak banking systems and financial institutions. He claims that the widely held view is that both China and India and Malaysia also avoided the worst impact of the financial crisis in Asia because of their stringent control measures against the flight of capital.
Although – as Bardhan states – a popular and often quoted cliché is that “globalization is making the rich richer and the poor poorer” – suggesting a widening gap between the rich and the poor caused by globalization – he regards the true situation as more complex, and with no general correct answer. Based on survey data compiled by the World Bank, the trend for the percentage of people existing below an arbitrary poverty line is shown in Figure 1, which covers developing countries, both with and without the inclusion of China.
Figure 1: Poverty Percentages in the Developing World 1981-2001
Source: Bardhan, Pranab: “Does Globalization Help or Hurt the World’s Poor?” (p.13).
The overall trend is a decline in poverty, which is most pronounced in the east, the south and the southeast Asian countries, as shown in Table 1.
Source: Bardhan, Pranab: “Does Globalization Help or Hurt the World’s Poor?” (p.14-15).
Bardhan cites specific examples of countries that according to those supporting globalization point to a confirmation of this trend. These are countries that have a long history of widespread rural poverty, such as China (79 down to 27 percent), India (63 down to 42 percent), and Indonesia (55 down to 11 percent). However, he remains unconvinced that the improvements can be primarily or exclusively attributed to an effect of globalization, citing other factors within those countries that most probably have played their part, too.
In contrast to the countries mentioned, Bardhan reports that those more sceptical about the benefits of globalization point out that in the sub-Saharan countries in Africa there has been an increase in poverty over that same period, although in his view that could be more to do with other factors such as wars and regime changes. He notes that in the 1980’s and 1990’s, 29 of the 43 countries there experienced civil wars, which very probably would have deterred international investment and trade.
Bardhan also points out that while globalization has increased the numbers of jobs available in developing countries, their working conditions tend to be poor and the wage levels low. However, those working in the new factories are relatively much better off than others in their communities who still earn from their traditional occupations. He refers to a survey of women workers in Dhaka, Bangladesh which showed that their wages earned by working in the garment manufacturing industry were over 80 percent higher than other workers in the same poor neighborhoods. He understands the motives of people wanting to boycott goods made in these sweatshop conditions, but observes that banning those imports will merely have a negative impact on the lives of those people. He cites a case of a 1993 U.S. Senate bill to ban the import of products made using child labor. Its effect was to cause the immediate dismissal of circa 50,000 child workers from the Bangladesh garment industry.
Bardhan stresses the need for rich countries to lift their trade barriers and reduce protectionism and for the developing countries to introduce social and other policies to help their poorer citizens adjust to the changes brought about by globalization. Some developing countries are more successful than others, usually due to having better and more stable regimes and rules of law. He believes that with international cooperation the world’s poor can be helped through the early stages of globalization projects.
Dollar (2001) also perceives globalization as a positive overall for the world’s poor. In his capacity as a member of the Development Research Group of the World Bank, he published a paper entitled “Globalization, Inequality, and Poverty since 1980.” He sees globalization as “the growing integration of economies and societies around the world as a result of flows of goods and services, capital, people, and ideas.” In his view, whereas workers with equivalent skills are not so productive and earn less in the developing nations, but through integration due to globalization the gap can be narrowed, thereby reducing poverty in those countries. However, for various reasons (some as already cited by Bardhan), there are bound to be differences between the relative outcomes for different countries – some will be winners, some will be losers. That, according to Dollar, is why the subject is controversial.
In the conclusion to his paper, Dollar echoes an opinion offered by Bardhan when he states that the evidence is that globalization has benefitted poor people around the world. Further, he believes that the policy of restricting trade is wrong if one cares about the important issue of poverty, because such policies create even more hardship for the developing world’s poor.
Abunasbi (n.d.) also offers a positive view of globalization in his paper entitled “Globalization: Does It Help Or Hinder Poverty?” He acknowledges that some people believe that globalization increases poverty and that others believe globalization and poverty are not linked, and that there are indeed both positive and negative effects. He also concedes that there can be negative factors such as multinational companies setting up bases in developing countries and putting domestic competitors out of business, causing local unemployment. There can also be reduced funding available for the country’s government to spend on social services that are mostly needed by the poor. However, on the positive side, the integration that occurs helps to encourage mutual cooperation and increased trade. Those effects bring increased wealth and capital into the affected countries as well as knowledge and new technologies, all of which help to create wealth and employment and therefore alleviate poverty. Abunasbi concludes that overall globalization has helped increase wealth and growth and reduce poverty, citing the increasing wealth, growth and poverty reduction in Asian developing countries, and offering an optimistic view of the future for the African countries which are presently lagging behind.
A voice less supportive of globalization is that of the International Forum on Globalization. Mander, Baker and Korten published “Does Globalization Help the Poor?” (2001), which claims that the generated wealth stays with the rich and makes the world’s poor poorer. However, whilst the article cites various organizations such as the UN, the CIA, and the London School of Economics as underwriting the view that globalization is increasing inequality around the world it lacks the reassurance of hard facts and statistics about specific countries that are features of the Bardhan and Dollar papers discussed earlier in this paper.
Hogan (Jun. 2012) published “Globalization and Wealth Creation in Developing Countries.” He maintains that globalization from the 1980s onwards has helped create wealth in the developing countries. He credits U.S. President Reagan and UK Prime Minister Thatcher with championing the new political and economic theory known as neo-liberalism, to encourage a free global market, and so encourage development in the third world. This has now begun to reduce the world numbers of people living in poverty. He also cites the economist Frederic Mishkin as stating that the developing countries opening up through globalization can thereby generate wealth, citing as examples China, India and South Korea.
Hogan also refers to the IMF’s data for 2011 showing that the GDP for developing countries rose from 4.9 percent in 1997 to 7 percent in 2010. Even Sub-Saharan Africa – one of the poorest areas of the world – has shown a GDP increase from 3.6 to 4.1 percent in that same period. Some dismiss GDP gains as not a true measure of economic growth, but the increased GDP percentages do appear to go hand-in-hand with reductions in poverty in those countries.
The Rt. Hon. Gordon Brown MP (United Kingdom) presented to the UN on 18 September 2011 a paper entitled “Achieving Sustainable Growth, Wealth Creation and Poverty Reduction.” In that paper, which is about globalization, he states that the aim is to achieve sustainable global growth, wealth creation and poverty reduction; to make globalisation a force for good.”
Having reviewed and discussed a selection of opinions on the subject of Globalization, the conclusion is that on balance it does have a positive effect on the creation of wealth (and also a reduction of poverty) in developing countries. Whilst some believe that globalization creates wealth but that the wealth generated does not trickle down through the economy to the level of the poor, countries like China and India have demonstrated that the impact of globalization has been to dramatically reduce the numbers of their citizens living below an internationally-agreed poverty level. The articles and papers discussed have also shown that the Sub-Saharan countries are lagging behind in terms of progress in this area, although that may be due to the predominance of conflicts in those countries over the last two or three decades, which would probably have deterred overseas investment and trade.
Abunasbi. (n.d.). “Globalization: Does It Help Or Hinder Poverty?” Scribd. http://www.scribd.com/doc/19473704/Globalization-Does-It-Help-Or-Hinder-Poverty
Bardhan, Pradan. (2009). “Does Globalization Help or Hurt the World’s Poor?” (p.1-16), University of California, Berkeley. Oct. 2005. http://emlab.berkeley.edu/users/webfac/bardhan/papers/BardhanDoesGlobalizationHelp.pdf
Brown, Gordon. (Sep. 2011). “Achieving Sustainable Growth, Wealth Creation and Poverty Reduction.” The Blended Capital Group. http://blendedcapital.com/downloads/AchievingSustainableGrowthGordonBrown180911.pdf
Dollar, David. (2001). “Globalization, Inequality, and Poverty since 1980, p. 1-39.” World Bank. ftp://www.econ.bgu.ac.il/Courses/Globalization_and_Development/Notes/Globalization-inequality-and-poverty.pdf
Figure 1: Poverty Percentages in the Developing World 1981-2001. Source: Bardhan, Pranab: “Does Globalization Help or Hurt the World’s Poor?” (p.13). University of California, Berkeley. Oct. 2005. http://emlab.berkeley.edu/users/webfac/bardhan/papers/BardhanDoesGlobalizationHelp.pdf
Hogan, Nigel. (Jun. 2012). “Globalization and Wealth Creation in Developing Countries.” e-International Relations. http://www.e-ir.info/2012/06/09/globalization-and-wealth-creation-in-developing-countries/
Mander, Jerry, Baker, Debi, and Korten, David. (2001). “Does Globalization Help the Poor?” International Forum on Globalization, IFG Bulletin, 2001, Volume 1, Issue 3. http://www.thirdworldtraveler.com/Globalization/DoesGlobaliz_HelpPoor.html
Table 1: Percentages of People below an International Poverty Line of $1.08 a Day. Source: Bardhan, Pranab: “Does Globalization Help or Hurt the World’s Poor?” (p.14-15). University of California, Berkeley. Oct. 2005. http://emlab.berkeley.edu/users/webfac/bardhan/papers/BardhanDoesGlobalizationHelp.pdf