Effect of Globalisation on Poverty Alleviation

Globalisation Boon or Bane

The role of globalisation in alleviating poverty has been subject to extreme and recurrent debate as the pro-globalisation (Globalism) movement propound which it has helped many countries such as India and China to reduce poverty[1], the alter-globalist have denounced globalisation as an unfair development that has increased poverty and widen inequality between your rich and the indegent. When we discuss globalisation we mean it is an activity that is occurring where national economies, societies are being integrated into a global network of communication and trade. The integration of regional economies in the international economy is little by little being done through the liberalisation of trade, capital flows, migration and the spread of technology. The primary drivers of globalisation are shown in the diagram below.

Economic globalisation revolves mainly around the thought of liberalising trade and capital flows, this proposal is inspired from J. Williamson set of ten financial policies advice known as the "Washington Consensus". Free trade refers to removing government erected barriers such as tariffs and quotas to facilitate trade which in line with the theory of comparative advantage allows both the buyer and seller to make gains. The arguments towards trade liberalisation are that this spurs innovation which eventually benefits the buyer. In times where organizations have to compete with local and foreign competitors innovating and producing at the cheapest possible cost is essential if the firm wants to retain customers. When the government has protectionist tendencies i. e. close down or restrict access to the marketplace it is clearly done at the expense of consumers who are charged higher price. A free from exemplory case of protectionism in Russia is the increase in tariffs by 15% on car imports which is believed to be a strategy to weaken the demand for import cars and boost up the demand for Russian cars to help the neighborhood car industry making car of poorer quality hence the client loose. Furthermore the Europe CAP spent a staggering 49. 8 billion in subsidies to safeguard its agricultural sector which employs less than 5% of EU population which plainly shows an inefficient allocation of resources. Free trade can also increase a country's output and stimulate financial growth for example in the aftermath of joining the NAFTA Mexico experienced a surge in its export by 12. 5% from 1995-2000. Economic freedom is promoted with trade liberalisation because freer trade escalates the consumer options and the positive outcome is that customer sovereignty triumphs. Additionally it is propounded that free trade helps in propagating democratic values because in a country where there is absolutely no rule of law i. e. contracts can't be enforced and investor protection is also poor this will deter foreign investors and hindering economical development. Freedom house state that "the most economically open countries are three times more likely to take pleasure from full political and civil freedoms as those that are economically closed". Finally it is believed by many economists that slashing trade barriers would boost the world economy by $613 billion[2] equivalent to the Canadian economy.

The case against trade liberalisation has enjoyed strong support among alter-globalist and some developing countries. According to globalists who are strongly supported by developed countries argue that protectionism is a squander of resources (subsidies) to safeguard unproductive organizations which penalise the consumer with products that are expensive and of poorer quality. The monetary justification for protectionism for many developing countries lies in the newborn industry argument. It is a fact that countries like UK or USA did not flourish on the liberalisation policies that they now staunchly recommend to developing states in fact during the nascent stage of their respective industries both aggressively protected and subsidised them. The rationale for developing countries to safeguard their infant industry is the fact even if in the short run the federal government must help them with large amount of funds the huge benefits accruing to the economy in terms of employment; upsurge in exports will eventually outweigh the original cost in the long run. Neutal and Heshmati (2006) mentioned that though"countries such as China, Thailand, and Vietnam may be premier globalisers and also enjoyed strong economical growth and poverty reduction they have liberalized imports very slowly and still have relatively restrictive trade barriers". Ironically while developed countries are and only freer trade they still heavily subsidise their agricultural sector and are able to sell the products at a lower price which causes the indegent farmers in developing countries to suffer. Furthermore viewed from the perspective of poorer countries the idea that freer trade really helps to disseminate democratic values is a myth it is acknowledged that corruption is rampant generally in most deprived nations consequently the entry of powerful multinationals can amplify corruption with the capture of local politicians by lobby groups to swerve the law in their favour. For instance freer trade between China and USA or EU has not been translated in the amelioration of China human rights record. Outsourcing production is also a significant component of free trade when large MNE's outsource their production they can compromise easier in developing nations on the labour and environmental standards by using child labour[3] and by not complying with eco-friendly standards.

The second aspect of financial globalisation is financial liberalisation which identifies the administrative centre account and financial services liberalisation where government owned banks are privatised and the admission of the private sector in the financial market becomes less stringent. The benefits accruing to the economy with the liberalisation of capital flows is an effective allocation of capital from developed to developing countries which increase availability of funds for investors to finance technological development and stimulate monetary growth. Additionally financial liberalisation is perceived as a commitment to sound monetary policies sound economical policies just because a country with an open capital account is immediately rebuked by both domestic and foreign investors in the event of a decline in its policy environment hence the need for policymakers to implement sound policies.

The adversaries of financial liberalisation argue that the recent group of financial meltdown have occurred because of liberalisation consequently they argue for a non-liberalised economy, for instance Thailand an open economy experienced fast growth and also crisis while India a non-liberalised economy enjoyed slow but sure growth path[4]. Moreover financial liberalisation has failed most developing countries for instance Brazil and Chile had experienced appalling results with bank failures soon after deregulating their financial sector the reason why given are a fragile bank operating system in conjunction with a weak institutional environment where in fact the rule of law is weak, corruption rampant and banking supervision failed.

The link between globalisation and technology are unequivocal since without know-how globalisation wouldn't normally have taken place. The web or fax for instance has made it easy for people/companies to communicate in real time between countries the power is that has significantly condensed time, remove the need for middle men running a business transactions. Technology has also reduced asymmetric information by lowering the expense of information. Globalisation and technology has created new industries like the BPO which include many business such as call-centers, web design, accounting services. Though alter globalist refute the possibility of technology of propagating democratic values on the globe, globalism partisans are keen to stress on that internet has given people a platform to voice out their thoughts and opinions for instance when a MNE's firm is outsourcing its production process in a developing nation where ILO[5] labour standards aren't complied then the ILO can denounced this practice which would be tantamount to a massive pressure force triggering MNE's to comply with the set standards.

As Jimmy Carter eloquently said "Globalization, as defined by rich people like us, is an extremely nice thing. . . you are discussing the internet, cell phones and computers. This won't affect 2/3 of the folks of the entire world". The digital divide between developed and developing states is evident it is known that technology innovation is important for growth, but since developed countries has a clear advantage in terms of R&D capacity, supporting infrastructure and also the required literate workforce it is predominantly rich countries that are benefitting of advances in technologies. The argument of technology transfers that can get rid of the gulf in technology mismatch between rich and poor countries through FDI and trade has its limitations because the Intellectual Property Rights (IPR's) regime has various components which prohibit technology transfers. Additionally to discern why technology advancement has largely served developed countries interest we have to understand that generally in most developing countries an overwhelming majority of the people make a living from the primary sector hence FDI in the tertiary sector hasn't helped them. Though it is basically thought that developing countries have been the hardest hit by globalisation this is erroneous because in developed nations too there were job losses. The recent phenomenon of off- shoring is a practice where goods/services that were earlier produced locally in developed countries are actually shifted in developing states because of lower cost and then imported back in the developed country, this practice has caused massive redundancies in the manufacturing sector and triggering discontent among the neighborhood population.

Irrespective of one's take on globalisation it is just a non-reversible process that has occurred so it is in the interest of each country to have the best of the process. The hostility to globalisation in developing countries can be reduced if the policies benefit the majority and not the rich minority, for instance in India the population approved the gradual reform monetary policies because the huge benefits has been felt in the countryside. For developed countries the increased loss of jobs in the manufacturing and even services sector due to off shoring since the in developing countries people are ready to help a fraction of the actual westerners earn. To mitigate the work losses economist argue that the federal government should devise apt policies to help the workforce retrain and the private sector must constantly innovate to retain their competitive edge.

References

  1. Demirguc Kunt "Financial liberalization and financial fragility" Pg 2-4
  2. Froning D. (2000) "The Benefits of Free Trade: HELPFUL INFORMATION for Policymakers"
  3. Griswold D. "Does Trade Promote Democracy?"
  4. Ha-Joon Chang. "How the Economic and Intellectual Histories of Capitalism HAVE ALREADY BEEN Re-Written to Justify Neo-Liberal Capitalism"
  5. Neutal M and Heshmati A (2006) "Globalisation, Inequality and Poverty Relationships: A cross-country evidence" Pg 4
  6. Sharma B. "India and China lift millions out of slums: UN"
  7. Singh A. "Capital account liberalization, free ling-term capital flows, financial meltdown and financial development" Pg 2
  8. Ted Case Studies "Nike Shoes and Child labour in Pakistan"
  9. 10 benefits associated with the WTO trading system
  10. How to make technology transfer benefit human development Pg3-4
  11. Democracy and development are winners in the election "S. Dhume"
  • http://en. rian. ru/russia/20090112/119431521. html
  • http://www. ausaid. gov. au/keyaid/growth. cfm
  • http://en. wikipedia. org/wiki/Infant_industry_argument
  • http://www. abcarticledirectory. com/Article/Reaping-The-Benefits-Of-Globalization-And-Technology/81138
  1. India and China have lifted 125 million people from slums for period 1995-2000
  2. 10 great things about WTO
  3. See Nike Shoes and Child Labour in Pakistan
  4. Tornell (2006)
  5. International labour Organisation

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