Does globalization reduce poverty and inequality?
The term globalization is the world’s current slogan which has significantly influenced many countries all around the world. According to Sharmin.S (2011), globalization is defined as a marvel used to widen the factors of production for a complex series of ideas in economic, social, technological, cultural, political and ecological, to exchange and upsurge for more trade seen as increasing interdependence, integration and interaction between people, companies and countries.
In addition, Globalization is viewed differently by many people; some view it as a term that makes deeper and wider interconnections among people all around the world through all forms of exchange, in terms of trade, ideas, cultures, etc. On the other hand, others view it as a huge problem that affects different cultures. An additional description is that Globalization can be seen at from various aspects, like economically, culturally, politically, technologically, culturally.
There are a few vital questions that need to be asked when discussing globalization and its impact on the developing world. Furthermore, globalization, poverty and inequality are three main issues that are highly debated or argued on today’s political agenda. Majority of the population have clear idea about the difference between “poverty” and “inequality.” As these terms are defined by The World Bank (2011), “poverty” is about the absolute level living standards of individuals or households that cannot attain certain pre-determined consumption needs. Inequality is about the difference in levels of living. It measures how much more is held by rich people than poor people. This paper aims to present facts to reinforce that globalization, at large doesn’t reduce poverty and inequality on income inequality of the selected different level-income countries worldwide.
2.0 Problem statement
Globalization is creating wealth for the few and depressing local wages, conditions of employment and poverty for many. It has also created a change in power: countries state has weakened and has evidently reduced its social responsibility. However, the term globalization can be seen as a form of economic freedom as it is adopted to strengthen the economy status and well-being of nations to fight and overcome any upcoming threats, but it is also associated with problems that have raised genuine concerns, among which are poverty and the income inequality.
Moreover, a closer look at globalization divulges that though it has helped in some issues like education, etc. in some of the largest and strongest economies, the developing world has seen an increase in poverty and a widening gap between the rich and the poor. For example in Bangladesh, the part of the poorest 20 % of the world’s population has shrivelled from 2.3 % of the world income in 1960 to 1.1 % today – and it is still falling (EPP n.d.). Conversely, in recent years, the negative impacts such as the worsening of poverty and inequality due to globalization, on the economy of some countries and, more evidently, on its people’s lives, have become a widely discussed issue. Furthermore, Globalization limits the ability of local businesses to upsurge because of international competitors, creating a rise in wage inequality in developed and developing countries as well as implementing policies which forces pressure on governments to an extent of causing negative impact on social welfare issues. However, because of these negative consequences of Globalization, communities in many Third World countries are no longer able to cope as their previously successful coping strategies diminishing daily. It is then implied that it is necessary to look for alternatives in the private sector or to directly privatize services. Often such privatization strategies lower the access and quality of services for the poor and end up widening the gap between the rich and poor. As a result, inequality keeps on increasing and the number of hungry people around the world keeps on rising every year and poverty is becoming increasingly.
3.0 Content and Development
Various studies prove that globalization increases inequality and poverty, whereas many other studies claim that globalization does reduce inequality and poverty. As Neutel & Heshmati (2006) stated, it is claimed that globalization have shown substantial steps in the fight to decrease inequality, as well as to fight against global poverty over the most part of the past century. One of the main contributors to the argument is the World Bank. In the publication Globalization, Growth and Poverty (2002), it is claimed that globalization generally reduces poverty because more integrated economies tend to grow faster and this growth is usually widely diffused.
In contrast, there are critics who claim that globalization has led directly to increase in poverty and inequality and the rich are getting richer and the poor are getting poorer. Furthermore, as Birdsall (2001) stated, the average family in the U.S is 60 times richer than the average family in Ethiopia or Bangladesh, for instants over the past decades, global inequality and poverty have been increasing significantly by most measures. The ratio of the average income of the richest to the poorest country in the world increased from 9 to 1 at the end of the 19th century to about 30 to 1 in 1960, and more than 60 to 1 today.
Although financial deepening improves an economy’s rate of growth, it is possible that poverty will remain the same or increase because the resulting growth could lead to greater income inequality. Hence, there are still challenges that whether globalization causes a higher economic growth rate and more welfare or leads to a higher rate of income inequality among world nations. Therefore I argue that globalization truly doesn’t reduce poverty and inequality in its policies and endeavours in three arguments; multinationals competing with domestic businesses, welfare spending on citizens in a country and rising wage inequalities in developed and developing Nations.
To start with, globalization creating international trading by encouraging multinational companies to establish businesses in foreign lands causes multinationals competing with domestic businesses. Globalization can have a negative effect on society and its people and contribute towards the increase in poverty in the world. According to The Times 100 (1995-2013), as the result of globalization process and its endeavours, the present businesses are increasingly affected by the actions of international competitors. However, this has a negative impact on the local people’s businesses by creating losses in their businesses, which at the end generates an increase in poverty. In general, foreign multinational companies are migrating all around the world and setting up their businesses in developing countries and taking away business from the domestic or local competitors.
Furthermore, In the competitive global framework Makwana (2005), foreign investors, competitors and multinationals corporations gain control of the majority portion of the world’s resources, finance, services, technology and knowledge, thus, causing crippling debt and a crumbly economy to developing countries as they are forced to comply with the neo-liberal agenda and this causes poverty as a result. Whilst these multinationals make report record of huge profits, on the other hand, around 50,000 people die each day from poverty. Lastly, local companies are going out of business and people are becoming poorer, since multinationals after earning their profits in foreign countries, they take most of their top managers, research and development activities, assets and owners to their home countries.
Secondly, globalization causes the lack of welfare spending on citizen’s causing an increase in inequality and poverty. Globalization acts as a force that puts downward pressure on government spending for redistribution and welfare in a nation. The dispute over globalization’s impact on welfare expenditures has gone to a far extreme where researchers and scholars continue to produce theories and findings. Thus, the neo-liberal economics thesis argues that globalization has put pressure on nations forcing them to reduce cost in social welfare in order to achieve market friendly environment and attract increasingly mobile international capital (Blackmon 2006; Castells 2004; Allan & Scruggs, 2004). However, since governments then do not have much money, power and control are in the hands of localities and independent organizations, so, not much money is spent on social welfare.
Furthermore, Tisdell & Svizzero(2003), “income inequality has increased sharply in higher income countries.” It further described that, the overview of globalization is strongly and more significantly connected with technological changes; even if globalization increases economic efficiency and growth in high-income countries, it can raise income inequality and reduce social welfare. (Tisdell & Svizzero, 2003). As a result of this, rich people will be able to afford their welfare expenses whilst the poor won’t be able to do so, this will create a gap between the rich and the poor. Also, globalization promotes a neo-liberal ideology where organizations such as World Bank and the International Monetary Fund forcing and pressuring developing nations to focused into policies that will limit government spending, selective social services and private control. (Dollar 2001). Thus, there is limited spending on welfare and poverty is aggravated with an increase in inequality.
Lastly, globalization encourages the rising wage inequalities in developed and developing nations thus, creating a high increase in poverty and inequality. Developed nations have experienced a rise in wage inequalities. This is due to the rising demand for higher skilled labor in society compared to the lesser demand for lower skilled labor. According to Katz and Murphy (1992), the introduction of new technologies in an economy world can be likely to have effects on the demand for labor, as companies are using a higher level of technology; it is advantageous to use skilled labor more intensively than unskilled labour.
Furthermore, a number of scholars have recently argued that, due to new technologies, there has been a shift in labour demand towards skilled labour which, in turn, has led to an increase in the wage of skilled relative to unskilled workers. In other words, the introduction of new technologies has led to an increase in wage inequality in the respective economy world. As a result, more of the workers with a lower level of education are unemployed. For example as Lejour & Tang (n.d) stated, the increase income inequality in the United States and high unemployment among low-skilled workers in continental Europe have raised up concerns about the process of globalization. The fear is that, the low-skilled workers suffer from the intensified linkages between developed and developing countries. The on-going process of globalization might deteriorate the position of low skilled workers even further. This has resulted in arise in immigration of lower skilled labour into developed countries and therefore, causing a widening wage gap.
Moreover, there has also been rise in wage inequalities in some developing nations. This is partly due to “industry wage premiums (resulting from changes in trade policy that favours workers in specific industries).”(Corley, Perardel & Popova, 2005). In addition to this, the increasing size of the informal economy means that, more people are working in poor conditions and in turn are being paid lower wages. Finally, there is a shortage of high skilled labour in developing nations due to a lack of a good education. This again means that the wage gap broadens.
In spite that globalization widens the factor of production and trade, in my own opinion it doesn’t reduce poverty and inequality, due to its negative effects like lack of social welfare spending, multinationals competing with local businesses, wage gaps. It is noticed that, the proportion of the world’s population are living in poverty has increased over time. On income distribution, several studies suggest that, the world income inequality has been rising during the past years too. Finally, whatever we conclude about income inequality and poverty, there are absolute gaps between the rich and the poor and this is widening and will continue as far as globalization has its effects on the world. Furthermore, from the above argument, we can conclude that, globalization does not reduce poverty and inequality; thus, poor countries and poor people will become increasingly marginalized. Globalization needs more management to open opportunities for the poorest countries and avoid greater economic disparities both in developed and developing countries.
Allan, J. P., & Scruggs, L.( 2004) Political Partisanship and Welfare State Reform in advanced Industrial Societies. American Journal of Political Science, 48(3): 496-512.Retrieved December 22, 2013 from http://www.researchgate.net/publication/237296055_Political_Partisanship_an d_Welfare_State_Reform_in_Advanced_Industrial_Societies/file/e0b495273e 0b126c5e.pdf
Birdsall.N.(2001). Asymmetric globalization: Outcomes versus opportunities. Discussion paper(7).RetrievedDecember22,2013from http://www.bc.edu/bc_org/avp/cas/isp/inequality/Asymmetric_Globalization.pdf
Blackmon, Pamela. 2006. “The State: Back in the centre of the globalization debate.” International Studies Review, 8(1): 116-119. Retrieved December 22, 2013 from http://www.jstor.org/discover/10.2307/3699745?uid=3738672&uid=2129&uid =2&uid=70&uid=4&sid=21103167815567
Castells, Manuel. 2004. “Global Informational Capitalism.” In Held, D. and A.G. McGrew(eds.). The Global Transformations Reader: An Introduction to the Globalization Debate (2). Malden, MA: Blackwell. Retrieved December 23, 2015 from https://politicalscience.stanford.edu/sites/default/files/workshop- materials/cp_tsebelis.pdf
Corley,M. , Perardel,Y. & Popova, K. (2005). Wage inequality by gender & occupation : A cross-country analysis. Employement strategy papers, 3. Retrieved on December 23, 2013 from http://www.ilo.org/wcmsp5/groups/public/—ed_emp/—emp_elm/documents/publication/wcms_114026.pdf
Dollar D. (2001). Globalization, Inequality, and Poverty since 1980. Development Research Group, World Bank. Retrieved December 21, 2013 from ftp://220.127.116.11/Courses/Globalization_and_Development/Notes/Globaliza tion-inequality-and-poverty.pdf
EPP (Economic Policy Paper) .(n.d). Impact of Globalization in the Context of Bangladesh. Dhaka: DCCI-CIPE/ERRA Project.Retrieved December 19, 2013 from http://www.dhakachamber.com/cipe/EPPs%20&%20Studies/Globalization.pdf.
Katz, L.F., & K.M. Murphy (1992). Changes in Relative Wages, 1963-1987: Supply and Demand Factors. Quarterly Journal of Economics 107: 35-78. Retrieved December 20,2013from http://www2.econ.iastate.edu/classes/econ521/orazem/Papers/Katz_Murphy_1 992.pdf
Makwana, R. (2005, December). STWR. Retrieved December 15, 2013, from The World’s Resources:http://www.stwr.org/imf-world-bank-trade/decommissioning-the-imf-world-bank-and-wto.html
Sharmin, S. (2011, November). Does globalization always increase inequality? An econometric analysis in bangladesh perspective. Journal of Globalization studies, 2, 1.RetrievedDecember17,2013from http://www.sociostudies.org/journal/articles/140677/
Svizzero, C. T. (2003, June). Globalization,social welfare and labor market inequalities. RetrievedDecember23,2013,from http://ageconsearch.umn.edu/bitstream/90525/2/WP%2020.pdf
Tang, A. M. (n.d). Globalisation and wage inequality. Retrieved December 24, 2013, from https://www.gtap.agecon.purdue.edu/resources/download/1260.pdf
The Times 100. (1995-2013). How businesses are affected by international competitors. Retrieved December 14, 2013, from http://businesscasestudies.co.uk/business-theory/external-environment/how-businesses-are-affected-by-international-competitors.html#axzz2oE7bVf8u
World Bank. (2011). Measuring poverty. Retrieved December 15, 2013, from Poverty Reduction and Equity: web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTPOVERTY/EXTPA/O