You are on page 1of 4 Introduction Globalization is one of the most widely debated topics in the world today.

There are many different schools of thought on the effects of globalization on world poverty. Certain people believe that globalization increases global poverty and that the poor of the world are cheated because of it. However, others believe that globalization decreases poverty and helps aid the poor. Further to this, another group of people believe that poverty and globalization are not linked. However, before moving into a debate on globalization and poverty, we must first look to define these terms. Globalization can be described as the process fuelled by, and resulting in, increasing cross-border flows of goods, services, money, people, information and culture. Thus, this means that there is more travel and tourism, immigration, investment, trade and on the whole a creation of a universal set of values. Different people have different perceptions of globalization. Some see it as a beneficial process something that leads to economic development in the world and is inevitable. On the other hand, certain people believe that it increases inequality within nations, causes unemployment, deteriorates living standards, and prevents social progress. In this essay, I will outline the positive and negative effects of globalization on world poverty. In addition to this, I will then attempt to present a case to reinforce my belief that globalization, at large, has in fact helped reduce poverty. Also, I will give examples of two specific developing nations which have adopted an integration policy and look at the reasons for whether this has been a success or not. How does Globalization increase global poverty? Multinationals competing with Domestic Businesses Globalization can have a negative effect on society and contribute towards increased poverty in the world. For example, according to Robert Reich, a political economist, national economies are disappearing . By this he means that large, foreign multinational companies are setting up their businesses in developing countries and taking away business from the domestic competitors. Thus, since multinationals locate most of their assets, owners, top managers, and research and development activities in their home countries local companies are going out of business and people are becoming poorer. Welfare Spending Globalization puts downward pressure on government spending for redistribution and welfare. Since governments then do not have much money and control is in the hands of localities and independent organizations, not much money is spent on welfare. Also, globalization promotes a neo-liberal ideology where organizations such as the International Monetary Fund and the World Bank pressure developing nations into policies focused on limited government spending, selective social services and private control. Thus, there is limited spending on welfare and poverty is aggravated. Rising Wage Inequalities in Developed and Developing Nations There has been a rise in wage inequalities in developed nations. This is due to the rising demand for higher skilled labour in society compared to the lesser demand for lower skilled labour. Thus, more of the workers with a lower level of education are unemployed. Another factor which may have influenced wage inequalities is increased trade with developing countries. This has resulted in a rise in immigration of lower skilled labour into developed countries and therefore, a widening wage gap. Furthermore there have also been rising wage inequalities in some developing

nations. This is partly due to industry wage premiums resulting from changes in trade policy that favour workers in specific industries. In addition to this, the growing size of the informal economy means that more people are being paid lower wages and are working in poor conditions. 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. The Negative Effects of Globalization in Africa Globalization has been the cause for increased poverty in Sub-Saharan Africa. This is due to large debts to unfavorable trade and all the bad conditions imposed by the International Monetary Fund (IMF) and the World Bank The Nigerian President, Olusegun Obasanjo feels that Our societies are overwhelmed by the strident consequences of globalization and the phenomenon of trade liberalization. The Developed countries were criticized by African Leaders in the World Economic Forum in Durban for not keeping promises that they would cancel some of Africas debt to allow them to deal with the problem of AIDS, other diseases and extreme poverty. One of the main problems with Africa is that the price of their exports is continually falling while the price of their imports is constantly rising since they import manufactured goods and export raw materials. Also, not as many people in the developed world want to buy as many African products and the market for African goods is becoming smaller since globalization has caused the introduction of many trade barriers such as tariffs and quotas. Developed nations are using their power to use trade organizations for their own benefit. Thus, since the market for African products is shrinking and the price of their exports is very low, they have to borrow from developed nations in order to pay for their imports. Thus, their debt increases even more. Therefore, the countries have very little money that they can spend on development and poverty increases. How does Globalization help reduce poverty? On the other hand, in certain countries, globalization has also had positive effects and poverty has been reduced. Integrated National Economies Globalization results in increased integration and interconnectedness between different countries. Therefore, now, due to globalization, many developed and developing countries are trading and sharing with one another. This has had a number of positive effects on world poverty. Trade World trade has increased as a result of globalization. From 1989 to 1999, developing countries have increased their share of world trade from 19% to 29% because of economic integration. Trade specifically in the Newly Industrialized Economies (NIEs) of Asia has improved dramatically since the demand for manufactured goods has risen. Thus, there is a larger inflow of money into developing nations and this has resulting in economic growth. Thus, there is more money that can be spent on alleviating poverty. Capital Movements With globalizing developing nations, there have generally been large capital inflows. This capital can then be spent on economic growth and development and further investment, and in the long run, this would increase incomes and alleviate poverty. Immigration and Emigration Globalization can cause an increase in emigration from a developing country to a developed one. This is because people may feel that they have a better opportunity

to make a better living abroad than in their own country. They leave their country aspiring for better employment opportunities, better education and exposure to a different world. Thus, in the short run, there can be a shortage of workers in developing countries, but in the long term, there is potential for the workers to return. This will result in a transferring of skills back to the developing countries and for wage increases, thereby reducing poverty. Knowledge and Technological Exchange Globalization also results in knowledge and technological exchange between different societies. Direct foreign investment brings not only an expansion of the physical capital stock, but also technical innovation. This is because foreign companies in developing nations cause a spread of ideas and perspectives on production methods, management practices, export markets and economic and global policies. In addition to this, global Warming, the AIDS pandemic, and the globalization of the media have heightened our awareness of living in an increasingly interconnected world. Thus, globalization makes us more aware of what is going on in the world and hopefully, encourages us to take action to reduce poverty. The Positive Effects of Globalization in India Up to 1991, India had adopted an inward-oriented protectionism policy in terms of trade. However, the results of this in India were increased poverty and little growth. The reasons for this were the inefficient functioning of the public sector enterprises. This impaired additionally the public sector enterprises contribution to the economy. Thus, this restricted the gains that India could get from its investments. In the 1960s and the 1970s, India growth rate was very little, from 1.4% per annum to -0.3% per annum respectively. This eventually led to heavy borrowing from abroad and eventually a balance of payments crisis. As a result of this, a new, reform government was put in power. Some of the reforms it enforced were an initial devaluation of the rupee and subsequent market determination of its exchange rate, lower barriers to entry for foreign investors in India, elimination of import licensing and allowing the private sector to penetrate into new industries which were before reserved only for the public sector. This has resulted in much better economic growth in the 1990s as well as growth and poverty reduction. Conclusion Overall, in this essay we have looked at the positive and negative effects of globalization on poverty in our society. In my opinion, the advantages of globalization far outweigh the disadvantages. Income growth has been dramatic in most Asian developing nations and the standard of living has gone up. There has been a global sharing of ideas, education and skills and workers from developing countries are being exposed to this. In spite of there being some negative effects like lack of welfare spending, multinationals competing with local businesses, wage gaps and the dilemma in Africa, these problems do not affect all globalizing states and can be prevented. Over time, surely with the situation in Africa being more widely known due to the media and globalization, people will react and make a difference. Already, there are many global organizations and institutions attempting to reduce poverty in Africa as well as worldwide. Moreover, the positive side of multinationals setting up businesses in developing companies is more jobs for locals and exposure to better technologies as well as international ideas. On the large scale, globalization has done more to improve poverty than worsen it. References: Dollar D. 2001. Globalization, Inequality, and Poverty since 1980. Development Research Group, World Bank.

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