THE IMPACT OF GLOBALIZATION ON POVERTY AND DEVELOPMENT
Discuss the key debates on the concept of ‘globalization’ and the impact of globalization on poverty and development.
Globalization and the widespread reach of the internet have coupled together to help create interesting possibilities on the work front. The shrinking restrictions of physical boundaries and the emergence of transborder teams who work in a virtual workplace are rising (Ivaldi et al., 2017). While this has helped companies to a significant level by helping to bring down the cost of production (DePalma, 2004), the impact on both poverty and the development of countries remains a much-debated topic. While there are supporters to both sides of the argument, no actual correlation has been established between globalization and poverty or between globalization and development. The labor-intensive countries continue to provide services for capitalist countries, however, the extent of advantages enjoyed by either party remains a matter of debate (Fosu, 2010). Several studies have been carried out to determine globalization's impact on poverty and development. However, none of them have been conclusive on the topic.
Globalization and poverty are often used in tandem with each other. However, the impact of one on the other makes an interesting study. Some research points to the fact that labor-intensive third-world countries continue to remain poor despite the emphasis being laid on globalization. However, globalization has been responsible for creating more employment in these countries (Macedo, 2002). Conversely, the same employment opportunities have been taken away from the developed countries and hence the citizens of those country would be adversely impacted (Harrison, 2017). For instance, when Nokia or Apple outsource their production to countries like the Philippines or China, they are helping create employment opportunities in these countries. However, in the absence of globalization, these jobs would have been completed by residents of the host country. Thus, the host country has lost the employment opportunity due to globalization. While this may seem dramatic and drastic this is merely an oversimplification of the actual process that is seen in the global economic scenario.
Continuing on the same thought process, the government would have to divert its public funds towards social welfare schemes that would support those people who are now unemployed. This would be a drain on public resources that would have otherwise been used in developmental activities. Thus, globalization has hurt developmental activities in the host country since resources that would be used for infrastructure development would now to needed to maintain the human resources of the country. On the other hand, the rising employment opportunities would allow the service-intensive countries to have a larger workforce who can be taxed based on their income this would help that country to improve its developmental activities (Meagher, 2016). Thus, globalization and the resultant economic integration have benefitted the poorer countries that have been able to improve their economic conditions and employment levels by capitalizing on their comparative advantage in using unskilled labor to produce goods (Bardhan, 2006).
However, complementary policies and economic activities are essential for any country to be able to maximize the benefits of such an arrangement (Tausch, 2010). Therefore, if the two countries were to share a unilateral trade arrangement, then both countries would benefit only when complementary policies from local governments are enforced for the benefit of the poorer sections of society. To understand the economic benefits of globalization and the impact of globalization on both development and poverty, it is essential to understand both the international movement of capital as well as international trade of goods. Interestingly, merely opening up trade does not in any manner contribute to the alleviation of poverty, nor can national GDP be an accurate counter to measure poverty of income is unevenly distributed and the actual number of persons who come below the poverty line has increased despite an increase in the country’s GDP. While it cannot be denied that globalization has contributed significantly to the world’s growth over the past decade an increase in FDI, free trade, and short-term outflow of capital have had a much more limited impact on development (Macedo, 2002). This gap can be attributed to the lack of sufficient economic policies on the domestic front and economic cooperation on the international front.
Globalization may be touted as helping poorer nations achieve their food requirements through the sharing of genetically modified high-yielding seeds. However, this tends to damage the natural ecosystem and leads to an increase in poverty by increasing the country’s inability to feed its people, creating a vicious cycle of poverty (Van den Broeck, Swinnen, and Maertens, 2017). The higher costs incurred by the farming population in meeting the needs of the yielding corps like pesticides, are also contributing to the increase of poverty globally by increasing the debt of farmers. Furthermore, industrial farming rather than increasing food security and heralding development is contributing to an increase in production costs and lower returns for farmers unable to compete with global farming practices. Thus, they would end up spending high amounts while facing lower returns on their investments, leading to a considerable economic loss for them (Olorode, 2008)
Development and alleviation of poverty go hand in hand. Complementary economic policies by local governments must be put in place to ensure that the benefits from international cash flows and trade agreements filter down to the masses. It would be accurate to state that economic integration resulting from globalization can help poor countries considerably when policies for the development of infrastructure and human capital complement such initiatives (Abbas, 2014). Macroeconomic stability through such policies including the promotion of technical and credit assistance to small farmers in third world countries would help the poor benefit from globalization. Public finances need to be deployed in such a manner that the poor sections of society can benefit from the increase in funds available to the government. Social security schemes that would benefit this section of society need to be enforced by the local governments to nurture the human capital in the country.
To understand the relationship between globalization, development, and poverty, it is essential to understand the motivations underlying these policies. By identifying the ideological positions of these governments, it becomes relatively easy to understand how some countries have been able to capitalize on the benefits of globalization while others have seen an increase in the number of persons lying below the poverty line (Fosu, 2010). The relationship between globalization and poverty is complex since it involves several economic relationships including trade between countries in the form of goods and services, creation of employment opportunities, and increase in per capita earnings as well as higher taxes and available funds with the public exchequer that helps ensure that the development activities including infrastructure development are carried out and best interests of the population are taken care of (Harrison, 2017).
Various studies that have been undertaken in several developing countries observe that manufacturing exports contribute to the reduction in poverty. The impact of agricultural-linked exports is more significant in countries with lower incomes as compared to countries that have a relatively higher income (Olorode, 2008). This infers that that trade specialization is instrumental in reducing poverty, but only under specific trade specialization patterns and complementary policy conditions in the country (Santos-Paulino, 2017). It is seen that any small improvements in the trade balance brought upon by taxes and import tariffs are often outweighed by the huge decline in real household consumption expenditure. This decline may be attributed to several factors the most significant among them being a fall in employment and resultant wages, thereby leading to a fall in GDP growth.
It is unfortunate that despite the much hue and cry over globalization and its benefits, 35% of the world's population still lives below the international poverty line (Rudra and Tobin, 2017). His shocking statistics may be attributed to the gap between facts and the rosy picture that is depicted when speaking of globalization and its impact on both poverty and development. Interestingly, in third-world countries, employment in the agricultural export sector is associated with higher household income and the income effect is strongest for the poorest households (Olorode, 2008). However, images used to portray such labor markets as being full of potential, almost non-existent unemployment, a decline in the dependency ratio, and a prosperous population conceals a less encouraging reality of high levels of unemployed youth and its associated social issues (Tausch, 2010).
Creating a global infrastructure that can be relied upon to handle all issues and problems that arise from globalization is the need of the hour (Ivaldi et al., 2017), (Brown, 1973). Globalization would help staggering economies find a footing while simultaneously helping well-established economies to flourish. Thus, a win-win situation would come about as a direct result of globalization (Korine and Gomez, 2002). Interestingly, globalization alone would not be effective. It would be akin to continuing the existing practices in trade and commerce, across wider areas and physical boundaries. While several countries particularly from the third world have established protectionist policies to protect native industries, this is seen as a futile exercise that would cause more harm than good in the long term. A study on Indonesian markets concluded that such efforts would not be beneficial to the country as a whole regardless of the value or trade it would impact (Mahadevan, Nugroho, and Amir, 2017).
The global value chain that would be the result of this global economy would be instrumental in strengthening the global economy as a whole. The economic conditions of the producers as well as buyers, and consumer organizations are therefore dependent on how capital, goods, services, and resources move from one country to another. This seamless interaction between the various components involved in the trade is known as globalization. While it may seem like a utopian concept, it is justified by the advantages offered by such a system. Interestingly, many nations have realized the advantages of such a system and now look at globalization as a stepping stone to a prosperous economy. While presently, the impact of globalization on the alleviation of poverty and increased development is not crystal clear, the central theme of globalization remains that some entities would enjoy a greater benefit as compared to others. It is also seen from the various studies on the topic, that benefits for the poorer nations would be significantly higher as compared to more economically forward nations. (Macedo, 2002)
References
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Meagher, K. (2016). The Scramble for Africans: Demography, Globalisation, and Africa’s Informal Labour Markets. The Journal of Development Studies, 52(4), pp.483-497.
Olorode, O. (2008). Biodiversity, Globalisation And Poverty. African Journal of Traditional, Complementary and Alternative Medicines, 4(4), p.532.
Rudra, N. and Tobin, J. (2017). When Does Globalization Help the Poor?. Annual Review of Political Science, 20(1), pp.287-307.
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