Is globalisation making the rich richer and poor poorer?
Globalization: Increasing the Gap between the World’s Poorest and the World’s Richest
What is Globalization?
(1997) define globalization as the process by which markets and production in different countries are becoming increasingly interdependent because of the dynamics of trade in goods and services and flows of capital and technology (cited in 2004, ).
Globalization entails the speedy integration of the world economy, not just at the regional level. In principle, globalization should offer poorer countries an opportunity to grow faster and catch up with more affluent countries (, 2002 ). There are two components of globalization as viewed by scholars: market integration or internationalization; and the evolution of a global mind-set among key decision makers ( & , 2000 ). The processes of economic globalization – the increasing integration of input, factor and final product markets across countries coupled with the increasing importance of multinational enterprises’ (MNEs) value chain networks in international economic flows – are causing major changes in the policy landscapes. The pace, depth and impact of globalization is uneven within and across countries and industries. Though globalization is neither unstoppable nor unavoidable, it is causing long-term structural changes in the world economy ( & , 2000 ).
Driving Forces behind Globalization
1. Technological Advancement
Technological progress has been at the forefront of the push towards a globalized world. In particular, the recent significant developments in communications and information processing, including developments in the mobile telephony, e-mail, the Internet and the World-Wide Web and transportation technologies, it is argued, have advanced the cause of economic globalization. In real terms, developments in microprocessors, satellites, optical fibre and wireless technologies have had the effect of reducing the cost of global communication and with it the cost of coordinating, controlling, planning and managing a global organization ( and 2002, ).
2. Adoption of Free Market Ideology
Innovations in shipment have made it possible for products to be shipped more economically to any part of the world. These cost reductions have intensified competition in the global marketplace. In particular, these advancements provide opportunities for far-flung business interactions to create more global business opportunities. Consequently, it is possible for small, previously unknown, local companies to tap into both national and international markets. The global integration of financial markets has been made possible by a confluence of supply and demand factors. The supply side factors include deregulation of currency controls, innovations in financial instruments, and advances in communications and IT that allow transactions to be executed instantaneously across national boundaries. The demand side factors include the increase in corporate restructuring that created demand for new sources of financing, rapid growth in foreign investment and trade, and the adoption of free market principles in a number of previously regulated economies ( and 2002, ).
3. Economic Expansion
The increase of foreign direct investment (FDI) has been one of the forces behind the rapid globalization trend. In recent years, many countries particularly those in the developing world, have opened their economies to FDI by liberalizing FDI regulations and hence made it easier for foreign companies to enter their markets. Governments in many developing countries have created opportunities through the liberalization of their economies for firms in their countries to attract FDI and this in turn has opened the doors to Multi National Companies (MNCs) to expand their network of operations in developing countries ( and 2002, ). When a Multi National Company sets up economic activity abroad under its direct control, it effectively lends to the country in which it is investing, and that country therefore borrows form the MNC’s home country (, 2004 ).
4. Increase of Free Trade
Economic globalization has been accelerated by the decline in barriers to investment and free trade including, declining of tariffs and other barriers to international trade. Beginning in the mid-twentieth century, declining tariffs and advances in air and freight transport paved the way for a great expansion in global trade. This gave rise to the greater interdependence of national markets for goods and services, particularly financial services, resulting in the integration of capital and financial markets. Globalization makes the movement of capital to move freely across nations. This mobility produces global movements in exchange rates, interest rates, and stock prices (, 2001).
Effects of Globalization
The emergences globalization is fraught with many issues. People from different parts of the globe and from all walks of life view globalization in different lights. There are people who think that globalization is beneficial to the world’s poor but there are also who view globalization as a mechanism to make the situation of the poverty-stricken people worse.
Positive Effects
Positive globalists see a range of benefits for all countries and people in the process of globalization. It is generally considered as a positive trend that inevitably benefits consumers by increasing the efficiency of markets. According to this version of the globalist perspective, poorer countries experience particular benefits in the process of globalization. It is suggested that an integrated global market accelerates the transfer of technology from the richer to the poorer countries. Moreover, the richer countries have a surplus of funds to lend, and this provides a real opportunity for rapid industrialization of poorer countries.
Consumers are the principal beneficiary pf globalization. Its benefits in terms of faster growth, quicker access to new technology, cheaper imports and greater competition are available for all. Globalization has made the world economy more efficient and has created hundreds of millions of jobs, mainly, but not only, in developing countries ( 2000 cited in 2004,). Globalization offers hope to the world’s poorest. Just as more open trade tends to promote economic growth, growth in turn leads to poverty reduction (, 2000). The greatest reductions in poverty in the last 20 years took place in the countries that have successfully joined the global economy and moved toward openness and liberalization.
Globalization has caused a radical shift in the fortune of many of the world’s poor. There has been a sustained decline in the number of people living in poverty ( 2001 cited in 2004, ).
Globalization and Inequality
A report by the United Nations revealed that inequalities between rich and poor within countries, and among countries, are quickly expanding, and that the global trading and finance system is one of the primary causes ( and 2002, ). Pessimistic globalists argue that open borders and deregulated trading arrangements can present problems for rich as well as poor countries. In both rich and poor countries, some people may be becoming extremely rich, but widening inequalities can cause longer-term problems of poverty, resentment, social exclusion and political unrest.
A number of writers have pointed to the growing gaps between the rich and the poor that have occurred during the ‘era of globalization’, which can then threaten the political stability of those societies. In 1980, the median income in the richest 10 percent of countries was 77 times greater than that in the poorest 10 percent. By 1999 this difference had grown to 122 rimes (. 2002 cited in 2004, ). It has also been estimated by a radical pressure group in 1996 that the income of the world’s then 358 billionaires was equal to the total income of the poorest 45 per cent of the world’s population. Pessimistic globalists also argue that within the richer countries, globalization leads to more important competition and the increasing use of threats to move production to lower-wage localities, thereby depressing wage rates while the incomes of managers rise ( 2004 ).
(2001) argues that when trade takes place between a large multinational company and a local entity in a poorer country, the benefits do not go more to the weaker party with fewer assets, nor they are dived equally, but they go disproportionately to the stronger traders who thereby increase their relative dominance. He also asserts that globalizers try to disempower the poor and already weak and to further empower the rich and already strong (cited in 2004, ).
(1999) argues that the push of competition, deregulation, privatization and open capital markets has actually undermined economic prospects for many millions of the world’s poorest people. According to this view, inequalities between rich and poor, both within and between countries are expanding.
It has been contended that globalization has benefits and costs, and these are very unevenly distributed across the world. With more than a billion people living below a dollar a day and half the world living on less than two dollars, it is hard to argue that the current pattern of globalization is working well for the world’s poor ( 2004, ).
According to (2003) increased trade, decreased regulation and removal of barriers caused by globalization does not always yield positive effects. Removal of regulations only serves to increase the power of the wealthier nations over the poorer nations, which often feel they have little choice but to go along with the dictates of the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO), and the powerful governments that stand behind these global organizations and policies. If unregulated, global free trade will disproportionately benefit the already wealthy nations to the great disadvantage of the poor nations, enabling a few corporations and individuals to become obscenely rich while furthering the misery of the world’s countless poor. Today, the world’s richest two hundred people have more wealth than 41 per cent of the world’s population ().
(2003) argues that one of the ways by which the rich get richer and the poor is made poorer in through increased globalization. Globalization has been defined as the collapse of time and space, but more detailed explanations distinguish between interdependence of markets and production in different countries; living in a world-wide context; and a process that affects every aspect of life of a person, community or nation. Globalization may be seen as a structure, a process, an ideology, or a combination of these. Proponents of globalization see it as
- A force that is beneficial to all, individuals and states, in all parts of the world
- Flows of capital and goods that should encourage economic convergence – raising living standards in developing countries toward those of the industrial North;
- A massive process of evolutionary changes – economic, political, cultural and biological – that have been going on over the entire course of human evolution and have accelerated in recent years
Opponents of globalization see it as:
o Of benefit to the upper groups of society, to the multinational companies and the affluent world
o Detrimental to the satisfaction of public needs
o A force for the perpetuation and accentuation of inequalities within and between groups of countries for the benefit of multinationals and the upper classes
Inequality not only grows as the poor become poorer, but as the rich become wealthier. In the United States for example, there has been a proposal to repeal all estate taxes – an act that would benefit the top half of one percent of taxpayers while the poor pay more taxes, relatively, than do the rich. In Britain, the tax burden of the top fifth of earners has fallen from 37 percent to 35 percent in the last twenty years. In contrast the burden of the bottom fifth has risen from 31 per cent to 38 percent ( 2003, ).
Insofar as poor countries are concerned, the net result of globalization is a vast increase in the income of small minority who take advantage of the situation, with no clear improvement in the rest of the population.
With economic globalization, international labor migration is promoted to reduce labor costs, increasingly pervasive multinational corporations outsource manufacturing to low-cost enterprise zones, direct investment of foreign capital in underdeveloped and developing nations fosters economic dependency, cross-border production and marketing lessen the threat from labor unions, and international trade, coupled with international banks, hides the expansion of private and corporate capital. Globalization has been used by the World Bank, the IMF, and the WTO to passed treaties and labor agreements to promote the drive for immediate profits by private and corporate capital. As global capital spread to poor nations to reap greater profits, however, economic inequality between poor and rich nations has intensified, with wealth becoming concentrated in the hands of a few persons. For the global economy to create greater prosperity for poor nations and their workers, its benefits would need to be distributed equitably between poor and rich nations. Yet, the engine driving the global economy is predicted on a system in which profits are tied to low wages and poor working conditions for labor, making it unlikely that the rich nations that shape markets will choose to share their gains with poor nations. The global economy is much more likely to stimulate a ‘race to the bottom’, in which worker rights and working conditions are constrained by the pursuit of profit ( and 2004, ).
Should we really have to blame Globalization?
(2000), argues that poor nations that have fallen further behind the rich nations are almost uniformly those that have adhered to state-directed and inward-oriented economic policies. For Example, Sub Saharan Africa has lagged behind the rest of the world in economic growth in significant part because its markets remain among the most closed in the world. Its governments have neglected domestic infrastructure such as roads, and have distorted their domestic economies with subsidies, high taxes, and regulations. Domestic economic policy is considered a key variable in explaining the region’s failure to develop. Those African nations that have implemented more open, stable, and market-friendly policies in the last decade – such as Uganda, Botswana, and Mauritius – have achieved growth rates exceeding those of the advanced nations. The most obvious variable that separates countries that are closing the gap from those falling further behind is their own domestic policy choices ().
Conclusions
Globalization presents both positive and negative results. This paper reveals that inequality exists within and among nations. Advocates of globalization assert that globalization has positive effects to all people. Poorer countries experience particular benefits in the process of globalization. Integrated global market accelerates the transfer of technology from the richer to the poorer countries. It has been argued that globalization offers hope to the world’s poorest. Just as more open trade tends to promotes economic growth.
Anti-globalization scholars, writers and organizations on the other hand, blame this to economic globalization particularly liberalization. They claim that open borders and deregulated trading arrangements can present problems that may lead to inequality between the rich and the poor. Deregulation only serves to increase the power of the wealthy over the poor. It has bee argued that globalization and liberalization are being used by multinational companies to exploit the unskilled and poor. This phenomenon is called race to the bottom in which worker rights and working conditions are constrained by the pursuit of profit.
In conclusion, I would like to assert that globalization is a double edged sword. It can be beneficial as well as harmful. I believe that globalization has little to do with the success of the rich. Rich nations get richer not just by globalization. Other factors such as efficient use of resources, effective policy, developed infrastructure, open government, improved social infrastructure and others play important rules. Moreover, I believe that poor nations stagnate or become poorer because of their failure to commit themselves to open, stable, and market-friendly policies.
References
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where are the references?
Posted by: Ali | March 15, 2010 at 06:41 PM