GLOBALISATION AND WORLD POVERTY: IT’S EFFECTS AND RELATIONSHIPS

Globalisation is the growing integration of economies and societies around the world. It ranges from the issues of trade and services, movement of capital, growth and poverty of the world population, international migration to easier transportation and communication around the world. It is a complex process that affects many lives and above all, increased economic interdependence among countries. The International Monetary Fund (IMF) outlined four basic aspects of globalisation – capital and investment movements, trade and transactions, dissemination of knowledge and the migration and movement of people. The process of globalisation affects and are affected by political, economics, socio-cultural, legal and natural factors. Globalisation has in many ways been linked to development across the globe, of which one of the ultimate goals of development is poverty reduction. With the unprecedented entry of developing and low-income countries into the global economic integration, the discussion on globalisation and poverty has heightened. Scholars and economists debate on whether globalisation is the cause or cure for poverty.

Poverty is generally explained as the scarcity or the situation in which a person lacks a certain amount of material possessions or money. It is a condition in which a community or a person lacks the essential needs to enjoy a minimum standard of living in the society. The United Nations defines poverty as the inability of getting choices and opportunities. This is explained in different scenarios as not having enough to feed and clothe a family, not having access to education and a school to go to, not having access to medical facilities or a clinic to go to, not having the land to grow food for personal consumption and/or not having the opportunity to hold a job to earn one’s living. The United Nations sees this a violation of human rights as the lack of basic capacity to participate effectively in society results in insecurity, powerlessness and exclusion of individuals, households and communities into the societies’ mainstream.

The World Bank defines poverty as a deprivation in well-being of which many dimensions are considered. These include low incomes and the inability to acquire basic goods and services deemed necessary for survival with dignity. Other dimensions included are poor access to clean water and sanitation, low levels of health and education, inadequate physical security, lack of voice, and inadequate capacity and opportunity to better one’s life. Poverty is usually measured as either absolute or relative. In relative form, equality is shown as an index of income inequality. The study of poverty is often linked to globalisation as the effect of globalisation on the world’s poor is highly debated.

Debates on globalisation and poverty generate extreme

views. It is known and agreed that globalisation and poverty share a complex relationship with globalisation portrayed both as a cause of poverty and as a solution to the same problem.

Those who are in favour of globalisation, the optimists, argue that globalisation raises incomes across the board so that even those at the bottom of the income distribution gain in absolute terms. The views of the optimists are compatible with the Kuznets hypothesis, which holds that even if inequality at first ascends, it declines once a country develops. The pessimists, who oppose globalisation, dispute that the benefits of globalisation are not equally distributed so that some may even lose in absolute terms.

Globalisation is the growing integration of economies and societies around the world. It ranges from the issues of trade and services, movement of capital, growth and poverty of the world population, international migration to easier transportation and communication around the world. It is a complex process that affects many lives and above all, increased economic interdependence among countries. The International Monetary Fund (IMF) outlined four basic aspects of globalisation – capital and investment movements, trade and transactions, dissemination of knowledge and the migration and movement of people. The process of globalisation affects and are affected by political, economics, socio-cultural, legal and natural factors. Globalisation has in many ways been linked to development across the globe, of which one of the ultimate goals of development is poverty reduction. With the unprecedented entry of developing and low-income countries into the global economic integration, the discussion on globalisation and poverty has heightened. Scholars and economists debate on whether globalisation is the cause or cure for poverty. The process of globalisation as a crucial engine of growth which resulted in unprecedented gains in the welfare of human, many too has opposite views of the impact of globalisation on poverty. A large body of the International Monetary Fund(IMF) literatures support the opinion that globalisation has boosted incomes and living standards in many parts of the world. The World Bank holds a similar view on globalisation. Others, including government, non-government organisations and scholars have argued that many poor people are not able to share the

benefits of globalisation and trade. There have been different claims within the development community on how much progress has been made against poverty. Conflicting arguments and estimations were reported with some researchers claiming that overall poverty is on the decline, while others claiming that poverty is on the rise.

The historical association between globalisation and poverty reduction, however, hides substantial variations among countries and also within countries in their experiences with international economic integration. With the depressing figures and the yet inability for a consensus on the outcomes of globalisation on world poverty, the topic leaves much room for discussion. The violent street demonstrations surrounding the ministerial meeting of the World Trade Organization (WTO) and similar protests at World Bank and International Monetary Fund meetings suggest that this debate is still going strong.

Several decades of rising trade and capital flows, growing numbers of multinational corporation, and increasingly globalised cultural exchange have not silenced the public debate over the merits of globalisation. It is noted that both sides of the globalisation debate have had an inclination to claim an unreasonable degree of causation between liberalising policies and observed trends in poverty. The claims of causation are so confounded that both sides claim the success of the Asian tigers as the result of their own policies, and the letdown of many of the African states as the result of the opposite policies. Thus, globalisation’s proponents claim China’s and Taiwan’s growth in recent decades as the result of liberalisation of their economies, while globalisation’s critics allege that these same countries have been able to capitalise on the opportunities afforded by globalisation because of broad government involvement both in the past and in the present.

Similarly, globalisation’s proponents claim that many of Africa’s economic problems are due to lack of openness as well as inappropriate government intervention. Globalisation’s critics argue that Africa’s woes come from other sources (including corrupt or incompetent governments), but the forced liberalisation imposed by structural adjustment programs and other lending conditions has not delivered the promised growth. Instead globalisation has only made living conditions worse for the poor as government services are cut back and instability is increased.

Therefore, research on the links between globalisation and absolute poverty, as measured by the population share living below one purchasing power parity (PPP) dollar per day, has been unable to provide conclusive evidence on their relationship.

Globalisation proponents advocate that poverty is on the decline, due principally to the powers of globalisation and the development it causes. In other words, these proponents accord great importance to globalisation as a main and pertinent engine of growth and in the battle against poverty.

Globalisation is a surprisingly controversial process. Astonishing, that is, to the many economists and policymakers who believe it is the best means of bringing prosperity to the largest number of people world-wide. Supporters of economic globalisation have had a tendency to conclude that dissent and criticism are the result of ignorance or vested interest. 

In considering the effect of globalisation on world poverty, there has been a general argument in favour of endogenous growth theory, which suggests that the link between globalisation and growth can be attributed to aspects of globalisation, such as trade liberalisation, which leads to faster integration and thus growth. It has then been further argued that the growth made possible through globalisation has had a beneficial effect on world poverty and evidence seems to suggest that the more liberalised an economy is, the quicker the rate of progress will be. Thus, it is famously concluded that liberalisation of economic policies had been responsible for the vast improvement in the alleviation of world poverty through growth. The World Bank adopt an identical view holding that globalisation, through its effect on growth, has played an significant catalytic role in global prosperity and in lifting more people out of poverty in the last century, than in all of human history. It asserts that it is not openness, but somewhat the lack of it is what increases inequality among countries, citing that closed developing economies have achieved much more poorly than more open ones.

On the same grounds, in a conference on humanising the global economy, it is posits that the spread of knowledge, better division of labor, increased productivity, and access to foreign direct investment, as a result of globalisation, is a pertinent drive behind growth and has contributed to unmatched gains in human welfare over the past 50 years.

In a sample of 92 countries spanning the past four decades, it is found that several causes of growth—such as openness to international trade, good rule of law, and developed financial markets—have little systematic outcome on the share of income that amass to the lower quintile. Consequently, these aspects benefit the poorest fifth of society as much as everyone else. There is little weak evidence that stabilisation from high inflation and reductions in the overall size of government not only increase growth but also increase the income share of the poorest fifth in society. In an extensive examination of issues surrounding globalisation, they seek to identify the benefits of globalisation and chart a course ensuring that the benefits of globalisation are widely shared. It is ascertained that globalisation helped to reduce poverty, but also postulated that supporting policies could help better to harness these benefits.

Conversely, proponents of pro-poor, while recognising the mandatory role played by openness and growth, contends that it does not represent sufficient conditions for poverty reduction. The United Nations stated that though some parts of the world have experienced unprecedented growth and improvement in living standards in recent years, poverty remains unshakable and much of the world is trapped in an inequality situation. This report also focuses on the chasm between the widening gap between skilled and unskilled workers, the formal and informal economies, the growing disparities in education, health and opportunities for economic, social as well as political participation.

Many view the empirical evidence in favour of globalisation skeptically because they see globalisation as a process through which power is concentrated upward and away from the poor. In particular, they see transnational firms as gaining a lopsided amount of both political and market power. Critics of globalisation are also steadfastly of the opinion that firms will use their increased power in ways that profit themselves and harm the poor.

To determine the impact of globalisation on poverty over the period 1980 to 2005, Salvatore and Campano (2012) adopted the macroeconomic perspective to examine the income distributions of the people living in developing countries, as one group, and the people living in the developed countries as another group. They also further subdivided the developing countries into two groups: those that globalised and those that did not globalise, as not all developing countries have globalised during this period of study. Their study found that real personal incomes grew and flourished in both developed and developing countries, but more rapidly in the developing countries, such as in China and India. However, when looking at the estimates of real personal income in terms of the three major measures of central tendency, they found that the ratios between developed and developing have been substantially reduced in the period, especially at the mode where the most severe poverty lies.

In the previous data analysis, the data from more than 100 countries around the world starting from 1988 through 2007 used to examine the relationship between economic and social globalisation and absolute income poverty. It was found that there was no evidence that globalisation was associated with higher poverty levels in developing countries. It was concurred that less trade restrictions and larger information flows are robustly associated with lower poverty levels thus indicating that globalisation decreases poverty more when the informal and the rural sectors are relatively bigger. It was also found clear evidence that the main part of the poverty-decreasing effect was not mediated via the growth channel. Finally, it was stated that although the fact that many low-income countries embarked on programs of external economic liberalisation in recent decades had been intensely debated, their analysis suggests that the underlying premises of current and previous poverty reduction strategies were correct: poverty reduction can be achieved by means of closer economic integration and higher levels of globalisation.

The evidence from reading criticisms of globalisation is that people are more interested in the optimal policy mix to maximise the benefits to the poor while minimising the negative impacts on any subgroup of the poor that is made worse off by such policies. They are also interested in ensuring that growth is socially, economically, and environmentally sustainable. Social sustainability, it is assumed, requires that inequality be kept under a certain limit.

There is also a need for a Global Collective Action to sustain a steady global economic expansion and reduce the likelihood of and contain the effects of global volatility as it is the poor countries that are known for its volatility. This international policy coordination should mobilise adequate and more effective aid for poverty reduction in order to eliminate debt of poor countries. It should provide for information and knowledge sharing, removes barriers to trade, provide preferential access to the poorest countries, provide increased international support in protecting global commons and combating global diseases.

Whatever the methods and measurements used, it is important that poverty reduction via economic growth becomes the ultimate aim of development endeavours towards a more peaceful, prosperous, and accountable economic world. It cannot be said that poverty can only economic world. It cannot be said that poverty can only be reduced if globalisation effort is halted or vice-versa.

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