Globalization: Inequality, Poverty and the Developing Nations

Introduction             Due to the changes brought about by technology as well as changes in economy, countries all over the world have gone through considerable developmental processes and changes. These have been mainly brought about by globalization. A number of documents and literatures have already been published in relation to this topic. Indeed, several bodies of literature and documents have been written and published in relation to this topic. Through these, people have become widely aware of what globalization is and what its implications are. However, in spite of this awareness, the nature and meaning of the changes derived from globalization remains in question, hence, it remains a debatable issue. Particularly in terms of effect, globalization has led to several significant and beneficial effects for most economies. However, anti-globalization movements claimed otherwise. While globalization may provide several advantages, this appears to be limited to only a few, particularly to developed countries. Countries that are still developing on the other hand are suffering from even greater heights of poverty and inequality due to globalization. With these issues at hand, it has been a common inquiry whether globalization does benefit developing nations. In order to answer this question, the issue on inequality and poverty in relevance to globalization will be taken into account. Specifically, this paper will attempt to analyze if globalization does help developing nations or doe it only worsen cases of inequality and poverty among these countries. This discussion will also highlight the concept of globalization as well as personal views on the chosen argument.   Globalization Globalization is defined as the process that enhances the interconnectedness of neighboring countries. According to Held and associates (1999), globalization is a concept that is brought about by and result to high cross-border trade flow, money, information, services, people as well as culture. RAWOO (2000), a research council in Netherlands, noted that globalization is the product of communication technology development and market capitalism. Fraser, McBride and Wiseman (2000) also defined globalization as the triumph of the capitalist world where economics become more dominant over politics, of the privates' interest over the publics', of the TNCs over the national state and of corporate demands over public policies. With these features, globalization can then be considered as the final phase of world capitalization. To others, globalization refers to the various changes the world is presently encountering whereas others see it as the purpose of the new world where the wealth of domineering countries can increase and the interest of the privileged minority is prioritized. Indeed, there had been a number of definitions used to understand the concept of globalization. Despite these descriptions, the term in general, pertains to major implications that are directed towards world's economy and society.   Inequality and Poverty             Over the years, a number of issues have been raised in relation to globalization. Economic inequality and poverty are among the most common relevant topics. In particular it has been an issue that as globalization worsens the inequality between developed and developing countries, poverty rate also increases. This globalization issue has been supported for and against by several literatures. Inequality in income is one of the topics discussed by authors and analysts. In 1960, the difference in income between the twenty percent of the global population that lives within developed nations in comparison to an equal percentage of population within the poorest countries showed a factor of 30 to 1. More specifically, in the UNDP Human Development Report for 1992, report had shown that about 20% of the worldwide population from developed countries obtains 82.7% of the total income of the world. On the other hand, 20% of the populations derived from developing countries obtain 1.4% only (UNDP 1992). From the results acquired in 1989, 20% of the people from developed countries earn an average income that was 60 times greater that those from the developing countries. In 1950, this ratio had doubled by 30 times (Khor 2000). In 1990, the ratio was 60 to 1. By 1997, the ratio was changed to 74 to 1. Considering the rapid influx of capital, skilled labor, new technologies and information, it has been noted that the gap between developed and developing countries will continue to grow at an even faster pace (RAWOO 2000).   The economic inequality issue has also been correlated to the fact that developed countries are naturally more capable of performing globalization-related activities. Globalization favors the activities conducted within modern sectors usually found in large-scale and capital intensive nations. As the connection between the informal and modern sector are weak, the transfer of knowledge between both sectors are not equal, hence, differences in productivity rates persist; this in turn, widens the income gap. Moreover, globalization tends to favor sectors that are market-oriented and completely ignores sectors that are more production-oriented (RAWOO 2000). Aside from income, globalization is said to worsen the inequality due to uneven distribution of international trade gains.  Díaz-Bonilla and Robinson (1999) explained this globalization cost by citing a general example. The authors noted that international trade allows the integration of foreign capital markets, leading to the expansion of foreign short and long term financial capital. While this was supposed to promote investment and growth, developing nations cannot participate in this aspect due to high risk premiums as well as their undeveloped capital markets. These inadequacies then limit the gains of globalization to wealthier countries. Participation in globalization is also unequal due to tariff or trade barriers. In the research done by Kapstein (1999), it has been noted that the main market for international exports is concentrated on industrial corporations. This finding then raised the concern that the issue on tariff barriers may be due to the scheme among industrial countries against the exports from less developed nations. Although the truth behind this presumption is yet to be proven, developing nations encounter problems on international trade due to escalated tariff. The commodities produced and exported by developing countries may be given more value through international trade; thus, resulting to greater profit. However, with tariff escalation, the increased value of the commodity will also encounter a higher tariff. The impact of globalization to poorer countries has also been investigated by researchers. In the study conducted by Agenor (2002), the researcher analyzed the degree to which globalization impacts the poor among low and middle income nations. In this research, the researcher utilized the individual indicators of financial and trade openness as well as the globalization index that is founded on principal components analysis so as to examine the relation linear and non-linear relation between poverty and globalization. Based on the findings, the researcher concluded non-monotonic, Laffer-type relation is evident between poverty and globalization. Cross-country findings have been consistent with the empirical information, showing that most countries generating low income have been insignificant to the globalization process for the past 15 years. In addition, the research also showed consistency with the general view on the relation between globalization and inequality (Agenor 2002). Though these literatures appear to stress that globalization is not beneficial to the developing nations, other analysts claimed otherwise. In the article authored by Dollar (2003) for instance, the author noted that globalization is in fact an important contributing factor in poverty reduction to the developing countries through the integration and reforms involved. Aside from this, globalization encouraged participating countries to develop their own set of developmental plans directed towards the reduction of extreme poverty level. With these plans, it is the main of the developed and developing nations to lessen poverty rate by one half by 2015. This movement is in fact showing promising results as 2000 analysis showed that the world is slightly ahead of schedule in achieving their goal. Moreover, growth in developing nations such as Vietnam, India, China and Bangladesh has been achieved through globalization (Dollar 2003). Watkins (2002) stated that globalization is beneficial to the developing nations as it enables increased access to technologies, ideas and markets that can support more equitable growth patterns. However, it should be recognized that when certain essential factors are lacking, the effect of globalization may not be as advantageous. Weissman (2003) explained that when factors like an unstable economy exists in the country, the efficacy of globalization activities can be hindered. With this condition, foreign investors who are interested in operating in some developing countries tend to flee. This has been observed in a number of developing nations such as Argentina, Russia, Brazil, Indonesia, Thailand and South Korea. Indeed, developing nations are economically weak to begin with (Nayyar 1997). This is due to their lack of local economic capacity as well as their unstable social infrastructure after their colonial experience. Developing countries were economically weak because of low export prices, significant decline in terms of trade, debt crisis and debt servicing burdens. These nations also generally have low technological development, particularly in terms of communication and information technologies, which makes the gap worse. Aside from economic stability, political setting of the participating countries must also be established to support globalization activities; this factor however, is often lacking in most developing countries. In particular, several developing nations are characterized by dictatorships, political power abuse and mismanagement of the economy, which naturally deprives these countries of development and global success. As the necessary factors for globalization success were not available among developing countries, liberalization resulted to greater harms than benefit. Thus, while it is possible for globalization to be part of the worsening situation of southern economies, it should be noted that the developing nations were in a weak position to take on globalization challenges (Nayyar 1997). On the other hand, more developed nations are better prepared to take on the globalization demands (Khor 2000). In particular, developed nations have well-staffed departments that could manage international trade and finance effectively. Lobbies and associations associated with financial institutions and corporation are well-organized as well, providing significant influence to various government departments. Developed nations also have the upper hand on globalization as they have mechanisms and institutions that help in coordinating their respective positions and policies. Examples of which are the OECD, the Group of Seven, the European Commission as well as their supplementary agencies and bodies (Nayyar 1997).   Personal Analysis and View             Based from the given literatures, globalization can be considered as beneficial to the developing nations. This is primarily because of its ability to make essential economic factors more accessible to these countries. With better technology, higher productivity and more employment opportunities, globalization helps developing nations to improve their economic status mainly through poverty reaction. While there have been literatures stating that globalization only results to higher poverty rates and inequality, analysts have explained that these issues are not caused by globalization itself but the inadequate preparedness of the developing nations.             Considering the reports on the current status of most developing countries, certain factors essential to globalization success are indeed lacking or insufficient. Thus, the issue of poverty as well as inequality cannot be solely centered on globalization. As the economy is comprised and affected by several factors, it is then difficult to say whether crisis encountered by developing nations can only be attributed to globalization. Its correlation to poverty and inequality is also inconclusive as development and progress have been noted in some developing nations such as those in East Asia.   From the discussion, I believe that the commitment of the participating countries to the real objective of globalization is the main root of the issue. The nations have focused on conducting globalization activities and achieving the benefits it can provide, while the preparation of the countries for the requirements of globalization have been insufficient. For this reason, developed and developing countries should then work together in order to prepare all participants economically and politically. Governments should be more committed in developing better trade policies that will be for the benefit of all nations.   Conclusion             Previous progress reports and the apparent advantages brought about by globalization clearly indicate that this concept is indeed capable of benefiting developing countries. Though there have been issues stressing that globalization only worsen poverty and inequality state, other analysts have explained that this is not the case. While globalization may have contributed in these issues, globalization also has paved the way for progress in developing countries. Furthermore, the negative effects of globalization have been caused by the lack of stability in developing countries. In conclusion, countries should shift their focus from the disadvantages of globalization but to the root of these disadvantages. Through this, developed and developing nations will be able to come up with ways on how to make globalization beneficial for all countries.