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Taking an Easier Path: Globalization and Government Intervention Astechnology evolves, with transportation becoming faster and more convenient, societies and economies all over the world are integrating to a level never before seen. Yet still, poverty is by far one of the most important issues of our time. In this era of rapid globalization, of rapid flow of resources and production, we often debate the question of whether this global integration is truly positive.
As globalization happens inevitably, it promises economic growth and the overall wellbeing of all societies, yet some evidence suggests that certain societies are hindered by global integration and increased trading ??? in particular the poorer end of the spectrum. It is obvious that not all are benefiting from this integration at the same time. Globalization is potentially beneficial to all members of society; however, it requires sound policies and social programs to overcome the often witnessed short-term negative effects that poverty-stricken communities often face because they take longer to adapt than developed countries.
In order to understand this, the following paragraphs will explore the negative and positive effects of globalization. There are definitely negative aspects of globalization, such as increasing inequality and decreasing wages in some lesser economically developed countries (LEDC). The fact is, the world has been increasingly globalized and prosperous, “yet it is clear that inequality has grown” (Basu, 2006), and “currently, the richest region has a per capita income that is 20 times the income of the poorest region” (Basu, 2006). Such extreme inequality both between and within countries can be extremely problematic and uncomfortable. Rising inequality between countries impacts directly the national political economy in the poorer states” (Wade, 2004) as it brings incentive for government corruption in order to live up to the standards of richer states, and also encourages instability and deprivation in the population. As globalization pushes through, another great concern is the dropping of real wages with respect to purchasing power in LEDCs due to both international competition and rising price levels. Many small local industries cannot withstand the high level of competition in the international market since there are hidden barriers in trade, such as ransportation costs, brand name effects etc. (Bardhan, 2006a); hence they could not benefit from free trade. Worst of all, they now even have to compete with multinational corporations for their own local markets. As for the rising price levels, because “a disproportionately large share of the world’s GDP comes from the industrialized countries, it seems reasonable to predict that the prices of goods in poor countries will converge more rapidly toward prices in industrialized countries than the latter converge toward the former” (Basu, 2006).
This means that the general price level of poorer countries will tend to rise because of global trade. It is then obvious that because unskilled and illiterate workers in poor countries are unable to take advantage of the new technology, their “wages will lag behind prices” (Basu, 2006). The result of this is the drop in real purchasing power. Interestingly, globalization does dramatically increase wages for the skilled workers, since there is now a higher demand for them (Basu, 2006), contributing to the increasing inequality.
All these negative results of increasing globalization and trade liberalization must be considered; however, as we will see in the next paragraph, this is not the end of the story. Although there are negative consequences of increasing globalization, there are also many long-term benefits. Because of the global integration of commodities, technology and economies, “as a group, the poor countries have grown more quickly…the globalization period has been the golden age of development” (Bhalla, 2002,). The 20th century saw unparalleled economic growth, with global per capita GDP increasing almost five-fold” (IMF, 2000). This quick economic growth is solid evidence of the progress globalization has contributed to the world. “Between 1981 and 2001 the percentage of rural people living on less than $1 a day decreased from 79 to 27 percent in China, 63 to 42 percent in India, and 55 to 11 percent in Indonesia” (Bardhan, 2006b). Looking at the figures presented, despite the high level of inequality, at the very least, everyone is generally better off then before.
Undeniably, “globalization generally reduces poverty because more integrated economies tend to grow faster and this growth is usually widely diffused” (World Bank, 2002). Another important aspect to note is that not all of the problems presented in the former paragraph, such as wage drops, are long term or permanent. First, the problem with poor countries’ local industries not being competitive on the international market is largely due to barriers to complete free trade of developed countries protectionism for their economy, such as tariffs and subsidies that should not be there.
For example, the problem with the US agricultural business “destroying the livelihoods of small farmers in Mexico” (Bardhan, 2006a) is not a problem from globalization. It is a problem about incomplete globalization. We must note that the “farm subsidies and tariffs in the United States and Canada (now going to be even substantially larger under the new US farm policy)…are, to a large extent, responsible” (Bardhan, 2006a) for Mexico’s problem, not globalization.
Next, regarding the problem of wages lagging behind rising prices levels, it is a period of inevitable transitional hardship, yet the long-term benefits of increasing global trade will eventually catch up (Basu, 2006). It may be cruel to say that the short-term problems presented before are less important because we know the long-term result of globalization is beneficial in reducing poverty and raising standards of living in general. Unfortunately, a period of short-term suffrage is inevitable. However, that is clearly not good enough.
Even with promising potential benefits, the short-term hardship should be considered by governments in order to “craft government interventions that provide a safety net for the poorest people for times of transition” (Basu, 2006). It is important to combine the free market of global liberalized trading with sound government policies to secure the poverty-stricken people in times of transition, and for the government to catch up with the building of infrastructure and regulations in order to shorten such periods of transition.
For the poor countries to catch up more quickly, methods such as: policies to stabilize the economy and promote trade and investment, structural reforms to encourage domestic competition, and the promotion of productivity by education are all useful in shortening the period of adjustment (IMF, 2000). In Van Dijk’s (2006) study of the different effects of globalization in China and India due to different government interventions, China’s government policies are more effective then those of India as proven by the higher economic growth, higher poverty reduction, and higher wages.
China’s success is attributed to the use of sound fiscal policies, open policy to foreign technology, no direct government involvement in industrial sectors, investment in education, birth control, and control of inflation rate, exchange rate, and convertibility of currency (Van Dijk, 2006), many of which were suggested by the IMF in the package subscribed to LEDCs.
Other social programs with the function of redistributing wealth and income to some extent may also be helpful in making a country better off, so that the winners and the losers from globalization may share the gains and increase the overall wellbeing of the country (Bardhan, 2006b). The idea is, globalization without the assistance of sound government policies might still eventually lead to a good end, yet the path would be extremely painful with high and rising poverty rates, inequality and maybe even starvation, all of which are unnecessary and avoidable.
Globalization is inevitably happening with the increasing integration between nations and the liberalization of trade. After inspecting some of the positive and negative sides of globalization, it can be concluded that without a doubt, globalization will bring negative consequences such as dropped wages and inequality, but as evidence points, it is favourable in hindering poverty and increasing wellbeing in the long run. In addition, governments’ support by the use of policies and the set up of social programs could shorten and ease the long and painful path to fully adapt free trade and enjoy the benefits globalization may bring.
It is extremely important that such policies and social programs do take place as the negative effects of globalization ??? even just short term ??? could harm fragile economies and even worsen poverty and starvation. Globalization is potentially beneficial to all, and with supporting policies and social programs, it will be able to hinder poverty. Bibliograph ??? Work Cited Bardhan, P. (2006a). Globalization and rural poverty. World Development, 34(8), 1393-1404. Bardhan, P. (2006b). Does Globalization Help or Hurt the Worlds Poor?
Scientific American, 294(4), 84-91. Basu, K. (2006). Globalization, poverty, and inequality: What is the relationship? What can be done? World Development, 34(8), 1361-1373. Bhalla, S. S. (2002). Imagine There’s No Country: Poverty, Inequality and Growth and the Era of Globalization. Washington, DC: Institute for International Economics. International Monetary Fund (IMF) (2000). Globalization: Threat or Opportunity? Retrieved March 14, 2007, from http://www. imf. org/external/np/exr/ib/2000/041200. tm Van Dijk, M. P. (2006). Different effects of globalization for workers and the poor in China and India, comparing countries, cities and ICT clusters. Tidschrift voor Economische en Sociale Geografie, 97(5), 503-514. Wade, R. H. (2004). Is Globalization Reducing Poverty and inequality? World Development, 32(4), 567-589. World Bank, Collier P. , & Dollar D. (2002). Globalization, Growth, and Poverty: building an inclusive world economy. New York: Oxford University Press. ———————– 1