Con: On balance, economic globalization benefits worldwide

advertisement

Con: On balance, economic globalization benefits worldwide poverty reduction

Introduction

As I discussed in both Introductory and Pro essays, debating on the Con could be difficult because most studies demonstrate that globalization caused a net reduction in global poverty, perhaps by hundreds of millions of people.

To win on the Con, you are going to have to both substantially indict these studies and win arguments as to why globalization increases poverty.

Attacking the Pro Globalization Studies

The best way to attack the pro globalization poverty studies is that they do not take into account a wider definition of poverty (see the Introductory essay) that takes into account overall living conditions. When these factors rather than just income are considered, it is much easier to make an argument that globalization increases poverty.

Nation of Change, ’14 [8/2/14, Nation of Change provides a free daily newsletter with articles from progressive writers and initiates activistic calls to action, ~ “The Seven Deadly Sins of Capitalism”, http://www.nationofchange.org/seven-deadly-sins-capitalism-1391350401]

5) Poverty. One of the most common arguments for global capitalism is that it helps alleviate poverty. Problem is, global poverty statistics are generated by the World Bank, an institution explicitly designed to promote globalization . Critics argue that (1) the numbers are usually skewed by one or two rapidly developing countries, (2) the definition of deep poverty as a wage of $1.25/day is set arbitrarily low in order to yield the desired stats , and (3) daily wages say nothing about access to potable water, adequate nutrition, healthcare, education, community, and other things that determine quality of life.

Moreover, poverty rates mean little when economic disparity has increased so dramatically in recent decades.

Actually, a compelling argument can be made that global capitalism

doesn’t alleviate poverty but causes poverty . After all, the aim of globalization is to expand markets by infiltrating “undeveloped” (read: selfsufficient) communities and dragging them into the money economy, thus creating new laborers and consumers. Could members of a gift-based, indigenous tribe really be called “poor”? Only by the logic of capitalism , which defines poverty as the i nability to purchase one’s basic necessities

(which might include designer clothing) from an outside party using fiat currency.

There are a number of reasons that globalization undermines the overall quality of life, increasing poverty.

First, it has had overall devastating impacts on Africa.

Derrick Owusu-Kodu, April 7, 2014, Poverty and the Impacts of

Globalization on the African

Economy, http://www.africandynamo.com/2014/04/poverty-and-impacts-ofglobalization-on.html#mM4cowGoocBOQhUe.99

DOA: 1-2-15

After centuries of colonization, slavery, exploitation, marginalization and excruciating poverty, African politicians have yet to grasp the nature of manipulable globalization . Years of relative economic retrogression have taken a horrendous toll on all parts of the African economy. To add insult to injury, the African continent inadvertently welcomes with open arms a colossal do se of the negative impacts of globalization. The nature of the African economy itself continues to limit gains from the enormous opportunities in the liberal globalization. Clearly, globalization by all odds has enabled the African continent to be used as a tolerating and warmwelcoming place for natural resource exploitation and industrial waste dumping. Economies lacking innovation and value creation are largely to blame for these huge miscalculations, and the lopsided relationships.

Second, globalization leads to the feminization of poverty and human trafficking

Dana Ragorski, law professor, University of Washington, Indiana

International &Comparative Law Review, Vol. 25, Forthcoming , University of Washington School of Law Research Paper No. 2014-

24, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2473738 DOA: 1-

2-15

Millions of people are trafficked all over the world and enslaved in forced labor in a broad range of industries. Yet, the global community’s efforts to mitigate trafficking have fallen short. This Article argues that the lack of success in fighting human trafficking is to a large extent the result of framing the existing discourse of human trafficking as a matter of criminal law and human rights of women and children, rather than addressing the economic and global market conditions within which human trafficking thrives. Human trafficking is a multi-dimensional issue exacerbated by poverty and disparities in economic opportunities vis-a-vis unmet labor demands and strict migration laws in wealthier countries. It thrives on the vulnerability of certain individuals and populations to exploitation, and particularly those who may desire to migrate in hope of better economic opportunities. Human trafficking is also very much a manifestation of the feminization of both poverty and migration. The dominant gendered narrative, however, continues to marginalize both the impact on and the role of women, children and migrant workers in the global economy, and ignores the complex structural, social and economic aspects of women’s labor migration.

The Article specifically highlights vulnerabilities to trafficking and exploitation brought upon by globalization, the feminization of labor migration, and the links between irregular migration and human trafficking.

Migrant workers, particularly migrant women, are playing an increasingly critical role in sustaining the global economy. Poor women (of color) in developing countries comprise most of those emigrating for survival, and relatedly, the overwhelming majority among those who are exploited in the process and subject to trafficking. Nonetheless, the international community has been reluctant to fully investigate and act upon the linkage between trafficking and migrant labor. Even more importantly, the current discourse on trafficking fails to admit that human trafficking is the

“underside of globalization.” There is no commitment to reframe trafficking as a global migratory response to a global market that seeks out cheap,

unregulated, and exploitable labor and the goods and services that such labor can produce. Instead, this Article argues, we need to develop an economic analysis of human trafficking –one which primarily looks at globalization, trade liberalization and labor migration as the core areas that need to be explored to advance the prevention of human trafficking.

Third, the expansion of global capitalism destroys the natural ecosystems that destroy life on earth

John Hillary, 2013, Journalist, The Poverty of Capitalism, page number at end of card

At the same time as this social reality was brought home to new audiences, capitalism’s drive for growth at all costs was also shown to be the root cause of the ecological crisis facing the planet. 5 The finite limits of natural ecosystems are unable to support the infinite process of expansion that capital must engineer in order to prosper, and the consequences of that conflict are apparent in every new media report detailing the latest evidence of irreversible climate change, biodiversity loss or resource depletion. Nowhere is this crisis more obvious than in the additional pressure on the world’s natural resource base generated by the rise of today’s emerging economies, whose ‘outward turn’ into the global economy has further intensified a rush for land, oil, minerals and other strategic resources that was already driving stocks towards exhaustion.

Increasingly, in international conferences as well as local articulations of protest, the connection between capitalist expansion and its ecological consequences is made explicit, with system change recognised as the last and only means of avoiding ecological disaster. While this book focuses primarily on the human poverty of globalised capitalism, the connection between the social and ecological should be understood as an unspoken reality throughout. Hilary, John (2013-10-09). The Poverty of Capitalism:

Economic Meltdown and the Struggle for What Comes Next (Kindle

Locations 215-220). Pluto Press. Kindle Edition.

Environmental destruction causes by globalization increases poverty

Raphael Kaplinsky, Professor of International Development, 2005,

Globalization, Poverty, and Inequality: Between a Rock and a Hard Place, page number at end of card

All of this global sourcing is at a cost to the environment. Some of this is a direct outcome of global transport, as in the case of the Exxon Valdez oilspillage in Alaska during the 1990s. But the bulk of this negative environmental impact is indirect, particularly through the link between increased energy consumption and global warming. For much of this intricate system of global production depends on the low price of energy which makes it profitable to ship low-value-added commodities and components around the world. Despite the claims of the hydrocarbon lobby to the contrary, we now know that there is growing evidence of global warming, and that this is predominantly a consequence of increased carbon emissions. We also are beginning to realize that one consequence of climate change is its disproportionate negative impact on poor people and low-income economies. 18 If we are to respond appropriately to global warming, then energy will have to be priced at its true environmental cost.

But, if so, what will be the impact of this on the profitability of globalized production systems? How many activities which are currently profitable will be unattractive should energy prices be increased significantly? To what extent is the current pattern of globalization environmentally sustainable?

On the other hand, it is possible (and perhaps even probable) that, despite the logic of forcing energy prices to a level which reflects its true environmental cost, the power of the vegetables is, as we have seen in chapters 1, 5 and 6, replicated at an increasing rate across a wide range of sectors. All of this global sourcing is at a cost to the environment. Some of this is a direct outcome of global transport, as in the case of the Exxon

Valdez oil-spillage in Alaska during the 1990s. But the bulk of this negative environmental impact is indirect, particularly through the link between increased energy consumption and global warming. For much of this intricate system of global production depends on the low price of energy which makes it profitable to ship low-value-added commodities and components around the world. Despite the claims of the hydrocarbon lobby to the contrary, we now know that there is growing evidence of global

warming, and that this is predominantly a consequence of increased carbon emissions. We also are beginning to realize that one consequence of climate change is its disproportionate negative impact on poor people and low-income economies. If we are to respond appropriately to global warming, then energy will have to be priced at its true environmental cost.

But, if so, what will be the impact of this on the profitability of globalized production systems? How many activities which are currently profitable will be unattractive should energy prices be increased significantly? To what extent is the current pattern of globalization environmentally sustainable?

On the other hand, it is possible (and perhaps even probable) that, despite the logic of forcing energy prices to a level which reflects its true environmental cost, the power of the hydrocarbon lobbies to block an increase in prices makes this an unlikely outcome. In this case, energyintensive global value chains are likely to worsen global warming and hence exacerbate poverty and inequality. This outcome, as we will see in the following discussion, challenges the sustainability of globalization. So either way – be it through higher energy prices or through the impact on poverty and inequality – the energy intensity of globalized production systems poses a threat to the sustainability of globalization. Kaplinsky,

Raphael (2013-04-29). Globalization, Poverty and Inequality: Between a

Rock and a Hard Place (Kindle Locations 4348-4351). Wiley. Kindle

Edition.

And other, less-biased studies have demonstrated an increase in poverty and inequality in places like Mexico.

F. Wu, economist, Cardiff University, 2012, International Encyclopedia of Housing and Home, “Globalisation,” pp. 292-7

Most of the existing empirical literature on the effect of trade liberalization on inequality in Mexico focuses on the wage earners and shows a rise in income inequality on account of an increase in the relative demand for, and the relative returns to, skilled labor. As the self-employed, accounting for one-third of the labor force, are one of the vulnerable groups in the economy, operating almost entirely in the informal sector, Popli examines the trend in income inequality and poverty among the self-employed

workers in Mexico for the two decades (1984 –02), during which Mexico opened its economy to the global market through trade and investment liberalization. Under the impetus of increased competition furthered by the liberalization process, the informal sector is seen to expand in the need to absorb negative income shocks as workers in the formal sectors are laid off, giving rise to the fear of “social exclusion” of the self-employed. Popli finds that inequality and poverty increased among the self-employed during the first decade following trade liberalization; however, during the second decade, she observes that as the economy stabilized while experiencing economic growth, inequality started to go down, but poverty kept increasing, recording a doubling of the headcount ratio from 21% in

1984 to 40% in 2002. Most of the increase took place after the 1995 peso crisis. More generally, the poverty incidence among the self-employed follows closely the economic cycles. To understand these changes in inequality and poverty in relation to the self-employed workers, she decomposes the inequality and poverty indices into within and between group effects —employing well-established decomposition methods.

And Mexico is not an isolated case. Poverty has increased throughout the world as globalization has increased.

Okungbowa, Florence. O. Ewere, Eburajolo, Ose Courage, Benson

Idahosa University Department of Economics, Banking and Finance Benin-

City, Nigeria, September 2014, International Journal of Humanities and

Social Science, Globalization and Poverty Rate in Nigeria; An Empirical

Analysis, http://www.ijhssnet.com/journals/Vol_4_No_11_September_2014/

13.pdf

DOA: 1-2-15

The relationship between globalization and poverty level has been a subject of prolonged and unresolved debate both in the developed and developing nations.

Many scholars are of the opinion that globalization has actually reduced poverty in the developed countries, but one may not be categorical in the case of the less developed countries. Oyewale and Amusat (2013) viewed globalization as a borderless world with greater economic integration that is meant to enhance the living standards of people across the globe, but most developing countries in Africa,

Asia and Latin America have been victims rather than beneficiaries of the globalization process especially as poverty and income inequality increased in the

last two decades. A curious look at the Nigerian economy shows that despite the high rate of openness, poverty is still highly visible.

When all factors are considered, there is strong evidence of a net increase in poverty world-wide .

Anish Bharadwaj, 2014, International Max Planck Research School for

Competition and Innovation, Munich Centre for Innovation and

Entrepreneurship Research, Advances in Economics and Business 2(1):

42, p. 42-57

It is important to distinguish between the incidence of poverty as a percentage of a total population and the absolute number of the poor.

World Bank (2000) states that the share of the population in poverty has declined for developing countries as a whole (from 28.3% in 1987 to 24% in 1998 based on $1/day and from 61% in 1987 to 56% in 1998 based on

$2/day) and in all developing regions except Sub-Saharan Africa and

Eastern Europe and Central Asia. Declines have been pronounced and sustained over a longer time period for the most populous developing countries. For example, the incidence of poverty in India measured by the official poverty line fell from 57% in 1973 to around 35% in 1998, whereas the incidence of poverty fell from 60% to 20% between 1985 and 1998 for

Indonesia. Standards of living have also improved. Infant mortality rates globally have been cut in half during 1970-1997, from 107 to 56 per thousand; and life expectancy has risen from 55 years to 67 years.

However, in spite of this broad based progress, more than 40 developing countries with 400 million people have had negative or close to zero per capita income growth over the past thirty years. And the absolute number of poor has continued to increase in all regions except East Asia and the

Middle East. Overall, despite impressive growth performance in many large developing countries, absolute poverty worldwide is still increasing.

Reasons Globalization Increases Poverty

First, trade reduces the demand for skilled labor and worsens wage distribution

Anish Bharadwaj, 2014, International Max Planck Research School for

Competition and Innovation, Munich Centre for Innovation and

Entrepreneurship Research, Advances in Economics and Business 2(1):

42, p. 42-57

Trade liberalization may also lead to higher poverty by reducing the demand for unskilled labor (not only in import-substitution industries but also in other sectors as well) and a worsening of wage income distribution.

In a number of countries in Latin America and Asia, openness to trade during the 1980s and 1990s has coincided with an increase in the demand of, and the return to, skilled labor relative to unskilled labor, and a worsening of wage inequality (Robbins, 1996 and Harrison & Hanson,

1999). A possible explanation of this phenomenon is that trade liberalization has been associated with the introduction of higher-level technology, the use of which requires skilled labor. The reason is that the cost of (imported) capital depends not only on the relative price of capital goods but also on tariffs that are incurred in purchasing a unit of capital goods abroad. To the extent that a fall in tariffs translates into a fall in the cost of capital, a high degree of complementarity between skilled labor and capital, and a high degree of substitutability between unskilled labor and capital, would indeed entail an increase in the demand for skilled workers – thereby leading to a widening of the wage gap between skilled and unskilled labor4.

The reduction in the demand for unskilled labor may translate into higher unemployment for that category of labor and increased poverty

Second, trade reduces investment in human capital, making it less likely that people will be able to earn higher wages, increasing poverty.

Anish Bharadwaj, 2014, International Max Planck Research School for

Competition and Innovation, Munich Centre for Innovation and

Entrepreneurship Research, Advances in Economics and Business 2(1):

42, p. 42-57

The link between trade openness and the accumulation of human capital is important to understand the long-run effects of globalization on poverty. Do open trade regimes lead to high investment in human capital in developing countries? Some theoretical models actually predict that free trade may lead to a decrease in the accumulation of human capital in countries that are initially skills-scarce. Findlay and Kierzkowski (1983), for instance, using a model in which capital markets are perfect, showed that the accumulation of human capital (and thus the supply of skilled labor) in countries that are initially skills-scarce falls when the rewards to education are reduced by the availability of cheaper, skills-intensive import goods. If human capital formation has spillover effects on growth (as in endogenous growth models of the Lucas-Romer variety), trade liberalization may thus lead to higher poverty rates.

Third, financial integration subjects the poor to economic shocks and is driven by inequality

Anish Bharadwaj, 2014, International Max Planck Research School for

Competition and Innovation, Munich Centre for Innovation and

Entrepreneurship Research, Advances in Economics and Business 2(1):

42, p. 42-5

A key problem associated with financial openness, as Agenor (2004) points out, is that access to world capital markets tends to be asymmetric.

Many developing countries (including some of the richer ones) are able to borrow on world capital markets only in “good” times, whereas in “bad” times they tend to face credit constraints. Access is thus pro-cyclical.

Clearly, in such conditions, one of the alleged benefits of accessing world capital markets (the ability to borrow to smooth consumption in the face of temporary adverse shocks), is nothing but a fiction (Agenor, 2003). Procyclacality may, in fact, have a perverse effect and increase macroeconomic instability (Dadus et al, 2000). This can be understood in the following manner. Favorable shocks may attract large capital inflows and encourage consumption and spending at levels that are unsustainable in the longer term, forcing countries to over-adjust to adverse shocks as a result of abrupt capital reversals. The impact on poverty may thus be

magnified. In recent years, financial globalization in many transition and developing economies has taken the form of greater penetration of the domestic financial system by foreign banks.. Agenor (2003) explains this lucidly: “Unlike trade liberalization, which has often resulted from unilateral decisions by governments to lower tarrifs, this form of financial integration has often been less a matter of choice than a decision imposed by the country’s situation – in several cases, the need to recapitaslize domestic banks in the aftermath of a banking crisis.” Although there are potentially large benefits associated with greater foreign penetration (such as enhanced quality of financial services, better techniques for credit analysis, and reduced risks of domestic financial instability), which may translate into higher growth rates and lower poverty, there are potentially adverse effects as well.

Integration meant the 2008 financial crisis through hundreds of millions into poverty.

John Hillary, 2013, Journalist, The Poverty of Capitalism, page number at end of card

Of the many consequences of the global economic meltdown that swept the world from 2008 onwards, perhaps the most important for the long term was that it exposed to public attention the true nature of the capitalist world system in the modern age. The immediate trigger for the Great Recession may have been a liquidity crisis brought on by mass panic at the bursting of the US housing bubble, once it was realised that no one could predict to what extent the world’s banking system was contaminated with toxic debt.

Yet it soon became clear that there was something rotten in the state of the global economy far beyond the greed and grasping of a few creative financiers. Most obviously, the crisis served to reveal the economic, social and ecological imbalances that had developed over the previous three decades of neoliberal globalisation, a period during which states had granted unprecedented powers to capital while steadily undermining the privatisation, liberalisation and deregulation had aimed at nothing less than a second ‘great transformation’ to rival the free market fundamentalism of the nineteenth century, directing state intervention away from social redistribution towards an unambiguous role as enforcer of the

enduring freedoms of capital. 1 Any suggestion that these freedoms would be to the greater benefit of society was finally laid to rest in 2008, as unimaginable sums of public money were commandeered to rescue the system from itself. Yet in addition to exploding once again the myth of the self-regulating market, the global economic meltdown also stimulated recognition of a more profound truth: that independently of the excesses of neoliberalism, the massive accumulation of capital at the core of the system offers only crisis and poverty to hundreds of millions of people across the world. Hilary, John (2013-10-09). The Poverty of Capitalism:

Economic Meltdown and the Struggle for What Comes Next (Kindle

Locations 191-198). Pluto Press. Kindle Edition.

Fifth, globalization facilitates capital leaving developing countries. This is known as

“capital flight.”

Anish Bharadwaj, 2014, International Max Planck Research School for

Competition and Innovation, Munich Centre for Innovation and

Entrepreneurship Research, Advances in Economics and Business 2(1):

42, p. 42-57

In addition to level effects associated with greater exposure to volatility, financial openness may also have adverse effects on growth and, through that channel, on poverty. If financial openness is accompanied by capital flight, the lower rate of accumulation of domestic capital that may result could be associated with a persistent, adverse effect on growth in the presence of increasing returns driven by externalities in knowledge and capital formation (Song, 1993).

Sixth, increasing foreign investments in developing countries means that a smaller percentage of the profits from any business stays in that country.

Anish Bharadwaj, 2014, International Max Planck Research School for

Competition and Innovation, Munich Centre for Innovation and

Entrepreneurship Research, Advances in Economics and Business 2(1):

42, p. 42-57

A major challenge of foreign direct investment (FDI) for an emerging economy is the retention of some of the profits earned by the investing firm. If none of the benefits of FDI is reinvested in the local economy, then the investment is not worthwhile for the emerging economy. FDI may also slowdown growth and lower the real income of the country, if the FDI worsens the terms of trade of the country.

Seventh, natural resource exports undermine developing countries.

Oxfam Briefing Paper, 2014, Working for The

Few, http://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/bpworking-for-few-political-capture-economic-inequality-200114-en_3.pdf

Economic inequality is rapidly increasing in the majority of countries. The wealth of the world is divided in two: almost half going to the richest one percent; the other half to the remaining 99 percent. The World Economic

Forum has identified this as a major risk to human progress. Extreme economic inequality and political capture are too often interdependent. Left unchecked, political institutions become undermined and governments overwhelmingly serve the interests of economic elites to the detriment of ordinary people. Extreme inequality is not inevitable, and it can and must be reversed quickly. New natural resource discoveries are driving an explosion of economic growth in sub-Saharan Africa. GDP in oil-rich countries like Equatorial Guinea and Angola has grown at average annual rates of more than 10 percent since 2000. Exports of oil, natural gas, metals, and minerals are also behind strong growth in Tanzania, Zambia, the Democratic Republic of Congo, Mali, and Namibia.43 However, though several African countries are among the faster growing economies in the world, inequality remains rampant, hindering the rate of poverty reduction.44 In fact, there is a positive correlation between the level of resources African countries export and their levels of inequality (as measured by the Gini coefficient) In countries with weak regulatory institutions, some companies undervalue the assets on which they pay royalties and taxes. As the individuals and companies involved in these extractive corporations and their political allies become rich, less and less attention is paid to efforts to reduce poverty and inequality.

Eighth, globalization raises unemployment, which drives people into poverty

Okungbowa, Florence. O. Ewere, Eburajolo, Ose Courage, Benson

Idahosa University Department of Economics, Banking and Finance Benin-

City, Nigeria, September 2014, International Journal of Humanities and

Social Science, Globalization and Poverty Rate in Nigeria; An Empirical

Analysis, http://www.ijhssnet.com/journals/Vol_4_No_11_September_2014/

13.pdf

DOA: 1-2-15

In the same vein, Ghimire (2006), in his work on the effect of globalization on poverty stated vehemently that globalization creates tensions especially within nations and companies between those who have the skills and resources to compete in the global market and those who do not. He stressed further that this disparity is capable of creating high unemployment rate which therefore drives the people further into poverty.

Ninth, globalization increases inequality.

The Economist, September 2, 2014, “Why globalization may not reduce inequality in poor countries,” http://www.economist.com/blogs/economistexplains/2014/09/economist-explains-0 DOA: 1-1-15

GLOBALISATION has made the planet more equal. As communication gets cheaper and transport gets faster, developing countries have closed the gap with their rich-world counterparts. But within many developing economies, the story is less rosy: inequality has worsened. The Gini index is one measure of inequality, based on a score between zero and one. A

Gini index of one means a country’s entire income goes to one person; a score of zero means the spoils are equally divided. Sub-Saharan Africa saw its Gini index rise by 9% b etween 1993 and 2008. China’s score soared by 34% over twenty years. Only in a few places has it fallen. Does globalisation have anything to do with it? Usually, economists say no.

Basic theory predicts that inequality falls when developing countries enter global markets. The theory of comparative advantage is found in every introductory textbook. It says that poor countries produce goods requiring large amounts of unskilled labour. Rich countries focus on things requiring

skilled workers. Thailand is a big rice exporter, for example, while America is the world’s largest exporter of financial services. As global trade increases, the theory says, unskilled workers in poor countries are high in demand; skilled workers in those same countries are less coveted. With more employers clamouring for their services, unskilled workers in developing countries get wage boosts, whereas their skilled counterparts don’t. The result is that inequality falls. But the high inequality seen today in poor countries is prompting new theories. One emphasises outsourcing —when rich countries shift parts of the production process to poor countries. Contrary to popular belief, multinationals in poor countries often employ skilled workers and pay high wages. One study showed that workers in foreign-owned and subcontracting clothing and footwear factories in Vietnam rank in the top 20% of the country’s population by household expenditure. A report from the OECD found that average wages paid by foreign multinationals are 40% higher than wages paid by local firms. What is more, those skilled workers often get to work with managers from rich countries, or might have to meet the deadlines of an efficient richworld company. That may boost their productivity. Higher productivity means they can demand even higher wages. By contrast, unskilled workers, or poor ones in rural areas, tend not to have such opportunities.

Their productivity does not rise. For these reasons globalisation can boost the wages of skilled workers, while crimping those of the unskilled. The result is that inequality rises. Other economic theories try to explain why inequality in developing countries has reached such heights. A Nobel laureate, Simon Kuznets, argued that growing inequality was inevitable in the early stages of development. He reckoned that those who had a little bit of money to begin with could see big gains from investment, and could thus benefit from growth, whereas those with nothing would stay rooted in poverty. Only with economic development and demands for redistribution would inequality fall. Indeed, recent evidence suggests that the growth in developing-country inequality may now have slowed, which will prompt new questions for economists. But as things stand, globalisation may struggle to promote equality within the world’s poorest countries.

Inequality undermines poverty reduction.

Oxfam Briefing Paper, 2014, Working for The

Few, http://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/bpworking-for-few-political-capture-economic-inequality-200114en_3.pdf

DOA 1-2-15

Economic inequality is rapidly increasing in the majority of countries. The wealth of the world is divided in two: almost half going to the richest one percent; the other half to the remaining 99 percent. The World Economic

Forum has identified this as a major risk to human progress. Extreme economic inequality and political capture are too often interdependent. Left unchecked, political institutions become undermined and governments overwhelmingly serve the interests of economic elites to the detriment of ordinary people. Extreme inequality is not inevitable, and it can and must be reversed quickly. Extreme economic inequality is damaging and worrying for many reasons: it is morally questionable; it can have negative impacts on economic growth and poverty reduction; and it can multiply social problems. It compounds other inequalities, such as those between women and men. In many countries, extreme economic inequality is worrying because of the pernicious impact that wealth concentrations can have on equal political representation. When wealth captures government policymaking, the rules bend to favor the rich, often to the detriment of everyone else. The consequences include the erosion of democratic governance, the pulling apart of social cohesion, and the vanishing of equal opportunities for all.

Another card.

F. Wu, economist, Cardiff University, 2012, International Encyclopedia of

Housing and Home, “Globalisation,” pp. 292-7

The Kuznets hypothesis of the inverted U-shaped relationship between growth and inequality that examines the opposite causal flow (i.e., the

“growth–inequality” link) is also challenged by a number of recent studies.

Thus, the new political economy of development approach suggests that growth patterns yielding more inequality in the income distribution would, in turn, engender lower future growth paths resulting in less of a growth

induced poverty reduction, as Figure 1 illustrates. Thus, we argued that while globalization induced growth may benefit the poor, the ultimate poverty reduction effects depend on how the growth pattern affects income distribution, as inequality acts as the filter between growth and poverty reduction.

And Inequality risks societal break-down.

Oxfam Briefing Paper, 2014, Working for The

Few, http://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/bpworking-for-few-political-capture-economic-inequality-200114-en_3.pdf

Economic inequality is rapidly increasing in the majority of countries. The wealth of the world is divided in two: almost half going to the richest one percent; the other half to the remaining 99 percent. The World Economic

Forum has identified this as a major risk to human progress. Extreme economic inequality and political capture are too often interdependent. Left unchecked, political institutions become undermined and governments overwhelmingly serve the interests of economic elites to the detriment of ordinary people. Extreme inequality is not inevitable, and it can and must be reversed quickly. This massive concentration of economic resources in the hands of fewer people presents a significant threat to inclusive political and economic systems. Instead of moving forward together, people are increasingly separated by economic and political power, inevitably heightening social tensions and increasing the risk of societal breakdown.

Of course, social breakdown doesn’t seem directly relevant to answering the question the resolution poses, but if a social break-down creates social conflict (or even war or civil war), then poverty could increase as a result of the social breakdown.

And if you remember from the Introductory Essay, if poverty is more broadly defined to include people at the bottom rung of the wage levels as being poor, expanding those numbers through lower relative wages means more poverty.

Answering Pro Arguments

There are many problems with the reasons the Pro will offer as to why globalization can reduce poverty.

First, the poor do not have the skills to take advantage of free trade.

Anish Bharadwaj, 2014, International Max Planck Research School for

Competition and Innovation, Munich Centre for Innovation and

Entrepreneurship Research, Advances in Economics and Business 2(1):

42, p. 42-57

The poor in countries with an abundance of unskilled labor do not always gain from trade reform (Harrison, 2006). Many economists have used the

Heckscher-Ohlin (HO) framework in international trade to argue that trade liberalization should raise the incomes of the unskilled in labor-abundant countries. Most researchers who use this framework to argue that globalization is good for the world’s poor make a number of heroic assumptions. These assumptions — such as the necessity that all countries produce all goods are often challenged. In addition, the country studies show that labor is not nearly as mobile as the HO trade model assumes; for comparative advantage to increase the incomes of the unskilled, they need to be able to move out of contracting sectors and into expanding ones. Another reason why the poor may not gain from trade reforms is that developing countries have historically protected sectors that use unskilled labor, such as textiles and apparel. This pattern of protection, while at odds with simple interpretations of HO models, makes sense if standard assumptions (such as factor price equalization) are relaxed.

Trade reforms may result in less protection for unskilled workers, who are most likely to be poor. Finally, penetrating global markets even in sectors that traditionally use unskilled labor requires more skills than the poor in developing countries typically possess.

Second, globalization doesn’t benefit local businesses because outside companies produce everything. This is especially true in Africa

Derrick Owusu-Kodu, April 7, 2014, Poverty and the Impacts of

Globalization on the African

Economy,, http://www.africandynamo.com/2014/04/poverty-and-impacts-ofglobalization-on.html#mM4cowGoocBOQhUe.99

DOA: 1-2-15

Another negative impact of globalization has been the total reliance on foreign enterprises. African countries habitually resort to employing foreign companies to carry out almost all of their infrastructure projects. Almost every project requiring technical know-how in Africa is being constructed by foreign companies. It is not surprising one bit to see Chinese companies building roads, bridges and other infrastructure in every corner of Africa. How many African companies are helping build Chinese infrastructure? A hallmark of all great civilizations has been exceptional development of enterprise, but attempts by African state’s governments to encourage African firms and organizations to play front-line roles in economic, social and infrastructure development have always proven futile .This has led to an increasing dependency on outside aid and a net loss to the African economy.

Domestic firms do not benefit at all. In fact, they are undermined by foreign competition.

Anish Bharadwaj, 2014, International Max Planck Research School for

Competition and Innovation, Munich Centre for Innovation and

Entrepreneurship Research, Advances in Economics and Business 2(1):

42, p. 42-57

Although there are some good arguments suggesting that trade liberalization may improve resource allocation in the short term or raise growth rates permanently (and thus be beneficial to the poor), there are a number of ot her arguments suggesting the opposite. Opening a country’s markets to foreign firms, for instance, tends to reduce the market power of domestic firms and increase competitive pressures on them, eventually forcing (some of) them out of business. In the longer run, the country may well become more efficient in using its productive resources, thereby enjoying higher growth rates and lower poverty. But in the short term, the inability to compete, and the presence of labor market rigidities

(segmentation due to minimum wage legislation or wage-setting behavior

by firms or trade unions, as well as imperfect mobility across sectors), may hamper the reallocation of all categories of labor from the non-tradable sector to the tradable sector that a reduction in tariffs normally entails

(Agenor & Azeman, 2006). As a result, both unemployment and poverty may increase and persist over time.

Third, even if overall incomes increase, there is still a net increase in poverty

Anish Bharadwaj, 2014, International Max Planck Research School for

Competition and Innovation, Munich Centre for Innovation and

Entrepreneurship Research, Advances in Economics and Business 2(1):

42, p. 42-57

Trade liberalisation is generally an ally in the fight against poverty: it tends to increase mean incomes, providing more resources with which to tackle poverty, and, while it will generally affect income distribution, it does not do so in a systematically adverse way. However, most trade reforms will hurt someone, and that some reforms may increase overall poverty even while they boost incomes in total.

Fourth, policy, not globalization, is responsible for reductions in inequality in Asia

Ravi Kanbur, Cornell University, 2015, Handbook of Income Distribution,

Volume 2, pp. 1845-1881

However, the East Asian experience has also been used to support the thesis that the equity dimensions of outcomes owe a significant amount to other structural and policy features. Among these are the land reforms instituted by the occupying American forces in South Korea in the 1940s and 1950s, which meant that they entered the next phase of development, in the 1960s and 1970s, with supportive initial conditions for equitable development. Further, in these countries and in other East Asian countries, proactive policy had ensured a very wide spread of basic education. Here is how Adelman (n.d.) , the leading scholar of South Korean development strategy at that time, sets out these structural factors in the country from the end of World War II until the beginning of the 1960s: There were two waves of land reform, in 1947 and 1949. In 1947, the U.S. military

government decreed that the land confiscated from Japanese farmers and

Japan ese corporations should be redistributed to tenants… . The second wave of land reform redistributed the holdings of Korean landlords owning more than 3 chongbo (7.5 acres or about 3 hectares) to tenant farmers and landless farm laborers… . The distribution of land holdings became very even… . The bulk of government investment during this period was on social development…Over this period, the literacy rate increased from 30 to over 80 percent.

Fifth, liberalization doesn’t benefit the poorest workers.

Anish Bharadwaj, 2014, International Max Planck Research School for

Competition and Innovation, Munich Centre for Innovation and

Entrepreneurship Research, Advances in Economics and Business 2(1):

42, p. 42-57

In world terms developing countries are clearly labour-abundant, so that freer trade gravitates towards higher wages in general. However, within those countries it is not clear that the least-skilled workers, and thus the most likely to be poor, are the most intensively used factor in the production of tradable goods.

Download