Chart 2b illustrates part of the explanation: the countries catching up are those where trade has grown strongly. The special case of the economies in transition from planned to market economies—they too are becoming more integrated with the global economy—is not explored in much depth here. In fact, the term "transition economy" is losing its usefulness.
Some countries e. Poland, Hungary are converging quite rapidly toward the structure and performance of advanced economies. Others such as most countries of the former Soviet Union face long-term structural and institutional issues similar to those faced by developing countries. Does Globalization Increase Poverty and Inequality? During the 20th century, global average per capita income rose strongly, but with considerable variation among countries.
It is clear that the income gap between rich and poor countries has been widening for many decades. The most recent World Economic Outlook studies 42 countries representing almost 90 percent of world population for which data are available for the entire 20 th century.
It reaches the conclusion that output per capita has risen appreciably but that the distribution of income among countries has become more unequal than at the beginning of the century. But incomes do not tell the whole story; broader measures of welfare that take account of social conditions show that poorer countries have made considerable progress.
For instance, some low-income countries, e. Sri Lanka, have quite impressive social indicators. Indeed the gaps may have narrowed. A striking inference from the study is a contrast between what may be termed an "income gap" and an "HDI gap". And the gap in incomes has increased. This is largely because medical advances and improved living standards have brought strong increases in life expectancy.
But even if the HDI gap has narrowed in the long-term, far too many people are losing ground. Life expectancy may have increased but the quality of life for many has not improved, with many still in abject poverty. And the spread of AIDS through Africa in the past decade is reducing life expectancy in many countries. This has brought new urgency to policies specifically designed to alleviate poverty. Countries with a strong growth record, pursuing the right policies, can expect to see a sustained reduction in poverty, since recent evidence suggests that there exists at least a one-to-one correspondence between growth and poverty reduction.
And if strongly pro-poor policies—for instance in well-targeted social expenditure—are pursued then there is a better chance that growth will be amplified into more rapid poverty reduction. This is one compelling reason for all economic policy makers, including the IMF, to pay heed more explicitly to the objective of poverty reduction.
Growth in living standards springs from the accumulation of physical capital investment and human capital labor , and through advances in technology what economists call total factor productivity. The experience of the countries that have increased output most rapidly shows the importance of creating conditions that are conducive to long-run per capita income growth. Economic stability, institution building, and structural reform are at least as important for long-term development as financial transfers, important as they are.
What matters is the whole package of policies, financial and technical assistance, and debt relief if necessary. All these policies should be focussed on country-owned strategies to reduce poverty by promoting pro-poor policies that are properly budgeted—including health, education, and strong social safety nets. A participatory approach, including consultation with civil society, will add greatly to their chances of success. It is contributing to debt relief through the initiative for the heavily indebted poor countries.
Anxiety about globalization also exists in advanced economies. How real is the perceived threat that competition from "low-wage economies" displaces workers from high-wage jobs and decreases the demand for less skilled workers?
Are the changes taking place in these economies and societies a direct result of globalization? Economies are continually evolving and globalization is one among several other continuing trends. One such trend is that as industrial economies mature, they are becoming more service-oriented to meet the changing demands of their population.
Another trend is the shift toward more highly skilled jobs. But all the evidence is that these changes would be taking place—not necessarily at the same pace—with or without globalization.
In fact, globalization is actually making this process easier and less costly to the economy as a whole by bringing the benefits of capital flows, technological innovations, and lower import prices. Economic growth, employment and living standards are all higher than they would be in a closed economy. But the gains are typically distributed unevenly among groups within countries, and some groups may lose out.
For instance, workers in declining older industries may not be able to make an easy transition to new industries. What is the appropriate policy response? Should governments try to protect particular groups, like low-paid workers or old industries, by restricting trade or capital flows? Such an approach might help some in the short-term, but ultimately it is at the expense of the living standards of the population at large.
Rather, governments should pursue policies that encourage integration into the global economy while putting in place measures to help those adversely affected by the changes. The economy as a whole will prosper more from policies that embrace globalization by promoting an open economy, and, at the same time, squarely address the need to ensure the benefits are widely shared.
Government policy should focus on two important areas:. The succession of crises in the s—Mexico, Thailand, Indonesia, Korea, Russia, and Brazil—suggested to some that financial crises are a direct and inevitable result of globalization. Indeed one question that arises in both advanced and emerging market economies is whether globalization makes economic management more difficult Box 1.
If it is assumed that countries aim to achieve sustainable growth, low inflation and social progress, then the evidence of the past 50 years is that globalization contributes to these objectives in the long term. In the short-term, as we have seen in the past few years, volatile short-term capital flows can threaten macroeconomic stability.
Thus in a world of integrated financial markets, countries will find it increasingly risky to follow policies that do not promote financial stability. This discipline also applies to the private sector, which will find it more difficult to implement wage increases and price markups that would make the country concerned become uncompetitive.
But there is another kind of risk. This exposes the country to the risk that when perceptions change, there may be a sudden brutal withdrawal of capital from the country.
- Mavrotas, George?
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In short, globalization does not reduce national sovereignty. She has published numerous books and journal articles in financial and international economics, and has served many international organizations as advisor and co-ordinator of research programmes. He has published extensively in the areas of economic and agricultural development, the measurement and analysis of poverty and malnutrition, the Social Accounting Matrix and general equilibrium modelling, and international economics.
The Foster-Greer-Thorbecke poverty measure has been adopted almost universally by international organizations and researchers doing empirical work on poverty. Machiko Nissanke , George Mavrotas. Activists were intent on showing a much darker picture, revealing how the record of globalisation consisted mostly of farmers pushed off their land and the rampant proliferation of sweatshops.
In , the movement reached a high point when a unique coalition of trade unions and environmentalists managed to shut down the meeting of the World Trade Organization in Seattle.
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In a state of panic, economists responded with a flood of columns and books that defended the necessity of a more open global market economy, in tones ranging from grandiose to sarcastic. Language like this lent the fight for globalisation the air of an epochal struggle.
Arguments against the global justice movement rested on the idea that the ultimate benefits of a more open and integrated economy would outweigh the downsides. The fact that proponents of globalisation now felt compelled to spend much of their time defending it indicates how much visibility the global justice movement had achieved by the early s. Still, over time, the movement lost ground, as a policy consensus settled in favour of globalisation. The proponents of globalisation were determined never to let another gathering be interrupted.
They stopped meeting in major cities, and security everywhere was tightened. Above all, there was a widespread perception that globalisation was working as it was supposed to. The local adverse effects that activists pointed to — sweatshop labour, starving farmers — were increasingly obscured by the staggering GDP numbers and fantastical images of gleaming skylines coming out of China.
With some lonely exceptions — such as Rodrik and the former World Bank chief and Columbia University professor Joseph Stiglitz — the pursuit of freer trade became a consensus position for economists, commentators and the vast majority of mainstream politicians, to the point where the benefits of free trade seemed to command blind adherence. In a TV interview, Thomas Friedman was asked whether there was any free trade deal he would not support. I just knew two words: free trade. I n the wake of the financial crisis, the cracks began to show in the consensus on globalisation, to the point that, today, there may no longer be a consensus.
Economists who were once ardent proponents of globalisation have become some of its most prominent critics. Erstwhile supporters now concede, at least in part, that it has produced inequality, unemployment and downward pressure on wages. Nuances and criticisms that economists only used to raise in private seminars are finally coming out in the open.
Globalization and Poverty - Global Poverty Rates
By , he was having doubts: the data seemed to suggest that the effect was much larger than he had suspected. In the years that followed, the crash, the crisis of the eurozone and the worldwide drop in the price of oil and other commodities combined to put a huge dent in global trade. Among these implications appears to be a rising distrust of the establishment that is blamed for the inequality. You need to make policy which brings people to think again that their societies are run in a decent and civilised way.
If the critics of globalisation could be dismissed before because of their lack of economics training, or ignored because they were in distant countries, or kept out of sight by a wall of police, their sudden political ascendancy in the rich countries of the west cannot be so easily discounted today. Over the past year, the opinion pages of prestigious newspapers have been filled with belated, rueful comments from the high priests of globalisation — the men who appeared to have defeated the anti-globalisers two decades earlier.
Perhaps the most surprising such transformation has been that of Larry Summers. Possessed of a panoply of elite titles — former chief economist of the World Bank, former Treasury secretary, president emeritus of Harvard, former economic adviser to President Barack Obama — Summers was renowned in the s and s for being a blustery proponent of globalisation. For Summers, it seemed, market logic was so inexorable that its dictates prevailed over every social concern. In an infamous World Bank memo from , he held that the cheapest way to dispose of toxic waste in rich countries was to dump it in poor countries, since it was financially cheaper for them to manage it.
Over the last two years, a different, in some ways unrecognizable Larry Summers has been appearing in newspaper editorial pages.
More circumspect in tone, this humbler Summers has been arguing that economic opportunities in the developing world are slowing, and that the already rich economies are finding it hard to get out of the crisis.