Does Globalisation Benefit the Rich As Well As the Poor?

“Increasing internationalisation of the world economy has benefited industrialised countries that dominate world trade and finance while developing countries have gained very little from this globalisation.” Discuss.

In the 21st century we are living in a global village where trade, movement and communication are all participated in effortlessly. This period of globalisation, however, has not benefitted all realms of life and the gap between rich and poor countries is constantly growing larger. The objective of this essay is to assess the effect of globalisation on wealthy and developing countries and conclude whether it is to blame for the worldwide inequality of wealth.

Every society started off in the same way: poor.1 However, by now most countries have been able to shift from this economic status due to globalisation. Globalisation and international trade are not new concepts and have been around for many years. Over recent years, countries have expanded the quantity of trade that is exported worldwide.2 Due to trade agreements being made among many countries, varied resources from some countries will become available to the individuals in another country.3 The amount of resources in every country is constantly getting reduced and there are scarcities of these resources. Every country has a policy to manage its resources to be able to exploit the benefits of trade for every citizen.4 Governments come up with these policies to monitor the degree to which the state is involved with trade in other countries.5

Globalisation is not just the transfer of goods and services across the world. Globalisation can be defined as “the process of an increased relationship between national economies through international trade, foreign direct investments by multinational firms, and international financial investments”.6 With an increase in trade between nations, the distribution of resources will reallocate exports and pricing in a procedure to find stability in the market place.7 Throughout this procedure, nations may come into contact with temporary troubles, such as, unemployment, decreased rates for natural resources, and living standards declining.8 Some may blame these pains on globalisation and state that the developing countries are taken advantage of by the richer ones, while others assert that globalization is the “cure for poverty”.9

African countries have a reasonable advantage in raw materials and it was this advantage that helped them break into the global markets.10 However, less fortunate developing countries did not attract multi-national corporations to support the manufacturing industry because there was no confidence in the countries’ policies and economies of agglomeration existed, which Asia benefit from.11 Therefore it was cheaper and more reliable for countries to trade in Asia than Africa, showing how globalisation did not benefit the developing nations like it did the wealthy ones.

The World Bank defines inequality as “the disparity of income and standard of living among nations and their citizens”.12 To be able to compare inequality between the rich and poor nations, income and living standards of people within those nations should be examined. The World Bank declared that a person is only considered poor in a developing country if they are living on less than $1 per day and in medium economies if they are living on less than $2 per day.13 However, in developed nations it would be near impossible to live on less than $1000 per year because the cost of living is so much higher than this.14 According to the US Census Bureau one is only considered poor if one is earning less than $25 a day.15

There is a substantial income gap between wealthy and developing countries and although measures have been put in place to improve income for poorer countries, the majority of nations have over 25% of their population earning less than $1 per day.16 As a result of inadequate earning capacity, the poorer nations have a limited amount of the world’s wealth.17 In 2003, it was calculated that the wealthiest fifth of the population were in control of over 85% of the total world income, whereas the poorest fifth had only 1.4% of the world income.18 This gap is constantly growing larger and will continue to widen if nothing is done to prevent this income inequality.

Another problem with developing nations is that they are short of capital.19 However, as perceived risks of investment in the developing nations remain high and poor governance exists, companies are unwilling to invest.20 Capital inflow in the developing countries is a major problem, but so is capital outflow. By 1990 almost 38% of private African wealth was held abroad showing that Africans were voting with their wallets.21 Globalisation has not benefitted the poorer nations, as they are unsuited for investment due to their credibility problem, which scares off investors, both foreign and domestic.22

Income and capital alone are not the only factors that measure the wealth of a country’s population. Living standards and quality of life should also be taken into account. Living standards in Sri Lanka and Cuba are impressive, considering their low income, due to their high life expectancy, high literacy rates, low mortality rates and a declining population growth rate.23 These are all as a result of social benefits that the government can provide to improve living standards.24 Despite these standout nations, living conditions in most of the poor nations are appalling as so many of the citizens live in poverty and have not been benefited from globalisation.25

Poverty has been examined and measured by numerous institutions but the World Bank’s measurement seems to incorporate many of the key indicators for poverty. These indicators are split into four sections: growth and poverty reduction, governance and investment climate, infrastructure for development, and human development.26 There are numerous factors that can prompt economic growth; these include increases in education, life expectancy and various economic policies.27 The measurement of poverty by the World Bank has decreased over the last few decades. However, poverty has not decreased but the social conditions of the poorer countries today are a lot better than the leading industrialized countries of the 19th century.28 Incomes in developing countries have risen at a slow rate but their social conditions have improved immensely due to increased aid packages.29 Due to advances in medical research, wealthy nations are able to supply developing countries with vaccines and expensive drugs that can increase life expectancies and improve the quality of living for the people in developing nations.30 Inequality among wealthy and developing countries exists in terms of income and living conditions.31 The wealthy nations have tried to help poor countries by distributing aid packages that are aimed at the particular needs of certain developing countries. However, poor countries need more than aid packages; they need economic conditions that can sustain growth.

The wealthy nations today have not always been rich but needed to create strong, stable governments in order to accumulate the wealth that they have today.32 These wealthy nations were able to create and develop relationships with other nations in order to increase trade beyond their own borders. However, nations that do not contribute to international trade inhibit their own ability to grow and become wealthy.33 As a result, these countries have not benefitted from globalisation and are therefore seen as poorer countries with high poverty rates and low-income rates.

Migration of intellectuals has also prevented the developing nations from benefitting from globalization. People are voting with their feet and leaving the country for better opportunities, resulting in a brain drain.34 As the most educated people are leaving the country, financial sectors are being run by under qualified people who limit the country from ever gaining wealth and benefitting from globalization.35

The developing nations have not benefitted from globalisation, as their policies are not good enough to attract investments. However, if enough reform is introduced they can escape poverty and slowly break into the international market.

Reference List:
Books:
Collier, Paul. The Bottom Billion. Oxford: Oxford University Press, 2007.

Pugel, Thomas. International Economics. New York: Mcgraw Hill, 2004.

Internet Sources:

Digital Economist. Douglas Ruby. Accessed May 13, 2014. http://www.digitaleconomist.com/prod_4010.html.

Globalization: foreign investment and foreign aid. World Bank. Accessed May 12 2014. http://www.worldbank.org/depweb/english/beyond/beyondco/beg_13.pdf#search='planned%20market%20economies%20transition%20foreign%20aid'.

Globalization, free trade, and foreign aid. Newsbatch.com. Accessed May 13 2014. http://www.newsbatch.com/globalization.htm.

Globalization: threat or opportunity?. IMF Staff. Accessed May 12 2014. http://www.imf.org/external/np/exr/ib/2000/041200.htm#III.

Info Please. Information Please Database. Accessed May 11 2014. http://www.infoplease.com/ipa/A0908762.html.

That Silly Inequality Debate. Nancy Birdsall. Accessed May 13 2014. http://www.globalpolicy.org/globaliz/econ/2002/05silly.htm.

US Census Bureau. Accessed May 13 2014. http://www.census.gov/hhes/www/poverty/threshld/thresh04.html.