Impact of Globalisation on Poverty

✅ Paper Type: Free Essay	✅ Subject: Society
✅ Wordcount: 2426 words	✅ Published: 23rd Sep 2019

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Globalisation is the creation and intensification of global linkages between countries. Business of all sizes operate in international markets- products are sold across borders; the resources used in production can come from anywhere in the world (Worthington, I. and Britton).Globalisation is not new, international trade has been occurring for years now. Majority of individuals will think that globalisation has only advantages, but like most topics, there is also advantages and disadvantages to globalisation, which I will discuss. Joseph Stiglitz – an economist, is one of many who exposes the adverse impacts of globalisation. Many believe the system of globalisation was rigged against them, and global trade agreements were singled out for being unfair (Stiglitz, The Guardian, 2017). Stiglitz’s point certainly indicates that multinational corporations set deals in the expense of workers and other citizens of the countries they operate in. This view is a major challenge against the core meaning of globalization which is neoliberalism. Neoliberalists believe that markets are the most efficient mechanism for achieving the greatest number of goods and can solve social inequality and poverty (Veltmeyer 2004). This is suggesting globalisation can possibly lead to reduced rates of poverty. Those in for globalisation might also argue that trade in areas may have slowed, however with formations such as NAFTA and the European Union might actually be a economic and business strategy to stimulate trade and growth between countries (while benefiting citizens with jobs and a wider range of products and services. Through this essay I will look at certain advantages and disadvantages of globalisation.

A phrase used commonly when talked about globalisation is ‘’ the rich gets richer, the poor gets poorer’’. To some extent this phrase can be seen true. Multinational corporations exploits workers and the Low developed countries resources. MNC’s are accused of social injustice, unfair working conditions (including slave labour wages) and mismanagement of natural resources (Collins, Forbes, 2015). It can be extracted from this actually MNC’s enslave low minimum wages to workers as well as poor working conditions for workers in return for higher profits. Apple was accused of doing this in their factories in Asia (Bilton, BBC, 2014). By offering low wages that workers cannot even use to buy necessities, MNC’s are actually damaging third world countries and making their poor population ever poorer, while they generate high profit levels and get richer. However it can be challenged that the poor does not get poorer because of their social class, but because of other factors. A research by Branko Milanovic, using the Gini coefficient concluded that the determinant factor of one’s income is where one lives actually and not exactly their social class which makes them poorer.The poorest five percent of Germans are richer than the wealthiest five percent of Ivoirians. (Devictor, World Bank Website 2014). Therefore this suggests that if the ‘poor’ people try migrate to elsewhere they will not stay ‘poor’. However this not practical, and when MNC’s are exploiting and securing new business deals in different countries there is no escape for ‘poor’ people from this trap. Therefore it can be seen that Globalisation does not reduce poverty rates.

On the other hand, there are positive impacts of globalisation which may reduce poverty rates. Globalisation may increase economic growth for countries and create jobs and opportunities for citizens (Collins, Forbes, 2015). This in turn suggests that when LDC’s reduce their trade barriers, it creates an incentive for MNC’s to invest in that specific country through foreign direct investment. This in turn creates jobs for citizens, which in turn will boost spending and tax revenue, leading to a in boost economic growth for the LDC. This is all clearly evident in LDC’s such as Uganda, in which reduced trade restrictions has led to improvement in the nation’s economy (Lawal 2006). As seen on figure 1.1 when Uganda reduced its trade barriers and MNC’s saw an opportunity, the FDI has been increasing in the country since the start of the 2000’ era.

Figure 1.1 showing FDI inflows into Uganda. Source: from Uganda Business travel website.

However as FDI pushes tax revenue in host nations, it is actually taking away the tax revenues from home nations of where the firms are originally from, which can be seen unethical for a business and can potentially impact a business’ reputation. Therefore globalisation may reduce poverty in some LDC’s but then might be a reason of cause in other High developed countries.

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MNC’s investing in LDC’s can result positive impacts however it is major drawback for nations where the business is originally from. Reduction in trade restrictions in a lot of developing countries lead to the partial relocation of several companies (Rodrigo 2015).One way trade restrictions are reduced is by offering low business tax rates. This in turn suggests that many organizations may relocate from e.g. a high tax country to a low tax country. An example is when Amazon relocated its headquarters from USA to Ireland due to this reason. This in turn is a positive impact of globalisation for the firms as their costs will be reduced, and profit and dividend levels will be boosted, however morally it can be seen wrong. Another reason why organizations may relocate is because, as a society develops, labour costs will rise, and firms will then relocate to areas with low labour cost areas (Waters, 2001). Other trade restriction reductions include, reducing trade barriers and Governments offering subsidies to firms to come locate in their country. How this is a drawback of globalisation is that when firms relocate, a large number of people gain jobs elsewhere however in home nations, citizens will be losing jobs. Figure 1.2 shows clearly how many jobs were lost in 2005 due to offshoring. It can be analysed that the top ten countries are in fact either HDC’s or Medium developed countries. However it must be taken into account that only a small proportion of job losses in each country was actually due to off shoring. For example in the United Kingdom, total job losses were 200,766. However only 6,764 of those were actually due to offshoring by firms. This in turns suggest that although this is a disadvantage of globalisation, it might actually be a ‘no impact’ cause of globalisation as there is favourable impacts to this also – jobs being created in Low income countries. From this data it must also be taken into account that top ten proportions of job losses are in economies such as Ireland, which ironically is seen as a receiver of offshore jobs and not a sender.

Figure 1.2 showing total job losses in each country and total job losses due to offshoring in each individual country. Source: Gorg, WTO, 2011.

Although individuals are impacted negatively through globalisation they do benefit from globalisation too. One other advantage of globalisation, through free trade is that consumers can benefit from a greater choice of goods and lower prices (Pettinger, Economics Help, 2017). This is suggesting that when free trade occurs, and when FDI is flowing in, it can lead to firms specializing in certain sectors of the economy, giving them an competitive advantage. This in turn leads to firms benefiting from potential high profit returns, as they can produce products for the lowest cost possible through the economies of scale they can access. Alongside this domestic firms will want to compete with MNC’s, which will lead to all firms being efficient as they can, which in turn will mean products will be in high quality with a many varieties and low priced. This is a double advantage of FDI and free trade through globalisation for consumers and citizens. However it must be taken into consideration that many workers in LDC’s cannot even afford to buy the goods they produce for the MNC’s. An entire month’s wages of what they earn would not buy a single item they produce (Chamberlain, The Guardian, 2012). This in return suggest that this theory in fact is not as lawful as it sounds and firms are still profit motivated and are not specializing as they should, and is not in competition as they should be with domestic firms.

One disadvantage of globalisation that many do not consider is the environmental impacts it has towards the world. Globalisation promotes growth, which is inherently inimical to environmental sustainability (Wolf, 2004). This in turn is suggesting that, when globalisation occurs and trade is promoted, it can lead to environmental damages such as using non-renewable energy, in order to boost economic growth and profit margins for firms. This can be ignored and firms and governments can see this as a advantage in order to achieve economic growth and high profit levels. However this in fact that can lead to a firm’s reputation being damaged, potentially leading to consumers boycotting their goods and services, eventually leading to lower revenue and profit margins. Therefore the damage on the environment can be seen as a double adverse impact of globalisation, on firms as their reputation will be damaged and on citizens as the environment we rely on is slowly being damaged. Firms can however still take advantage of this opportunity of using non-renewable resources to increase profit levels by moving to countries with lower environmental standards. However again this can impact their reputation and morally it will not be seen something lawfully to do.

Finally, we must consider another advantage of globalisation which is that it contributes to help the movement of labour, not just capital (FDI). Increased labour migration gives advantages to both workers and recipient countries (Pettinger, Economics Help, 2017). Through the EU it has helped to reduce geographical inequality as labour will move to areas with high unemployment rates and fill in those positions. Another example is, in the UK nurses have been recruited from other countries such as India and Philippines for the NHS. This in turn means that positions can be filled easily, leading to the economy working to its full potential, leading to high rates of GDP and increased tax revenue for the nation as well as jobs for the people. As people will have jobs, it will mean that globalisation is helping people to be financially stable and is not actually making the ‘poor poorer’. However it must be bought in mind that, this issue is debated as a high inflow of labour can put a lot of pressure on housing and social services such as schools. This could potentially be a reason why many people voted ‘leave’ in the Brexit referendum. This in turn can be seen as a negative impact of globalisation on citizens and governments.

In conclusion, I believe that globalisation has a negative impact to our citizens and our governments. I think that there are trade off’s between the advantages and disadvantages of globalisation, however the negative advantages are more reliable and have proved to be right over the years. It must also be considered that whether we think globalisation is positive or negative depends on other factors. Other factors include; who is assessing it (Business owners or Governments or citizens or environmentalists etc), whether we are neoliberalists or joseph Stiglitz, and most importantly if one advantage is more important than a disadvantage ( creating jobs abroad while home country loses jobs). To some aspect I can see the point that Globalisation helps to link people and countries, help reduce poverty rates, and boost economic growth etc. However factors like destroying cultures, destroying environments, business’ influencing foreign politics are more important and has more of an impact on citizens like me. Therefore personally I believe globalisation ‘makes the rich richer and the poor poorer’.