“Although globalization made earlier appearances, the trend has unfolded with unprecedented speeds, and to unprecedented extents since the 1960s. ” (SCHOLTE. 2000) This essay will explain how the forces of globalisation have shaped and will continue to shape, the financial, demographic, and political societies we see around us today. It will identify the extent to which sustained Globalization has “… the crevice between poverty, comparative poverty, and luxury. ” Such positive and negative attributes affect society on a number of different levels, “…
the individual, the household, the firm, the town, the region, the sector, the nation. ” (Kaplinsky) This essay will provide and in-depth analysis and examples of how such global processes have worked to erode the fortunes of so many (Sierra Leone); whilst also being the catalyst for success in other areas (Mexico). (HELD. 2007) ‘The Race to the Bottom,’ is a term describing the intra-national contest for the most favourable environment for business trading, manufacture and investment.
Following its successful application to join the World Trading Organisation (WTO) in November 2001, China has experienced a vast influx of foreign investment. This has – as expected – empowered the Chinese economy to the detriment of its former South-east Asian exporting partners. Hong Kong and Taiwan had nurtured the Chinese economy for a decade previously, and now find that their economies are being “… hollowed out, as China sucks away jobs. ” (CHAN. 2009) How did this happen? In the early 1990s China introduced its first minimum wage system with the intention of protecting its workforce.
Due to the great versatility of China, the government came up with a formula (based upon local living costs; inflation etc. ) with which each city or region would publish and enforce its own minimum wage. The benchmark for all minimum wages set is between 40% and 60% of the average wage in that locality. Since 1993, according to a study by the Bureau of International Labour Affairs, almost all of the provincial governments have failed to maintain these standards – [see table 2]. Their desire to attract investment has forced the minimum wage : average wage percentage further down.
Shenzhen, a model Chinese exports city, paid, on average, 10% less that the absolute minimum wage required by the government and international labour standards. Conversely, the city of Chongqing, which is not export-led or globally integrated, consistently achieves almost 10% more than its minimum required standards (49. 86% in 2000). Chan concludes a “worrying trend. ” She suggests that; “… as a region or province becomes more prosperous, it violates the national guidelines and seeks to maintain its attractiveness to foreign capital by keeping its minimum wage level low…
the benefits of globalisation with this competitive logic have not, and will not, trickle down to those who make the products. ” (CHAN. 2009) The Human Development Report 2006-2008 uses Corrado Gini’s coefficient to highlight an increase in overall inequality from 0. 31 to 0. 45 during the initial years of reform. [Coefficient measures between 0 and 1 where 0 is complete equality]. (FACTSHEET. 2008) However, the benefits of neo-liberal economic reform in China seem to have had a positive effect on ‘Poverty. ’ Between 1990 and 2005 the influx of industry and trade bought a per capita growth averaging 8. 7%.
Using the World Bank poverty line, (measured at Purchasing Power Parity (PPP)) household surveys suggest that post 1981, 54% (500,000,000 people) of the population of China scrambled over the poverty line. (CHAN. 2009) In this sense, we must conclude that global economic integration in China has seen a significant reduction in poverty, but an increase in income inequality has come from overwhelming national development due to increasingly capitalist structures stemming from trade liberalization. What advocates of globalization emit is that two thirds of Chinese industry relies on coal, and just 7% of their energy sources are renewable.
A report from the Financial Times found that air pollution in China caused by heavy industry and chemical production has led to the annual premature deaths of 400,000 (air quality); 300,000 (indoor air quality); and a further 60,000 due to poor water quality. (BBC. 2007) There is 1 country in the world where economic growth rate has consistently outpaced that of the Asian Tigers: Botswana (9% average annual growth). Botswana had a GDP per capita of just US$ 77 at independence from Britain (1966). It now stands at US$ 7,554 (GLOBAL PROPERTY. 2010).
Kraay notes that; “A sustainable future in Africa rests on its ability to develop and maximise natural resources. Diamonds play a major role in these efforts. ” Diamond extraction and production requires a large investment of initial capital. In the case of Botswana, DeBeers and the Government of Botswana invested 50:50 US$40 million in the Damtshaa mine. FDI in diamonds around Botswana accounts for 33% of GDP growth. Global trading and distribution of diamonds and other minerals accounted for 55% of total government revenues in the late 1990s. (MBENDI. 2009)
“Botswana’s history of sound management, good governance [Botswana has an accountable parliament and holds regular democratic elections] and an emerging focus on enhancing regional competitiveness should serve it well as it continues efforts to diversify. ” (WORLD BANK. 2009) So, to what extent can we propose Botswana as a model of how ‘Sustained Globalization’ can ‘Eliminate World Poverty? ’ Firstly it is important to note the income elasticity of diamonds and other such minerals. They are a luxury product and due to the current economic downturn, as real wages decrease, demand is likely to proportionally decrease also.
Growth estimates for 2009-2010 predict a contraction of 10. 2%. It seems that over reliance on the global export market has forged vulnerabilities in an otherwise stable nation. However the non-mining private sector of Botswana has proved to have deep foundations, recording a 9. 4% market increase this year. Either way, prudent fiscal and taxation policy, and low level of public debt (3% of GDP) resulting from huge capital influx over the years, mean that national reserves are likely to hold out for the recession period. (MBENDI. 2009)
Secondly, it is important to note (as was the case in China), that increase in GDP is not directly proportional to poverty decrease. The most deprived quintile share just 1% of GDP, whilst the second quintile accounts for 5. 9% (Gini coefficient 0. 6). This means that 47% of the population still live below the poverty line. Perhaps the capital gains still need more time to filter down through infrastructure development and reform? In 1966 there were just 3 miles of roads; now there are 4,000 miles, a public transportation system and a nation-wide telephone grid.
(WORKMAN. 2006) Perhaps the figures are being distorted by the unstoppable force of HIV/AIDs and malaria that has hit Botswana so hard recently? It is impossible to say. What we can say, however, is that in order to reap the benefits of global trade in the long-term, Botswana must recognise the fragilities of basing their economy on an exhaustible and export-orientated resource. In 1991 the Revolutionary United Front (RUF) under Froday Sankoh, launched assaults against the Government of Sierra Leone. Their goal was to combat ‘crime and corruption.
’ The ensuing 11-year conflict was funded throughout by revenues generated by the diamond trade (an estimated initial worth of US$ 125 million). A median estimate suggests the murder of 75,000 (USA Today and The Times). A less conservative opinion from the Agence France Presse believe the figure was nearer to 200,000. (WORLD BANK. 2009) Either way, the drain on capital, natural resources, labour demographic and widespread looting was funded by the global financial market and African integration with it. Capital obtained from ‘conflict diamonds’ was notably from consumerism in the global North.
Following the end of the war in 2000, the country was exposed to anarchy and complete economic collapse. Drugs and arms trafficking in cocaine and ex-soviet weaponry was rife, and corrupt feudal political structures further intensified income inequality – Gini coefficient over 0. 6. In 2004 its trade deficit totalled $US 350 million. (FACTSHEET. 2005) In the same year the UN named Sierra Leone the poorest country in the world (based on PPP/capita); and “… the worlds ‘least livable’ country, based on its poverty and the poor Quality of Life its citizens must endure. ” (WORKMAN. 2006) Whose fault is it?
Is it the greediness of the conflicting armies? Is it the presence of such a store of wealth in a poverty-stricken country with few other natural resources? Is it the emergence of a global market that has created cosmic demand for such commodities? Time will tell. What we can see is that again, (as was the case in China and Botswana) global financial demand caused a sharp increase in GDP of the country. In 1965 GPD in Sierra Leone was US$ 246; in 2000 it was US$1,330,429 – see Table. 3. We can also say that this does not in any way correlate to an increase in living standards or reduction in poverty.
It represents a huge crack in the neo-liberal ideology and Shah’s suggestion that; “Sustained economic growth is the way to human progress. Economic globalisation in the form of freer circulation of capital would be beneficial to everyone. ” (SHAH. 2009) This essay suggests that however trade and political systems are constructed, without complete socialism, conflict can, has, and will continue to peak at the emergence of valuable natural resources. We can also conclude that whilst globalization could “offer the best prospects for eliminating world poverty,” African history stands in the way of such an ideology.
(Table 6) It is not, however, all doom and gloom for the globalization and poverty argument. Mexico in many ways lost the ‘Race to the bottom’ to China, but neo-liberal reform has played a vital role in the successful integration of the Mexican economy into the global manufacture and export market. Prior to the 1980s (and economic downturn), Mexican economics was characterised by protectionist policies, high tariffs and quotas, and restrictions to FDI. By 1981 choking fiscal profligacy and vulnerability to external conditions (notably the 1973 oil shock) caused an imbalance of payments and massive capital flight.
This caused huge inflation and the worst recession since the 1930s, forcing devaluation of the Peso on numerous occasions and further recession. (SOMMER. 2008) The North American Free Trade Agreement (NAFTA) eliminated the almost all import and export taxes and infused a gradual fade-out of the majority of tariffs between Mexico, the US and Canada. Following initial success, (Table. 4) the government then furthered economic liberalization by implementing 11 free trade agreements with the EU, Japan, and countries in South and Central America.
Table. 4 shows how Mexican commodities exported to the United States increases from US$39. 9 billion in 1993; to US$ 210. 8 billion in 2007 (437% increase). Over the same period GDP grew 46%. (SOMMER. 2008) The success of the Mexican model is based largely on efficiency and proximity. Maquiladoras are large manufacturing and export plants, the majority of which are located just south of the US border. There are around one million workers employed in any of the 3,000 clothing, furniture and electronic equipment factories.
Their proximity to the US gains them a significant advantage in terms of lower indirect costs (90% of production is transported ‘North’ straightaway) than those of Asian Tigers and the Pacific Ring countries. (BORRAZ. 2007) In contrast to Sierra Leone and Botswana, GDP increase seems to have direct correlation with improvements in real wages; a negative correlation with income inequality; and an overall reduction in poverty. Evidence of its success is shown by a net decrease in Gini coefficient between 1992 and 2002 (Table 5). (FACTSHEET. 2005)
Borraz shows that income is less concentrated and has a lower Gini coefficient in states that are more closely linked to the global economy. He suggests that states with stronger links to the world economy might offer proportionately higher wages to the unskilled workforce – in this case (young) women. Unskilled women in Mexico earn between 7% and 16% more than their counterparts in non-globalized or exporting states. Overall, in 2002, 7 out of 9 states in Mexico have seen a decrease in income inequality. (BORRAZ. 2007) Why then, has Mexico succeeded in reducing poverty, whilst Sierra Leone has not?
According to Borraz there are two main reasons for Mexican success; 1. Commitment to universal education in the 1940s realized a significant increase in skilled labour and higher overall productivity – sustained GDP growth of 3-4% from 1940. Governmental organizations like PROGRESA have hugely enhanced school attendance rates and decreased child labour. In November 1999 PROGRESA strategies accounted for 82% of the 25% of boys who left work to choose basic or higher education. Thus it was inward looking development strategies prior to neo-liberal reform meant the basic infrastructures for rapid growth were already there.
2. Luck. On the verge of complete inward economic collapse, the discovery of the Cantarell oil fields in 1976 sustained an otherwise weakened and fluctuating Mexican economy. (BORRAZ. 2007) However, it is true that NAFTA and other trade liberalization schemes in the Americas have reduced income inequalities and increased real wages in Mexico – but at what cost? ; The violation of human rights of a million of underpaid (US$ 3. 40/day); overworked (up to 60 hours/week); underage (girls often start at 12 or 13) workers with minimum knowledge of their rights.
“In 1987 a worker had to work 8 hours and 47 minutes to buy the basic food basket for a family of four. Today it takes 34 hours. ” (CORPWATCH. 2009) The pollution of New River in Mexicali Valley [which runs into the Rio Grande] is now dumped with 130 million gallons of industrial waste each day. “According to the Texas Department of Health, since NAFTA went into effect the Hepatitis A rate for Cameron County shot up from 17. 8 per 100,000 residents to 87. 4 per 100,000 an increase of almost 400%. ” (CORPWATCH. 2009) The Zapatistas have also suffered hugely from opening the agricultural market to mass produced US market-garden exports.
Their anti-globalization ideology highlights that their inability to compete with mechanically harvested, artificially fertilized and genetically modified imports from the US. NAFTA also eliminated crop subsidies for Mexico while US farmers still receive them. The agrarian based society has directly suffered from a decrease in real wages and an increase in comparative poverty due to open trade. Further, “China [Page 2 & Table 1] has weakened the allure of Maquiladoras in recent years and some report that more than 500 plants have been closed since the beginning of the decade.
” (SOMMER. 2009) Currently, the future of the Mexican economy is unknown. Sharp decreases in PEMEX oil production and the current financial crisis in the U. S. is revealing more weaknesses in the Mexican export strategy. (RANDEWICH. 2008) Conclusion Does “Sustained globalisation offers the best prospects for eliminating world poverty. ” ? Firstly there is no confirmed method of effectively measuring either ‘Globalization’ or ‘Poverty. ’ One can not accurately judge the benefits/detrimental effects of globalization without a baseline measure for poverty.
QOL indicators, the Gini coefficient, and GDP are subject to variations and outside influences that cannot be measured or corrected (E. g. measuring GDP in Kerala; or measuring the Gini coefficient of China). The Neo-liberal argument – that increased density of economic integration between countries will increase overall efficiency due to the specialization of resource use – is likely to be correct. The majority of trade liberalization cases show an overall increase in GDP. This cannot be taken further to suggest that it directly benefits those living in poverty.
Further, in the case of Mexico and China, evidence suggests trade liberalization pits global forces against each other and with no weight divisions and no handicaps, smaller regions, towns, industries and households cannot be expected to win. “The eradication of global inequality requires much more than simply repeating the tired rhetoric of anti-imperialism, anti-capitalism or, even worse, marking globalization work for the poor. ” (HELD. 2007) Claire Short’s White Paper (Title) fails to recognise this, suggesting 5 common elements to successful poverty reduction based around a neo-liberal framework:
1. Openness to trade and eagerness to attract FDI. 2. Political stability and competent governments committed to economic growth. 3. Savings and investment of at least 25% of national income. 4. Economic stability: controlled inflation and government budgeting; avoiding production collapse. 5. Market allocation of resources: minimal necessary government intervention. (DFID. 2006) Such claims can be considered naive. The DFID paper reads like a propaganda policy designed to gain electoral support. This essay suggests that there are only three conclusions that can be drawn.
1. That trade liberalization generally incurs an increase in international trade and GDP. 2. “Every international institution throughout history has been hierarchical and composed of dominant and subordinate states; there has never been, and in the future is never likely to be, an egalitarian and democratic international system. ” (HELD. 2007) 3. “Globalization is in fast forward, and the world’s ability to understand and react to it is in slow motion. ” (TURNER. 2003) Table 1 (WORLD BANK. 2009) (CHAN. 2009) Table 3. Estimated GDP Sierra Leone (WORLD BANK.
2009) TABLE. 4 (SOMMER. 2009) Table. 5 (CHAN. 2007) Table 6. (DFID. 2006) ABOUT. 2009. The History of Transportation [online] [Accessed 28th December 2009] Available from: http://inventors. about. com/library/inventors/bl_history_of_transportation. htm. ADELZADEH, A. 2008. Simulation Models of 5 African Economies. Designing Africa’s Poverty Strategies: Creating the Capacity for Policy Simulation. [online] [Accessed 3rd January 2010] Available from: http://models. wider. unu. edu/africa_web/input_login. php? class=bw_quickies&instance=quickies&country=bw
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