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DEVELOPMENT: Winners and Losers in Globalisation Struggle

Thalif Deen

UNITED NATIONS, May 17 2007 (IPS) - Globalisation, widely perceived as the growing economic interdependence of countries worldwide, is a mixed blessing to the world’s three billion poverty-stricken people living on less than two dollars a day.

There are both winners and losers in globalisation, says a new study from the Helsinki-based World Institute for Development Economics Research (WIDER), an affiliate of the U.N. University in Tokyo.

While globalisation offers new opportunities for accelerating development and poverty reduction, it also poses new challenges for policy makers, warns the study titled “The Impact of Globalisation on the World’s Poor”, released here Wednesday.

Do the poor benefit less than proportionately from globalisation? And are the poor under some circumstances hurt by it?

The study, co-authored by professors Machiko Nissanke of the University of London and Erik Thorbecke of Cornell University, points out that the risks and costs brought about by globalisation can be significant for fragile developing economies and the world’s poor.

The downside of globalisation is most vividly epitomised at times of global financial and economic crises.

The costs of the repeated crises associated with economic and financial globalisation appear to have been borne overwhelmingly by the developing world, and often disproportionately so by the poor who are the most vulnerable, the study notes.

On the other hand, benefits from globalisation in booming times are not necessarily shared widely and equally in the global community.

The investigation of global value chains -horticulture, garments and textiles – in Bangladesh, Kenya, South Africa, and Vietnam provides evidence on the impact of globalisation on employment and economic opportunities for poor people.

According to the study, this analysis makes a clear conceptual distinction between “non-globaliser” and “unsuccessful globaliser” countries.

Kenya is categorised as an unsuccessful globaliser, while Vietnam is considered to have been successful in integrating into the world economy – in terms of outcome though remaining relatively closed in terms of policy.

Further, the impact of increased exports on employment has been much more significant in Bangladesh and Vietnam, where unskilled labour-intensive industries accounted for 90 percent and 60 percent of manufactured exports in the late 1990s, respectively, than in Kenya and South Africa, where the corresponding figures were 16 percent and 10 percent, respectively.

In these two African countries, the study says, skilled workers (as proxied by education levels) benefited from globalisation while unskilled workers were adversely affected.

The value chains of horticulture exports in Kenya and garment exports in Bangladesh and Vietnam show that the growth of labour intensive exports does create employment opportunities, particularly for low income women and migrants from rural areas.

However, the requirements of global value chains mean that these jobs often demand a high degree of labour flexibility, long hours of work, and poor working conditions, making workers vulnerable both in terms of employment security and income, according to the study.

Asked how effective globalisation would be in helping reduce world poverty by 50 percent by 2015 as envisaged in the U.N.’s Millennium Development Goals (MDGs), Thorbecke told IPS: “While the net effect of globalisation on poverty reduction has been positive, it is extremely unlikely that the forces of globalisation by themselves could possibly reduce poverty by 50 percent by 2015.”

In order to come even close to meeting the MDGs target, he argued, developing countries will need to undertake active domestic policies to reduce the negative effects of globalisation on the poor and increase the transmission of the positive effects.

“The bottom line is that globalisation has been a qualified success,” said Thorbecke, the H.E. Babcock Professor of Economics, Emeritus, and former director of the Programme on Comparative Economic Development at Cornell University in the United States.

He said the decline in the relative and absolute number of poor people in the developing world has been very uneven. “China is by far the main beneficiary while Sub-Saharan Africa benefited only very marginally – if at all,” Thorbecke said.

In order for globalisation to become a more effective instrument in the fight against poverty, developing countries need to design and implement pro-active policies, he noted.

In the poorest countries, the role of the agricultural sector is fundamental. Discriminating against or neglecting agriculture (as so many African countries have done) leads to stagnation and short-circuits the development process.

In general, Thorbecke said, developing countries should concentrate on following a pro-poor growth path.

Furthermore, to reduce their extreme vulnerability to external financial and trade shocks, policies and institutions should be in place to help shelter the poor, such as safety nets, social protection schemes (for example to keep children in school), and investments in the health and human capital of the poor.

As recipients of public services, the study argues, globalisation can affect the poor in two ways – first, through budget cuts mandated by international agencies to reduce budget deficits and achieve macroeconomic stabilisation, and second, through falls in tariff revenues following trade liberalisation.

But governments often find it politically more expedient to cut public expenditures for the voiceless poor.

At the same time, said the study, it is easy to blame the globalisation process for domestic institutional failures that could at least partially be remedied through an attack on corruption and insisting on greater accountability by domestic institutions. As users of common property resources, the rural poor can potentially be hurt if trade liberalisation encourages overexploitation – such as massive deforestation – of fragile environmental resources.

The dilemma is that it may be difficult and even counter-productive for a country to adopt environmental regulations while its competitors do not adopt them at the same time, and thereby are able to undercut the former in world markets, the study notes.

The policy recommendation that suggests itself is greater coordination of environmental regulations on an international scale.

In addition, many small farmers are heavily dependent on multinational marketing chains for establishing a foothold in global markets, as these products require new storage and transport infrastructure, large set-up costs, and marketing connections.

Such circumstances require protecting the poor through new legal rules and institutional structures that facilitate contract farming and agro-processing without exposing small producers to exploitation by large marketing chains.

The study also says that more energetic international attempts might be called for to certify codes against international restrictive business practices and to establish an international anti-trust investigation agency, possibly under the auspices of the World Trade Organisation.