Taking an Easier Path: Globalization and Government Intervention

Topics: Poverty, Globalization, Economics Pages: 5 (1601 words) Published: October 14, 2009
Taking an Easier Path:
Globalization and Government Intervention

Astechnology evolves, with transportation becoming faster and more convenient, societies and economies all over the world are integrating to a level never before seen. Yet still, poverty is by far one of the most important issues of our time. In this era of rapid globalization, of rapid flow of resources and production, we often debate the question of whether this global integration is truly positive. As globalization happens inevitably, it promises economic growth and the overall wellbeing of all societies, yet some evidence suggests that certain societies are hindered by global integration and increased trading – in particular the poorer end of the spectrum. It is obvious that not all are benefiting from this integration at the same time. Globalization is potentially beneficial to all members of society; however, it requires sound policies and social programs to overcome the often witnessed short-term negative effects that poverty-stricken communities often face because they take longer to adapt than developed countries. In order to understand this, the following paragraphs will explore the negative and positive effects of globalization. There are definitely negative aspects of globalization, such as increasing inequality and decreasing wages in some lesser economically developed countries (LEDC). The fact is, the world has been increasingly globalized and prosperous, “yet it is clear that inequality has grown” (Basu, 2006), and “currently, the richest region has a per capita income that is 20 times the income of the poorest region” (Basu, 2006). Such extreme inequality both between and within countries can be extremely problematic and uncomfortable. “Rising inequality between countries impacts directly the national political economy in the poorer states” (Wade, 2004) as it brings incentive for government corruption in order to live up to the standards of richer states, and also encourages instability and deprivation in the population. As globalization pushes through, another great concern is the dropping of real wages with respect to purchasing power in LEDCs due to both international competition and rising price levels. Many small local industries cannot withstand the high level of competition in the international market since there are hidden barriers in trade, such as transportation costs, brand name effects etc. (Bardhan, 2006a); hence they could not benefit from free trade. Worst of all, they now even have to compete with multinational corporations for their own local markets. As for the rising price levels, because “a disproportionately large share of the world’s GDP comes from the industrialized countries, it seems reasonable to predict that the prices of goods in poor countries will converge more rapidly toward prices in industrialized countries than the latter converge toward the former” (Basu, 2006). This means that the general price level of poorer countries will tend to rise because of global trade. It is then obvious that because unskilled and illiterate workers in poor countries are unable to take advantage of the new technology, their “wages will lag behind prices” (Basu, 2006). The result of this is the drop in real purchasing power. Interestingly, globalization does dramatically increase wages for the skilled workers, since there is now a higher demand for them (Basu, 2006), contributing to the increasing inequality. All these negative results of increasing globalization and trade liberalization must be considered; however, as we will see in the next paragraph, this is not the end of the story. Although there are negative consequences of increasing globalization, there are also many long-term benefits. Because of the global integration of commodities, technology and economies, “as a group, the poor countries have grown more quickly…the globalization period has been the golden age of development” (Bhalla, 2002,). “The 20th...

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Bardhan, P. (2006b). Does Globalization Help or Hurt the Worlds Poor? Scientific American, 294(4), 84-91.
Basu, K. (2006). Globalization, poverty, and inequality: What is the relationship? What can be done? World Development, 34(8), 1361-1373.
Bhalla, S.S. (2002). Imagine There’s No Country: Poverty, Inequality and Growth and the Era of Globalization. Washington, DC: Institute for International Economics.
International Monetary Fund (IMF) (2000). Globalization: Threat or Opportunity? Retrieved March 14, 2007, from http://www.imf.org/external/np/exr/ib/2000/041200.htm
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