Globalization: Benefits, Inequality, and Security Risks

Introduction

The term "globalization" is a debatable one. Some view globalization as a process that is beneficial—fundamental to future world economic development—and also inevitable and irreversible (IMF, 2000). Others regard it with hostility, and sometimes fear, arguing that it increases inequality within and between nations, threatens employment and living standards, and disturbs social progress. This paper offers an overview of some aspects of globalization and aims to identify ways in which countries can optimize the gains of this process, while remaining realistic about its potential and its risks.

Globalization offers many opportunities for future worldwide development. However, it is not progressing evenly. Some countries are becoming integrated into the global economy faster than others. Countries that have been successful at integration have reaped the benefits of faster growth and less poverty.

For instance, globally oriented policies resulted in dynamism and greater prosperity for much of East Asia, transforming it from one of the poorest areas of the world to one of the richest (IMF, 2000). As living standards in the region increased, globalization made it possible to make progress on democracy and economic issues, including environmental protection and labor standards.

On the other hand, countries in Latin America and Africa that turned away from globalization thirty years ago, opting instead for inward-oriented policies, now suffer from stagnant economies, increased poverty, and high inflation (IMF, 2000). In many cases, especially in Africa, adverse external developments worsened the problem. As these areas changed their policies, their incomes rose. These facts demonstrate the importance of globalization, proving that encouraging this trend is the best course for promoting worldwide growth, development, and poverty reduction.

However, the crises in the emerging markets of the 1990s demonstrate that the opportunities of globalization are not without risks. These risks are rooted in volatile capital movements and the social, economic, and environmental degradation created by poverty. This is not a reason to reverse direction; instead, it is a signal that developing countries should embrace policy changes to build strong economies and a stronger world financial system—one that will produce more rapid growth and ensure that poverty is reduced.

What Is Globalization?

Economic "globalization" is the increasing integration of economies around the world, especially through trade and financial flows (IMF, 2000). The term also describes the movement of people (labor) and knowledge (technology) across international borders.

In general, globalization is an ongoing historical process. The term has been commonly used since the 1980s, reflecting technological advances that have made it faster and simpler to complete global transactions—both trade and financial flows. Today, the term describes an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activity, from village markets and urban industries to global financial centers.

Global markets have opened up new opportunities around the world, promoting efficiency through competition and the division of labor. They allow people and economies to focus on what they do best and provide access to larger markets worldwide. They open the doors to more capital flows, technology, cheaper imports, and larger export markets. But markets do not necessarily ensure that all parties share in the benefits of increased efficiency. Countries must be prepared to embrace the global policies that are necessary today, and the poorest countries may need the support of stronger nations as they do so.

Does Globalization Increase Poverty and Inequality?

During the 20th century, global average per capita income increased sharply, but with considerable variation among countries (IMF, 2000). As a result, the income gap between rich and poor countries has been widening for many decades. According to a World Economic Outlook study of 42 countries—representing almost 90% of world population—covering the entire 20th century, output per capita has increased significantly, but the distribution of wealth among countries has grown more unequal over time.

Still, it is important to note that incomes are just part of the equation. Broader measures of welfare that examine social conditions demonstrate that poorer countries have made significant progress. For example, some low-income countries, such as Sri Lanka, have positive social indicators. A study revealed that when countries are compared using the United Nations Human Development Index (HDI)—which considers education and life expectancy—the results differ from those suggested by income data alone.

While the gaps between the richest nations and the poorest have narrowed on certain measures, judged by their HDIs, today's poorer countries are well ahead of where the leading countries stood in 1870. This is mainly because medical advances and improved living standards have brought major increases in life expectancy.

However, even if the HDI gap has narrowed in the long term, far too many people are still losing ground. Life expectancy has increased, yet the quality of life for many has not improved, with large numbers still living in abject poverty. This has brought new urgency to policies designed to alleviate poverty. Countries with strong growth records, pursuing the right policies, can expect to see a reduction in poverty, since recent evidence suggests at least a one-to-one correspondence between growth and poverty reduction. If strongly pro-poor policies—for instance, well-targeted social expenditure—are also pursued, there is a better chance that growth will translate into more rapid poverty reduction. This is one compelling reason for all economic policymakers to make poverty reduction a central objective.

Conclusion

As globalization expands, living conditions in just about every country have improved significantly, with the strongest gains made by the advanced countries and only some developing countries.

The fact that the income gap between rich and poor countries has grown wider is a matter for concern, as is the number of the world's citizens living in abject poverty (IMF, 2000). However, it is important to note that globalization is not the cause of this divergence. Rather, poor countries have not been able to integrate with the global economy as quickly as others, partly because of their chosen policies and partly due to factors outside their control. No country—least of all the poorest—can afford to remain isolated from the global economy. Every country must seek to reduce poverty. The international community should act together, by strengthening the international financial system, expanding trade, and increasing aid, to help the poorest countries integrate into the world economy, grow faster, and reduce poverty. Only then will all people in all countries have access to the full benefits of globalization.

References

Daly, H. (2001). Globalization and its discontents. Philosophy and Public Policy Quarterly, 21(2/3).

Danaher, K. (1997). Corporations are gonna get your mama: Globalization and the downsizing of the American dream. Common Courage Press.

International Chamber of Commerce. (2000, November). ICC brief on globalization.

International Monetary Fund. (2000). World Economic Outlook. Washington, DC: IMF.