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The following is my summary of a World Bank report published in May 2001 giving us the expected statist rundown of globalization: yeah, it’s good, but the state needs to play an ever-more-important role! Hopefully this summary will be useful to anyone else forced to read this boring and academically cliche journey through college-student moderate politics.
Globalization, Growth, and Poverty: Building an Inclusive World Economy
Reduced transportation costs, lower trade barriers, speedier transmission of ideas, pressure for labor migration, and increasing capital flows have all led to greater integration among economies and societies internationally, a phenomenon that has come to be labeled “globalization. ” While globalization is a major force propelling poverty reduction in the modern world, some concerns have been raised about increasing economic inequality, transfers of power, and cultural uniformity. The policy research report entitled Globalization, Growth, and Poverty: Building an Inclusive World Economy released by the World Bank in 2001 examines the influence of this globalizing force and the anxieties caused by it, serving as a summary of World Bank research into the topic and providing a policy agenda for harnessing globalization to positively augment opportunities for the poor and to offset its potential hazards.
The report is divided into five major areas. Chapter 1 explores the economic effects of the new wave of globalization, examining them in light of the effects of earlier periods of globalization and their subsequent reversals. Chapter 2 focuses on global policy agendas for trade, financial infrastructure, and migration. Chapter 3 concerns itself with the agenda of globalizing economies to integrate into world markets, investigating institutional arrangement and policies to facilitate integration. Economic issues aside- poverty, income distribution, and policies- Chapter 4 examines apprehension over issues of power, culture, and the environment. Finally, in accordance with the study’s findings, Chapter 5 proposes the World Bank’s agenda for action aimed at making globalization more beneficial, particularly for the poor and those marginalized by globalization.
Ch. 1: The New Wave of Globalization and Its Economic Effects
Economic integration can be thought of as having three components: trade, measured in the report as relative to world income; migration, using immigration to the United States; and capital flows, represented by the stock of foreign capital in developing countries as a proportion of GDP. From 1870 to 1915, falling costs of transportation propelled these figures to an important level. Mid-19th century changes from sailboats to steamships and reduction in trade barriers facilitated by an Anglo-French agreement triggered the first wave of globalization. Improved transportation and the elimination of political trade barriers resulted in the exchange of land-intensive primary commodities for manufactures and the doubling of exports as a fraction of world income to 8%. Labor became a necessity for these commodities. Sixty million people migrated from Europe to North America and Australia to work on the newly-accessible land, and some scholars speculate that “South-South” migrations (from China and India to southeast Asia, for example) were of the same magnitude, making labor flows during this period a grand total of 10 percent of the world’s population. Capital was also necessary; while in 1870, the foreign capital stock in developing countries was 9%, by 1914 it had grown to 32%. As a result, the rate at which per capita income increased each year had risen from 0. 5% to 1. 3%. Economic forces created an increasing convergence between globalizing countries; wages increased in the emigrant countries (particularly of Europe), while wages decreased in immigrant countries (America, Canada, etc. The overall impact of these changes on equality within individual countries was a function of the distribution of land ownership, as the benefits of primary commodity trading would accrue to land holders.
Despite the fact that transport costs continued to fall from 1915 to the end of the Second World War, globalization froze as trade barriers rose in response to nationalistic demands worsened by the First World War. Following 1945, new international cooperative efforts proceeded to reduce protectionism, reviving trade and producing a second wave of globalization much like the first, particularly among rich countries. The General Agreement on Trades and Tariffs (GATT) was formed to restore trade relations multilaterally. However, many developing countries were specialized only in primary commodity exporting and were left out of newly opened capital flows, albeit because of their own protectionist policies. The poorest industrialized countries grew the fastest, and while growth in developing countries recovered from the period of the two World Wars, they did not grow as quickly, resulting in a widening of the gap between rich and poor countries. As for income distribution patterns, the number of poor people increased (because of increased life expectancy and hence population growth), but the distribution of income among developing countries was only slightly affected.
Since 1980 an unprecedented level of global economic integration has taken place. “New globalizers” – a set of developing countries – have entered world markets for manufactured goods and services. The average composition of exports from developing countries, for example, has changed from 25% manufactured goods in 1980 to over 80% today. Foreign direct investment has vastly increased, particularly among countries like Brazil, Mexico, Hungary, India, and China. The general trend has been that some low-income countries formerly focused on primary commodities have become more competitive with high income countries for all types of goods and services. On the other hand, a group of less developed countries with approximately 2 billion people experienced an overall negative growth rate in the 1990s, becoming increasingly marginalized. Some concerns have also been raised about global integration causing rising inequalities within countries, but the report finds that this is not the case. At the same time, since 1980 the absolute number of poor people has stopped increasing and has decreased by 200 million, falling rapidly in the new globalizers and increasing in the remainder of the developing world. Overall, however, world inequality has stopped falling and has even possibly begun to decrease.
In light of these globalization experiences, particularly the most recent one, the study concludes that globalization can strongly reduce poverty. The non-globalizing countries of Africa and the Former Soviet Union (FSU) depend highly on primary commodities and have failed to participate significantly in globalization. Their marginalization is most often attributed to three things: poor policies, infrastructure, institutions, and governance; intrinsic geographic and climate disadvantages; or, as a fusion of the first two, that a temporary phase of poor policies has caused certain countries to be left out of major economic agglomerations. The report suggests the strategy of “opening up with the necessary complementary actions [of policies, institutions, etc. while building the global coalitions needed to address the deep-seated structural problems that face many countries. ”
Ch. 2: Improving the International Architecture of Integration
The international architecture for economic integration- i. e. tariffs and other trade barriers- has experienced change during each of the waves of globalization, but it has particularly done so in the most recent wave. Over the last 20 years, many developing countries have eliminated their restrictions on imports, but they now face protectionism from rich nations. Rich countries have low tariffs, on average, but retain trade barriers in agriculture and labor-intensive manufactures- areas in which developing nations have a trade advantage, whose protection by rich nations costs them over $100 billion.
However, developing countries have barriers three times higher than those in OECD countries. Because developing countries trade with each other far more than they did in the past and 70% of tariff barriers on their exports come from other developing countries, a “development round” of trade liberalization would be significantly gainful by improving access to new markets, both rich and developing. Despite this, protectionist interests in Northern developed countries present opposition to such changes, effectively using institutional trade agenda issues such as intellectual property, health and labor standards, and environmental issues as prerequisites for barrier reduction. The report argues that many of the developing countries in question are in fact improving labor conditions and environmental policies, but that the threat of trade sanctions from the WTO is only destructive to those ends.
Foreign investment relates closely to trade liberalization issues. Private capital flows have vastly increased, especially as developing countries have lowered restrictions on foreign direct investment (FDI), bringing an increased supply of capital and better access to technology, management, and markets. While the new globalizers have experienced these gains, the least globalized countries have experienced capital flight. Poor locations that have not improved much from globalization have created a demand for more well-managed aid from rich countries.
The third main global flow, migration, is also subject to structural improvement. Economic pressures for migration are resisted by legal restrictions on migration. Compared to a century ago, labor flows are not as globalized: only 2 percent of the world’s population is composed of non-citizen residents. Meanwhile, OECD labor forces are aging and retiring, putting strain on social security systems, while developing countries’ labor forces are growing rapidly because of high birthrates. There exists a potentially great mutual economic benefit achievable by combining capital and technology of developed countries with the labor resources of developing countries. Nonetheless, geographic limitations prevent (or will at least delay) capital flows and trade from eliminating migration. Wide divergences in quality of institutions and infrastructure keep production opportunities where their quality is high, and make production less attractive when their quality is low.
Migration can be a net positive factor for two nations, as evidenced by the experiences of the United States and Mexico. Individual migrants from Mexico to the U. S. for example, made $31 per week in Mexico on average, and could move to the U. S. and immediately begin earning $278 per week. Their migration to the U. S. has also taken pressure off of the Mexican labor market, raising wages there, as well as increasing money remittances. The U. S. has also benefited from this arrangement; the labor inflow was partly responsible for sustained growth and low inflation in the 1990s. Overall, OECD countries like the U. S. tend to have discriminatory policies toward immigrants, particularly biased in favor of educated workers, resulting in “brain drain” from developing countries. The report suggests that migration would reduce poverty more effectively if immigration policies were less discriminatory and permitted more unskilled labor flows.
Ch. 3: Strengthening Domestic Institutions and Policies
While trade policies are important to integration, other institutions and policies play a key role (even if they are not specifically catered to international commerce).
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