Poverty trap

Globalisation is changing our planet on a daily basis. But is it actually helping millions of the world’s poor out of poverty? Our Future Planet takes a look.

From the most obvious standpoint, globalisation ought to offer the majority of us a better deal. After all, as more of us speak the same language, use the same currencies and live in the same places, so the chances for obtaining better jobs, better education and better living standards should be rising.

But some people are wondering whether globalisation in fact mitigates poverty, and disables economic development. What are the potential costs of this? Who gains or suffers? It seems, as ever in this kind of scenario, that the issues are complex.

The Centre for Global Development (CGB) is an independent, non-profit policy research agency aiming to reduce global poverty and inequality. On June 8, 2010, it spoke out for a redeployment of world loans to the world’s poorest countries, arguing some $7.5 billion could easily be unlocked.

According to the paper, ‘The International Bank for Reconstruction and Development (IBRD), which exclusively provides loans to middle-income countries, could take over a share of loans traditionally disbursed by the International Development Association(IDA) to emerging economies with ready access to international credit markets, so called IDA-blend countries, such as India and Vietnam.

‘In exchange, IDA, which typically issues low-interest loans and grants to the world’s poorest countries, would ensure a smooth transition by covering these countries’ IBRD loan interest payments.

“Nearly every multilateral development bank is requesting funding from rich countries, but donors are still struggling with record budget deficits due to the global economic crisis and remain nervous about the impact of financial turmoil in Europe,” said Ben Leo, research fellow at CGD and former U.S. Treasury official. “IDA donors should do everything possible to mobilize new funding while also pursuing innovative ways to maximize the impact of available World Bank resources.”

This is some evidence of how the globalisation of finance doesn’t always have the positive effects that it might. Much of the existing world finance market is paralysed because of the international impact of global recession. Lending is down. In other words, because of today’s global nature of trade, the selfish actions of lenders in Western societies that led to the original downturn has now actually impacted on flows of cash to those poorer countries trying to become part of the global community.

Cash bind

Then again, elsewhere there seems to be more positive news. On July 8 2010, the World Bank’s Board of Executive Directors approved the sum of US$6.8 million for the Scaling Up Sustainable Land Management Practice, Knowledge and Coordination Project.

‘This will be a three and a half year incremental Global Environmental Facility (GEF) grant to the Federal Republic of Nigeria, focused on mainstreaming Sustainable Land Management in Nigeria’s agricultural sector,’ said the Bank.

It seems the project aims ‘to increase the incomes of rural entrepreneurs in areas of irrigable land that are low lying flood plains underlined by shallow aquifers and found along Nigeria's river system (fadama).  

‘This will be achieved by delivering resources directly to the rural communities, efficiently and effectively, and empowering them to collectively decide on how resources are allocated and managed for their livelihood activities and to participate in the design and execution of their sub-projects. By increasing their incomes, the project will help reduce rural poverty, increase food security and contribute to the achievement of a key Millennium Development Goal (MDG).’

In this example, world funds are being contributed effectively to help development, and it seems globalisation of finance is enabling positive change. So perhaps there is a balance to all of this?

Finding the way forward

The United Nations University and World Institute for Development Economics Research (UNU-WIDER) analyses structural changes affecting the living conditions of the world's poorest people.

‘Despite the enormous potential of globalization in accelerating economic growth and development through integration into the world economy, the transfer of technology, and the transmission of knowledge, the impact of globalization on poverty reduction has been uneven and even marginal in some regions, such as in much of sub-Saharan Africa (SSA),’ it reported in its June 2010 newsletter.

The details explain that, ‘Developing countries have to undergo substantial changes in their production and trade structures, so as to be able to reap more benefits from the dynamic forces unleashed by globalization.

‘In particular, globalization works best for the poor through the 'growth' channel when globalization‑induced growth generates secure employment opportunities. On the whole, the employment creating effect of growth has been most pronounced in East Asia, where globalization has brought about a substantial reduction in poverty due to vigorous growth despite increasing inequality.’

The reality appears to be that globalisation is neither good nor bad for poverty and developing countries. Rather, it is about how poorer country’s policies are determined to make the most of the opportunities in the long term, or short term exploitation of advantages that decides the benefits.

Either way, fair and sustainable use of global resources and sustainable development policies, coupled with globalisation, ought to help. Ironically, the World Bank’s latest Global Economic Prospects 2010 suggest developing countries are likely to lead the way back to global growth.

‘Developing economies are expected to grow between 5.7 and 6.2 per cent each year from 2010-2012. High-income countries, however, are projected to grow by between 2.1 and 2.3 per cent in 2010, not enough to undo the 3.3 per cent contraction in 2009, followed by between 1.9 and 2.4 per cent growth in 2011.’ explains the Bank.

“The better performance of developing countries in today’s world of multipolar growth is reassuring,” said Justin Yifu Lin, the World Bank’s Chief Economist and Senior Vice President, Development Economics. “But, for the rebound to endure, high-income countries need to seize opportunities offered by stronger growth in developing countries.”

But the situation is by no means certain. ‘Over the next 20 years, the fight against poverty could be hampered if countries are forced to cut productive and human capital investments because of lower development aid and reduced tax revenues,’ the report says. 

‘If bilateral aid flows decline, as they have in the past, this could affect long-term growth rates in developing countries, potentially increasing the number of extremely poor in 2020 by as much as 26 million.’

And this is precisely the original fear, that challenging economic conditions in leading countries hurt investment, and reliance on global partners leads down a darker road for the world’s poor. The true benefits of globalisation remain genuinely tough to fathom.

What are your views?  Not sure? Read the resources below for more information. Add your comment below. We welcome your thoughts and proposals. Not a Planetary Citizen? Sign up to Our Future Planet today!

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Resources:

Is Globalization Reducing Poverty and Inequality? 
Leveraging World Bank Resources for the Poorest: IDA Blended Financing Facility Proposal 
Inside the World Bank’s Black Box Allocation System: How Well Does IDA Allocate Resources to the Neediest and Most Vulnerable Countries? 
United Nations University: Linking Globalization to Poverty 
GLOBALISATION AND CONVERGENCE 
Staying Behind When Husbands Move - Women’s Experiences in India and Bangladesh 
Developing Countries - Globalisation through Overseas Investment

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