REACTION TO GLOBALIZATION

Globalization and the attached concerns about poverty and inequality have become a focus of discussion in a way that few other topics, except for international terrorism or global warming, have. Most people have a strong opinion on globalization, and all of them express an interest in the well-being of the world's poor. The financial press and influential international officials confidently assert that global free markets expand the horizons for the poor, whereas activist-protesters hold the opposite belief with equal intensity. Yet the strength of people's conviction is often in inverse proportion to the amount of robust factual evidence they have.As is common in contentious public debates, different people mean different things by the same word. Some interpret "globalization" to mean the global reach of communications technology and capital movements, some think of the outsourcing by domestic companies in rich countries, and others see globalization as a byword for corporate capitalism or American cultural and economic hegemony. So it is best to be clear at the outset that we will refer to economic globalization--the expansion of foreign trade and investment. How does this process affect the wages, incomes and access to resources for the poorest people in the world? This question is one of the most important in social science today.The case for free trade rests on the age-old principle of comparative advantage, the idea that countries are better off when they export the things they are best at producing, and import the rest. Most mainstream economists accept the principle, but even they have serious differences of opinion on the balance of potential benefits and actual costs from trade and on the importance of social protection for the poor. Free traders believe that the rising tide of international specialization and investment lifts all boats. Others point out that many poor people lack the capacity to adjust, retool and relocate with changing market conditions. These scholars argue that the benefits of specialization materialize in the long run, over which people and resources are assumed to be fully mobile, whereas the adjustments can cause pain in the short run.The debate among economists is a paragon of civility compared with the one taking place in the streets. Anti-globalizers' central claim is that globalization is making the rich richer and the poor poorer; pro-globalizers assert that it actually helps the poor. But if one looks at the factual evidence, the matter is rather more complicated. On the basis of household survey data collected by different agencies, the World Bank estimates the fraction of the population in developing countries that falls below the $1-a-day poverty line (at 1993 prices)--an admittedly crude but internationally comparable level. By this measure, extreme poverty is declining in the aggregate.The trend is particularly pronounced in East, South and Southeast Asia. Poverty has declined sharply in China, India and Indonesia--countries that have long been characterized by massive rural poverty and that together account for about half the total population of developing countries. Between 1981 and 2001 the percentage of rural people living on less than $1 a day decreased from 79 to 27 percent in China, 63 to 42 percent in India, and 55 to 11 percent in Indonesia.But although the poorest are not, on the whole, getting poorer, no one has yet convincingly demonstrated that improvements in their condition are mainly the result of globalization. In China the poverty trend could instead be attributed to internal factors such as the expansion of infrastructure, the massive 1978 land reforms (in which the Maoera communes were disbanded), changes in grain procurement prices, and the relaxation of restrictions on rural-to-urban migration. In fact, a substantial part of the decline in poverty had already happened by the mid-1980s, before the big strides in foreign trade or investment. Of the more than 400 million Chinese lifted above the international poverty line between 1981 and 2001, three fourths got there by 1987.Similarly, rural poverty reduction in India may be attributable to the spread of the Green Revolution in agriculture, government antipoverty programs and social movements--not the trade liberalization of the 1990s. In Indonesia the Green Revolution, macro-economic policies, stabilization of rice prices and massive investment in rural infrastructure played a substantial role in the large reduction of rural poverty. Of course, globalization, by expanding employment in labor-intensive manufacturing, has helped to pull many Chinese and Indonesians out of poverty since the mid-1980s (though not yet as much in India, for various domestic institutional and policy reasons). But it is only one factor among many accounting for the economic advances of the past 25 years.Those who are dubious of the benefits of globalization point out that poverty has remained stubbornly high in sub-Saharan Africa. Between 1981 and 2001, the fraction of Africans living below the international poverty line increased from 42 to 47 percent. But this deterioration appears to have less to do with globalization than with unstable or failed political regimes. If anything, such instability reduced their extent of globalization, as it scared off many foreign investors and traders. Volatile politics amplifies longer-term factors such as geographic isolation, disease, over dependence on a small number of export products, and the slow spread of the Green Revolution.Global market competition in general rewards people with initiative, skills, information and entrepreneurship in all countries. Poor people everywhere are handicapped by their lack of access to capital and opportunities to learn new skills. Workers in some developing countries--say, Mexico--are losing their jobs in labour-intensive manufacturing to their counterparts in Asia. At the same time, foreign investment has also brought new jobs. Overall, the effect appears to be a net improvement. In Mexico, low-wage poverty is declining in the regions that are more involved in the international economy than others--even controlling for the fact that skilled and enterprising people migrate to those regions, improving incomes there independently of what globalization accomplishes.In poor Asian economies, such as Bangladesh, Vietnam and Cambodia, large numbers of women now have work in garment export factories. Their wages are low by world standards but much higher than they would earn in alternative occupations. Advocates who worry about exploitative sweatshops have to appreciate the relative improvement in these women's conditions and status.Another indication of this relative improvement can be gauged by what happens when such opportunities disappear. In 1993, anticipating a U.S. ban on imports of products made using child labour, the garment industry in Bangladesh dismissed an estimated 50,000 children. UNICEF and local aid groups investigated what happened to them. About 10,000 children went back to school, but the rest ended up in much inferior occupations, including stone breaking and child prostitution. That does not excuse the appalling working conditions in the sweatshops, let alone the cases of forced or unsafe labour, but advocates must recognize the severely limited existing opportunities for the poor and the possible unintended consequences of "fair trade" policies.Integration into the international economy brings not only opportunities but also problems. Even when new jobs are better than the old ones, the transition can be wrenching. Most poor countries provide very little effective social protection to help people who have lost their jobs and not yet found new ones. Moreover, vast numbers of the poor work on their own small farms or for household enterprises. The major constraints they usually face are domestic, such as lack of access to credit, poor infrastructure, venal government officials and insecure land rights. Weak states, unaccountable regimes, lopsided wealth distribution, and inept or corrupt politicians and bureaucrats often combine to block out the opportunities for the poor. Opening markets without relieving these domestic constraints forces people to compete with one hand tied behind their back. The result can be deepened poverty.Conversely, opening the economy to trade and long-term capital flows need not make the poor worse off if appropriate domestic policies and institutions are in place--particularly to help shift production to more marketable goods and help workers enter new jobs.Contrasting case studies of countries make this quite apparent. Although the island economies of Mauritius and Jamaica had similar per capita incomes in the early 1980s, their economic performance since then has diverged dramatically, with the former having better participatory institutions and rule of law and the latter mired in crime and violence. South Korea and the Philippines had similar per capita incomes in the early 1960s, but the Philippines languished in terms of political and economic institutions (especially because power and wealth were concentrated in a few hands), so it remains a developing country, while South Korea has joined the ranks of the developed. Botswana and Angola are two diamond-exporting countries in southern Africa, the former democratic and fast-growing, the latter ravaged by civil war and plunder.The experiences of these and other countries demonstrate that anti-poverty programs need not be blocked by the forces of globalization. There is no "race to the bottom" in which countries must abandon social programs to keep up economically; in fact, social and economic goals can be mutually supportive. Land reform, expansion of credit and services for small producers, retraining and income support for displaced workers, public-works programs for the unemployed, and provision of basic education and health can enhance the productivity of workers and farmers and thereby contribute to a country's global competitiveness. Such programs may require a rethinking of budget priorities in those nations and a more accountable political and administrative framework, but the obstacles are largely domestic. Conversely, closing the economy to international trade does not reduce the power of the relevant vested interests: landlords, politicians and bureaucrats, and the rich who enjoy government subsidies. Thus, globalization is not the main cause of developing countries' problems, contrary to the claim of critics of globalization--just as globalization is often not the main solution to these problems, contrary to the claim of overenthusiastic free traders.