Civilising globalization: Is globalization making world poverty worse?

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Essay written by Giancarlo de Vera (c) 2011

Executive Summary
There has been a general argument that endogenous growth has had beneficial effects on the world’s poorest, however as this essay will argue the causal relationship between globalization and poverty has not been clearly specified or explained in the literature largely because of questionable empirical data analysis on both sides of the debate. Thus, this essay will examine the empirical methods used in analysing the data, focusing heavily on cross-country regression analyses, to highlight an epistemological impasse that has been reached in the literature. This essay will then highlight how the empirical findings are not linked effectively with policy conclusions, which has resulted in a policy mix not beneficial to the world’s poor. The paper will then examine the incipient literature that aims to clarify the relationship between the political cultural, and of course, the economic dimensions of globalization, noting the absence of, and opposition to the construction of, a theoretical bridge between micro and macroeconomic analyses of globalization. This essay will then explore how this theoretical bridge can be constructed when we begin to understand that globalization as a dialectical process, whose political responses are conditioned by local factors. Through this understanding, this paper concludes a basis for a more civilized form of globalization emerges, which its absence prior underpinned the difficulties faced in answering the complex question of whether globalization has made world poverty worse.

INTRODUCTION

In order to answer the question whether or not globalization is making world poverty worse, we must first contend with the notion that such a question belies its seeming simplicity. The question masks a whole set of complexities about not only the nature of contemporary poverty and globalization, but also how aspects of globalization interact with the world’s poorest people in the world’s poorest regions. As a result the literature’s measurement of the effects of globalization on world poverty has fueled a fierce debate about the state of progress. With the onslaught of empirical data that either supports or denounces the benefits that globalization has had on world poverty, the direct correlation between globalization, and any effect it has had on the world’s poor, has not been conclusively established in the literature. This has been largely due to the vague and slippery understanding within the literature of what poverty actually is, but more importantly how it can be alleviated. However, there has been a general argument that endogenous growth has had beneficial effects on the world’s poorest, however as this paper will argue the causal relationship between globalization and poverty has not been clearly specified or explained in the literature. This has been a result of questionable empirical data analysis on both sides of the debate, which at times has proved to be contradictory.

Thus, the first part of this esssay will focus on the empirical methods used in analysing the data, focusing heavily on criticisms of cross-country regression analyses, in order to highlight that the literature has reached an epistemological impasse whereby the discourse on globalization and poverty has, and continues to be, discussed in the absence of an unambiguous theoretical outcome leading to the need to test things empirically. However, and moving on to the second part of this essay, this epistemological impasse does not undermine the value of such empirical analysis and so the second part of this essay retreats from this impasse by addressing the more illuminating question of what degree of globalization is desirable for the world’s poorest. From this conjecture, this essay will then highlight how the empirical findings are not linked effectively with policy conclusions, which has resulted in a policy mix that has not been to the benefit of the world’s poorest. Thus, the third part of this essay will examine the incipient literature that aims to clarify the relationship between the political cultural, and of course, the economic dimensions of globalization, noting the absence of, and opposition to the construction of, a theoretical bridge between micro and macroeconomic analyses of globalization. This essay will then explore how this theoretical bridge can be constructed when we begin to understand that globalization is a dialectical process, whose political responses are conditioned by local factors. Thus, in conclusion we can begin to see how this could form the basis of a broad and more encompassing conceptual framework for civilizing globalization, but it is also the very absence of the recognition of globalization as a dialectical process that has ultimately underpinned the difficulties faced in answering the complex question of whether globalization has made world poverty worse.

PART ONE: EMPIRICAL YEARNINGS

In considering the effect of globalization on world poverty, there has been a general argument in favour of endogenous growth theory (see for example, Dollar, 2001), which suggests that the link between globalization and growth can be attributed to aspects of globalization, like trade liberalization, which in turn leads to faster integration and thus growth (Dollar, 2001: 12). It has then been further argued that the growth made possible through globalization has had a beneficial effect on world poverty, and thus accordingly evidence seems to suggest that the more liberalized an economy is, the faster the rate of progress will be. For instance, David Dollar (2005) argues that “…a growing number of countries in Latin America, South Asia, and Sub-Saharan Africa[‘s] political and intellectual leaders began to fundamentally rethink development strategies … shift[ing] from an inward-focused strategy to a more outward-oriented one. (p149). For Dollar (2005) this shift in strategy was most visible in the huge increases in trade integration of developing countries, whereby underdeveloped countries like Mexico and the Philippines saw significant increases in the ratio of trade to national income, while others like China had more than doubled that ratio during the same time (p149-50). Further, it wasn’t simply the volume of trade that had merely increased, but more significant was the change in composition – in fact 80% of today’s merchandise exports has not only originated from developing countries but were also mostly manufactured goods (Dollar, 2001: 150). Thus, Dollar (2001) famously concluded that liberalization of economic policies had been responsible for the vast improvement in the alleviation of world poverty through growth (see also, World Bank, 2002; Berg & Krueger, 2003; amongst others).

However, the causal relationship between trade, growth and poverty, if any, has not been so clearly specified or explained (Jenkins, 2004: 2). While endogenous growth theory does have credibility, it is also quite possible to construct theoretical models in which the poor are by-passed or even increasingly marginalised (for example, Bhagwati & Srinivasan, 2002). Thus, not only is the empirical value of the data supporting the claim that globalization has alleviated world poverty questionable, it also raises concerns about the claim of causation between globalization and world poverty alleviation: Indeed the claims of causation going both ways of the globalization debate, are so confounded that both sides claim the success of the Asian tigers as a result of their own policies; and the failure of many of the African states as the result of the other side’s policies (Aisbett, 2003: 37-8). Hence, we can already begin to appreciate how complex the relationship between globalization and poverty is. To this end, the literature has attempted to reconcile such contradictory claims by using different empirical methods (Reimer, 2002)

By far, the most dominant of these empirical methods have been cross-country comparisons/regression analyses of a large number of countries (for example, Dollar, 1992; Edwards, 1992; Sachs & Warner, 1996; Frenkel & Romer; 1999; amongst many). As Dani Rodrik (2000) has noted, these cross-country regression analyses are somewhat arbitrary in their classification of countries as “globalizers” and “non-globalizers” (in the language of Dollar & Kraay, 2002). Moreover, and perhaps most importantly, cross-country regression analyses also assume the universal impact of globalization from the onset, independent of influential local conditions that could help contextualise the resulting data from these types of analyses (Jenkins, 2004: 3). Thus, at best, all we are getting from the data is a piecemeal understanding of how globalization affects world poverty because of the method’s emphasis on average relationships found in cross-country comparisons (Aisbett, 2003). As such, to base any poverty alleviation claim as an effect/result of globalization can be quite misleading. Lastly, other empirical methods such as partial equilibrium/cost of living analyses, general equilibrium studies and micro-macro syntheses also suffer from its own set of limitations but, in combination, the above types of methods have been successful in providing several points of relative consensus (see Aisbett, 2003: 39-40; Reimer, 2002) unlike cross-country regression analyses, which as previously noted above, has actually provided contradictory information.

PART TWO: THE EPISTEMOLOGICAL IMPASSE

Hence, we are met with an epistemological impasse in the literature: Cross-country regression analyses along with the other empirical methods, provides us with so much data but it is rendered less meaningful to the point that several leading economists believe it should not be used as the basis for any causal conclusions regarding the impact of globalization on the world’s poor (Bhagwati, 2000; Bhagwati & Srinivasan, 2002; Bardham, 2003; Ravillion, 2003). However, this does not mean the value of the data should be brazenly rejected, for denouncement will be neither here nor there! The problems with the literature begin with the fact that there is no unambiguous theoretical outcome and thus everything must be tested empirically (Winters, 2000; Agenor, 2002). The trouble then continues because the observable outcomes – growth, inequality, and poverty rates – are functions of a very large number of both past and present variables, and influences these variables in return (Aisbett, 2003: 42). Thus, the result of these troubles is that in turn it becomes quite difficult to ascertain what conditions, or combination of conditions, were/are responsible for the success or failure of globalization in any time or space. Within this context, the question of whether or not globalization has made world poverty worse starts to retreat from a globalize/not to globalize binary, and enters a more illuminating critical landscape of what and how much to globalize by. Indeed, to what degree of globalization is desirable for the world’s poorest?

This paradigm drastically changes the playing field, as absolutism on either side of the globalization debate gives way to a much needed reframing of the debate as a whole. As Martin Ravillion (2003; see also Kanbur, 2001) puts it:

“According to some observers “such actions are not needed…Growth is sufficient. Period.” (Bhalla, 2002: 206) The basis of this claim is the evidence that poverty reduction has generally come with economic growth. But that misses the point. Those who are saying that growth is not enough are not typically saying that growth does not reduce absolute income poverty, which (as an empirical generalization) is hard to deny. They are saying that combining growth-promoting economic reforms with the right [other] policies … will achieve more rapid poverty reduction than would be possible otherwise” (p752-3, emphasis original).

From the above, we can begin to see how empirical findings and policy conclusions are not being linked effectively. Essentially, the literature has tended to focus on economic analyses at the cost of engaging with social policies, to the extent that “…global economic forces are assigned a determinant role in social change”(Yeates, 2002: 71). This has meant that a core focus on the most optimal policy mix of social and economic reforms, that both maximizes the benefits to the poor and minimizes the negative impacts, is largely absent in the (‘strong’) globalization literature and partially why no claim of causation between globalization and poverty alleviation/aggravation has been conclusively established (Aisbett, 2003: 37-44). Indeed, we are in need of greater micro-level, country-specific additional research to clarify the economic, political and cultural dimensions of globalization and how they interact with each other (Guillen, 2001: 255). Of the incipient literature that attempts to achieve this research aim, the focus thus far been on how local conditions and factors relate to economic growth; and so the discourse is still discussed within economic terms. For instance, it has been noted in this incipient literature that the impact of economic growth and poverty depends on such local conditions like level of income and income distribution, as well as other factors like location, the severity of social exclusion, and exposure to uninsured risk (Ravillion, 2001: 1812-13). While this fledgling literature is indeed a step forward in critically engagement with an optimal mix of economic and social policies, what is missing is a theoretical bridge that brings together the vast, but confusing, macro-level analyses with the incipient literature on the micro-level effects of globalization

PART THREE: GLOBALIZATION AS A DIALECTICAL PROCESS.

However, the construction of this theoretical bridge faces some strong opposition. Buffeted by the wings of global competition, developing countries are increasingly expected to “…pursue social and economic policies which are most attractive to transnational capital and foreign investment” (Yeates, 2002: 72), and as a result governments have tended to stay clear of pro-poor social policies like programmes of redistribution, re-nationalization, or any other form of government interventions that are not considered desirable for the market (ibid). This pressure to conform effectively renders compliance for fear of economic and political measures that will act against countries that seek access to global markets (see for example, Andrews, 1994; Goodman & Pauly, 1993; Mishra, 1999; Stewart, 1994). Thus, for some observers, this “…heralds the decline of social democratic politics and projects upon which the welfare state was built” (Yeates, 2002: 72; see also Beck, 2000; Teeple, 1995). As such, this is just one structure that has been thrown up by globalization, as a way in which globalization can continue to be understood as “naturalistic” or “deterministic” and thus conceived as a top-down force (Yeates, 1999: 389).

While this structure has remained prevalent, the matter is not foreclosed, as ultimately the legitimacy of the structure is only ever maintainable if it continues to have discursive power and effect. Thus conceptually, in order to bypass the epistemological impasse in the globalization literature, “…there is a need to see globalization as a political strategy open to contestation or even failure and as uneven in scope, depth, intensity and impact” (Yeates, 2002: 86). Seeing globalization in this light highlights that the constraints on social policies, such as the need to comply with market liberalization where it serves the market best, are merely ideological and thus absolutely susceptible to political manipulation (Yeates, 1999: 389). Further, seeing globalization in this light also highlights that “the process of globalization is a dialectical one in which ‘local’ events will impact globally and will inform global political responses” (Yeates, 1999: 388, emphasis mine). Thus, the discursive nature of any given structure, in this case a neoliberal one, are highly influenced by local factors. It is at this local level that non-geographically located global forces must “touch down” and be expressed; and while they may face a range of mediating, regulatory and oppositional forces on the ground, these non-geographically located global forces will be “… instrumental in shaping the political management of globalization as the formal policies and discourses of international institutions (Yeates, 1999: 389).

CONCLUSION: GLOBALIZATION, CIVILIZED

This recognition of globalization as a dialectical process informed by local factors is important in two ways: Firstly it tempers the extreme interpretations of globalization, such as the apocalyptic accounts of the prospects for welfare states (Yeates, 1999: 389), that has for so long muddled attempts to bridge micro and macroeconomic descriptions of the globalization phenomenon; and secondly, and more importantly, it reigns into the realm of understanding that global economic forces are contested because they are mediated by states, whose political responses are conditioned by local factors informed by history, institutional arrangements, culture, religion and traditions (Yeates, 1999: 390). Thus, when these two effects frame globalization, the basis for a broad and more encompassing conceptual framework for civilising globalization emerges can be realised. Further, it is this very absence of this framework that has ultimately underpinned the difficulties faced in answering the complex question of whether globalization has made world poverty worse. And whilst there have been suggestions that nation-states will not survive globalization (see for example Wolf, 2001; Mann, 1997; and Hirst, 1995), it does not diminish the conclusion that these global economic forces need to be understood in light of their social impact vis-à-vis their ability to ensure that the poorest participate fully in the opportunities unleashed by globalization. This means, social policy needs to be aware of how it “…now develops in a pluralistic and multi-levelled institutional framework of global governance” (Yeates, 1999: 389) by implementing social reform in tandem with economic reforms. Such a political manuoever, will include the most detrimentally affected by the unbridled growth and inequality that has defined current globalization, as their needs are better represented in the policy cycle through civil society engagement (Deacon et al, 1997). Only once this occurs, can we then be better placed to attribute any effect that globalization has on world poverty, and it is this essays suspicion that the world’s poorest will be benefit immensely from this syncretism.

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