Globalization and Global Poverty

Globalization and Global Poverty

Introduction

The concepts of globalization and global poverty remain the objects of intense debate, in particular with regard to the relationship between globalization and poverty. While a major promise of globalization is to create an economic and technological integration among countries around the world to end poverty, many believe globalization, especially in the form of foreign direction investment (FDI) and global outsourcing, has significantly contributed to increases in income inequality between more and less-skilled workers. Therefore, the rich get richer and the poor get poorer.

The purpose of this paper is to provide a general overview of globalization and global poverty, and to discuss the dimensions of globalization and poverty. In addition, this paper evaluates the impact of globalization on poverty. The paper is in three substantive parts. The first describes the globalization, two major forms of globalization - FDI and outsourcing, and the effects of globalization. The second explains the poverty and its relationship associate with education, health, social exclusion and insecurity. The final part specifically considers the impact of globalization on global poverty. The relationship between globalization and global poverty is complex. It does not only depend on trade or financial globalization but on the interaction of globalization with the process of social, political and cultural integration; investments in human capital and infrastructure. If managed correctly, globalization can have positive effects to reduce global poverty.

Globalization

Marshall McLuhan, a Canadian philosopher of communication theory, popularizes the concept of "global village" in 1962. Consequently, the word "globalize" appeared and accelerated dramatically in the 1960s due to the revolution in critical technologies include satellite communications and computers. During the Kennedy and Johnson administrations, the United States was very active in foreign policy and relations. President Kennedy developed the Foreign Assistance Act of 1961, which created United States Agency for International Development (USAID) to accept the opportunity to guide the world by allotting government funds for distribution to international organizations and countries in need.

The term "globalization" began to be used more commonly in the 1980s, especially in 1983 when Theodore Levitt, a former professor at the Harvard Business School, released his article "The Globalization of Markets" which defined "globalization" as "the changes in technology and social behaviors that allow multinational companies like Coca-Cola and McDonald's to sell the same products worldwide" (Levitt, 1983). Even though, the economic aspect of globalization is the most commonly referred to, it acts simultaneously with other non-economic factors. Thus, Fred Luthans and Jonathan Doh further explicate Globalization as "the process of social, political, economic, cultural, and technological integration among countries around the world" (Luthans & Doh, 2012).

Globalization is often measured by foreign direct investment (FDI) and outsourcing. FDI occurs when a company in one country purchases ownership of assets in other country. The ownership of assets allows the investing company to control the means of production, the distribution, or other activities associated with goods or services in the foreign country. FDI plays an extraordinary role in globalization which provides investing companies with markets. Over the last three decade, FDI has grown dramatically. According to the United Nations Conference on Trade and Development (UNCTAD 2010), FDI inflows have rocketed from $500 billion in 2007 to more than $1,200 billion in 2010. The top three investing countries are the United States ($351 billion), Germany ($107 billion) and France ($84 billion). Among developing economies, China and India are the largest recipients of foreign investment.

Fred Luthans and Jonathan Doh define outsourcing as "the subcontracting or contracting out of activities to external organizations that had previously been performed by the firm" (Hodgetts & Luthans, 2012). There are three primary types outsourcing: information technology outsourcing (ITO), business process outsourcing (BPO) and knowledge process outsourcing (KPO). In the global outsourcing market, ITO takes the lead at 28% of the total outsourcing market. Among developing economies, India and China are the most popular countries for outsourcing. Although many companies have benefited from outsourcing include reduced costs and the ability to focus on core competencies, developed countries may soon face some serious job losses due to outsourcing. According to United Nation World Economic Situation and Prospects 2012, "More than 80% of world's top 2000 companies operate significant outsourcing operations overseas, and it has been estimated that by 2015, U.S. companies will offshore 3.3 million jobs valued at $135 billion a year" (UN, 2012).

Even though there are concerns about globalization such as potential job loss in developed countries and losing control of economies in developing countries, the positive impact of globalization is undeniable. Globalization has resulted in lower prices, greater availability of goods, better jobs, and access to technology (Hodgetts & Luthans, 2012). Further, globalization is the driving force for grater cross-cultural understanding and integration.

Global Poverty

One-third of world's populations live in poverty, which is defined by the World Bank as subsisting on less than 2 dollars a day. Although poverty has been traditionally measured in monetary terms, it has many other dimensions. According to the World Bank, "Poverty is associated not only with insufficient income or consumption but also with insufficient outcomes with respect to education, health, and nutrition, and with deficient social relations, insecurity, and low self-esteem and powerlessness" (Coudouel, 2002).

The relationship between poverty and education is a vicious circle: poor people are often unable to obtain access to an adequate education, and without an adequate education people are often constrained to hold poorly paid jobs or to be unemployed. Additionally, in under developed and developing counties, the lack of educational resources in schools makes learning exceptionally difficult. Southern and Eastern Africa Consortium