The Impact Of Globalization On The Poor

The Impact of Globalization on the Poor

by

Pranab Bardhan

University of California at Berkeley

Abstract

In this paper we provide an analytical account of the mechanisms through which globalization, in the

sense of increased foreign trade and long-term capital flows, affects the lives of the poor in developing countries

(in their capacity as workers, recipients of public services or users of common property resources). Globalization

can cause many hardships for the poor, but it also opens up opportunities which some countries can utilize and

others do not, largely depending on their domestic political and economic institutions, and the net outcome is

often quite complex and almost always context-dependent, belying the glib pronouncements for or against

globalization made in the opposing camps.

Executive Summary

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Taking globalization in a limited sense of openness to foreign trade and long-term capital flows,

and looking at only absolute poverty, this paper provides a brief analytical account of the various processes

through which globalization affects the lives of the poor in low-income countries. We consider the poor in

their capacity as (a) workers, (b) as recipients of public services, and (c) as users of common property

resources. As workers they are mostly either self employed (on their tiny farms or shops or firms in the

informal sector) or wage-employed. The major constraints the self-employed face are in credit, marketing,

extension services for new technology, infrastructure and government regulations. These often require

substantial domestic policy changes, and foreign traders and investors are not directly to blame (in fact

they may sometimes help in relieving some of the bottlenecks in infrastructure and services and in essential

parts, components and equipment). If these changes are not made and the self-employed poor remain

constrained, then, of course, it is difficult for them to withstand competition from large agri-business or

firms (foreign or domestic).

When small producers are heavily involved in exports (for example, coffee producers of

Uganda, rice growers in Vietnam, garment producers in Bangladesh or Cambodia) the major hurdle they

face is often due to not more globalization but less. As is by now well-known, developed country

protectionism and subsidization of farm and food products and simple manufactures (like textiles and

clothing) severely restrict their export prospects for poor countries.

On the wage-employed, the paper discusses different mechanisms through which the opening of

the economy can affect wages and employment, in some cases positively and in other cases negatively. The

latter cases are particularly important to keep in mind for poor countries, where there is very little effective

social protection available from the state. Rich countries have better social safety nets and some programs

in place helping displaced workers to adjust (like the federal adjustment assistance program in the US).

International organizations that preach the benefits of free trade should take the responsibility of funding

and facilitating such adjustment assistance programs in poor countries that can help workers in coping

with job losses and getting retrained and redeployed.

Until issues of general economic security for poor workers in developing countries are

satisfactorily resolved, globalization is bound to raise anxiety and hostility among workers worried about

their job security. If mass politics in a country is organized, as it usually is, in such a way that the nation-

state is the primary political forum for demanding and getting the necessary redistributive and insurance

functions of a society (rendered more important by the economics of international specialization), to the

extent that nation state is weakened by forces of international economic integration, it is a matter of serious

concern. Much depends, of course, on a society's institutions of conflict management and coordination. It

is not a coincidence that countries that have a better record in building these institutions have coped better

with the dislocations brought about by international trade: the major example is the case of Scandinavian

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countries where in spite of a strong tradition of organized labor movement and worker solidarity over

many decades of the last century, the unions there in general have been in favor of an open economy.

In the case of the poor as recipients of public services (like health and sanitation, education, etc.) the

low quantity and quality of public services that reach the poor is often due to domestic institutional failure,

not largely an external problem. The major effor required here is to trengthen the domestic institutions of

accountability. In the case of the poor as users of common property resources (like, forests, grazing lands,

irrigation water, fishery, etc.), the relationship withtrade and foreign investment liberalization is rather

complex