Globalization and Its Effect on Poverty
Globalization has helped raise the standard of living for many people worldwide. It has also, however, driven much deeper into poverty. Small businesses and third-world countries cannot update their technology as often as their larger, wealthier counterparts. Unable to compete with multinational firms and wealthy nations, small businesses and third-world countries and forced to do business locally, never growing and reaching their full potential.
Technological advances are made daily throughout the world. However, it is expensive to make and transport these advances globally rapidly. This high production cost causes the consumer’s price to be unnecessarily high. Today, many countries in the world cannot afford to pay such a high price for the latest technology, and by the time they can afford to pay, newer, more advanced technology exists. The democratisation of technology benefits mainly the wealthier countries.
Technological advances benefit not only wealthy countries but also wealthier companies. Technological advancements allow countries and their companies worldwide publicity when they are successful. Because investors can easily invest on the Internet, on the telephone, and through facsimile machines, companies’ profits have significantly increased. Currency traders worldwide have also been able to update exchange rates and notify the public of the updates more rapidly. This has led to more desire to finalise deals because companies can be sure that they are receiving competitive exchange rates. Swissair, an airline based in Switzerland, even moved its entire accounting division from Switzerland to India simply because the accountants in India are among the best in the world. They could do this because all of the information from their new office halfway around the world was transmitted using technologically advanced devices. Because labour is cheaper and the workers are more skilled in India, the company benefited in two ways. For the same reasons as in India, Thailand has moved from being primarily a rice-producing nation to the world’s second-largest producer of pickups and trucks.
As far back as the invention of the telephone, the countries with the best economies were the most technologically advanced. The invention of the telephone by Alexander Graham Bell in 1876 allowed information to be sent around the world considerably more rapidly than ever before. Before the invention of the telephone, it might have taken days, weeks, or even months to courier documents worldwide. Today, however, Electronics, a company in Delhi, India, takes doctors’ dictation from a toll-free number in the United States, transcribes the recordings, and sends the text back to a U.S. HMO. With the invention of the telephone and its spread to the world’s wealthier countries also came increased growth in their economies.
The global marketplace is based on a winner take all system. The wealthy, “winning” companies and countries can sell their goods and services to a global market. In contrast, the “losing” poorer countries and businesses are limited to their local markets. Massive global markets also create enormous incentives for businesses and nations to market products internationally. The National Basketball Association, for example, 1998 sold more than five hundred million dollars in licensed merchandise worldwide. The NBA owes this huge source of income to advances in technology. However, basketball organisations in other countries that cannot afford to market their organisations globally are forced to sell licensed merchandise only in their countries, substantially lowering potential profits. In the past fifty years, global capitalism has raised the living standards of more people higher and faster than in the previous five hundred years. Increasing the number of “haves” worldwide has also dramatically increased the number of “have-nots”. It has also driven the poor further into poverty, making it more and more unlikely that they will ever recover.
Globalization creates tensions between nations and companies, between those who have the skills and resources to compete in the global market and those who do not. When the Internet was first introduced to the public, the wealthier countries in the world could incorporate it into their economies before the poorer countries. The wealthier countries had already established a stronghold on the Internet by the time the poorer countries could buy computers and pay for Internet access. According to one prediction, “by 2001, two hundred sixty-eight million computers will be connected”. However, the great majority will be purchased and connected to the Internet by people in wealthy countries. Wealthy countries control most world-renowned businesses and services on the Internet. They also control the registration of domain names on the Internet, forcing developing countries to pay wealthy countries for the rights to names to create e-companies. The Internet “instantly link[ed] retailers to suppliers”. Through digitisation, voices, sounds, pictures, and documents can be turned into computer bits transferable on the Internet. Federal Reserve Chairman Alan Greenspan even “linked . . . upturn[s] in productivity to massive investments . . . in computers and other technology (Workers). By the time the poorer countries were able to benefit from the use of the Internet, the wealthy countries had only increased their wealth. Technological advances in transportation have also benefited wealthy countries more than emerging countries. As the use of automobiles and aeroplanes spread throughout the world, the poorer countries were forced to use standard horses and buggies and ships because the price of automobiles and aeroplanes was too high.
This gave the wealthier countries an enormous advantage because a product that previously required months to ship by sea would take a matter of days to reach its destination by air and automobile. Businesses in the wealthier countries could also send their executives around the world to meet with executives from other countries and close their deals while the executives of businesses from poorer countries were still on their boats travelling. If a country does not update its transportation industries, international companies will not want to build warehouses and distribution centres within that country.
This, in turn, creates high unemployment rates, driving people further and further into poverty. According to Moore’s law, computing power doubles every eighteen to twenty-four months. This means that only countries that can afford to pay millions every year and a half will have the newest technology. The newest technology that many countries can afford is sometimes outdated by years, driving their economies into poverty because they cannot compete with wealthy countries. For the wealthier countries, however, an increase in computing speed leads to faster transfer of documents. It also speeds up production because faster machines that are capable of handling more data are used in factories in wealthier countries. Compression technology has also allowed for lower costs in wealthier countries because disks can hold more information. The amount of data that can be stored on a square inch of the disk has increased by sixty percent every year since 1991. Along with compression technology comes miniaturisation. Because the size of the chips has decreased, so have the size and weight of computers and phones. Since less material is used to make the product, the cost is lower, allowing for more profit.
Advances in computer technology have greatly benefited wealthy countries and hindered developing countries’ economies. Many foreign companies and countries are using the poverty of other countries to their own advantage. Most foreign firms pay their workers more than the country’s national average. However, what the workers are often paid is considerably lower than the average wage for the company’s home country. Foreign companies are also creating jobs faster than their domestic counterparts, leading to higher poverty levels in the country. The company’s profits are not invested back into the country where the company is located but instead sent back to the home country. Most foreign businesses also spend heavily on research and development in the country where they are located; however, the benefits of the new, more advanced products are reaped in the home country. Foreign firms also export more than domestic ones, taking with the products, profit and future investment in the country.
Many countries’ economies are growing and expanding at the expense of smaller, poorer countries. Influential countries and businesses are not merely the most technologically advanced. They are also the ones who are constantly seeking to upgrade and improve their existing technology. However, the world’s poorer countries cannot afford to upgrade their technology as often. Nevertheless, countries and businesses must constantly work to increase the speed of transactions, investment, production, and government. They must also learn to operate their existing software and networks at their full potential before it is updated to maximise efficiency. Low productivity within a country or a company leads to a low living standard and higher poverty levels. Low productivity within a nation or a company also causes it to be less competitive in the global marketplace. If a company or a nation cannot afford to update their goods and technologies constantly, then it will not be able to compete globally. Foreign competitors set the standard for the quality and production schedules of goods. Again, if a company cannot update its factories, it will not be competitive and will have more poverty. The democratisation of finance has helped globalization flourish. Wealthy countries, however, are reaping the majority of the benefits. While there is more money available for companies to get started, the majority of the profits of the new companies are being invested in wealthy countries. Investments in the United States have gone from one hundred million to nearly three trillion dollars.
While the economy of the United States has developed into one of the most potent, most stable in the world, many third-world countries have been forced deeper into poverty as a result. A contributing factor to the success of globalization has been the creation of alliances and economic integration. However, the countries that benefit the most from these alliances are traditionally wealthier. Free trade, customs unions, common markets, and economic unions are essential to the spread of globalization; however, they impede the growth of third-world countries not included in the group.
Globalization, while essential to the success of the global marketplace, has a darker, less visible side. It benefits some third-world countries, most wealthy countries, and large, well-known multinational companies. It, however, causes the economies of many countries and smaller companies to collapse. To promote competition worldwide, globalization has rendered it impossible for some locally successful companies to transfer their success to the global stage. It has also blocked investments and growth of some poorer, third-world countries. Globalization decreases poverty in some countries while simultaneously increasing it in others.