1.2. Lead-in Discussion. Answer the following questions.

1. What impact does globalization have around the word?

2. What might be the pros and cons of globalization for the world’s cultures?

3. Does globalization increase poverty and inequality or can it help to reduce them?

4. Does globalization reduce national sovereignty in economic policy-making?

5. Is globalization positive, negative, or a combination of positive and negative?

FOCUS 2

2.1. Skim the text below and find the definition of hdi.

Explain the author’s point of view that life expectancy in poor countries has increased despite widening income gap between rich and poor countries.

How to Make Globalization Work for the Poor

Globalization offers extensive opportunities for truly worldwide development but it is not progressing evenly. Some countries are becoming integrated into the global economy more quickly than others. Countries that have been able to integrate are seeing faster growth and reduced poverty. Outward-oriented policies brought dynamism and greater prosperity to much of East Asia, transforming it from one of the poorest areas of the world 40 years ago. And as living standards rose, it became possible to make progress on democracy and economic issues such as the environment and word standards.

By contrast, in the 1970s and 1980s when many countries in Latin America and Africa pursued inward-oriented policies, their economies stagnated or declined, poverty increased and high inflation became the norm. In many cases, especially Africa, adverse external developments made the problems worse. As these regions changed their policies, their incomes have begun to rise. An important transformation is underway. Encouraging this trend, not reversing it, is the best course for promoting growth, development and poverty reduction.

The crises in the emerging markets in the 1990s have made it quite evident that the opportunities of globalization do not come without risks – risks from volatile capital movements and the risks of social, economic, and environmental degradation created by poverty. This is not a reason to reverse direction, but for all concerned – in developing countries, in the advanced countries, and of course investors – to embrace policy changes to build strong economies and a stronger world financial system that will produce more rapid growth and ensure that poverty is reduced.

The term has come into common usage since the 1980s, reflecting technological advances that have made it easier and quicker to complete international transactions – both trade and financial flows. It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activity – village markets, urban industries, or financial centers.

Markets promote efficiency through competition and the division of labor – the specialization that allows people and economies to focus on what they do best. Global markets offer greater opportunity for people to tap into more and larger markets around the world. It means that they can have access to more capital flows, technology, cheaper imports, and larger export markets. But markets do not necessarily ensure that the benefits of increased efficiency are shared by all. Countries must be prepared to embrace the policies needed, and in the case of the poorest countries may need the support of the international community as they do so.

During the 20th century, global average per capita income rose strongly, but with considerable variation among countries. It is clear that the income gap between rich and poor countries has been widening for many decades.

But incomes do not tell the whole story; broader measures of welfare that take account of social conditions show that poorer countries have made considerable progress. For instance, some low-income countries, e.g. Sri Lanka, have quite impressive social indicators. If countries are compared using the UN’s Human Development Indicators (HDI), which take education and life expectancy into account, then the picture that emerges is quite different from that suggested by the income data alone.

Indeed the gaps may have narrowed. A striking inference from the study is contrast between what may be termed an “income gap” and an “HDI” gap. The (inflation-adjusted) income levels of today’s poor countries are still well below those of the leading countries in 1870. And the gap in incomes has increased. But judged by their HDIs, today’s poor countries are well ahead of where the leading countries were in 1870. This is largely because medical advances and improved living standards have brought strong increases in life expectancy.

Does increased integration, particularly in the financial sphere make it more difficult for governments to manage economic activity, for instance by limiting governments’ choices of tax rates and tax systems, or their freedom of action on monetary or exchange rate policies? If it is assumed that countries aim to achieve sustainable growth, low inflation and social progress, then the evidence of the past 50 years is that globalization contributes to these objectives in the long term.

In the short-term volatile short-term capital flows can threaten macroeconomic stability. Thus in a word of integrated financial markets, countries will find it increasingly risky to follow policies that do not promote financial stability. This discipline also applies to the private sector, which will find it more difficult to implement wage increases and price markups that would make the country concerned become uncompetitive.

But there is another kind of risk. Sometimes investors – particularly short-term investors – take too sanguine a view of a country’s prospects and capital flows may continue even when economic policies have become too relaxed. This eposes the country to the risk that when perceptions change, there may be a sudden brutal withdrawal of capital from the country.

In short, globalization does not reduce national sovereignty. It does create a strong incentive for governments to pursue sound economic policies. It should create incentives for the private sector to undertake careful analysis of risk. However, short-term investment flows may be excessively volatile.

Efforts to increase the stability of international capital flows are central to the ongoing work on strengthening the international financial architecture. In this regard, some are concerned that globalization leads to the abolition of rules or constraints on business activities. To the contrary – one of the key goals of the work on the international financial architecture is to develop standards and codes that are based on internationally accepted principles that can be implemented in many different national setting.

As globalization has progressed, living conditions (particularly when measured by broader indicators of well being) have improved significantly in virtually all countries. However, the strongest gains have been made by the advanced countries and only some of the developing countries.

No country, lest of all the poorest, can afford to remain isolated from the world economy. Every country should seek to reduce poverty. The international community should endeavor – by strengthening the international financial system, through trade, and through aid – to help the poorest countries integrate into the world economy, grow more rapidly, and reduce poverty. That is the way to ensure all people in all countries have access to the benefits of globalization.

Source: http://www.globalization101.org

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