Poverty and Globalization -
The Indian Scenario in the Back Drop

By Fr Freddy D'Souza
Deputy Exucutive Director, Caritas India

Globalization is an umbrella term for a complex series of economic, social, technological, cultural and political changes seen as increasing interdependence, integration and interaction between people and companies in disparate location (Wikipedia). The phenomenon has been noted since the 1980 in the context of sociological study on a worldwide scale. The concept has been referred to as “The Shrinking of time and space”. As a result of this phenomenon, people around the globe are more connected to each other than ever before. Information and money flow more quickly than ever. Goods and services produced in one part of the world are increasingly available in all parts of the world. International travel is more frequent. International communication is commonplace.

Globalization will always have cheerleaders who are blind to the destruction globalization can cause. And it will always have strident opponents blind to the way globalization gives some people their first opportunity to fulfill basic aspirations. Although the definitions of globalization depends on the definers stand “for or against”, all appear to agree that globalization has economic, political, cultural and technological aspects that may be closely intertwined. Just as the Depression, the Cold War Era, the Space Age, and the Roaring 20's are used to describe particular periods of history; globalization describes the political, economic and cultural atmosphere of today. International Monetary Fund (IMF) defines globalization as the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services, free international capital flows, and more rapid and widespread diffusion of technology. "The Era of Globalization" is fast becoming the preferred term for describing the current times.

While some people think of globalization as primarily a synonym for global business, it is much more than that. The same forces that allow businesses to operate as if national borders did not exist also allow social activists, labor organizers, journalists, academics, and many others to work on a global stage.

In his book The Lexus and the Olive Tree, Thomas Friedman wrote: "Globalization is not a phenomenon. It is not just some passing trend. Today it is an overarching international system shaping the domestic politics and foreign relations of virtually every country, and we need to understand it as such."

As thoughtful people concerned about world affairs, our job is to pick up "globalization," examine it from all sides, dissect it, figure out what makes it tick, and then nurture and promote the good parts and mitigate or slow down the bad parts.

Globalization can bring tremendous opportunities and benefits. But it has also dangers and an ugly dark side. Globalization is much like fire. Fire itself is neither good nor bad. Used properly, it can cook food, sterilize equipment, form iron, and heat our homes. Used carelessly, fire can destroy lives, towns and forests in an instant. As Friedman says: "Globalization can be incredibly empowering and incredibly coercive. It can democratize opportunity and democratize panic. It makes the whales bigger and the minnows stronger. It leaves you behind faster and faster, and it catches up to you faster and faster. While it is homogenizing cultures, it is also enabling people to share their unique individuality farther and wider."

Different dimensions of globalization

Globalization has economic, political and cultural dimensions, all of which can have a social impact. Economic globalization can be simply defined as a process of rapid economic integration between countries. It has been driven by the increasing liberalization of international trade and foreign direct investment, and by freer capital flows. The process manifests itself mainly through an intensification of activities in the following areas:
• international trade in goods and services;
• capital flows (FDI and short-term flows);
• the role of multinational enterprises (MNE);
• the reorganization of production networks on an international scale;
• the adoption of new technology, including information technology.

The different dimensions of the process are interrelated and mutually reinforcing. Thus, international information flows that enable real-time transactions not only facilitate trade and investment, but also make it possible for enterprises to stay informed of international prices for the inputs they require in order to obtain similar price levels from their national providers. Although no trade may actually take place, there will be an impact on local enterprises.

Globalization in other words is the process of integrating various economics of the world without creating any hindrances in the free flow of goods and services, technology, capital and even labour or human capital.

The term globalization has therefore four parameters.
1. Reduction of trade barriers to permit free flow of goods and services among nation states.
2. Creation of environment in which free flow of capital cam take place among nation states.
3. Creation of environment permitting free flow of technology.
4. Creation of environment in which free movement of labour can take place in different countries of the world.

The advocates of globalization more especially from the developed countries limit the definition of globalization to only 3 components, unrestricted trade flows, unrestricted capital flows and technologies flows. Economists from the developing countries believe that this definition is incomplete as the ultimate aim of globalization is to look up on the world as a global village. Thus the 4th component unrestricted movement of labour cannot be left out. However the entire issue debated at the World Bank, IMF and World Trade Organization blacks out labour flows as an essential component of globalization.

Advocacy of globalization

Advocates of globalization support their defense on the following grounds.
1. Globalization will promote direct foreign investment.
2. Globalization enables developing countries to make use of technology developed by advanced countries without investments in research and development.
3. Globalization widens the access of developing countries to export their produce to developed counties. Simultaneously it enables the consumers to obtain quality consumer goods at relatively lower prices.
4. Globalization introduces faster diffusion of knowledge and thus enables developing countries to raise their level of production and productivity.
5. Globalization reduces costs of transport and communication; it also reduces tariffs and thus enlarges share of foreign trade as a percentage of GDP.

Globalization and its impact on India

Trade: One of the principle aims of globalization is to expand trade in goods and services. The World Commission on the Social Dimension of Globalization (WCSDG) in this contest states “The trade expansion did not occur uniformly across all countries, with the industrialized and a group of 12 developing countries accounting for the lion’s share”.

During the 12 year period (1992 – 2002) India’s merchandise exports increased at the rate of 8.8% per annum (from $ 17.97 billion to $ 49.25 billion). India’s performance in the service sector exports was relatively much better. Service exports increased from $ 4.6 billion in 1990 to $ 24.5 billion in 2002, indicating annual average growth rate of 15%.

Increase of imports for greater than increase of exports

Globalizers advocated the acceptance of the new strategy of liberalization and globalization on the plea that India will be able to access foreign market more effectively. It is of interest to examine this claim using the following data. Export rose from 7.3% of GDP in 1991-92 to 9.1% of GDP 1995-96 there after they experienced a gradual decline until it was 8.4% of GDP. But if we examine the trend of imports, it increased from 8.3% GDP in 1991-92 to 12.3% in 1995 – 96. Even there after, when exports fell in 1996 – 97 and 1997 – 98, import continued its forward march. During 2000-2001, when exports increased in to a level of 9.8% of GDP, imports jumped to a level of 13% of GDP. As a consequence, India’s trade deficit during 1996-1997 to 2000-2001 ranged from 3.1 % to 4 % of GDP. The situation has slightly improved during 2001- 2002 and 2000 - 2003 and trade deficit has come down to 2.6% and 2.5% of GDP respectively. This underlines the reality that foreigners have been able to penetrate the Indian market more effectively than the Indians have been able to access foreign markets.

However, India's performance in achieving a net positive balance in invisibles has helped it to wipe out the large trade deficit. During 2002-03, net invisibles showed a positive balance of 3.3 percent of GDP which not only wiped out the trade balance deficit, but created a positive balance in current account to the extent of 0.8 percent of GDP. A major contributor to the present situation is a massive inflow of foreign exchange from the software service provided by India as a consequence of sharp increase in exports of IT-enabled and business process outsourcing (BPO) services.

Foreign Investment Flows

It is often claimed that globalization leads to a greater flow of foreign investment, which should help to increase the productive capacity of the recipient economy. It is worthwhile considering this for India.

Foreign investment takes two forms - foreign direct investment (FDI) and foreign portfolio investment FPI. Foreign direct investment helps to increase the productive capacity of the economy, while foreign portfolio investment is of a more speculative nature and is thus very volatile. A careful perusal of the data of foreign investment given in the table reveals that during the period 1990-91 and 1994-95, the share of FDI in total investment inflow was only 24.2 percent and that of FPI was 75.8 percent. In other words, only a quarter of the total foreign investment was available for increasing productive capacity while about three quarters was very volatile.

FDI Inflows and Outflows

Whereas the Government of India has been initiating measures to attract FDI inflows into India, certain Indian firms have been undertaking investment projects in other countries. This has resulted in FDI outflows. Net FDI inflow is, therefore, the difference been FDI inflows minus FDI outflows. The table below provides data about India and China from 1992 to 2003 as given by the World Investment Report (2004). During 1992-97 and even upto 1999, FDI outflows from India formed a very small fraction of FDI inflow. However, since 2000, there has been increase in FDI outflows. The peak outflow took place in 2001 of the order of US$ 1.4 billion (41% of the FDI inflow). Thereafter, there has a slowdown in FDI outflows.

Regarding China, the situation has been very different. But for the year 2001, in which FDI outflow was of the order of $6.88 billion (14.7% of FDI inflow), the Chinese kept the outflow at a relatively lower level than India.

The consequence of the larger FDI outflows after 2000 has been a sizeable reduction in net FDI inflows. Ultimately, it is the net FDI inflow which increases the rate of investment and the productivity of the Indian economy. Moreover, the target of reaching $ 10 billion FDI inflow becomes even more difficult in view of the FDI outflows.

Inequality and Poverty

ILO Report (2004) in a very forthright manner states: "Income inequality has increased in some industrialized countries, reflected in an increase in the share of capital in national income as well as an increase in wage inequality between mid-1980s and the mid-1990s." (ILO, 2004, p.42). In United States, the chief flag bearer of globalization, the share of top 1 percent of income earners reached 17 percent of gross income in 2000, a level last observed in the 1920s. This increased concentration of wealth has been the prime factor in the rise of inequality. Consequently, the share of the bottom 10 percent of wage earners has declined.

The widening inequality has been the result of the very high compensation (salaries and perks) paid by MNEs, the development of new businesses with a global reach and global "superstardoms". The public perception is that globalization has resulted in high degree of concentration of wealth.

The ILO Report (2004) identifying the people who have benefited most states: "As in the case of countries, the people who benefited most from globalization include those associated (as shareholders, managers, workers or sub-contractors) with successful MNE’s and with internationally competitive national enterprises. More generally, those endowed with capital and other assets, entrepreneurial ability and education and skills are in increasing demand have all benefited." (ILO, WCSDG, p.46). "Conversely, the adversely affected include those associated with uncompetitive enterprises that have been unable to survive in the face of trade liberalization or the entry of foreign firms. These enterprises include those previously highly protected by trade barriers, subsidized state enterprises, and small and medium sized enterprises that had a limited capacity to adjust to a rapid liberalization of the economy." (ILO, WCSDG, 2004, p. 46)

Cheap imports lead to the closure of a large number of vulnerable small enterprises; they have adversely affected the informal economy as well as agriculture. The upshot is that as a consequence of globalization, the poor, the assetless and unskilled workers were the losers, and the rich endowed with capital and human capabilities have been the winners. This is particularly true of employment in firms acting as sub-contractors to Multinational Corporations (MNCs) even in labour intensive industries such as garments and footwear. To protect fundamental rights of the workers, international action is necessary.

The Situation in India on growing inequalities

There is no doubt that poverty has declined from 36.0 percent in 1993-94 to 26.1 percent in 1999-2000, though at a relatively decreasing rate in the post-liberalization period, there is unanimity among economists about a rise in inequality or relative deprivation. The estimates of growth rates in per capita expenditure for the period from 1993-94 to 1999-00 point to a significant increase in rural-urban inequalities at the all-India level, as also in most of the states. There has been a significant increase in differences in wage/salary incomes between those in rural and urban sectors. (Deaton and Dreze, 2003).

Regarding social deprivation, it is worthwhile to note that decline in poverty among scheduled castes (SCs) and scheduled tribes (STs) has been considerably slower than other categories during 1993-94 and 1999-00. In the year 1999-00, the proportion of population below poverty line among SCs and STs were 36 and 44 percent as against 16 percent in the case of other categories. The natural rights of the tribals on forest land and forests are being progressively appropriated by Indian corporations and MNCs, thus causing serious disadvantage to both income and employment of tribals. As a result of globalization and liberalization, a systematic process of exploitation of tribal communities has been unleashed, for which the reform process provides legitimacy.

Slowing down of the process of Poverty Reduction

Based on the consumer expenditure data of the 55th Round of National Sample Survey, poverty ratio on 30-day recall basis has been calculated for 1999 -2000 as 27.1 percent for the rural areas, 23.6 percent in urban areas and 26.1 percent for the country as a whole. Gaurav Datt, Valerie Kozel and Martin Ravallion of the World Bank in their paper "A model based assessment of India's" progress in reducing poverty in 1990's suggest that the key determinants of the rate of poverty reduction at the state level are agricultural yields, growth of non-farm sector (depending on the states initial conditions), development spending and inflation. The model has given the following findings:

1. The rate of average annual poverty reduction in 1990's was slightly lower than in the 1980's.
2. National: 0.8 percentage points against 1 percentage points.
3. Rural : 0.9 percentage against 0.7 percentage points
4. Poverty reduction in the 1990s is also slower than expected from historical (pre-reform) national elasticity of poverty with respect to mean consumption growth, that is 0.8 percentage points in the 1990s as against 1.6 percentage points in the earlier period.

The Darker Side

Every hour more than 1,200 children die away from the glare of media attention. This is equivalent to three tsunamis a month, every month, hitting the world’s most vulnerable citizens—its children. The causes of death will vary, but the overwhelming majority can be traced to a single pathology: poverty. Unlike the tsunami, that pathology is preventable.

With today’s technology, financial resources and accumulated knowledge, the world has the capacity to overcome extreme deprivation. Yet as an international community we allow poverty to destroy lives on a scale that dwarfs the impact of the tsunami. Six years ago, at the start of the new millennium, the world’s governments united to make a remarkable promise to the victims of global poverty. Meeting at the United Nations, they signed the Millennium Declaration—a solemn pledge “to free our fellow men, women and children from the abject and dehumanizing conditions of extreme poverty”.

Rich country trade policies continue to deny poor countries and poor people a fair share of global prosperity—and they fly in the face of the Millennium Declaration. More than aid, trade has the potential to increase the share of the world’s poorest countries and people in global prosperity. Limiting that potential through unfair trade policies is inconsistent with a commitment to the MDGs. More than that, it is unjust and hypocritical.

The third pillar is security. Violent conflicts blight the lives of hundreds of millions of people. It is a source of systematic violations of human rights and a barrier to progress towards the MDGs. The nature of conflict has changed, and new threats to collective security have emerged. In an increasingly interconnected world the threats posed by a failure to prevent conflict, or to seize opportunities for peace, inevitably cross national borders.More effective international cooperation could help to remove the barrier to MDG progress created by violent conflict, creating the conditions for accelerated human development and real security.

Debates about trends in global income distribution continue to rage. Less open to debate is the sheer scale of inequality. The world’s richest 500 individuals have a combined income greater than that of the poorest 416 million. Beyond these extremes, the 2.5 billion people living on less than $2 a day—40% of the world’s population—account for 5% of global income. The richest 10%, almost all of whom live in high-income countries, account for 54%.

Average income is three times higher in high inequality and middle-income Brazil than in low-inequality and low-income Viet Nam. Yet the incomes of the poorest 10% in Brazil are lower than those of the poorest 10% in Viet Nam. High levels of income inequality are bad for growth, and they weaken the rate at which growth is converted into poverty reduction: they reduce the size of the economic pie and the size of the slice captured by the poor.

International trade has been one of the most powerful motors driving globalization. Trade patterns have changed. There has been a sustained increase in the share of developing countries in world manufacturing exports—and some countries are closing the technology gap. However, structural inequalities have persisted and in some cases widened. Sub-Saharan Africa has become increasingly marginalized. Today, the region, with 689 million people, accounts for a smaller share of world exports than Belgium, with 10 million people. If Sub-Saharan Africa enjoyed the same share of world exports as in 1980, the foreign exchange gain would represent about eight times the aid it received in 2003. Much of Latin America is also falling behind. In trade, as in other areas, claims that global integration is driving a convergence of rich and poor countries are overstated. From a human development perspective trade is a means to development, not an end in itself.

Export success has not always enhanced human welfare on a broad front. The evidence suggests that more attention needs to be paid to the terms on which countries integrate into world markets. Fairer trade rules would help, especially when it comes to market access. In most forms of taxation a simple principle of graduation applies: the more you earn, the more you pay. Rich country trade policies flip this principle on its head. The world’s highest trade barriers are erected against some of its poorest countries: on average the trade barriers faced by developing countries exporting to rich countries are three to four times higher than those faced by rich countries when they trade with each other.

Agriculture is a special concern. Two-thirds of all people surviving on less than $1 a day, live and work in rural areas. The markets in which they operate, their livelihoods and their prospects for escaping poverty are directly affected by the rules governing agricultural trade. The basic problem to be addressed in the WTO negotiations on agriculture can be summarized in three words: rich country subsidies. In the last round of world trade negotiations rich countries promised to cut agricultural subsidies. To make matters worse, rich countries’ subsidies are destroying the markets on which Small holders in poor countries depend, driving down the prices they receive and denying them a fair share in the benefits of world trade. Cotton farmers in Burkina Faso are competing against US cotton producers who receive more than $4 billion a year in subsidies—a sum that exceeds the total national income of Burkina Faso.

The current WTO regime outlaws many of the policies that helped East Asian countries make rapid advances. WTO rules on intellectual property present a twin threat: they raise the cost of technology transfer and, potentially, increase the prices of medicines, posing risks for the public health of the poor. In the WTO negotiations on services rich countries have sought to create investment opportunities for companies in banking and insurance while limiting opportunities for poor countries to export in an area of obvious advantage: temporary transfers of labour. It is estimated that a small increase in flows of skilled and unskilled labour could generate more than $150 billion annually—a far greater gain than from liberalization in other areas.

Effect in the Indian villages and agriculture

The emerging trend towards urbanization in a more spatially dispersed pattern in the Indian context results in reduction of labour force in agriculture and contributes less to national income and a corresponding increase in the non-farm employment in rural and urban areas (Subramaniya, 2003). Globalization resulted in the neglect of agriculture that adversely affected the vulnerable classes of rural society in their employment The small and marginal farmers are affected as there is a reduction in the fertilizer and chemical subsidies and in the budget for poverty alleviation programmes as well as shift of area under food production to export oriented commercial crops (Buggi et al., 2001). The disintegration of rural economy brought about by globalization lead to the disintegration of village communities, their society, culture and religious aspects. conditions, income and consumption pattern, their education and health status.

74 percent of India's population lives in villages. Their livelihood mainly depends on agriculture and related activities. The Indian agrarian structure is dominated by 90 per cent of small and marginal farmers. The extent of landholding is associated with caste and social status. The small and marginal farmers and agricultural labourers constitute the vast majority of rural society. Most of the food crops are converted into cash crops. Sugar cane farmers are getting advance loan from banks and MNCs. They used to supply hybrid seedlings, fertilizers and highly advanced equipments. This equipment utility reduced the human labour force. Hence the rural people are shifting from place to place for want of labour for their livelihood. Natural manure is replaced by synthetic fertilizers. As there is a shift from food crops to export crops, the prices of food items went on high, and the poor people couldn't buy from their meager income. Similar trend continued for clothing, housing, transportation, health etc. So people were forced to consume less of even basic necessities.

Double Standards of Developed Countries

Developed countries demand so many concessions and reduction of tariffs from developing countries, but are they encouraging free flow of trade, capital and technology across states; or are they using globalization to their advantage?

Stiglitz exposes the hypocrisy of Western countries: "The Western countries have pushed poor countries to eliminate trade barriers, but kept up their own barriers, preventing developing countries from exporting their agricultural products and so depriving them of desperately needed export income. The United States was, of course, one of the prime culprits.... It was not just that more advanced industrial countries declined to open up their markets to the goods of developing countries - for instance, keeping their quotas on a multitude of goods from textiles to sugar- while insisting that those countries open up their markets to the goods of the wealthier countries; it was not just that the more advanced industrial countries continued to subsidize agriculture, making it difficult for the developing countries to compete, while insisting that; developing countries eliminate their subsidies on industrial goods). Looking at the "terms of trade" -the prices which developed and less developed countries get for the products they produce-after the last trade agreement in 1995, the net effect was to lower the price's of some of the poorest countries in the world received relative to what they paid for their imports. The result was that some of the poorest countries in the world were actually made worse off. (Stiglitz, 2002b, pp. 6-7)

The large number of suicides committed by farmers in India was the direct result of the double standards adopted by the developed countries to sell their agricultural products like cotton in world markets at relatively much lower prices, thereby eliminating Indian cotton growers to export.

Feminization of labour in low wage jobs

The forces of globalization have resulted in an increase of women's employment into low paid jobs, particularly in Asia. Guy Standing has drawn pointed attention to the fact that the decade spanning the late 1980s and 1990s is one of feminization of flexible labour in industries where profit margins are protected by reducing labour costs, extending hours and decreasing the number of formal production workers (Standing, 1999). Since majority of women are working in the informal sector, they are most affected by the forces of free trade and are driven into low-end jobs. This can be seen in export-oriented low technology high- labour based industries, specially promoted in export processing zones (EPZs) like garments, shoes and electronics. Another category of degraded labour is the home-based labour with a rapidly growing share of females. Employers prefer to undertake contracts with home-based workers because they pay very low remuneration for the work done by them. By exploiting unorganized home-based workers, the employers are able to reduce their costs to the minimum. Thus, unskilled or low-skilled home-based workers, majority of whom are women, actually subsidize capitalist growth by providing infrastructure, tools and equipment. Feminization of workforce has enabled the capitalist class to increase its share in value-added, while paying workers below minimum wage. The unfair treatment of women labour which has been acerbated by globalization calls for remedial action.

Goal of full employment and decent work sidelined under Globalization
ILO has been pleading for the "promotion of opportunities for men and women to obtain decent and productive work, in conditions of freedom, equality, security and human dignity." The goal of decent work can be achieved by promoting growth along with the objective of full employment. The increasing casualization and feminization of labour under the slogan of globalization has led to indecent work and the process of proletarianization seems to be legitimized under globalization. ILO rejects the two step strategy of "first job creation and then to decent work." It rejects on the basis of ethical principles the view that "Bad jobs and bad wages are better than no jobs." Stiglitz in a very forthright and forceful manner writes about the emergence of indecent work under globalization. "We must speak out more loudly against policies which work against the interests of the people”.

Fair globalization and the need for policy framework

Outlining the objectives of globalization, ILO Report states: "Our primary concerns are that globalization should benefit all countries and should raise the welfare of all people throughout the world. This implies that it should raise the rate of economic growth in poor countries and reduce world poverty, and that it should not increase inequalities or undermine socio-economic security within countries". (WCSDG, 2004, p.35) In that sense, the world should move towards more “humane globalization”.

This is a realizable vision. The resources exist to overcome the most pressing problems of poverty, disease and education. Mahatma Gandhi put it very simply: "There is enough in the world for everybody's need, but there cannot be enough for everybody's greed." End.

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