Globalization and World Poverty

The eradication of poverty and the uplifting of global peoples from positions of destitution has been among the world’s greatest aims of the last 100 years. It has also been its most fragile. From the perspectives of morality, economy, and politics, it never has seemed like there exists a “perfect” route by which to relieve global poverty rates, and disputes abound surrounding the proper implementation of global economic and humanitarian aid, especially in the face of globalization, which has saved many, but disgruntled some others. The consideration of the effects of widespread colonialism by Western countries have been brought increasingly into the spotlight of contemporary debates on economic and political justice across the world.

Globalization does indeed have the potential to work, but when thinking about the world it is easy to forget the many internal factors at play in Less Developed Countries (LDCs) that may keep the people living within their borders in poverty and without much opportunity for relief. I argue in this essay that, while the legacy of colonialism was devastating and its effects are very visible today, it is ultimately the implementation of inclusive, democratic political institutions that guarantee the highest level of success in terms of development and the eradication of poverty. I argue also that because of the necessity of stable political and social environments, the international push for a reduction in poverty by means of foreign aid is not as effective in the long-term as encouraging less corruption and more democratic policies. 

It is an interesting thing to observe that one of the main justifications of historical colonialism was the development of poorer, “less civilized” nations and peoples. This is because, as Jeffry Frieden and others write in World Politics, “Colonial rule was commonly negligent at best, predatory at worst.” The relationship between ruler and colonist was often characterized by forced labor, with harsh punishments accompanying gaps or lapses in productivity, a suppression of local customs and beliefs in favor of the “more civilized” European customary and belief systems, all the way down to genocide and many other egregious violations of human rights. But the question among scholars remains; if most, if not all, colonial societies were oppressive, then why did some countries fare better economically and politically in the post-colonial world than others?

An oft-cited explanation for the diversity of outcomes from colonial rule comes from Daron Acemoglu, James Robinson, and Simon Johnson in their paper “The Colonial Origins of Comparative Development: An Empirical Investigation.” In it, they argue that colonial governments did better or worse based on the viability of colonial settlement and economic development within the colonies, and that these systems of viability could be divided into two types. In the first, the region is more viable, meaning the colonial environment was less hazardous to settlers, meaning a safer, more survivable disease environment with access to potable water and room for settlement. In these environments, Europeans could survive to form corporations and build infrastructure around the resource environment that led to the establishment of European governmental norms and the flow of investment that, upon independence from the colonial rulers, were advantageous towards building up an independent government and society. In the other environment, geographic conditions made it impossible for large numbers of settlers to survive, necessitating more predatory policies to be put in place, forcing resources to be extracted more efficiently.

Significantly, the same institutions that were established in colonially viable areas were not implemented in more dangerous and exploitative places, and those institutions were not conducive to economic growth, giving way to less room for successful political and economic development in the future, according to World Politics. Arguments exist as to the exact importance of geography in determining the outcome of a state, such as the example discussed in class between Zambia and Botswana, but the overarching legacy of colonialism remains the same. 

As time went on, and colonial territories were slowly let go of and granted their independence, the great powers of the world turned towards international trade as the surest and most beneficial route of economic development in the world, abandoning the principles of mercantilism that first drove the grab for colonial possessions. In the modern age, writes Frieden and colleagues, most economists and economic analysts agree that international trade is a positive good, and that trade restriction is a negative thing for a state’s economy. But the benefits of trade are not equal everywhere. Richer countries, like the United States, China, and Russia, can use their overwhelming power to exert much more influence on the developing world than LDCs can ever hope to. As a result, their products, consisting mostly of primary products like agricultural goods, are subject to wide fluctuations in pricing, whether by changes in demand or subsidization by said richer countries. In larger, multinational organizations like the WTO, the World Bank, or the IMF, the interests of rich countries drown out those of LDCs, who are often forced into policies of debt repayment or austerity that benefit rich countries, and don’t address the internal problems that may have caused the debt in the first place. 

In the face of some of the biases of international institutions, many developing countries have turned inwards towards two major types of industrialization. The first is Import-Substituting Industrialization, aka ISI. Countries following this model tend to have been historical makers of primary products who, in search of rapid economic development, adopted ISI to rapidly turn the population of a state towards a manufacturing society, with exports in goods like cars, medical equipment, and technology. Within decades, countries like “India, Brazil, Mexico and Argentina were nearly self-sufficient in manufactured products.” However, these policies were much more vulnerable to financial crises than the other model of industrialization—Export-Oriented Industrialization, or EOI. Through this model, especially used by East Asian countries, primary products like toys, clothing, etc. were targeted aggressively at large markets, like that of the United States. Both models were used to great degrees of success and have allowed developing countries to pull themselves out of poverty and allow them to change into secondary producers. 

Significantly, both models of development have issues that, when combined with other internal problems like a lack of infrastructure and corrupt governmental officials and policies, can greatly hinder the growth of developing nations. I argue that, in the face of these issues, it is vastly more important for a government and members of international institutions to reform its political system and establish infrastructure before a turn can be made toward the development of industrial and manufacturing policies. These failures come in many different ways, all or one of which can play a part in keeping a country undeveloped. One explanation for the corruption seen in LDCs is a phenomenon called the resource curse, whereby a state, abundant in natural resources, fails to see a need to diversify their economy, tax their citizens (thereby reducing government accountability), and the funds from natural resources being embezzled into the pockets of the ruling class. The legacy of the colonial systems, which, I argue, are not as influential in keeping poor countries poor, must also be considered, with hollowed out political institutions providing an easy method by which countries can become corrupt.

Despite this, Daron Acemoglu and James Robinson, the same authors of the development study examined in class and in the textbook, wrote a vastly influential book entitled “Why Nations Fail,” which, in its first chapter, examines the vast differences in outcome that are to be witnessed in identical geographical areas, but under different governmental structures. The authors examine the neighboring towns of Nogales, Arizona, in the United States, and Nogales, Sonora, in Mexico. Like the example of Zambia and Botswana, “Los dos Nogales” mirror each other geographically very closely—so closely, in fact, that the only thing separating them is the border between the two countries. Despite this, Nogales, Arizona is much better off than its Mexican counterpart. The difference? The residents of Nogales, Arizona have access to American political and economic institutions, which grant them access to education, free choice of occupation, and access to the democratic process. The power of these differences is so significant, write the authors, that the residents of the two countries “live in a different world shaped by different institutions.” It is clear through this example that the most important thing for developing countries to have to ensure the success and security for their constituents are open, free, and fair political institutions and equitable economic institutions. 

It is for this reason that the global focus should not be so much on trade or aid but on the fight against corruption. The extent of this problem, in combination with the relative inefficacy of aid and humanitarian programs, is best observed in African nations. The problem of corruption is so pervasive in these states that it has become to academics “a standard mode of transacting political and financial business.” What’s more, the issue of corruption is also very hard to define, and when government officials commit crimes, the line between, say, fraud, and full-blown corruption is very blurry. In these cases, aid and investment money is liable to be embezzled into the pockets of powerful political figures, such as when in 1978 “mining firm Gecamines deposited its earning directly into [Mobutu Sese Seko’s] presidential account.” In this case and others like it, the money was redirected from the public good to the pockets of the leaders of corrupt countries, leading to a vicious cycle: aid and investment money would be given to a country, which would be embezzled by powerful people within the country and would not be given to causes such as infrastructure development, which would close off access to economic opportunities, which would keep the people of the country poor. It is possible even that globalization has been a factor that has contributed to the continued existence of corruption in Africa. What, then, is the use of aid money, trade money, or investment funds? I mentioned earlier the bias of international financial institutions like the IMF and the World Bank, which, if and when loans to LDCs go bad, encourage unfair policies of austerity that sometimes outright punish the people in said LDCs. Even if these loans are provided, the money is at risk of being embezzled as seen in 2018, when 18 people were indicted in connection to a $2 billion dollar loan scheme that embezzled investment funds from major international banks. These policies only exacerbate the issue of global poverty. For if the people of a country do not see the benefits of money flowing in from trade or aid, and it instead goes into the pockets of the rich and powerful, then those people are robbed of the benefits of development, and it is only a reform of the political and economic institutions established inside a state that can improve the standards of living of the people living within it.