Tuesday, January 20, 2015

PF Feb 2015 - Economic Globalization - Pro Position


Resolved: On balance, economic globalization benefits worldwide poverty reduction


Economic World

As we have discussed in the introductory post on this topic, globalization describes the growth of economic interdependence between the various nations of the world.  Generally, this is driven by a number of key factors but the end result is a mutual dependence between nations which, according to proponents promotes cooperation and peace. One of my favorite observations in international relations theory is known as the "Golden Arches Theory", credited to Thomas Friedman, who said, "No two countries that both had McDonald's had fought a war against each other since each got its McDonald's". Of course, in history, there are several examples of McDonald's restaurants being victims of international conflict but the basic idea has validity in the Pro position. Perhaps I will discuss it again later on. For this topic we must focus on globalization as a means to the end of poverty reduction and, oh, by the way, cooperation and peace certainly links nicely to improving the quality of life for the world's poor.


World Bank

The so-called World Bank is associated with the United Nations Development Group and with the purpose of providing financial guidance and providing loans to developing countries. One of their goals is world-wide poverty reduction, and so they partner with many global initiatives which may assist in helping developing countries.  Some sources you encounter may mention Bretton Woods institutions. These are a group of organizations founded after World War II to guide reconstruction and erect safeguards to ensure economic stability. One of the key institutions of the Bretton Woods initiative is the International Monetary Fund (IMF) which is now a component of the World Bank. The world bank processes tons of data and have kept close watch on the broad spectrum of activities collectively known as globalization and their effect on the world's poor. Some observers note positive outcomes.

Chandy & Gertz 2011:
We are in the midst of the fastest period of poverty reduction the world has ever seen. The global poverty rate, which stood at 25 percent in 2005, is ticking downwards at one to two percentage points a year, lifting around 70 million people – the population of Turkey or Thailand – out of destitution annually. Advances in human progress on such a scale are unprecedented, yet remain almost universally unacknowledged. Official estimates of global poverty are compiled by the World Bank and stretch back 30 years. For most of that period, the trend has been one of slow, gradual reduction. By 2005, the year of the most recent official global poverty estimate, the number of people living under the international poverty line of $1.25 a day stood at 1.37 billion – an improvement of half a billion compared to the early 1980s, but a long way from the dream of a world free of poverty.

As we recognize what appears to be a positive trend in poverty reduction we need to understand what is driving such encouraging results.

Chandy & Gertz 2011:
This stunning progress is driven by rapid economic growth across the developing world. During the 1980s and 1990s, per capita growth in developing countries averaged just 1 to 2 percent a year, not nearly fast enough to make a serious dent in poverty levels. Since around 2003, however, growth in the developing world has taken off, averaging 5 percent per capita a year...These factors are manifestations of a set of broader trends – the rise of globalization, the spread of capitalism and the improving quality of economic governance – which together have enabled the developing world to begin converging on advanced economy incomes after centuries of divergence. The poor countries that display the greatest success today are those that are engaging with the global economy, allowing market prices to balance supply and demand and to allocate scarce resources, and pursuing sensible and strategic economic policies to spur investment, trade and job creation. It’s this potent combination that sets the current period apart from a history of insipid growth and intractable poverty.

Maybe there are several factors which contribute to the decline of world poverty; globalization, spread of capitalism, improved economic governance (Chandy & Gertz 2011) and so obviously, a clear understanding of what "globalization" encompasses is critical in order to broaden the grounds upon which the Pro side of this debate can rest their case.

Pro Definitions

Finding simple definitions suitable for a four minute constructive speech is not easy.  Afterall, we don't want to be too general or overly limiting but we also do not want to want to spend a minute and a half defining it. In the introduction to this topic I cited the definition of economic globalization given by Aseem Prakash in his presentation to the U.N. General Assembly. This is a fairly concise definition, sufficiently broad and yet brief.  For a more detailed definition, consider the words of Professor Jeffrey Frankel of Harvard University,

Frankel 2006:
What do economists mean by “globalization”? First and foremost: integration through international trade of markets in goods and services, as reflected in a variety of possible measures. These include direct measures of barriers, e.g., tariffs and transport costs; quantity-related measures of the result, i.e., trade volumes; and price-related measures of the result, i.e., the law of one price and other evidence of arbitrage. Next, financial integration through international trade in assets, again as reflected in a variety of possible criteria: direct measures of barriers, e.g., capital controls and transactions costs; quantity-related measures of the result, i.e., gross and net capital flows, portfolio shares, or consumption sharing; and price-related measures of the result, i.e., interest rate parity conditions and other evidence of arbitrage. Further down the list are foreign direct investment, increased trade in intermediate products (especially within multinational corporations), international outsourcing of services, and international movement of persons. Finally, some truly comprehensive definitions of globalization would include the international spread of ideas, from consumer tastes (Coke and the Simpsons, sushi and manga, etc.) to intellectual ideas (technological patents, management principles, democracy, environmental activism, the Washington Consensus, accounting standards,inflation targeting among Central Banks, etc.)

Such a comprehensive definition may not be suitable for conveying meaning to high-school students or citizen judges in debate rounds, but it can be reworded into general terms. Economic globalization is integration of markets in goods and services as a result of international trade, direct foreign investment, outsourcing, and international travel and includes the spread of ideas conducive to open markets, common business practices, and political consensus. You may certainly choose to extract your own interpretation.

Kuznets Curve

I also want to round out your understanding of the topic by mentioning the Kuznets curve and for that I am going to refer you immediately to this Wikipedia article. Don't get all twisted up because it's wiki. I want you see what I am talking about because I have already posted extensively about it in an LD topic last year in which Kuznets' theory was applied to a similar topic. Looking at income inequality over income per capita, one notes an inverted U-shaped curve which is interpreted to say, when a country is poor (measured by income per capita), income inequality is minimal. Inequality then increases as per capital income increases and at some point it peaks and then declines as income continues to increase. If one accepts the Kuznets curve as valid it is a model of what can happen as a consequence of globalization and indeed Kuznets has his share of critics.  I just want you to have this model in mind because there is a good chance your research will discuss it at various times.


The Evidence

Debate requires conflict and there will be plenty in this resolution.  As shown above something seems to be happening which is contributing to the reduction of poverty and Pro needs to show it is the direct or indirect result of globalization.

Hameed & Nazir (undated):
Empirically, a huge body of literature indicates that economic globalization stimulates economic growth, reduces poverty and generates employment opportunities (Cuadros et al. (2004), Greenway et al. (2002) and Kemal et al. (2002)). But globalization affects growth in different countries in different ways due to difference in government policies, population growth rate and the different institutional factors across countries.[pg. 4]

In the foregoing snippet, Hameed & Nazir summarize the entirety of the debate.  Proponents will show the empirical results of numerous investigations which praise globalization. Con will claim globalization increases poverty and probably a lot of other really bad harms.  Pro will need to keep this debate focused.  We are debating poverty, not the environment, not energy, not any other side-effect.  So let's acknowledge right now, Con is going to have evidence, good empirical evidence, that globalization increases poverty.  But as we can surmise from Hameed and Nazir, it is limited to certain areas where certain factors have, at least for the time being, limited the positive impacts of globalization, but on balance, we must agree with the Pro.


Heshmati 2006:
Poverty is measured in 3 ways, namely, the percentage of the population living below one dollar a day and two dollars a day, and the percentage of the population living below the national poverty level. Income inequality is measured by the Kuznets ratio and the Gini coefficient. Globalisation and the poverty and income inequality measures are first analysed through linear regression. The results show that high levels of globalisation relate to low levels of poverty, suggesting that globalisation improves the situation of the poor in developing countries. The results also show that globalisation reduces income inequality. By having tested globalisation with different poverty and income inequality measures, we see that there are no differences when poverty is defined in relative or absolute terms. This shows that the argument often used, that poverty might be reduced by globalisation but income inequality worsens, has been proven wrong. These findings are in line with the results from Dollar. He showed that income inequality has slightly declined among globalisers and that globalisation is a positive force for poverty reduction. When controlling for regional heterogeneity we see that the relationship between globalisation and poverty remains significant. When globalisation is related to income inequality the globalisation coefficient becomes insignificant, showing that income inequality is than explained by unobserved regional heterogeneity and no longer by globalisation.[pg. 30]

Generally speaking, I am a believer in the value of having good confirming evidence and you will need to fill your files with two things. First, use good empirical evidence which supports the view that globalization reduces poverty and either is neutral or positive with respect to inequality (not that inequality is necessarily a bad thing, in and of itself). Second, understand the criticisms and differences in the potential Con evidence and be prepared to refute the validity of their evidence or point out how the Pro evidence incorporates factors not present in the Con analysis.  While this kind of evidence "war" is disliked by many it can be effective in many regions which put more weight on what bonafide experts have to say about a topic rather than high-school teenagers.


Answering Income Inequality

A lot of the discussion found in the literature, deals with income inequality and it is perhaps, debatable whether such discussion is topical in this debate.  For sure, inequality may deliver a negative message to the judge who will no doubt be a member of the 99% rather than the well-to-do, top 1% of incomes.  A big factor is how inequality is calculated. We can compare relative incomes globally and perhaps many in the U.S. would be considered in the upper-echelon whereas, looking at income distribution locally, changes the picture significantly.  Extreme income inequality may be a cause of political instability and revolution, At its less extreme, income inequality serves to motivate workers that it is possible to attain better conditions through, education, acquiring new skills, or hard work. Regardless of how it is portrayed, we can find evidence globalization does not make inequality worse.

Santarelli & Figini 2003:
The trickle-down effect from growth to poverty reduction is based on the assumption that economic growth is distribution neutral or, if not, distribution improving. This is in contrast to the classical stylized facts theoretically consistent with Kuznets’s (1955) theory of capital accumulation as an inverted-U shape between level of development and inequality. In recent years numerous theoretical and empirical studies have dealt with the argument of inequality to growth, growth to inequality and growth to poverty relationships developed. For our purposes, however, it is sufficient to test the validity of this assumption. This has been done, among others, by two recent papers. Ravallion (2001) uses World Bank data and computation methodology to argue that growth is inequality neutral, spreading equally to the whole distribution, thereby confirming that economic growth is the main engine of poverty reduction. The same position is taken up by Dollar and Kraay (2001a) who find a one-to-one effect of growth on the income of the poor, so that the income distribution remains stable and, sometimes, improves. As described in the next section, Dollar and Kraay ascribe this positive effect to trade, but their analysis has an important flaw in due to their definition of poverty. However, a similar conclusion concerning the distribution neutrality of growth has also been reached by UNCTAD (2002).Finally, there is recent empirical evidence that, while there is high volatility of incomes between countries, the level of inequality within each country tends to remain quite stable (Salai-Martin, 2002a, Deininger and Squire 1996). In an era of sustained economic growth, this can be read in the light of the neutrality effect.[pg. 8]

Be sure to read Santarelli & Figini's review of the other studies in the pages following.  It provides useful information for those interested doing follow-up and going deeper into the data.

Birdsall 2001:
Globalization is not the culprit. So at the world level, it is fair to say that inequality is not increasing and poverty is declining. Moreover, even to the extent that inequality is increasing within some countries, if inequlaity is measured as the increasing ration of income between the richest and the poorest countries, mainstream economists argue that globalization is not the culprit.[pg. 6]

Again, you will want to review Birdsall's analysis supporting her claim, globalization is not the culprit.


About the Framework

We have discussed these kinds of resolutions many times.  The decision is supposed to be made on the basis of comparing the relative weight of the arguments on the Pro versus the Con side. It is pretty much a given, the Pro will show globalization reduces poverty and Neg will show it does not and so these kinds of debates tend to balance out fairly quickly and judges are soon dismissing the conflicting evidence. The key to winning, in my opinion will be the weight of the impacts so I would not be surprised if the winners or losers are determined by the strength of solvency advantages. I hope it does not come down to the team with the most and best evidence money can buy, wins.

Continue to the Con position here.

Sources:

Birdsall, N. (2001); Asymmetric globalization: Outcomes vs. opportunities; Discussion paper No. 7, September 2001; accessed: 1/16/2015.
http://www.bc.edu/bc_org/avp/cas/isp/inequality/Asymmetric_Globalization.pdf

Chady, L., Gertz, G.; (2011) With Little Notice, Globalization Reduced Poverty, UN millennium goal to halve poverty may have been achieved, YaleGlobal, 5 July 2011; accessed 1/19/2015.
http://yaleglobal.yale.edu/content/little-notice-globalization-reduced-poverty

Frankel, J. (2006); What Do Economists Mean by Globalization?Implications for Inflation and Monetary Policy; Written for Academic Consultants Meeting, September 28, 2006,Board of Governors of the Federal Reserve System (note: this source is a first draft so use with caution); accessed 1/16/2015.
http://www.hks.harvard.edu/fs/jfrankel/FRB-Globalzn&InflOct4.pdf

Hameed, A., Nazir, A.; Economic Globalization and its Impact on Poverty and Inequality:
Evidence From Pakistan; Economic Cooperation Organization[ accessed 1/16/2015.
http://www.ecosecretariat.org/ftproot/Publications/Journal/1/Article_TDB.pdf

Heshmati, A. (2006); Globalisation, Inequality and Poverty Relationships: A Cross Country Evidence; Discussion Paper No. 2223, July 2006; accessed 1/16/2015.
http://repec.iza.org/dp2223.pdf

Santarelli, E., Figini, P.; DOES GLOBALIZATION REDUCE POVERTY? SOME EMPIRICAL EVIDENCE FOR THE DEVELOPING COUNTRIES; University of Bologna, Economic Science Dept.; accessed 1/16/2015.
http://www2.dse.unibo.it/figini/Figini14a%20ILO%2004.pdf


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