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Subject: Law and Economics II Submitted to: Dr. Radha Seshan Submitted by: Aniruddh Yadav Class: 2nd Year Semester: 4th Semester Roll no. 80 LLB 11

National Law University, New Delhi


Much efforts have been put into defining globalization and yet the term remains as elusive as ever. In essence, it is used to refer to the rapid spread of information, technology, ideas, goods and services, labor and capital across national borders causing the thick walls that have for centuries gave meaning to sovereignty become porous and bringing the world closer in time and space. Countries that defy the tide of change have often been warned of being left behind by their more assertive neighbors. Fearing being left out, countries warn their citizens to rise to the occasion and adapt to the changes in order to reap the benefits of globalization and help their nations develop. Globalization is thus seen as an opportunity to modernize and democratize in line with global values and choices. This means the opening up of a closed or regulated market to foreign capital, loosening up of borders to labor migration and importing of new technologies and creative ideas, among others. While many realize the need to globalize, approaches have been varied from those taking a cautious approach to those fully embracing it. For the cautious ones, they are skeptical of the true benefits that globalization brings to a country and its people citing incompatibility with traditional cultural values, religion, political structure and practices and the belief that globalization equates westernization as reasons. Globalization is a generic term and it would be a fallacy to equate it with westernization. However, the advancement of science and technology in the West has allowed the Western world to export their influence and interests ahead of others to other regions of the world. The same could be said of Japan exporting its popular culture such as manga, anime, cuisines and music to Asia and the West. Due to the differences in the configuration of each country and its set of people, the impact of globalization would logically be uneven and disparate. Not only does it causes disparities between economies, it affects the social stratification within state societies as well.

THREE PARAMETERS: Reduction of trade barriers so as to permit free flow of goods across national frontiers. Creation of an environment in which free flow of capital can take place among nationstates creation of environment, permitting free flow of technology. From the point of view of the developing countries, creation of an environment in which free movement of labour can take place in different countries of the world.


RESEARCH METHODOLOGY The researcher has used the doctrinal research methodology. The data collected is on record, and it is secondary in nature. The primary source of this project has been obtained from various books by eminent authorities on the issues related to poverty and the growing disparity between the rich and the poor people at the NLU Delhi library and other books related to the topic. However, the researcher has also made use of the online legal data bases and has also made a good use of the internet sources. CHAPTERISATION SCHEME The researcher has undertaken one research question. The researcher has discussed the issues related to the growing disparity between the rich and the poor people due to globalization. In section 1 I have give an introduction on globalization and its effect on the people in the country. Then in section 2 I have discussed about the inequality of income caused due to globalistion. In section 3 issued related to cultural clash and critics of globalization have been discussed by the researcher. Finally in section 4 the researcher concludes the project.

GLOBALISATION AND INCOME INEQUALITY Widespread poverty and excessive inequality remain the principal challenges to the legitimacy of the process of globalization that has been underway during the last two decades. Even as economies and governments adjust to afford a larger role for markets and a smaller role for the state in development, the importance of public action to deal with poverty and vulnerability has increased.1 It was for this reason that the 1995 World Summit for Social Development called upon countries not just to set "time-bound goals and targets" to substantially reduce overall poverty and eradicate extreme poverty, but to implement national anti-poverty plans to achieve these targets.2 Not surprisingly, as anecdotal evidence of the inequalizing effects of globalization accumulates, a charged academic debate has arisen on the issue of globalization and its impact on world incomes. 3 Neoliberal economists are prone to argue that with the lifting of trade barriers between countries and freer movement of capital across borders due to globalization, there is a tendency towards the narrowing down of cross-country income differentials. Inasmuch as this narrowing or homogeneity is the result of a faster increase in per capita incomes in the poorer countries, and so long as the income inequality in these countries is not worsening, the global decline in income differentials should be accompanied by a decline in the incidence of poverty, as measured by the head-count ratio.4 Such narrowing is a must in the present context, although differences in ability, in resources and in many other factorsless justifiable or obviousare likely to remain. Income, which is the most basic indicator of economic wellbeing, must clearly reflect the apparent advantages of globalization. Open market policies, that are advocated by the Washington Consensus as the route to economic prosperity that delivers benefits to all and specially the poorer nations, must ensure that income disparities across the world, as also within countries, do not increase, and that all human beings are included in the distribution of the gains that arise out of this new system. 5 This is especially necessary since liberalization is being thrust on many who are as yet unwilling to have it. The opposite cannot be justified on moral grounds, and even the most cynical must admit that it poses many practical
1 2

Narayan Lakshman, PATRONS OF THE POOR CASTE POLITICS AND POLICYMAKING IN INDIA,1 ed. 2009, p.3 Ibid, pp. 24 3 Ibid, pp. 38 4 Ibid, pp. 46 5 st Sylvia Whitman, WORLD POVERTY, 1 ed. 2010, p. 8


problems, which include according to some, the creation of conditions that engender terrorism. But whether or not these contentions forwarded by neoliberal economists capture actually the reality of the world today remains to be tested. The question is in the first instance empirical. A number of studies in recent years have examined the trends in inter-country and intra-country inequalities during the years of globalization.6 As is to be expected, the debate has increasingly given rise to disagreements with regard to the measurement of inequality and poverty, and about cross-country and inter-temporal data comparability and methodology of analysis relating to these. Clarification at this level is a minimal prerequisite to establish causal links between and test statistically the relation between income inequality and globalization. INTERNATIONAL INEQUALITY It is one of the most important reasons for the growing disparity between the rich and the poor in the country. Inequality must be defined and be able to be measured so that comparisons can be made between rich and poor countries. Once the causes are determined, the effects of globalization can be evaluated and be measured. 7 The World Bank defines inequality as the disparity of income and standard of living among nations and their citizens. Globalization has become painful, rather than controversial, to the developing world. 8 It has produced increasing global economic interdependence through the growing volume and variety of cross-border flows of finance, investment, goods, and services, and the rapid and widespread diffusion of technology which has led to widening in the gap between the rich and the poor nations. Some of the factors that support this assertion include the growing economic interdependence is highly asymmetrical.9 The benefits of linking and the costs of de-linking are not equally distributed. Industrialized countries - the European Union, Japan, and the United States - are genuinely and highly interdependent in their relations with one another. 10 The developing countries, on the other hand, are largely independent from one another in terms of economic relations, while being highly dependent on industrialized countries. Indeed, globalization creates losers as well as

Sylvia Whitman, WORLD POVERTY, 1 ed. 2010, p. 37



7 8

Asian Development Bank, URBAN POVERTY IN INDIA, 1 ed. 2009, p. 67 Ibid, pp. 82 9 Ibid, pp. 97 10 Ibid, pp. 103

winners, and entails risks as well as opportunities. The income gap that exists between rich and poor counties has become substantial. Although great strides have been made in improving income for poor nations, many regions of the world have 25% or more of their population living off less than $1 per day. Some people think that with the poor people having limited earning capacity, they also have limited access to the worlds wealth.11 In 2003, the richest fifth of the world's population received 85% of the total world income, while the poorest received just 1.4% of the global income.12 When the GDP is compared between the richest and poorest nations over the past century, a wider income gap can be seen growing. Between 1900 and 2000, the richest quarter of the worlds population saw its per capita GDP increase nearly six-fold during the century, while the poorest quarter experienced less than a three-fold increase (IMF, 2005). Income inequality has increased and has continued widening.


Asian Development Bank, URBAN POVERTY IN INDIA, 1 ed. 2009, p. 110




CULTURE CLASH Not everyone believes international trade can benefit the poor, developing countries. People who are not in favor of expanding international trade and desire preservation of local culture and customs are referred to as anti-globalists.13 They are an assortment of several different groups with different issues; all motivated toward a common cause: to stop global trade. They believe many trade agreements and multinational corporations can undermine the environment, labor rights, national sovereignty, and the third world. The 20th century has seen international trade and the income gap between rich and poor nations increase. Some anti-globalists perceive that international trade and the widening of the income gap between rich and poor countries to be correlated.14 The World Economic Outlook studied 42 countries for which data was available for the entire 20th century and reached the conclusion that output per capita has risen but that the distribution of income among countries has become more unequal than at the beginning of the century (IMF, 2005). This conclusion has erroneously accused rich countries of getting richer by exploiting poorer countries. Inequity does exist, but it is not because rich countries are taking advantage of poor countries. 15 However, multinational corporations are taking advantage of market forces and introducing it to developing nations as a peaceful means to promote economic growth. Each nation uses its most abundant resources to a comparative advantage. This is true with land and the products it can produce; true when too much money is available to invest in businesses; and, true when there is too much labor. Developing countries are labor abundant. When labor is abundant, there is a higher ratio of labor to other factors for the poor country than there are for its trading partners.

These market forces allow an efficient distribution of

resources Population growth in poor nations is high and the people have little education, as it does not take much education to work on a farm. Dr. Wade, a professor of political economics at the London School of Economics, blames this rising inequality on differing rates of population growth between rich and poor countries and the pressures of technological change. Many of these poor countries still have an agrarian economy. Since the people cannot afford technology,
13 14

V M Dandekar, POVERTY IN INDIA, 2 ed. 2008, p. 57 Ibid, pp. 68 15 Ibid, pp. 72 16 Ibid, pp. 92


like tractors to work the land or irrigation systems to increase productivity, human capital is employed. It is more advantageous for a family to have more children, so they can help work the farm.17 Many of the children will get sick and some die, due to lack of proper healthcare. In some countries like India, there is a growing industrialized sector. 18 As these countries economies become industrialized, the population, who is uneducated in everything but farming, begin to move to the cities as unskilled laborers if they are lucky enough to find work. Unfortunately, most people who move to the city will become part of the growing unemployed.

These developing countries are abundant with unskilled labor due to high population growth

and lack of education, especially among women, that make the country a source for inexpensive, unskilled labor in exchange for jobs. 20 Its large population is a resource that makes another nation wants to trade with it. Many of these developing countries do not have continuing growth as part of their culture, which leads to the continuation of the stagnate economic conditions. Economic growth needs to be examined to verify or disprove the widening inequity gap because poor nations are being exploited by rich nations. Economic growth is defined as the increase in the value of goods and services produced by an economy and can be measured as the percent rate of increase in real gross domestic product. There are two types of economic growth a nation can undergo to move itself out of poverty: intensive and extensive. Intensive growth is due to an increase in the quality of a nations factors of production, usually due to a change in technology or international trade; whereas, extensive growth is growth due to an increase in the quantity of a nations factors of production, usually increased by acquiring land via war and colonialism. Technology means change to a society, and many pre-capitalist societies were based on tradition and certainty, and change was uncertain, therefore discouraged . In order for pre-capitalist economies to grow they had to increase their factors of production. Land was limited and technology did not exist to yield more crops. Lack of technology also limited capital accumulation. Population increases labor, but still limited by the same technologies and quality, per-capita growth does not increase. Therefore in the absence of trade, economic growth in pre-capitalist societies is zero. Capitalist nations have been able to
17 18

V M Dandekar, POVERTY IN INDIA, 2 ed. 2008, p. 93 Ibid, pp. 116 19 Ibid, pp. 128 20 Ibid, pp. 167


increase technology and embrace change to become the wealthier nations on the globe. Many of these non-capitalists countries are still considered developing nations. Anti globalists regard the extension of international markets and financial interests as the cause of increasing global inequality (and poverty) and declining levels of human welfare.21 The population of these poor countries is plentiful and willing to work at cheap wages, as they are labor abundant. Their own government is eager to oblige Multinational Corporation and in many cases, such as in Nigeria, the environmental laws are more relaxed than in their home countries. However, if the wages were not low or environmental regulation required more expensive technology to be employed, the corporation might choose to stay in their home country or choose to build in another country. 22 The developing countrys government needs the multinational corporation to provide investment and jobs for the people. Without these jobs, the government would spend money that it doesnt have to care for the people, still increasing its debt burden. India is a good example of how efficient government policies open up a society to trade to improve the economic condition. Since its independence in 1947, India has been given more aid than any other nation. 23 Yet for 40 years it had been grouped among the worlds poorest countries and had a very slow growth rate. Around 1990, recessions in donor nations threatened foreign aid to India. Dr. Manoman Singh, a reform-minded economist, was brought in as finance minister.24 India implemented many of his basic economic reforms, which included decreasing very high tariffs and quotas, substantially reducing regulation of private domestic investments, encouraging foreign direct investment, and privatizing many government sectors. India's rate of economic growth increased, due to these reforms, to more than 6% per year, without increased foreign aid. India changed its policy without getting increased aid and was able to increase its growth rate and begin to alleviate poverty conditions in its country. Aid had handicapped economic growth for India. Only when India was able to participate in trade with other nations was it able to break its cycle of dependence on foreign aid. Governments in developing countries




Narayan Lakshman, PATRONS OF THE POOR CASTE POLITICS AND POLICYMAKING IN INDIA,1 ed. 2009, p. 183 23 Ibid, pp. 220 24 Ibid, pp. 228

have convinced their people that the aid and limits to international trade is necessary for their continued development. These governments have limited their own growth by imposing tariffs and quotas on imports and claiming that international trade has kept their own countries from developing stable economies. Many of the poor nations are forced to agree to economic reform before they are allowed to receive aid, and additionally, many of these nations are reluctant to accept foreign aid because they believe it will have a negative impact on their cultural identity. 25 These economic reforms are seen as to favor the rich nations by allowing them more access to the poor nations resources. The World Bank and International Monetary Fund (IMF) have lending policies that compel poor countries to adopt economic policy reforms, which are perceived to benefit only their wealthy trading partners and leave the emerging economy with an overwhelming debt burden. Poor countries think international trade will destroy their culture and lifestyle. Many of these poor nations believe that if they participate in globalization, their culture will change and they will lose part of their identity. 26 Modern technology has actually led to the opposite being true. Globalization does not destroy local civilization and customs, but proliferates individual culture by using modern communication like the Internet and television satellite, so that a culture is not limited by location. A person in their home country will go about their routine without giving any thought to their identity; however, when they travel to another country for employment or vacation, like the Mexican laborer in the US, they become more aware of their national identity. 27 Globalization as a destroyer of cultural identity is a misconception that encourages poor countries to remain in the same cycle of poverty. 28 Poor nations remain in the same cycle of poverty because of their culture is not growth oriented, has high population growth, low-level of education and a distrust of wealthier nations placing conditions on their economic aid. By accepting economic policy reforms, many nations feel they no longer have control over their nations economic affairs. Developing nations have a distrust of rich nations, which prevents them from taking advantage of market forces that will allow them to move toward peaceful economic growth.
25 26

Asian Development Bank, URBAN POVERTY IN INDIA, 1 ed. 2009, p. 238 Ibid, pp. 246 27 Ibid, pp. 287 28 Ibid, pp. 308



THE CRITICS OF GLOBALIZATION Many people view the empirical evidence in favor of globalization skeptically because they see globalization as a process through which power is concentrated upward and away from the poor. In particular, they see transnational corporations as gaining a disproportionate amount of both political and market power. 29 Critics of globalization are also rmly of the opinion that corporations will use their increased power in ways that benet themselves and harm the poor. Although these concerns are not without basis, there are mediating factors that make it di cult to conclude that globalization is increasing corporate power or that increased corporate power is necessarily bad for the poor. 30 One important point that it is important to remember that globalization exposes many previously powerful national corporations to outside competition, and requires greater transparency in government policymaking. On the second point, it may be that the eciency benets of large corporations outweigh any losses from increased market power. 31 Thus, it would seem that there is room for more empirical research to determine whether the corporate globalization does indeed give the poor cause for concern. The next part of the explanation focused on the multiplicity of meanings of the phrases worsening poverty and increasing inequality. The discussion in regard to poverty followed on from work, which identied four major dierences between the concepts of poverty employed by globalizations critics and proponents. 32 These four dimensions are the total number of poor versus poverty incidence, monetary versus multidimensional measures, level of aggregation, and time horizon. In order to cut down costs, many firms in developed nations have outsourced their manufacturing and white-collar jobs to Third-World countries like India and China, where the cost of labor is low. The most prominent among these have been jobs in the customer service field as many developing nations have a large English-speaking population - ready to work at one-fifth of what someone in developed world may call 'low-pay'.

29 30

V M Dandekar, POVERTY IN INDIA, 2 ed. 2008, p. 369 Ibid, pp. 384 31 Ibid, pp. 397 32 Ibid, pp. 401



This has caused a lot of resentment among the people of developed countries, and companies have been accused of taking their jobs away.33 Another problem is that many Americans are not satisfied with the level of customer service that they are subjected to, 34 and this has caused a lot of animosity among people and has added to the dissent that people already have against outsourcing.

33 34

Narayan Lakshman, PATRONS OF THE POOR CASTE POLITICS AND POLICYMAKING IN INDIA,1 ed. 2009, p. 258 Ibid, pp. 287



The researcher concludes that globalization knows no borders and morals. A double-edged sword, it could benefit mankind but also help to spread vice. Its impact on societies is anything but homogenous. Therefore, countries would have to come up with their own unique measures and efforts to cope with external influence and internal changes. The world is increasingly unequal and a majority of its occupants suffered from either poverty or increasing human insecurity. Many poor nations fail because the state fails, or with a large population growth rate, have difficulties managing the allocation of their resources. Rich nations have implemented policies and a capitalist approach to distribution of goods and services that propagates long-term growth. Not all nations are endowed with an equal proportion of factor inputs; inequality will exist. By opening up trade, nations can share their factors more equitably and the total global pool of wealth will increase. The people of the country must have the political will and capability to select leaders that choose a path of economic growth instead of cultural stagnation. Many of these countries are poor and have an unequal distribution within the country itself due to corrupt government leaders that view international aid as a source of personal income. The challenge for the new century is to improve the international system of governance and adopt better economic policies. Globalisation has reduced the bargaining power of unskilled workers and pushed up inequality in many western countries, the OECD said yesterday, urging governments to improve their social safety nets.