Consider the impact of globalization on the lives of a Chinese migrant factory worker and a Mexican maize farmer. For the Chinese factory worker, instead of trudging the fields and praying for good weather, he now has the choice of more stable sources of income in a factory due to China’s export-driven growth. On the downside, however, rural-urban migration adds pressure on pre-existing infrastructure in cities, draining public service providers and causing over-crowdedness. For the Mexican farmer, the impacts of the North American Free Trade Agreement (NAFTA) are deeply felt. While liberalized trade has brought a wider variety of cheap imports, such benefits have not compensated the nearly 50 percent drop in maize prices and the close to 50 percent loss of rural employment. In both cases, there are gains and losses to globalization; these effects are specific to countries and regions, and differ across various economic activities.
The Problem of Inequality
Although global trade and capital flows have uplifted some large developing economies, notably BRICs – Brazil, Russia, India, and China – many countries remain poor. While the aggregate number of people living under absolute poverty declined by 501 million from 1980 to 2005, Sub-Saharan Africa (SSA) saw this measure doubled. The flow of foreign direct investment (FDI), a measure for infrastructural development, was also uneven during this period. In fact, although Asia earned a lion’s share of FDI to developing countries, Latin America and the Caribbean (LAC) saw their share declined from 67 to 25 percent. The 2006 Carnegie-sponsored study, Winners and Losers, characterize the benefits of globalization as unequal. Liberalized manufacturing trade would most raise income of China, but lower that of SSA; agricultural trade liberalization would primarily benefit existing advanced exporters but open few doors for new ones. These observations suggest a missing link in today’s globalization policies which assume that globalization alone can be the panacea to poverty. Instead, empirical evidence suggests that complementary policies are necessary to address the problems of low productivity and the lack of diversification to market-oriented exports among low-income countries. Otherwise, these countries will not reap benefits from globalization.
Productivity Gap
The outcomes of the recent rounds of globalization – intensified competition from import and reduced preferential market access – call for urgent productivity growth in developing countries. However, according to the World Bank’s World Development Indicators and Globalization for Development report, from 1980 to 2004 only East and South Asia experienced significant growth of productivity, measured as real output per unit labor, at an average rate of 6 and 3.4 percent. LAC and SSA suffered from negative productivity growth of 0.5 and 0.4 percent. Despite the rise of global capital flows, SSA has received practically no FDI except in extractive sectors such as petroleum and mining. With low savings, domestic investment growth in SSA and LAC has also been weak, at just 1.37 and 2 percent annually, compared to 9.2 percent in East Asia.
Further, the productivity gap in agriculture is especially wide. In Europe, productivity of rural labor has grown 4.6 percent annually; SSA countries, however, recorded close to zero growth in this area. Further, in a report by the Working Group on Development and Environment in the Americas, soy bean farmers in Bolivia were found to have lost 50 percent of purchasing power between 1985 and 1995 because their productivity failed to catch up with lowered sale prices. Investment in these poorly equipped producers will be necessary to introduce more productive practices and inputs.
Constraints to Market-Oriented Diversification
Globalization also leads to unequal gains due to a country’s inability to diversify into higher-return products for new potential buyers. A World Bank study, Globalization and Complementary Policies, for instance, indicates that Zambian subsistence farmers could benefit from market-oriented agriculture. The income gains from planting and selling cash crops such as cotton and hybrid maize could range from 20 to 130 percent of a rural household’s expenditure. Such unrealized gains remind policy-makers that globalization does not automatically create market access. Instead, the provision of extension services, irrigation, infrastructure, and credit access can reduce the transaction cost in marketing products and to expand farmers’ capacity to purchase modern farm inputs.
Further needs for diversification can be found in another World Bank study, The Role of Services in Rural Income, where regression analysis suggests rural Vietnamese households with access to electricity, high quality roads, daily markets and technical service agencies have enjoyed positive income growth. In these cases, the potential benefits of globalization can only be realized when open markets are complemented with targeted investments in appropriate infrastructure.
Recommendations
(1) Reevalute Policy Priorities. The experiences of SSA and LAC countries in the past decade of globalization call for international organizations, as well as developed and developing countries, to reevaluate their policy priorities. The World Bank, for instance, reduced development assistance in agriculture from 33 to just eight percent between 1981 and 2001. Developed countries and private businesses, viewing agricultural development as unattractive, also led the decline in investments in poor rural areas. This trend needs to be reversed and new investment opportunities in transport and storage infrastructure, microfinance alternatives, mobile banking, and value-adding industries should be explored.
(2) Flexibility for Low-Income Countries. Future trade negotiations should take into account the concerns and needs of the net losers to globalization. In at least the short and medium run, low-income countries would need policy space to mitigate the negative impacts of global competition. Bearing in mind that there is no panacea to alleviate poverty, least developed countries should be allowed to have a more flexible phase-out schedule for their trade protection instruments. This transition period would provide time for productivity growth and infrastructural development which allow infant industries and the agricultural sector to compete in international markets.
(3) Domestic Investment. Developing countries should strive to put in place the appropriate policies and institutions to meet the logistical, infrastructural and educational needs required for poor households to exploit new markets.
The key for the next rounds of globalization will be to look beyond current liberalization policies and to tackle the root causes of poverty. The obstacles to full participation in globalization, low productivity and lack of diversification, are apparent – it is now up to the international community to approach globalization and poverty with more holistic development policies.
Further Reading
Mamerto Perez, Sergio Schlesinger, and Timothy A. Wise. The Promise and the Perils of Agricultural Trade Liberalization: Lessons from Latin America. Working Group on Development and Environment in the Americas. June 2008.
Sandra Polaski. Winners and Losers: Impact of the Doha Round on Developing Countries. Carnegie Endowment for International Peace. 2006.
The Persistent Problem: Inequality, Difference and the Challenge of Development. Task Force on Difference, Inequality, and Developing Societies. American Political Science Association. July 2008.
Ian Goldin, and Kenneth Reinert. Globalization for Development: Trade, Finance, Aid, Migration, and Policy. World Bank. 2006
Jorge Balat, and Guido Porto. Globalization and Complementary Policies: Poverty Impacts in Rural Zambia National Bureau of Economic Research. March 2005.
Ataman Aksoy, and Aylin Isik-Dikmelik. The Role of Services in Rural Income: The Case of Vietnam. World Bank. March 2007.
Tuesday, 18 November 2008
Extending the Benefits of Globalization to the Poor
Monday, 25 February 2008
Bridging the Digital Divide with the Least Capital and Infrastructure
“How can telephone lines, computers, the internet, and mobile phones help areas where electricity is absent, fresh water is scarce and people die every day of starvation and curable diseases?” Although this question sounds logical, it nonetheless disregards that the Millennium Development Goals (MDGs) place the development of information and communication technologies (ICTs) just as important as reducing hunger, improving water quality and sanitation, lowering infant mortality rates and promoting universal education. More precisely, the MDGs acknowledge the need to “make available the benefits of new technologies – especially [ICTs]” in cooperation with the private sector. In this globalized world, the “digital poor” and the “information poor” are hence just as prone to poverty as those suffering from other seemingly more pressing problems.
The plight of the “digital poor” is in fact pressing because of the “digital divide.” Indeed, the disparity, in terms of penetration and utilization of ICTs between developed and developing countries, has deprived the poor of global exchanges through both basic telecommunication infrastructure, such as radios and TVs, and modern gadgets like mobile phones and laptops. According to the 2006 Digital Opportunity Index (DOI), which measures accessibility, infrastructure and utilization of ICTs with a scale from 0 to 1, the most information-deprived countries scored around 0.04, while the top countries, namely Korea, Japan and Denmark, scored close to 0.8. In most middle- and low-income countries, it is now less costly to access available ICTs, but they still suffer from primitive and unreliable infrastructure as well as low rates of utilization. This divide has hence sustained global inequality and rendered it impossible for the digital poor to fully engage in global business and development initiatives.
The potential benefits of e-business are lucrative especially developing countries. Prior to the emergence of online marketplaces and internet communications, small businesses sell only to a small local market. Access to global markets often requires middlemen. High commission charges would then offset relatively low production costs. Under such conditions, businesses from developing countries earn significantly less than their global competitors who directly engage with higher-end buyers. Online commerce, however, provides more perfect market information and creates opportunities for sellers to establish direct contact with buyers who they would not otherwise know. In addition, the vast agrarian population will benefit as well because the internet will allow them to post information online, track daily price information and browse weather reports. In turn, farmers can more accurately assess their risks and adjust their production to market conditions. Furthermore, ICT development also entails improvements in the quality of exchanges in technical experiences and latest research findings between educational institutions. E-health services can potentially improve and expand long-distance diagnosis and online consultations as well. Clearly, an inclusive information society encompassing members of the developed and developing world can open new doors to international partnerships and economic growth.
While recognizing the necessity of ICT in economic development, as analyzed, the essential financial resources are lacking. In order to move forward, the following four options may serve as solutions to bridge the existing digital gap with the least capital-intensive means:
Create the most cost-efficient network of ICT infrastructure through focused development on public access
With more competitive markets and technological advancement, a wider range of ICTs are now offered at much lower prices than before. However, the price of computers remains a big obstacle to wider household penetration in developing nations. The lack of home internet access, however, no longer means the complete lack of access to the virtual space. In fact, according to the progress report by the World Summit on the Information Society (WSIS), there has been a significant growth in internet traffic through community access points. These multimedia telecenters, especially those in existing social centers such as town halls, meeting points, religious centers and youth clubs, are effectively enhancing the accessibility of ICTs. Further, establishing ICTs in various public service providers provide means to improve the quality of education and healthcare, as well as to disperse vital employment, business and scientific information. Therefore, while household incomes are unlikely to reach the levels necessary for the poor to purchase their own personal computers and individually subscribe to network services, communal network facilities and focused engagement with public services will, at least for now, serve as the starting point to lower the financial barriers to ICT development.
Reduce the need for fixed infrastructure by utilizing new technologies
While creating an extensive physical network of internet cables and telephone lines may be impossible for remote rural areas, new technologies are offering new opportunities for ICT penetration. Instead of conventional telephones, developing nations are experiencing massive growth of mobile phone users. Pan-African mobile operators, for instance, have experienced subscriber growth rates “far greater those found in mature mobile markets.” This growing demand for mobile service hence allow operators to build large-scale infrastructural networks with economies of scale and to negotiate group-wide purchases at lower costs. In addition, various forms wireless communication offers low-cost access to mobile phone and internet networks. In Latin America, the E-Link Americas project connects with a satellite gateway in Canada, hence delivering affordable internet access to districts, schools, hospitals and telecenters in rural areas of eight countries. WiMax, a sort of fourth-generation Wi-Fi that can reach out across dozens of miles, can function with microwaves from a fixed or even mobile point of emission. This technology then serves to reduce the fixed infrastructural needs of its third-generation (3G) competitors, who build its services on fiber optic cables. The growing mobility of ICTs reveals the fact that ICTs will only become more feasible even in rural areas. In turn, while basic power requirements are still necessary for the full utilization of ICTs, the amount of capital-intensive investments will inevitably be reduced with technological advancements.
Enhance regional policy coordination through regional working groups and dialogue
With the ultimate goal of enhancing global exchanges of information, national ICT policies need to be compatible with regional development initiatives. The eLAC process, launched by the UN-backed Global Alliance for ICT and Development (G@ID), is an exemplary effort from Latin American and Caribbean countries to mediate between international goals and the needs and priorities of the region. In their Second Ministerial Conference in February 2008, the San Salvador Commitment identified 96 regional goals pertaining to e-education, infrastructure development, e-health, e-government, e-business and various policy coordination tools. These common commitments allow LAC countries to monitor each other’s progress, as well as to avoid duplication of efforts, ensure interoperability of ICT services and engage the various stakeholders in their societies. Similar regional cooperation can be found in Africa as well. Following large-scale projects to create lay fiber optic cables from Portugal to West and Southern Africa, a similar initiative has been launched in East Africa in 2006. The East Africa Submarine Cable System (EASSy) will likely contribute to a broader access to broadband with lower prices. Although many argue that internet subscriptions will still be too expensive, in South Africa, internet operators claim that international bandwidth prices have dropped 70% since the regional cable came into effect in 2002. The economies of scale resulting from region-wide coordination hence bring the region as a whole closer to international development goals.
Increase awareness and incentive by fostering multi-stakeholder partnerships
Finally, the above options can be most adequately carried out with participation from all facets of society on both the national and international level. With careful deregulation and removal of barriers to private sector participation, more vibrant ITC markets with greater range of cheaper service packages can be developed. The participation of the civil society will also be essential to make ITCs most relevant to the lives of the poor. Efforts such as establishing e-learning networks and community access points are surely most effective with inputs from the locals. In May 2007, this multi-stakeholder approach was put into practice at the 10th session of the UN Commission on Science and Technology for Development (UNCSTD), where governments, academics, businesses and NGOs gathered can discuss ways to ensure ITC penetration to the poor. On the local level, more competitive markets and better training for ICT users are already benefiting some African countries. Therefore, to unleash the economic potential of ITC development, broad-based participation is crucial.
In conclusion, knowledge and information are increasingly important for individuals and countries to thrive in the international economy. The relationship between the developed and the developing is also becoming more symbiotic. That is, the internet and mobile network will become a tool to explore new market opportunities. Therefore, there should be no more excuses to hinder the full-fledged development of ICTs. Instead, we should “think outside the box” and come up with ideas that can most efficiently promote the ICTs in even the poorest regions of the world.
Case studies:
Connell, James. "WiMax is Finding a Home Across the Digital Divide." International Herald Tribune 14 Feb. 2007.
Konrad, Rachel. "Online in Ecuador? It's Taking Awhile." New York Times 2 Jan. 2003.
Tedeschi, Bob. "E-Commerce Report: Sensing Economic Opportunities, Many Developing Nations are Laying the Groundwork for Online Commerce." New York Times 24 Nov. 2003.
The plight of the “digital poor” is in fact pressing because of the “digital divide.” Indeed, the disparity, in terms of penetration and utilization of ICTs between developed and developing countries, has deprived the poor of global exchanges through both basic telecommunication infrastructure, such as radios and TVs, and modern gadgets like mobile phones and laptops. According to the 2006 Digital Opportunity Index (DOI), which measures accessibility, infrastructure and utilization of ICTs with a scale from 0 to 1, the most information-deprived countries scored around 0.04, while the top countries, namely Korea, Japan and Denmark, scored close to 0.8. In most middle- and low-income countries, it is now less costly to access available ICTs, but they still suffer from primitive and unreliable infrastructure as well as low rates of utilization. This divide has hence sustained global inequality and rendered it impossible for the digital poor to fully engage in global business and development initiatives.
The potential benefits of e-business are lucrative especially developing countries. Prior to the emergence of online marketplaces and internet communications, small businesses sell only to a small local market. Access to global markets often requires middlemen. High commission charges would then offset relatively low production costs. Under such conditions, businesses from developing countries earn significantly less than their global competitors who directly engage with higher-end buyers. Online commerce, however, provides more perfect market information and creates opportunities for sellers to establish direct contact with buyers who they would not otherwise know. In addition, the vast agrarian population will benefit as well because the internet will allow them to post information online, track daily price information and browse weather reports. In turn, farmers can more accurately assess their risks and adjust their production to market conditions. Furthermore, ICT development also entails improvements in the quality of exchanges in technical experiences and latest research findings between educational institutions. E-health services can potentially improve and expand long-distance diagnosis and online consultations as well. Clearly, an inclusive information society encompassing members of the developed and developing world can open new doors to international partnerships and economic growth.
While recognizing the necessity of ICT in economic development, as analyzed, the essential financial resources are lacking. In order to move forward, the following four options may serve as solutions to bridge the existing digital gap with the least capital-intensive means:
Create the most cost-efficient network of ICT infrastructure through focused development on public access
With more competitive markets and technological advancement, a wider range of ICTs are now offered at much lower prices than before. However, the price of computers remains a big obstacle to wider household penetration in developing nations. The lack of home internet access, however, no longer means the complete lack of access to the virtual space. In fact, according to the progress report by the World Summit on the Information Society (WSIS), there has been a significant growth in internet traffic through community access points. These multimedia telecenters, especially those in existing social centers such as town halls, meeting points, religious centers and youth clubs, are effectively enhancing the accessibility of ICTs. Further, establishing ICTs in various public service providers provide means to improve the quality of education and healthcare, as well as to disperse vital employment, business and scientific information. Therefore, while household incomes are unlikely to reach the levels necessary for the poor to purchase their own personal computers and individually subscribe to network services, communal network facilities and focused engagement with public services will, at least for now, serve as the starting point to lower the financial barriers to ICT development.
Reduce the need for fixed infrastructure by utilizing new technologies
While creating an extensive physical network of internet cables and telephone lines may be impossible for remote rural areas, new technologies are offering new opportunities for ICT penetration. Instead of conventional telephones, developing nations are experiencing massive growth of mobile phone users. Pan-African mobile operators, for instance, have experienced subscriber growth rates “far greater those found in mature mobile markets.” This growing demand for mobile service hence allow operators to build large-scale infrastructural networks with economies of scale and to negotiate group-wide purchases at lower costs. In addition, various forms wireless communication offers low-cost access to mobile phone and internet networks. In Latin America, the E-Link Americas project connects with a satellite gateway in Canada, hence delivering affordable internet access to districts, schools, hospitals and telecenters in rural areas of eight countries. WiMax, a sort of fourth-generation Wi-Fi that can reach out across dozens of miles, can function with microwaves from a fixed or even mobile point of emission. This technology then serves to reduce the fixed infrastructural needs of its third-generation (3G) competitors, who build its services on fiber optic cables. The growing mobility of ICTs reveals the fact that ICTs will only become more feasible even in rural areas. In turn, while basic power requirements are still necessary for the full utilization of ICTs, the amount of capital-intensive investments will inevitably be reduced with technological advancements.
Enhance regional policy coordination through regional working groups and dialogue
With the ultimate goal of enhancing global exchanges of information, national ICT policies need to be compatible with regional development initiatives. The eLAC process, launched by the UN-backed Global Alliance for ICT and Development (G@ID), is an exemplary effort from Latin American and Caribbean countries to mediate between international goals and the needs and priorities of the region. In their Second Ministerial Conference in February 2008, the San Salvador Commitment identified 96 regional goals pertaining to e-education, infrastructure development, e-health, e-government, e-business and various policy coordination tools. These common commitments allow LAC countries to monitor each other’s progress, as well as to avoid duplication of efforts, ensure interoperability of ICT services and engage the various stakeholders in their societies. Similar regional cooperation can be found in Africa as well. Following large-scale projects to create lay fiber optic cables from Portugal to West and Southern Africa, a similar initiative has been launched in East Africa in 2006. The East Africa Submarine Cable System (EASSy) will likely contribute to a broader access to broadband with lower prices. Although many argue that internet subscriptions will still be too expensive, in South Africa, internet operators claim that international bandwidth prices have dropped 70% since the regional cable came into effect in 2002. The economies of scale resulting from region-wide coordination hence bring the region as a whole closer to international development goals.
Increase awareness and incentive by fostering multi-stakeholder partnerships
Finally, the above options can be most adequately carried out with participation from all facets of society on both the national and international level. With careful deregulation and removal of barriers to private sector participation, more vibrant ITC markets with greater range of cheaper service packages can be developed. The participation of the civil society will also be essential to make ITCs most relevant to the lives of the poor. Efforts such as establishing e-learning networks and community access points are surely most effective with inputs from the locals. In May 2007, this multi-stakeholder approach was put into practice at the 10th session of the UN Commission on Science and Technology for Development (UNCSTD), where governments, academics, businesses and NGOs gathered can discuss ways to ensure ITC penetration to the poor. On the local level, more competitive markets and better training for ICT users are already benefiting some African countries. Therefore, to unleash the economic potential of ITC development, broad-based participation is crucial.
In conclusion, knowledge and information are increasingly important for individuals and countries to thrive in the international economy. The relationship between the developed and the developing is also becoming more symbiotic. That is, the internet and mobile network will become a tool to explore new market opportunities. Therefore, there should be no more excuses to hinder the full-fledged development of ICTs. Instead, we should “think outside the box” and come up with ideas that can most efficiently promote the ICTs in even the poorest regions of the world.
Case studies:
Connell, James. "WiMax is Finding a Home Across the Digital Divide." International Herald Tribune 14 Feb. 2007.
Konrad, Rachel. "Online in Ecuador? It's Taking Awhile." New York Times 2 Jan. 2003.
Tedeschi, Bob. "E-Commerce Report: Sensing Economic Opportunities, Many Developing Nations are Laying the Groundwork for Online Commerce." New York Times 24 Nov. 2003.
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