Making Globalization Work for the Poor

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Making Globalization Work for the Poor

Has globalization helped low-income countries reduce poverty or perpetuated international inequality? On February 2, 2004, David Dollar, the World Bank's Director of Development Policy and a leading authority on the effects of globalization, took part in an hour-long live online discussion on globalization.

Erkan BAYIR:
Don't you accept that the tendency of globalization widens the gap between the rich and the poor? I think worldwide corporations do nothing except maximizing their profits. They are not interested in global poverty, income below 1$ a day, or anything. Globalization is Westernization of economic systems, along with native cultures, values and lifestyles.
David Dollar:
It is true that corporations everywhere focus on maximizing profits. It is important to have a strong framework of laws and regulations if that profit-seeking is to produce social benefits. I do not accept that the tendency of globalization is to widen the gap between the rich and the poor. The fastest growing incomes in the world are in the developing countries, indicating that integration can be a powerful force for development that reduces worldwide inequality. The tendency toward inequality in the world today comes from the fact that about half of the developing world population lives in countries that are successfully integrating and catching up with the rich world, while half of the population lives in countries that are largely outside of globalization. Does the poor performance of Argentina, much of Sub-Saharan Africa, Pakistan, Myanmar, and other countries result from their integration with the world economy or from their own poor governance? I think the evidence supports the latter.
rhoda letang:
for small economies in the caribbean, reference the commonwealth of Dominica with a population of 72,000. In what possible way can we use 'globalisation' to benefit the development of the country? given that the process of globalisation and liberalisation have led to the demise of our main export crop bananas? It seems that under the guise of globalistion, a number of institutions are being established which serves only to inhibit the development of small island states, i.e WTO, the proposed FTAA etc. Globalisation to the Caribbean means an onslaught to our economies
David Dollar:
Small economies such as Dominica have been globalized for a long time. You mention the previous reliance on banana exports. That was Dominica's response to integration in one era. Without that export, it would have been a very poor place. Small economies in particular need integration in order to achieve a decent standard of living (otherwise they have to try to produce everything themselves, which would be highly inefficient in a small location). But the tradeoff is that small economies then are quite vulnerable to external shocks and to changes in the external environment more generally. Thus, changes in world trade will take Dominica out of one product line and into another (now, mostly tourist services).
Baruch Ramirez-Rodriguez:
can the informal economy be a constrint for the globalisation process? i mean informal economy as household small production, street sellers and those who employ in not regulated activities.
David Dollar:
Informal economy exists in all countries, but the extent of it varies, and I take it as a good indicator of whether or not a country has sound institutions and policies. In the right environment lots of small and medium formal enterprises will emerge. With a highly distorted environment - excessive regulation, burdensome corruption, non-functioning infrastructure - everything remains informal, which keeps it at a small scale. Just about everyone remains poor. So, I would say that the distortions that generate a large informal economy are constraints to benefiting from integration.
Guna Raj Pathak:
Dear sir, May I know the relationship of Globalization with your Poverty reduction strategy,output of its implementation visible,countable? Do the wBG has any concrete measures to check up the invisible exploitation upon the national resources by the Feudal Rulers and their Brokers ?
David Dollar:
The World Bank supports developing countries to prepare their poverty reduction strategies. Much of these strategies focuses on issues such as universal primary education, basic health, rural infrastructure, and other public services. We find that most developing countries want to integrate with the global economy to some extent and if so we support that in different ways (eg, reform of customs administration, import tariffs, ports). Much of the debate about globalization misses the point that integration is just one component in any effective poverty reduction strategy.
Amit Sharma:
How is globalization possible without understanding the cultural side of each country? (because what works in the west does not work in the east) The way corporations are going about it now is through a pure corporate culture,is it not time to look at integrating global economies through a different angle?
David Dollar:
I agree that each country (and in fact different regions within countries) have distinct cultures. For that reason local entrepreneurs have a big advantage over multinational corporations. Many of the main beneficiaries of integration have been small and medium enterprises in the developing world, who can adapt local institutions and practices to produce useful products for the world market. Cultures will inevitably be influenced by integration (as they have been since the dawn of human history). The question each society has to answer for itself is whether it wants to live in isolation or whether it think that the interaction with other cultures is a healthy thing.
Brad Hazelwood:
I am not a radical enviromentalist by no means. With that said, do you feel that globalization almost forces low-income countries to lower enviromental standards to cut overhead in order to compete.
David Dollar:
The most successful developing countries in the era of globalization - China, India, Chile, Uganda, Morocco, to name a few in different parts of the world - have not reduced environmental standards. Actually, most of them have increased environmental regulation over the past decade. There is no evidence that investment is attracted to dirty, polluted places - just the opposite. Integration can increase the economic pressure to deplete resources such as forests and fisheries, so it is important to complement openness with strong environmental regulation. The most globalized countries in the world (Netherlands, Singapore) have strong environmental regulation so clearly there is no necessary contradiction.
Marco Maestroni:
I think that the grow of gdp is a bad measure of the poverty's reduction. We can see high grow with high inequality. But this index always is utilised like result on the health on a country. The consequence is: if a increase of the trade has benefit on the grow of GDP, now the globalisation for the country is positive; It's difficult to ask the really incidence on poverty's reduction. Why the index of Gini is less important in the analysis than the grow of GDP?
David Dollar:
On measuring impact, I agree that GDP growth by itself is a poor measure of human welfare. One of the best contributions of the World Bank has been to work with poor countries to develop high-quality household surveys that allow careful measurement of poverty, inequality, and social outcomes such as literacy and health status. I spent more than six years advising Vietnam on macroeconomic and trade policies (1989-95) and careful surveys toward the beginning an end of this period show that poverty was cut in half very quickly. My view that integration can be a powerful support to poverty reduction is based on analysis of household data that measure what people actually consume and what is education and health status.
Indra Prasad Mandal:
How does Globalisation help to reduce poverty in developing countriues? As well I know globalisation has increased inequality and environmental degradation in developing countries. Globalisation is not working for the most poor people as well as most marginnalised people of developing coutries. I have seen most of the societies in developing countries like Nepal People only think how we can fulfill their basic needs. Even they don't have meal for tomorrow eating. In terms of such condition, How can globalisation help poor people in developing countries to provide their basic needs?
David Dollar:
Globalization is about economic and social integration among countries. In the past 20 years the developing countries that have integrated the most with the global economy have seen the fastest growth rates and poverty reduction. Vietnam is a good example - it cut poverty in half in a decade. Integration raised the prices for the products of poor farmers - rice, fish, cashews - and also created large numbers of factory jobs in footwear and garments, jobs that paid a lot more than existing opportunities in Vietnam. It is not true in general that globalization leads to increased inequality within countries. In Vietnam there was no change is the distribution of income during its opening. There are countries where inequality has gone up, but also ones where it has gone down. While integration creates potential opportunities, poor people cannot take advantage of these unless they have education and access to assets such as land and credit. Many poor people are left out of globalization because their governments are not providing these basic services.
Abdurashid Solijonov:
What are the main policies to ensure that globalization will be accomplished without hurting developing countries? Do you think these policies can be implemented without limiting roles of the rich countries?
David Dollar:
I think that globalization can be "win-win" for developing and rich countries alike. Populations are aging in the rich countries, but they still have a lot of capital and technology. Developing countries have large and young populations and need to create massive numbers of jobs over the next few decades. Globalization can benefit both rich and developing countries if it supports the movement of capital and technology to the south and the movement of some labor to the north. There will inevitably be quite a bit of dislocation in this process, and the key to successful integration will be managing the dislocation with appropriate institutions and policies.
Gillian Virata:
So many knowledgeable individuals have written and said so much about having to eliminate agricultural subsidies to help the poorest of the poor. Shouldn't more be done for this knowledge to filter down to NGOs, consumers, and other groups to generate the public outcry against the subsidies that has been so sorely lacking?
David Dollar:
I very much welcome your point about the need to rally NGOs, consumers, and other groups to bring down agricultural subsidies of rich countries. This would create more trading opportunities for poor countries and raise the incomes of their farmers. I fear that the anti-globalization movement has created the false impression in rich countries that trade is a bad thing for poor countries and poor people so that it is harder to rally groups to support efforts that make it easier for poor countries to trade. Activists who care about the poor in the developing world should be trying to make it easier - not harder - for them to access US and other rich markets.
Catalina Quintero:
According to dependency theory, third world countries should relinquish ties with the oppressive first world in order to develop, do you believe this position is at all valid and why? Secondly if possible to ask another question, I would like to ask: if there is such overwhelming control over the World Bank and other organizations by the first world, how can it be expected that the thrid world benefit from policies that are many times favorable only to the first world? Thank you very much.
David Dollar:
Developing countries influenced by dependency theory tried to develop in isolation throughout much of the 1960s and 1970s and the results were not very good. Global poverty continued to rise throughout this period. Led by China and India, the developing world has shifted its strategy toward one of integration, and that shift seems to be paying off (the number of absolute poor in the world has been declining since about 1980). Concerning the World Bank, it is true that the rich countries make up a majority of shareholding. But I think that countries such as China, India, Mexico, and Brazil have been able to use the Bank very effectively to promote their own development agendas. None of these countries would borrow from the Bank or take advice from it unless they found these services to be useful to them.
Rachel Lauer:
Do you see any changes coming to the current model of globalization after the more recent actions to wipe out third world debt? What is next?
David Dollar:
The effort to reduce debts of poor countries was an important initiative that gave many countries a "clean slate" to approach integration without the baggage of past debts. Debt relief alone, however, is not a magic solution to poverty. The most important issue still is whether or not the country can develop workable institutions and policies. Debt relief provides a fresh start, but countries still face the challenge of building institutions such as property and rule of law.
Mehmet Babacan:
What do you think about the role of MNC's on helping the poor in the developing countries? Are they helpful or destructive for governmental policies of developed countries?
David Dollar:
Developing countries for many decades were hostile to multinational corporations. In the past decade, however, most developing countries have shifted gears, recognizing that MNCs can be useful in terms of bringing new technology, marketing networks, and job creation. In small countries there is some risk that MNCs will exercise undo influence over government policy, whereas in large countries such as China, Brazil, India, and Mexico that governments have been able to solid frameworks that push MNCs to fit into the country's development strategy.
Adiya Amarsanaa (Mongolia):
By strengthening regional development cooperation can we meet the challenges in an era of globalization?
David Dollar:
Regional development cooperation can be a useful support to global integration if it helps countries develop common positions on global trade or coordinate regional infrastructure. Efforts to create regional trade blocks cut off from the world market have not been particularly successful.
Ivan Kozic from Croatia:
Globalization had put a great challenge against The World Bank. Everyone will probably agree that sometimes Bank´s policy did not produce a satisfied result.Is The World Bank preparing some kind of new global policy for dealing with globalization problems?
David Dollar:
The World Bank evolves over time in light of failures and successes. The World Bank has learned that it is not very effective to try to change country’s policies through detailed conditionality, so we have shifted more to a "learning mode," where we help national and local governments try to figure out what institutional and policy changes will help them meet their objectives. You may be surprised to hear that in many countries the Bank is quite popular, as it is seen as helping communities develop and finance new approaches to education, health, water, and other important public services.
shamsi mhina:
Sir, I would like to know how globalization will enhance reduction of illiteracy rate in developing countries like Tanzania? what will be the effects of braindrain to developing countries.
David Dollar:
Globalization can effect literacy in several ways. It can help raise family income so that families are more supportive of sending children to school, it can help the government collect more tax revenue so that it can finance education more effectively, it can improve the technology of education (for example through distance learning). On the other hand, greater international labor mobility will increase risk of “brain drain.” Several developing economies have been successful at attracting back educated people who have left, by creating good environments for people to start firms and utilize their entrepreneurship.
sicelo (student UCONN):
Dr. Dollar, Without channelling your thoughts to see globalization as a failure for the world's poor, how can we make this a human rights issue? Can you talk about the connections between poverty and hunger as human rights violations? What must be done? And How? What is the role of the World Bank in all these? Isn't the World Bank responsible for some if not all of the poverty in the developing nations through its structural adjustment programmes? Why should the poor have faith in the World Bank? Thank you Sicelo
David Dollar:
Personally, I think that hunger and illiteracy are human rights issues. The World Bank’s mandate is to fight poverty, broadly defined to include illiteracy and lack of access to basic health care. The Bank has certainly made mistakes, but it has contributed to many successes as well. I read the evidence to say that developing countries’ own institutions and policies are the key to reducing poverty and improving peoples’ lives. Where you have reasonably good institutions and policies, as you do in many developing countries today, the World Bank’s financial assistance is very productive and accelerates growth and poverty reduction. On the other had, where institutions are very distorted and corrupt, it is difficult to provide any useful large-scale financial assistance. The World Bank has learned this lesson and now channels its assistance to relatively good governments in the developing world.
Diakité Ismael:
Globalization involves trade, investment, physical environment, aid for AIDS as well. All these themes are mastered by "rich countries". How the poor and poorest countries strongly influenced and dominated by the rich and developed countries can face transnationals to nogotiate deals that can assure solutions to profitable trade, beneficial capital investments, clean, safe and sustainable environment, no corrupted aid, and healthy human resources ?
David Dollar:
Large developing countries such as Brazil, China, Mexico, and India have been able to get multinational companies to compete with each other to provide good services and transfer technology. It is more difficult for small countries, and I think that an important issue in Africa is to create more regional integration and regional institutions so that there is larger domestic economy that can then benefit from interacting with the global economy.
m.sathish:
respected sir , globalization is necessary.it had destroyed the culture and local people where and all it spread.does it improve architecture.please comment on this topic.thank u sir
David Dollar:
European countries have been able to integrate with the world economy while simultaneously preserving their distinctive culture, including wonderful architecture from the past. Communities need to regulate the treatment of historical buildings and monuments, so preserve them in the face of economic development.
rishi:
What is meant by globalisation?
David Dollar:
I like to define globalization as the growing integration of economies and societies around the world resulting from increased flows of goods, services, capital, technology, and ideas.
Nam Long:
If globalization occurs, how to maintain the poors' job? And does it have negative effects to developing countries?
David Dollar:
Integration with the global economy has costs and benefits. There is no question it will destroy some jobs and encourage firms and workers to move to new activities. The evidence is that integration creates more jobs than it destroys and that in developing countries it can spur fast growth and poverty reduction. The most dramatic poverty reduction in the past 15 years has been in countries that deepened their integration with the world market – examples are Bangladesh, Vietnam, China, India, and Uganda. With the faster job destruction and creation, it is important to have effective safety nets to help people make the transition.
Melissa Yan:
Mr. Dollar, I am a student at New York University, and I am currently working on my undergraduate honors thesis on the topic of developmental labor economics; specifically that of the effects of globalization on child labor in third world countries. Do you think you could give me the contact information of someone who could give me additional information on this topic? Thanks so much!
David Dollar:
There have been some good papers showing that trade integration can lead to less child labor, as for example in Vietnam. Eric Edmonds at Dartmouth College has some papers on this, which you can probably track down over the internet. There are also papers on child labor on the World Bank research website, http://econ.worldbank.org.
Joseph Silva:
What can you comment about Robert Zoellick's letter to The Economist where he, in so many words, justifies America's subsidies because of the fact that they import over $500B more than they export? Do you think that's a fair justification to all of the developing countries (even those where they don't have a great trade deficit)?
David Dollar:
My own personal view is that the agricultural subsidies and protectionism of Japan, the EU, and the U.S. really hurt developing countries, and are not particularly effective policies for these rich countries themselves. It would be possible to provide assistance to farmers and the rural communities in the rich countries in ways that were not so hurtful to developing countries.
Joseph Silva:
What is the World Bank doing to encourage the US, Europe, and other similar countries in the north to reduce farm and other subsidies? and to open up their markets to the specific products that south countries are most competitive in?
David Dollar:
The World Bank has become a leading advocate for reducing protectionism in rich countries that is aimed at the products of developing countries. World Bank research on the costs that these rich country policies impose on poor countries is frequently cited in this debate and I think that research is one of the Bank’s most important contributions. Beyond research, the Bank’s senior spokespeople try to keep this issue on the front burner in industrial country policy debates.
Madhukar RANA, Nepal:
Dr Dollar, I believe that globalization can help the poor people and nations provided it respects mountain specificities and the international communitiy duly rocognizes the role of mountians in global development. Therefore, my questionis this: Does or can the globalization process respect mountain specificities given these socieities' vast physical and biological diverity, fragility, and remoteness from global markets? Specificically I mean, can the globalization process, driven by economies of scale and the need for homogeneity yield any economic space for such societies in dire need of economies of scope and niche markets? If so, how may this be fostered through international auspicies for a more equitable divison of labour for the mountain peoples who are, after all, the poorest of the global poor?
David Dollar:
I believe that integration is compatible with protection of natural resources and the unique character of different communities. However, protection of natural resources and culture are not inevitable, but require particular institutions and regulations. In Nepal there have been some successful community forestry projects that have both protected the natural resource and improved the lives of poor people. Finding, publicizing, and expanding these “win-win” projects is very important.
Dr. Ashok Khemka:
Dear Mr. Dollar, Let me put it that anti-integration (or, anti-globalisation) is never feasible due to the technological enablement to integrate the world. This integration is not a 20th or 21st Century phenomenon, but had been taking place down the ages, but had received kickstarts first at the advent of the Industrial Revolution and now on the onset of the Information / Communication Revolution. But let me ask you is economic integration only capital market integration, i.e., the facilitation of trade and investment across political boundaries ? What about integration of labour markets ? Why institutions such as the World Bank, IMF or WTO not advocate the easing of visa regimes to facilitate labour mobility across political boundaries ? Does measures of legislating against off-shore outsourcing or capping the no. of H1-B Visas not militate against the spirit of a broader economic integration, with greater potential to remove poverty and inequality ? What potential has this globalisation to improve the quality of health and education of people, transfer of knowledge and development of institutions including markets in lesser developed countries ? Can you shed the role of international institutions in this respect ?
David Dollar:
World Bank research has emphasized that different types of integration can help developing countries grow and reduce poverty. In our report, Globalization, Growth, and Poverty we point out that migration from developing countries to rich ones has contributed to poverty reduction in countries such as Mexico by fueling a stream of remittances and by taking pressure off the labor market in the sending country. We have a growing research program on international migration and have highlighted the importance of this issue for poor countries. Today, remittances from developing country workers in OECD countries back to their families totals about twice the volume of foreign aid. The evidence is that integration can help developing countries improve the lives of their people, including quality of health and education. I think that is true for trade, direct investment, and labor migration.
konan françois kouadio:
What do you think about the attitud of developping countries in the globalization? What must their to help Africa? thank you
David Dollar:
A recent survey by the Pew Center on attitudes towards globalization around the world found more enthusiasm for integration in developing countries than in rich ones. In Africa, for example, most households thought that investment by multinational corporations is a good thing for their country, as is growing trade. I think that there is great interest in many developing countries in increasing links to world trade and investment. However, low-income countries need a lot of help with complementary infrastructure such as ports, roads, and customs administration. For countries trying to integrate with the global market, foreign aid is very important and should be increased.
steven:
Could you tell me the true definition of globalization?
David Dollar:
I like to define globalization as the growing integration of economies and societies around the world resulting from increased flows of goods, services, capital, technology, and ideas.
Subbiah:
globalisation is not a new theory or practice. then why this word provokes everyone in the market and what are the contribution by the developed countries for such a mounting abuse.
David Dollar:
I agree that globalization has been going on since the beginning of human history. However, I do think that the process has accelerated in recent decades because of technological advances and reforms in developing countries. This rapid change is often unsettling and most societies quite rationally want to control or manage it, which is certainly possible.
p.karthi keyan:
impact on globalation in indian industry - finance
David Dollar:
India’s financial system is still rather disconnected from the world. I think that allowing foreign financial institutions to provides services in India would help the industry modernize. On the other hand India and other developing countries should be cautious about opening up their capital accounts to easy flows of money.
p.karthi keyan:
impact on globalation in indian industry -production
David Dollar:
The production sector in India is more integrated with the world economy than the financial sector, and this integration has spurred positive changes in India – higher productivity and growth, but at the cost of more "churning" – that is, some firms succeed and expand and others fail and have to shut down.
Chaquimone Da Conceicao Gumbe:
Do you agree whith the assertion that the process of economic globalisation is neither a novel nor an even one? Justify your answer.
David Dollar:
Globalization has been going on for a long time (since the dawn of human history), but I would argue that the speed of contemporary communication and travel makes the current round of globalization novel. People around the world know a lot more about each other than ever before, I think a sense of global community is developing. Globalization is not an even process. The rich countries are mostly progressing at a very gradual rate. One thing I find interesting is that about half the developing world is integrating very rapidly with the world economy, and this is where we see the fastest growth and poverty reduction in the world. Examples are China, India, Vietnam, Chile, Mexico, Uganda. On the other hand, about half the developing world hardly seems involved at all.
Chaquimone Da Conceicao Gumbe:
in thatways are processes of economic globalisation resulting in 'shrinking' of space
David Dollar:
Technological advances that speed communications (such as the internet) and transportation (faster and safer air travel) create a sense of an integrated world that did not exist in the past. Now, a natural tragedy such as the recent earthquake in Iran is quickly known all around the world and people from far away send help. In this was integration is creating more of a global community.
Mr. Rajeev Sen:
Is globalization sustainable with the US deficit to hit a record $477 billion this year (2004) and worsen in case of further tax cuts or increased spending, a decline in the jobs component, 56% of the people find jobs hard to get? Will it adversely affect funding of poverty reduction programs, considering that aid has fallen from 0.5 percent of GDP in the early 1960s to about 0.22 percent?
David Dollar:
The rich countries all have aging populations and need to save for the future. Large fiscal deficits are the opposite of saving and make it less likely that there will be smooth growth and integration in the future.
Chaquimone Da Conceicao Gumbe:
to what extent is the Third World being left behind by the process of economic globalisatio?
David Dollar:
The third world is quite divided. Some countries are integrating rapidly with the global economy and gaining powerful benefits. China is the best example. Other examples are Mexico, Chile, India, Vietnam, Uganda, to name a few. On the other hand, there are third world countries that trade less today than 20 years ago and that are not involved at all in globalization. And then there are countries in between.
RMRM:
David Dollar, such an interesting name! Is your last name, Dollar, a coincidence related to your career or did you choose to have this name???
David Dollar:
My name is a produce of globalization. My ancestors came to the United States from Germany nearly 200 year ago. The name was originally “Thaler,” which is a common German name. Somewhere along the line it got changed to “Dollar.” Many immigrants adjusted their names in similar ways.
Gerardo Angeles:
Has economic liberalisation increased inequality within and between countries over the last two decades
David Dollar:
No. Worldwide inequality was on the rise for more than 100 years, up to about 1980. Since 1980 there has been a modest decline in worldwide inequality, because the fastest growth in the world has occurred in countries such as China and India that were quite poor 20 years ago. The 1990s was the first decade in which the developing countries as whole grew at a faster rate than the rich countries. That trend is likely to continue. Within countries, some countries have seen higher inequality (such as China and the U.S.), but in other countries inequality has declined, and in many countries it has been quite stable. You can find more information on this topic on my website, by going to David Dollar in the staff directory for the research department (http://econ.worldbank.org).
Michal Korczynski:
Hello. I would like to ask Mr David Dollar about his opinion on asymetry in generating social capital between high- and low-income countries. Does he agree that exclusive kind of social capital makes effective praticipation in globalization almost impossible for low-income countries. If it's true it would mean that globalization cannot help low-income countries to reduce poverty but reason of this situation is not only economic. Futhermore, it would mean that even some activites in economy's area can't be helpful for reducing poverty when social barriers and non-participation in global social networks is on such low level (as it is in poor countries).
David Dollar:
I agree with the notion that some amount of social capital is useful for taking advantage of globalization. I do not agree that low-income countries always lack social capital. Twenty five years ago China and India were poorer than Sub-Saharan Africa and had about 70 percent of the world’s extreme poor (living on less than $1 per day). Both China and India have benefited very powerfully from integration with the global economy, and I would argue that they combined their good institutions and social capital with more open policies that stimulated rapid growth and unprecedented poverty reduction. There are other low-income countries that have had impressive growth and poverty reduction, fueled in part by globalization: Bangladesh, Uganda, and Vietnam are examples. But clearly many low-income countries have poor institutions and governance and are not participating very much in or benefiting very much from globalization.
N A S:
What effect has globalization had on gender inequality in developing nations?
David Dollar:
No doubt the effect is complex. In some developing countries globalization has created a lot of jobs for women (for example, Mexico, Bangladesh, China) and this has increased women’s earning power and economic status. The most open economies such as the Netherlands or Sweden tend to have relatively high status for women, whereas many closed societies have discrimination against women (for example, the Taliban regime in Afghanistan).
Christopher Lee:
For those countries where globalization has not had a positive effect, or no effect at all, is there anything that can be done?
David Dollar:
Globalization is like a fast train and to get on the train countries need to "build a platform." By that I mean a foundation of good rule of law, basic education and health for the people, reliable infrastructure. Where there is a really corrupt, incompetent government, it is very hard for any outside agency to do much. On the other hand, where the government is really making an effort to provide critical services, foreign aid of different types can help the country achieve its objectives.
Paul Ardron:
What would you think about the creation of a World Wide Lottery for development aid? I know that many lotteries around the world bring in hundreds of millions a year, so a world lottery could make billions.This could help our world reach the UN MGD's, Since most countries are not giving the 0.7% GDP they agreed to give back in 2000.
David Dollar:
A worldwide lottery is an interesting idea, but it would require cooperation among different governments – governments that already use lotteries to fund their own local priorities. So, it may be difficult in practice to get this kind of cooperation.
R. Ponnusamy:
Dear Sir, How can you give guarantee that the globalization helped low-income countries reduce poverty? Many time number of other environmental and social issues are also play a vital role for this situvation. Did you take any effective steps on this line ? Thanking you, Yours sincerely, MR. R. Ponnusamy
David Dollar:
There are no guarantees. The evidence is that integration will help developing countries grow faster and create more jobs, but there will be some jobs destroyed as well and some dislocation. There is no evidence that integration reduces environmental or social standards. The most integrated countries, such as Netherlands or Sweden, have strong environmental protection and social development.
Judy Lai:
I am currently taking an on-line course with U of Maryland on "International Finance". The very first topic we discussed is on "Globalization". Is globalization good or bad? What is globalization? Is globalization democratic? Does free trade aid the growth of globalization? One of the students have the following comments on this topic. The instructor has made some negative (?) criticism on the World Bank and IMF regarding this issue. I like to share it with you and get your opinion regarding the comments made from the student and professor. The student's comment goes like this: "This has been a good discussion to this point, and I don't think I could really answer this question much better. Instead of repeating what's already been said, I thought I'd continue this thread with my own particular spin. Globalization, to me, is certainly a double-edged sword. It is nearly impossible to separate business from government. Governments often reflect the values of their respective cultures more than they shape them. Thus, even though the government, academia, and business leaders might tout globalization as a viable and desirable goal, not everyone is going to jump on board. To further complicate matters, not every country has an adequately-established market or education system to even propose, let alone sustain such maneuvers. This is where a lot of cries of inequality arise. The World Bank and International Monetary Fund have received criticism by some, those who would claim that favoritism or agendas cloud their activities. Much as the industrial revolution displaced our workforce, globalization is once again redistributing our labor and natural resources, not to mention more sophisticated operations due to more friendly operating environments abroad. These differences are only exploitable, however, until equilibrium is met worldwide. This is probably the biggest challenge to globalization, the sense of sovereign identity. For example, the pride of the U.S. to purchase U.S. products by U.S. firms employing U.S. citizens still lingers for many who hold to such patriotic pipe dreams. Personally, I don't agree that keeping domestic products domestic (or boycotting imports) are in the best interest of the U.S., so there is an apparent disparity in what one would call "patriotic". I have no problem with the fact that many foreign products or foreign labor finds its way into products sold by "U.S." firms. I don?t see that reaching for foreign resources have greatly undermined the American economy, or that our quality of life has suffered for the movement towards globalization. However, much of the industrial backbone is now gone from America. Naturally, we've gravitated towards more of a services society, where our blue-collar jobs are required to maintain the infrastructure based on regional needs. Far and wide, though, there are more services-oriented businesses creeping up to provide services to other services. This is all fine until a major disruption in the economy, when people and businesses tighten their belts and cut out the non-essentials. In these instances, especially if prolonged, many firms simply will not survive; and firms without a viable product or service during those prospectively troubled times will collapse, leading to further unemployment, less capital infusion, etc. This is in sharp contrast to an industrial economy which provides goods necessary worldwide. While this economy might not thrive based on their production, there is a certain security that their goods will be in demand. For example, middle-eastern oil assures a certain level of affluence to the region; however, the development of that economy is not so strong as to be a comparable contender with the economic powerhouses. Steps towards globalization in this case would see this region's primary economic advantage vulnerable to exploitation by non-regional parties (imagine U.S. owned oil interests in the Middle East?). The cultural and political insecurities are the predominant concerns, as well as the means to ensure sustained economic infrastructure. In the case of the Middle East, there are relatively few other resources for the region to fall back on in times of crisis (ie: no farmland to speak of, fresh water, trees, or basic natural resources necessary to sustain life). Thus, the likelihood of historically opposed entities to suddenly discard mistrust and embrace global markets seems rather unlikely; additionally, the current economic powerhouses would *definitely* have an advantage in developing countries, as they already have the capital necessary and would have the time to establish themselves before many of the weaker economies could build up their own interests. This would appear to be an unfair economic advantage, from the eyes of a sovereign nation. In this light, I support movements *towards* globalization. However, until cultural, political, and religious dichotomies are overcome, and people worldwide start thinking of themselves as global citizens and not as sovereign entities? globalization will meet with heated resistance; especially from regions with underdeveloped or repressed economies. For such a drastic occurrence, it will either take drastic measures? or great patience. I opt for great patience, and think the "international" communities should continue to work to lend a hand to underdeveloped economies. Only once there is a sense of fairness and trust established will globalization be truly fruitful globally." Below is comment from the instructor: "It is nearly impossible to separate business from government" You better separate them and decide what should drive what. Government thinks it should drive business and has a host of regulation in that regard. There is no doubt that because the corporation is a function of government, government can aid or hinder the business as it sees fit. However, in today?s market the business can move to almost anywhere in the world and will do so if the government does not accommodate it in a manner that maximizes the value of the firm. The criticism of the World Bank and the IMF is that they interfere with the free function of markets and distort the distribution of wealth and investment across the world. Free trade would eliminate these institutions because they interfere with free functioning of the marketplace."
David Dollar:
You raise a lot of interesting ideas and questions. Your professor seems to be making a conservative critique of the World Bank, that the Bank is not needed because private markets work well and can provide any capital that developing countries need. I do not agree that private markets always work well. The evidence suggests that low-income countries need to develop sound institutions such as property rights and rule of law and provide basic services such as education and health in order to stimulate growth and create the potential to benefit from integration with the global market. I think that foreign assistance, including the World Bank’s effort, can help governments that are serious about this agenda move on it. When new reforming governments come to power (Museveni in Uganda, Deng Xiaoping in China) the private market is not very good at providing timely support in terms of finance and advice. The private financiers cautiously hang back and wait to see if progress is made. The world has a big stake in helping reform movements succeed, and that providing finance and advice into these environments is the core business of the World Bank. On another point you raise, I do not think that globalization is that controversial in the developing world. I work in China, India, Vietnam, and find in these countries quite a bit of enthusiasm for integration. Clearly lots of workers from the south would like to move to the north. But I do see really mixed feelings in the rich countries, where many people are worried about the disruption that comes through integration. As the population of the rich countries ages, it makes sense to shift production to the south and to welcome workers from the south to the north, but much of the population in the north has ambivalent feelings about this process.
tedros w.kumsa:
tell me how globalization can be good to us
David Dollar:
To take advantage of globalizations developing countries "need to do their homework," as President Fox of Mexico expresses it. But "homework," he means creating a good environment of property rights and rule of law, as well as educating people and providing sound infrastructure. The developing countries that are "doing their homework" are benefiting from globalization in terms of faster growth, more job creation, and better lives for their people.
Maulik Bamania:
Is Globalization necessary for developing countries and upto what extend?
David Dollar:
I don’t think I would say that globalization is "necessary." It is rather a choice. The evidence is pretty convincing that trade integration and investment of multinational companies help countries grow, create jobs, and reduce poverty.
Giby Varghese:
Is it that due to globalization in India the Rich is becoming more rich and the poor more poor and if yes what can be the solution for such a problem
David Dollar:
It is not true that the poor are getting poorer in India. India’s national household surveys reveal that there has been very substantial poverty reduction during the 1990s. Integration with the global market has stimulated off-farm employment, which one of the keys to improving the lives of the poor. Go to the State Planning Commission website to get the detailed data on poverty reduction in India, as well as improvements in education and other social indicators.
Professor Errol P. Mendes:
Is it just possible that the answer to the question posed is that globalization has both helped reduced poverty in LDCs, but also perpetuated international inequality? My research seems to indicate this see Mendes & Mehmet, Global Governance, Economy and Law, Waiting for Justice, Routledge, 2003, see details at amazon.com
David Dollar:
If by international inequality you mean the inequality among consumption or income of individuals in the world, I accept the evidence that there has been a modest decline in global inequality primarily because China and India have grown so rapidly.
Ralf Leiteritz:
Doesn't it matter for giving an answer to the general question how one counts the number of poor people in the world? That is to say, several empirical studies apply different counting techniques, e.g., between and within countries, and arrive at totally different conclusions as to the impact of globalization. Hence, can you honestly claim to provide an unambiguous answer to a complex question rather than the all-pervasive "it depends"?
David Dollar:
Serious poverty researchers in academia agree that there has been massive poverty reduction in China and pretty solid poverty reduction in India, since about 1980. These two countries accounted for the majority of the world’s poor in 1980. So, in my mind there is no serious debate about whether or not poverty has declined during this most recent wave of globalization. It is true that one can uses different approaches to come up with different estimates of the number of poor in the world. But if you apply a consistent methodology back through time, you cannot escape the conclusion that poverty in China and India have declined massively. Also, the fact that the growth rate of the developing world is faster than that of the rich world is not debatable. That is the main driver of global inequality. There are lots of terrible things in the world, but let’s at least start the debate with the right facts. The emergence of China and to a lesser extent India is an important new phenomenon in the world. If the current trends persist, these will be the two largest economies in the world by mid-century.
Saleem Ali:
What are your reactions to the criticism of WB insiders such as Stiglitz and Easterly?
David Dollar:
Neither Stiglitz nor Easterly ever worked on the operational side of the World Bank so I don’t consider them “insiders.” It is good to have thoughtful academic critics like these two. But both of them seem to harp on negative aspects of integration and of World Bank activities. The two largest recipients of World Bank assistance in the 1990s were China and India, and other large recipients were Uganda, Bangladesh, and Vietnam. All of these countries have had some success with poverty reduction (China, spectacularly so). Most of the credit of course should be given to the societies and governments in these countries, but I think that the World Bank made useful contributions in all of them. At the very least taxpayers who support the World Bank should know that most of their support channeled through the World Bank goes to countries that have had success with poverty reduction. I’m not sure that the readers of books by Stiglitz and Easterly come away with that impression. There are lots of development failures as well and lots of lessons that the World Bank can learn from its own failures – failures that Lant Pritchett and I documented in Assessing Aid – but overall I think that the record of the World Bank is one that balances quite a few failures with lots of good work and successes as well. Balance, however, probably does not sell books.
S K Mahindru:
Mr. Dollar, How far do you think has been the impact of Globalisation in alleviating the poverty and Inequality of Indian Economy with the rest of the world ? What are the major suggestions do you have for india to achieve a 10% growth rate in GDP of India ?
David Dollar:
India is a good example of a country that has benefited to some extent from globalization, with more open trade policies and more receptivity to direct foreign investment in the 1990s. With its further commitments to reduce tariffs, India will become a relatively open economy. To grow at 10% India will need to complement this openness with a better investment climate at the micro level. This requires good state and local governance to create an environment in which firms can easily start up and expand. The regulatory framework for infrastructure needs to be improved. Our investment climate studies reveal that China has a better environment for starting firms and getting basic infrastructure services.
Khulekani Mathe:
What do you make of rich countries' unwillingness to open their market to developing countries?
David Dollar:
World Bank research has quantified the large costs imposed on developing countries by protectionism in rich countries. As a US voter, I am in favor of easier access of developing countries to the US market.
MAUREEN KISAKYE:
Assuming globalization has been ocurring to a large extent thanks to new technologies and interactions of the DEVELOPED WORLD, would it be fair to say that there are the GLOBALIZER and the GLOBALIZED countries?
David Dollar:
The rich countries have been open in many ways for some time (though not in all ways, for example immigration). In my mind what is new in the past twenty years is the decision by many developing countries to integrate with the global economy. So, I think it is useful to think of China, Vietnam, Mexico, and other as globalizing developing countries. Many other developing countries are barely involved in modern globalization, often because they lack the complementary institutions such as property rights and rule of law or workable infrastructure.
Joseph Chen:
How much has China benefit from globalization?
David Dollar:
The Chinese call their reform movement "gai ge kai fang," which loosely translates as "change the system, open the door." Clearly the Chinese think that opening the door is a critical input to their development. The increase of their trade has been extraordinary; they are the largest recipient in the developing world of direct investment; and large numbers of students have gone abroad, and then many returned home. I would argue that these different aspects of globalization have all been very important for China’s rapid emergence as a global economic power.
Stojan Jakotyc:
Why did the globalisation improved the situation in Asian countries and not in Sub Saharian Africa? Is it because that some people are to lazy or to stupid to work properly?
David Dollar:
I do not believe development failures are caused by laziness or stupidity. The evidence suggests to me that countries can benefit from globalization if they have certain fundamentals in place, including good property rights and rule of law, basic education and health, decent infrastructure. It is encouraging that quite diverse countries have been able to find different ways to move on this agenda. In Africa the progress in Uganda and some other countries is encouraging. I remain optimistic that with time all countries will benefit from integration.

Thank you for participating in the discussion. For further reading, here are some of the resources David Dollar mentioned in his discussion:

 

Discussion Transcript
World Bank Globalization site



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Former Country Director, China and Mongolia