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Effect of Globalization on Poor Countries

This paper discusses the development of the globalization process, the meaning of the term globalization and the impacts of globalization and global companies on the world economy, global community, inequality and different living standards in the wealthier and poorer countries. It is pointed out that globalization has both, negative and positive aspects, but it certainly brings a significant change. The developed countries and global companies are carriers of the globalization process which are using very well the global conditions. With the development of information and communication technologies the world has become a single system where a connection between two subjects in different parts of the world is made within a few minutes. An eternal theme during the development of globalization is the discussion of problems of economic inequality and poverty. The question is what are the concrete effects of globalization causes? Who are the losers and who are the winners in this process? In response to this question there are two opinions. Someone think that if merging the developed and underdeveloped countries follows an increase of inequality and dislocation of production, while others argue that the winners actually are both sides. Is it a game with two winners or one loser?

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Globalization means a dynamical, political and cultural process that has enabled the rapid development in the fields of transport and communication, which is often driven by the desire of large corporations to conquer new markets. Globalization is a controversial process.

There are three types of globalization:

Economic globalization means primarily the creation and regulation of a single world market with free competition and encourages development. Opponents on the other hand argue that the large multinational corporations have been using already-earned capital to prevent the creation of competitors with whom to share the market.

Political globalization is closely associated with economic globalization. The existence of a single world market reduces the ability of national governments to directly stimulate the development of their economies by setting rules that give priority to our own companies. City decision-making is transferred from state to international institutions, thereby reducing the ability of people to direct election of representatives of government influence in their own development.

Cultural globalization is the encounter of diverse world cultures and customs. The flow of goods, capital and people across national borders brings with it the flow of habits, customs and cultures. This process of different people often provokes a different reaction. Some consider the impact of a new culture positive development that enriches the existing culture, while others in the new culture they see a threat to established values and rules (http://bs.wikipedia.org/wiki/Globalizacija).

Globalization is preceded by an incredibly rapid technological development. There was a combination of information technology and communications. Computer technology, satellite communications, optical cables and mobile phones allow a quick and cheap communication that has, among other things; result in geographic branching of companies. Plants are moved around the world depending on the benefits of natural resources and cheap labour. In most developed countries are formed knowledge industries, while manufacturing plants are located in less developed and underdeveloped countries.

Economic globalization has an appropriate infrastructure in which are basic liberalization and free market trade within countries and between them. It is not an ordinary interdependent economy, but it is a system based on strict rules that provide free production and exchange in the world.

The globalization process is independent of our will, because it is conditioned by objective laws.

Society should be aware of the great advantages and bad effects of globalization. One of the most serious consequences of globalization is certainly excessive increase in economic inequality and poverty. Below I will try to explain more clearly the relationship between globalization, global companies and the differences in living standards.

The Affect of Globalization and Global Companies on Poor Countries

Globalization creates certain problems for even the most developed countries, because the modern technology leads to a reduction in employment and related social problems and the multinational companies (MNC) often give priority to their own interests over the interests of other countries. Through globalization, developed countries have getting privileges, leadership, profit, control, influence and power, conquer new markets, and expand their sphere of influence and looking preferably for new investments.

Developed countries and the multinational companies impose globalization and its rules to developing countries like a long development vision, using the fact that for development of these countries foreign investments are needed and this are offering only developed countries with their rigorous criteria.

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Who owns the capital of the world? According to Anderson and Cavanagh, among the largest 100 economies in the world, 51 are multinational corporations (MNCs), whereas only 49 are countries. The analysis is based on a comparison of the corporate sales of MNCs and the GDPs of the countries. The study further shows that, out of the 200 largest economies of the world, 144 are MNCs. The combined sales of the top 200 corporations are bigger than the combined economies of all the countries of the world, minus the largest 10. The income of MNCs is 18 times higher than the combined annual income of the 1.2 billion people of poor countries (24 percent of the total world population). The study has found that the growth of sales of top 200 corporations is faster than overall global economic activity. Between 1983 and 1999, their profits grew by 362 percent whereas their combined sales grew from 25 percent to 27.5 percent of the world GDP. Most of these MNCs belong to the rich countries; therefore, it is natural that MNCs and their respective countries should safeguard their mutual economic, political, and cultural interests under the cloak of globalization. Economies are the catalysts of the globalization process, and they are represented by MNCs and transnational corporations (TNCs), which maintain the highest stakes and stand to gain the maximum benefits. Having poor economic infrastructure and little capital, developing countries very easily agree to host MNCs. At times, their weak regulatory positions are subsequently exploited by MNCs. MNCs either buy out the local companies of the host countries or push them out of the markets by offering cheaper and better quality goods for some time. MNCs carry out research to identify human needs, problems and lifestyles and come up with multidimensional responses, including the development of products and services. What causes them to conduct such researches and produce goods accordingly? Is it for the good of public or maximizing their own profits? This puts the whole process of globalization in question as its generally proclaimed goal is the good of common people. Before examining what happens when MNCs enter host societies to achieve their commercial objectives, it is pertinent to discuss the problems and strengths of the host societies. (Anderson and Cavanagh. 2000. quoted in Rahman K., n.d.).

Unlike developed countries that use the positive effects of globalization, undeveloped countries are not able to actively participate in the expansion of world trade and to attract a greater volume of private foreign investment, resulting in lagging behind the development of global economy. Structural weaknesses and problems of external and internal debt of these countries is a key constraint to economic growth. This limitation is related to the lack of the market, underdeveloped technology and private sector, entrepreneurial and marketing skills, as well as non-transparency of legal and regulatory framework. Globalization is imposing further restrictions in terms of the need to adapt the new competitive international environment to these countries.

Globalization and Living Standards

It is quite difficult to measure the living standards in the global economy; it is even more difficult to measure these standards in relation to globalization. The living standards are different from country to country because of their national economic structure.

Standards of living in the global economy are devised of income, health and education. These broad terms are indexed by GDP per capita, literacy, infant mortality, GNP per head, secondary and primary education, doctors per 100.000 people and so on. Living standards differ because of national economic structure – high-income countries are based on agricultural production. They differ within the population and labour market factors with high-income countries have a population with a high level of education and relatively high rates of production. Institutional factors – stable government and policies allows for better living standards, economic growth influenced by culture, access to capital and ease of establishing a business, global relations and levels of foreign debt (http://www.exampleessays.com/viewpaper/53146.html).

However, the standards of living, or quality of life is not simply a measure of the level of economic growth or change in real GDP, but it is a measure that takes into account the literary levels, education, health care, technological changes and mortality rates. An example of a quality of life indicator is the Human Development Index (HDI) which measures changes in those factors as a result of globalization. Over the last few decades, the HDI of the world’s richest countries have increased as a result of globalization, where growth and development has been attributed to these economies through willingness to embrace market liberalization. However, the HDI of the poorer nations have grown at a slower rate to the richer nation’s which, as some economists put in, shows that globalization is another word for the continual plundering of the poorer and weaker nations by the rich and powerful economies. It has been strongly argued that the benefits of competition go only to those who can compete, and poor countries have to negotiate on unequal terms (http://www.bukisa.com/articles/92708_impact-of-globalization-on-economic-growthm-quality-of-life-external-stability-on-market-economies).

There have been two important trends since about 1980. The first of these has been acceleration in economic growth in many of the world’s most populous countries – particularly the Asian countries of China, India, Bangladesh and Vietnam. These countries, which were among the world’s poorest as recently as 1980, have all grown faster than the rich countries, in per capita terms, in the period since then. Largely as a consequence of this improved economic performance in these populous Asian countries, the poorest one-fifth of countries in 1980 had a population-weighted annual per capita growth rate of 4 per cent from 1980 to 1977, compared with 1.7 per cent for the richest fifth of countries over the same period. The second, and much more problematic, trend has been the continued poor economic performance of most of the countries in Africa, with some countries experiencing declines in average living standards, not only relative to the rich countries, but even in absolute terms. These two opposing trends have had important implications for global poverty and inequality over the past decades (Gruen D. and O’Brien T., 2002.).

As everyone knows, much of the world has been left aside. Most of Africa and Latin America, Russia, all of the Middle East, and large parts of Asia. Moreover, for many countries, the degree of participation in the global economy varies by region.  In fact, globalization is not global but is mainly limited to northern latitudes.  Linda Weiss points out that as of 1991, 81% of the world stock of foreign direct investment was in high-wage countries of the north: mainly the United States, followed by the United Kingdom, Germany, and Canada (Kenneth N. Waltz. 1999 quoted in Sidani K. 2003.).

The concept of globalization is not really global but based on the very few dominant and powerful countries, and especially the United States.  Many globalizers believe that America had stumbled into the right way of controlling the global market.  Globalization is not such a happy thought for most poor countries, because they are being used by the richer countries.  The rich countries buy the raw material from the poor countries, and then sell their finished products for relatively high prices, thus increasing the financial gap between themselves and the poor countries (Sidani K., 2003).


Globalization is a process that has started and that cannot be stopped anymore. It has brought an increasing interaction among the participants of international trade, global networking of the financial markets and growing power of multinational corporations. Today, globalization is seen as a world without borders. Everything begins to be reflected globally. So, today are global products, fashion, consumers and citizens. Globalization can be understood as a stage in the development of the civilization. Globalization often confronts with some anti-globalists all over the world. They have common responses to globalization; regionalism, nationalism and patriotism in order to preserve national and cultural particularities and to some extend protect their economic independence. The strengths and power of the Multinational Corporations are more and more visible in the globalization process. Many countries where these corporations operate and especially those small and poor are just having affiliates of the Multinational Companies because of the enormous financial resources of these corporations. The GDP (Gross National Product) of these countries cannot be even remotely compared with the profit that realizes the MNC. Multinational corporations, however, spread their influence and power in all countries, none can escape. Investment decisions are taken by corporations at global level, transferring capital or resources from one country to another, impacting (un)employment of millions of people and level of economic activity in some countries. What brings the globalization, global businesses and economies and the developing world in the future remains uncertain.


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