TECHNOLOGICAL GLOBALIZATION, A KEY AGAINST POVERTY
This article was previously published at Fundación Civismo: civismo.org/en/technological-globalization-a-key-against-poverty/
Even though the process of globalization has been going on for centuries now, the most important recent event in relation to the process of economic internationalization, has been the globalization of finance and technology, practically since the end of the XXth century. This latest step of globalization has been the one which has generated greatest controversy and debate among economists, political scientists and experts on economic development and poverty. Long debates have developed around this particular subject and themes as intranational inequality (because international inequality has steeply decreased), technological diffusion and adoption, and multiple other issues have been hotly debated. Arguing and building up new theories and ideas among people with varied opinions is not an issue at all. The problem comes when the debate loses its rationality, respect for data and evidence, and turns towards dogmatism and spurious arguments. This has occurred recently with some particular sectors of the left and the protectionist right (alt-right movements), which have turned their back to data and decided to introduce dogmatic arguments to the debate about globalization. Throughout this article, and always presenting evidence and data, I’ll try to offer a brief image of how globalization has helped to reduce poverty and improve living standards in developing countries, and also why technological diffusion is not always the most important factor for modern development, but its implementation and usage in emerging economies.
According to a pretty important study released by the Yale Center for the Study of Globalization and produced by Laurence Chandy and Geoffrey Gertz in 2011 (With Little Notice, Globalization Reduced Poverty- Yale University), the process of globalization has been one of the main drivers of poverty reduction throughout the last couple of decades. The World Banks registers “absolute poverty” as living on less than $1.90 per day, adjusted to 2011 PPP. Global poverty levels stood at 36% in 1990, went down to 25% in 2005, and are nearly at 9.5% nowadays. This, looked however is looked at, is a complete success, but doesn’t mean all work is done.
In this process of poverty reduction, countries can be divided in two big groups by performance. On one side we find China and India, and on the other side all the other countries. Some of the data available in the cited study reach just up to 2005, but by analyzing 30-years periods, we can observe how in the 1970s more than 84% of the Chinese population lived in absolute poverty, while in 2005 that number went down to 16% of the population and continued decreasing until it reached the 0.7% rate registered nowadays. For global poverty data, this reduction of Chinese poverty rates was crucial. In a country with a population of over 1 billion citizens, a poverty reduction from 84% of the population to less than 0.7% in less than 50 years has a great relevance for international living standards. But this reduction of poverty hasn’t been equal for all countries or regions. It’s true that almost every country has improved its socioeconomic situation thanks to globalization, according to several indicators (life expectancy, childhood death rates, health, education, access to clean water…), but some countries or regions have fared much better than other, as is the case of sub-Saharan African countries. According to data from the World Bank, in 2015 the absolute poverty rate in sub-Saharan Africa stood at 41%, and 27 out of the 28 poorest countries in the are located in the sub-Saharan Africa region. On top of it, it should be mentioned that while in some traditionally poor countries as India poverty was greatly reduced from 45.9% in the 1990s to 21.2% in 2011, or China which nearly vanished absolute poverty, other countries maintained an absolute poverty rate above 50% since the 1970s up to 2010, with minimal poverty reductions since then. Many ideas and theories have been developed around this issue throughout the last couple of decades, but a relatively new debate around technology and emerging countries adaptation to it has ignited a new branch or research and academic discussion. Do developing countries need more access to ICTs or just need to learn to employ them more productively? Is it just a problem of accessibility or also of usage?
To answer this question, I’ll make reference to two different academic articles (A roadmap for digital-led economic development, &, Do poor countries really need more IT?) which present a compilation of papers on the issue and discuss to the alternative answers to the previously posed question.
In developed nations, more than 90% of citizens have connection to the internet, while this rate goes down to less than 20% in emerging countries. So, at first glance, it could seem as the unique possible solution to solve emerging nations productivity issues could be to increase the rate of connectivity by introducing more technological capital or increasing investment in those areas. A very positive spillover of digital technologies, according to a paper by Hjort and Poulsen, is that these technologies do not only create employment in industries related to their mainly related activities, but also in many other industries and sectors of the economy, mainly by increasing Total Factor Productivity (TFP).
But technology (in its broadest sense) doesn’t just increase productivity through, for example, automation, but also helps to create new connection methods between economic actors, which facilitates exchanges and transactions. We just need to look at the great pace of development of international supply chains after the explosion of ICTs in the 90s. Richard Baldwin explains this perfectly in his book The Great Convergence, describing how new paths for economic development are created when firms and citizens at developing countries truly understand technological change, being one of the most relevant of them organizational technologies, which provide a new global division of labour that improves decision making and registers greater productivity and efficiency levels.
In the same order of things, now comes the great question, do poor countries need more IT? In the previously mentioned article about IT abundance in emerging countries and their usage of it, the economists Maya Eden and Paul Gaggl show that in low income countries, the value of ICT capital represents a smaller share of the aggregate capital stock than in developed nations, and differences even expand when measured in real terms, mainly because ICt capital tends to be relatively much more expensive in developing countries, while labour is relatively cheaper in developing than in developed countries, which creates an even greater than imagined imbalance in the capital-labour ratio. The data of their study is presented in a graph where the independent variable (Real GDP per capita) is displayed in a logarithmic scale, while the dependent variable (Units of ICT per Unit of Non-ICT) is presented in a regular scale, presenting a positive relationship between the two variables, with severe deviations from the average tendency (specially for 2011 data). We can observe this graph below.
From these two graphs, presenting the same study at different times in History, we can conclude that the cause of developing countries for having less ICTs is precisely their previously low productivity and low capital-labour ratios, which explains the low and ineffective adoption of new technological capital. One of the most important conclusions from this study is that variation across countries in ICT abundance is related, apart than to real GDP per capita, also to industrial composition of the various emerging countries, being the differences in industrial composition the main friction creators for ICT adoption and technological diffusion.
In conclusion, evidence shows how globalization has helped nearly every developing country to achieve a better living standard by reducing poverty and causing significant improvements in various indexes related to education, healthcare, life expectancy and derivatives. Even though recently it has been argued that the abundancy of It capital in emerging economies has a direct relationship with real GDP per capita, evidence shows this argument is valid just up to a point, when an efficient technological adoption and implementation becomes more important than simply increasing the ratio capital-labour of an economy. Liberating many developing countries (Many in South America and sub-Saharan Africa) from their autocratic and (many times) totalitarian governments would be the first step towards allowing a freer flow of goods, services, people and information; being some of the greatest keys to prosperity.