Globalization and poverty

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Globalization and poverty by Michael Blowfield
London Business School

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Globalization and poverty

  1. 1. A major promise of economic globalization is that it will create a tide of prosperity that will lift all boats, and overall, even if some people gain more than others, the kind of crushing poverty that has long been part of the human condition will be removed. Business as the main creator of wealth and as the beneficiary of the free trade and flow of capital that are pillars of economic globalization is clearly an important element of globalization’s poverty alleviation agenda. Indeed, some authors claim that it is only by encouraging free enterprise that poverty can be ended. Yet, is it reasonable to argue that business has a responsibility to tackle poverty? Should companies simply conduct business according to the laws of the land and the marketplace, or should they consciously seek to affect poverty? Is there a role business can play that is different from, and more efficient than, that played by international development agencies? The bottom of the pyramid Much has been said about “the fortune at the bottom of the pyramid” and social entrepreneurship. Both of these concepts have become powerful ideas in thinking about corporate responsibility in terms of opportunity rather than danger. Along with specific poverty-oriented business models such as fair-trade and micro-finance, they promise to harness the strengths of business (for example, innovation, raising capital, marketing, managerial efficiency) and set them to work as assets to benefit the poor and marginalized. Thus, in addition to brands such as Max Havelaar, Equal Exchange, Honest Tea, and Grameen that have been built on serving the needs of the poor, today companies such as Standard Charterered, Vodafone, and Deutsche Bank have developed product lines that address specific niches in what have hitherto been considered underserved markets. Moreover, the idea that the poor and otherwise marginalized sections of society present opportunities for business is nothing new: one only has to think of Avon, which began with the idea of selling cosmetics to (typically rural) women in the United States through a network of entrepreneurs picked from people who lived in those same communities – a model that has been exported to companies around the world. However, poverty as opportunity is only one aspect of its relationship with business. Furthermore, to think of the poor as only producers or consumers is to ignore the complex nature of poverty: there have been numerous studies that show there are Business Strategy Review Winter 2007© 2007 The Author | Journal compilation © 2007 London Business School 35 → Can business eliminate poverty? And, if yes, should it? As business becomes more global in scope, companies need to think about how they will address the poorest sectors of the planet. Michael Blowfield talks about the four dimensions of the business-poverty relationship. Globalization and poverty Trends Should companies simply conduct business according to the laws of the land and the marketplace, or should they consciously seek to affect poverty?
  2. 2. gender, racial, national, political and other non- economic dimensions to poverty. Thinking of poverty as a lack of money, or a lack of skills and infrastructure necessary to obtain it, can lead to some very narrow and potentially misleading ideas of what poverty means and how it can be addressed. For instance, there is heated debate as to whether free markets can prosper without a functioning democracy; there is evidence that poor rural women are especially prone to exploitive labour conditions in developing economies; and there are many studies of how ethnicity affects access to economic opportunity and political power in regions such as west Africa and south Asia. Although progress out of poverty is still often measured in terms of income, access to education, infant mortality and disease, several international development agencies use a multi-faceted model to understand poverty; such models consider not only financial capital, but also access to natural resources (natural capital), skills and education (human capital), infrastructure and technology (physical capital) and participation in social networks (social capital). It is the blend and balance of these different types of capital that, according to what is known as sustainable livelihoods theory, ultimately determine whether an individual or family can prosper. Sustainable livelihoods theory is just one of the many lenses that have developed over the years to help understand poverty. Authors since at least Vladimir Lenin have critiqued the system of capitalism as causing poverty, either globally or in terms of a developing/developed country world divide. Others writers (such as William Greider as well as Will Hutton and Anthony Giddens), in their books on global capitalism, have focused on how the behaviour of business or of particular industries and countries relates to poverty. Even those who endorse the ultimate efficacy of globalization argue that the process needs to be better managed and that the role of business cannot simply be left to unfettered free markets. A business-poverty relationship? What emerges from these and other theories of poverty and development is an awareness of the complexity of the factors surrounding poverty itself and of the business-poverty relationship. Yes, there are geographical dimensions to poverty – some countries are much poorer than others (the developing/developed country divide), but one only has to look at disparities in wealth within countries such as the US, Russia and Brazil to see that not only inequality, but also real poverty, exist in rich nations. Likewise, there is evidence that women experience poverty differently from men and in some cultures are marginalized in ways that men are not. But this is not to say that all women are poor or denied the opportunity to progress. Overall, there are national, gender, racial, ethnic, and other dimensions to poverty; but they do not fully explain either the causes of poverty or its possible solutions. Given this degree of complexity – and the fact that, historically, business has not been considered a partner in international development – it might be argued that business should not be overly bothered with poverty and its alleviation. As noted, there are many who believe that free markets will of themselves eradicate poverty in due course, even if some have to endure pain in the process. As Henry Wilcox, a character in E.M. Forster’s Howards End, observed during an earlier era of economic globalization, “The poor are poor, and one’s sorry for them, but there it is. As civilization moves forward, the shoe is bound to pinch in places, and it’s absurd to pretend that anyone is responsible personally.” But that era came to a screeching halt in the early 20th century, in part because of perceptions that it was unfair and a cause of immiseration (economic impoverishment). The continuing protests against globalization by supporters of workers’ rights, indigenous peoples, the environment, and human rights; the emergence of popular anti-big business movements in countries such as Venezuela and Bolivia; as well as increased unrest in globalization’s success stories in countries such as China and India suggest that the fairness and justice of economic globalization is still widely disputed. On top of this, poverty has been associated with a rise in militant religious groups from Israel to Indonesia; and, in wealthy Western markets, influential segments of consumers are factoring poverty alongside human rights and environmental issues into their buying behaviours. While there may not be a watertight case as to why business should pay attention to poverty, there are numerous reasons why the issue may gain many companies’ attention. However, these reasons vary © 2007 The Author | Journal compilation © 2007 London Business SchoolBusiness Strategy Review Winter 200736 → Trends One only has to look at disparities in wealth within countries such as the US, Russia and Brazil to see that not only inequality, but also real poverty, exist in rich nations.
  3. 3. Business Strategy Review Winter 2007© 2007 The Author | Journal compilation © 2007 London Business School 37 Trends The only way is up.
  4. 4. according to the way particular companies or industries interface with poverty. We have already seen that some see poverty as a business opportunity; and this thinking is influencing industries such as banking, food and agriculture, and household products. But, as mentioned earlier, that is only one dimension of this relationship. Business can also be a cause or a victim of poverty, or it can remain neutral. Marley, not Scrooge One of the drivers of corporate social responsibility has always been concern that business exploits poverty through such practices as low wages and poor working conditions that take advantage of lax labour and health and safety laws. Recall Ebenezer Scrooge’s comment to the ghost of his former partner, Jacob Marley, in Charles Dickens’ A Christmas Carol: “But you were always a good man of business, Jacob.” Marley responds in a flash. “Business!” cried the Ghost, wringing its hands again. “Mankind was my business. The common welfare was my business; charity, mercy, forbearance, and benevolence, were, all, my business. The dealings of my trade were but a drop of water in the comprehensive ocean of my business!” Globally, companies in oil and mining have been criticized for abusing communities near their facilities, undermining their sources of income, ignoring their human rights and taking away their land and water rights. In these instances, business can be accused of being a cause of poverty, which is a very different dynamic for the company to address. Equally, business can suffer from poverty and its consequences. For example, since the 1990s companies in Africa and parts of Asia have recognized that high rates of HIV/AIDS and other fatal diseases starve them of the skilled workforce they need to be competitive. Likewise, if schools do not function properly or if (as is the case with many school-age girls in south Asia and sub-Saharan Africa) significant sections of the population receive little or no formal education, companies will struggle to find an adequate supply of workers. However, it also needs to be acknowledged that companies can treat poverty with indifference. Private capital has grown to surpass other forms of foreign direct investment (FDI); and, after a dip in the early years of the new millennium, FDI in developing countries has increased. But these countries still only account for 36 per cent of all FDI, and the proportion going to poor countries shrivels as soon as China and India are removed from the statistics. It can be argued that multinationals depend on such countries for growth, (and this is true in places such as China, India and Brazil) but developed economies are still the most profitable markets. Furthermore, as the threat of climate change and other aspects of sustainable development become better understood, the role and nature of growth itself is coming under the spotlight, raising all manner of questions about what sort of prosperity the Earth can accommodate in the future and how the poor will figure in what might be a very different model of economic progress. ■ Resources Michael Blowfield, “Business and poverty: A framework”, Presentation to the University of Cambridge, Post-graduate Certificate in Sustainable Business, April 2007. Paul Collier, The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It, Oxford University Press, 2007. William Greider, One World, Ready or Not: The Manic Logic of Global Capitalism, Penguin Business, 1998. Will Hutton and Anthony Giddens, Global Capitalism, New Press, 2001. Kevin O'Rourke and Jeffrey Williamson, Globalization and History: The Evolution of a Nineteenth-century Atlantic Economy, MIT Press, 2001. Joseph Stiglitz and Andrew Charlton, Fair Trade for All: How Trade Can Promote Development, Oxford University Press, 2007. © 2007 The Author | Journal compilation © 2007 London Business SchoolBusiness Strategy Review Winter 200738 → Michael Blowfield (mblowfield@london.edu) is a Teaching Fellow at London Business School, specializing in corporate responsibility. Trends London Business School Regent’s Park London NW1 4SA United Kingdom Tel +44 (0)20 7000 7000 Fax +44 (0)20 7000 7001 www.london.edu A Graduate School of the University of London

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