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This article was downloaded by: [Florida State University] On: 20 October 2014, At: 20:28 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK New Global Development Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/rjcs19 Complexity in Linking Poverty and Globalization Apo Leong Henry Mok Published online: 31 Jan 2008. To cite this article: Apo Leong Henry Mok (2002) Complexity in Linking Poverty and Globalization, New Global Development, 18:1-2, 85-94, DOI: 10.1080/17486830208412630 To link to this article: http://dx.doi.org/10.1080/17486830208412630 PLEASE SCROLL DOWN FOR ARTICLE Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensors make no representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content. Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of the Content. This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. Terms & Conditions of access and use can be found at http:// www.tandfonline.com/page/terms-and-conditions

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Page 1: Complexity in Linking Poverty and Globalization

This article was downloaded by: [Florida State University]On: 20 October 2014, At: 20:28Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registered office: MortimerHouse, 37-41 Mortimer Street, London W1T 3JH, UK

New Global DevelopmentPublication details, including instructions for authors and subscription information:http://www.tandfonline.com/loi/rjcs19

Complexity in Linking Poverty and GlobalizationApo Leong Henry MokPublished online: 31 Jan 2008.

To cite this article: Apo Leong Henry Mok (2002) Complexity in Linking Poverty and Globalization, New GlobalDevelopment, 18:1-2, 85-94, DOI: 10.1080/17486830208412630

To link to this article: http://dx.doi.org/10.1080/17486830208412630

PLEASE SCROLL DOWN FOR ARTICLE

Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”)contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensorsmake no representations or warranties whatsoever as to the accuracy, completeness, or suitabilityfor any purpose of the Content. Any opinions and views expressed in this publication are the opinionsand views of the authors, and are not the views of or endorsed by Taylor & Francis. The accuracy ofthe Content should not be relied upon and should be independently verified with primary sources ofinformation. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands,costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly orindirectly in connection with, in relation to or arising out of the use of the Content.

This article may be used for research, teaching, and private study purposes. Any substantial orsystematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution inany form to anyone is expressly forbidden. Terms & Conditions of access and use can be found at http://www.tandfonline.com/page/terms-and-conditions

Page 2: Complexity in Linking Poverty and Globalization

COMPLEXITY IN LINKING POVERTY AND GLOBALIZATION

Apo Leong Henry Mok’

Introduction

The relationship between globalization and poverty is complex. Part of the reason for the complexity is the multiple meaning of the term “globalization”. As Zygmunt Bauman (1998, 1 ) points out, globalization is “a fad word fast turning into a shibboleth, a magic incantation, a passkey meant to unlock the gates to all present and future mysteries.” The multiplicity of the meaning of the term is manifest in the 1999 United Nations Human Development Report (UNDP, 1999). It associates globalization with the international integration of culture, technology, labor standards, governance, media, and marginalization. In some respects, the term poverty is also complex as there are differences of view regarding the meaning of poverty within different cultures, the relationship of poverty to income, the comparison of poverty across countries with different levels of economic development, and the measurement of poverty. While it is clear from the literature that globalization and increasing levels of poverty have developed in tandem and that there is a growing income gap between developed and developing nations, i t is less obvious that the relationship is linear or simple because factors other than globalization have an impact. In this paper, therefore, we identify, and comment on, the complexity of linking poverty and globalization. Some of the factors which have to be taken into account are: the role of the nation state; the relation between income and poverty; the relation between income and economic growth; and the inadequacy of current poverty measures. We discuss each of these in turn.

Role of the Nation State

There is a great deal of debate about the future of the nation state in an era of economic globalization. Some writers, viewing economic globalization as the triumph of laissez- faire capitalism and neo-liberalism, claim that it is leading to the end of the state. (Ohmae, 1995). Others talk about the retreat of the nation state because of the diffusion of power in the world economy (Strange, 1996). Still others talk about the threat to, and possible demise of, democracy (Sinclair, 2001). Given the uncertain prognosis of the future of the nation state, therefore, it is hardly surprising that social policy analysts view the future of the welfare state with equal uncertainty. If the nation state declines, then it is assumed that the welfare state, and the social policies associated with it, will also decline or be radically modified. Instead of a social policy built on the solid rock of the state, many argue that we are faced with social reform in which market forces will prevail, thereby turning back the clock on social legislation, eroding social security, and commodifying social services. In the process, not only the welfare state will be undermined but also the social citizenship upon which it is grounded. A notion of social

We wish to acknowledge the assistance of Glenn Drover in the preparation of this material. I

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citizenship, based on rights and state guarantees, will gradually be replaced by a notion of citizens as “consumers, whose medium of social interaction and source of economic and social security (will be) the capitalist market” (Broad and Antony, 1999, 11). In the new world of globalization, social rights will be affirmed in terms of ownership of private property, individual earnings, choices in the market place, not in terms of social minima, social standards, or social equality.

In terms of dealing with the problems of poverty, the reactions to economic globalization can be divided into two types: those who welcome it and those who oppose it. For those who welcome it, trade and investment produce growing interconnectedness among national economies and improve living standards over time. For those who oppose it, globalization is perceived as a break-down in the existing social order as states become increasingly subordinated to multinational corporations, markets are socially disembedded from their national moorings, workers have less and less control over their lives, and social protection is undermined. Paul Hirst and Grahame Thompson (1996) associate the first of these views with the new ‘inter-national’ economy and the second with the ‘fully globalized’ economy. Those who look at globalization as an inter-national economy acknowledge the increasing integration of nations and world markets along with the growth of multinational corporations but they also stress the ongoing importance of the nation state in policy-making. Those who stress the fully globalized view of the world economy place an emphasis on the problematic of world governance as the roles of nation states and organized labor are increasingly transformed by the terms of international trade.

According to proponents, the case for economic globalization or free trade is based on comparative advantage (Bryan, 1994, chapter 10; Lipsey, 1987, 1990). The idea of comparative advantage is that each country gains from trade because each is likely to produce what it is best able to produce in a competitive international market. Hence, each country becomes more efficient at doing what it can do best and consumers in each country are better off because of that efficiency. On the other hand, comparative advantage does not presuppose that every person in each’country will be better off or that income will be more equitably distributed because of the benefits of free trade. In fact, under certain circumstances, wages in one country (say for unskilled labor) may fall in the short term while those in another country may rise although presumably in the long run, as wage differentials diminish, there will be a tendency toward equilibrium. Nor, according to proponents, does free trade imply that national governments cannot interfere in the economy if labor standards or externalities, such as environmental pollution, are made worse by trade.

Opponents have a different story. They argue that national protections are deteriorating under globalization, governments are weakened in their capacity to maintain social programs, and free trade agreements override the sovereignty of individual states. Because of the uncertainty of trade on wages, on the distribution of income, and on externalities like pollution, critics of free trade, such as environmentalists, also challenge the notion of comparative advantage. On the other hand, while opponents highlight the 86 New Globul Development Joumul of Intemahonul rind Conyurutrve S o c w l Welfure

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intrusive nature of the trade agreements, particularly in terms of their impact on public policy, they (Barlow, 1990; 2000; Clarke, 1997) are not necessarily suggesting that countries return to economic protectionism and high tariffs. Instead, they call for checks and balances in order to give full recognition to the rights of national governments to protect public services, and to ensure the enforcement of labor and environmental standards. In addition, they want a guarantee that trade agreements, and multinational corporations in particular, will not be able to override democratically elected institutions. Proponents of free trade, on the other hand, value the limitations which are placed on national governments (Ohmae, 1990, 1995; Courchene, 1999). They argue that nation states are less able to alter the course of economic and social development than they were before. Therefore, there is an advantage to international agreements because they impose common international rules and regulations.

Income and Poverty

The welfare case against free trade is closely related to the debate about the future importance of the nation state. Many welfare critics conclude that economic globalization has failed to improve the living standards of workers, to reduce the numbers of people in poverty, or to redistribute income and resources to low income households and individuals on a more equitable basis. They claim, in fact, that free trade has made matters worse. According to Bruce Campbell et al (1999), both employment and income have deteriorated in North America under free trade. Investigating the experience of Canada, the United States, and Mexico since the introduction of free trade in the American hemisphere, Campbell and his colleagues show that while adequate jobs and income have declined, poverty and inequality have increased. Similarly, Robert Scott (2001) of the Economic Policy Institute, describing the impact of free trade on the United States, documents how the trade agreements have resulted in job losses, growing inequality, and wage suppression. In a similar manner, Carlos Salas (2001) documents the negative impact on wages and incomes in Mexico. Michael Chossudovsky (1998), a Canadian economist, makes an even more sweeping claim that poverty has extended its grip throughout the world. He attributes the increase in poverty to the growth of unemployment, the downsizing of governments, the restructuring of corporations, and the relocation of production to cheap havens in the world. As a consequence, he highlights the increasing polarization of income throughout the world, the accumulation of wealth in fewer and fewer hands, and a collapse in consumer spending. Chossudovsky also argues that organizations like the World Bank and the lnternational Monetary Fund have intensified the problem through structural adjustment programs.

Commenting specifically on Latin America, in a recent report sponsored by the Carnegie Endowment for International Peace and the Inter-American Dialogue, Birdsall and de la Torre (2001) somewhat more cautiously come to the same conclusion. They state that the free trade economic reforms of the nineties were disappointing in terms of economic growth, poverty reduction, income distribution, and social conditions. At the end of the decade, the countries of Latin America not only displayed one of the more unequal distributions of income in the world, with more than one third of the population living in poverty (defined as having an income of $2 a day), but also were associated with

Complexry in Onking Poverry und Cbbulrzarron 87

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increa\ed j o b inwcurity and labor volatility. Even such an augu\t body as the United Natioiih Confeience on TIadc and De\elopment (1996) achnowledges that free trade and econoinic integration can negatively affect ab\olute and relative level\ of poverty in

countric\ where economic growth i \ \ I O N , wealth is highly concentrated, and market\ are poorly developed. 111 addition, there I \ growing divergence i i i income between rich and poor coiiiiti ie\. A\ a coii\eqiience, ~ i y \ Stephen IIa\eler (2000) there 15 a growing \entimeiit tli'it global capitali\m I \ Ic,iding to a c-las\ of the wper rich (both between and within couiitrie\) while other\, includiiig [tie middle cia\\ (particularly in developed Coiintric\) <iic le\\ coiifident ol' thcii ability to maintain even their current living \tLin(Lird\. I~urtliei i~ioie, he \cc\ litlle Iihclihooti of iiiipioveiricnt unle\ \ new form\ of world go\'ern,ince (he call\ them regional \upcr-\tate\) can negotiate wi th multinational corporation\ to contain ttic exce\\c\ ot glob,il capital and redre\\ the \ocio-econoniic i iiiti,il,tiicc\

Income and l<conomic (irowth

'I here I \ ;L cornplicatioii, however, i i i t i j i i i p . to <i\\e\\ the impact of free trade o i i iiiconie and poverty bccauw ot (tic uncvcii n,iturc ot dc\elopnient. At a n y given point of time, ccononiic growth and income are I i k c l j to i n different countrie\ (UNCTAD, 1996). Furtheriiioic, t i d e I \ only one o f the delcriniiimt\ 01' poverty reduction If one looks at the relation\hip of povcrty and ~ C O I I O I I I I C c lc~ elopnient on Ea\t A\ia during the ninetie\, for exmiplc, the poverty \tdti\tic\ x c dit t c w i i t froni ttiow in Latin America (World B m h , 200 1 cl) 'The rate 01' poverty i n E.;ijt A \ i L i , iiiea\iired i n term4 o f $2 per day o r le\\,, declirieci i n riiimbei-\ a n d pcicentdgc i n the nineties when trade Iibcrali/ation inten5ified. I n Latin Ainericd. ttie pciccntage ot poor, Iibiiig on $2 a day o r le\\, aI\o declined although thc total number incrca\ed H y contr,i\l, in \ub-Sahaian Africa and Ea\t Europe, both the nunibcr and percentage of the poor increaceci even though both area4 becLiiiie moie open to tiade. Wtiile there i \ no ~ r n p l e relation4iip between poverty and trade, 3ince t r d e create\ both cciiiner\ and Io\er\, ttie factor that wenis to l ink them I \ ccononiic grobth (Winter\, 2000) I n Ea\t A\i;i, where poverty, riieawred i n absolute term\, declined rnore r ,tpitlIy t l i m i n other developing countrie\, growth rate\ were among the highc\t i n the woild (World Bank , 2001 ). E3y contra\t, growth i n Latin America, in spite ot flee t i de . w L i \ \low A recent \ tudy b " ~ 1 on a \ample ot 80 countrie\ covering ;I

period ol toui dccacie\ corifirrn\ ;I c i o w rc~l,icion\hip hctucen economic growth and poLertj reduction. Accorciiiig t o the ,iuthoi-\ o f the ieport (Dollar 'Ind Kraay, 2000), the dat'i \ugge\l th'it lhc iiicoiiic ot the poor ri-,c\ o n one-to-one ba\i\ with growth i n both rich and poor countric\. The \tudy a140 confirm\ that trade induced giowth benefit\ the poor of a country t o the extent that i t benel i t \ the country a \ a whole. On the other hand, while ti-adc mdy he i~ecc \ \~ i ry condition o f growth and poverty reduction, i t I \ not w ffic ic n t .

Another cornplication i \ the relationship of growth and income distribution both between and within countries but here again, free trade is only one of the determinants of distributional outcomes. In Canada, the free trade years of the past decade have been accompanied by both deterioration and an improvement in the distribution of market and 88 New Globu 1)evelopmunl J o u r n d o~flnrematronul ond Comnpororrve Sociul Wevore

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111 I<)ohiiig ,it po\~.rts, i 1 l o l C c ) \ e i , i t I \ iiiipc)iI.iiit t o c011\1cki the y u L i l l t ~ 01 Iiie, 01' hliiii,iii

dt.\clopriicnr int.lic*c\. '14 ucll 'I\ iiiconie am1 iiicxiiiic d i \ i i i ~ I ~ i i t i o i i On tli'it scorch, the record of inipio\emcnt i s encou1,tging in term\ ot I i t c . c\peit,iiic), tood ititCihc ; i d cclcic,ition ?'rerids i n life cxpecr,incy. uhich u\ed t o hc much Iowci 111 tic\ LLlopirig tli,iii dc\elopctl countt ic\, h,i\e inipi-oicd \ignii'icantlj b i t 1 1 the exception 01 Sub-SciIicii,iii , \ t i icIi ( LJNI)P, IiN9. 1 ahle 8 ) I Iic reduction I I I i i i l ,mr moiicilily , i l \ o piogie\\ed o ~ c i rhc ptst d e c d e fo r

cic\cloping countric\ (M/orlci Banh. 2 0 0 I h, I ' h l t . 10) 14 coroll'ii) iiiipiovernent has o~~c~iii i .cl with re\pect t o clilor~c int'ikc i n iegioii\ lihe E'ist Asia. South Asi,i, and Latin Americ'i (l 'NDP, 1 cWl, 1 h l e 20) Again with the exception o f Sub-Saharan Africa, cduc,itional opportunities in most developing counti i c \ improved Between 1990 arid 1997 net enrollinent rates i n primary education improved in all regioiis with some (e .g Ea\t Asid and East Europe) approximating those of developed countries (World Bank, 2001b, Table 17). A similar pattern held f o r secondary education although the ratio$ were lower (World Bank, 2000, Table 6). In attempting to a$se5\ the trend on an overall human development index (life expectancy, educational attainment, and income) over time, Crafts (2000) argues that unlike income meawres alone where there is considerable divergence between developing and developed regions, an overall development index

Contplexirv in Linhing P o ~ e r f v cind Glohulizutron 89

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shows an upward trend. While South Asia and Africa still had indices in 1995 less than 0.5 (the level at which the UNDP considers countries have achieved a medium level of quality of life), and countries within regions varied considerably, he concludes that the pace of human development improved in recent years.

The above cannot be taken to mean that economic globalization has brought improved welfrlre to all or most parts of the globe or that there are no major problcms with development under free trade. The data indicate that while welfare, in terms of income and quality of life, have been maintained or improved in some regions of the world, other areas have lost ground. Furthermore, even within those regions where there have been improvements through trade liberalization (the most obvious example being East Asia), the benefits have not necessarily been equitably distributed throughout the region or within different countries of the region. The more negative impact of free trade may not be so much the impact on income and income distribution within countries as i t is the growing disparity between rich and poor countries. The principal reason for the increased disparity is that free trade has benefited the developed countries more than the developing countries even though the latter grew at a more rapid rate than the former. OECD countries with 19% of the world’s population had in the late nineties 7 1 % of the global trade in goods and services and 58% of foreign direct investment. Consequently, as noted by the UNDP, “the income gap between the fifth of the world’s people living in the richest countries and the fifth in the poorest was 74 to I in 1997, up from 60 to I in 1990’ (UNDP, 1999, 3) with the top fifth having 86% of the world GDP and the bottom fifth I % . Given the initial larger gross domestic products of the rich countries relative to the poor, the disparities increased even though the latter grew faster than the former i n recent years (World Bank, 2001 c, Table 4.1). However, the pattern was not uniform throughout the world. The countries of East Asia and the Pacific gained from free trade both in absolute and relative terms. In 1990, the gross domestic product of the countries of the region was $7,233 billion (US) or 92% of the gross domestic product of North America ($7941 billion). By 1996, it was $10,427 compared to $8,893 or 117% (CIA, 1997, Table 7).

Poverty Measures

It is very difficult to find any specific study of the impact of globalization on poverty as distinct from income. Apart from Lipton ( I 999) and Rao ( I 999), there are few detailed studies on how the globalization process has actually impacted on rates of poverty of different groups within a country and/or between countries. And most importantly, there is no accepted international measurement of poverty which takes into account regional and subregional differences. Nor has any study to date identified the direct link or relationship between globalization and poverty, why and how or to what extent people are impoverished by the process of globalization. The Asian Financial Crisis illustrates the dilemma in measuring the impact of globalization on poverty. Before the crisis in 1997, the East Asian model was described as a miracle (World Bank, 1993) and praised for its great success in poverty reduction (Handbook on Poverty Reduction , Washington D.C. Table 1). At a IMF and World Bank Joint Congress held in Hong Kong in 1997, 90 New Globul Development Journal of International and Comparutive Social Welfure

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World Bank officials claimed that globalization had contributed to significant poverty reduction in countries like Thailand and Malaysia and its virtual elimination in city states like Singapore and Hong Kong. Although the claims were challenged by the Hong Kong Social Security Society which calculated that 1.1 million people or 18.9% of the total population in Hong Kong were below the International Poverty Line at the time (Mok & Leung, 1997), the audiences at the congress were given the impression that globalization was aiding and abetting the reduction of poverty.

However, to assess whether poverty in East Asia (or anywhere else) changes as a result of globalization, one requires estimates of poverty based on pre and post measures or time- series data using poverty line assessments. At present, no such consistent data are available. A conventional practice in the World Bank since 1985 is to compile a list of countries with income rates using a purchase power parity concept based on $lUS and $2US per day. An accurate assessment of poverty in the countries of East Asia, however, requires samples of individual and household income data drawn from census or bi- census data or from large income or expenditure surveys. In reality, such data or surveys are rarely undertaken since many countries in the region try to avoid setting and publicizing official poverty lines. Hence, it is difficult to determine the significance of the World Bank income poverty rates in the region when large scale household income surveys are generally not available on a country basis. Unlike the Luxembourg Income Survey, the World Bank does not provide information on the source of the income data, the sample size, the unit of analysis, the period of assessment, or the concept of income measure used in country surveys.

In spite of the limitation, some may claim that a measure of $1/2US per day is still practicable for assessing poverty in developing countries and regions like East Asia in the absence of consistent country-based data. Furthermore, they are likely to point out that the income parity concept can be raised from $]US to $1 1US per day for developed economies like Singapore and Hong Kong. This approach was used in the UN Human Development Report 2001 to measure poverty in countries such as Australia, the United Kingdom and the United States where poverty rates were reported at 18%, 16% and 14%. respectively (UNDP, 2001). The problem remains, however, that the income measure is somewhat arbitrarily chosen as it necessarily varies for different types of economies. Furthermore, it is based on an absolute measure of poverty which may or may not be appropriate for different countries. Not surprisingly, given the complexity of measuring poverty, at least fifteen Asian countries have developed their own national poverty lines based on relative poverty concepts (UNDP, 2001).

A similar dilemma arises in using the international poverty line standard (Beckerman, 1979) for countries like those of East Asia. On initial reflection, it seems to overcome the problems associated with World Bank measures. The European Union adopted this approach in the early 1980s, and later in the 1990s, the OECD also chose i t to provide comparative measures of poverty. In addition, it has been tried out in Hong Kong and found workable (Mok and Leung, 1997). A difficulty, howe.,er, in using the international poverty line standard, or any measure based on income, is that it has limited utility in assessing levels of poverty in rural areas of developing countries where most people live.

Conzple utv in Linking Povurh' ~ i n d Glohulixition 91

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The basis of a rural standard of living is different from an urban standard in fundamental ways. While urban dwellers, for example, may have considerable difficulty in surviving if they do not have minimum cash income, many rural households without cash can usually meet their basic need\ for food and accommodation. In fact, in some Asian villages, rural farmers prefer to have food and mutual assistance rather than cash since the latter can be of limited value in the short term if they do not have ready access to shops to purchase supplies. Hence, a poverty measure based on the international poverty line standard cannot be readily applied to rural poverty. The same challenge arises with respect to the United Nations' Human Poverty Index (HPI). The index has two versions; one for developed countries and one for developing countries. For developing countries, the index is based on four indicators: ( I ) the probability at birth of not surviving to age 40; ( 2 ) an adult illiteracy rate; (3) the percentage of population not using improved water sources, and (4) the percentage of children under five who are underweight (UNDP, 2001). According to the chief designer (UNDP, 1997), the current indicators have somewhat limited because of the unavailability of quality survey data in some countries and the need for simple computation into an understandable index. Hence, there is an inevitable and inherent weakness in the measure and further modification will likely be required.

Conclusion

The last decade has witnessed a new phase of economic globalization which has been called casino capitalism because of the astronomical scale of exchange which takes place on the stock market. The implication behind the term is that the process of globalization, through the international money market, is more closely associated with the functions of gambling casinos than the normal gains associated with economic growth through production and trade. Another implication is that the speculation and volatility of the stock market have been linked to a unidirectional flow of income to investors and bankers who orchestrate the global process rather than to the workers and the poor who produce the wealth. Evidence of casino capitalism can be seen in the financial crisis of Europe in 1991/2, Mexico and Latin America in 1994/5, and more recently the Asian Financial Crisis in 1997/8. In each case, the impact on income and poverty was significant. However, in each case, the impact was also different depending in part how the nation state responded, how income distribution was affected, how subsequent economic growth influenced wages and government subsidies, and how countries measured poverty. While the crises were dramatic, and in many cases, catastrophic for millions of people and companies, they also demonstrate the complexity of linking poverty and globaliz~tion without regard to other factors which have to be taken into account. In highlighting some of the other factors i n this article, we do not wish to diminish or undermine the impact which globalization is having on the poor of the world. In many ways, the impact is very real and very negative. On the other hand, without taking into account the other Factors, we cannot fully understand the variable impact of globalization on poverty in different parts of the world or the potential for reform.

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