Poverty, Globalisation and Sustainability

AIM: The viability of green strategies and ethical purchases to conserve and manage resources to create a more equitable world (such as buying locally or fair trading).

Developing an awareness that countries and individual consumers can have impacts on global poverty brought about by globalisation.

POVERTY FROM GLOBALISATION

What is globalisation?

Globalisation is the process by which people, their cultures, money, goods and information can be transferred between countries with few or no barriers.

How do countries and individuals have impact on global poverty?

Countries and individuals in ‘rich’ countries like the UK, America, Germany etc have access to a range of goods from all over the season anytime of the year. But what they don’t realize is that much of these imports are increasing global poverty levels. For example, farmers in Africa in drought season do not have the financial power to grow food for themselves instead end up only growing cash crops making the poverty they live in worse.

GREEN STRATEGIES AND ETHICAL PURCHASING

Why implement them?

Our globalized world is having environmental and social problems for example importing can lead to increase productivity and carbon footprint. So we need to take actions to ensure we can have the benefits of globalisation and yet evade social and environmental problems.

Strategy

Cost 

Benefit

Fair trade – The World Trade Centre supports free trade in which the original producers e.g. farmers get the smallest share of the final price so fair trade provides them with a bigger proportion.

How can we ensure this – especially with TNCs disapproving. Prices will go up and competition will slow down.

There will be less poverty among people in the developing world who are being exploited e.g. in the Coco trade.

Ethical Shopping- In ethical trading we seek to buy products which are organic, Fair Trade, locally produced. M&S is a great example they only sell Fair Trade tea or coffee, naturally died clothes, and buy from small overseas businesses.

Organic – more space need to grow crops hence this can destroy more forests

Locally produced – reduce market share that developing countries has and producing food in Africa is less energy intensive than the UK

Organic – it can reduce the poverty felt by farmers

Local Produce – We can cut food miles and reduce our emissions and support local farmers that suffer due to cheap imports.

Carbon offsetting and trading – This can either be certified through schemes that were created in the Kyoto Protocol or voluntary e.g. Cold Play planted 10,000 mango trees in Karnataka

If it is not done multilaterally then it can flee of investment being economically damaging and voluntary acts tend to one-off so we need a constant way of reducing emissions

Can significantly drop emission – the carbon scheme is a tries and tested method which failed but with a few alterations is worth another try.

Reduce, Re-use, Recycle – London has enough rubbish to fill the Canary Wharf every 10 days – its time we cut the crap! 

Incineration and landfill releases greenhouse gases and recycling takes up more energy. Reducing and Reusing is the way forward.

Composting produces humus that improves soil. We have seen large scale re-using in places like Dharvi in Mumbai which have worked so we could try it out on a more sophisticated level perhaps one off clothes from charity shops could become fashion!

REVIEW QUESTIONS

  1. Define globalisation
  2. Define ecological footprint
  3. How can countries and individuals lead to global poverty?
  4. What are the disadvantages of using locally produced goods?
  5. What are the benefits of reducing, recycling and re-using?

SUGGESTED ANSWERS 

  1. Globalisation is the process by which people, their cultures, money, goods and information can be transferred between countries with few or no barriers.
  2. Ecological footprint – this is the measure of the amount of land and water that a population needs in order to produce the resources that it consumes and to absorb to its waste, with existing technology. The UK would need 3.1 Earth’s worth of resources to meet its ecological footprint.
  3. We enjoy consuming goods and services from around the world at cheap prices. Our demand for cheap goods forces many into poverty e.g. farmers in Africa have to produce cash cops like millet at extremely low prices gaining no benefit from it.
  4. It can reduce market share for developing nations and variety we have to goods and services will be more narrower.
  5. There are many e.g. composting produces humus which improves soil and we have seen large scale re-using in places like Dharvi (Mumbai) which have actually worked.

HDI: Human Development Index

HDI – Putting people before markets

What is HDI?
It is a measure of economic development. It compromises of three equally weighted components. It gives a single numerical value between 0-1 and the higher the value the more developed the nation.

What are the components of HDI?

  1. Education – years if schooling and literacy 
  2. Health – Mortality rates
  3. Real GDP per capita at PPP – i.e. real GDP person at PPP (taking into account different costs of living)

What are the advantages and disadvantages of HDI?

Advantages
Disadvantages 
Political competitiveness
Does not take into account poverty or other measures of deprivation 
More factors and reliable ones 
PPP values change very quickly and are likely to be inaccurate or misleading.
easy and cheap to collect data
Still very little sense of income distribution with this measure.
Sign of welfare in the future because improving health and education are both supply-side policies which can indicate the long-term patterns of AS curve 
Quality of life does not seem to be that closely linked with it and we don’t get to taken into account things like war or political oppression.
The success of government policy can also be seen
Human development altogether is difficult to measure and is based on normative economics. Other measures such as access to internet might be more important.
As it is one value it allows statistical analysis and other modeling to be done and is altogether a practical measure.
Changes over time – ceteris paribus 

Macroeconomic Objectives and Macroeconomic Indicators

Please find the written notes below. Part 1/2:

Part 2/2:

What are the current macroeconomic objectives?

Macroeconomic objectives are goals which the government aims to fulfill. These objectives ensure that the economy is in a healthy position.

The government has four major ones; full employment, low and steady inflation, Balance of Payments equilibrium and steady economic growth.

Full employment

The governments aims to have a full employment status within the economy. This is because labour is one of the four factors of production and when any one of these four factors is not being utilized to its full capacity, the economy cannot reach its full potential growth level.

If we refer back to PPFs (Production Possibility frontiers ) from unit 1, you will remember that if researches such as labour are not being used to their full potential then the economy is situated inside the curve rather than on it. This limits the productivity in an economy. Growth is also another one of the governments macroeconomic objective, we will see later why that is so important.

There are also secondary issues raised by unemployment. For example, if people have less purchasing power then aggregate demand is likely to fall and if people have no job then they are likely to commit a crime. This is because they will be thriving for money or they may do it simply out of sheer boredom.

Supply-side policies are used in the UK to encourage employment.

Low and steady inflation

Inflation is the persistent rise in average prices. When this happens the value of money falls. The government and the Bank of England aim to keep inflation at a stable 2.0%. This is because high inflation can cause economical and political instability.
When the value of money falls this also has an effect at a global level. Exchange rates are affected and less people are likely to buy into your currency. The instability causes businesses and consumers to loose confidence resulting in large firms to be reluctant to settle in the UK and consumer spending to fall. Consumer spending is a major part of aggregate demand so if that falls then we will see the economy regress i.e. more unemployment, decreased growth etc.

Interest rates are one of the biggest ways inflation is kept under control in the UK.

Balance of Payments equilibrium  

Balance of Payments is the difference between exports and imports. If your economy like China are a net exporter you are to have a net surplus. If your economy like the UK is a net importer than you are said to have a net deficit.

Economies like the UK consist of mainly service sectors and there it isn’t a problem to have a deficit but the magnitude of the deficit is. We don’t want to become too reliant on imports because there is a risk of, for example starvation if we had war. Exports also depend on global relationships. Governments can put/alter tariffs to change the number of exports and imports in a country.

To encourage exports governments in the UK are subsidizing car factories and farms etc.

Economic growth

The government aims to have a steady economic growth because it keeps the economy competitive. Economic growth is measured through GDP, Gross Domestic Product. 
It is important to have economic growth because it enhances out quality of life, that is to say we have access to merit goods as well as luxuries.  Also, without economic growth all the other objectives fail. All four objectives are intricately linked to one another. You cannot adjust one without the other one being affected.

To encourage economic growth the government utilizes the fiscal policy more than any other policy e.g. they increase government spending. However, they also invest in supply-side policy because fiscal policy is limited in this sense. For example, on a diagram we can see that there will only be benefit from aggregate demand continually increasing is aggregate supply has increased allowing potential for growth.

There are two other major objectives which aren’t as important to the economy;
Concern for the environment

As explored in unit 1 external costs such as pollution are not usually taken into account e.g. pollution from the UK may cause acid rain in France yet we do not pay for this. Furthermore, there are growing concerns about resource usage as they are diminishing and global warming.

No countries can individually undertake actions which will result in drastic changes – it is something which has to be done multilaterally. Yet, organizing so many countries to work together is not easy and has failed many times in the past e.g. Cop15.

To be economically sound and support the environment governments need to find global policies and put them into practice as soon as possible!

Income Redistribution

It is important that we protect the poor and vulnerable. One way the government does this is through transfer payments where money from taxes is spent on benefits like Job Seekers Allowance. However, this can also be a disincentive to work if the gap becomes to small between people who claim benefits and people who pay taxes.People will question what is the point of working.

The fundamental question this comes down to is; is it better for the economy to have some extremely wealthy people and some extremely poor or people at the same income level?

Another method installed by the government is law and legislation. For example, the equal opportunities legislation means that two people will chosen equally on their potential not race, sex or background. This ensures everybody has an opportunity and there is fairness. However, in reality people who do not agree with these regulations find their way around it.

Having income unequally distributed could also limit economic growth. For example, if poor people are not educated or if people who want to be entrepreneurs are restricted by funds and this is limiting would could have increased productivity hence growth.