Globalization: Module 2, The Global Economy PDF
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Prof. Supriano D. Gatdula
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This document presents a lecture module on the structures of globalization, focusing on the global economy. The material covers various aspects, including economic benefits and disadvantages, types of trade agreements, and the concept of sustainable development. Specific examples are used to illustrate the concepts presented.
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MMC-PPT-001-C Module 2: THE STRUCTURES of GLOBALIZATION: THE GLOBAL ECONOMY Part 1 Name of Instructor: Prof. Supriano D. Gatdula Name of Course: THE CONTEMPORARY WORLD ECONOMIC GLOBALIZATION WHAT IS ECONOMIC GLOBALIZATION? ECONOMIC GLOBALIZATION ►Itrefers to the increas...
MMC-PPT-001-C Module 2: THE STRUCTURES of GLOBALIZATION: THE GLOBAL ECONOMY Part 1 Name of Instructor: Prof. Supriano D. Gatdula Name of Course: THE CONTEMPORARY WORLD ECONOMIC GLOBALIZATION WHAT IS ECONOMIC GLOBALIZATION? ECONOMIC GLOBALIZATION ►Itrefers to the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies. What are the examples of economic globalization? Economic globalization is commonly seen as 1. The import and export of goods. 2. It can also be trade agreements that make barriers to trade easier to overcome. 3. The presence of foreign companies and goods in another market is also an example. Internationalization Localization is the process of adapting and customizing a product to meet the needs of a specific market, as identified by its language, culture, expectations, local standards and legal requirements. What is an example of localization and globalization? Language: Reaching new markets and using English as an international language for your web is globalization. Whereas adapting your content to a regional language is localization. Payment options: Making it possible to purchase a product online and get it shipped to multiple countries is about going global. What are the economic benefits of globalization? As globalization is imperfect, and at various stages of implementation, it is hard to make a universal claim about its benefits. However, some of the potential benefits of globalization to economies include: Economic Benefits of Globalization 1. Increased choice No individual country could produce the sheer variety of goods that can be produced globally. Through globalization, consumers in one country can have access to goods and services that they would never otherwise have access to. Economic Benefits of Globalization 2. Higher Quality Goods As each nation concentrates on its own specialty industries, there is far less ‘re-inventing the wheel’. For example, every country does not need to waste its scarce resources producing its own version of the smartphone when one can be imported from a country that specializes in this product. Economic Benefits of Globalization 3. Increased Competition The presence of increased competition in a country’s economy from foreign companies means a more efficient market and lower prices for consumers. Suppliers of goods and services need to keep their prices low to stay competitive. Economic Benefits of Globalization 4. Economies of Scale As globalization provides companies with a much bigger effective market in which to sell their goods, they can scale up their production. As the level of production increases, their margin on each good or service provided can increase as their fixed costs remain the same or become incrementally smaller. Economic Benefits of Globalization 5. Increased Capital Flows Capital is able to flow into developing economies providing a significant form of finance that businesses in that economy would not otherwise have access to. Economic Benefits of Globalization 6. Increased Labor Mobility By allowing individual workers to move to other countries, the global economy can better match supply and demand. Countries that are excellent in educating certain professionals can export those professionals to other countries which do not have the same specialty. For example, New Zealand must import a significant number of skilled agricultural workers every year to harvest its crops. Economic Benefits of Globalization 7. Improved International Relations Countries that have a positive trade relationship with each other, have an incentive not to get into conflict. On a global scale, this should reduce the likelihood of armed conflict between countries. What are the potential Economic Disadvantages of Globalization? While there are some clear benefits to globalization, there may also be costs associated with this for individual economies, depending on how it is implemented. Some of the challenges or disadvantages of globalization that have been identified include: What are the potential Economic Disadvantages of Globalization? 1. Possible monopolization of multi-national companies Large enterprises from developed countries may move into smaller developing nations and take over the market. Their specialization and efficiency in providing a particular good or service may mean that local producers in a developing country are knocked out of the market; What are the potential Economic Disadvantages of Globalization? 2. Structural unemployment If a country is no longer competitive in the production of a particular good, this may mean that its production rapidly moves offshore, and workers are left unemployed. While it may be possible to re-train these staff and deploy them to a more efficient market, this lag can take years, resulting in a significant rise in unemployment and inequality; What are the potential Economic Disadvantages of Globalization? 3. Inter-dependence Individual countries become dependent on other nations for their supply chains. If there is a disruption to this chain, they may no longer be able to produce the good themselves. What are the potential Economic Disadvantages of Globalization? 4. Tax avoidance It may be that some companies are able to avoid paying taxes that one might expect that company to pay in a given country through legal tax arrangements. It is worth emphasizing that all these potential disadvantages are ones that apply to the economy as a whole, they are not costs for individual businesses. What are the challenges of globalization? While the benefits are substantial, there are challenges which await any company that wishes to exploit the benefits of globalization. Those challenges, while manageable, include: What are the challenges of globalization? 1. The need for a legal presence Many companies realize the vast opportunities that are available in new markets, but they usually do not have a legal entity in these countries. This can be problematic because there are restrictions on the activities of companies who do not have a legal entity, such as a subsidiary, in the country of expansion. While the company may be able to incorporate a business in a new country, many business owners are hesitant to invest a substantial amount of money in a new endeavor when they do not know if their expansion will be successful. What are the challenges of globalization? 2. The difficulty of testing the market Most prudent business owners realize that their product or service may not be embraced on a global scale with the same function and marketing information. Therefore, they invest in market research to see how the potential market perceives their product and brand. However, businesses that are overseas may have difficulty testing the market when they do not have a local presence. Additionally, they may run afoul of complex regulations pertaining to foreign businesses. For example, sometimes advertising activities require that the business possesses a specific licence which can only be held by businesses registered in that country: Businesses will want to avoid issues with foreign bureaucratic agencies so that they are not later prohibited from conducting business in the country. What are the challenges of globalization? 3. Hiring staff in a compliant manner To have any type of expansion in a new country, key staff members will need to be in place. However, many countries do not allow foreigners to hire staff without a legal entity in the country. Even if the company establishes a legal entity in the country or opens a sales office, the employee’s activities may be restricted. Additionally, many business leaders may not be familiar with foreign laws regarding employment law, tax, and other legal issues in that country. What are the challenges of globalization? 4. Regulatory and legal compliance Of course, businesses want to expand into another country without violating any laws or regulations. However, setting up operations in a foreign country can be complex, especially when business leaders do not speak the local language. The regulatory framework in foreign countries can also often be confusing for foreigners. Trade Protectionism and Trade Liberalization Trade Protectionism and Trade Liberalization Trade Protectionism and Trade Liberalization Benefits of Protectionism: 1. Better balance of Trade 2. Protection of emerging domestic markets 3. More growth opportunities provides local industries with growth opportunities until they can compete against more experienced firms in the international market. 4. Lower imports help reduce import levels and allow the country to increase its trade balance. Disadvantages of Protectionism: 1. Lack of economic efficiency 2. Lack of choice for consumers 3. Retaliation from other countries Trade Protectionism and Trade Liberalization: Protectionist Policies 1. Tariffs and import quotas Tariff is an excise tax levied on imported goods. Though used to raise revenues, modern tariffs are used to protect domestic products and wage rates from lower priced importers. Import quota is a limit on the volume of goods that maybe legally imported. Trade Protectionism and Trade Liberalization: Protectionist Policies 2. Protection of technologies, patents, technical and scientific knowledge Tariff is an excise tax levied on imported goods. Though used to raise revenues, modern tariffs are used to protect domestic products and wage rates from lower priced importers. Import quota is a limit on the volume of goods that maybe legally imported. Trade Protectionism and Trade Liberalization: Protectionist Policies 3. Restrictions on Direct Foreign Investment Restrictions to 100% foreign ownership Any business may be 100% foreign-owned except for those covered in the FIA Foreign Investment Negative List A & B. These restrictions are determined by: The nature of the business Amount of paid-up capital Trade Protectionism and Trade Liberalization: Protectionist Policies 3. Restrictions on Direct Foreign Investment FIA Negative List A Negative List A includes economic activities where foreign equity is restricted in compliance with the Philippine Constitution and Special Laws provisions. The restrictions range from zero to only 60% foreign equity allowed. Activities where zero foreign ownership is allowed include: mass media, the practice of professions, the use of Philippine marine resources small-scale mining, the manufacture, repair, stockpiling, and/or distribution of nuclear, biological, chemical, and radiological weapons Retail, others as found in FIA Foreign Investment Negative List A. Negative List A also details economic activities where foreign ownership is restricted up to 20%, 25%, 30%, 40% and 60%. Trade Protectionism and Trade Liberalization: Protectionist Policies 3. Restrictions on Direct Foreign Investment FIA Negative List B Negative List B includes activities where foreign ownership is restricted only up to 40% due to security, defense, health and moral reasons, as well as to protect small and medium-scale industries. Trade Protectionism and Trade Liberalization: 3. RestrictionsProtectionist Policies on Direct Foreign Investment Minimum investments Foreign ownership of businesses is also restricted by the amount of paid-up capital, depending on the nature of the business. Executive Order No. 98 has lowered the minimum paid-up capital needed for up to 100% foreign ownership, as follows: Trade Protectionism and Trade Liberalization: Protectionist Policies 3. Restrictions on Direct Foreign Investment Domestic enterprises Unless otherwise stated in the FIA Negative List A&B, domestic enterprises, or companies catering to the domestic market, may have up to 100% foreign ownership if the paid-up capital is at least US$200,000. For domestic enterprises employing at least 50 persons and/or using advanced technology, the required minimum paid-up capital is only US$100,000. Trade Protectionism and Trade Liberalization: Protectionist Policies 3. Restrictions on Direct Foreign Investment Retail trade enterprises Retail trade companies may have 100% foreign ownership if the paid-up capital is at least US$2,500,000, with a minimum investment of US$830,000 for establishing a store. Retail companies specializing in luxury or high-end products are allowed 100% foreign ownership with a minimum paid-up capital of US$250,000 per store. Trade Protectionism and Trade Liberalization: 3. Restrictions Protectionist on Direct ForeignPolicies Investment Export enterprises A business qualifies as an export company if it exports at least 60% of its output. KPO, BPO, web development, and similar businesses serving foreign clients are considered export companies. Export companies may have 100% foreign ownership with a minimum paid-up capital of only P5,000, but have to submit an additional document that said companies are export entities to the Securities and Exchange Commission. Trade Protectionism and Trade Liberalization: Protectionist Policies 3. Restrictions on Direct Foreign Investment 4. Administrative Barriers like food safety, environmental standards, electrical safety 5. Anti-Dumping Legislation like preventing the importation of cheaper foreign goods that would close local firms 6. Direct Subsidies like cheap loans are given to local firms that cannot compete with foreign imports Trade Protectionism and Trade Liberalization: Protectionist Policies 7. Export Subsidies like payments given by the government to exporters to help them develop new sales markets or sell surpluses on the world market in order to keep the price on the domestic market stable 8. Exchange Rate Control like intervention of the government in the foreign exchange market to lower the value of its currency by selling its currency in the foreign exchange market. Trade Protectionism and Trade Liberalization: Protectionist Policies 9. International Patent System as a cloak for protectionist trade policy at a national level 10. Political Campaign like Buy Filipino 11. Preferential Government Spending like legislation which call upon the government to prefer a country made products in its purchases. Trade Protectionism and Trade Liberalization: Protectionist Policies 4. Administrative Barriers like food safety, environmental standards, electrical safety Administrative barriers are rules, regulations, and standards applied to imports of goods and services from foreign firms, in an effort to reduce the imports. It complicates and raises costs of imports, and hence favors domestic producers. Trade Protectionism and Trade Liberalization: Protectionist Policies 4. Administrative Barriers like food safety, environmental standards, electrical safety Some countries may perceive a certain food safety risk as totally unacceptable, while others may place a low priority on addressing that same risk. Imports acceptable to one country may not be acceptable to another. For example, many European countries are willing to accept the risks of Listeria in cheese made from unpasteurized milk and select processing standards to minimize these risks. Other countries restrict such imports and even ban the sale of most of these cheeses. Trade Protectionism and Trade Liberalization: Protectionist Policies 4. Administrative Barriers like food safety, environmental standards, electrical safety Exchange rate controls can be used to make a nation’s product cheaper abroad by lowering the value of its currency in the foreign exchange markets. The premise is that a nation can sell its currency in foreign exchange markets to the point where its loses value against other currencies. This will cause the price of imports to rise while lowering the cost of its exports. This will help a nation, whether developed or developing, increase the opportunity to sell its products and goods in foreign markets. Trade Protectionism and Trade Liberalization: Protectionist Policies 5. Anti-Dumping Legislation like preventing the importation of cheaper foreign goods that would close local firms. Anti-dumping policies are enacted by a nation in order to prevent the selling of goods in a foreign market at a price far below their production costs in order to gain a substantial share of that nation’s market. Anti-dumping rules can also include regulations prohibiting the sale of goods, products, or commodities below its fair market value. Trade Protectionism and Trade Liberalization: Protectionist Policies 6. Direct Subsidies like cheap loans are given to local firms that cannot compete with foreign imports A subsidy is any financial aid provided by a government to a producer or seller of a good or service that is designed to increase the competitiveness of a particular industry firm or entire industry. For example, agricultural products are frequently subsidized by national governments in an effort to increase domestically grown and raised foodstock (among other reasons). Trade Protectionism and Trade Liberalization: Protectionist Policies 7. Export Subsidies like payments given by the government to exporters to help them develop new sales markets or sell surpluses on the world market in order to keep the price on the domestic market stable Trade Protectionism and Trade Liberalization: Protectionist Policies 8. Exchange Rate Control like intervention of the government in the foreign exchange market to lower the value of its currency by selling its currency in the foreign exchange market. Trade Protectionism and Trade Liberalization: Protectionist Policies 9. International Patent System as a cloak for protectionist trade policy at a national level Discriminating against foreigners in the patent system--by refusing to grant foreigners a patent for their inventions. International patent law treaties forbid this practice, which may lower the global innovation incentives and may hurt international trade. Trade Protectionism and Trade Liberalization: Protectionist Policies 10. Political Campaign like Buy Filipino Former Trade and Industry Secretary Mar Roxas who reiterated his support for the Buy Pinoy Movement, pointing out that "with the global economic situation still in a depressed state, the Philippines must draw on its inner strengths and focus on domestic economy as the engine for continued growth and economic stability." Trade Protectionism and Trade Liberalization: Protectionist Policies 11. Preferential Government Spending like legislation which call upon the government to prefer a country made products in its purchases. Such as the Tatak Pinoy Act, a national legislation which called upon the people to prefer Philippine-made products in their purchases. Trade Protectionism and Trade Liberalization Trade Protectionism and Trade Liberalization Kinds of Free Trade Agreement Unilateral – is a commerce treaty that a nation imposes without regard to others. Bilateral – an exchange agreement between two nations or trading groups that gives each party favored trade status pertaining to certain goods obtained from the signatories. Trade Protectionism and Trade Liberalization Advantages of Trade Liberalization 1. It promotes free trade, which allows countries to trade goods without regulatory barriers or their associated costs. 2. The reduced regulation decreases costs for countries that trade with other nations and may, ultimately, result in lower consumer prices. 3. Imports are subject to lower fees and competition is likely to increase. 4. Increased competition from abroad creates an incentive for greater efficiency and cheaper production by domestic firms. 5. The competition might also spur a country to shift resources to industries in which it may have a competitive advantage. For example, trade liberalization has encouraged the United Kingdom to concentrate on its service sector rather than manufacturing. 6. It eases technology transfer from developed countries to developing and underdeveloped nations. 7. An increase in the brain drain phenomenon and domestic supply of skilled workers is an incentive to improve education. SUSTAINABLE DEVELOPMENT SUSTAINABLE DEVELOPMENT Comparative advantage occurs when the opportunity cost of producing a particular good or service for one country is lower than for other countries. Trade Protectionism and Trade Liberalization Disadvantages of Trade Liberalization 1. Imports make it challenging for domestic companies to establish because of increased competition and lack of support. 2. Gradually, it may lead to overdependence on foreign products and services. 3. Favoring FDI-friendly policies and SEZ sometimes leads to exploitation of the workforce. They may face long work hours, low wages, and unhealthy working conditions. 4. It makes less-developed countries struggle to replace revenue lost through import tariffs and other fees. 5. Loosened regulations and lack of concern for environmental protection can cause depletion and degradation of natural resources. 6. Brain drain associated with liberalization policies can reduce the availability of human capital in developing countries. 7. It can affect indigenous people. For example, relaxed regulations can encourage and ease the acquisition of indigenous people’s land for corporate use. SUSTAINABLE DEVELOPMENT SUSTAINABLE DEVELOPMENT Sustainable development is development that meets the needs of the present, without compromising the ability of future generations to meet their own needs. MAIN GOAL OF SUSTAINABLE DEVELOPMENT The Sustainable Development Goals (SDGs) aim to transform our world. They are a call to action to end poverty and inequality, protect the planet, and ensure that all people enjoy health, justice and prosperity. It is critical that no one is left behind. SUSTAINABLE DEVELOPMENT In 2015, the 193 countries that make up the United Nations (UN) agreed to adopt the 2030 Agenda for Sustainable Development. The historic agenda lays out 17 Sustainable Development Goals (SDGs) and targets for dignity, peace, and prosperity for the planet and humankind, to be completed by the year 2030. The agenda targets multiple areas for action, such as poverty and sanitation, and plans to build up local economies while addressing people's social needs. SUSTAINABLE DEVELOPMENT Goal 1: No Poverty: End poverty in all its forms everywhere. Goal 2: Zero Hunger: End hunger, achieve food security and improved nutrition and promote sustainable agriculture. Goal 3: Good Health and Well-being: Ensure healthy lives and promote well-being for all at all ages. Goal 4: Quality Education: Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all. Goal 5: Gender Equality: Achieve gender equality and empower SUSTAINABLE DEVELOPMENT Goal 6: Clean Water and Sanitation: Ensure availability and sustainable management of water and sanitation for all. Goal 7: Affordable and Clean Energy: Ensure access to affordable, reliable, sustainable and modern energy for all. Goal 8: Decent Work and Economic Growth: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. Goal 9: Industry, Innovation, and Infrastructure: Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation. Goal 10: Reduced Inequality: Reduce inequality within and among countries. SUSTAINABLE DEVELOPMENT Goal 11: Sustainable Cities and Communities: Make cities and human settlements inclusive, safe, resilient, and sustainable. Goal 12: Responsible Consumption and Production: Ensure sustainable consumption and production patterns. Goal 13: Climate Action: Take urgent action to combat climate change and its impacts. SUSTAINABLE DEVELOPMENT Goal 14: Life Below Water: Conserve and sustainably use the oceans, seas, and marine resources for sustainable development. Goal 15: Life on Land: Protect, restore, and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss. Goal 16: Peace, Justice, and Strong Institutions: Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable, and inclusive institutions at all levels. Goal 17: Partnerships to Achieve the Goal: Strengthen the means of implementation and revitalize the global partnership for sustainable development. SUSTAINABLE DEVELOPMENT What Is the Difference Between Competitive Advantage and Comparative Advantage? Competitive advantage refers to one company's ability to differentiate itself over its competitors. Comparative advantage refers to a business's ability to produce a cheaper good compared with other businesses SUSTAINABLE DEVELOPMENT SUSTAINABLE DEVELOPMENT The major factor of environmental degradation is human (modern urbanization, industrialization, overpopulation growth, deforestation, etc.) and natural (flood, typhoons, droughts, rising temperatures, fires, etc.) cause. Today, different kinds of human activities are the main reasons for environmental degradation SUSTAINABLE DEVELOPMENT CAUSES OF ENVIRONMENTAL DEGRADATION Environmental degradation is a result of the dynamic inter play of socio-economic, institutional and technological activities. Environmental changes may be driven by many factors including economic growth, population growth, urbanization, intensification of agriculture, rising energy use and transportation. Types of Environmental Degradation Land and soil degradation: Degradation of soil quality from poor farming practices, excessive use of fertilizers and pesticides, leakage from landfills etc. Water degradation: Pollution of water from trash dumped in oceans, illegal dumping, disposal of large amounts of industrial waste into nearby rivers or lakes etc. Atmospheric degradation: This includes air degradation, particle pollution and the depletion of the ozone layer. Several other kinds of pollution: Apart from land, water and atmospheric degradation, many other kinds of pollution such as noise pollution, light pollution that are part of environmental degradation. FOOD SECURITY FOOD SECURITY Why is food security important in the contemporary world? What Is Food Security and Why Is It Important? - DataMyte Food security needs to ensure that quality food sources are within reach and that people have the resources and tools to produce and purchase food. Access encompasses the following types: Physical access: this type of access includes adequate supply, resources, and location FOOD SECURITY What is Food Security? Based on the 1996 World Food Summit, food security is defined when all people, at all times, have physical and economic access to sufficient safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life. FOOD SECURITY The four main pillars of food security: 1. Availability of food: Food availability addresses the “supply side” of food security and is determined by the level of food production, stock levels and net trade. 2. Access to food: An adequate supply of food at the national or international level does not in itself guarantee household level food security. Concerns about insufficient food access have resulted in a greater policy focus on incomes, expenditure, markets and prices in achieving food security objectives. FOOD SECURITY The four main pillars of food security: 3. Utilization: is commonly understood as the way the body makes the most of various nutrients in the food. Sufficient energy and nutrient intake by individuals are the result of good care and feeding practices, food preparation, diversity of the diet and intra-household distribution of food. Combined with good biological utilization of food consumed, this determines the nutritional status of individuals. 4. Stability of the other three dimensions over time: Even if your food intake is adequate today, you are still considered to be food insecure if you have inadequate access to food on a periodic basis, risking a deterioration of your nutritional status. Adverse weather conditions, political instability, or economic factors (unemployment, rising food prices) may have an impact on your food security status. GLOBAL INCOME INEQUALITY Global inequality is the unequal distribution of resources, opportunities, and power that shape well-being among the 8 billion individuals on our planet. HOW CAN WE REDUCE GLOBAL INEQUALITY? 1. Reducing inequalities in political power Corporate board rooms, international climate conferences, and national governments must be accountable to women, workers, and representatives of marginalized communities. When these groups gain power and political voice, they better influence these decision-making spaces, defining their own way out of poverty and tackling the factors that keep people poor. HOW CAN WE REDUCE GLOBAL INEQUALITY? 2. Reducing inequalities in economic power Through foreign aid that supports local people and institutions as well as financial commitments that help climate-vulnerable countries tackle the climate crisis, rich industrialized countries have a central role to play in making critical investments to reduce global inequality. By making billionaires and giant corporations pay their fair share of taxes, governments can direct more resources to strengthen health systems, lift children out of poverty, and grow more inclusive economies. TYPES OF ECONOMIC INCOME INEQUALITY Related concepts are lifetime Inequality (inequality in incomes for an individual over his or her lifetime), Inequality of Wealth (distribution of wealth across households or individuals at a moment in time), and Inequality of Opportunity (impact on income of circumstances over which individuals have no control, such as family socioeconomic status, gender, or ethnic background). All of these inequality concepts are related and offer different yet complementary insights into the causes and consequences of inequality, hence providing better guidance to governments when designing specific policies aimed at addressing inequality. WEALTH INEQUALITY The unequal distribution of assets among individuals or groups within a society or country. It encompasses not only the lack of financial resources but also the lack of social capital1, which allows an individual to access the networks and opportunities necessary to live a dignified life. LIFETIME INEQUALITY Reflects the total inequality that people experience over their lives, including income variation between people and income variation within-person over time. INEQUALITY OF OPPORTUNITY Concerned with access to key dimensions necessary for meeting aspirations regarding quality of life. It has economic dimensions (e.g. unequal access to decent work, financial services, land ownership, etc.), social dimensions (e.g. unequal access to health care, education, nutrition, etc.) POVERTY 1. WHAT DO YOU THINK ARE THE DIFFERENT TYPES OF POVERTY? WHERE DO YOU THINK YOU BELONG TO? 2. WHAT ARE THE CAUSES OF POVERTY? 3. DO YOU THINK THERE IS A FUNCTION OR PURPOSE WHY THE GOVERNMENT ALLOWS POVERTY AMONG PEOPLE? EXPLAIN YOUR ANSWER. POVERTY MAJOR TYPES OF POVERTY 1. ABSOLUTE POVERTY 2. RELATIVE POVERTY MAJOR TYPES OF POVERTY 1. ABSOLUTE POVERTY It is defined as a condition in which people lack the basic necessities of life, such as food, clothing, shelter, and healthcare. Absolute poverty is often measured by looking at the percentage of people who live below the poverty line, which is set at an income level that is necessary to meet basic needs. There are different poverty lines from country to country, but the international poverty line is usually set at around $1.90 per day. MAJOR TYPES OF POVERTY Extreme poverty is a more severe form of absolute poverty and is defined as a condition in which people lack the basic necessities of life, such as food, clothing, shelter, and healthcare, and live on less than $1.25 a day. In the same report as in 2017, the World Bank said that 3 percent of the world’s population was living in extreme poverty. MAJOR TYPES OF POVERTY 2. RELATIVE POVERTY It is defined as a condition in which people lack the resources to participate fully in society. Relative poverty is often measured by looking at the gap between the rich and the poor. In developed countries, the poverty line is typically set at 50 percent of the median income. This means that if the median income in a country is $50,000, then the poverty line would be set at $25,000. In 2017, the Organization for Economic Co-operation and Development (OECD) reported that 17.2 percent of the population in its member countries lived in relative poverty. This means that about 1 in 6 people in OECD countries were living on less than half of the median income in their country. MAJOR TYPES OF POVERTY Situational poverty Situational poverty is usually defined as a lack of resources at a particular time. This could be due to an unexpected event, such as an illness, a job loss, a natural disaster, or it could be the result of living in a disadvantaged community. Situational poverty is often temporary, but it can also become chronic if people are unable to find a way out of it. MAJOR TYPES OF POVERTY Generational poverty It is a type of poverty that is passed down from one generation to the next. Generational poverty often results in a cycle of poverty that is difficult to escape. This is because children who grow up in poverty often lack the resources and opportunities that are necessary to break out of it. They may not have access to quality education, healthcare, good jobs, lack of access to resources, and discrimination. As a result, they are more likely to live in poverty as adults. Breaking the cycle of poverty requires breaking down these barriers. Investing in education, healthcare, and social services can help to break the cycle and lift people out of poverty. MAJOR TYPES OF POVERTY Urban poverty Urban poverty is a type of poverty that is specifically tied to living in an urban area. According to the United Nations Development Programme (UNDP), urban poverty “refers to the condition of people who lack the resources to secure the minimum necessities of life, including food, clothing and shelter” in an urban area. There are a number of factors that can contribute to urban poverty, including a lack of access to education and employment opportunities, poor housing and living conditions, and a lack of access to basic services like healthcare and sanitation. MAJOR TYPES OF POVERTY Rural poverty is a type of poverty that is specifically tied to living in a rural area. Rural poverty is often caused by a lack of access to essential services and opportunities, such as education, healthcare, and employment. This can be due to a number of factors, including a lack of infrastructure in rural areas, distance from urban areas, and a lack of resources. CAUSES OF POVERTY 1. Lack or inadequate access to clean water and healthy food Lack or inadequate access to clean water and healthy food are among the leading causes of poverty. Poor families often cannot afford to buy food that is nutritious and affordable, which can lead to chronic health problems. Additionally, many people living in poverty do not have access to clean water, which can cause deadly illnesses like cholera. It is estimated that around 1.8 billion people live in water-stressed areas, which often leads to poverty. CAUSES OF POVERTY 2. Lack of access to education Many poor families cannot afford to send their children to school, or live in areas where there are no schools. As a result, children living in poverty often have little to no education, which limits their future prospects and earnings potential. According to UNESCO, around 263 million children and youth worldwide do not attend school. This lack of education can perpetuate the cycle of poverty from one generation to the next. CAUSES OF POVERTY 3. Lack of healthcare Poor people often cannot afford to see a doctor or buy medication, which can lead to serious health problems. In developing countries, many people die from preventable diseases because they do not have access to basic healthcare. According to the World Health Organization, around 100 million people are pushed into poverty each year due to healthcare costs. This can also make it difficult for people to work, as they may need to take time off work to care for themselves or their families. CAUSES OF POVERTY 4. Lack of employment opportunities Many poor people live in areas with little to no employment opportunities. This can be due to a number of factors, such as a lack of skills or education, discrimination, or the absence of industries in their area. As a result, people living in poverty often cannot find work, which means they are unable to earn an income to support themselves or their families. According to the International Labour Organization, around 197 million people worldwide were unemployed in 2019. This can lead to a number of other problems, such as homelessness, crime, and mental health issues. CAUSES OF POVERTY 5. Inadequate housing Many people living in poverty do not have access to adequate housing. This can mean living in overcrowded and unsafe conditions, or being homeless. Poor housing can also lead to health problems, as it is often dirty and lacking in basic amenities like running water and electricity. According to the UN, around 1.6 billion people live in inadequate housing globally. This can have a major impact on people’s quality of life and make it difficult to escape poverty. CAUSES OF POVERTY 6. Discrimination Discrimination is another factor that can lead to poverty. Marginalized groups, such as ethnic minorities, women, and people with disabilities, are often more likely to live in poverty. This is because they often face discrimination in areas like education, employment, and healthcare. As a result, they have less opportunity to improve their situation and escape poverty. Discrimination can also make it difficult for people to access basic services, such as housing and education. CAUSES OF POVERTY 7. Climate change Climate change is another major factor that can lead to poverty. Poor communities are often the most affected by climate change, as they often live in areas that are vulnerable to extreme weather events like floods and droughts. These events can destroy homes, crops, and livelihoods, leaving people struggling to survive. According to the World Bank, around half of the world’s population will be living in water-stressed areas by 2025. This is due to the fact that climate change is causing our water supplies to dwindle. Also, according to the United Nations, around 26 million people were displaced by natural disasters in 2017. This is the highest number of people displaced by natural disasters ever recorded. MULTIPLIER EFFECT MULTIPLIER EFFECT Concerned with access to key dimensions necessary for meeting aspirations regarding quality of life. It has economic dimensions (e.g. unequal access to decent work, financial services, land ownership, etc.), social dimensions (e.g. unequal access to health care, education, nutrition, etc.) MULTIPLIER EFFECT For example, suppose that investment demand increases by one. Firms then produce to meet this demand. That the national product has increased means that the national income has increased. FUNCTIONS OF POVERTY People tend to blame poverty on personal attributes rather than the restrictions of reality but there is a third one: poor people are fundamentally needed. By Herbert Gans FUNCTIONS OF POVERTY 1. Poverty ensures that society’s dirty work will be done. A. physically dirty or dangerous, temporary, dead-end and underpaid, undignified menial jobs B. Paying higher wages or force people who have no choice to do the dirty work-at low wages FUNCTIONS OF POVERTY 2. Poor people subsidized a variety of economic activities that benefit the rich A. domestic help subsidized the middle and upper classes making life easier for the employers and freeing rich women for a variety of professional, cultural, civic, and partying activities. FUNCTIONS OF POVERTY 3. Poverty creates jobs for a number of occupations and professions that serve the poor or protect the society from them A. jails would close shops without the poor, as would the police B. Numbers game would not be patronized; faith healers would not appear nor be consulted, peacetime army which recruits and enlist the poor. FUNCTIONS OF POVERTY 4. The poor buy goods others do not want and thus prolong the economic usefulness of such goods A. fruits and vegetables that have to be thrown B. second-hand clothes, automobiles, houses FUNCTIONS OF POVERTY 5. The poor can be identified and punished as real deviants in order to uphold the legitimacy of conventional forms A. to justify hard work, thrift, honesty, and monogamy, defenders of these norms must find people who can be accused of being lazy, spendthrift, and dishonest. FUNCTIONS OF POVERTY 6. The poor offer participation to the rest of the population in the uninhibited alcoholic and narcotic behavior in which they are alleged to participate A. they are often thought to enjoy more than the middle classes FUNCTIONS OF POVERTY 7. The poor also serve a direct cultural function when culture created by or for them is adopted the more affluent. A. the rich collect artifacts from extinct folk culture of poor people B. the rich also listens to folk, rock, country music that were born in the slums FUNCTIONS OF POVERTY 8. Poverty helps to guarantee the status of those who are not poor. A. social mobility is an important goal for many and people need to know where to stand, the poor functions as a reliable and relatively permanent measuring rod for status comparisons. FUNCTIONS OF POVERTY 9. The poor aid the upward mobility of groups just above them in the class hierarchy. A. the middle class entered through the profits earned from the provision of goods and services in the slums FUNCTIONS OF POVERTY 10. The poor helps the aristocracy busy, thus justifying its continuous existence. A. the poor are used as clients of settlement houses and beneficiaries of charity affairs FUNCTIONS OF POVERTY 11. The poor, being powerless, can be made to absorb the costs of change and growth A. they are pushed out of their neighborhoods to make room for progress.