Globalization in Theory: What's Missing from the Current Debate?

This paper calls for a theoretical orientation in the way we think about globalization and its long-term consequences for the poor. In contrast with much of the theoretical literature on globalization to date – the lion’s share of it written by economists – the alternative perspective it offers builds on the economic wisdom linking openness to growth, but then takes that argument two steps further. It does this, first, by calling attention to globalization’s impact on the earnings of families and individuals close to the bottom of the market-income distribution – as opposed to the returns from openness accruing to the average household (or the average individual in per capita terms), where these latter earnings are themselves largely a product of the earnings accruing to households and individuals at the very top of a society’s earnings distribution; and second, by taking a closer look at globalization’s impact on the non-market incomes of the poor. Insofar as this paper has one big argument – a "take-home" point, as it were – it’s that the impact of globalization on a poor family’s (market) earnings and the impact on its (non-market) disposable income need not be same, or even in the same direction. If globalization dramatically increases a family’s earnings – as, in theory, it is supposed to – the end-result could still be a decline in that family’s standard of living, or even "just" in the amount of income each family member ultimately gets to enjoy. For our hypothetical family, if it is poor, is likely to derive a large fraction – and potentially all – of its disposable income from non-market sources: government transfers, unemployment insurance, social security payments, etc. And while the market may be booming, the non-market (i.e., government) may be struggling financially – with large budget deficits, for example – or the elected officials who preside over it may simply be feeling ill-disposed toward the poor and thus disinclined to send additional material resources in its direction. In theory, then, globalization could be lifting the earnings of a society’s poorest individuals and families at the same time that, by encouraging the election of political parties opposed to welfare spending, it was depressing the redistributive benefits flowing to them. Would we regard globalization as a net gain for the poor, in this case, or as just the opposite – a net loss? This paper lays the theoretical groundwork for answering the question.