Tsakas Spyridon GLOBALIZATION AND INEQUALITY It seems like every day in the news and newspapers there is yet another mention of globalization and whether or not it is good or bad. Does anyone really know what the term actually means or stands for though? There are many varying definitions of this term however the most appropriate since it is proposed by the World Bank would have to be the one cited by Branko Milanovic which states that it is the “freedom and ability of individuals and firms to initiate voluntary economic transactions with residents of other countries” (Milanovic 2003 World Bank).
The purpose of this paper is to investigate whether or not globalization has aided or worsened inequality in the world. The focus will be on economic inequalities among regions, labor inequalities, poverty, debt, education, and health care. Globalization, contrary to popular belief, has made the gap between rich and poor countries even wider leading to civil unrest around the world. Globalization is not a newly discovered phenomenon. People have been trading across the globe throughout the course of human history.
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The flow of capital today is much more rapid than it was 100 years ago, or even 10 years ago for that matter. Due to the ambiguous nature of its definition it is hard to designate exactly when globalization began. The general consensus is that in modern history there have been three major periods of globalization. The most recent period has begun in the 1970’s and is still in progress today. “Nations with formerly inward focused policies have chosen to open their markets to foreign trade and investment… foreign assets relative to world income have jumped from 18 percent in 1980 to 57 percent in 1995” (Houck 5).
Clearly this is indicating that capital is flowing much more rapidly and freely among nations, showing that globalization is taking place. According to Milanovic, the bulk of capital flows to developing nations today are direct investment, and a large proportion of this is in manufacturing. For example, companies like Nike and other major retailers of clothing and simple assembly products are creating factories and manufacturing sites in developing countries due to the lower labor costs and cheaper materials which can be found there.
Economic inequalities have been created by this rising trend in globalization which has collapsed economic growth for many countries and regions. Mark Weisbrot, an economic expert on Latin America points out that ” If we ignore income distribution and just look at income per person, the most basic measure of economic progress that economists use, the last quarter century has been a disaster. From 1960-1980, per capita income in Latin America grew by 82% after adjusting for inflation.
From 1980-2000, it grew by only 9% and for the first five years of this decade (2000-2005) growth has totaled about 4%”. This indicates that contrary to the popular belief that globalization is benefiting the income disparities of people, it is clearly not achieving its goal in one of the largest regions of developing countries in the world. Furthermore, a look at the income of the 400 highest earners in the United States shows that they make as much money in a year as the entire population of 20 African nations- more than 300 million people.
The UNDP report for 2006 shows that “Ours is a world of extremes. The poorest 40% of the world population-the 2. 5 billion people who live on less than 2$ a day- account for five percent of global income, while the richest 10% account for 54%” It shows that globalization benefits only a small portion of the world’s population making the larger portion of it suffer. One of the reasons which has led to economic inequalities is technological advances.
Due to new technology, the use of low skilled labor is not as necessary since it can be replaced by machinery which is more enticing to the manufacturer since it is cheaper than the cost of labor and is more efficient. A measure used to estimate income inequalities within and across populations is the Gini coefficient which for the year 2007 showed that inequality has risen in developing Asia, eastern Europe, Latin America, the newly industrialized economies of Asia and the Western world economies. Additionally, the widespread incorporation of globalization has led to many labor inequality problems around the world.
One reason for this is the promotion by the IMF and World Bank in developing countries to undermine worker protections and increase labor market flexibility. This basically means that the labor market is deregulated making it easier to hire and fire, remove wage protections, and dismantle labor unions in an attempt to make companies more productive. This however has led to greater worker uncertainty, and more instances of worker exploitation in which workers can not require higher wages for their labor in fear of losing their jobs. Also in the U. N. onference on Trade and Development it was noted that “in almost all developing countries that have undertaken rapid trade liberalization , wage inequality has increased, most often in the context of declining industrial employment of unskilled workers and large absolute falls in their real wages, of the order of 20-30 percent in some Latin American countries. ” This clearly shows that there is uncertainty everywhere since the corporate sector has unrestrained power to hire and fire. Also as aforementioned, the prospect of a company moving overseas to achieve cheaper labor costs, threatens employees’ jobs on a daily basis.
A vast majority of profitable companies are giving up their defined- benefit pensions in order to minimize their costs by providing benefits to their employees. Furthermore in most of Europe the rate of private sector growth is declining, leading to much higher rates of unemployment. Evidently if the typical worker’s job is insecure with steady wages and uncertain pensions, they become skeptical of the benefits of global economic integration. Furthermore in India, only every second person can read and write and the situation with the environment is getting worse and worse. Wages are stagnating as the cost of living increases.
This is an unfortunate reality for the vast majority of Indian workers who are faced with an annual inflation rate of more than 4% and have to contend with a decline in purchasing power each year as a result. In China, which opened its economy to international trade over the past two decades, the Gini coefficient of income inequality rose from 38. 2 in 1988 to 45. 2 in 1995. This provides a direct correlation for the consequences of globalization which are worsening the income inequality statistics, especially since prior to incorporating itself into the world market, China was almost completely isolated from international trade.
Another striking aspect of inequality which has been made worse by globalization is the issue of widespread poverty in the world. As cited by the UNDP’s annual report for 2006 ” Never before has the goal of abolishing poverty been within our reach: there are no longer any insurmountable technical, resource or logistical obstacles to achieving it. Yet more than 800 million people suffer from hunger and malnutrition, 1. 1 billion people do not have access to clean drinking water and every hour, 1,200 children die from preventable diseases.
Despite a growing world economy and significant advances in medicine and technology, many people in developing countries are not reaping the potential benefits of globalization. ” In India for example, as many as 400 million people out of a population of 1. 37 billion in the region are below the poverty line of 2$ a day. According to UNICEF, 26,500-30,000 children die each day due to poverty. And they “die quietly in some of the poorest villages on earth, far removed from the scrutiny and the conscience of the world. Being meek and weak in life makes these dying multitudes even more invisible in death. “