Globalization Increases Inequality

Globalization Increases Inequality

Globalization increasing inequality

The Economist, September 2, 2014, “Why globalization may not reduce inequality in poor countries,” http://www.economist.com/blogs/economist-explains/2014/09/economist-explains-0 DOA: 1-1-15

GLOBALISATION has made the planet more equal. As communication gets cheaper and transport gets faster, developing countries have closed the gap with their rich-world counterparts. But within many developing economies, the story is less rosy: inequality has worsened. The Gini index is one measure of inequality, based on a score between zero and one. A Gini index of one means a country’s entire income goes to one person; a score of zero means the spoils are equally divided. Sub-Saharan Africa saw its Gini index rise by 9% between 1993 and 2008. China’s score soared by 34% over twenty years. Only in a few places has it fallen. Does globalisation have anything to do with it?

Usually, economists say no. Basic theory predicts that inequality falls when developing countries enter global markets. The theory of comparative advantage is found in every introductory textbook. It says that poor countries produce goods requiring large amounts of unskilled labour. Rich countries focus on things requiring skilled workers. Thailand is a big rice exporter, for example, while America is the world's largest exporter of financial services. As global trade increases, the theory says, unskilled workers in poor countries are high in demand; skilled workers in those same countries are less coveted. With more employers clamouring for their services, unskilled workers in developing countries get wage boosts, whereas their skilled counterparts don’t. The result is that inequality falls.

But the high inequality seen today in poor countries is prompting new theories. One emphasises outsourcing—when rich countries shift parts of the production process to poor countries. Contrary to popular belief, multinationals in poor countries often employ skilled workers and pay high wages. One study showed that workers in foreign-owned and subcontracting clothing and footwear factories in Vietnam rank in the top 20% of the country's population by household expenditure. A report from the OECD found that average wages paid by foreign multinationals are 40% higher than wages paid by local firms. What is more, those skilled workers often get to work with managers from rich countries, or might have to meet the deadlines of an efficient rich-world company. That may boost their productivity. Higher productivity means they can demand even higher wages. By contrast, unskilled workers, or poor ones in rural areas, tend not to have such opportunities. Their productivity does not rise. For these reasons globalisation can boost the wages of skilled workers, while crimping those of the unskilled. The result is that inequality rises.

Other economic theories try to explain why inequality in developing countries has reached such heights. A Nobel laureate, Simon Kuznets, argued that growing inequality was inevitable in the early stages of development. He reckoned that those who had a little bit of money to begin with could see big gains from investment, and could thus benefit from growth, whereas those with nothing would stay rooted in poverty. Only with economic development and demands for redistribution would inequality fall. Indeed, recent evidence suggests that the growth in developing-country inequality may now have slowed, which will prompt new questions for economists. But as things stand, globalisation may struggle to promote equality within the world’s poorest countries.

Less inequality prior to globalization

Oxfam Briefing Paper, 2014, Working for The Few, http://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/bp-working-for-few-political-capture-economic-inequality-200114-en_3.pdf DOA 1-2-15

Economic inequality is rapidly increasing in the majority of countries. The wealth of the world is divided in two: almost half going to the richest one percent; the other half to the remaining 99 percent. The World Economic Forum has identified this as a major risk to human progress. Extreme economic inequality and political capture are too often interdependent. Left unchecked, political institutions become undermined and governments overwhelmingly serve the interests of economic elites to the detriment of ordinary people. Extreme inequality is not inevitable, and it can and must be reversed quickly.
Data on the share of national income going to the richest people are scarcely available for developing countries. However, other measures support the argument that countries are becoming more unequal. For instance, between 1988 and 2008, the Gini coefficient increased in 58 countries for which data are available.13 Seven out of every 10 people in the world live in countries where inequality has increased. Rising levels of inequality are also an important feature of populous middle-income countries. These countries matter because they are where most of the world’s poor now live. Prior to globalization, these were low-income countries with significantly lower levels of inequality. Economic growth, however, has graduated them into middle-income status and has driven a wedge between the haves and have-nots.

Inequality Increasing

Extreme inequality is increasing

Oxfam Briefing Paper, 2014, Working for The Few, http://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/bp-working-for-few-political-capture-economic-inequality-200114-en_3.pdf DOA 1-2-15
Economic inequality is rapidly increasing in the majority of countries. The wealth of the world is divided in two: almost half going to the richest one percent; the other half to the remaining 99 percent. The World Economic Forum has identified this as a major risk to human progress. Extreme economic inequality and political capture are too often interdependent. Left unchecked, political institutions become undermined and governments overwhelmingly serve the interests of economic elites to the detriment of ordinary people. Extreme inequality is not inevitable, and it can and must be reversed quickly.

Massive inequality now

Oxfam Briefing Paper, 2014, Working for The Few, http://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/bp-working-for-few-political-capture-economic-inequality-200114-en_3.pdf DOA 1-2-15

Economic inequality is rapidly increasing in the majority of countries. The wealth of the world is divided in two: almost half going to the richest one percent; the other half to the remaining 99 percent. The World Economic Forum has identified this as a major risk to human progress. Extreme economic inequality and political capture are too often interdependent. Left unchecked, political institutions become undermined and governments overwhelmingly serve the interests of economic elites to the detriment of ordinary people. Extreme inequality is not inevitable, and it can and must be reversed quickly.
Given the scale of rising wealth concentrations, opportunity capture and unequal political representation are a serious and worrying trend. For instance:

• _Almost half of the world’s wealth is now owned by just one percent of the population.

• _The wealth of the one percent richest people in the world amounts to $110 trillion. That’s 65 times the total wealth of the bottom half of the world’s population.

• _The bottom half of the world’s population owns the same as the richest 85 people in the world

• _Seven out of ten people live in countries where economic inequality has increased in the last 30 years.

• _The richest one percent increased their share of income in 24 out of 26 countries for which we have data between 1980 and 2012.

• _In the US, the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom 90 percent became poorer.

Global elites becoming richer

Oxfam Briefing Paper, 2014, Working for The Few, http://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/bp-working-for-few-political-capture-economic-inequality-200114-en_3.pdf DOA 1-2-15

Economic inequality is rapidly increasing in the majority of countries. The wealth of the world is divided in two: almost half going to the richest one percent; the other half to the remaining 99 percent. The World Economic Forum has identified this as a major risk to human progress. Extreme economic inequality and political capture are too often interdependent. Left unchecked, political institutions become undermined and governments overwhelmingly serve the interests of economic elites to the detriment of ordinary people. Extreme inequality is not inevitable, and it can and must be reversed quickly.
Global elites are increasingly becoming richer. Yet the vast majority of people around the world have been excluded from this prosperity. For instance, while stocks and corporate profits soar to new heights, wages as a percentage of gross domestic product (GDP) have stagnated. To give an indication of the scale of wealth concentration, the combined wealth of Europe’s 10 richest people exceeds the total cost of stimulus measures implemented across the European Union (EU) between 2008 and 2010 (€217bn compared with €200bn).8 Furthermore, post-recovery austerity policies are hitting poor people hard, while making the rich even richer. Austerity is also having an unprecedented impact on the middle classes.

Gains in India going to billionaires

Oxfam Briefing Paper, 2014, Working for The Few, http://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/bp-working-for-few-political-capture-economic-inequality-200114-en_3.pdf DOA 1-2-15

Economic inequality is rapidly increasing in the majority of countries. The wealth of the world is divided in two: almost half going to the richest one percent; the other half to the remaining 99 percent. The World Economic Forum has identified this as a major risk to human progress. Extreme economic inequality and political capture are too often interdependent. Left unchecked, political institutions become undermined and governments overwhelmingly serve the interests of economic elites to the detriment of ordinary people. Extreme inequality is not inevitable, and it can and must be reversed quickly.
India has seen its number of billionaires increase from less than 6 to 61 in the past decade, concentrating approximately $250bn among a few dozen people in a country of 1.2 billion. What is striking is the share of the country’s wealth held by this elite minority, which has skyrocketed from 1.8 percent in 2003 to 26 percent in 2008, though it declined in the aftermath of the global financial crisis.30

By some estimates, half of India’s billionaires acquired their wealth in ‘rent thick’ sectors.31 This means sectors where profits are dependent on access to scarce resources, made available exclusively through government permissions and therefore susceptible to corruption by powerful actors – as opposed to creation of wealth. Such sectors include real estate, construction, mining, and telecommunications. In fact, it is common knowledge that property development is India’s most opaque business, where enormous sums of illegal money exchange hands and little tax is collected.32 Wealth accrued from rents is made possible by the coaction of government and powerful groups, whereby the economic rules of the game are rigged in favor of elites.

Despite incredible economic gains by a few dozen people in India, poverty and inequality remain rampant. While the number of billionaires has multiplied by ten, government spending on the needs of the poorest and most vulnerable groups in society remains remarkably low. For example, India’s public spending on healthcare is just one percent of GDP.33 The Asian Development Bank’s recently released the Social Protection Index (assessing country expenditure on poor and economically vulnerable groups) ranked India 23 out of 35 countries in the region. Even among the 19 low- to middle-income countries, India ranked in the bottom half, in twelfth place.34

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