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Globalisation and Inequality (Revision Essay Plan)

Last updated 1 May 2018

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Here is an answer to the following question: "Evaluate the extent to which globalisation inevitably leads to a rise in income inequality in one or more countries of your choice."

Essay On Globalisation And Inequality (Download a pdf version of this essay)

Globalisation is a process through which countries, businesses and people become more inter-connected and inter-dependent via an increase in trade in goods and services, cross-border investment and labour migration from one nation to another. Income and wealth inequality can be measured in various ways including the Gini coefficient and the Palma Ratio. The latter is a good indicator of the depth of inequality since it tracks incomes flowing to the top ten percent of households and divides by the incomes for the bottom forty percent. In South Africa, that figure is 7.1 whereas for Germany the Palma Ratio is just over 3.

One way globalisation can increase inequality is through the effects of increasing specialisation and trade. A rise in trade-to-GDP ratios signifies an increase in the volume and value of trade between countries and regions. Although trade based on comparative advantage has the potential to stimulate economic growth and lift per capita incomes, it can also lead to a rise in relative poverty. For example, if a country can now import cheaper steel from elsewhere, then there will be a contraction in domestic supply and a fall in employment and real incomes in that industry. This can lead to higher rates of structural unemployment and a decline in real living standards. Real wages come under downward pressure and inequality can increase. We see this in regions of the UK for example where de-industrialisation has taken place leading to much higher rates of long-term unemployment and a worsening of economic and social deprivation. In the United States, the share of national income claimed by the top 1% of the population climbed from 11% in 1980 to 20% in 2014, compared to just 13% for the entire bottom half of the population. 

However, one could argue that the benefits of globalisation can be used to offset this. If trade generates faster GDP growth, then the government will see an increase in tax revenues which might then be used to fund capital investment in public goods and merit goods and services including finance for re-training programmes and improvements to infrastructure in economically-depressed areas. Much depends on whether a government has sufficient resources and political will to implement an active regional and industrial policy to improve employment prospects for those negatively affected by globalisation.

Globalisation might also increase inequality because it usually leads to higher profits for multinational corporations such as Apple, Google and Facebook which feed into generous pay-outs for senior executives and increasing dividends for shareholders. Multinationals matter - they generate 10 percent of the world’s annual GDP and more than 50 percent of the value of world trade. One of the hot political and economic issues of the age has been the ability of businesses operating in more than one country (a transitional company) to use shadow pricing and other forms of legal tax avoidance to reduce their liability to pay tax and thereby increase the return to those with an equity stake. Because of tax avoidance, national governments do not generate the revenues needed to pay for public services and welfare systems - both of which can have a progressive effect on the final distribution of income. The UK government has estimated that, in 2017, multinational businesses managed to avoid paying nearly £6 billion in tax revenues. Oxfam estimates that tax avoidance costs developing countries $170 billion a year whereas $100 billion could provide an education for 124 million children and pay for healthcare services that could prevent the deaths of at least six million children annually.

In evaluation, there are steps that governments can take to increase their tax take. This can range from introducing country-by-country financial reporting so that it becomes clearer where the profits are being made, to introducing restrictions on interest rates charges from one subsidiary of a TNC to another. There are also moves to reduce the amount of intra-company loans made by TNCs which can shift profits to countries with lower corporation tax. In the US, they have introduced a one-off tax on the off-shore cash held by US businesses after it was found that US companies had built up almost $2.6tn in untaxed cash held offshore. Developing countries can also improve their governance so that multi-nationals investing pay a proper rent for the ownership of land and are less vulnerable to corruption from elected officials.

A third way in which globalisation can create increased inequality is by increasing the demand for and returns to higher-skilled work and lowering the expected earnings of people in relatively low-skill and low-knowledge occupations. One of the driving forces of foreign direct investment is that resources tend to flow where the unit cost of production is lowest. This is the case with light manufacturing for example where a lot of investment is flowing to countries such as Vietnam, Bangladesh, Ethiopia and Indonesia. FDI creates more formal employment and incomes for people employed in these sectors but perhaps at the expense of similar workers in higher-income countries whose skills are no longer in such demand. They are therefore at greater risk of unemployment and persistent relative poverty; many have been pushed into poorly paid jobs in services linked to the Gig Economy. People affected often feel that they have been left behind by the forces of globalisation and their votes may have been a factor behind the Brexit outcome and the election of Trump who has adopted a “protectionist approach” to trade policy since becoming President.

That said, it could be argued that it is technological progress – which has raised demand for skilled workers relative to unskilled workers – rather than trade and globalisation which has had most impact on these workers. Often the people who lose jobs as a result of technology are not the ones who get the new ones and the result can be hysteresis in the labour market with deep pockets of long-term unemployment and hit relative poverty. Automation threatens many jobs - ranging from fork-lift drivers to workers in farming and production lines. The onus is on government to implement and fund the right supply-side policies designed to improve the human capital of people affected including lifting investment in human capital and entrepreneurship.

Final reasoned comment

In conclusion, it is not inevitable that globalisation increases inequality of income and wealth. We have seen big changes in the workforce and in earnings between different groups but in my view, these are not solely the consequence of globalisation. One paradox of globalisation is that it has probably reduced inequality between countries but increased it within nations. What matters is how governments respond to the challenge of improving access to knowledge and skills and in making sure that the benefits from cross-border trade and investment provide enough tax revenues to pay for high quality and affordable public services. In this way, more of the positives from globalisation can be turned into a ‘public good’ rather than a ‘public bad’.

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Understanding the Changing Planet: Strategic Directions for the Geographical Sciences (2010)

Chapter: 8 how is economic globalization affecting inequality, 8 how is economic globalization affecting inequality.

W e live in an unequal world in which descriptors of global inequality—especially inequalities in income—abound. “[T]he world’s richest 500 individuals have a combined income greater than that of the poorest 416 million … 2.5 billion people [are] living on less than $2 a day” (Watkins et al., 2005: 18). Researchers and policy makers continue to debate how, and at what scale, inequality trends are changing, but, by any measure, the disparities between rich and poor are striking (Firebaugh, 2003; Milanovic, 2005; The Economist , 2006; Held and Kaya, 2007; Lobao et al., 2007). The recent past has also seen rapid economic globalization—characterized by the supranational spatial integration of economies and societies (Stiglitz, 2002). Globalization has intensified flows of goods, finance, people, and political/cultural interactions all across our planet (Mittelman, 2002; Dicken, 2007). Understanding the nature of, and linkages between, globalization and inequality is crucial because disparities abound in access to needs such as shelter, land, food and clean water, sustainable livelihoods, technology, and information. Inequalities in all of these realms pose challenges to human security and environmental sustainability.

Much of the research on the link between globalization and inequality has focused on the global scale—looking at inequality between countries using aggregate economic indicators such as gross domestic product per capita (sometimes weighted by national population). These measures of global inequality are limited because they implicitly assume that within-country distributions of income are perfectly equal (Milanovic, 2005). Comparisons of inequality across individuals in the global population, and across a broader range of measures, regardless of national boundaries, are much rarer, but are increasingly possible and necessary (Milanovic, 2005). Beyond the need for improved measures of global inequality, we are currently witnessing a historic change in patterns of inequality, termed by Firebaugh (2003) as the “inequality transition.” Since the 1980s, evidence suggests that inequalities have increased more rapidly within countries than between them, heralding the reversal of increasing between-country inequality—a trend that began with the Industrial Revolution (Milanovic, 2005; Held and Kaya, 2007).

Because it may seem counterintuitive that subnational inequality would grow in an era of globalization, this finding points to the importance of research on scale differences in inequality patterns, and on the spatial impacts of specific aspects of economic globalization, so that we can better understand how globalizing processes influence inequality—where and for whom (Kanbur and Venables, 2007). Addressing this problem requires research aimed at identifying how distributional mechanisms within markets and governance arrangements are shaping inequality across geographical scales and differentially distributed populations (see Lobao et al., 2007).

The timing of the recent shift in inequality patterns (the early 1980s) corresponds with the rise of new forms of economic globalization that have transformed spatial relationships around the globe. Expanding transportation and communication networks, trade liberalization, reorganization of financial structures, and the rise of new

regional trade agreements have been redefining flows of commodities, investments, labor, and political power across the globe (Murray, 2006; Dicken, 2007). In the process, the “where and who” of the winners and losers of globalization are changing, as is the traditional role of the state in economic governance. The state is no longer the only, or even the primary, actor in economic processes, because markets are now global, regional, and local as much as they are national (O’Loughlin et al., 2004). A key research challenge going forward, then, is to move beyond a focus on individual states and identify the relationships between globalization and shifting patterns of inequality at varying scales (Held and Kaya, 2007).

ROLE OF THE GEOGRAPHICAL SCIENCES

Research in the geographical sciences can help identify the patterns and processes producing inequality across the world—within states and at local levels. Although sociology takes inequality to be a central problem, Lobao et al. (2007) argue that too much sociological research on inequality still operates at the national scale and entails questionable geographical assumptions about both the causes and patterns of inequality. These scholars argue for “the systematic incorporation of spatial factors into theory and research on inequalities” (Tickameyer, 2000: 811) and for research that builds multiscale models and draws on spatially referenced data. Geographical scientists are at the forefront of this research, undertaking projects aimed at representing and analyzing the intersections between the spatial and social dimensions of inequality. For example, geographical research is providing innovative cartographic representations of inequality that shed light on the nature and significance of patterns of inequality ( Figure 8.1 ).

Research in what has been termed the “new economic geography” is currently analyzing the spatial character of inequality by building structural models of the relations between economies of scale, transport costs, geographical remoteness from markets, and biophysical resource endowments (Krugman, 1993; Redding and Venables, 2004). The 2009 World Development Report adopts this frame of analysis to argue that three geographical dimensions of the global economy must be transformed to reduce inequality. The report argues that these reductions will result from (1) a greater concentration of economic activity (density), (2) a reduction in the friction of distance (i.e., increasing the mobility of goods, capital, and labor), and (3) diminished divisions between places as a result of borders and differences in language and regulations (World Bank, 2009: 7). Research in the geographical sciences extends the new economic geography (see Part I , Box 1 ), positing the fundamental importance of place-based influences on economic developments. It follows that policy makers need to focus more attention on local contextual influences, a point highlighted by Kates and Dasgupta (2007: 16749). Along the same lines, Sachs (2006: 73) notes that “policy makers and analysts should be sensitive to geographical, political and cultural conditions that may each play a role (in producing poverty).”

In their efforts to understand uneven development within and across places, geographical scientists have developed a body of work focused on the spatially variable operation of processes producing inequality in places characterized by different systems of macroeconomic regulation, different welfare regimes, different social divisions of labor (between paid and unpaid work, for example), and different consumption and distribution practices (Jones and Kodras, 1990; Smith, 1990; Kodras and Jones, 1991; Perrons, 2001). Research in this vein, which has been undertaken by geographically oriented researchers in demography, geography, economics, and political science, has shown that inequality emerges from multiple processes operating simultaneously at a range of spatial scales, including unequal global distributions of returns to production and work at sites along international production and consumption chains; regional trade agreements that limit national sovereignty on environmental and labor protections; and the presence of race and gender discrimination in different places (Nagar et al., 2002). Their findings are of relevance to debates about the economic and inequality impacts of market liberalization (see generally Firebaugh, 2003; Milanovic, 2005; Dicken, 2007; Kanbur and Venables, 2007). 1

FIGURE 8.1 This cartogram resizes national territories by the earnings of the poorest 10th living in each territory, focusing attention on comparative issues of importance for research on space, scale, and inequality. By visualizing the relative scope of inequality across major regions, questions are raised about the causes of similarly deep inequality in both Latin America and Africa vis-à-vis the countries of the Organisation for Economic Co-operation and Development. Striking spatial patterns such as these point to the potential importance of common social and economic histories that situate each of these regions in particular ways within global divisions of labor, commerce, politics, and cultural flows. SOURCE: Worldmapper. Copyright 2006 SASI Group (University of Sheffield) and Mark Newman (University of Michigan).

Systematic comparisons of subnational inequality and its causes across a range of countries, and in the context of global processes, could move the research agenda forward. Prior research has compared patterns and processes of within-country inequality for Britain, the United States, South Africa, and the former Soviet Union to determine how different economic structures, institutional arrangements and processes of discrimination (apartheid, class, gender and race) are associated with distinct patterns of spatial and social inequality (Smith, 1987). Smith’s comparative research is now 20 years old, however, and we lack an adequate understanding of how recent developments are changing economic, social and political landscapes as a result of global financial instability, new global trade regimes, and environmental instability in the wake of the transition from socialist to capitalist, globalized economies in some parts of the world (cf. Mykhenko and Swain, 2010, who provide a contemporary example of research on the links between territorial inequality, post-socialist transition, and the importation of foreign capital).

Studies by Dicken (2007) and Leichenko and O’Brien (2008) in particular highlight the value of focusing on the specific mechanisms of globalization and the role they play in shaping who and where the winners and losers of globalization are found. Their work points to the importance of analyzing the inequality outcomes of international trade treaties, global environmental regulations, global regulations on investments and the activities of transnational corporations, as well as spatial variations in labor standards and laws. Yet to date, the inequality impacts of these seismic shifts in global institutional and societal processes have not been systematically compared as they play out between and within countries around the globe (Murray, 2006; Dicken, 2007). In the next 10 years, researchers will have access to decennial census data and household income surveys (from many countries) that will allow them to represent and understand the spatial and scalar dimensions of inequality—both between and within countries during a period that will likely be characterized by intensifying globalization and economic instability. Against this backdrop, the investigation of the following research questions would be particularly productive.

RESEARCH SUBQUESTIONS

What patterns of inequality are emerging at the subnational scale.

A long tradition of geographical work focuses on developing visualizations of spatial patterns that can facilitate deeper understanding of sociospatial processes. Cartographic representations of inequality across countries and scales reveal current patterns of winners and losers in the face of globalization processes. For example, Glasmeier’s Atlas of Poverty in America (2005) identifies regions in distress: Appalachia, the Mississippi Delta, areas where indigenous people are concentrated, and much of the U.S.-Mexico border region. Drawing on state, county, and metro-scale socioeconomic data across four decades, the Atlas represents the social and spatial dimensions of poverty within each region and identifies vulnerable populations of children, women-headed households, and minorities. This detailed mapping of poverty over time suggests relationships between places and people, raising analytical questions about the intersections of gender, household structure, race/ethnicity, place, and poverty in different parts of the United States ( Figure 8.2 ). This within-country representation of variables associated with poverty provides a model for the type of comparative spatial analyses that are needed across countries.

New geographical visualization techniques also offer insights into linkages between inequality and the multiple consequences of globalization. Professor Danny Dorling’s team at the University of Sheffield is developing geovisualizations of social spatial structures (at a range of scales) that allow the research community to pose new questions about how people’s life chances are distributed and how are they changing ( Figure 8.3 ). 2 This research group has also developed a series of virtual atlases using flow lines and multidimensional scaling to visualize global city networks (see Figure 8.3 ). These visualizations demonstrate how fast Internet connectivity for some people and places changes their possibilities for engaging globalization processes, with different implications for places that remain relatively disconnected.

The digital divide in Internet connectivity could influence the ways in which places are understood in the future, as volunteer geographical information becomes increasingly central to the collection of georeferenced data about our world. Those cities and countries that are relatively underresourced in technologies, relevant education, and Internet connectivity will be poorly represented in terms of data accuracy or the range of information available (elaborated further in Chapter 11 of this report). In the future, teams of researchers could use geovisualizations to model uncertainty in inequality patterns that may result from distinct scenarios of globalization. By representing the possible impacts of global connectivity and isolation, they could inform policy decisions about the implications of connectivity and isolation for access to key resources (land, water, energy, etc.), engagement with the global economy, and environmental alteration at the subnational level (Smith, 1987; Murray, 2006; Moseley and Gray, 2008).

Where and how does market liberalization exacerbate or reduce spatial inequalities?

Market liberalization has been a central facet of globalization since the 1980s. Market liberalization

FIGURE 8.2 A map series showing the spatial distributions of different populations in poverty in the United States. SOURCE: Glasmeier (2005).

entails the global integration of trade and capital markets through free trade agreements and changes in national trade and financial regulations such as tariff barriers and capital controls. These liberalization processes, along with exuberant lending, overconfidence in monetary policy (as an effective control on money and credit supplies), and floating currencies, brought both high economic growth rates and considerable economic turbulence, with dramatically different impacts for different people and places (as in the Latin American debt crisis of the 1980s, the Asian financial crisis of the 1990s, the global financial crisis of 2008; Krugman, 2000). Market liberalization has also led to a reworking and intensification of networks of connectivity between many cities; an expanding role for transnational corporations in global production and consumption networks; and the large-scale privatization, and international ownership, of telecommunications, transport systems, and primary resource extraction in low-income countries (Dicken, 2003).

In recent years, geographical research has yielded important insights into the social and spatial trade-offs

FIGURE 8.3 City connection map that demonstrates how “close” other cities are to London in a virtual space of relationships based entirely on connection values. SOURCE: Social and Spatial Inequalities. Used with permission.

between trade liberalization and inequality (including research focused on economic growth, environmental change, and human vulnerability). For example, Leichenko and O’Brien (2008) have exposed patterns of advantage and harm in agricultural communities in India in the face of twinned processes of market liberalization and climate change. Their work begins from the premise that the inequality effects of global processes have distinct spatial and social expressions (see also Sachs, 2006; Kates and Dasgupta, 2007). Drawing together data on climate impacts on crop yields, changes in plant pollination and competition, and human vulnerability to climate change, Leichenko and O’Brien (2008) constructed maps revealing the regions that are most vulnerable to predicted climate changes across the country (see also the discussion of this study in Chapter 3 ). A geographic information system analysis of the relationship between that map and patterns of agricultural export advantage, import sensitivity, and the resilience of farmers to socioeconomic change allowed them to identify places across India that are “double exposed” to climate change and trade liberalization and places that are less exposed, and therefore are likely to be less vulnerable in the face of these processes ( Figure 8.4 ).

Similar methodologies and tools can be employed to analyze the changing geography of inequality in the face of the twin impacts of market liberalization and climate change (Liverman and Vilas, 2006). Research in this vein will require the construction of integrated datasets from existing national and international sources at a range of spatial scales, including production and trade data, household income surveys, national census data, and United Nations and World Bank data (see Ravallion, 2001; Redding and Venables, 2004). These new datasets can be employed to produce targeted sectoral and regional analyses of understudied economic sectors (e.g., industry and energy systems in the tropics), which in turn can pave the way for research exploring the ways in which a variety of key economic sectors are influenced by global trade and

FIGURE 8.4 Maps depicting district-level response capacity and sensitivities to climate change and import competition. SOURCE: Leichenko and O’Brien (2008).

capital flows in ways that produce shifting landscapes of production, consumption, and vulnerability (Liverman, 2008).

How are poverty, wealth, and consumption interrelated across space and at multiple geographical scales?

Differences in wealth and poverty are often not solely the result of local circumstances; they are produced by relationships that link far-flung places. Geographical scientists investigate how spatial relationships shape inequality, such as the relationships between production in low-income countries and rich-country consumption, or the inequality effects of deploying agricultural lands for domestic foodstuffs or for export crops. They have developed conceptual and analytical tools for tracing the networks of production, consumption, and exchange that link people across world markets and for identifying the processes through which wealth and poverty are explicitly linked. Of particular significance is work on (1) production chains—linked sequences of place-based functions where each stage adds value to the commodity (Dicken, 2007); (2) consumption chains—links between consumption and the conditions of production (Hartwick, 1998); and (3) global commodity chains, which expose prices, and the geographical distribution of value, at each node along the production and marketing trajectory of a specific commodity (Gereffi and Korzeniewicz, 1994; Leslie and Reimer, 1999).

Geographical research on commodity chains is enchancing understanding of the ways in which inequality is reworked through production and consumption linkages. For example, Nepstad et al. (2005) have traced how consumers in high-income countries shape the nature of agricultural commodity chains through an examination of the globalization of soy and beef industries based in the Brazilian Amazon. They developed a network analysis that connects growing fears of bovine spongiform encephalopathy (BSE or mad cow disease) in ration-fed beef in the United States and Europe with increasing demand for grass-fed beef from the Amazon. Their work demonstrates how conditions of production are reworked by pressures from consumers demanding both improved environmental stewardship and better social conditions for workers. Their study reveals that pressures from lender and consumer organizations to reduce the negative socioecological impacts of production are leading to the environmental and social certification of beef, timber, and soybeans. Additional geographical research building on this conceptual and empirical foundation could further elucidate the nature of commodity networks and show how certification

programs rework inequality (e.g., Mutersbaugh, 2003; Tovar et al., 2005; Klooster, 2006).

Bassett’s (2008, 2010) empirical research on cotton commodity chains linking West African agriculture to global markets provides further evidence that poverty and consumption are linked across space and scale (Moseley and Gray, 2008). Bassett explores how patterns of inequality across space and scale are shaped by the linkage of West African cotton farmers’ incomes to market liberalization; relationships between producers, workers, and consumers; and interactions between ecological and social systems. He found that African cotton growers are relatively marginalized in negotiations over prices for seed cotton, fertilizers, and pesticides vis-à-vis ginning and marketing companies, as well as in dealings with cotton trading companies that set prices based on world markets. These negotiations with national cotton companies and the World Trade Organization are central to the setting of global cotton prices and so shape how and where returns to the crop are distributed among growers, ginners, and traders. Bassett’s research also traces the relationship between currency values and farmers’ incomes. For example, cotton trades globally in U.S. dollars, and yet currencies in Burkina Faso and Mali are pegged to the Euro. The recent devaluation of the dollar relative to the Euro thus reduced cotton farmers’ returns on their internationally traded crops. In addition, Bassett’s work reveals that U.S. cotton subsidies result in overproduction by U.S. producers, who generate 40 percent of global cotton production—thereby suppressing global cotton prices. As a result, farmers in West Africa, who do not have access to similar subsidies, face lower prices on international markets, resulting in lowered incomes (see also Friedberg, 2004, for a commodity chain analysis of French bean crops, and Gwynne, 2002, for a study of fruit exports from Chile).

Geographical research aimed at integrating economic, environmental, and social variables across place and scale can shed additional light on the impacts of market liberalization on inequality within states, at the local scale and across the globe. In particular, much could be gained from comparative case studies employing rigorous experimental frameworks that include common questions and metrics to facilitate aggregation and meta-analysis.

An understanding of the causes and consequences of inequality requires consideration of geographical patterns and networks—whether economic, political, or environmental. Spatial analyses that take explicit account of place-to-place variations and scalar differences can be of particular value in the effort to elucidate the complex interactions between globalization and inequality.

From the oceans to continental heartlands, human activities have altered the physical characteristics of Earth's surface. With Earth's population projected to peak at 8 to 12 billion people by 2050 and the additional stress of climate change, it is more important than ever to understand how and where these changes are happening. Innovation in the geographical sciences has the potential to advance knowledge of place-based environmental change, sustainability, and the impacts of a rapidly changing economy and society.

Understanding the Changing Planet outlines eleven strategic directions to focus research and leverage new technologies to harness the potential that the geographical sciences offer.

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• Research Highlights

Is a globalized world a less equal world?

Research Highlights Article

June 15, 2018

The relationship between globalization and inequality is not always straightforward.

Diana Schoder

Globalization may not be the sole driver of global income inequality.

fionams/Bigstock

Whether Brexit, offshoring, or China’s growing middle class, globalization is at the core of many issues today. But often, globalization gets too much credit for changing the world — and potentially too much blame.

This is especially true of global income inequality. A common narrative frames globalization as the cause of inequality: by shifting low-skilled jobs from wealthier countries to poorer countries, economic integration has increased inequality within countries while lowering inequality between them.

However, the story is more complex.

It’s true that people living around the 80th percentile of global income (the poor and middle class of the developed world) have seen little real income gain from globalization, whereas many of the poor and middle class of the developing world have benefited greatly. At the same time, the global elite have continued to experience substantial gains, while the poorest people in the world have not seen much growth at all.

Clearly, the benefits of economic change have not reached everyone equally. Yet, globalization is only one factor in this unequal distribution. These numbers also reflect developments of the late twentieth century, such as the collapse of the Soviet Union and Japan’s period of economic stagnation. Those events contributed to the low income growth of the world’s middle class, but they were not directly related to globalization. Other factors like new technology, unequal education, deregulation, and differing social welfare policies help to explain these trends as well .

There’s a certain amount of disconnect present between the ways policymakers and civil society think about inequality and the way economists think about inequality. Martin Ravallion

This is the point of a review essay in the June issue of the Journal of Economic Literature : globalization is one factor, but it is not the sole force behind recent patterns of inequality. People must understand the more nuanced — but also more complete — reasons behind inequality in order to tackle its consequences.

Right now, this dialogue is not happening, author Martin Ravallion  said in an interview with the AEA. Economists and policymakers tend to see globalization differently.

“The debates are like two ships passing in the night," he said. "They’re not seeing each other’s positions.”

To have a more productive dialogue, everyone must recognize that the most popular narrative is not the most complete one. The alternative explanations for today’s patterns of inequality must be taken seriously on their own, but they can coexist and interact with globalization, too. Trade can induce the adoption of new technology, and political factors can cause countries to embrace globalization while lowering their social safety nets.

Still, Ravallion says that most people are overestimating the significance of globalization as a driver of global income inequality — particularly the rising within-country kind. Although within-country inequality is increasing on average, its exceptions are almost the rule: France has not experienced an upward trend in inequality; inequality is falling in several countries; and, many developing countries have experienced both rising and falling inequality over the past few decades. This diversity of outcomes suggests that policymakers should not use globalization alone as a scapegoat for inequality.

In fact, policy can help to explain these differences among countries. As nations adopt stances on education and health policies, minimum wages, taxes, social programs, and basic incomes, they can mitigate or exacerbate the effects of globalization. They can also have effects outside of globalization altogether.

Economists can also expand their way of thinking about inequality. Most economists focus on relative inequality, but many noneconomists think in absolutes. If the bottom ten percent and top ten percent both see a five percent increase in income, the top ten percent is accumulating significantly more money. Economists talk about the comparable five percent increases, whereas most people think about the differences in cash.

“There’s a certain amount of disconnect present between the ways policymakers and civil society think about inequality and the way economists think about inequality,” says Ravallion. By prioritizing relative inequality, economists are missing an important part of the conversation.

Finally, Ravallion wants people to think about why they care about inequality. Even if there is no intrinsic reason to care about inequality, he says, studying inequality is essential to understanding how economies work. It is also instrumental to objectives like reducing poverty, especially among the poorest people in the world. This is why inequality should be a more central issue in economics, says Ravallion. When it is treated as a peripheral issue, economists cannot fully confront these related challenges.

Of course, it is not enough for economists to focus more on inequality. When economists do study inequality, they must make sure to do so critically and thoughtfully — aware of how noneconomists view inequality, ready to look beyond popular narratives while being respectful of the element of truth in those narratives, and with a focus on the people who are affected the most.

" Inequality and Globalization: A Review Essay " appears in the June issue of the Journal of Economic Literature . 

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In The Globalization of Inequality , distinguished economist and policymaker François Bourguignon examines the complex and paradoxical links between a vibrant world economy that has raised the living standard of over half a billion people in emerging nations such as China, India, and Brazil, and the exponentially increasing inequality within countries. Exploring globalization’s role in the evolution of inequality, Bourguignon takes an original and truly international approach to the decrease in inequality between nations, the increase in inequality within nations, and the policies that might moderate inequality’s negative effects. Demonstrating that in a globalized world it becomes harder to separate out the factors leading to domestic or international inequality, Bourguignon examines each trend through a variety of sources, and looks at how these inequalities sometimes balance each other out or reinforce one another. Factoring in the most recent economic crisis, Bourguignon investigates why inequality in some countries has dropped back to levels that have not existed for several decades, and he asks if these should be considered in the context of globalization or if they are in fact specific to individual nations. Ultimately, Bourguignon argues that it will be up to countries in the developed and developing world to implement better policies, even though globalization limits the scope for some potential redistributive instruments. An informed and original contribution to the current debates about inequality, this book will be essential reading for anyone who is interested in the future of the world economy.

Awards and Recognition

• A Financial Times Summer Books 2015 selection
• One of Financial Times (FT.com) Best Books in Economics 2015, chosen by Martin Wolf

"This timely and excellent primer on income inequality both within and among nations deserves to be read by both occupiers and occupants of Wall Street."— Publishers Weekly

"Globalization has unleashed powerful forces: some wonderful, some worrying. This book can take you beyond the cliches to an understanding of what is going on and what can be done about it."—Sir Paul Collier, Prospect

"Readers wanting a map of the terrain should read Bourguignon. Bourguignon[‘s] provides an accessible overview."—Martin Wolf, Financial Times

"This book is written in calm prose, but its message is urgent: continue as we are and poverty will grow on our doorsteps."—Danny Dorling, Times Higher Education

"Recommended for readers seeking a brief, less technical introduction to economic inequality within and among nations."— Library Journal

"Bourguignon carefully wends his way among the definitions of inequality and its multiple, sometimes conflicting measures. . . . This book is written for the layman but is nonetheless intellectually rigorous. It sets out the causes of and some remedies for a problem that urgently needs to be solved if we are to avoid what the book's title warns against, the globalization of inequality."—Brenda Jubin, Seeking Alpha

"[Bourguignon's] compact book takes readers through most of the suspected causes and possible cures for what he and many believe is a destructive phenomenon. . . . Now that this French academic's thoughts will be reaching an English-language audience, his translators may have little time to rest. Inequality is nearly everywhere. Certainly the world's politicians will continue to need such bedtime reading."—Tim Ferguson, Forbes.com

"Move over, Thomas Piketty. Anyone who has been put off by the French economist's overblown and overly long book on inequality now has a succinct alternative, The Globalization of Inequality . In a mere 189 pages, Francois Bourguignon provides a measured introduction to what is right and what is wrong about current trends in the dispersion of incomes."—Edward Hadas, Reuters BreakingViews

"Bourguignon sets out the figures in careful detail, distinguishing between increases in inequality within countries and changes between countries."—Diane Coyle, Enlightened Economist

"Bourguignon . . . presents a thoughtful and judicious analysis of economic inequality. . . . The book is highly accessible yet also sophisticated, drawing on a large and growing technical and empirical literature on inequality."— Foreign Affairs

"Bourguignon has written a succinct, useful guide to the current state of world inequality. With words and data, he draws the useful distinction between within-country inequality and between-country inequality . . . in contrast to the authors of most studies of economic problems, who do a solid job laying out the patterns of concern and considering their causes but only hand wave toward solutions, Bourguignon spends significant space considering policy approaches to reducing both forms of inequality."— Choice

"The sooner we listen to Bourguignon, Piketty, Atkinson et a l, the better."—Mark Goldring, Resurgence & Ecologist

"A concise and nontechnical masterpiece of exceptional analytical and policy clarity. His professional expertise and policy involvement shine through in every chapter. Although the book is written for concerned global citizens, professional economists and other social scientists can learn much from reading it."—Gary Fields, ILR Review

"A riveting read that explores the relationship between inequality and globalisation among nations and within nations."—Tapiwa Chagonda, South African Journal of International Affairs

"This long essay gives as convincing a case as any for a fairer society—on grounds of economic efficiency."—Sean O'Grady, The Independent

" The Globalization of Inequality has been written for the layman and it remains one of the best books on the subject."— Arab News

" The Globalization of Inequality manages to be both an accessible survey and a well-argued book."—Stephen Howes, Economic Record

"In this season of tomes on inequality, François Bourguignon's book stands out for its ability to combine global sweep with attention to minutiae, its passionate concern for the world's burgeoning inequality, and dispassionate analysis of the causes behind these growing disparities. An amazing amount can be learned from this slim volume on inequality within and across nations."—Kaushik Basu, chief economist and senior vice president of the World Bank

"François Bourguignon once again demonstrates his position as one of the world's leading thinkers on inequality. In this book, he stresses that careful attention must be paid to the distinction between global and national inequality. Bourguignon sets forth policies for achieving both convergence of global standards of living and economic efficiency, and he warns that inequality profoundly threatens social stability. May the hopeful part of his message prevail."—Gary Fields, author of Working Hard, Working Poor: A Global Journey

"In this tour de force, François Bourguignon shows how the seemingly paradoxical phenomena of rising inequality within countries and falling inequality between countries are related to each other, and caused by globalization. Written in a style accessible to a general audience, this excellent work by a global leader in inequality analysis will have lasting value."—Ravi Kanbur, Cornell University

"This book deals with extremely topical issues related to inequality. Bourguignon is exceptionally well-qualified to provide an overview of recent trends, tease out the implications of the global-versus-national perspective on inequality, and seriously examine the factors at work as well as promising policy responses."—Brian Nolan, University of Oxford

"An excellent treatment of a very important subject from a leading researcher in the field."—Stephan Klasen, University of Göttingen

"This work makes a significant contribution to the general understanding of globalization's influence on inequality. While much is being said on the topic, this book is a rarity in being both accessible and informed."—Jean-Yves Duclos, Laval University

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Are technology and globalization destined to drive up inequality?

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Understanding inequality and what drives it, kemal derviş and kemal derviş vice president and director laurence chandy lc laurence chandy former brookings expert, director of data, research and policy - unicef.

October 5, 2016

This report is part of a series of essays by the Global Economy and Development program—a 10th anniversary edition. The series, available here , delves into the critical issues facing all those concerned about globalization. You can join the conversation on Twitter using #11GlobalDebates .

1.1 What’s the Issue?

Over the past several years, concerns that technology and globalization lead to ever greater inequality have reached fever pitch in the U.S. and beyond. To understand what’s behind this anxiety, three distinctions are useful.

First is to distinguish global inequality and its two components: inequality within countries and inequality between countries. Global inequality, as popularized by economist Branko Milanovic, looks at the distribution of income between all the world’s citizens irrespective of country borders. Inequality by this measure is exceptionally high. Over the past generation, between-country disparities fell, due to the fast growth of emerging economies, even while inequality within several countries has risen. The net effect has been a small reduction in recorded global inequality (Lakner & Milanovic, 2015). This pattern will continue if poor countries such as India continue to quickly converge on income levels prevailing in high-income countries and this convergence outweighs any widening of within-country distributions (Hellebrandt & Mauro, 2015). Yet that would not quiet grievances about inequality. On the contrary, the middle class in industrialized economies, one of the world’s most vocal and powerful constituencies, has seen global growth benefit high earners in their economies along with the expanding middle class in emerging economies, while their own incomes have stagnated. Their sense of being shortchanged is increasingly recognized as a source of political instability.

Since politics is organized principally around the nation state, it is the level and change in inequality within countries that is the most potent source of tension and debate.

This brings us to distinction two: inequality in developed versus developing economies. In the former, the trend is clear—nearly all developed economies have seen inequality rise over the past generation. In Anglophone countries, rising inequality has been especially pronounced at the top end of the distribution, with the top 1 percent of earners seeing their share of national income rise. In developing countries, on average, inequality rose in the 1990s but stabilized in the 2000s (Ravallion, 2014). In most developing economies where recent data exist, inequality is trending downward (World Bank, 2015). However, information about the top end of the distribution in developing economies is limited, given the absence of complete tax records.

In developing countries, on average, inequality rose in the 1990s but stabilized in the 2000s.

Distinction three is between inequality in market income and disposable income. Until now we have described the inequality of disposable income, net of the effects of government taxes and benefits, which serve to reduce the inequality of market outcomes. This redistributive effect tends to be greater in developed countries than in developing countries, where government is typically a smaller share of the economy. In most advanced economies, redistribution through taxes and benefits grew over the past generation, offsetting some but not all of the increase in market inequality. However, these effects have diminished on average since the late 1990s, due to policy choices such as the application of more stringent criteria to government benefits (OECD, 2011). Public policies can also shape the distribution of market income. For instance, weakened employment protection, such as rules regarding sick leave and severance pay, has contributed to widening inequality over this period.

1.2 What’s the Debate?

Debates over the causes of inequality are fraught, reflecting the multiple and complex channels through which technology and globalization are changing the global economy.

Arguably the most prominent effect of technology on inequality is through the increased premium it places on skills. Modern technology substitutes for many of the jobs and tasks traditionally performed by unskilled workers, while acting as a complement to skilled workers. In advanced countries, trade reinforces this effect by encouraging specialization in high-skill sectors in which those economies have a comparative advantage. The same logic should see income inequality narrow in developing economies that specialize in low-skill sectors. However, in practice, skilled workers in developing economies may take those jobs, so that distributions widen (Maskin, 2015).

By substituting for unskilled workers, technology has not only increased the premium on skills, but increased the role of capital in production. Historically the share of income that accrues to workers relative to capital owners was stable, but since the 1980s, it has declined across most countries and industries as technology has made capital goods ever cheaper (Karabarbounis & Neiman, 2013). This adds to inequality, as capital ownership is especially unequal and generates large investment income for many of the same individuals already earning high wages (Atkinson & Lakner, 2013).

Arguably the most prominent effect of technology on inequality is through the increased premium it places on skills.

Technology has often led to the creation of strongly monopolistic markets for new goods and services. This is especially apparent in the digital economy, where behemoths like Google and Apple dominate. Globalization has expanded the scale of these winner-takes-all markets, enabling vast salaries and profits to be shared among a narrow set of employees and shareholders.

At the same time, globalization and technology have served to lower market barriers and information costs. For instance, while digital platforms for taxis (Uber), retail (Amazon), and accommodation (AirBnB) are themselves quasi-monopolies, they have simultaneously lowered barriers to entry for self-employed drivers, sellers, and would-be hoteliers, creating highly contestable markets. This has redistributed rents and generated new income-earning opportunities for the unskilled.

Evidence is emerging of the hollowing out of labor markets in developing economies.

Finally, globalization has encouraged a race to the bottom on some regulations and redistributive policies, as the mobility of firms, investment, and skilled workers compels governments to match the conditions of their competitors so as to retain and attract business (Bertola & Lo Prete, 2008).

1.3 What to Watch Out For?

The effects of technology and globalization on inequality are neither inevitable nor entirely predictable. We identify three areas to watch closely:

Job automation. The past year has seen a rapid uptick in sales of robots, coinciding with breakthroughs in the capability of machines and artificial intelligence in increasingly complex, non-routine tasks such as driverless vehicles and semi-cognitive skills such as voice-recognition. This has led to growing anxiety over the prospect of widespread automation of jobs. Estimates on the share of jobs that are at risk of automation over the medium term vary from 9 to 47 percent for OECD economies (Frey & Osborne, 2013; Arntz et al, 2016). Equally uncertain are what, and how many, new jobs may emerge and the adjustment costs of moving lots of workers into new roles.

Prospects for developing economies. The replacement of workers by machines poses a threat to developing economies’ traditional comparative advantage in global markets—their surfeit of cheap labor. Evidence is emerging of the hollowing out of labor markets in developing economies, mirroring the pattern already observed in the west, and of premature deindustrialization as developing economies struggle to establish a manufacturing base, in stark contrast to the path taken by western economies and Asia’s tiger economies (World Bank, 2016; Rodrik, 2015). At the same time, the digital economy provides opportunities to link workers in poor economies with companies and customers in rich markets, thus offering a temporary reprieve from the risks associated with labor-saving technologies (Basu, 2016). It is unclear which of these two effects will win out in shaping developing economies’ fortunes in the near term. But the rate of their convergence with rich economy living standards is set to be a major determinant of global inequality trends.

Perceptions of inequality. Public anger over the inequitable effects of technology and globalization is cited as a cause of myriad social ills—from rising nationalism and identity politics, to disdain for institutions, and a fracturing of the rules-based international system. Whether that anger persists will depend less on any objective measure of inequality than on how inequality is perceived and managed (Nieheus, 2014). One important factor is the way global integration shifts the reference points people use to judge and compare their lives.

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Policy has a vital role to play in promoting greater equality, both through redistribution, where taxes and benefits moderate the unequal distribution of market income into a more equitable distribution of disposable income, and “pre-distribution” where market forces and rules are engineered to improve the distribution of market income itself.

Given the alarming trends in inequality, and the tendency for political stalemate over changes in tax and benefits, attention is increasingly focused on policies that support pre-distribution. Some of the most creative ideas seek to reshape the forces of technology and globalization themselves. For instance, policies can be put in place to incentivize research and development on innovations that generate more jobs. Alternatively, governments can deploy public funds to acquire stakes in technological innovations and their commercialization so that the profits they generate can be shared with citizens rather than benefit only a narrow group of shareholders. With regard to globalization, multilateral efforts can eliminate tax inversions, whereby one corporation acquires another to re-domicile to a lower-tax jurisdiction.

More generally, there can be little doubt that focusing almost exclusively on average incomes and their growth has been a disservice to policymaking and to the economics profession. A growth strategy that doesn’t work for all members of an economy is incomplete and unsustainable, no matter how much redistribution there may be. The definition of economic success must therefore include the extent to which growth is inclusive. Inclusiveness cannot be an afterthought.

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Economic Inequality as a Result of Globalisation Essay

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• As a source of information (ensure proper referencing)
• As a template for you assignment

The gap between the rich and the poor had its beginning with the initiation of industrialisation. The acceleration of development of rich countries has resulted from the capacity to have imperial states. It is from this state of affairs that England has grown to be a super power while Asia and Africa are now reduced to producers of raw materials and markets of final products.

The economic inequality is as old as globalisation. The historical studies on this aspect of development indicate a relation between globalisation and disparity. This is shown by the lack of trend in economic disparity in the pre-globalisation period and the acceleration of disparity during and after globalisation. Globalisation is synonymous with economic liberalisation. The economic liberalisation that results from globalisation subjects economies to stronger and more intense market forces. It is imperative to note that in a highly competitive global market, weaker economies lose in competition and therefore experience decline of the economic progress.

The negative consequences of globalisation were not anticipated at its inception. Policy makers did not consider the possible inequality that would result from globalisation. The trend of growth of inequality has risen since the late 1800s when globalisation began. The rise in inequality has evidently been a threat to poverty reduction targets. This has necessitated the call for more adept pro-growth policies to help save the falling economies.

There is also the divergence of sources of inequality from usual sources with the new causes being linked more to the globalisation of world economies. The persistent nature of inequality has hampered poverty eradication measures. Causes of inequality being evident in Asia and Africa are identified as products of economic liberalisation. The economic reform policies made by Asian, India and Arab economies are their own undoing and the main course of their debilitated state.

The inequality that results from globalisation is more intense when comparing inter-country inequality with intra-country inequality. I am of the opinion that globalisation has different effects for intra-country inequality, which depends on the dimension of globalisation involved. The impacts also depend on the changes in policy that the countries make in acceptance to globalisation. In Asian and Arab economies, particularly after the Second World War, inequality accelerated because of the non-democracy, inferior education systems, and violent government institutions. The quality of governance varies in systematic ways. The European countries have better governments than Asian countries do. They are therefore more strategically ready to counter the negative effects of globalisation.

Currently, the trend of inequality is on the decline as more financial and commercial integration is endorsed. The stabilising role of governmental innovations has had a positive effect on reversing inequality with continued globalisation. In the case of smaller and lower income economy as most of African states, the threat of inequality is still real. This is mainly caused by natural causes, such as natural calamities, or by poor governance of these states and to a less extent by globalisation.

In conclusion, it is fair to state that globalisation and economic inequality are perceptibly related. Increased globalisation results into increased inequality. Globalisation has resulted in inter-country inequality but its impact on intra-country and income inequality is still questionable. Other causes of inequality are non-democratic governance, poor education policies and violence. Before, during and after globalisation, this difference in economic trend indicates the change in economic patterns of the world.

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IvyPanda. (2020, May 20). Economic Inequality as a Result of Globalisation. https://ivypanda.com/essays/economic-inequality-as-a-result-of-globalisation/

"Economic Inequality as a Result of Globalisation." IvyPanda , 20 May 2020, ivypanda.com/essays/economic-inequality-as-a-result-of-globalisation/.

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IvyPanda . 2020. "Economic Inequality as a Result of Globalisation." May 20, 2020. https://ivypanda.com/essays/economic-inequality-as-a-result-of-globalisation/.

1. IvyPanda . "Economic Inequality as a Result of Globalisation." May 20, 2020. https://ivypanda.com/essays/economic-inequality-as-a-result-of-globalisation/.

Bibliography

IvyPanda . "Economic Inequality as a Result of Globalisation." May 20, 2020. https://ivypanda.com/essays/economic-inequality-as-a-result-of-globalisation/.

Globalization and Inequality: Evidence from Within China

In this paper, we provide a case study of the impact of globalization on income inequality using data across Chinese regions. The literature on cross-country studies has been criticized because differences in legal systems and other institutions across countries are difficult to control for, and the inequality data across countries may not be compatible. An in-depth case study of a particular country's experience can provide a useful complement to cross-country regressions. We construct a measure of urban-rural income ratio for 100 or so Chinese cities (urban areas and adjacent rural counties) over the period 1988-1993. The central finding is that cities that experience a greater degree of openness in trade also tend to demonstrate a greater decline in urban-rural income inequality. Thus, globalization has helped to reduce, rather than increase, the urban-rural income inequality. This pattern in the data suggests that inferences based solely on China's national aggregate figures (overall openness and overall inequality) can be misleading. The negative association between openness and inequality holds up when we apply a geography-based instrumental variable approach to correct for possible endogeneity of a region's trade openness.

• Acknowledgements and Disclosures

MARC RIS BibTeΧ

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Non-Technical Summaries

• Globalization Reduces Inequality in China Author(s): Shang-Jin Wei Yi Wu Those cities that have had a greater increase in the trade-to-GDP ratio have also tended to witness a reduction, rather than an increase...

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