Growing Inequality Gap

Introduction

Recent trends in the global economy show an ever-widening gap in the equality of wealth and income. Both on the individual national and international levels, countries are becoming further separated on the level on personal wealth. This has come mainly as a result of the process of globalization. Countries are becoming more and more competitive with one another, attempting to remain afloat the expanding globalization process they have put their countries social development at great costs (Human Development Report, 2005). Many of the policies countries enact in order to remain competitive have failed in their ability to help the people. Liberalizing policies, such those specific to trade and finance, have caused greater inequality and stability in terms of employment, income, as well as hindered a countries control over their own policies. In fact, many policies have disabled a countries ability to retain control of both monetary policies and exchange rates (HRD, 2005). One of the best ways of measuring income distribution, an important aspect in the determination of wealth, is through the Gini coefficient. Little (2005) states that the measurement shows the dispersion of income across varying income levels within a country. While the process of globalization has mainly contributed to negative effects in developing countries, the gap of wealth inequality has been growing in the developed world as well. In addition to the numerous policies that are affecting these countries negatively, transnational companies are capitalizing off the impoverishment of farmers. In fact, certain companies are now earning higher profits, while farmers are being paid less for their goods than they were in the past (Siva, 2000). It is necessary for new structural reforms to be implemented if there is to be an improvement in the equality between people within nations as well as internationally. It is necessary that structural adjustments be implemented if there is to be any improvement in the growing inequality of wealth. The expanding gap of inequality has come as a result of the liberalization of policies, which have worsened the income and wealth of those in developing and can be reversed through structural adjustments and a greater responsibility on the part of transnational companies.

Growth and Inequality

The developing world in particular is of great interest in terms of increasing inequality due the more rapid increase in the gap as well as its relation to poverty. Many of the challenges, aside from inequality, that the developing world faces are centered on poverty. Poverty cannot be solved, or at the very least be reduced, without specific attention being placed on the wealth gap. Many countries are attempting to reach that sought after "developed" status without playing close enough attention to the problems that are arising as a result of their goals. The concept of growth has had great importance placed upon in it when attempting to solve the problem of inequality and poverty. The idea of growth and inequality are tied together in the sense that one may not directly solve the other. In some cases, as stated in the Report on the World Social Situation (as cited in Ravalion, 2004), the impact of growth on poverty is less likely when inequality is increasing. The relation between growth and inequality should be one of greater concern to the developing world, as attempts to solve both poverty and inequality cannot be done with just one policy. It will take a number efforts working collectively to face the challenge of greater equality and shared wealth.

Policies and Protection

Currently policies or issues that focus around the further development and benefit of large corporations while diminishing not only the well-being, but rights of others as well are dominating the world. Issues of free trade, property rights, and liberalizing policies currently are the focus our globalizing world but it 's the implementation of mechanisms to protect developing countries which should be looked at closer. Policies or agreements such as NAFTA or the FTAA are only certain agreements that promote greater trade and increased interdependence. But there are certain issues far greater than those, which are harming the people who need help the most. We see issues such as intellectual property rights occurring all over the world, which are of particular importance to the international agenda, in order to protect piracy of goods (Siva, 2000). When in fact, it is those who stress the importance of these policies that use them to benefit themselves at the cost of others. There are patents and property rights held companies on products such as cotton, soya bean, and mustard and they will in fact sue farmers for saving seeds or sharing (Siva, 2000). The world has in fact come to a point where a farmer can no longer survive off the very food he tries to make. As a result, the rich are only getting richer while the poor plunge greater into poverty.

The fault however does not lie solely on the actions of the rich and powerful as many countries cede to the institutionalization of these policies. It is often external pressures, often but not always from multinationals, exerted upon countries to stay afloat the expanding global economy that have forced them to overlook social policy in exchange for greater competitiveness (The Inequality Predicament, 2005). Liberalizing policies in general have become very popular abroad over the past few decades, both in terms of finance and trade. As a result of these policies there has been increasing instability in countries abroad, certain policies have increase poverty rates as well as caused greater inequality in income distribution (The Inequality Predicament, 2005). In addition to that, there has been mixed results as to the effect of foreign direct investment on employment and growth (International Labor Organization, 2004). In fact, while the purpose of these policies have been to aid countries in gaining foreign investment. The investments have often been highly saturated to areas that have complied with certain conditions needed for investment. While investment to other areas have been minimal and in some instances only further exacerbated inequalities between countries (International Labor Organization, 2004).

With an emerging global economy, it is only presumable that there have been increasing trends towards the break down of trade barriers. Both developed and developing countries alike have been damaged by the effects of trade liberalization. As stated in The Inequality Report (2004), on the one hand we have the "widening of within-country inequalities in industrialized countries" and on the other "the transfer of industries to lower-cost (i.e. developing) countries has push down salaries and reduced availability of jobs" (pg. 113). One of the reasons for the devastating impact there has been on the developing nations is the focus of investment on the high-technology sector. Because many of the developing nations have agricultural based sectors, poverty cannot be reduced without sustainable growth in the agriculture industry (The Inequality Report, 2004). In addition to this, protectionist policies and subsidies from the developed world have degenerated incomes and production in the developing world.

Developed World Inequality

While the effects of globalization have hit the developing world the hardest, developed countries, such as that of the United States, have been had deteriorating equality in the wealth and incomes nationally. There has been increasingly slow economic growth over the past 30 years, entry-level wages have deteriorated steadily and have slowed the ability of graduates to make as much money as they could in the past (Marshall, 2000). This effect has only added the effect of growth in wealth inequality; as of 2000 the top 1 per cent of income earners shared about 17 per cent of the gross income (Inequalities and Asymmetries in the Global Order, 2002). This is only making it more difficult for those already at the bottom of the economic ladder to climb higher in its ranks. Those who already have access a larger portion of income are more likely to make more money in the long run than those who don 't.

It is not however a matter of social challenges as well, but economic factors too are affecting industrialized countries much as it has the developing world. In fact, the OECD countries, countries that signed the Convention on the Organization for Economic Co-operation and most of which are developed, have experienced a change in the distribution of wealth, except for Canada (The Inequality Predicament, 2005). Table 1 shows the growing inequality of countries throughout the world. When analyzed, it 's seen that while inequality is greatest in developing regions, there is growing inequality in the industrialized world. In addition to this, the top 5 per cent of the America have had a rise in real wealth and as a result have a greater influence over "economic decision making" (Marshall, 2000, pg. 361). And much like the developed countries, those at the lower portion of the income gap have a greater share of the costs associated with economic changes and received less of the benefits. As said by Marshall (2000) "only through the revitalization of such institutions, like labor unions, schools, churches etc., can working people acquire the power to negotiate with politicians, and corporate leaders…and restore power that enables prosperity" (pg. 362).

Table 1)

WORLD TREND IN INCOME INEQUALITY, 1975-1995
(In percentages of population)

Groups of Countries Growing Inequality Stable Inequality Decreasing Inequality No Identifiable Trend
Industrialized Countries 71.8 1.2 27.0 0.0
Eastern Europe 98.1 0.0 0.0 1.9
Former Soviet Union 100.0 0.0 0.0 0.0
Latin America 83.8 15.0 11.4 4.8
South Asia & Middle East 1.4 70.2 14.4 14.0
East Asia 79.4 4.4 16.1 0.1
Africa 31.6 11.9 7.7 48.8
World 56.6 22.1 15.6 5.7

Source: ECLAC, Crecer con estabilidad: el financiamiento del desarrollo en el nuevo contexto internacional, Bogotá, D.C., Economic Commission for Latin America and the Caribbean (ECLAC)/Alfaomega, 2001; on the basis of Giovanni Andrea Cornia, "Liberalization, Globalization and Income Distribution", Working Paper, No. 157, Helsinki, United Nations University (UNU)/World Institute for Development Economics Research (WIDER), 1999.

The Transnational Effect

The process of globalization comes in hand with the growth in transnational companies and their desire to seek profits abroad. With the growing "informal sector", those who earn very little money such as small enterprise employees, casual laborers, and self employed people; there is an availability of low-wage workers. Now while large-scale companies enjoy the low wages of the informal sector, labor regulations and unions make it difficult for large enterprises to enter the formal sector (Hayami Y., and Godo Y., 2005). Many countries are now putting more effort into gaining national income through transnational companies. Concurrently there has been a switch from labor-intensive production to capital-intensive production, making it more difficult to find employment and as a result leading to a widening inequality (Hayami et al., 2005).

One of biggest impacts transnational companies have had on the developing world is on the agricultural sector. Many developing countries rely on primary production as a means of income and food in some cases. When modern industries integrate into a foreign market where the people are dependent on the agriculture as a means of production, the inequality differential tends to widen as there 's faster growth in the industrial sector (Hayami and Godo, 2005). This is mainly due to the technology available to the modern sector. What 's worse is that the differentials between the agricultural and industrial sectors are more likely widen as more labor saving technologies are available, more so than they were in the past, and growing limitation to land available for production. As a result it will become more difficult to escape this inequality trap.

Breaking Through The Inequality Trap

Although most evidence suggests that globalization has had a negative impact on decreasing wealth inequality, there is some evidence that suggests the opposite. In fact, over the past 50 years there are certain patterns that suggest that there is a relative stable income and consumption inequality (Berry & Serieux, 2002). However, these figures are flawed in that they are exaggerated by the tremendous growth of China, and to a lesser extent India, at the expense on the middle class. In fact if one were to exclude the values from both China and India when examining the growth in income equality, we would see a much greater decline (Chart 1).

Chart 1)

Source: Berry, A., & Serieux J. Riding the Elephants: The Evolution of World World Economic Growth and Income Distribution on the End of the 20th Century. (unpublished paper)

While the process of globalization has been a hindrance on many countries, there are certain aspects of it that could prove to be very useful in stopping the growth in inequality. First off, breaking out of low income levels is possible through greater access to foreign savings (Escaping the Poverty Trap, 2002). Foreign savings can allow growth start as well as prove useful in sustaining growth. Increasing but trade on the international and national level can prove beneficial to the national market and help boost wealth among its population. Breaking into the international market through specialization can help boost the division of labor and efficiency (Escaping the Poverty Trap, 2002). As well, if countries can break into the international market it will help increase competition and provide a better domestic market. As well, a greater availability to modern technologies is also a beneficial way of promoting growth. The only problem is that most of the technologies that become available to countries do not generate growth, as they aren 't utilized to promote national development (Hayami and Godo, 2005). Finally, something that may be seen as a final result is a boost in international migration. It allows people to both find work elsewhere and at the same time will take pressure off the already decreasing number of available resources (Escaping the Poverty Trap, 2002).

Conclusion

The process of globalization has proven to be very detrimental to developing world in that is has only added to the growing gap between the rich and the poor. This is not merely a problem for the developing world, many wealthy countries; including the United States are experiencing a growth in inequality. Many of the policies that countries are now adopting are done so under the influence of transnational countries and therefore are only proving to have even more negative effects. Transnational corporations have had many effects on the developing world, which have only added the many challenges, both social and economic, that the countries must face. Countries, both developing and developed, must acknowledge that there is no one solution to the inequality problem. "There is no automatic process by which the income levels of developing countries will converge towards those of developed countries" (as cited in the United Nations Conference on Trade and Development, 2000, para. 4). It is only through national policies that promote general welfare that countries can help escape to the growing inequality gap. Many of the policies and effects that globalization has, while proven to be negative thus far, can actually help countries in the long run. The problem is that large enterprises that promote globalization focus mainly on helping themselves, its only when they hold other peoples interest at heart that they can help both themselves and others at the same time. In the long run, this can prove to be beneficial to everybody.
Bibliography

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