The concept of globalization in today’s world is very wide. Globalization is defined as the process of an increased relationship between national economies through international trade, foreign direct investments by multinational firms, and international financial investments (Pugel, 2004). It therefore includes the broadening and speeding up of international interactions from economic, technology, cultural and political aspects of life.
The World Bank defines inequality as the disparity of income and standard of living among nations and their citizens (Birdsall, 2005). Inequality refers to the differences that exist among various groups of people in the society and should not be mistaken for poverty as the two are not completely similar. Inequality may be explained by the uneven distribution of endowments and incomes in the world which has existed for a long time. Different scholars have different views on the relationship between globalization and inequality and no clear explanation has been provided on how the two relate. However, most researchers tend to argue that globalization does not increase the levels of inequalities but instead aims to reduce the differences between the poor and the wealthy nations.
The thesis for this research paper will be, while globalization may be seen as a solution for the inequalities that exist world-wide, it also has consequences that may influence the growth of disparities between the developed nations and the less developed countries. This paper will aim at showing how aspects of globalization including technology, trade and political dominance contribute to the levels of inequality. It will also explain the role of the poor nations in determining the levels of disparity. From the time of ancient slavery, to the present day inequality as a result of capitalism, this concept has been of great debate by scholars and political world leaders (Hurell 177). First world economies pounce on the third world ones. However, it is an issue that is deeply rooted in the society. There are rich families that take advantage of the poor ones. There are no limits here. There are races that are considered poor and backward just because they are that particular race. This is the product of globalization. Inequality is either heightened or reduced (Lipman 332). Many scholars have tried to establish the relation between capitalism, inequality and globalization in the liberation theory and struggle (Kaplinsky 162).
Nevertheless, no satisfaction has come out of their researches. That is why this paper is going to examine all these concepts and establish a relation between among them.
Is globalization a solution or the cause of inequality?
Globalization in most instances is used to refer to free trade globally which means the inclusion of the poor states in the international market to fairly compete in imports and exports. Inequality in wealth and incomes is at most times associated with the level of economic power and technology as a result this defines the aspects of a society such as culture and politics. All these factors are crucial in determining the inequalities of the world.
For the poor countries, it is argued that globalization can be the solution as it will enable them trade and find a way out of poverty. This idea suggests that if those poor countries adopted policies of open economy instead of the traditional protectionism measures they can trade with their counterparts who already have the advanced technology and consequently overcome poverty. Through liberalization these countries can mitigate the gap between them and the rich nations by dropping the restrictions put in place to protect the local industries and allowing for free trade. The governments of the poor or developing nations may apply fiscal and monetary policies that will create a favorable competing position for them in the global market. Such policies might include the reduction of interest rates to encourage investments and ensure price stability. They can also increase government expenditure or even impose tax reduction to encourage production of more output. All these strategies if effectively employed they can help to alleviate these countries from poverty and by extension provide an opportunity to reduce the inequality gap.
Trade is not the only factor of globalization that can reduce disparities among the wealthy and the poor nations. An economy can grow both intensively and extensively. Intensive economic growth is usually due to technological improvement which ensures a countries quality of production is efficient. Technology has made the world a global village whereby everybody can connect with each other no matter where they are (Haugen 33). Extensive growth on the other hand is the increase in the amount of production factor such as land, labor and capital. The two are interconnected. The wealthy nations did not just emerge as global powers. Most embraced the ideology of globalization and through the exchange of technologies they were able to improve their infrastructures and as a result improve the living standards of their people and also resource distribution.
Form the above views globalization has been portrayed as a solution to reduce the gap that exists between the wealthy nations and those deemed to be poor. However, this may not be entirely true as some countries have not been able to grow under globalization and as a result the disparities seem to widen. In some instances, globalization intensifies the levels of inequality. The poor countries may be selling their exports at low prices and yet they pay high prices for imports. This in turn implies that their currencies will be of less value and most of the world trade benefits accrue to the wealthy nations.
Globalization has had some negative impacts on the environment, production industries and the levels of wages in the different economies and thus it has resulted in the continued increase in inequality among the wealthy and the poor nations. In considering its effects on the environment it can be seen as a major source of pollution and degradation of the common features including the oceans. This occurs when wealthy nations dump their industrial wastes in the less developed countries. These effects are felt not only in one country but they are transferred to the neighboring territories. This eventually affects the productive capacities of some nations especially those whose resources are intoxicated and as a result they tend to remain in the state of poverty and cannot compete fairly in international
In terms of production most wealthy nations tend to establish Multi National Corporations (MNCs) which have branches in the less developed countries. These MNCs get to access factors of production cheaply but all the profits are channeled back to the mother countries. This leaves the less developed countries poor while the wealthy nations get richer and as a result the inequality between them is widened. In most developing countries privatization of industries is seen as a measure to improve the wage rates of workers and as a result narrow the income distribution gap between the poor and the rich. However this is not usually the case as privatization minimizes income inequality it broadens the wealth distribution inequality as property is owned by a few individuals.
Comments by scholars
This part of the research paper focuses on literature review of the works done by different scholars on the topic of globalization and its effects on inequality. Some of the articles reviewed include the works of Dollar and Kraay (2001)
Dollar and Kraay – Trade, Growth and Poverty
In their article Dollar and Kraay (2001) tried to argue a case for globalization as a main factor that has increased growth of many countries and lifted them out of poverty. Various critics of this study have come up with common points to argue against the globalization theory. The methodology used for measuring globalization and the countries involved in this activity affects the research findings. Some critics of Dollar and Kraay argue that they used subjective methods in their work and they might have aimed at drawing pro-globalization conclusions. Dollar and Kraay compared data from 100 countries and explained trade as a fraction of gross domestic product (GDP) increased by a large margin for the pro-globalizers compared to non-globalizes.
They suggested that there is a link between economic growth, poverty mitigation and reduction of poverty levels to the poor countries that open up to international trade. However critics argue that globalization is not a complete tool to enhance growth and reduce inequality. In fact maybe even the reverse (Rodrik 2000, Nye et al 2002, Samman 2005, and Kraay’s 2006 reply).
- The choice of countries and the time period of the research provide inconsistent and misleading conclusions. A different choice of globalizing countries and dates leads to different conclusions (Rodrik 2000, Samman 2005)
- They assumed growth in trade is an indicator of globalization. On the face of it this seems to make sense. This is not entirely true as trade growth may be influenced by tariffs, quotas and subsidies which are all protectionist measures used to hedge a country against global competition.
- Dollar and Kraay argued that there is a link between increasing volume of trade and growth. But it is not clear which of the two influences the other. They further state the relationship may not be causal but other factors may be influencing the increase of both trade volume and growth of the economy which is already a contradiction.
- The two scholars suggested that growth of average incomes results in a proportionate gain to the poor. However, they do not clearly define who the poor are. Economic growth could be a means for raising income levels but this may not be even. If the poor are getting better off what does it matter if inequalities are growing? (Wolf 2004).
This research paper will demonstrate that inequality has been in existence in the different societies over a long period of time and it continues to widen. Rich nations get wealthier each day as a result of interaction of several factors. These include efficient use of resources which are usually supported by modern infrastructure, improved social interaction forums and use of open government policies. Most poor nations do not develop because their governments fail. Their failure to curb the issue of inequality can be attributed to their rapid population growth rate, high levels of corruption and mismanagement of resources. However, some less developed nations have been able to improve their economic growth and overall development by applying the policies of globalization. Objections to it imply we should stop the rich getting richer even though the poor are getting richer too (Wolf in Wolf and Wade 2002).
Wealthy states implement realistic development policies and apply the capitalist approach to ensure long run economic growth through efficient distribution of goods and services. Different countries have different quantities of resource endowment. Therefore, inequality will exist due to the diversity in the proportion of input factors. By participating in open trade, states are able to share their factors of production more equitably and this eventually increases the global pool of wealth and extensively narrows the gap between the poor and the rich nations. Overreliance on foreign aid by the poor countries has been a root cause for their backward development and low economic and political performance. The people of the country must have the political will and capability to select leaders that choose a path of economic growth instead of cultural stagnation.
Most poor nations fail to adopt open economy type of trade as they fear losing the opportunity move out of poverty and being marginalized by the global powers. A majority of the less developed nations employ have is labor intensive approach to production while they lack the proper technology to accompany it. This in essence forces them to provide cheap labor to the multinational corporations and this undermines the development of their economy. Globalization can reduce inequality by encouraging free movement of goods and services, investments, and labor (Kaplinsky (2005).
Globalization is a gradual process which impacts the different economies differently. It entails participation in free trade as opposed to the protectionist policies employed by most developing countries. Through globalization the different states are able to trade exchange technologies and even enhance cultural exchange and political ideologies. Nonetheless, it has both its pros and cons when it comes to solving the issue of inequalities that exist in the world between the poor and the rich nations. Whereas some scholars argue that globalization increases the level of disparities, this may not be entirely true.
The inequalities that exist worldwide are influenced not only by globalization but also by other several factors including; natural resource distribution, levels of education among the different nations, development plans adopted by the governments of the less developed countries among others. In the world inequalities take different forms they can be based on race, gender, religion or even wealth distribution. Therefore it would make no sense to argue that globalization is the main cause for the heightened inequalities as all these factors play a role.
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