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Chapter9-GlobalInequalityandPoverty.docxChapter 9: Global Inequality and Poverty
Roughly half of the world’s adult population (about 24 million people) controls $69 trillion in assets, more than a third of the global total.
Forty-one percent of them live in the US, ten percent in Japan, and three percent in China.
Does Inequality Matter?
The existence of inequality is not automatically a major problem, especially when the economy is strong and growing and there are opportunities for upward mobility. The last two decades of the 20th century and the first decade of this century were characterized by a widening gap between rich and poor and the proliferation of millionaires and billionaires. The forces of globalization helped widen the gap between rich and poor in industrialized countries. When the economy weakens, the gap between the rich and poor tend to be narrower but concerns about inequality are heightened. In the US the poverty rate climbed to 13.2 percent in 2008, 14.3 in 2009 and 15.1 percent in 2010, its highest level since 1993. Widespread demonstrations took place across the US protesting things such as excessive executive compensation, especially those in companies that received financial assistance from the government.
Persistent inequality and enduring poverty challenge beliefs that equality of opportunity and the possibility of upward mobility are real. Eventually, this leads to the legitimacy of the economic, political and social institutions being challenged. Extreme inequality perpetuates poverty in three ways:
1) Inequality discourages political participation of poor people, which, in turn, diminishes their access to education, health care, and other services that contribute to economic growth and development
2) Inequality often prevents the building and proper functioning of impartial institutions and observance of the rule of law
3) Inequality enables the wealthy to refuse to compromise politically or economically, which further weakens poor societies in a global society that requires relatively fast responses to economic developments.
These consequences combine to ensure that poor societies will remain poor and unequal, and traps most of the citizens in a destructive cycle of poverty. This growing inequality also has implications for globalization. Inequality could undermine globalization by influencing countries to adopt protectionist policies and disengage from the global economy.
Global and domestic inequalities often directly affect many areas. The 2001 terrorist attacks in the US were linked to poverty within developing nations, especially Afghanistan. Huge inequalities often fuel resentment which comes through in violence and global crime. Those who are extremely poor and excluded from participating in decisions that affect their lives are often influenced by radical minorities who are committed to violent change. Global and domestic inequality is also perceived as stimulating the global drug trade. For example, poor farmers in Bolivia regard the cultivation of coca as essential to their survival.
The Globalization and Inequality Debate
Two dominate viewpoints:
· Globalists argue that globalization has increased economic growth and decreased global inequality and poverty
· Antiglobalists perceive globalization as a negative and destructive force that is responsible for the increasing global inequality and poverty and the declining levels of human welfare
Globalists Make their Case
From the globalist perspective – the basic cause of inequality and poverty is the relatively low level of globalization in some countries. The poorest societies are the least integrated into the global economy. They believe that openness to foreign trade, investments, and technology – along with reforms such as privatization of the domestic economy – will ultimately accelerate economic growth. The Organization for Economic Cooperation and Development (OECD) calculated that countries that are relatively open to trade grew about twice as fast as those that are relatively closed to trade. China’s rapid economic growth is an example. However, North Korea and Kenya are examples of countries that are on the margins of globalization and remain impoverished.
Globalists argue that globalization has contributed to the decline of inequality. Furthermore, poverty can be reduced even as inequality increases. The accelerated economic growth of China and India, which is seen as directly linked to globalization, is given as the principal reason for the change. Much of the inequality that persists in countries is due less to globalization and more to policies dealing with education, taxation, and social problems. Moreover, more inequality in China, has been accompanied by a spectacular reduction in poverty.
They emphasized that the number of people moving out of poverty has increased. More than 800 million people have abandoned the ranks of absolute poverty since 1990. The world’s poor as seen as getting to be less poor in both absolute and relative terms. The more globalized poor nations become, the better off their populations are. Globalization has generally helped the poor by contributing to reductions in the cost of numerous consumer products. Less money has higher purchasing power in a globalized economy. By facilitating migration, establishing small business that rely on the Internet, and improving access to jobs in telecommunications and computer technologies in countries such as India and China, globalization improves the quality of life for the poor.
Absolute poverty – the absolute number of poor people below the defined poverty level
Relative poverty – reflects the distribution of income in society.
For example, in relative terms, many Americans are poor. However, a much smaller number of Americans are poor in absolute terms.
Antiglobalists Make Their Case
Antiglobalists believe that globalization is widening the gap between the haves and the have-nots. They view globalization as primarily benefiting the rich while making life more difficult for the poor. Argue that globalization is a zero-sum game, meaning that the rich are winning at the expense of the poor. Also argue that globalization benefits rich countries, like the US. China is one of the few developing countries that is generally regarded as profiting from free trade and open markets. The US benefits the most from open markets worldwide. George Soros – a leading financier, philanthropist, and critic of globalization – believes that globalization drains surplus capital from periphery or developing countries to the US, thereby allowing Americans to spend more than they save and import more than they export. Jack Beatty argues that the foundation of inequality resulting from globalization is that rich countries do not play by the rules that they made to govern the global economic system. On other words, the US and other Western countries require developing countries to open their markets without reciprocating commensurably. Beatty points out that even though global rules on trade discourage governments from subsidizing industries, rich countries continue to provide subsidies to agriculture.
Argue that globalization is like an “economic temptress”, promising riches but not delivering. Countries integrated into the global economic system are the most severely affected by downturns in the economy. For example, Southeast Asia, which depends on exports of steel, textiles, and electronic components, suffers in a global economic crisis and is unable to generate enough jobs and wages for a population with aspirations encouraged by television programs that portray success. Antiglobalists generally view globalization as a tide that lifts a few boats while leaving the majority mired to the bottom.
Argue that globalization compounds existing inequalities and creates more inequality. By giving priority to privatization, globalization weakens governments’ commitment to the public sector. The emphasis on integrating poor nations into the global economy diverts resources from more urgent development needs, such as education, public health, industrial capacity, and social cohesion. The African Growth and Opportunity Act provides increased access to the US market only if African apparel manufacturers use fabric and yarns produced in the US, instead of using their own or supplies from less expensive sources. The antiglobalists perceive globalization as perpetuating inequality by impeding development.
Global Inequality
Can be traced back to reasons why some countries prospered and some have not. Western Europe emerged as the most prosperous region in the world and areas that are now successful (US, Canada, New Zealand, etc) were settled by Europeans, many of whom embodied the characteristics that contributed to Europe’s rise to global prominence and economic prosperity. This contributes to global inequality today.
Several factors contributed to produce Europe’s economic success. A major factor is freedom of expression – societies that encouraged people to have their own ideas, to be innovative, and to interact with each other eventually surpassed societies that were totalitarian or authoritarian. Another factor is social values – with an emphasis of economic opportunity and social equality. IN Wealth and Poverty of Nations – David Landes – argues that China’s restrictions on women hampered its growth, whereas women in Europe, who were less confined to the home and were free to find employment were instrumental in that region’s industrial development and expansion.
A third factor is a free market and institutionalized property rights. Which are the rights to private property protected under the market system. Chinese authorities became antagonistic toward free enterprise and eventually regulated it out of existence. Muslim countries failed to develop institutions that would have enabled business to expand. Islamic partnership law and inheritance law worked against the growth of large corporations. In Europe, a partner in a business could designate heirs, thereby providing continuity in the business after the partner’s death. Europe allowed property to be inherited by one person, thereby minimizing the changes that a business would disintegrate and be prevented from getting larger.
A final factor leading to Europe’s economic success and setting the foundation for global inequality is the separation of the secular from the religious. Whereas Islam became inseparable from the state, the origins of Christianity and its spread to Rome forced it to compromise with secular authority. However, Muslim societies prospered when religion was less restrictive.
Inequality Between Developed and Developing Countries
Despite the rising living standards throughout most of the world in the last century, the gap between rich and poor countries has steadily widened. The gap between the richest country and poorest country was 3 to 1 in 1820, 11 to 1 in 1913, 35 to 1 in 1950, 44 to 1 in 1973, and 72 to 1 in 1992. By the end of the 20th century, the richest 20 percent of the world’s population had eighty-six times as much income as the poorest 20 percent.
Economic development while dramatically improving the standard of living in most counties, has not significantly closed the gap because of differential growth rates between rich and poor countries. Furthermore, per capita income actually declined in more than one hundred of the world’s poorest countries, many of them in Africa. It is estimated that it would take China and India a hundred years of constant growth rates higher than those now experienced by industrialized counties just to reach current American income levels. However, given the high standard of living in the US, both China and India would be relatively prosperous if they achieved half the income level of Americans. Singapore and Kuwait illustrate that poor counties can become prosperous by implementing astute political, social, and economic policies (Singapore) or by having valuable natural resources (Kuwait). Economic disparities between the developed and the developing world have focused on the global digital divide – contrast between those who have and those who don’t have access to the Internet and other forms of digital communication.
Causes of Inequality Between Rich and Poor Countries
Important to remember several factors combine to contribute to inequality:
1) Geography
a. Countries that are poor, many argue, have certain geographic characteristics that contribute to their economic problem. They may be in tropical regions or face high transportation costs in accessing global markets because of their location. Countries in the Southern Hemisphere also tend to suffer from being landlocked. Countries with extensive coastlines and good harbors tend to be better off economically than counties the physical infrastructure essential for gaining access to navigable rivers and the sea.
2) Colonialism and its legacies
a. Many argue that European colonization of Africa, Asia, and Latin America laid the foundation for economic disparities between rich and poor nations. Inequality breeds inequality and just as wealth tends to build more wealth, poverty tends to perpetuate poverty. Countries that grew rich hundreds of years ago are generally still rich today and vice versa. However, some states such as Singapore, South Korea and Taiwan, that were colonized are not relatively rich.
3) Structure of the global economy
a. The Scottish economist Adam Smith, who wrote An Inquiry into the Nature and Causes of the Wealth of Nations, believed that governments should not interfere with the functioning of markets and that business persons would be led by an invisible hand to do the best for society. However, leaders of poor countries argue that governments and multinational corporations in rich countries cooperate to maintain an unfair global economy. They subscribe to dependence theory – which holds that poor countries’ reliance on exports of primary commodities, many of which were started during colonization for the benefit of Europeans, puts them at a severe economic disadvantage.
4) Population growth
a. Rapid population growth in most developing countries plays a central role in perpetuating the economic chasm between rich and poor countries. Population growth decreased in the industrialized countries as the economic gap was widening. Since 1950, the population in rich countries grew by 50 percent while in poor countries it grew by 250 percent. Large families perpetuate poverty in most cases.
5) Government policies
a. Alan Schwartz discusses that many countries in the Arab world are poor because of the policies they pursue. Saudi Arabia tolerates monopolies that help to sustain an elite clan that all too often opposes technological, economic and social change. Many of these governments emphasize religion instead of science and technology and therefore do not adequately develop human capital. Perhaps the most serious failure is the lack of investment in women’s education and opposition to allowing women to have equal employment opportunities. When Korea divided in 1948, South Korea adopted capitalist policies that fostered economic success while North Korea adopted a Communist system of government. Today, South Korea is prosperous and North Korea routinely faces starvation.
6) Political instability
a. Political instability directly contributes to economic disparities between developed and developing countries. Conflict not only discourages foreign investments; it also influences the best educated, most talented, and most financially successful citizens to flee or to invest their money outside the country. Angola, as an example, has supplies of petroleum, diamonds, fish and fresh water. Life expectancy is 45 and infant mortality is among the highest in the world. The country has been devastated by ethnic conflict sfor 27 years.
7) Natural disasters
a. Drought, earthquakes, volcanic eruptions, hurricanes, and other natural disasters are closely linked to geography. Natural disasters routinely destroy important economic sectors, increase severe infrastructure problems, force the relocation of a large number of people, and lead to greater impoverishment.
Inequality within Rich Countries
Karl Marx – German thinker who pioneered the theories of socialism and communism
In virtually all industrialized countries income inequality grew between the 1970s and the early 21st century. Globalization, new technologies, the financial crisis and economic recession, and other factors contributed to this development.
The United States
The US has the greatest degree of income inequality among industrialized countries. The richest country on Earth also has pockets of poverty that are similiar to many parts of the developing world. In 2010, 15.1 percent of Americans – 46.2 milllion people – lived below the poverty line (which is defined as an annual income below $22,314 for a family of four and is the income level under which people cannot adequately sustain themselves). The poorest 10 percent of Americans receive 1.8 percent of the total income, whereas the richest 10 percent gets almost a third. The top 20 percent of households earned 56 percent of the nation’s income and controlled 83 percent of the nation’s wealth. The tax cuts passed in 2001 and 2003 were widely regarded as creating an even wider gap between the rich and poor in the US. While poverty grew and wages declined for most Americans, salaries and bonuses for executives saw their incomes rise by roughly 5 percent.
One of the most overlooked aspects of inequality is the growing income gap between urban areas and rural America. In many rural areas in the US are referred to as rural ghettos – poverty-stricken rural areas. Two academics have suggested that the federal government should accelerate the depopulation of the entire Great Plains region and turn it into a buffalo commons – a wildlife refuge for large mammals, hikers, and a reviving Native American population. Detroit, for example, was hit hard by the global financial crisis
Other Industrialized Countries
Germany, Britain, Japan, Ireland, and Canada are also experiencing high levels of income inequality. In Germany, over the past ten years, the monthly income for persons in the poorest income bracket declined from $912 to $864. Those in upper income brackets saw their incomes rise from $3,216 to $3,618 a month. Britain’s rural areas have higher poverty rates than urban areas, and schools, railroad stations, and post offices are closing, just as they are in rural parts of the US.
Globalization is generally seen as a major cause of the rapid rise in inequality. Integral to globalization is the proliferation of new telecommunications and computer technologies. Individuals with technical skills have outperformed those who few or no technical skills. Closely related to globalization and technology is education. The knowledge-based economies of rich countries give educated individuals an advantage over those who are less educated, less skilled, and less entrepreneurial. The interdependence of economies enables educated people to be more mobile and marketable. The weakening of labor unions also contributed to rising inequality.
Inequality within Poor Countries
One persistent characteristic of the developing world is the lack of a large enough middle class to bridge the extremes of wealth and poverty. In most poor countries, there are two distinct worlds: one inhabited by the middle and upper classes that comprise a small percentage of the population and the other by the poor majority. Traveling in the developing world, one observes high walls around homes of the wealthy to protect them from the poor.
Despite significant progress toward diminishing inequality, Latin America has some of the world’s most unequal societies. Almost 60 percent of Mexico’s people are mired in poverty. Despite progress made under NAFTA, Mexico’s inequality is still extreme. Roughly 10 percent of the population controls half the country’s wealth. Inequality in Brazil remains a significant problem as well, however efforts are underway to reduce poverty and diminish inequality through programs such as Bolsa Familia, where more than 11 million families receive financial assistance and are encouraged to send their children to school and give them medical care. Extreme poverty has declined by more than 50 percent since 2003.
In some developing countries, inequality is more engrained. When South Africa was ruled by apartheid laws – laws that legally and forcibly separate people of different ethnic and racial backgrounds – whites enjoyed a privileged position and blacks faced widespread and persistent discrimination. Since apartheid was abolished in 1991, an economic gap within the black group has grown as more opportunities have opened up for blacks. The government’s Black Empowerment Initiative uses lucrative government contracts as leverage to encourage the expansion of black-owned businesses, has created black millionaires in a relatively short period of time, and has further widened the inequality among blacks.
India’s caste system – a religiously driven social system that promotes hierarchy and inequality – is the most obvious example of structured inequality. The caste system is a hierarchical system of social classes in Hinduism, which determines the status, rights, privileges, occupations, and social interactions of each person from birth. One inherits one’s caste or social standing in the community. Each child is born into one of four maine castes. Inequality is extreme in India. More than 35 percent of Indians are illiterate, and more than 20 million children do not attend school.
Gender Inequality
Women worldwide experience various degrees of inequality. In all countries, the poorest of the poor are women, the majority of those at the bottom of society. However, some enjoy great power, wealth and high positions in society. Observing gender composition of college classes, it is obvious that women outnumber men by a significant margin. The recession created higher unemployment rates for men than for women, thereby giving women a relative economic advantage.
The beliefs, values, perceptions, and ideas about the roles of men and women and power relations between them are referred to as gender ideology. It is based on the assumption that women are naturally suited for particular jobs. In Afghanistan, for example, cultural beliefs and practices make contraception unavailable and many women have 10 or more children. The woman’s role as a child bearer reinforced their unequal status, which traps them and their children, especially girls, in a cycle of poverty.
Countries that are the least globalized tend to have higher levels of inequality.
Global Poverty
Poverty, the most obvious indicator of global and domestic inequality, is a reality for more than two thirds of the world’s population. Poverty is becoming a growing reality in some of the richest countries as well. Improvements in access to clean water, infant mortality rates, and decreases in illiteracy, are often counteracted by rapid population growth in the developing world. However, the number of people living in extreme poverty – living on less than $1 a day – has declined. Economic growth in China and India have contributed to this decrease in extreme poverty. The struggle to further reduce poverty include:
1) Weak political support for foreign assistance – in most rich countries, including the US
2) Uncertainty of commitment – from the World Bank, IMF, WTO and other multilateral agencies
3) Ongoing armed conflicts – that impede efforts to help the poor in many parts of the developing world
