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Globalized Income

Guest post by Alan Cunningham - The Role Globalization Plays in Income Inequality and the Demand to Consider Income Inequality a National Security Threat

Over a long period of justice, the main force in favor of greater equality has been the diffusion of knowledge and skills – Thomas Piketty, French economist

Income inequality is an issue that is probably one of the most often discussed policy topics in domestic and foreign presidential, congressional, and parliamentary elections. It is an area of human security, yet, due to its impact upon individual societies and countries as a whole, it should be considered a national security issue given the amount of power and destructiveness such an issue has upon society.

In the creation of income inequality in many states, however, one can find the culprit in globalization. Having such liberalization policies has resulted in many bad reactions primarily upon the Third World, which is largely undeveloped and racked by poverty, disease, and hunger. But the relationship between both globalization and income inequality is not as black-and-white.

The Relationship between Globalization and Income Inequality

The relationship between both is somewhat difficult to describe given the fact that there are multiple causes of income inequality.

William R. Hauk, a professor of economics at the University of South Carolina, wrote in an op-ed piece how income inequality can be caused, positing two explanations:

“Globalization can increase wage inequality in a relatively rich country by increasing the imports of manufactured goods using predominantly low-skilled labor from developing countries. Conversely, it opens more opportunities for exports in high-tech firms that use more high-skilled labor. These two forces can widen the wage gap between high-skilled and low-skilled workers. Technological change can also potentially increase wage inequality. Fewer secretaries, typists, or assembly-line workers are needed if computers and automation replace them in the production process. Conversely, newer technology can increase the demand for the services of, say, engineers who can service those machines. While the two explanations are not mutually exclusive, for a long time, many economists tended to favor the technological explanation”

However, the abstract of a paper published by the Leibniz Information Centre for Economics (written by Masters students at the University of Sydney, Australia) sums up the relationships, and how other theorists consider the relationship, quite well, stating, “On one hand globalisation is considered to promote global economic growth and social progress, while on the other, it is blamed for growing income inequality and environmental degradation, causing social degeneration and difficulty of competition”.

In short, while globalization does have some measurable benefits for economic assistance globally, “the by-product is an economy that has become increasingly divided into winners and losers from this process”.

The Globalized Consensus

One of the best examples of these globalization policies is the Washington Consensus. This is described as being, “[the idea] that global welfare would be maximized by the liberalization of trade, finance, and investment, and by the restricting of national economies to provide an enabling environment for capital”. To expand upon that, it started as a, “set of policies designed to create economic stability by controlling inflation and reducing government budget deficits…second stage was the reform of trade and exchange-rate policies so the country could be integrated into the global economy [and] involved the lifting of state restrictions on imports and exports and often included the devaluation of the currency. The final stage was to allow market forces to operate freely by removing subsidies and state controls and engaging in a program of privatization”.

The entire goal of the project was to help in the privatization of state-run enterprises, cutting social spending programs, and the overall liberalization of trade.

The effects of this can be seen most readily in Latin America, with countries being “besieged by debt defaults, deep recessions, and banking crises”.

As Moisés Naím (former Executive Director of the World Bank and Venezuelan Minister of Trade and Industry) makes note in the introduction to Cristina Marcano and Barrera Tyszka’s biography on Hugo Chávez, “People’s impatience was also fueled by disappointments with the pro-business, market-oriented reforms known as “the Washington Consensus” (trade and foreign investment liberalization, privatization, deregulation. etc.). The promise at the time was that these economic reforms, while initially painful, were the ticket to imminent prosperity. Instead, what most Latin Americans got for more than a decade were financial crashes, high unemployment, mediocre economic growth…Corruption—widespread, persistent, and cruelly damaging to the poor—became an obsession everywhere. And the war on corruption was corrupted by politicians who used it as a weapon to sink rivals”.

In this short paragraph, Naím explains the effect the Consensus’ policies had upon primarily Venezuela, but the whole of Latin America (as well as the conditions that brought Chávez to power) and how ineffective they were for the average Third World person. The end result for many Latin Americans was even more economic inequality, less control over businesses, an increase in corruption, and far more pain than gain.

The Final Consensus

The relationship between income inequality and globalization is one fraught with contention and gain for big business and larger, more developed countries while less developed, technologically advanced countries became worse off and more isolated from the globe. In the case of Venezuela too, Naím makes the argument that the Consensus’ failure led to the conditions being ripe for Chávez to take power and Venezuela becoming more destitute and poor. There are many potential solutions that could be utilized to fix economic inequality and truly assist in Third World affairs; Erik Maskin of Harvard University seems to raise an interesting solution, one that seems to work; he proposes “raising skill levels by offering job training to low-skilled workers so they can match better with international opportunities…[and] for third parties like governments, multilateral institutions, NGOs and private foundations to step in”.

By raising the skill level of workers, they would be better suited for the challenges in their line of work and be able to stay within their own countries instead of having to look out of their own country’s borders and be able to properly compete in their home state. While this is just a theory proposed, Maskin’s last point is certainly undeniable; having governments, NGOs, and other institutions step in to assist in reformatting globalization is a necessity for the Third World.

This article was provided by Alan Cunningham, a graduate of both Norwich University and the University of Texas at Austin, with degrees in international relations, history, and communications. He works as a financial crimes analyst and is a Staff Writer with multiple human rights, national security, and military online news publications. He aims to join the U.S. Armed Forces as an Officer in 2022 and plans to eventually gain a PhD in History and a JD.


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