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Does globalization inherently increase inequality or can it be made to work for the poor?

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Introduction

Does globalization inherently increase inequality or can it be made to work for the poor? I aim to explore in the following essay the contentious issue of inequality inherently increasing amongst the poor because of globalization. The advocates of globalization will argue that it brings the chance of prosperity to the impoverished corners of the world. This view is furthered by many commentators and market based economists' would suggest that trade liberalization has benefited the so called poorer countries as it opens up opportunities and advantages all states. On the other hand opponents of globalization believe it is the cause of growing poverty and inequality in the world as union leader Jay Mazur put it in (Foreign Affairs), "globalization has dramatically increased inequality between and within nations" ("Labor's New Internationalism," January/Febuary 2000) (cited in Held et al, 2003, 447). This statement could be advanced by reports from the United Nations (cited in UNDP, 1999) that found poverty and inequality between rich and poor countries is expanding, not retracting and the prime reasons for this have been attributed at the global trading and finance system. This culminated with the thoughts of Robert Wade "Global inequality is worsening rapidly" cited in The Economist, (2001) would essentially indicate that globalization does not benefit the poor, contrary to what anti-globalists proclaim; surely globalization can be made to work for the poor? It has been argued that globalization since 1980 has actually benefited economic equality and reduced poverty through international trade. Consider that if there was no international trade then surely the restriction of trade could not be beneficial as it would impose further hardships on the poor and the developing world. ...read more.

Middle

An explanation of this coming about is that trade liberalization has been associated with the introduction of higher-level technology which requires the use of skilled labour. The reason is that the cost of the imported capital depends not only on the price of capital goods but also on tariffs that are acquired in purchasing a unit of capital goods abroad. In countries where there is a worsening income distribution, workers will find it difficult to finance the acquisition of the new skills, therefore making it more difficult to escape from poverty and in turn increasing inequality amongst the poor. Income inequality is often something that is mentioned by anti-globalisation analysts, they share the belief that there is an uneven playing field between the poor and the developed countries. This claim can be reinforced by the fact exports are growing faster than global GDP, they have an increasingly important bearing on income distribution. Similarly world trade shares reflect income distribution patterns. Thus, for every $1 generated through export activity, $0.75 goes to the world's richest countries. Low-income countries receive around $0.03. Unless developing countries capture a far larger share of exports, trade will continue to fuel widening gaps in absolute income (cited from http://www.imf.org). It is undoubted that if this "uneven playing field" continues then absolute income will continue to grow amongst the poor as at the moment with the current share of exports, the only countries benefiting are the industrialized states and most definitely working against the poor. If we choose to look more closely at the international financial and monetary system, with the emergence of the global capital ...read more.

Conclusion

David Dollar and Aaart Kraay believe that with China we have seen the most spectacular reduction of poverty in world history which was supported by opening its economy to foreign trade and investment. This furthered with the view that research carried out by Dollar and Kraay found only countries that had reduced or achieved any large scale poverty reduction were those that had tried to become more open to trade and foreign investment. This insinuates that globalization has in fact helped reduce poverty whilst with the "non-globalizing" countries the number of poor increased by 200 million. Although Dollar and Kraay argue this, people such as Jay Mazur and Ngaire Woods have the complete opposite view that globalization is damaging to the poor and does not benefit them. This is illustrated by the Gini coefficient which proves that places like Eastern Europe have recorded some of the greatest rises ever in inequality. Furthermore stats such as the OECD countries holding 86 per cent of world GDP and 82 per cent of world exports markets compared to the very poor only holding 2 per cent combined shows that inequality is extremely apparent. It is these particular statistics that show how much globalization does indeed promote inequality and does not work for the poor. Although it can be seen to help some countries, there is no doubt that the majority of the time the only countries that are benefiting are the industrialized countries such as the United States and Great Britain, so to conclude globalization does inherently promote inequality and in only small isolated instances has it been made to work for the poor. ...read more.

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