Globalisation Increasing Economic Inequality Economics Essay

Globalisation has been integral in the way the world is shaped today; politically, culturally, and especially, economically and technologically. It can be described as the process in which the nations of the world have become more connected, and as McGrew (1992) expresses, the effects of changes in one country become felt around the whole world. Often this interconnectivity is beneficial, as countries experience growth due to sharing advances in technology and expanding markets. However, globalisation does not benefit all equally. There is also the ugly side of globalisation; the exploitation of developing countries, the monopolisation of industries by giant corporations, and the effects of weak policy on a nation. While the idea of globalisation seems to embody ideals such as progress and development, it is not ideal as it currently stands, and the gap between the developed and developing world will not be closed if the paradigm does not change.

Globalisation has affected the world’s economies to the degree that the current situation can be described as a global market where every entity is forced to compete on the same stage. This obviously disadvantages the smaller players in the world market, especially the independent manufacturers and producers, as they compete with multinational corporations. This is further compounded in developing nations where the systems that are in place are not as developed as in advanced nations. There are systems currently in place to counteract the monopolisation of dominant corporations such as the Organisation for Economic Co-operation and Development (OECD), and other countries have their own laws concerning the matter. However, many nations are being overrun by private monopolisation and find it difficult to thwart the power of dominant firms. The interest of private companies to establish their business in these developing nations brings the ideals of anti-competition; which are formed by a combination of globalisation and corruption. In Latin-America there was a study conducted by Clarke et al., (2005), stating that there was 28.7% monopolisation and abuse of dominance and 40% cartelisation. In retrospect, anti-competitive acts are still very high and developing nations may experience a political breakdown or failed state, due to the lack of good governance to provide opportunities for a competitive market, lack of purchasing power and a decreasing labour force. Countries like China and India which have strong monetary ties have become promising leaders in the global economy but they have left the poorer countries unable to compete on the same scale, snowballing the economic divide and limiting foreign direct investment. Some argue that the lack of western protection trade policies has assisted the position in which less developed countries find themselves. The influence of the USA on the world economy is the most obvious – we hear about consumer taste being homogenised (Ravallion, 2004) to American tastes around the world, which can be demonstrated by the popularity of American brands like Apple and McDonalds; brands that dominate their respective markets on a global scale. Hence, while globalisation allows products to become more accessible by allowing consumers to exercise a freedom of choice, those companies who do not have the resources or systems in place to compete on the global stage are severely limited to the local market and hence are being left-behind.

Another consequence of globalisation is that technology and travel is becoming cheaper and faster and it has become increasingly easy for one to interact with another person across vast distances. Distance is less of a problem than it was two hundred years ago and has fundamentally changed the economic system and ideals in positive and negative ways, bringing on a world void of boundaries (Ohmae, 1992). Today we can make a transaction with someone anywhere in the world due to the development of technology that aide in communication and advancement of transportation spreading the free-market around the world. However access to technology around the world is unequal. A large number of the populations in third world countries, such as in Africa, South East-Asia and South America, are impoverished in the information technology age. Although globalisation has the potential to spread technology, a digital divide exists due to the rapid pace at which technology is being developed. While Africa contains 15.2% (Population Reference Bureau, 2012) of the world’s population it only contains 2.0% of the world’s telephone mainlines and approximately 90% of internet host computers are concentrated in countries with high gross national income (The World Bank, 2000). Totero and Braun (2006) discuss that information technology has been found to be powerful tools in yielding income generation, enfranchisement and increase in productivity. Less developed countries are at a disadvantage because they may miss opportunities to create market prospects and enhance their country’s economic situation through better connectivity and staying competitive. For example, during tsarist Russia between 1881 and 1913, Minister of Finance Sergei Witte believed that for Russia to modernise they would have to follow in the footsteps of western societies to procreate their own industrial revolution. One of his achievements was the Trans-Siberian Railway, which became a symbol of Russian enterprise. However, the Russo-Japanese War showed that due to the limitations of having a one-way railway line meant that inadequate provisions and reinforcements could not reach the front in time. Japan on the other hand had rapidly modernised along western lines and had encompassed better technology allowing them to win the war (Lynch, 2005). Overcoming the difference between the development of countries for the privileged and non-privileged will be a crucial challenge to rectify in the future.

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It hasn’t just been technology that has affected the extent that globalisation has had an effect on economies. Governments have also played a major role on the extent of globalisation, mainly by removing the barriers that stop it from happening, which is a reflection of the ideals of neo-liberalism, such as privatisation and deregulation, which promotes globalisation. Privatisation is good news for the whole distribution of income earners due to the increase of access to services such as electricity and water. Before privatisation came about, access to services was limited due to the lack of competition resulting in higher prices. However, in small economies that have limited domestic competition and have big governments, larger companies who hold core market values under privatisation may not be able to tackle the pressure of international competition and may lose the benefits of privatisation, with their cash flow essentially being locked into investments. In Latin American countries such as Argentina, Brazil, Chile, Mexico and other Caribbean countries, less than half of those nations championed privatisation as a heralding benefit. Political risks that arose in Mexico in the 90s, due to political turmoil, had bank owners and debtors trying to rescue the economic status. Privatisation in this case did not lighten inequality of income or privileges; rather it fixed the country into trying to alleviate the stress of the previous regime (Castañeda Sabido, n.d.). Hence, privatisation is a viable prospect for some countries that could see benefits due to an increase in market competition, however it must be supported with strong institutions which support market transparency, and have freedom from political interventions. If these crucial supports are not established, privatisation may prove to only assist in furthering the gap of the economic statuses between nations.

Globalisation produces an unequal distribution across different levels of income. This arises from the constraints of ineffective trade policy resulting in income declination for those in absolute poverty. A study on trade outcomes of the labour market and trade reform was discussed by Harrison (2007) examining reductions in tariffs in Mexico during the 80s and 90s. The results revealed a high rate of poverty was linked to the increase in import competition, which in turn increased the possibility of unemployment. Furthermore, external competition often drives prices down. This was illustrated in the study with an increase in corn imports resulting in cheaper Mexican corn. This did not benefit the Mexican farmers whose livelihoods depended on the real income provided by their crops. On the other side of the coin, the study also concluded that an increase in export growth resulted in a rise in minimum wage and a reduction of informal sector employment due to the increase of opportunities for companies to expand. Moreover, a burgeoning market provides more incentive for investors to invest in the local market. Thus, it becomes clear that effective trade policy is an essential key to paving the road towards a successful domestic market and thus alleviating some of the causes of poverty within a nation.

The divide between the polarities of the economic spectrum is still increasing. The capability for multinational cohesion to enhance the economies and markets of nations, especially poorer nations is still constrained by the prerequisites of facilitating the adoption of globalisation. While larger nations and governments within nations have set policies and reforms to counteract the ugly side of globalisation there is still the prospect of hungry organisations that want to reap monetary gains indifferently. More competitive and transparent nations will gain more access to assets such as technology and useful forms of tools that will enhance the reaches of their own economic market but not necessarily help poorer nations with bettering their market outreach. Political and social tension is the result as poorer nations undergo challenging transitions to try and ‘catch-up’ and reverse the worsening of economic inequality. Better protection is needed by making the market non-discriminatory by understanding negative spill over, in that, domestic finance and activity is sometimes worsened by the activity of offshore markets. Without this understanding, from both sides, the benefits of a more united and global market would undermine the development of the world.