Is an increase in the gap between rich and poor an inevitable consequence of globalisation?

Question

The unskilled-poor will have more competition for their unskilled labour, driving wages down, while the owners or highly skilled will be able to take advantage of the general growth of the economy and being able to take advantage of more people...?
Just a thought...

Answer 1

Globalisation as it is applied nowadays is not the theoretical free trade globalisation. For example, the talks of the last round of the WTO broke down simply because poorer countries were tired of opening up their lucrative services industries (such as financial services) but not having the richer countries open up their markets in areas where poorer countries can compete (for example agriculture).

Basically what the poorer countries are complaining about is that the rich countries come into their economies, kill of any nascent local high value added/profit service industry and take the profits home. On the other hand, while poor countries can provide food for example much cheaper than rich countries can, the rich countries continue to protect their own farmers. Hence the poor countries are unable to take advantage of globalisation via exports.

Globalisation, in that sense, makes richer countries richer. Poor countries also develop, but the crux is that the gap between rich and poor countries increases in absolute and in relative terms.

However, as you mentioned, there is the part fo globalisation that encourages giant MNCs to relocate their production in low cost countries, specially those with plentiful labour such that the wages can remain depressed for a long time. Once wages rise too much, production just shifts to another low cost country. That, however, has been going on for a while, preceded the 'globalisation' rara. Nike has been in Vietnam for a long while, for example.

The 'beauty' of this phenomenon however is that only low skilled jobs are facing this type of competition. The argument that competition only works on low skilled jobs does not hold water anymore. The scenery has changed. Nowadays there are huge conglomerates in India, China... these MNCs form these 'poor' countries are also bent on conquering the world. Most of their top executives are home grown. SO why can't, sat Nike also outsource its management to India, or CHina. I am sure the costs of production would drop, thereby benefitting shareholders.

The answer is simple. No CEO would fire himself. This is the principal-agent issue. It would benefit shareholders (the principal whose interests are supposed to be taken care of) to replace the executives with cheaper equally competent ones. But the executives (the agents who are supposed to take care of the shareholders) would not fire themselves.

So what we are seeing:
1 Depressed wages for low-skilled workers
2 High mobility of factories in the poorer countries
3 Factory relocations justified by cost savings
4 Huge executive bonuses justified by cost cutting above
5 COnsequent increase in income gap between rich and poor
is actually a product of the capitalist system, not globalisation per se.

Globalisation can be said to be exploiting poorer economies as a whole, to th ebenefit of richer ones. But it is capitalism (accompanied by the principal-agent issue) that is responsible for the ever increasing gap between the poor and the rich.

I am not saying that the poor are getting poorer. I'm saying that the gap between rich and poor is growing at an increasing rate due to capitalism. Globalisation,as it is today, is just an offshoot of capitalism, its new face/mask, or even the red herring.

Answer 2

Let the rich get richer. As long as everyones life stile is improving, it should be OK if some or getting more than the others. Only the policies that make poor to become more poorer needs scrutiny. Globalization does bring in more efficiencies and will stop rewarding some unskilled or the ones that are not hardworking. However, that can not be used as an excuse to punish the ones that are working hard or have made sacrifices to train/educate themselves.

Answer 3

What you are describe is only the result in rich countries. In the poor countries the the new jobs would increase wages, at first only for a fraction of workers but over time for all. This is part of the economic theory on the effects of trade and was predicted in a paper published in1941. Since it is still true that there are net gains from trade for the world, and for individual countries, economist who worry about income inequality still support free trade. However they advocate re-distributional policies like those which small European counties , who must trade, have adopted to compensate losers. see
http://en.wikipedia.org/wiki/Stolper-Samuelson_theorem

Answer 4

Gloabalistaion is not soley to blame, consmer's are as guilty for fuelling globalisation

Answer 5

No its an inevitable consequence of the rish not wanting to give up their money.

Answer 6

I aint bovered