The New Nation - Internet Edition

Tareq Hossain Khan

Globalisation - the growing integration of economics and societies around the world - has been one of the most hotly debated topics in informational economics over the past few years. Rapid growth and poverty reduction in China, India and other countries that were poor 20 years ago, has been a positive aspect of globalisation. But it is also true that globalisation increased inequality between and within nations. Some argues that the volume of world trade has increased 20 times since 1950 and just within two years from 1997 to 1999, flows of foreign investment nearly doubled, from $468 billion to $827 billion. But the reality claims about 70-80% of the FDI proved to be gainful for western countries (IMF: 2000). So, questions are there weather globalisation raised world inequality. This question can be split into two: what about income gaps between nations and what about income gaps within nations?

Globalisation has dramatically increased inequality between and within nations, in particular, has marginalized the poor of the developing countries and left behind the poorest countries. In the 1999 issue, the United Human Development Report (HDR) says 'poverty is everywhere. Gaps between the poorest and the richest people and countries have continued to widen. In 1960, 20% of the world's people in the richest countries had 30 times the income of the poorest. In 1977, it was 74 times as much. This continues the trend of nearly two centuries. Some have predicted convergence, but the past decade has shown increasing concentration of income among the people, corporations and countries. Despite unprecedented economic growth in recent years, the rich have become richer and the poor the poorer. Even wealthy nations like the United States, Canada and Britain have failed to escape this trend. While China and India mark considerable economic growth, the two largest Asian nations have also failed to address the issue of inequality. Similar patterns are found in the distribution of wealth elsewhere in Asia, Latin America, and Africa. Income disparities are widening within each country or at least within a large number of countries. The transition economics of Eastern Europe have also experienced faster rise in inequality. According to Cornia (2004, part1) 48 out of 73 countries experienced a deterioration of income distribution during the last decades. These 48 countries contain 87.5% of the population of the 73 sample countries. On the other hand, only nine countries, with 2.7% of the population, experienced a clear improvement in income distribution.

So, it is clear that inequality continued to increase, sometimes markedly, in some industrial countries in central and Eastern Europe, Latin America and Asia. Cornia and Kiiski (2001) review the changes in the within-country inequality over the last 20 years on the basis of an extensive review of the literature and an analysis of inequality trends in 73 countries accounting for over four-fifth of world population and GDP. They observed that inequality rose in two-thirds of these 73 countries over the last two decades, which marks a clear departure from the inequality trends recorded since the end of the second would war.

With regards to the impact of globalisation on income inequality, there is now a wide range of literature of more than 50 contributors, most of which comes to the conclusion that globalisation has widened income inequality within a country as well as across the countries. For example, Stiglitz argues that globalisation, as it was actually practised, tended to make poor societies more rather than less unequal. However, there is a trend of literature, which questions these findings, and argue that while higher growth has come with increased inequality, this has led to a decrease in poverty. Anne Krueger (1983) looked at trade opening moments in South Korea around 1960, Brazil and Colombia around 1965 and Tunisia around 1970. The situation of growth improved after liberalisation in all four countries. Recently, David Dollar and Aart Kraay (2000) examined the trade liberalisation of 16 countries in the 1980s and 1990s. The findings, once again, confirmed the positive correlation between free trade and faster growth. But they argue, that 'faster growth of economy' leads intra-state inequality .The evidence suggests that there has indeed been a trend towards increased inequality within many countries over the 1980s and 1990s - the period coinciding with the recent phase of globalisation. In a recent report, the United Nations noted that inequality has increased in 9 out of 16 developed countries; all of the former Soviet bloc countries; and most of Latin American countries (except Uruguay and Bolivia).

Both of the developed and developing countries have failed to control intra-state inequalities. In the USA, globalisation increased the income of riches but had a negative impact on the poor people. The rich are getting richer while the poor the poorer. A recent study surveyed the inequality of household income in the OECD since mid-1970 (Burniaux ET el.:1998). Up to the mid -1980s, the Americans and British were alone to have a clear rise in inequality. From the mid-1980s to the mid-1990s, however, 20 out of 21 OECD countries had a noticeable rise in inequality. The four giants of China, India, Russia and Indonesia recorded widening income gaps after their economies went global. The widening did not start until after 1984, because the initial reforms were rural and agricultural and therefore had an egalitarian effect. When the reforms reached the urban industrial sector, China's income gaps began to widen (Griffin and Zhao: 1993, Atinc: 1997). India's inequality has risen since liberalisation started in the early 1990s.

Indonesian incomes became increasingly concentrated in the top from the 1970s to the 1990s. Russian inequalities soared after the collapse of the Soviet (Flemming and Micklewright: 2000).

In reality, the gap in income between the 20 percent of the world's population in the richest and poorest countries has grown from 30 to 1 in 1960 to 82 to 1 in 1995 and the conditions of the third world have in many respects worsened.

Per capita incomes have fallen in more than 70 countries over the post 20 years; some 3 billion people, half of the world's population, live on fewer than two dollars a day; and 800 million suffer from malnutrition.

There is no doubt that income inequality between countries has increased significantly over the past half century; while globalisation has been accelerating. Indeed, according to the United Nations, the gap between the richest and poorest countries increased from 44 to 1 in 1973 to 72 to 1 in 1992 (UN:2006)

Inequality between the rich and poor countries increases essentially because the rich are getting richer faster than the poor. In Western Europe, income per capita trebled between 1950 and 1992. In contrast, GDP per capita has only increased by 70 percent in Latin America over the same period. Thus, GDP per capita in Western Europe now stands at $18,000, compared to $7,000 in Latin America. The picture in Africa is even worse. Per capita GDP has only increased 50 percent since 1950 and then from a very low base. Per capita GDP has actually fallen in many African countries since 1970.

Globalisation has dramatically increased inequality between and within nations (Mazur: 2000). The international economy displays a number of worrying trends. Most obviously, poverty and inequality have grown alongside the expansion of globalisation.