GLOBAL AND DOMESTIC INEQUALITY

INTRODUCTION

Globalization is about the interconnectedness of people and businesses across the world that eventually leads to global cultural, political and economic integration. It is the ability to move and communicate easily with others all over the world in order to conduct business internationally. The word, globalization, is relatively new, coined in the late 1970’s. The airplane, the telephone, and the Internet are just three inventions, which are attributable to the spread of globalization. Due to the increased demand in the high tech industry around the world, business and industry have potential for huge profits working globally.

On the other hand, it is widely known that the rise of globalization has led to large disparities in the wealth and incomes of the countries and citizens of the world. The trend of rising economic inequality has been caused primarily by these major structural changes in the global economic system, induced by new technologies and innovations. Regardless, the growing gap between the rich and the poor is of dire concern. Is it ethical to allow rising inequality to continue? Are the effects of economic inequality morally justified? What does justice require?

HOW CAN ETHICAL MARKET ECONOMIES BE ENCOURAGED TO HELP REDUCE THE GAP BETWEEN RICH AND POOR?

GLOBAL AND DOMESTIC INEQUALITY

Over the last 50 years economic inequality has increased tremendously both within and between countries worldwide. A study done by the World Institute for Development Economics Research found that in 2000, a mere 1% of the world’s adults owned 40% of the world’s wealth, with the top 10% altogether owning 85% of the world’s total wealth. The study found that the United States alone had 25.3% of the world’s wealth, while containing just 5.5% of the world’s population; whereas China had only 8.7% of the world’s wealth, and about 22.8% of the world’s adult population.

As striking as these numbers may be they fail to explain that wealth and income are also highly unequal within the U.S., China, and other countries of the world. In 2005 little more than 50 million people in China had more than roughly $3000 (CNY 20,000) of disposable income, while almost 750 million people didn’t even have $800 (CNY 5,000) of disposable income. In the rural areas of China, where the majority of the population is, the poorest 10 percent now hold only 2% of wealth while the richest 10% hold 31% of all wealth. The major disparities in wealth and income are not unique to China. In fact, 30 out of 177 countries had sharper income inequality than China in 2006 according to the widely used Gini coefficient measurement (measures economic inequality).

The United States has one of the the highest Gini coefficients at above 40 and this measurement has risen 4.4% in the last decade. In the U.S., the share of income now going to the top .1% has more than tripled since the 1980s. In the 1980s a successful CEO could expect to take home about 40 times more pay than their average worker but in 2001 the same CEO could take home as much as 350 times the pay of typical workers. In 2005, Wal-Mart’s CEO Lee Scott Jr., made more than 900 times the pay and benefits the typical Wal-Mart worker made in 2005, or roughly the same amount the average Wal-Mart worker earns in a lifetime. To shed some light on the relative poverty of the poorest countries to the wealthiest, imagine this: average wages of people in poor exporting countries are one-tenth that of average wages in U.S., and so are perhaps almost 9000 times less than the wage of an American CEO such as Lee Scott Jr.

Whether or not such a disparity is an issue will be discussed later in this paper. Moreover, there is a common misconception that rising inequality is acceptable because absolute gains have been seen by all, however, this is not the case. In China for example, despite an increase in total income, the average income of the poorest 10% of households fell by 2.5%. Not surprisingly, inequalities in standards of living are also greater today than they have been for 50 to 100 years, and many economists expect the growth of these inequalities to continue.

The world we live in is dominated by the market. Perhaps there are different kinds of markets in different regions, but they are markets nonetheless. It is also a world in which there are vast disparities of wealth: any number of statistics can be found to demonstrate the growing gap between the top 10% and much of the earth’s population—and in which there are enormous levels of poverty.

For the foreseeable future, the market would appear to be the only form of social organisation on offer. If markets generate inequalities, as many studies suggest they do, then does that mean we must accept ongoing inequality and poverty? If so, then that is an extremely depressing state of affairs. We might call this – with apologies to others who have used the phrase – the “repugnant conclusion”.

The UN’s Millennium Project takes a far more optimistic attitude towards the role of markets in alleviating poverty and inequality. Published this year, the Project lays out 15 Global Challenges, the seventh of which asks how we might employ ethical markets to reduce inequality. The central claim of the authors is that free markets are capable of lifting people out of poverty. Leaving aside the empirical veracity of that claim, there are important conceptual questions to ask about the relative priority we ascribe to alleviating poverty and reducing inequality, and about what makes for an ethical market.

The first point to note is that their idea of a free market is a long way from that being championed by the Adam Smith Institute or Chicago school economists. They speak of economies that require – amongst other things – improved fair trade, business incentives that comply with social and environmental goals, an honest judicial system, reduced corruption, and general access to land, capital and information. The term “free” here seems to indicate freedom for all citizens to participate in the market, rather than the absence of government interference. They contrast the free market (or “relatively free” markets) with “decentralised, individualised private enterprise”.

Such markets might well be able to lift people out of poverty – that is an empirical question that I cannot explore herein — but will they realise more egalitarian societies? This seems far more unlikely. If that is indeed the case, should we choose relieving poverty over ending economic inequality?

The influential North American political philosopher John Rawls famously argued in his seminal text A Theory of Justice (1971) that while equality should be our default principle of justice, if inequalities make the worst-off better off, then they are permissible. This is his so-called “Difference Principle” and his thought is that we should prefer a society in which the worst-off have increased levels of social welfare to a more equal society in which the base levels of income are lower.

Should we also give priority to the alleviation of poverty, even if that is at the expense of equality? The use of market solutions is unlikely to create more equal societies, even if the worst-off improve their general levels of well-being. The authors of the Millennium Project document avoid this question by conflating inequality and poverty, but it is a question that is likely to continue to rear its head as market solutions are increasingly applied globally to solve social problems.

The other significant conceptual problem not addressed in the Millennium Project document concerns the make-up of an ethical market economy. What is it? Their focus is clearly upon the establishment of institutional safeguards, such as insured property rights, and an honest judicial system, to ensure that there is a level-playing field for all to engage in market activity. An ethical market economy would appear to be one in which the system is designed so as to reduce poverty. But ultimately systems require people to operate them. One is reminded here of T.S. Eliot’s comment in his poem “The Rock”:

They constantly try to escape

From the darkness outside and within

By dreaming of systems so perfect that no one will need to be good.

Eliot’s point is well made. But the hard question is how, in a market economy, can goodness be fostered. What if immersion in a market economy – where the profit motive is the primary incentive – undermines our abilities to be ‘other-regarding’?

One step forward I would suggest is to distinguish between kinds or species of profit-motives. Typically, talk in the marketplace is of the profit motive as if it were a single unified thing. But some people pursue profit with moral side-constraints upon their action: there are certain things, such as selling contaminated foodstuffs or child pornography, that they would never do. For other people, let us call them lucrepaths, there is nothing they would refuse to do in pursuit of a dollar – nothing that is out of bounds. The profit motives of these two character types are quite distinct. What we require is a general recognition that the pursuit of profit does not immediately rid us of all moral obligations. Too often, becoming a player in the market involves adoption of the view that this is a morality-free zone. This is mistaken. Instead, rejection of the lucrepath needs to become an explicit feature of public discourse surrounding the morality of market economics.

What might this mean for our repugnant conclusion? It means that those engaged in market activity should avoid engaging in activities that worsen poverty. Concerns with the living standards of others should be one of the side-constraints that motivate market agents, no matter what their other goals might be.

The global financial crisis and recession has stimulated the G-8, G-20, and others to rethink the basic assumptions of economics and finance. The worldwide trend of poverty reduction continues, but at a lower rate due to the global recession and the combined food, fuel, and financial crises. Although remittance flows to poorer countries have more than doubled since 2002, they are likely to fall substantially this year. Yet major development assistance continues to grow to $119.8 billion in 2008 and $145.1 billion in 2010.

About one billion people live on $1.25/day and 2.2 billion on $2/day. The IMF estimated that the world economy grew 5.2% in 2007 and 3.4% in 2008, reaching $69.5 trillion (PPP) or $62.25 trillion (exchange rates), while the World Bank expects the world economy to contract by 3% in 2009 but to grow again at 2.3% in 2010. UN estimates developing countries to cover and grow at 7% if development polices are coordinated. WTO predicts world trade volume to shrink by 9% this year. Assuming the world slowdown does not last longer than several years, the world is on track to halve the 1990 poverty rate (except in sub-Saharan Africa) by 2015, but due to high population growth, about a billion people may still live on less than $1.25 a day in 2015.

Although half the world has become middle-class, the ILO reports that half the jobs are insecure, 80% of workers do not have adequate social protection, and global unemployment rates could reach 6.5–7.4% in 2009, although 30% if underemployment is included. Youth unemployment could reach 15%. The world needs a long-term strategic plan for a global partnership between rich and poor to improve economic security and create 50 million jobs per year over the next ten years in developing countries. Such a plan should use the strength of free markets and rules based on global ethics. The World Bank proposes a “Vulnerability Fund” to which industrial countries would contribute 0.7% of their stimulus package to help mitigate the effects of the current crises on the poor. Hundreds of billions of dollars in carbon emissions trading income could go to the developing world.

Foreign direct investment decreased 20% to $1.4 trillion in 2008. Only 79% of exports from least developed countries get duty-free access to industrial countries, despite the 97% target set in 2005. Reduction of tariffs on agriculture exports is slow, although WTO has agreed to eliminate agriculture export subsidies by 2013. UNDP estimates that these subsidies cost developing countries $72 billion per year. The World Bank estimates that tax evasion costs developing countries $800 billion a year.

The high tech–low wage conditions of China and India make it very difficult for other developing countries to compete; hence, developing countries should rethink their export-led growth strategies. In addition to improved agricultural and industrial productivity investments for domestic markets, technical assistance to leapfrog into new activities via tele-education and tele-work should be coupled with microcredit mechanisms for people to seek markets rather than non-existent jobs. International migration and globalization are effective tools for reducing poverty while also improving economic efficiency by matching skills with demand. Ethical market economies require improved fair trade, increased economic freedom, a “level playing field” guaranteed by an honest judicial system and by governments that provide political stability, a chance to participate in local development decisions, business incentives to comply with social and environmental goals, a healthy investment climate, and access to land, capital, and information. The Index of Economic Freedom and the Corruption Perceptions Index show that reducing corruption and increasing freedom correlates with improved economic development. An alternative to trying to beat the brain drain is to connect people overseas to the development process back home by a variety of Internet systems.

Challenge 7 will be addressed seriously when market economy abuses and corruption by companies and governments are intensively prosecuted and when the development gap—by all definitions—declines in 8 out of 10 years.

Date: 2015-12-11; view: 660