The Process of Globalization - Essay Example

The world today is viewed as a global village. This is because there is an increased movement of people from continent to continent and exchange of ideas, goods and services across and beyond once demarcated boarders. One of the most important globalization trends is the integration of world economies through the development of international trade. International trade has brought about significant revolutions in both domestic and international trade ordinances and organizations. It has also eased the ability and reduced the expenses of executing transactions across state borders (Ekmekcioglu 2012, p.144).

According to Mills (2009, p.2-10) globalizations in the world economy cannot be defined without naming the four unified structures. These are: placement of domestic markets under international control and diminishing significance of boundaries, increased tax imposition between and among countries, increased concatenation of states globally through advanced information and communication systems, along with the rising significance plus unpredictability of markets. Many international organizations, in addition to many economists, argue that the interconnectedness of these four factors through globalization has promoted economic growth and reduction of paucity in many countries (Mills 2009, p.2). However, recently there has been a growing concern that globalization has worsened income distribution and hampered poverty alleviation despite the unification of the four aspects. Critics are of the view that the rise in globalization has been accompanied with concerns of growing inequality within and between countries (Mills 2009, p.2-10).

It is important to note that there is consensus, between supporters and critics, that the process of globalization has improved both absolute and relative incomes of individuals in the world. Nevertheless, critics are divided. Some are of the view that the developing countries there are gaining more from international trade than the developed countries. Others see it being vice versa. The aim of this paper is to illuminate and expound on key areas that show that globalization has indeed increased inequality not only in developed countries but in developing countries as well. According to this research, both developed and developing countries are experiencing the adverse effects of globalization in the sense that increased income inequality which has reduced poverty alleviation. The paper will begin by highlighting the meaning of globalization and inequality before embarking on the evidence presented by researchers explaining how both developing and developed countries lose in this ‘game’ of globalization.

As a working definition for this piece, globalization is interconnectedness of world economies for the easy transfer of good, services and resources from one nation to another (Ekmekcioglu, 2012 pp 61-72). Therefore, globalization involves liberalization of trade and economic and integration of countries’ markets. It is also important to note that globalization is a continuous cycle that has consequently brought about change to the economic environment because countries are able to access goods and amenities and capital that they did not have. The consequences of this are both positive and negative change in the well-being of individuals in the different regions and income groups of the world.

On the other hand, inequality can be termed as the unequal distribution of income among individuals or institutions across various economies (Wood, 1995 pp 23-30). It can be associated with fairness. If the rich keep getting increased income and the poor continue earning low income despite their hard work, then there is no fairness in the economy. There is need for a balance in the economy in order to hinder the widening gap between rich and the poor. Only then will there be equality or fairness. Having defined the two most important terms in this study it is now easier to delve into the evidence proving that globalization has both inherent and obvious problems affecting both developing and developed countries. The graph below highlights that since 1970s the top earners income increase by approximately by 275% the income of the middle class on the hand increased by only 37%. This are the 21st to 80th percentile. It is certain globalization has resulted to the increase of inequality of income as the rich have become richer and the poor and the middle class income has increase slightly. It is certain that the major effect of globalization has been felt among the rich and affluent persons.

Source: (Council on Foreign Relations. 2016).

Globalization has brought about intense competition of wages particularly in America due to the result of most companies shifting their operations to other countries. This therefore has caused wages to stagnate and further the unions have declined significantly (Krugman, et al., 1994 pp 17-25). In the united states approximately 40 years ago almost more than a quarter of the American population had union representation but today only 6% have union representation. Therefore, this has caused the low and middle income earners to have no bodies to represent them on wage issues which therefore has resulted to significant income inequality. The current wave of globalization set in from 1970 to the present day. Most research and economic theories indicate an increase in the impact of globalization inequality, particularly in many urbanized countries as Britain or Australia (Ezeani 2012, p.3). According to this research the developed countries have an increased gap between the highest and lowest paid. However, other researchers have noted that the increasing rate in inequality has happened to both developed and developing nations. This papers sides with this view. The graph below highlights the increase in income inequality which has resulted from globalization. However as much as in recent times the trend has been on the low but since 1979 the trend has been on the upward trajectory.

Source: (Slideshare.net. 2016).

The international trade theory advanced through the Hecksher-Ohlin model together with the Stopler-Sameulson theorem postulates that there is a real and supposed increase in returns on the plentiful aspects in a country that is open to the process of doing business. The converse is also true to a scarce aspect. Hence, countries that are endued with a surplus of both corporeal and human assets, as most urbanized nations are, the liberalization of their markets has significantly enhanced the legitimate income for them. In essence this economic relationship means that the eventual arrangement favors inequality reduction in developed countries and does the converse for developing nations (Bivens, 2007 pp 25-28).

On the other hand, globalization has improved the correlation amid foreign direct investments (FDI) and income inequality globally. Increased foreign direct investment flow between countries which has been caused by the process globalization has had a fundamental impact in the distribution of income among various economies. Some economists discovered that foreign direct investment in developing countries has a positive impact on reduction of inequality in economies of developing states (Burtless, 1995 pp 12-18). The main rationale for this is that overseas investment from the urbanized regions leads to an increase of quantity in terms of resources for countries on the rise. This subsequently increases the physical labor required for production and as a result increases the wages of the workers. This increase in wages reduces the inequality in the developing nations and does the inverse in developed states.

Contrary to the view above, the dependency theory, a neo-classical trade theory, argues that reliance by the emergent regions on the already advanced urbanized states brings about unconstructive effects on the fiscal progress of the latter, in the long run. The reason being that dependency by developing countries is contrived and maintained by the existence of international trade and foreign direct investment from developed countries. Generally, the penetration of foreign direct investment in these low income states obstructs economic growth which then creates dualism and disparities (Ezeani, 2012 pp 45-51). This is because most transnational companies create high resource intensive export sectors which end up exploiting the developing countries’ resources. The result is repatriation of the profits and wealth these companies acquire. Evidently this creates inequality in developing countries and benefits the developed countries.

For the past few years, developing countries with multinational companies have turned to developing countries to carry out production. This is generally referred to as outsourcing. These outsourcing activities have created a lot of jobs for the low skilled persons in developing nations. In order to outsource, developing countries transfer a large amount of capital to developing nations so as to maintain their companies. Transfer of capital by developing countries pushes the wages earned by low skilled labor higher which in turn aids in the growth of economy for the developing countries. Alternatively, the salary earned by the unskilled employees deteriorates in the developing country (Johnson, 1997 pp 30-35). This therefore means that inequality has increased within the developing country.

Globalization continues to be a force to be reckoned with both in the business environment and also in the lives of individuals globally. The main reason for the spread of globalization is that, multinational firms, which are the chief avenues of doing business, have great access to resources and are continuously reaching out to different countries because of the interdependency of economies.

Conclusion

The process of globalization has been linked to increase in inequality, which is not limited only to developed countries but also affects, the economies of developing countries as well. Inequality here refers to unequal distribution of income among individuals or institutions globally. It is therefore crucial to note that, globalization, though an inevitable process has not unraveled the crisis of inequality of earnings entirely. Instead, it has increased inequality in both developing and urbanized countries hence increasing the slit of the rich and poor in their respective economies.