Introduction
In today’s world, inequalities are the most glaring issue in human society. With the lack of proper income, an individual loses his or her ability to access essential services, such as healthcare, housing, and education, and has fewer opportunities in life in general. This topic has received much-needed attention since the economic crisis of 2008, as it became evident to society that the current state of inequality shows a vital flaw in the economy (Hickel 2208). Vlados and Chatzinikolaou, some researchers even argue “that there are inherent forces in capitalism that inevitably lead to an intensification of poverty and inequality” (288). Even though there are numerous programs for societal development that aim to alleviate the impact of inequality on society, the problem continues to weigh heavily on people’s lives across the globe.
Undoubtedly, people continue to make attempts to help those who suffer from such a fate in other parts of the world. However, studies have shown that direct financial assistance does not provide meaningful help to the people who live in poverty, as the lack of opportunities severely limits their potential to sustain themselves (Vlados and Chatzinikolaou 303). There are several misconceptions about the origins and the ways to eliminate income inequality, which further impair people’s ability to generate an optimal solution to the issue. This essay aims to analyze the common causes behind misinterpreting statistics when people are looking into income inequality on a global scale.
Current Statistics
Since the views on the current state of income inequality are diametrically opposite, it is essential to examine the exact situation on a global scale. It has been heavily debated that, due to the globalization process, poverty has been declining on a worldwide scale (Hickel 2210). Hickel provides statistics that show that “unweighted inter-country inequality is significantly higher now than it was during mid-century” (2211). However, interpersonal inequality on a global scale has declined, according to the analysis conducted by the World Bank (Hickel 2011). For these statistics to work on a worldwide scale, it was necessary to assume that all people live in a single country (Hickel 2012).
The situation with a significant gap in income opportunities among different classes is not unique to developing countries. In the United States, the top 20% of the country’s population generates 51% of all income, while the bottom 20% earn only 3.1% of the nation’s total income (Amadeo). Due to globalization and the loss of jobs, the situation with income inequality in the United States steadily worsens over the past 30 years (Amadeo).
Other advanced economies had suffered a significant decrease as well, leading to a perception of economic growth in developing countries, while, in fact, a decreased coefficient of income inequality stems from the 2008 crisis (Hickel 2208). In other words, globalization caused major shifts in the global economy that led to higher competition on the market, yet did not show a significant positive impact on poverty levels.
The Expected and Actual Changes Affecting Income Inequality
The evolving market introduced several critical developments that need to be mentioned in order to understand the implications of said statistics. By analyzing the data from the chosen studies, it became clear that people have different opinions regarding the state of poverty in developing countries. A common misconception that stems from the observed statistics without an in-depth analysis is that the increase in GDP across the developing countries must be equal to the decreased poverty levels.
However, these newly acquired resources have to go to the betterment of society in order to make a meaningful impact on poverty within a country (Vlados and Chatzinikolaou 303). Foreign aid can be beneficial to give a kickstart to the market in a developing country, but it can also cause stagnation of development (Vlados and Chatzinikolaou 305). Therefore, income inequality can not be solved by direct financial support.
The statistics from the previous chapter depict that, while income inequality is decreasing globally, it grows within most countries. Another misconception is that interventions by a government can alleviate the impact of globalization. Studies related to poverty show that economic policies are unable to solve a long-standing issue, neither can they mitigate the effects of market globalization without hurting the national economy (Vlados and Chatzinikolaou 305). Therefore, the implementation of a hard regulation of the local market by a governmental structure can not solve the issue of income inequality without hurting the country’s economy.
Despite the perceived decrease of inequality on a global scale, there are several critical points that must be considered when examining the data. The assumption that had to be made in order to calculate the statistics on income inequality led to a misleading result. Hickel states that “removing China from the Gini figures shows a pattern of increasing global inequality” (2211). Dorn et al. state that “international trade has allowed many emerging countries, especially China, to catch up with the developed world” (1). The rapid growth of the economy of a single provided a massive boost towards the perception of equal incomes.
Hickel concludes that the rise of the Chinese economy “obscures the fact that the rest of the world is actually becoming more unequal” (2212). Moreover, even within China, its rapidly accumulated wealth is distributed unequally, leading to a growth in inequality, despite bringing the country up in ranks towards a more advanced economy (Dorn et al. 34). Globalization is unable to resolve income inequality by merely providing the opportunity for countries to capitalize on their resources. These resources, especially human capital, must be expanded continuously in order to decrease disparities within a country.
The effects of globalization on income inequality in advanced countries are also must be examined for their relation to income inequality. Dorn et al. argue that the U.S. “has experienced the most pronounced increase in income inequality” (2). Globalization gave companies an opportunity to lower their costs of operation by employing outsourcing and offshoring production, which led to the mass loss of medium- and low-skilled labor (Dorn et al.). However, it also gave them the opportunity to expand the number of employees with higher education at their original locations. The loss of jobs in the United States is often linked with the weakness of its education system (Amadeo).
The decreasing gap between poverty levels of advanced and developing countries is often described as the inevitable outcome. Dorn et al. argue that “global integration increases income inequality within developed countries and decreases inequality within developing countries” (2). However, this theory has only seen partial success, as developing countries have been unevenly affected by the globalization process (Hickel 2209). The critical factor in this equation is the lack of education that prevents developing countries from capitalizing on the opportunities presented by international trade.
Conclusion
In conclusion, society can not rely on globalization to eliminate the issues with income inequality, as it can only serve as a catalyst for the developing economy to stimulate its growth. Globalization provides a unique opportunity for countries to boost their development by utilizing international trade, yet it also weakens the local markets by inviting an influx of new players. The majority of studies show that it has a positive impact on a global scale.
In reality, a globalized economy allows the most developed players on the market to grow exponentially by providing more room for expansion while making it harder for smaller companies to achieve success (Vlados and Chatzinikolaou 303). In fact, globalization is often linked with risks that are hard to mitigate for a smaller organization (Dorn et al. 5). Income inequality is a parameter that can not be measured solely on a global scale, as it will not reflect the differences in national economies.
While there is no definite solution to this issue, there are solid pointers towards its alleviation. Studies have shown that the most significant decrease in income inequality can be achieved by expanding the quality and availability of education, which is especially efficient in emerging and developing countries (Coady and Dizioli 9). Even in the United States, people with college degrees earn almost twice as much money as people with high school diplomas (Amadeo). Therefore, access to education and professional growth is a crucial universal factor for creating a meaningful positive impact on decreasing income inequality. For society to thrive, the ability of an individual to earn is crucial in their proper integration and input to the global well-being.
Works Cited
Amadeo, Kimberly. “The True Cause of Income Inequality in America.” The Balance. 2021. Web.
Coady, David, and Allan Dizioli. “Income Inequality and Education Revisited: Persistence, Endogeneity, and Heterogeneity.” IMF Working Papers, vol. 17, no. 126, 2017.
Dorn, Florian, et al. “Globalization and Income Inequality Revisited.” CESifo Working Paper Series No. 6859. 2018. Web.
Hickel, Jason. “Is global inequality getting better or worse? A critique of the World Bank’s convergence narrative.” Third World Quarterly, vol. 38, no. 10, 2017, pp. 2208-2222.
Vlados, Charis, and Dimos Chatzinikolaou. “Notes on Prosperity, Poverty, and Inequality in the Era of Globalization.” Journal of Economics Bibliography, vol. 6, no. 4, 2019, pp. 288-308. Web.