Posted on Leave a comment

Globalisation – Key Concepts and Definitions

Communism – an economic system in which the means of production are owned in common and wealth distributed according to need.

Cosmopolitanism – where people or societies are tolerant of other people’s or societies’ ways of life and values; this is one of the positive consequences of globalisation as people increasingly come into contact with other ways of life and make an effort to enter into dialogue with diverse cultures and find ways to ‘live together’. Related concepts include reflexivity and detraditionalisation. The opposite of cosmopolitanism is fundamentalism.

Cultural Globalisation – the movement of ideas, attitudes, meanings, values and cultural products across national borders.

Deregulation – removing restrictions on businesses, for example reducing health and safety regulations.

De-traditionalisation – where people have increasing choice about whether to stick to traditional ways of life; traditions become less stable as people increasingly question their traditional beliefs about religion, marriage, and gender roles and so on.

Economic Globalisation – the global expansion of international capitalism, free markets and the increase in international trade.

Fatalism (Fatalistic Response to Globalisation) – the view that the world is powerless to resist globalisation.

Global Commodity Chains – where networks of production, distribution and consumption of goods and services becomes increasingly stretched across the globe. The making of the physical products tends to be done in poorer countries, whereas the branding and marketing, tend to be done in the richer countries.

Global Risk Consciousness – where people in different countries are increasingly aware of and affected by international threats such as terrorism, nuclear war and global warming. There are two elements to risk consciousness (it pulls in two directions) – one is that we are more fearful and wish to ‘retreat’ from such problems and the other is that we are increasingly brought together in our attempts to overcome such threats.

Globalisation – the increasing interconnectedness and inter-dependency of the world’s nations and their people into a single global, economic, political and global system.

Glocalisation – where people in developing countries select aspects of western culture and adapt them to their particular needs – associated with Transformationalism and critical of the pessimist theory that globalisation results in Americanisation.

Golden Straightjacket – Thomas Friedman’s term for the neoliberal policies countries must adopt if they are to experience economic growth and prosperity.

Ha-Joon Chang – a global pessimist who believes neoliberal policies primarily benefits wealthy countries and harm developing countries; referred to the WTO, World Bank and IMF as the ‘unholy trinity’.

Homogenisation – things becoming increasingly the same; in global terms, the erosion of local cultures and the emergence of one global mono-culture.

Hybridised Global Identities – where identities are increasingly a result of picking and mixing from different cultural traditions around the globe; implies more individual freedom to choose identity and greater diversity; associated with transformationalist theories of globalisation.

Hyper-Globalism – believe that globalisation is happening and that local cultures are being eroded primarily because of the expansion of international capitalism and the emergence of a homogenous global culture; believe that globalisation is a positive process characterised by economic growth, increasing prosperity and the spread of democracy.

Imperialism – where one dominant country takes over and controls another country or countries.

Jeremy Seabrook – a pessimist globalist who believes that globalisation is a ‘declaration of war’ upon local cultures as the expansion of western culture around the world destroys local cultures and reduces cultural diversity.

McWorld – refers specifically to the spread of McDonalds’ restaurants throughout the world; and more generally to the process of Mcdonaldisation which underpins this – i.e. the increasing standardisation of corporate products and the emergence of a global, Americanised monoculture.

Neoliberalism – a set of right wing economic policies which reduce the power of governments and give more freedom to private enterprise – the three main neoliberal policies are deregulation, privatisation and lowering taxation.

Political Globalisation – the process where the sovereignty of nation states is reduced due to the increasing power of International Institutions, such as the United Nations.

Post Industrial Economy – an economy in which the service sector generates more wealth than the manufacturing of physical products. In such an economy more people will be employed in sectors such as leisure, education, business/ finance, and creative industries rather than in manufacturing.

Postmodernity – a globalised society with the following characteristics: a technologically advanced, mainly post-industrial service sector economy, high levels of consumption, lots of individual freedom to shape identities through consumption, and correspondingly high levels of cultural diversity; media-saturation and hyperreality; high levels of insecurity and uncertainty.

Privatisation – the transfer of publicly (state) owned enterprises to private sector companies.

Social Movements – groups of people and/ or organisations who aim to help oppressed groups overcome oppression or change society in some way, believed to be beneficial. Global social movements involve co-operation of people across national borders, and their aims may sometimes clash with those of some national governments.

Thomas Freidman – an optimist globalist who believes that the world wide adoption of neoliberal policies by governments have resulted in economic globalisation, more trade between nations and increasing prosperity for all.

Time-Space Compression – where the world ‘feels smaller’ as we are able to communicate with people in faraway places more instantaneously.

Transformationalism – a theory which holds that globalisation is a complex process involving a number of different two-way exchanges between global institutions and local cultures; it can be reversed and controlled.

United Nations – an international organization formed in 1945 to increase political and economic cooperation among member countries. The organization works on economic and social development programs, improving human rights and reducing global conflicts (source: Investovepida).

Weightless Economy – refers to information based/ electronic products such as computer software, films and music, and information and financial services rather than actual tangible, physical goods such as food, clothing or cars. Such products can be produced, bought and sold much more rapidly than traditional, physical products, and thus trade in them is much more rapid, hence the term ‘weightless economy’.

Related Posts 

Factors Contributing to Globalisation (Giddens)

What is Cultural Globalisation?

What is Economic Globalisation?

What is Political Globalisation?

Advertisements
Posted on 1 Comment

Kenichi Ohmae, The Borderless World – Neoliberal Radical Globalism

Harlambos (2013) describes Kenichi Ohmae as ‘one of the most uncompromising and wholeheartedly enthusiastic advocates of globalisation from a right-wing neoliberal perspective who sees economic change as the driving force of globalisation’

The interlinked economy 

According to Ohmae (1994) political boarders are becoming less and less important, as countries increasingly form a giant, interlinked economy – this is especially true of the most developing countries, such as America, Europe and Japan, and these being joined by rapidly developing countries such as Taiwan, Singapore and Hong Kong. Ohmae argues that in the Interlinked Economy, corporations and consumers are more closely connected across boarders than ever, and politicians, bureaucrats and the military are declining in importance.

All of this has happened because of the opening up of the world economy and increasing trade between nations, which in turn has been driven by rapid developments in communication technologies – the rise of the internet has made it easier for people to see what people in other countries consume, and has made it much easier to buy products from other countries too.

Governments are no longer able to control information coming into their country, and thus they cannot control demand for foreign goods. If people see better standards of products being produced and consumed abroad they want them, and governments are increasingly powerless to prevent international trade in goods. According to Ohmae, this is not only good for the consumer, but good for the economy as well.

Global Citizens and Regional Links

Individuals have become global citizens through their consumption habits – they want to buy the best and cheapest products where ever they are made, and any government who tried to prevent this happening would risk upsetting millions of potential voters.

On the supply side, regional economic links have become more important than national ties – many Californian companies, for example, have more ties with Asian companies than ones in other parts of the USA.

Ohmae also believes that Transnational Corporations do not see themselves as being rooted in one country – if they did, this would be to their disadvantage – in order to maximize their profits, they have to think about global markets and adapt products to fit different local demands.

Because of all of the above factors, governments have largely lost their ability to control their economies.

Governments and Consumers 

Ohame argues that the global economy also makes the use of military force less likely – if you attack your neighbour, the chances are you will be destroying some of the assets of your citizens, and their destruction will only result in a downturn in economic growth for you, since we are all economically interdependent.

Ohame believes that role and function of the nation state today is limited to that of producing the conditions in which consumers, worker and corporations can thrive in a global economy. They are still necessary to provide an infrastructure such as roads and  legal system, for example.

Above all, though, they need to provide a good standard of education for their citizens, as Ohmae believes economic success results from having a highly educated, entrepeneurial and well informed population.

Evaluation

  • Ohame ignores the role of nation states in controlling trade across their boarders – the three biggest trading blocks of Japan, North America and the EU, for example continue to restrict trade with nations outside.
  • He understates the role of military power in geo-politics. States not only have a monopoly of violence in their own territories, the USA and Russia have recently used military force abroad.
  • According to global pessimists, he overstates the power of consumers – global Corporations and bankers have more power.

Relate Posts 

Global Optimism

Sources 

Haralambos and Holborn (2013) Sociology Themes and Perspectives

 

Posted on Leave a comment

Does Globalisation mean the Decline of the Nation State?

In the early stages of Globalisation (1600 -1950s especially) Nation States were very powerful – Colonialism for example was led by European governments and monarchies and the most serious conflicts tended to be between nation states – culminating in World War 2. However, since then, many globalisation theorists argue that increasing global flows in trade and communications have reduced the relative power of Nation States…..

Evidence for the power of Nation States declining

  • National Governments increasingly face problems that are too big for them to deal with on their own – examples of such global problems include – dealing with these problems increases the need to co-operate and reduces the power of individual nation states environmental problems, international terrorism, drug and people trafficking and the threat of global pandemics.
Are nation states too small to deal with the problem of global warming?
  • The United Nations and The Universal Declaration of Human Rights – limits the power of Nations to restrict the freedoms of individuals. Linked to this we have an international court where some dictators have been tried for crimes such as genocide.
  • Global Social Movements such as the green movement and the occupy movement are increasingly interconnected – which are critical of nation states – also part of ‘cultural globalisation’.
  • Some Transnational Corporations are bigger than Nation States – and so wield power over them – BP for example makes £25 billion profit every year and employs thousands of British workers – it is so crucial to the UK economy that the government has little choice but to keep it sweet, and the same is the case with many of our largest banks.
  • The power of United Nations to make any real change in the world is limited. The recent war in Iraq shows that powerful nations will go to war even when the United Nations does not back these wars.

Evidence for Nation States still retaining power

  • The World’s leading Nation States still maintain huge military capacity – the US spends more than $680 billion in 2010 on its military and Britain maintains a standing peace-time army of around 100 000 troops.
Only the richest nation states can afford these
  • Pessimists argue that the World Trade Organisation simply represent the interests of the most powerful nations – namely America.
  • ‘National Identity’ is still important to billions of people – there is a trend to more nation states – as present nations divide.
  • Brexit and the election of Donald Trump also suggest an increase in the number of people wanting to restrict the free-migration of people, no other institution can realistically do this, other than the nation state.
Posted on Leave a comment

Barbie and the Development of Global Commodity Chains

One illustration of the global commodity chain can be found in the manufacture of the Barbie doll, the most profitable toy in history. The 50-something teenage doll sells at a rate of 2 per second, bringing the Mattel Corporation, based in Los Angeles, USA, well over a billion dollars in annual revenues. Although the doll sells mainly in the United States, Europe and Japan, Barbie can also be found in 150 countries around the globe: she is truly a global citizen.

Barbie is global not only in sales, but in terms of her birthplace as well. Barbie was never made in the United States. The first doll was made in Japan in 1959, when that country was still recovering from the Second World War and wages were low. As wages in Japan rose, Barbie moved to other low-wage countries in Asia. Her multiple origins today tell us a great deal about the operations of global supply chains.

Barbie is designed in United States, where her marketing and advertising strategies are devised and where most of the profits are made. But the only physical aspect of Barbie that is ‘made in the USA’ is her cardboard packaging, along with some of the paints and oils that are used to decorate the doll.

Barbie’s body parts and wardrobe span the globe in their origins:

  1. Barbie begins her life in Saudi Arabia, where oil is extracted and then refined into ethyne that is used to create her plastic body
  2. Taiwan’s state-owned oil importer, the Chinese Petroleum Corporation, buys the ethylene and sells it to Taiwan’s largest producer of polyvinyl chloride (PVC) plastics, which are used in the toys. Formosa plastics coverts the ethylene into the PVC pellets that will be shaped to make Barbie’s body.
  3. The pellets are then shipped to one of the four Asian factories that make Barbie – two in southern China, and one in Indonesia and one in Malaysia. The plastic mould injection machines that shape her body, which are most expensive part of Barbie’s manufacture, are made in the United States and shipped to the factories.
  4. Once Barbie’s body is moulded, she gets her nylon hair from Japan. Her cotton dresses are made in China, with Chinese cotton – the only raw material in Barbie that actually comes from the country where Barbie is made.
  5. Hong Kong plays a key role in the manufacturing process of Barbie – nearly all the material used in her manufacture is shipped into Hong Kong, one of the world’s largest ports – and then trucked to the factories in China. The finished Barbies leave by the same route. Some 23 000 trucks make the daily trip between Hong Kong and southern China’s toy factories.

Out of her retail price, China gets about 4%, mainly in wages paid to the 11 000 peasant women who assemble her, 6.5% covers all of the other aspects of the manufacturing and distribution process, 10% goes back to Matell in profit, and 80% is the mark-up which companies like Toys R Us who sell the product add to the cost.

The case study of Barbie shows us both the effectiveness of globalisation, and the unevenness of the process.

Sources used to write this post.

I took this from Giddens’ ‘Sociology’ (2009) – it may be old, but I liked it as an illustration of globalisation and global commodity chains.

 

Posted on 2 Comments

What is Political Globalisation?

‘Until the end of the Second World War, national governments were traditionally responsible for ensuring the welfare of their citizens, however since 1945, more and more governments have become members of International Institutions, such as the United Nations and the European Union, through which they agree to stick to International guidelines on issues such as citizenship and human rights. In this way, global political ideals restrict the freedom of governments to shape domestic social policy. ‘

Anthony Giddens (2009) notes the following features of Political Globalisation

The collapse of Communism in the 1990s meant the end of the divided ‘cold war’ world, and now these ex-communist countries are themselves democracies and integrated into the global economy.

The growth of international and regional mechanisms of government such as the United Nations and European Union – governments of Nation States are increasingly restricted by international directives and laws stemming from these international bodies.

International Non-Governmental organisations such as OXFAM or Greenpeace operate in dozens of countries, and members tend to have an international outlook.

Posted on 2 Comments

What is Economic Globalisation?

Economic Globalisation involves the global expansion of international capitalism, free markets and the increase in international trade, a process which has accelerated since the 1950s. Nearly every country on earth now imports and exports more from and to other countries than it did immediately after World War Two, and even ex-communist countries are now part of the global capitalist economy. Britain for example imports around 60% of its food, with only 40% of the food supply being grown in Britain, and if you take a look around any class room, or any living room, and you will probably find that the majority of products were imported from somewhere else.

Some of the key features of economic globalisation include:

The emergence of global Commodity chains – manufacturing is increasingly globalised as there are more worldwide networks extending from the raw material to the final consumer. The least profitable aspects of production – actually making physical products, tend to be done in poorer, peripheral countries, whereas the more profitable aspects, related to branding and marketing, tend to be done in the richer, developed, core countries.

The role of Transnational Corporations (TNCs) is particularly important – these are companies that produce goods in more than one country, and they are oriented to global markets and global products, many are household names such as McDonald’s, Coca Cola and Nike. The biggest TNCs have annual revenues which are greater than the economic output of middle-income countries. Apple, for example, generates more income than Finland does every year, and many oil companies such as Shell and Exxon-Mobile generate revenue several times that of the poorer countries they extract from.

TNC logos

The global economy is Post Industrial – as a result it is increasingly ‘weightless’ (Quah 1999) – products are much more likely to be information based/ electronic, such as computer software, films and music or information services rather than actual tangible, physical goods such as food, clothing or cars.

The electronic economy underpins globalisation – Banks, corporations, fund managers and individuals are able to shift huge funds across boarders instantaneously at the click of a mouse. Transfers of vast amounts of capital can trigger economic crises.

global electronic economy

 

Posted on 4 Comments

What is Cultural Globalisation?

‘Cultural globalisation refers to the rapid movement of ideas, attitudes, meanings, values and cultural products across national borders. It refers specifically to idea that there is now a global and common mono-culture – transmitted and reinforced by the internet, popular entertainment transnational marketing of particular brands and international tourism – that transcends local cultural traditions and lifestyles, and that shapes the perceptions, aspirations, tastes and everyday activities of people wherever they may live in the world’

Migration is an important aspect of cultural globalisation, and in this sense, this process has been going on for several centuries, with languages, religious beliefs, and values being spread by military conquest, missionary work, and trade. However, in the last 30 years, the process of cultural globalisation has dramatically intensified due technological advances in both transportation and communications technology.

The globalisation of food is one of the most obvious examples of cultural globalisation – food consumption is an important aspect of culture and most societies around the world have diets that are unique to them, however the cultural globalisation of food has been promoted by fast food giants such as McDonald’s, Coca-Cola and Starbucks. The spread of these global food corporations has arguably led to the decline of local diets and eating traditions.

cultural globalisation

The Globalisation of sport  is another fairly obvious example of cultural globalisation – think of all the international sporting events that take place – most notably the World Cup and The Olympics, and Formula 1, which bind millions together in a shared, truly global, ‘leisure experience’.

Converging Global Consumption Patterns – today you can go to pretty much any major city in the world and share in a similar ‘consumption experience’. Also, more and more people in Asia and South-America are coming to enjoy high-consumption lifestyles like in the West – car ownership and tourism are both on the increase globally for example. Central to this is the growth of similar styles of shopping malls, and leisure parks which provide a homogeneous cultural experience in different regions across the world.

globalisation consumerism

The Global Village/ Global Consciousness

Individuals and families are now more directly plugged into news from the outside world – some of the most gripping events of the past decade have unfolded in real time in front of a global audience. According to Giddens this means that more and more people have a more ‘global outlook’ and increasingly identify with a global audience – for example, television reporting of natural disasters in developing countries result in people in wealthier countries donating money to charities such as Oxfam to assist with relief efforts. Giddens developed the concept of ‘Cosmopolitanism’ to describe this process of an emerging global identity.

A criticism of Giddens is that some people perceive increasing globalisation as a threat to their ways of life and retreat into Fundamentalism and/ or Nationalism as a defensive response, suggesting that Globalisation could go into reverse…

Detraditionalisation

In his classic 1999 text, Runaway World, Anthony Giddens argues that one consequence of globalisation is detraditionalisation – where people question their traditional beliefs about religion, marriage, and gender roles and so on. He uses the concept of ‘detraditionalisation’ rather than ‘decline of tradition’ to reflect the fact that in many cases people continue with their traditional ways of life, rather than actually changing them, but the very fact that they are now actively questioning aspects of their lives means cultures are much less stable and less predictable than before globalisation, because more people are aware of the fact that there are alternative ways of doing things and that they can change traditions if they want to.

The above processes are related to growth of urbanisation, especially the growth of global cities which have highly educated, politically engaged middle classes.

Global Risks/ Global Risk Consciousness

Ulrich Beck (1992) argues that a fundamental feature of globalisation is the development of a global risk consciousness, which emerges due to shared global problems which threaten people in multiple countries – examples include the threat of terrorism, international nuclear war, the threat of global pandemics, the rise of organised crime funded primarily through international drug trafficking, and the threat of planetary melt-down due to global warming.

On the downside, the constant media focus on such global problems has led to a widespread culture of fear and increasing anxiety across the globe, which has arguably contributed to things such as Paranoid Parenting and Brexit, but on the plus side, new global international movements and agencies have emerged through which people come together across borders to tackle such problems.

disneyfication

Sources used to write this post:

Chapman et al (2016?)* Sociology AQA Year 2.

Giddens (2009) Sociology.

*No publication date provided in text!?!?@”?!

Posted on 2 Comments

Factors Contributing to Globalisation

‘Globalisation refers to the fact that we all increasingly live in one world, so that individuals, groups and nations become ever more interdependent.’ (Giddens, Sociology, 2009)

Globalisation in this sense has been occurring over a very long period of human history, but the sheer pace and intensity of it has increased in the last 40 years or so.

Globalisation

Factors contributing to Globalisation

The rise of information and communications technology

  • The move from telephonic communication to cable and satellite digital communication have resulted in increasing information flows
  • Time-space compression – people in faraway places feel closer together as they can communicate instantaneously.
  • Individuals and families are more directly plugged into news from the outside world – some of the most gripping events of the past decade have unfolded in real time in front of a global audience.
  • Some individuals identify being more ‘cosmopolitanism’ as a result and increasingly identify with a global audience; others perceive increasing globalisation as a threat to their ways of life and retreat into Fundamentalism and/ or Nationalism as a defensive response.

Economic factors

  • The global economy is Post Industrial – as a result it is increasingly ‘weightless’ (Quah 1999) – products are much more likely to be information based/ electronic, such as computer software, films and music or information services rather than actual tangible, physical goods such as food, clothing or cars.
  • The role of Transnational Corporations (TNCs) is particularly important. These are companies that produce goods in more than one country, and they are oriented to global markets and global products.
  • Global Commodity chains – manufacturing is increasingly globalised as there are more worldwide networks extending from the raw material to the final consumer. The least profitable aspects of production – actually making physical products, tend to be done in poorer, peripheral countries, whereas the more profitable aspects, related to branding and marketing, tend to be done in the richer, developed, core countries.
  • Production is much more flexible than in the past – companies are much more likely to hire people on short term contracts and move around the globe seeking cheaper labour costs, as a response to increased global economic competition.
  • The electronic economy underpins globalisation – Banks, corporations, fund managers and individuals are able to shift huge funds across boarders instantaneously at the click of a mouse. Transfers of vast amounts of capital can trigger economic crises.

Political changes

  • The collapse of Communism in the 1990s meant the end of the divided ‘cold war’ world, and now these ex-communist countries are themselves democracies and integrated into the global economy.
  • The growth of international and regional mechanisms of government such as the United Nations and European Union – governments of Nation States are increasingly restricted by international directives and laws stemming from these international bodies.
  • International Non-Governmental organisations such as OXFAM or Greenpeace, operate in dozens of countries, and members tend to have an international outlook.

The above account of factors contributing to globalisation is taken from Giddens’ Sociology, edition 6, 2009.

(It seems like quite a useful framework, which I’ll add to when I get a chance!)

Related Posts 

What is Cultural Globalisation?

What is Economic Globalisation?

What is Political Globalisation?

Globalisation Key Concepts – Test Yourself Quizlet!

Posted on Leave a comment

How Does Globalisation Impact Family Life?

Globalisation is the increasing interconnectedness of countries (and the people within them) across the globe – below are just a few (very brief) thoughts on how globalisation might impact family life the United Kingdom…

  • Increased immigration – more family diversity, mixed race couples. (link to topic 3)
  • Shift in manufacturing abroad – Decline in traditional male jobs, more equality between men and women in relationships (link to topic 5)
  • Globalisation of media – commercialisation of childhood (toxic childhood), awareness of global problems (paranoid parents) (link to topic 5)
  • More financial crises (‘credit crunch’) – more divorce/ family instability (link to topic 2)
Posted on 1 Comment

Trends in Global Wealth Inequality and Poverty

Global wealth inequality is increasing, but how can we explain this, is this is a problem, and what could we do to make the world a more equal place?

Trends in Global Wealth Inequality and Poverty

world wealth 2016.png

According to the 2016 Global Wealth Report produced by Credit Suisse, wealth inequality in 2016, measured by the share of the wealthiest 1 percent and wealthiest 10 percent of adults, as compared to the rest of the world’s adult population, continues to rise.

While the bottom half collectively own less than 1 percent of total wealth, the wealthiest top 10 percent own 89 percent of all global assets.

NB – You need to look at the pyramid below carefully, what it shows (to compare the very top and bottom) is as follows:

  • The richest 33 million people (0.7% of the world’s population ) control $116 trillion, or 45.6% of the world’s wealth, or more than $1 million each
  • The poorest 3.5 billion people (73% of the world’s population) control only $6.1 trillion of wealth, or less than $10, 000 in wealth each.

global-wealth-pyramid

NB – Inequality is no longer simply a matter of poor people living in less developed countries and rich people living in more developed countries -there are plenty of millionaires in low and middle income countries – the report notes that ‘today, emerging nations are home to 18 percent of the world’s ultra-high net worth population. China alone accounts for 9 percent of the top decile of global wealth holders, which is well above France, Germany, Italy, and the United Kingdom.’

However, this is hardly cause for celebrations, it simply means that not only is global inequality increasing across the world as a whole, but also within most countries in the world – there are billions of poor people living right alongside those millionaires in low income countries!

The infographic below, taken from the World Economic Forum Website (published 2015), displays global wealth inequality more simply, and it’s also easier to remember:the richest 1% control 50% of the world’s wealth, while the poorest 50% control less than 1%.

global-inequalities

Finally, to turn to trends in inequality over time, the chart below, also taken from the World Economic Forum website, shows how the global share of wealth controlled by the wealthiest 1% has increased from 45% to 50%, while the share of the ‘other 99%’ has decreased from 55% to 50%. (The chart below is derived from Oxfam’s 2016 Report: An Economy for the 1%?)

global-wealth-inequalities

Oxfam further notes that:

  • The wealth of the richest 62 people has risen by 45% in the five years since 2010 – that’s an increase of more than half a trillion dollars ($542bn), to $1.76 trillion.
  • Meanwhile, the wealth of the bottom half fell by just over a trillion dollars in the same period – a drop of 38%.
  • Since the turn of the century, the poorest half of the world’s population has received just 1% of the total increase in global wealth, while half of that increase has gone to the top 1%

Some Potential Problems with Statistics on Global Wealth Inequalities

  • Firstly, there are issues with reliability when tracking global inequality – different nations tally income and wealth in different ways, and some nations barely tally reliable stats at all
  • Secondly, you may have noticed that you get different figures depending on what groups your comparing – things look very different if you compare the top 1% to the rest, rather than comparing the top ten percent to the the bottom ten percent, or the top 50% to the bottom 50%. You might like to think about which is the most ‘valid’ comparison to give you a fair idea of global wealth inequalities (tough question!?)

Why has Wealth Inequality Increased?

What we are asking here, in short form is – how have the rich got so rich, and why have the poor lagged behind? In this section I summarise for changes which are correlated with increasing wealth inequality, all taken from the the Oxfam Report referred to above: Neoliberal economic policy; the global tax haven system, the growth of the financial sector and increasing returns to capital versus labour:

Neoliberal Economic Policy 

Neoliberal Economic and policy changes over the past 30 years – including deregulation, privatization, financial secrecy and globalization – have supercharged the ability of the rich and powerful to to further concentrate their wealth.

For example, companies working in oil, gas and other extractive industries are using their economic power in many different ways to secure their dominant position. They lobby to secure government subsidies – tax breaks – to prevent the emergence of green alternatives. In Brazil and Mexico, indigenous peoples are disproportionately affected by the destruction of their traditional lands when forests are eroded for mining or intensive large-scale farming. When privatized – as happened in Russia after the fall of communism for example – huge fortunes are generated overnight for a small group of individuals.

The Global Network of Tax Havens

A powerful example of an economic system that is rigged to work in the interests of the powerful is the global spider’s web of tax havens and the industry of tax avoidance, which has blossomed over recent decades. The system is maintained by a highly paid, industrious bevy of professionals in the private banking, legal, accounting and investment industries.

U S Companies tax havens.jpg

As taxes go unpaid due to widespread avoidance, this leads to cuts in vital public services and that governments increasingly rely on indirect taxation, like VAT, which falls disproportionately on the poorest people.

This global system of tax avoidance is sucking the life out of welfare states in the rich world. It also denies poor countries the resources they need to tackle poverty, put children in school and prevent their citizens dying from easily curable diseases.

Almost a third (30%) of rich Africans’ wealth – a total of $500bn – is held offshore in tax havens. It is estimated that this costs African countries $14bn a year in lost tax revenues. This is enough money to pay for healthcare that could save the lives of 4 million children and employ enough teachers to get every African child into school.

Tax avoidance is a problem that is rapidly getting worse and has rightly been described by the International Bar Association as an abuse of human rights and by the President of the World Bank as ‘a form of corruption that hurts the poor’.

Increasing Returns to Capital Versus Labour

One of the key trends underlying increasing wealth inequality is the increasing return to capital versus labour. In almost all rich countries and in most developing countries, the share of national income going to workers has been falling. This means workers are capturing less and less of the gains from growth. In contrast, the owners of capital have seen their capital consistently grow (through interest payments, dividends, or retained profits) faster than the rate the economy has been growing.

capital-and-labor

NB This article in The Economist challenges the idea that there are increasing returns to capital versus labour!

The Growth of the Financial Sector

The financial sector has grown most rapidly in recent decades, and a recent study by the OECD10 showed that countries with oversized financial sectors suffer from greater economic instability and higher inequality. Certainly, the public debt crisis caused by the financial crisis, bank bailouts and subsequent austerity policies has hurt the poorest people the most.

NB 1 -if you want more theoretical explanations of increasing inequality – look at Dependency Theory and World Systems Theory – much of this is applicable here. You might also like to look at ‘Why Nations Fail‘. 

NB2 – given that measuring inequality involves measuring relative wealth – that is what percentage share to the richest 10% control compared to other 90%, for example, then we’re necessarily looking at a zero sum game – If the richest 10% go from controlling 40% of the world’s wealth to 60% of the worlds wealth, then the amount of wealth controlled by the other 90% of the population must fall from a 60% share to a 40% share. 

Is Increasing Global Inequality a Problem for Humanity?

Neoliberals argue that increasing inequality isn’t necessarily a bad thing, the important thing is that even though the rich have got richer compared to the poor, the poor have also got richer, just not as rapidly as the rich and the middle.

poverty

However, Oxfam argues that growing economic inequality is bad for us all for the following reasons:

  • It undermines growth and social cohesion and the consequences for the world’s poorest people are particularly severe.
  • Had inequality within countries not grown since 2010, an extra 200 million people would have escaped poverty. That could have risen to 700 million had poor people benefited more than the rich from economic growth.
  • The International Monetary Fund (IMF) recently found that countries with higher income inequality also tend to have larger gaps between women and men in terms of health, education, labour market participation, and representation in institutions like parliaments.
  • The gender pay gap was also found to be higher in more unequal societies. It is worth noting that 53 of the world’s richest 62 people are men.
  • From and ecological point of view, there’s even more injustice: the poorest people live in areas most vulnerable to climate change, the poorest half of the global population are responsible for only around 10% of total global emissions.  The average footprint of the richest 1% globally could be as much as 175 times that of the poorest 10%.

What can we do to make the world a more equal place?

Oxfam notes that inequality is not inevitable. The current system did not come about by accident; it is the result of deliberate policy choices, of our leaders listening to the 1% and their supporters rather than acting in the interests of the majority. It is time to reject this broken economic model.

As a priority, Oxfam is calling on all world leaders to agree a global approach to end the era of tax havens

end-tax-havens

World leaders need to commit to a more effective approach to ending tax havens and harmful tax regimes, including non-preferential regimes. It is time to put an end to the race to the bottom in general corporate taxation. Ultimately, all governments – including developing countries on an equal footing – must agree to create a global tax body that includes all governments with the objective of ensuring that national tax systems do not have negative global implications.

In addition Oxfam is calling on leaders to take action to show they are on the side of the majority through doing the following:

  • Keep the influence of powerful elites in check: for example by reforming the regulatory environment, particularly around transparency in government; separating business from campaign financing; and introducing measures to close revolving doors between big business and government.
  • Share the tax burden fairly to level the playing field: by shifting the tax burden away from labour and consumption and towards wealth, capital and income from these assets; increasing transparency on tax incentives; and introducing national wealth taxes.
  • Pay workers a living wage and close the gap with executive rewards: by increasing minimum wages towards living wages; with transparency on pay ratios; and protecting workers’ rights to unionize and strikes.
  • Use progressive public spending to tackle inequality: by prioritizing policies, practice and spending that increase financing for free public health and education to fight poverty and inequality at a national level. Refrain from implementing unproven and unworkable market reforms to public health and education systems, and expand public sector rather than private sector delivery of essential services.

Selected Sources

Credit Suisse – The World Wealth Report (November 2016)

Oxfam – An Economy for the 1% (Jan 2016)

Inequality on the Rise? (2012)