Factors Leading To The Increase In The Gap Between Rich And Poor Nations Due To Globalization

FACTORS LEADING TO THE INCREASE IN THE GAP BETWEEN RICH AND POOR NATIONS DUE TO GLOBALIZATION

INTERNATIONAL INEQUALITY

Inequality must be defined and be able to be measured so that comparisons can be made between rich and poor countries. Once the causes are determined, the effects of globalization can be evaluated and be measured. The World Bank defines inequality as the disparity of income and standard of living among nations and their citizens (Birdsall, 2002)

The income gap that exists between the rich and poor countries has become substantial. In 2003, the richest fifth of the world’s population received 85% of the total world income, while poorest fifth received just 1.4% of the global income (infoplease, 2005).When the GDP is compared between the richest and the poorest nations over the past century, a wider income gap can be seen growing and this therefore means that income inequality has increased and continued widening.

Globalization has become painful, rather than controversial, to the developing world. It has produced increasing global economic interdependence through the growing volume and variety of cross-border flows of finance, investment, goods, and services, and the rapid and widespread diffusion of technology which has led to widening in the gap between the rich and the poor nations. Some of the factors that support this assertion include;

The growing economic interdependence is highly asymmetrical. The benefits of linking and the costs of de-linking are not equally distributed. Industrialized countries - the European Union, Japan, and the United States - are genuinely and highly interdependent in their relations with one another. The developing countries, on the other hand, are largely independent from one another in terms of economic relations, while being highly dependent on industrialized countries. Indeed, globalization creates losers as well as winners, and entails risks as well as opportunities. The losers in this case are the developing countries leading to the widening in the gap.

Some globalization observers have vouched that there has been a growing divergence, not convergence, in income levels, both between countries and peoples. Inequality among, and within, nations, has widened. Assets and incomes are more concentrated. Wage shares have fallen while profit shares have risen. Capital mobility alongside labor immobility has reduced the bargaining power of organized labor. The rise in unemployment and the accompanying "casualization" of the workforce, with more and more people working in the informal sector, have generated an excess supply of labor and depressed real wages.

Globalization has spurred inequality - both in the wealthiest countries as well as the developing world. China and India compete globally, yet only a fraction of their citizens prosper. Increasing inequality between rural and urban populations, and between coastal and inland areas in China, could have disastrous consequences in the event of political transition. Forty of the poorest nations, many in Africa, have had zero growth during the past 20 years. Their governments followed advice from wealthy nations and World Bank consultants on issues ranging from privatization to development, but millions of people suffer from poverty. Ironically, the wealthiest people benefit from the source of cheap labor. Western policies reinforce the growing divide between rich and poor.

Nearly three-quarters of Africa's population live in rural areas in contrast with less-than-10-percent in the developed world. Globalization has driven a wedge between social classes in the rich countries, while among the world's poor, the main divide is between countries - those that adapted well to globalization and, in many areas, prospered, and those that maladjusted and, in many cases, collapsed.

As the Second World collapsed and globalization took off, the latter rationale evaporated and a few countries, notably India and China, accelerated their growth rates significantly, enjoying the fruits of freer trade and larger capital flows. Although the two countries adapted well to globalization, there is little doubt that their newfound relative prosperity opened many new fissure lines. Inequality between coastal and inland provinces, as well as between urban and rural areas, skyrocketed in China.

Another large group of Third World countries in Latin America, Africa, and former Communist countries, experienced a quarter-century of decline, or stagnation, punctuated by civil wars, international conflicts, and the onslaught of AIDS. While rich countries grew on average by almost 2 percent per capita annually from 1980 to 2002, the world's poorest 40 countries had a combined growth rate of zero. For large swaths of Africa, the income level today is less than 1-dollar-per-day.

For these latter countries, the promised benefits of globalization never arrived. Social services were often taken over by foreigners. Western experts and technocrats arrived on their jets, stayed in luxury hotels, and hailed the obvious worsening of economic and social conditions as a step toward better lives and international integration.

Indeed, for many people in Latin America and Africa, globalization was merely a new, more attractive label, for the old imperialism, or worse - for a form of re-colonization. The left-wing reaction sweeping Latin America, from Mexico to Argentina, is a direct consequence of the fault lines opened by policies designed to benefit Wall Street, not the people in the streets of Asmara, Nairobi or Kampala.

The rapid growth of global markets has not seen the parallel development of social and economic institutions to ensure their smooth and efficient functioning, labor rights have been less diligently protected than capital and property rights, and the global rules on trade and finance are unfair to the extent that they produce asymmetric effects on rich and poor countries.

The deepening of poverty and inequality has implications for the social and political stability, among and within, nations. It is in this context that the plight and hopes of developing countries have to be understood in the Doha Round of trade talks. Having commenced in 2001, the Doha Round was supposed to be about the trade-led and trade-facilitated development of the world's poor countries. After five years of negotiations, the talks collapsed because of unbridgeable differences among the EU, the US, and developing countries led by India, Brazil, and China.

From the developing world's perspective, the problem is that the rich countries want access to poor countries' resources, markets,