Oct 18, 2019 in Research

Global Economic Inequality

Introduction

Scholars of development and international economics have developed the discourse on the state of global economic inequality. Whereas scholars and stakeholders across the globe have been monitoring the trends in economic inequality, the inequality continues to exist, as the gap between the rich and the poor has widened. Despite the fact that there is a recognition of changes in the global trends of inequality, consensus has not been established on the direction of the changes. There are conflicting arguments that surround this discourse; some suggest positive change, while others propose that there has been retrogression with regard to economic inequality. This paper delves into this discourse and advances the argument that global economic inequality has actually declined in the present century when compared to the previous ones. The paper thus offers a positioned argument: based on the latest global economic realities and evolutions, inequality has decreased and may possibly continue declining with the economic reforms in the developing Southern countries.

The Declining Level of Global Economic Inequality

Global economic inequality refers to a situation where income is disproportional across the world’s population. The claims that global economic inequality has been on the rise is not only gnashing of teeth but also unfounded consideration of the empirical evidence of economic reforms that have taken place in the most economically unequal societies. While economic inequality remains a surging political and economic issue across the globe, there is an increasing body of evidence that in reality, the rate of inequality has been declining. Studies that have analysed the economic trends across the globe by considering the Gross Domestic Product Index of countries have pointed to a declining trend in income inequality. International trade is as one of the factors that have contributed to the decline in economic inequality in the world.

 

On the contrary, the economists that focus on the negative impacts of economic integration advance and support the argument for increased global inequality. According to these scholars, economic integration is just one of the ways through which the first world nations have promoted economic imperialism and advanced neocolonialism. This argument follows a claim that the international trade and integration policies have all been generated and strategically passed down onto the poor nations, who have little say in their economic directions. Consequently, the poor nations ended up being exploited by the developing first world. This has widened the gap between the rich and the poor and contributed to the phenomenon of global inequality. However, this argument is true only on some level. Some of the countries that have registered growth in the recent decades such as China and India have benefited from economic integration. Liberal trade and economic policies have also promoted trade and boosted growth.

As nations trade with each other, this creates a flow and exchange of fiscal and human resources globally. This process helps the once poor nations to not only acquire expertise, economic insight and resources for their own development, but also to contribute to the determination of policies that govern the functioning of such regional and global economic engagements. Thus, the argument that the rate of global economic inequality has widened with economic integration is not only shallow but also biased. Moreover, it fails to recognize and appreciate the growth trends in the once poor countries that have been attributed to international trade and flow of resources from the rich nations, which have redistributed the resources to the poor nations. Consequently, economic inequality has declined.

The global financial institutions such as the World Bank and the International Monetary Fund have helped in fighting poverty in the poor nations through the global aid that is remitted to these nations as development grants. In some cases, the loans are given to stimulate economic growth. Most the funds that come from these financial institutions are from the rich and industrialized countries. In essence, the global financial institutions have worked to facilitate distribution of economic resources from the centre to the periphery, thus stirring economic growth in the struggling nations. This has promoted economic growth in the poor countries and helped to lower the rate of global economic inequality.

One of the arguments suggests that poor countries have developed because of the international trade between nations. Liberal economic and trade policies have gave an opportunity for the poor nations to access foreign markets with their products, while also receiving subsidized products from the other countries that help to boost economic prosperity and the GDP of the initially impoverished countries. The proponents of this argument maintain that the gap between the rich and the poor would remain significantly conspicuous if the poor were denied economic opportunities through rigid economic measures that serve the interest of the rich nations, while the peripheral states continue suffering. This trend has been reversed through international trade. International trade has served to facilitate the redistribution of wealth and resources alongside investment opportunities to the advantage of the poor nations. This has helped to narrow the gaps of economic inequality between nations.

The fact that some of the most populated nations became economic giants helped to narrow the gap between the rich and the poor and reduce the level of global economic inequality. For example, the rise of China and India that are competing with the historical economic giants with the blueprint for economic prosperity has helped to increase inequality in the initially developed countries such as the United States. However, Chinese economic growth has increased the incomes of the top 1% in the United States through the exportation of the products from the Chinese market into American. The growth of China and other economic tigers such as India has increased income inequality in the United States and raised economic inequality in the developed world, while promoting prosperity and economic equality in the world.

Global economic inequality has slowed down because of the movement of the low-skilled workers from the poor countries, who seek alternative opportunities in the developed countries. This has lowered the rate of economic inequality in a myriad of ways. One way is through reduction of the population of the poor in the less developed countries, who moved to the developed countries. This increases the burden of economic empowerment in the developed countries while reducing the number of people who are leaving in poverty in the least developed countries. Ultimately, such immigration has a negative effect on the economic outlook in the developed countries while improving the situation in the developing countries. The migration has also piled on the pressure on the populations in the developed countries, who have to compete for the few economic opportunities with the immigrants. As a result, GDP per capita decreased in the developed countries. Foreign remittance from the immigrants has also helped to boost the economic situation in their domestic countries, thus, helping to narrow down the gap between the rich and the poor and globally lowering the economic inequality.

The decline in the economic inequality across the globe is evident, since once impoverished nations and their populations have advanced and transcended along the path of economic progress. To understand the decline in economic inequality across the globe, one has to consider the effects of the growing global economic penetration. The densely populated regions of India and China have climbed up the ladder of industrialization. This process has seen the two population giants reduce the number of poor people, as many of them have immigrated to the initially less populated developed countries such as the United States, the Great Britain and the European Union. Industrialization is a positive indicator of economic growth and prosperity of a nation, region and across the globe. The goods and services that are developed because of manufacturing are exported to other countries, including to the first world. The establishment of industrial investment also helps, as it creates employment opportunities for less economically developed regions in the world. For such people, the growth of the industrial sector has served as a regulation, since they have been economically empowered.

The initially economically declining regions in the world have woken up and taken an upward economic trend evidenced by heavy investments in key sectors of the economy. These include industrialization of agriculture, education and health. While the countries that were economically repugnant have registered high economic growth rates, the developed countries have largely remained economically stagnant. Thus as the standard of living in the least developed countries, especially in North and sub-Saharan Africa and East Asia, continues to improve, while the initially vibrant economies has either slowed down or remained stagnant. This has helped to lower the gap between the economic giants and the less development countries.

As the economies of the peripheral states continue growing, which is the courtesy of the sound economic policies, political stability and greater investments in projects, the countries have thrived. For example, the countries that were initially poor such as South Africa, India, China and Brazil grew and became influential global economic power machines. Considering their huge number of population, the economic growth in these countries implies that huge populations are also benefitting from the trickle-down effects of economic growth. This ultimately reduces the extent of global economic inequality as the gap continues to decrease. The balance of trade, which is the result of international trade, has boosted the prospects of the poor countries to improve their economies and achieve the targeted reduction of the gap between the world’s poorest and the richest states. Although, some argue that the balance of trade between the poor and the affluent countries is not reliable, since the policies are often constructed in favor of the rich countries. Consequently, such policies let the rich countries grow and exploit the poor, while the peripheral states remain in poverty. This is no longer the case since the peripheral states are more or less stable and currently play a significant role in the formulations of policies that regulate international trade.

Globally, the tens of millions of poor people that lived in abject poverty have risen to the middle class status because of economic globalization, massive economic stimulus programs and strategic investment of national governments. The initially sleeping economic giants such as Brazil, China, and India have grown, as their populations was moving from low class to mostly middle class status. As this was happening, the larger populations in the richer countries have decreased. The net result is a bulge in the rising middle class as the low class tail becomes thinner. This has helped in narrowing the gap of economic inequality between the rich and the poor countries. The recent global economic growth forecast is guided by the reality that the economies of the developing countries have become more vibrant and registered tremendous economic growth. On the other hand, the economies of the developed countries have either remained stagnant or registered only small marginal growth.

There debate on the trend of economic development has attracted the attention of the neoliberals. The neoliberals have launched into this discourse with an assertive argument that income distribution between the rich and the poor nations has become equal in the last two decades. Consequently, the number of people that are living in extreme poverty has declined in the current century comparing to the past centuries. The progressive decline in income inequality can be explained after considering the reality of economic integration across the globe. Economic integration has linked the economies of the developed and industrialized nations with the less developed nations. In fact, this has facilitated redistribution of resources between the rich industrialized countries and the poor countries.

Economic integration has improved efficiency in resource utilization in the once impoverished nations. Such efficiency has promoted economic growth, as nations that were initially harboring the poorest have continued to take advantage of the benefits of economic integration by focusing on the areas of their comparative economic advantage. This has helped the nations, which were initially victimized by economic marginalization to form economic blocks, to focus on their products that fetch them better economic returns. This has helped to boost their GDPs as they trade with the rich nations.

The promotion of liberalized economies has helped the impoverished nations to benefit from foreign direct investments from the developed countries. Such investments have served to create job opportunities in the peripheral South while improving the standard of living in these countries. Therefore, the GDP of the nations in peripheral South have significantly and exponentially improved and in some cases showed higher economic growth rates than the developed and industrialized countries. Besides, such economic integrations gave an opportunity for the developed countries to benefit from technology transfer, transfer of skills and training of the human resources that, consequently, has helped the poor nations to discover their economic potentials. The nations that have discovered and exploited such potentials have managed to register exponential economic growth similar to the one recorded in the developed countries. Consequently, as the rich nations benefit from economic investment in the poor countries, the population in these countries enjoys the improved income levels, which lower the gap between the poor and the rich.

Conclusion

The global economic outlook between the 1980s and now has attracted the attention of many scholars, who have focused on understanding the trends in economic inequality across the globe. Whereas there is no consensus on this discourse, this maintains that with economic integration, industrialization in the once poor nations and with sound fiscal policies, the rate of economic inequality has taken a downward trend. The poor countries that were once underdeveloped have adopted new economic approaches, reaching higher economic growth rates than the developed nations. The net effect of such growth is the decline in the global economic inequality.

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