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Article Excerpt
THERE IS SOMETHING PROFOUNDLY WRONG with a world in which the 400 highest income earners in the United States make as much money in a year as the entire population of 20 African nations--more than 300 million people.
Global inequalities persist at staggering levels. The richest 10 percent of the world's population's income is roughly 117 times higher than the poorest 10 percent, according to calculations performed by economists at the Economics Policy Institute, using data from the International Monetary Fund. This is a huge jump from the ratio in 1980, when the income of the richest 10 percent was about 79 times higher than the poorest 10 percent.
Exclude fast-growing China from the equation, and the disparities are even more shocking. The income ratio from the richest 10 percent to the poorest 10 percent rose from 90:1 in 1980 to 154:1 in 1999.
Despite these numbers, there is a significant debate among economists about whether overall global inequality is growing in the era of corporate globalization. That is due to the influence of China and India, huge countries which have been growing (very rapidly, in the case of China) while most of the developing world has been stagnant or shrinking economically and most of the rich world has been growing slowly.
Economic inequalities between the richest and poorest people in the world are clearly growing rapidly, however. And, in most parts of the world, inequality, within nations is growing--this is true in the rich countries of the United States and the European Union, most (but not all) of the transition economies of the old Soviet bloc, China and India--or persisting at very high levels, as in Latin America and Africa.
Much of the blame for this state of affairs can be laid at the doorstep of corporate globalization--the rules of the global economy as established by organizations like the World Trade Organization, the imposed market fundamentalist demands of the International Monetary Fund (IMF) and World Bank, the dynamics of unregulated global financial and other markets.
There are other factors at work as well, most importantly domestic power struggles over everything from national tax policy to corruption to decisions over investment in healthcare and education.
And not every aspect of corporate globalization pushes in the direction of more inequality. For example, despite the many and varied hardships corporate globalization imposes on women, in many circumstances it may open up opportunities for independence and economic self-sufficiency that traditional arrangements denied to women.
But these caveats notwithstanding, corporate globalization in many ways does generate, contribute to and reinforce rising and persistent grotesque inequalities, both between and within countries. Here is a review of a dozen mechanisms by which this occurs:
1. FINANCIAL LIBERALIZATION AND ECONOMIC INSTABILITY
Over the last decade, the International Monetary Fund and World Bank have pressured countries to remove restrictions on capital flows. The deregulation of the financial sector has made it much easier to move money into developing countries. In much of Asia and Latin America, and in Russia, foreign investment funds have poured money into short-term investments in various financial instruments. Capital flows to developing countries rose from approximately $2 billion in 1980 to $120 billion in 19971, a jump of 6,000 percent.
Deregulation has also made it easier to move money out of countries. Because so much foreign investment is lodged ill financial instruments (as opposed to real property, such as factories), it can easily flee developing countries. Deregulation has displaced capital controls, including, for example, those that might have required foreign investment to remain in a country for a certain period of time. Such rules make it legal for foreign investors to flee.
When things seem uncertain in a country, foreign investors do flee, routinely. Even if the country's objective economic circumstances are not in crisis, the tact of foreign capital flight regularly plunges countries into crisis, or at least crises worse than they would otherwise experience. This has been the case over the last decade in Thailand, Indonesia, South Korea, Russia, Brazil and Argentina, among other countries.
Financial crises in developing countries exacerbate global inequalities--Argentina, for example, has seen its economy sink rapidly in recent years, while Russia suffered a 42 percent decline in Gross Domestic Product. They also tend to increase domestic inequality, since the rich have various ways to protect themselves, including by joining the capital flight out of the country and housing their money in foreign banks. For most of the middle class, however, such options may not be available, and they may find themselves joining the ranks of the poor.
2. DEBT
The developing countries collectively owe $2.3 trillion to foreign creditors. Sub-Saharan African nations owe more than $200 billion to foreign creditors. Developing countries must pay interest on these loans and pay back the principal.
Where loans are directed to sound investments in projects that generate foreign exchange--which is needed to pay back the loans that are made in foreign currencies--taking on debt obligations may make sense. But the history of the last 25 years is replete with large-scale lending operations from official donors and private banks that have been allocated to...
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