Globalization Creates Inequality Essay

1923 words - 8 pages

Globalization is a complex phenomenon which has positive and negative implications. In one of the report by World Commission on the Social Dimension of Globalization, globalization is explained as “there is no point to globalization that reduces the price of a child’s shoes, but costs the father his job”. The chief characteristics of globalisation as explained by World Commission on the Social Dimension of Globalization are international trade, foreign direct investment, financial flows, technology and policy environment. International free trade has become the foundation of neoliberal globalization. The main aim was to promote development and trade. During the 1870s the gold standard was adopted which enabled the capital to move freely without the fear of change in currency value but the system dissolved over time. The question is whether free trade makes everyone better off in the long run and what are its implications on justice, equality, and social norms. The concept of trade evolved right from Adam Smith and David Ricardo who introduced the concept of comparative advantage which compares the productiveness across countries. In the current situation comparative advantage can be created through technological innovations. Globalization is propelled by economics but shaped by politics; the same applies to free trade in developed and developing countries. A country needs to have strong social and political institution for improving the society’s well being through trade. Since developed countries focuses on capital intensive goods and developing countries on labour intensive goods especially agricultural commodities, there is always a difference in ‘real’ terms. But developing countries like China, India, Korea has been shifting to manufactured and service products for exports since 1970’s. According to Paul Samuelson trade has a strong influence on income distribution, since wages are smaller for labour intensive goods and low wage countries has a major influence on the wages on high income countries when products are exported from low wage countries to high wage countries. But Paul Krugman states that this relationship cannot be quantified.
Trade and income distribution
Income redistribution is one of the gains from trade. But are the gains from the trade too small when compared to the losses suffered by the low income or disadvantaged groups that have little resources or savings with them. Thus distributional effects prove that technological change alone fails to support free trade. The trade causes some activities to shrink and some activities to contract. The whole notion of free trade is not clear since some people gain and some people lose. Redistribution is often the necessary handmaiden of the gains from trade. Due to a fall in demand for exports from the south, industries associated with the export industries will suffer a permanent fall in employment and even if people find other jobs there will be a fall in the income...

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