The race of globalization is leaving the majority of the world's population far behind. According to Unicef, the richest 20 percent of the population gets 83 percent of global income, while the poorest quintile has just 1 percent. This trend is getting worse. A new UNDP report called "Humanity Divided" estimates that 75 percent of the population lives in societies where income distribution is less equal now than it was in the 1990s, although global GDP ballooned from $22 trillion to $72 trillion.
For developing economies in Asia, the Gini coefficient -- which measures income inequality on a scale from zero to one where one is worst -- rose from 0.33 in 1990 to 0.46 in 2010.
Inequality corresponds with greater economic uncertainty, lower investment and high social tensions and political instability -- with the potential for violence and conflicts between groups. It demolishes human rights for the vast majority, especially for vulnerable groups like women, children and the elderly.
What causes inequality? The UNDP states, "Specific aspects of globalization, such as inadequately regulated financial integration and trade liberalization processes, whose benefits have been distributed very unequally across and within countries, have played a significant role in determining the upward trend observed over the last decades."
Globalization causes inequality for various reasons. One is that trade and financial globalization have weakened the bargaining position of relatively immobile labor in relation to fully mobile capital, driving down wages. The chief economist of the Asian Development Bank, in an article that argues that inequality jeopardizes economic growth, notes that between the mid-1990s and the mid-2000s, labor income as a percentage of manufacturing output fell from 48 percent to 42 percent in China and from 37 percent to 22 percent in India.
The UNDP also says dependence on capital flows made countries more vulnerable to economic and financial shocks, causing lower growth and employment, which both disproportionately affect the poor.
If globalization drives inequality, what are the remedies? The usual list of cures from UN agencies, the World Bank and IMF include measures to stop tax evasion, more progressive income tax policies, incentives for foreign investment, conditional cash transfers, subsidies and credits for small businesses and agriculture, limited expansion of public investment and social safety nets.
Two key things are apparent in these "remedies." First, they talk about redistributing income, but don't address unequal access to sources of wealth, such as land or assets. They also avoid mentioning examples of nationalizations that have reduced extreme inequality in some countries.
Second, they don't deal with the process of globalization. The most ambitious among them suggest some kind of regulation of speculative financial markets to minimize volatility. The World Bank clearly states that measures to reduce inequality should not affect "free trade."
The measures to combat inequality touted by international financial institutions ignore the structural causes of inequality. Don't be fooled by their fashionable new name: "inclusive growth." This idea repeats old remedies and is more concerned with profit than inequality.
If we care about reducing inequality, we must seek new solutions to the problem. One approach is "deglobalization," a proposal developed by Walden Bello and Focus on the Global South in response to the Asian financial crisis of 1997.
Focus on the Global South wrote:
Deglobalization is not a synonym for withdrawing from the world economy. It means a process of restructuring the world economic and political system so that the latter builds the capacity of local and national economies instead of degrading it. Deglobalization means the transformation of a global economy from one integrated around the needs of transnational corporations to one integrated around the needs of peoples, nations and communities."
For deglobalisation, there is no "one size fits all" model like neoliberalism or centralized bureaucratic socialism. Instead, according to this scheme, diversity is expected and encouraged, as it is in nature.
Some key proposals of deglobalization to really address the relationship between globalization and inequality are:
- Reorient national economies away from export production and toward production for the local market to fulfill basic human needs, relying primarily on domestic resources and employing technologies that enhance rather than destroy the community, the environment and life itself.
The approach of deglobalization is still under construction. It needs to be debated and joined with other ideas if we are to build viable alternatives to the flawed system we have today, the one that has caused explosive inequality. But it certainly holds more promise than the empty claims of "inclusive growth."
Originally published in the Bangkok Post on March 8, 2014.