Kuznets Globalizations Curve Behavior
Econ 4626-001 Homework 1: Inequality and Globalization
In todays global economy, there is a constant outcry over the increase in inequality between countries as more and more business is conducted on an international scale, discussed in Inequality and Globalization by David Moss and Anna Harrington. However, many people fail to recognize globalization for what it is, and therefore limit its possible effects on inequality to what has already been seen, which is an oversight this paper will work to correct. There is no question that global inequality has increased over the past ten years. In Inequality and Globalization, the authors note several markers which point to rising inequality both within countries and between them. Exhibits 3a and 3c show the US Gini index from 1968 to 2003, and the US Income Share, respectively. Exhibit 3c shows the increase in the amount of the income share held by the richest 10% of the US population over that time. This correlates directly with a loss of income share held by middle and low-income wage earners during the same time period, showcasing the movement towards inequality within the country, shown more broadly in Exhibit 3a, the Gini index. The USs increase in inequality is not alone; Exhibits 2b and 2c show similarly behaving Gini indexes for both the United Kingdom and Hong Kong. Exhibit 13 gives more broad data, showing that although real world GDP per-capita has risen fairly consistently, workers in low-income countries enjoy a decreasing percentage of that (8.6% in 2002), while workers in high-income countries earn a consistently higher ratio of world GDP per-capita income. So while total global production is increasing, only workers in highincome countries seem to be reaping the profits, while workers in low-income countries see a shrinking share of their own earnings against global GDP per-capita, which illuminates the global shift towards inequality.
Moss and Harrington also present Sala-I-Martins work, which produced a decreasing global Gini coefficient from 1970 to 1998 (Exhibit 15a). This work fails to take into account, however, the rising inequality between countries, because weighting the data by population offers a broad measure of inequality across individuals, which contains enough variation to obscure the differences between countries. Sala-I-Martin admits that the measured decline in global inequality may be due in large part to Chinas huge growth, and that the decline may not be measurable in other regions of the world. Many critics and analysts point to globalization as the reason for rising inequality between nations. There is substantial evidence that supports the validity of these assertions; however, it is unfair to say that only globalization has the propensity to make inequality greater. After all, globalization is simply a large-scale innovation of the way of doing business, and therefore acts exactly as every innovation does: by sending the country at hand (or in this case, the whole world) along the Kuznets curve, in which the introduction of the innovation causes an initial increase in inequality. The traditional Kuznets curve story can be translated onto a global level, substituting countries for workers. Countries that responded quickly to the advent of globalization catapulted their production capabilities, and therefore incomes, far past those of the countries that did not take advantage of the new global marketplace. This is why we have seen exploding growth rates from both developed countries, which already possess the technology and skilled labor to be able to operate on a global level, and from developing countries such as China and Brazil, whose huge labor pools allow them to offer low production costs for relatively high production rates. Conversely, countries in sub-Saharan Africa were unable to respond to a globalized market (for reasons such as a
low education rate, a slow-to-motivate work force, and general isolation), and have seen stagnant growth rates because of it. As Moss and Harrington cite, The Economist argues that calling such countries victims of globalization would be an odd conclusion, given that sub-Saharan economies are so comparatively isolated from the rest of the world economy- by force of history, circumstance and, to a large extent, the policies of their own and other governments. Sub-Saharan Africa plainly suffers n...