Growth, Instability, and Inequality

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Connection

Question

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[Answer Question]

The impact of these tightening economic links has prompted enormous debate and controversy. Amid the swirl of contending opinion, one thing seemed reasonably clear: economic globalization accompanied, and arguably helped generate, the most remarkable spurt of economic growth in world history. On a global level, total world output grew from a value of $7 trillion in 1950 to $73 trillion in 2009 and on a per capita basis from $2,652 to $10,728.3 This represents an immense, rapid, and unprecedented creation of wealth with a demonstrable impact on human welfare. Life expectancies expanded almost everywhere, infant mortality declined, and literacy increased. The UN Human Development Report in 1997 concluded that “in the past 50 years, poverty has fallen more than in the previous 500.”4

Far more problematic have been the instability of this emerging world economy and the distribution of the wealth it has generated. Amid overall economic growth, periodic crises and setbacks have shaped recent world history. Soaring oil prices contributed to a severe stock market crash in 1973–1974 and great hardship for many developing countries. Inability to repay mounting debts triggered a major financial crisis in Latin America during the 1980s and resulted in a “lost decade” in terms of economic development. Another financial crisis in Asia during the late 1990s resulted in the collapse of many businesses, widespread unemployment, and political upheaval in Indonesia and Thailand.

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But nothing since the Great Depression more clearly illustrated the unsettling consequences of global connectedness in the absence of global regulation than the worldwide economic contraction that began in 2008. An inflated housing market—or “bubble”—in the United States collapsed, triggering millions of home foreclosures, growing unemployment, the tightening of credit, and declining consumer spending. Soon this crisis rippled around the world. Iceland’s rapidly growing economy collapsed almost overnight as three major banks failed, the country’s stock market dropped by 80 percent, and its currency lost more than 70 percent of its value—all in a single week. In Africa, reduced demand for exports threatened to halt a promising decade of economic progress. In Sierra Leone, for example, some 90 percent of the country’s diamond-mine workers lost their jobs. The slowing of China’s booming economy led to unemployment for one in seven of the country’s urban migrants, forcing them to return to already overcrowded rural areas. Impoverished Central American and Caribbean families, dependent on money sent home by family members working abroad, suffered further as those remittances dropped sharply. Contracting economies contributed to debt crises in Greece, Italy, and Spain and threatened to unravel European economic integration. Calls for both protectionism and greater regulation suggested that the wide-open capitalist world economy of recent decades was perhaps not as inevitable as some had thought. Whatever the overall benefits of the modern global system, economic stability and steady progress were not among them.

Nor was equality. Since Europe’s Industrial Revolution took hold in the early nineteenth century, a wholly new division appeared within the human community—between the rich industrialized countries, primarily in Europe and North America, and everyone else. In 1820, the ratio between the income of the top and bottom 20 percent of the world’s population was three to one. By 1991, it was eighty-six to one.5 The accelerated economic globalization of the twentieth century did not create this global rift, but it arguably has worsened the North/South gap and certainly has not greatly diminished it. Even the well-known capitalist financier and investor George Soros, a billionaire many times over, acknowledged this reality in 2000: “The global capitalist system has produced a very uneven playing field. The gap between the rich and the poor is getting wider.”6 That gap has been evident, often tragically, in great disparities in incomes, medical care, availability of clean drinking water, educational and employment opportunities, access to the Internet, and dozens of other ways. It has shaped the life chances of practically everyone (see Snapshot).

These disparities were the foundations for a new kind of global conflict. As the East/West division of capitalism and communism faded, differences between the rich nations of the Global North and the developing countries of the Global South assumed greater prominence in world affairs. Highly contentious issues have included the rules for world trade, availability of and terms for foreign aid, representation in international economic organizations, the mounting problem of indebtedness, and environmental and labor standards. Such matters surfaced repeatedly in international negotiations during the second half of the twentieth century and into the twenty-first. In the 1970s, for example, a large group of developing countries joined together to demand a “new international economic order” that was more favorable to the poor countries. Not much success attended this effort. More recently, developing countries have contested protectionist restrictions on their agricultural exports imposed by the rich countries seeking to protect their own politically powerful farmers.

Beyond active resistance by the rich nations, a further obstacle to reforming the world economy in favor of the poor lay in growing disparities among the developing countries themselves. The oil-rich economies of the Middle East had little in common with the banana-producing countries of Central America. The rapidly industrializing states of China, India, and South Korea had quite different economic agendas than impoverished African countries. These disparities made common action difficult to achieve.

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Economic globalization has contributed to inequalities not only at the global level and among developing countries but also within individual nations, rich and poor alike. In the United States, for example, a shifting global division of labor required the American economy to shed millions of manufacturing jobs. With recent U.S. factory wages far higher than those of China, many companies moved their manufacturing operations offshore to Asia or Latin America. This left many relatively unskilled American workers in the lurch, forcing them to work in the low-wage service sector, even as other Americans were growing prosperous in emerging high-tech industries. Even some highly skilled work, such as computer programming, was outsourced to lower-wage sites in India, Ireland, Russia, and elsewhere. By 2012, mounting income inequality and the erosion of the country’s middle class had become major issues in American political debate.

Globalization divided Mexico as well. The northern part of the country, with close business and manufacturing ties to the United States, grew much more prosperous than the south, which was a largely rural agricultural area and had a far more slowly growing economy. Beginning in 1994, southern resentment boiled over in the Chiapas rebellion, which featured a strong anti-globalization platform. Its leader, known as Subcomandante Marcos, referred to globalization as a “process to eliminate that multitude of people who are not useful to the powerful.”8 (See Document 23.5.) China’s rapid economic growth likewise fostered mounting inequality between its rural households and those in its burgeoning cities, where income by 2000 was three times that of the countryside. Economic globalization may have brought people together as never before, but it also divided them sharply.

The hardships and grievances of those left behind or threatened by the march toward economic integration have fueled a growing popular movement aimed at criticizing and counteracting globalization. Known variously as an anti-globalization, alternative globalization, or global justice movement, it emerged in the 1990s as an international coalition of political activists, concerned scholars and students, trade unions, women’s and religious organizations, environmental groups, and others, hailing from rich and poor countries alike. Thus opposition to neoliberal globalization was itself global in scope. Though reflecting a variety of viewpoints, that opposition largely agreed that free trade, market-driven corporate globalization had lowered labor standards, fostered ecological degradation, prevented poor countries from protecting themselves against financial speculators, ignored local cultures, disregarded human rights, and enhanced global inequality, while favoring the interests of large corporations and the rich countries.

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This movement appeared dramatically on the world’s radar screen in late 1999 in Seattle at a meeting of the World Trade Organization (WTO) (see Visual Source 23.3). An international body representing 149 nations and charged with negotiating the rules for global commerce and promoting free trade, the WTO had become a major target of globalization critics. “The central idea of the WTO,” argued one such critic, “is that free trade—actually the values and interests of global corporations—should supersede all other values.”9 Tens of thousands of protesters—academics, activists, farmers, labor union leaders from all over the world—descended on Seattle in what became a violent, chaotic, and much-publicized protest. At the city’s harbor, protest organizers created a Seattle Tea Party around the slogan “No globalization without representation,” echoing the Boston Tea Party of 1773. Subsequent meetings of the WTO and other high-level international economic gatherings were likewise greeted with large-scale protest and a heavy police presence. In 2001, alternative globalization activists created the World Social Forum, an annual gathering to coordinate strategy, exchange ideas, and share experiences, under the slogan “Another world is possible.” It was an effort to demonstrate that neoliberal globalization was not inevitable and that the processes of a globalized economy could and should be regulated and subjected to public accountability.

Snapshot: Global Development and Inequality, 2011fn:23_7

This table shows twelve commonly used indicators of “development” and their variations in 2011 across four major groups of countries defined by average level of per capita income. In which areas has the Global South most nearly caught up with the Global North?

Gross National Income per capita with sample countries Low Income $995 or less (Congo, Kenya, Ethiopia, Afghanistan, Myanmar) Lower Middle $996–3945 (India, China, Egypt, Algeria, Indonesia, Nigeria) Upper Middle $3946–12,195 (Mexico, Brazil, Turkey, Russia, Iran) Upper $12,196 or more (USA, Western Europe, Japan, South Korea, Australia)
Life Expectancy M/F in years 58/60 66/70 68/75 77/83
Deaths under age 5 per 1000 live births 120 60 24 7
Deaths from infectious disease: % 36 14 11 7
Access to toilets: % 35 50 84 99
Years of education 7.9 10.3 13.8 14.5
Literacy rate: % 66 80 93 99
Population growth: % annual 2.27 1.27 .96 .39
Urban population: % 27 41 74 78
Cell phones per 100 people 22 47 92 106
Internet users per 100 people 2.3 13.7 29.9 68.3
Personal computers per 100 people 1.2 4.3 11.9 60.4
Cars per 1,000 people 5.8 20.3 125.2 435.1
Carbon dioxide emissions: metric tons per capita 1 3 5 13