Does Globalization widen the gap between the rich and the poor? Joseph Stiglitz offers important insight on the continuing deliberations over the role of global economic policies in the widening gap between the rich and the poor. Citing the deterioration in the earning of workers in the United States, he asserts that there is a global increase in the number of poor people, even in he most developed countries like the United States. The wages of the low scale workers including the semi skilled and the unskilled has taken a dive with increased globalization. He further cites the imperfection of in the global markets, making the distribution of earnings inequitable across different countries, regions and economic classes.
Typifying the widespread practice of cost cutting by companies in their bid to remain competitive, or diminution in a country’s welfare system by the government to remain efficient, Stiglitz sees globalization as creating a society in which the rich are better placed while the poor continue to suffer through increased expenses and decreased earnings. This position is plausible since the progressive restructuring of the global economies, has made individuals with capital real winners while the rest, especially those living below the poverty line, continue to be poor.
It is Stiglitz position that international trade agreements such as GATT, WTO, NAFTA, only favour rich Nations. Truly, there is evidence to these claims: He cites the case in which the disproportion between Mexico and the United States in terms of wealth distribution actually grew by more that 10% within the first Ten years after the signing of the NAFTA. The liberalization of trade through trade agreements such as NAFTA favours rich countries as they possess greater economic power through which they out bargain poor countries. These agreements lead to the opening of the domestic markets in the poor countries to products of the rich nation and vice versa leading to unfair competition since the product of the developed countries are highly subsidized. Stiglitz gives the example of the Mexican corn competing with the highly subsidized American Corn. Definitely, fair competition in this scenario is not a realistic idea.
His proposal, that due to the economic imbalance, in such agreements, countries like Mexico (in this case above) be allowed to maintain national tariff is a reasonable position as it would ensure fairer competition. Will unchecked globalization continue indefinitely? Stiglitz further supports the need for adopting social polices that would reduce the gap between the rich and the poor since ‘unfettered’ globalization may not be sustained indefinitely. He gives the example of the period between the first and the Second World Wars, when massive levels of inequality led to protectionism which led to restrained trade between nations.
What are the solutions to uncontrolled globalization? Stiglitz offers what he calls ‘the Scandinavian model’ in which countries increase investments in education, technology and security in addition to increasing progressive income tax though this last option has drawn controversy as most people advocate for decreased income tax.
In line with the his ‘Scandinavian model,’ Stiglitz offers an explanation for the exponential rise in the Asian Economies as resulting from possession of domestic savings which they put into proper use by increasing investment in education, infrastructure and technology . This they borrowed from the developed western world. His claim is not only, justified, but evident. Citing China, he further observes that the phenomenal rise of Chinese population out of poverty results from better social policies in which the state not only implements policies aimed at protecting the rich, but policies that are aimed at empowering the poor from poverty. Conversely, he identifies the lack of Domestic savings in Latin American Countries (with the exception of Chile) leading to underinvestment in education and technological research, as the root cause of limited development.
Finally, Stiglitz concludes with his now prominent criticism to the international economic policies implemented by the IMF and the World Bank. He justifies is claim that the IMF has lost legitimacy citing, asserting that both the World Bank and the IMF are controlled by the United States and therefore. They therefore chiefly represent their interest to the exclusion of the poor nations.
Stiglitz, Joseph. ‘Rich Countries, Poor Countries: Making Globalization Work.’ NPQ, 2008. Retrieved:<http://www.digitalnpq.org/archive/2007_winter/02_stiglitz.html>