4. The agent of rising inequality

Most scholars would agree that globalization is the primary culprit behind the incredible increase in global economic inequality, but what is “globalization” and what has led to this phenomenon? In this paper globalization is used in an economic context. Essentially, economic globalization is the process by which national economies have been integrated into the wider international economy. International trade, capital flows, migration, foreign investment and the spread of technology have made national economies more interdependent and have created a new global economy.

The rise of globalization is due to new technologies and growing populations. As Robert Reich explains, “…the critical ingredient igniting globalization was a raft of new transportation and communications technologies…that drastically reduced the cost of moving things from one point on the world’s surface to another.” The development of the world-wide web has allowed investors to trade stocks and transfer capital around the world at the click of a button. Cargo ships, cargo planes, overseas cables, steel containers, satellites and computers have all helped to lower transaction costs substantially, enabling companies to mount cost effective endeavors worldwide.

While globalization has been made possible because of new technology, it has been perpetuated by marketization. Capitalism defeated communism and even countries such as China and Russia, who were once icons of communism, are embracing the market. As the world becomes more connected, or interdependent, because of trade and capital markets, firms and countries have struggled to become more competitive.

Fueling globalization, and perpetuating inequality, is a rising level of competition among firms, as consumers around the world are demanding lower prices and investors are seeking higher returns. As Reich suggests, “The real explanation involves the way technologies have empowered consumers and investors to get better and better deals—and how these deals, in turn, have sucked relative equality and stability, as well as other social values, out of the system.” The development of new information and transportation technologies has increased competition among market actors to attract investors and reach more consumers. Perhaps the most profound result of this has been that companies are under extreme pressure to cut costs in order to deliver better deals and show higher profits. For example, as payrolls are about 70% of the average business’s costs, CEO’s must cut wages and reduce benefits in order to please consumers and investors. Furthermore, firms claim that astronomical wages must be paid to CEOs in order to attract the most talented, and sometimes the most ruthless of people, who will be willing to do what is necessary to increase profitability. The result of this new global system is that small groups of people seeing higher and higher wages, while the majority of people’s wages are stagnant.

The new global economy, forged by innovations in information and transportation technologies, may benefit the consumers and investors of the world, but the workers and citizens are losing ground. As Reich put it, “Consumers and investors gain power, citizens lose it.”Globalization has created enormous tension between the market and social groups who attempt to fight it through their respective governments. As Dani Rodrik articulated, “The process that has come to be called “globalization” is exposing a deep fault line between groups who have the skills and mobility to flourish in global markets and those who either don’t have the advantages or perceive the expansion of unregulated markets as inimical to social stability and deeply held norms.” Competition for consumers, investors and even for talent, is leading to vast economic inequalities.