Globalization Undermines Third World Countries

Anna Vasilyeva

Abstract. Globalization is increasingly linked to inequality, but with often divergent and polarized findings. There has been an apparent contradictory trend in the global inequality in living standards over the past quarter-century. Some researchers show that globalization accentuates inequality both within and between countries. Others maintain that these claims are patently incorrect, arguing that globalization has disintegrated national borders and prompted economic integration, lifting millions out of poverty, and thus closing the inequality gap. Both of these claims represent  historical shifts. What explains these changes? This article presents a review of current research that links globalization to inequality. Core problems behind contradictory findings appear to rest in the operationalization of inequality and globalization, availability and quality of data, population-weighted versus unweighted estimates; and, the method of income balancing to a common currency in the study of income inequality. A theoretical model charts the mechanisms linking globalization to inequality, illustrating how it generates increased inequality within industrialized nations and decreased inequality within developing economies. This article examines these various factors, the future developments of inequality in the world and the means available for governments to contain national inequalities while still benefitting from the potential economic efficiencies of globalization.

Keywords: globalization, economy, trade, employment, poverty, income inequality

I . Introduction

“Globalization” is currently a popular and controversial issue, though often remaining a loose and poorly-defined concept. It is defined as a progress of integration of all countries in the world for the development of economy, technology and social evolution or, as has been well defined by the Real Academia Española (RAE) as the "tendency of markets and companies to spread, reaching a global dimension that goes beyond national borders". However, if we accept the given definition of the phenomenon, globalization would seem as an 'ideal' process. Wouldn’t it be great if it were really like that? The vast problem is that people do not like to think about the unpleasant, the real truth. The real truth is, the existence of a huge economic inequality. Some countries are not able to opt for development behind their borders, likewise, Third World countries are exploited by the most powerful countries. There is no neoliberalism that globalization supposes and, therefore, world trade is not beneficial for all.

The big question is, as Vicente Rios puts it well- "Has the globalization process contributed to promoting inequality? And what if the trade does not turn out to be beneficial for all? "(2014). Throughout this article we will see how globalization has widened the gap between countries in the world and thus will show that globalization is not an 'ideal' process. Since the debate appears quite confusing and the issues overlapping, one of the main focuses of this contribution is to select some precisely-defined topics and to give an account of theories and applied approaches which have really contributed to the understanding of the social impact of globalization in developing countries (DCs).

II. Methods and results

Given this general framework, further and more detailed purposes of this article are as follows:

1) to provide a comprehensive discussion of the recent theoretical and empirical economic literature investigating the three-fold impact of globalization mentioned above;

2) to address the relevant research questions emerging from the existing literature, namely: a) Has the globalization process contributed to promoting inequality? And what if the trade does not turn out to be beneficial for all? b) What are the channels through which global trade may affect employment, within-country income distribution and poverty reduction? c) What is the role of the level of development and of the institutional framework of globalization?

3) to analyze the impact of globalization on income inequality by focusing attention on the social consequences of globalization in DCs.

The main concentration of economists in the subject is the impact of globalization on economy and society, particularly in developing countries. It is argued that integration into the global economy boosts economic growth, which in turn helps to solve issues of poverty, inequality, lack of democracy and pollution, and suggests a considerable reduction in poverty amongst countries, especially in the case of India and China (Bhagwati 2004), Zhou et al. 2011). However, this opinion is not globally accepted and the divergent school of thought argues that globalization causes economic lack of security and contributes to the growing inequality in both developed and less developed countries (Stiglitz 2002; Borjas & Ramey 1994; Cornia 2004; Marjit et al. 2004; Bergh & Nilsson 2011). Stiglitz (2006, p. 8) argues: «59 per cent of the world's people are living in countries with growing inequality, with only 5 per cent in countries with declining inequality. Even in most of the developed countries, the rich are getting richer while the poor are often not even holding their own.»

Table 1

HDI and KOF Index

Country	Year	KOF	Change (%)	HDI	Change (%)	Gini	Change (%)
China	1990 2015	34.09 62.02	81 %	0.490 0.738	50 %	32.43 42.16	30 %
Sri Lanka	1990 2015	49.22 51.81	5 %	0.583 0.766	31 %	32.48 39.16	20 %
Bangladesh	1990 2015	21.55 40.82	89 %	0.352 0.579	64 %	28.85 32.13	11 %
India	1990 2015	31.26 52.38	67 %	0.410 0.624	52 %	31.88 35.15	10 %
South Africa	1990 2015	39.06 66.72	70 %	0.615 0.666	8 %	59.33 63.38	7 %
Malaysia	1990 2015	59.63 78.14	31 %	0.631 0.790	25 %	46.17 46.21	0 %
Uganda	1990 2015	20.97 44.90	114 %	0.299 0.493	65 %	44.36 41.01	-8 %
Ecuador	1990 2015	36.15 52.78	46 %	0.636 0.739	16 %	50.49 45.38	-10 %
Pakistan	1990 2015	34.82 51.02	46 %	0.399 0.550	38 %	33.23 30.69	-8 %
Brazil	1990 2015	45.32 61.40	35 %	0.600 0.754	26 %	61.04 51.48	-16 %

Sources: KOF: Dreher (2017), Updated in Dreher et al. (2017); HDI: Human Development Report (UNDP, 2016); Gini: World Development Indicators

Table 1 demonstrates the dynamics of globalization, inequality and well-being for some countries. Income inequality shows a positive trend with globalization in most of the countries. For instance, Globalization Index (KOF) in China increased by 81% between 1990 and 2015 accompanied by a 30% increase in Income Inequality Index (Gini) during the same period. Only one country demonstrates absence of change in income distribution (Malaysia) and a few demonstrate reduction in inequality (Uganda, Pakistan, Brazil, Ecuador).

The purpose of the study is to determine the nature of impact of globalization on income distribution. It is hypothesised that increased globalization deteriorates income distribution in developing countries.

III. Globalization and employment

It is not intended to say that globalization has not been beneficial in any way, it would be unfair to say so since it has favored many countries. Since the first stage of globalization, in the second half of the 19th century, global trade has increased enormously. Multinational companies have been able to expand abroad, where previously they could not reach due to the restrictions of movement. The expansion of the private sector has led to a large competition among businesses that has been beneficial to us as customers due to the fall in prices and the increase in product quality. Also, companies have been able to lower the cost of their production and obtain maximum efficiency.

On the other hand, the biggest flaw and perhaps the most disgusting of globalization lies in this previously mentioned development of trade, some global companies, well known all over the world, have flourished thanks to globalization. You may ask, how have they been able to do so? Unfortunately, they have achieved such economic growth by bringing manufacturing and production to factories that are based in Third World countries. In fact, a The black book of brand companies, published by Deuticke, has revealed to us the earnest reality regarding this matter. El Mundo, has published the contents of the book mentioned in its article, Abuses of multinationals, in which they present us with a list of companies well known among us, such as Adidas, Disney, Nestlé and many more, that use labor exploitation to move forward and increase their own income. Nike, a very fashionable brand, will serve as an example, assuming that most young people have a pair of their shoes, or at least have seen them in the bright shop display windows. Unfortunately, this company has taken its production to Indonesia, where, as it is written in the El Mundo article, there is: "employment of child labor, sexual harassment of seamstresses and lack of hygienic conditions in factories that produce its type of make "(2001). This way, it becomes evident that many of the large multinational companies transfer the hardest and poorly paid jobs to these "poor" countries and obtain more benefits that imply an increasing economic inequality.

From what we have seen, it is apparent that third world countries are forced to lower social standards, especially in the work environment. A good example is the case of Latin America where workers have a working day more similar to slavery. In Ecuador, although the wage there is one of the lowest, workers have a minimum production quota per day which results in the same exploitation. In Brazil, "children are employed to carry out work in the coal mines, since their petite size facilitates the work in the narrow and low corridors" (FACUA.org:2001). Likewise, Pun Ngai, a professor at Quingha University who conducted a study of the labor environment in China, has revealed that in some cases the working conditions are so "horrendous" (Rodríguez U. M. L: 2010) that they cause suicides among the workers. Therefore, again, it is appropriate to reference to the 'ideal' process of globalization and pose a question to why may it possess the right to exist if it does not help the countries that really need it? It is inhumane that workers in China or Latin America work more than fourteen hours a day without any rest while employers fatten their pockets.

Another aspect considered positive is the advancement of technology. It can not be denied, with the second wave of globalization in 1950 and the technological revolution, that we have enjoyed the development of communication and information that has allowed a more efficient production. In the same way, the internet has changed the world of commerce, allowing easier management for multinational companies. We also can not forget that thanks to the wonderful invention that is the internet, we have a new market, without borders and accessible to all. However, we are again faced with the problem that the Third World countries can not benefit from these advances and therefore, can not participate in technological globalization. It is not to say that these countries can not develop, the problem is their inability to achieve the development available to other developed countries. As a result there is no possibility of a trade balance, and as explained well by an article of the Law of Technological Development (of Buenos Aires): "it would be almost proved, that this proposal produces winning countries and losing countries" (2010).

IV. Discussion and Conclusion

The effect of globalization on income inequality has been an issue of crucial interest in developed economies. Various studies of this issue have contributed conflicting results. This article lays its focus on more recent studies, that suggest existence of a complex relationship between globalization and income inequality. However, there are several limitations in those analyses; most notably the fact that most studies are based on a cross sectional data, while globalization and income inequality are matters pertaining significantly to variations over time.

Therefore, while this article has highlighted only a brief study of what globalization and income inequality entails, it underscores the variety of results obtained regarding this issue. Even so, we are able to observe the problems that stand out most in terms of the 'ideal' process. This would suggest that perhaps a simple, comprehensive relationship does not exist. On the contrary, it is possible that the impact of globalization on income distribution varies between nations, depending on the structures and institutions that are in place in each country. Despite being a good idea, globalization has not developed since, as we have seen, it does not take account of the situation in all countries and therefore results in inequality.

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