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					Globalization and Inequality

       Jeffrey Williamson
         Charles Kenny
               Jeffrey Williamson
“Globalization and Inequality: Past and Present”

- “Globalization was the critical factor promoting economic
- Convergence can be thought of as poor countries catching up
- After WWI, the world retreated and became protectionist
- What does this imply for the current period of globalization?
- Williamson wants to compare the pre-WWI globalization and the
post-WWII globalization
                Williamson’s Hypotheses

Hypothesis 1:        Hypothesis 2:         Hypothesis 3:

-Income inequality   -If hypothesis 1 is   -If hypothesis 2 is
increased in rich    true then…            true then…
-Income inequality
                     -Globalization        -The inequality
decreased in poor
countries            explains inequality   patterns explain
-Income equality     patterns              the turn away
stayed the same in                         from globalization
middle countries
                      Late 20th Century
- Hecksher-Ohlin Theorem:
   - A country will export products that use their abundant and cheap
   factors of production
-The reduction of trade barriers should favor unskilled labor
in poor countries and skilled labor in rich countries
- Since exports are now cheaper, the abundant factor of
production should benefit from globalization
-The US began incurring trade deficits in the 1980s
   - Imports from poor countries increased by 10% between 1965 and
   - Immigration increased the labor work force by 1.5%, causing the
   ratio of unskilled to skilled laborers to increase as well
                       Late 20th Century
-Wage inequality between skilled and unskilled laborers
occurs across countries as well as within countries
- Globalization (by way of a reduction in trade barriers)
causes inequality to somewhat equalize
   - The wages of unskilled workers goes up while the wages of skilled workers
   goes down
- Backlash: US immigration policy placed restrictions on
   - There were too many unskilled immigrants pouring into the US
   - This caused the wages of unskilled US citizens to go down because
   competition increased even though the number of jobs stayed the same
- Immigration caused inequality to go up in rich countries
                    Late 19th Century
- From 1854 to 1913, we see real wages converging
   - Due to freer trade and mass migrations
- Due to technological advances, transportation costs
decreased dramatically leading to commodity price
   - In 1980, wheat was 60% more expensive in Liverpool than it
   was in Chicago
   - In 1912, the price difference had dropped to 15%
                     Late 19th Century
- New World
   - Farm land was abundant and labor was scarce
   - Ratio of wage rates to farm rents was high
- Old World
   - Farm land was scarce and labor was abundant
   - Ratio of wage rates to farm rents was low
- Free trade policies were pursued and proved Hypothesis 1
to be right
   - Landowners were at the top of the income distribution
   - Opening up to trade caused income inequality to increase in the
   New World and decrease in the Old World
- Industrialization raises wages relative to land rents
                   Early 20th Century

- Characterized by
    - Immigration quotas
    - Collapsing capital markets
    - Increasing trade barriers
- Wage inequality between countries got bigger
- The connection between inequality and globalization disappeared
            Summary of Jeffrey Williamson

- In the 19th century, mass migration had a more significant effect on
inequality than trade but this is not true of the 20th century
- Globalization and convergence ceased from 1913-1950
     - The inequality in rich countries created by globalization was
     partly responsible for the retreat from globalization after WWI
- Quotas set by immigrations policies stopped the rising inequality
in rich countries

- What can we learn from the turn away from globalization after
- Is another backlash likely?
- What level of income inequality in rich countries is too high?
- Can globalization ever be equally beneficial for all parties
               Charles Kenny
 “Why Are We Worried About Income? Nearly
   Everything that Matters is Converging”
- Convergence as a measure of GDP/capita is too narrow of a
measure of development
- But those who only look at income are justified
   - People in richer countries live longer, are better educated, have more
   human rights, and are more protected than their poor counterparts
- Kenny examines other quality of life variables to see whether
or not they converge across countries
   - Health, education, rights, and infrastructure
- What drives convergence even when incomes diverge?
                  Other Authors’ Findings

- Kenny builds on the work of other authors…
- Crafts
   - The HDI has seen a reduction in the gap between developing countries
   as a whole and the leading country since 1950
- Ram
   - Cross-country inequality of calorie supply, life expectancy, and adult
   literacy turns out to be small compared to income inequality
- Ingram
   - Evidence of convergence in life expectancy, caloric intake, primary
   enrollment ratios, and urbanization
- What does Kenny have to add?
   - More measures and variety of convergence
   - He looks at a longer time period than the others did
                    Measuring Convergence
- Life Expectancy
   - Divergence between the UK and India in the 15th/16th centuries
       - UK: 33.7 years
       - India: 24 years
   - Slowed down at the beginning of the 20th century
   - Convergence around the 1950s
       - UK: 69.2 years in 1950; 77 years in 1999
       -India: 38.7 years in 1950; 63 years in 1999

- This convergence is linked to convergence in infant survival
       - UK: 846 per 1,000 live births in 1900; 992 in 1990
       - India: 655 per 1,000 live births in 1900; 920 in 1990

- Another linked variable is calorie intake
       - In the mid-1960s, proportion of the world living on under 2,200 calories was 56%
       - In the 1990s, this proportion was below 10%
                     Measuring Convergence
- Literacy
        - UK: 96% literacy in 1913; 100% literacy in 1999
        - India: 9% literacy in 1913; 57% literacy in 1999
    - From 1950-1999, global literacy increased from 52% to 81%
    - Because it is one of the earliest quality of life variables to converge, it
    may also be a factor in the convergence of other variables
- Primary school enrollment
        - United States: 18.6% in 1870; 12.4% in 1990
        - India: 0.3% in 1870; 11.8% in 1990

- Infrastructure indicators
    - Show divergence in the beginning of the 20th century
    - Show convergence for the past 30-40 years
        Income Doesn’t Matter That Much

- Income has a declining marginal return meaning that
  after a certain level, increases in income do not
  significantly improve quality of life
- There are cases of improvements in quality of life
  despite decreases in income
   - In Cuba, Angola, Nicaragua, Mozambique, and Bolivia…
     income decreased between 1950 and 1990 but life
     expectancy and literacy increased
     Why Income Doesn’t Matter That Much

- Technological advances
- Improved allocation of resources
- Improved access to improved resources
- Increase in access to primary education
- Urbanization
- Because over time, improvements become cheaper to
- The spread of knowledge and technology have made it easier
  for the poor to live better lives
             Summary of Charles Kenny

- Although there is divergence in the income gap between rich
countries and poor countries, income isn’t the only thing that
- Even though some countries are not catching up income-wise,
they are catching up in terms of health and education
- Measuring growth must look beyond income but should not
completely ignore it

- What happens when technological advances come to a
standstill or reach a point of declining marginal return?
- Is there any quality of life variable that is absolute, that is
definitely not affected by or linked to another variable in some
- How can we work to narrow the income gap and to improve
other quality of life factors in poor countries at the same time?

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