Globalization and Inequality Jeffrey Williamson & Charles Kenny Jeffrey Williamson “Globalization and Inequality: Past and Present” - “Globalization was the critical factor promoting economic convergence” - 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… countries -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 1980 - 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 immigrants - 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 convergence - 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 Questions - What can we learn from the turn away from globalization after WWI? - Is another backlash likely? - What level of income inequality in rich countries is too high? - Can globalization ever be equally beneficial for all parties involved? 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 implement - 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 matters - 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 Questions - 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 way? - How can we work to narrow the income gap and to improve other quality of life factors in poor countries at the same time?
Pages to are hidden for
"inequality"Please download to view full document