Why is there global inequality

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The income gap between the richest and poorest countries has increased significantly over the past few decades. At the same time, the gap between rich and poor has widened even further within many countries.

"The fruits of globalization have been distributed unevenly both within and between countries."
ILO World Commission on the Social Dimension of Globalization

"Rich and poor use the same path in the jungle"
Proverb from Ghana


Inequalities between Countries

The income gap between the richest and poorest countries has increased significantly over the past few decades. From an economic point of view, the industrialized countries in particular have so far benefited most from globalization. Thanks to their strong economic base, their wealth of capital and expertise, and their technological leadership position, the industrialized countries were in a good starting position - they benefited from the international exchange of goods and from the development of new markets. A few emerging countries have succeeded in making their products competitive on the world market and attracting significant amounts of foreign direct investment. At the head of this group were the original emerging economies of East Asia (the so-called "tiger states" South Korea, Taiwan and Singapore), which have in the meantime come closer to the industrialized countries in terms of income and economic structures. There were also other countries, including the so-called "BRICS countries" (Brazil, Russia, India, China and South Africa). Some other countries seem to be able to achieve this as well. In most cases, the successful emerging countries had relatively favorable starting conditions in the form of earlier industrialization, the level of education systems, transport and communication infrastructure, and the quality of economic and social institutions. Not all of these countries have followed the same development strategies. In particular, China, India and Vietnam, all countries with large domestic markets, opened their markets only gradually, while the Republic of Korea, for example, relied on massive government subsidies to get its industrial development going. Most of the trade today takes place between industrialized countries as well as some emerging economies. They are also the main destination and source of FDI.

In contrast, in many developing countries the hopes associated with economic globalization have not been fulfilled. Are they the losers from globalization? The final report of a world commission set up by the ILO for the social dimension of globalization came to the following conclusion about eight years ago: "Often there is a vicious circle of poverty and illiteracy, civil conflicts, geographical disadvantages, inadequate governments and administrative structures, and inflexible, largely from Many of them are also suffering from the burden of high external debt and falling commodity prices. In addition, the proceeds from commodity trading mostly benefit a small elite. These problems are exacerbated by the ongoing protectionist measures of the Industrialized countries for their agriculture: they hinder market access while subsidized imports endanger local agricultural producers at the same time I have come from riches "(ILO 2004, Making globalization fair). In addition, the target of 0.7 percent of GDP for official development cooperation, to which the wealthy states have committed themselves within the framework of the United Nations, has not yet been reached. In the end, high foreign debts even mean that the net capital flow (development aid minus payments by developing countries for debt repayment and interest) is in many cases in favor of the industrialized countries.


Inequalities within of countries

At the same time, the gap between rich and poor has widened even further within most industrialized and emerging countries. For example, the OECD study “Divided we stand - Why inequality keeps rising” published in December 2011 found that social inequality had risen sharply in most OECD member countries over the past few decades. The Gini coefficient - a statistical measure used to represent unequal distributions - rose by an average of almost 10% from a value of 0.29 in the mid-1980s to 0.32 at the end of the 2000s. Inequality has increased in 17 out of 22 OECD countries for which long-term data series are available. In the last decade in particular, it has been observed that the gap has not only widened in “traditionally” unequal countries like the USA, but that inequalities have also increased significantly in countries like Sweden and Germany.

The different development of wages and salaries is seen as the main reason for this development. The wage gap has widened significantly between the top and bottom ten percent of full-time workers in the past 15 years. In Germany, for example, with an average of 57,300 euros, the top ten percent of German income earners earned around eight times as much in 2008 as the bottom ten percent (7,400 euros).

On average, the income of the richest 10% of the population in OECD countries is now roughly nine times that of the poorest 10%. However, the individual countries still differ greatly from one another: While this ratio is lower in the Scandinavian and some continental European countries, other countries have a significantly higher ratio such as Israel, Turkey and the USA (14: 1) as well as Mexico and Chile (27: 1).

In most emerging economies, income inequality remains much more pronounced. However, developments differ from country to country. According to the OECD, for example, Brazil and Argentina have made significant progress in reducing inequalities over the past 20 years. In contrast, inequalities in China, India, Russia and South Africa have increased over the same period. In Argentina and Brazil, too, high levels of inequality persist.

The OECD concludes that the results of this study refute the assumption that economic growth automatically benefits all population groups and that inequality promotes social mobility. OECD Secretary General Angel Gurría concludes from this development: "Increasing inequality weakens a country's economic strength, it endangers social cohesion and creates political instability - but it is not inevitable".