The Problem with Globalization

Summary

Globalization has led to increased inequality, with wealth concentrating at the top. Oxfam reports that a handful of people control more wealth than the poorest half of the world’s population. While some argue that rising incomes reduce concern over inequality, evidence shows that in advanced economies, middle-class wealth is stagnating. Protectionist policies, such as tariffs, worsen economic conditions, as seen in the Smoot-Hawley Tariff of 1930. To address these issues, the solution lies in fostering innovation, improving education-to-employment transitions, and adjusting taxes to support low and middle-income households, helping workers shift to sectors like healthcare, IT, and energy.

Takeaways

• 😀 Globalization often leads to increased inequality, with outsourcing and migration contributing to job loss and economic concentration at the top.
• 😀 In 2011, 388 people controlled more wealth than the poorest half of the global population, a number that has reduced drastically to just 8 people by 2017.
• 😀 The problem of inequality is growing, and movements like Occupy Wall Street argue that a strong, secure middle class is essential for a thriving economy.
• 😀 Some argue that rising tides lift all boats, but evidence suggests that middle-class wealth is stagnating or declining in advanced economies like the US and Western Europe.
• 😀 Nearly 70% of households in 25 advanced economies have experienced flat or falling incomes in the last decade, a significant departure from the 1950s to the 1990s when upward mobility was more common.
• 😀 Frustration over limited opportunities for future generations has led many to criticize globalization, free trade, and open immigration policies.
• 😀 Protectionist policies, such as locking down borders and restricting immigration, may seem like solutions but often lead to slower economic growth and reduced competitiveness, as seen in historical examples like the Smoot-Hawley Tariff of 1930.
• 😀 The Smoot-Hawley Tariff led to a trade war and a 14% drop in global GDP, demonstrating the dangers of protectionism and trade barriers.
• 😀 To address inequality, advanced economies should focus on fostering innovation, improving job transitions, and adjusting tax policies to raise disposable incomes for low and middle-income households.
• 😀 Governments and companies must collaborate to retrain displaced workers and guide them toward growth sectors like healthcare, technology, and education to help them find better jobs and improve overall economic competitiveness.

Q & A

How does globalization contribute to increasing inequality?

Globalization can lead to job losses through outsourcing and increased competition, concentrating wealth among the strongest companies and wealthiest individuals while leaving many workers behind.

What evidence does Oxfam provide about wealth concentration?

Oxfam reported that in 2011, 388 people controlled more wealth than the poorest half of the world, which shrank to 62 people by 2016, and just eight super-rich people in the current year hold more money than the poorest half of the global population.

Why do some movements, like Occupy Wall Street, oppose rising inequality?

These movements argue that a large, secure middle class is essential for a strong and growing economy and express frustration at the growing concentration of wealth at the top.

What is the argument of those who support globalization despite inequality?

Proponents argue that a rising tide lifts all boats, meaning that overall economic growth benefits everyone, and people are less likely to focus on inequality if their own incomes are increasing.

What trend has been observed in middle-class income in advanced economies?

In countries like the U.S., Western Europe, and Japan, middle-class incomes have been mostly flat or falling over the last decade, marking a departure from previous decades when children generally earned more than their parents.

How do negative opinions about globalization influence political decisions?

Politicians, sensitive to voter concerns, may enact protectionist measures, such as restricting immigration, penalizing companies for outsourcing, and limiting foreign trade, in an attempt to protect local jobs.

Why can protectionist policies backfire, according to historical examples?

History shows that protectionism, like the Smoot-Hawley Tariff of 1930, can trigger retaliatory tariffs, reduce global trade, slow overall economic growth, and worsen economic depressions.

What alternative strategies are suggested instead of blocking trade and immigration?

Governments and companies should work together to reduce extreme wealth inequality, improve competitiveness, and ensure globalization benefits more people, including retraining workers for growing sectors.

Which sectors in the U.S. are highlighted as areas for worker transition and growth?

Sectors include health care, information technology, automobiles, energy, farming, education, and financial services, which can offer better job opportunities for displaced workers.

What three initiatives are proposed to address inequality and support growth?

The three initiatives are: (1) revive growth through increased innovation, (2) improve transitions from education to employment, and (3) adjust taxes to raise disposable incomes for low- and middle-income households.