Ted Hickman

The Economic Advantages of Globalisation



Globalisation is very much in the news these days. There is no shortage of confusing reports, never-ending government battles and broken promises. Many still believe in what they see as the power of free trade as an economic panacea. Of course, for people in more impoverished or developing countries, globalisation has brought no such panacea. At least not at first. Many parts of the world still suffer extreme poverty, but something like being able to play on any online casino Australia has to offer, from anywhere in the world, epitomises the conceptual equality of globalisation.

But is globalisation also hurting the poor more than the poor themselves have asked? The poverty stakes, that is. Should we be focusing on globalisation’s evil twin, global inequality?

Though poverty often gets more attention, it is global inequality that is far more worrisome. This could help explain why successive governments in many countries have decided to focus on the latter.

Global inequality is surely up there with some of the worst economic problems of all time. Among other things, it shows us where poverty is most concentrated. Indeed, a typical poor person in the world has only about $0.70 per day in income while the person at the top of global wealth distribution has more than $50,000 per day in income. By international standards, that is a massive difference.

The same is true globally. Since 2007, the top 1% of global wealth holders have grown their share from 37.3% to 37.6%, an increase of 1.5%. The next 4% saw their share fall to 40% from 41.2% in 2007. By contrast, the bottom 40% of the global population saw their share fall slightly to 12% from 12.5% in 2007.

To be sure, there is some overlap among the bottom 40%. A poor person in poor country in some part of the world may also be among the bottom 40% of the global poor. But for the majority of the world’s poor, the global distribution of poverty is still so skewed that the difference between rich and poor is so enormous that global poverty is not really a big issue. In fact, it is not even an issue at all.

Before we get too alarmed by global inequality, however, we should consider a few things.

First, the basic income guarantee is far from being perfect. Just because it fails to cure the real issues does not make it a problem in its own right. In principle, it could be.

Second, there are certain distortions in global inequality. For example, inequality within countries does not seem to be as bad as global inequality, because you have as much players jumping on new casinos from the seemingly poorest countries as you have from the richest.

To make another example, while global inequality is 21% on average, it is only 9% in some countries. Though, of course, the average absolute poverty rate and the global poverty gap are also too high.

Third, this may not be the whole story. Just like with global poverty, local inequalities can have devastating impacts on global poverty. Within countries, local inequalities have often put the poor at the lower end of the global poverty scale. Local inequalities have made the poverty rate in some countries more than twice as high as in other countries.

What about global inequality? Does it matter for global poverty?

On the one hand, global inequality does not come close to the actual suffering of poverty as measured by the poverty stakes. Despite higher wealth and income inequality in some parts of the world, on average poverty stands at 4.2%, which is only slightly higher than average global inequality. But when we focus on global inequality, this shows global inequality has little impact on global poverty. A poor person in the developing world with $0.70 per day in income has the same poverty rate as a poor person with $30 per day in income in rich countries.

The rest of the world may not be doing a good job when it comes to distributing poverty, but we cannot say that global poverty will also be worse because of global inequality.

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