Does it matter for the business world whether globalization worsens income inequality between and within nations?

Tables of contents

List of abbreviations

Abstract

1 Introduction and academic method

2 Theory of globalization
2.1 What is globalization? Definitions and meanings
2.2 Defining globalization is controversial - Why?
2.3 Historical evolution
2.4 Critics: Anti-globalization
2.5 Supporter: Pro-globalization

3 Income inequality
3.1 What is income inequality?
3.2 How can it be measured?
3.3 Inequality between nations …
3.4 … and within nations

4 Business matters
4.1 Ethical dimension
4.2 Political dimension
4.3 Economical dimension

5 Results and conclusion

Appendixes

List of references

Table I: List of countries ranked by the Human Development Index 2005

Table II: List of countries by income equality 2005

List of abbreviations

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Abstract

The essay’s hypothesis is to suggest, globalization has led to increasing inequality and now matters for the business world. Therefore it describes globalization and income inequality in the context of specific business matters. To discuss and favour – or disfavour – the hypothesis, the author has divided these matters into three consecutive dimensions: the ethical, the political and the economical.

1 Introduction and academic method

The objectives of this essay are to describe the complex cause and nature of globalization in the context of how it affects public perceptions to the business world. Further on, it is shown why the topic is so controversial as well as what the implications for broader socio-politics, in which business decisions should be made, are. Therefore some initial thoughts can be given before:

(a) The five drivers of contemporary world development are: globalization, demographics, consumerism, environmental resources and governmental regulation.^[1] But what are their concrete consequences of globalism and capitalism?^[2]
(b) About 1.5 billion people live for less then one USD a day; and about 27 million live under slavery-conditions.^[3] There is a huge imbalance (e.g. of wealth etc.) between developed and undeveloped countries^[4] – but also within countries.
(c) The concept of equality dates back to the US declaration of independence in 1776 as well as to the French Revolution in 1789. It defines a value, which forces all members of a certain society not to have differences between each other.

However, if one talks about the question whether it matters for business if globalization worsens income inequality, he has to bear in mind there are actually two questions in it: (1) Has globalization really led to increasing inequality? - which is far away from being clear^[5] ; and (2) if so, does it matter (and how?) for the business world?^[6] On this will be looked at in the following; the essay will describe both globalization and inequality, continued by a brief definition and a selection of thoughts on business matters in the context of globalization. Therefore three dimensions of it will be defined: the ethical, the political and the economical. Finally a conclusion will be given on how, as it is assumed here, income inequality between and within nations due to effects of globalization matters for business.

2 Theory of globalization

2.1 What is globalization? Definitions and meanings

There is a relatively high level of consensus about the basic definitions of what ‘globalization’ is. It is seen as a set of changes in societies and the global economy that result from stronger international trade, increased cultural exchange and major technological steps forward.^[7] Due to cheap air travel, improved communication and the rise of computers as well as multinational corporations, theory says, globalization is a deepening, widening and speeding up of interconnectedness.^[8]

However, the concept of globalization does not only tangent the business world, but its economical, political and cultural aspects^[9] also play an important role in every other area of life, too. For example, there is a greater cultural exchange and more diversity, higher levels of travel and tourism but also more immigration, including the illegal one. For this reason a number of standards has been or is due to be applied globally; e.g. international standards of justice, the international criminal court and copyright / patents laws. Now the ‘global public’ has to cope with all challenges that do not stop at any nation-states border.^[10] The reachability of former far-away parts of the world has formed, assumably, a ‘global village’.

Nevertheless it is widely agreed, economical questions are most dominant to the explanation of what is seen as globalization.^[11] Therefore, economically speaking, the concept of globalization describes the increase in international trade at a faster growth-rate than the world economy itself as well as the increase in international capital-flows including foreign direct investment due to lower barriers of trade, increased speed and density interdependence. I.e. it is the four different cross-border flows, namely of goods and services ('free trade'), of people (migration), of capital and of technology in a way that it creates a highly integrated market.^[12]

Over all, this means there is a global policy-shift towards economic openness and more importance of international institutions – in consequence of an erosion of national sovereignty. Through international agreements, organizations such as the WTO and IMF are formed to deal with the dimension of a globalized financial system and of the heavily increased influence of multinational corporations on it.

[...]

^[1] Laudicina (2004), pp5

^[2] Blim (2005), pp4 – E.g. poor working condition: However, this can be the key to escape poverty.

^[3] Blim (2005), pp1

^[4] Blim (2005), pp2 – One example: The big differences in life expectancy, which is approximately twenty years longer in the western hemisphere than in the sub-Saharan area.

^[5] Stiglitz (2002), pp12 - ‘Globalization is potentially good, but the international institutions make it seem bad.’ - Globalization has become a dominant theme in the 1990s.

^[6] Since this essay is going to focus straight on the second question, the first one will be answered with ‘yes’ for the sake of continuity in the inequality chapter.

^[7] Black (2002), p197

^[8] Held/McGrew (1999), pp1

^[9] Wolf (2004), pp78

^[10] One can think about pollution and environmental issues as well as social and ethical questions such as the spread of the capitalism – and democracy – from developed to developing nations.

^[11] Globalization often is seen almost exclusively to the effects of trade liberalization and free trade.

^[12] Black (2002), p197