Globalization and Income Inequality in Rich Societies

"Trade ... generating better jobs and a higher standards of living." (Butless et. al., p. 45) This argument is true and false, because inequality is more than our readings suggest. What is the standard of living? Sen wrote a hole book about it and Butless et. al. don't define this term. In the same way, the readings for this week give us no guideline through the labyrinth of different definitions of inequality. The great variance of inequality definitions is a sign for the strong political fight over a just distribution. Each inequality statement is a political weapon for or against redistribution (compare Sen: Inequality reexamined). From the socialistic critique of "impoverishment" to the liberatarian view of von Hayek, who is against any possible argument for redistribution, inequality and poverty is a strong, normative statement.

What is inequality? This question should be the starting point. We should know, what this means for us. Amartya Sen wrote numerous books about it. Sen doesn't only get the nobel price for his work on hunger and famine, he also brought normative values back into economics like justice (compare Sen: Inequality reexamined) and has worked a lot on welfare economics. Sen defines poverty as P = H[I+(1-I)G]. His poverty index "P" combines the gini-coefficient of distribution with the head count ratio "H", which counts the ratio of poor people on the population, and the income-gap ratio "I"; which counts the mean income difference of poor people to the poverty border. This poverty index is something different from inequality, but poverty is the most important part of inequality studies (for Rawls and Sen is the worst of the most important part in inequality). Sen enlarges the term inequality with freedoms and possibilities in a society, which he calls "capabilities." Is this not a better measurement of inequality? Numerous countries like Denmark are using this definition of inequality. Also postmaterialistic values and the loses of flexibility (compare Sennett: Der flexible Mensch) play a role in the definition of inequality for me. And the standard of living isn't a function of money and property. Money alone doesn't make happy, but this is very difficult to operationalize and is a philosophical question.

When globalization rises the feeling of insecurity and force greater mobility and flexibility on us, these should decrease the standard of living. Inequality is more than materialistic property. This is my conclusion of this paragraph. This point isn't a of our readings. And besides this argumentation - what about the human development index? Are the United States the number one in the world in measure of human development? Is the case of Kerola, a very left-orientated governed province in India, which has a very high level of development, an important thing, when we discuss globalization and inequality? Kerola is a part of a developing country!

From this point of view, Mahler only compares the top and bottom 10 percent of the population, but he isn't able to see a change in the middle class. What is, when the distribution of the richest and poorest 10% changed? He wouldn't be able to detect this, therefore Mahler's definition of inequality (Mahler, p. 373) is wrong. We should use more developed measurements of inequality in our discussion.

After I discussed the problem of defining inequality, I want go on to the theoretical argument for 'destroying destruction,' not "creative destruction" à la Schumpeter. Is there a "race-to-the-bottom" ? (Scharpf, for more information compare paper #9) Rodrik speaks a little bit about it, when he discuss the EU. The nation states in the EU aren't able to harmonize their social standards on a high level, but the creation of a common market is very easy. I would recommend "negative integration" and "positive integration" as a better theoretical explanation (compare paper #9 Is the nation state obsolete?). Mahler also mentions the decreasing ability of redistribution (Mahler et. al., p. 386). Real compensation of the losers of globalization doesn't happen (compare Butler et. al., p. 59). Is this a failure of democracy and politics or the outcome of globalization? There is a little bit of evidence, that something is changing around distribution. Does globalization increase inequality? We should discuss arguments like "negative integration" and "race-to-the-bottom" this week, because we haven't tried to find a statement for or against it.

The relation of the theoretical arguments and the empirical evidence for distribution is an unsolved question for me. The majority of our readings for this week suggests that there is no strong correlation between globalization and inequality, although there are numerous theories for and also against this relationship. The theoretical and empirical question is very difficult and I am not satisfied by the readings, because too much questions aren't clarified and the theoretical argument against Heckscher-Ohlin isn't clear for me. When Heckscher-Ohlin is wrong, what is the right trade theory for inequality analysis?

The contradiction starts with the definition and use of globalization. Sometimes technology is a part of globalization. In comparison with income inequality technology isn't part to globalization, which our readings show us this week. What is true? I would separate technological change from globalization and then I also would move information and transport technology out of the globalization theory as a cause or mean of increasing interdependency. This is a strong argument, but a more capitalistic structuration of markets and societies on a global scale would also be possible without this new technologies. Ideological hegemony and liberalization are better reasons for globalization. Is there a good argument against this approach and the critique on technological globalization?

The next contradiction is related to the Heckscher-Ohlin model (HO). Sometimes the HO model works in modern world economies and in other studies the theory is totally wrong (as in our readings for this week). If the HO model is right, then we will see the factor equalization theorem. If not, we can't use this theory for explaining the 'overwhelming wealth for everyone' (ironic) or the change in inequality.

Globalization is an uneven process. In numerous seminar hours we have put forward this argument. Is it true or false? Mahler et. al. calculate that globalization has no influence on unemployment and inequality. When globalization is an uneven process, is there any evidence for it? I see the evidence, which Altvater/Mahnkopf put forward. In a lot of state the public deficit has risen over the last decades (compare Galbraith). An anecdote again: the Peso crisis was weaken by the intervention of the United States, which costs the US government a lot of money. Is this a sign for growing wealth? Is the success of Sorow and his financial work a sign of greater inequality? Why is the profit rate on stock market risen from 10% to nearly 20%, or are this numbers wrong?

We put forward the argument that globalization is an uneven process. Where is the theory for this?  Inequality has numerous reasons. Leamer summed it up. "Superior productivity of individual can come from superior effort, superior natural ability, superior education, superior tools and superior teams." (Leamer, p. 7) In this point of view, inequality is a product of personal, social and natural factors and someone is only responsible for his/her personal faults. This argument will lead into a debate of political philosophy, which I will take up later.

Modern trade theory shows us that under normal conditions free trade increases welfare. The increase of welfare isn't correlated with a decrease of inequality. Inequality can go up. As far as I know, in a lot of modern societies the levels of inequality goes up. I haven't the time this week to compare the development of inequality in modern societies. A basic critique on free trade is the term "fair trade." As I mentioned very often in my papers, fair trade is a question of justice. The first and second theorem of welfare economics show the problems of market exchange. A free market exchange is pareto-efficient and the starting point of exchange determine the market outcome. When the starting point is uneven, the outcome will also be uneven. Catalaxy (exchange theory) is very different from reciprocal relationships in society. This difference shows the different 'rationality' of politics and markets. Markets need inequality as a mechanism of incentives, but politics only tolerate a legitimate degree of inequality. Operate markets on a global scale with the same level of inequality?
Rodrik opens a can of worms when he starts to discuss political philosophy. Nozick, Rawls and Walzer are mentioned without showing the conflicts between liberalism, libertarians and communitarism. For me, Rodrik is a intellectual 'fire-raiser.' He sets normative points, which are normative and political wrong. Libertarians or communitarists are against the liberal rights of modern societies. Inequality isn't a problem for this political ideas. Rodrik uses the term "blocked exchange" as a universally accepted theory. Are we still lost under the neo-liberal hegemony? Contracts are wrong, when the starting point wasn't fair. State intervention is bad. No, I don't accept this political ideas. I don't accept libertarian arguments. We shouldn't jump to a conclusion like this in two pages.

As we discussed last week, neo-liberal ideas have lost their basis, because the "evil empire" of the Sowjet Union is over (compare Rawls, John). It is very good that the totalitarian system of Russian communism is dead, but are all left-orientated ideas evil and bad? The discussion of inequality is a good work of left-orientated science. Is the theory of impoverishment wrong? Is there no reason for greater inequality in new modern capitalistic markets on a world scale?

When I go on with my problems of the political ideas in the readings of this week, I should talk about postmodernity and there are no universal values. I can't accept this. Postmodernity is more a philosophy for the rich and wealthy people. Perhaps, the deny of universal values is a way back into fascism. It is true that there are some western dominated ideas (compare Rodrik p. 38). Is the declaration of human rights wrong, because of this point? Is there no idea of reduction of inequality on a global scale? All world religions share the idea of decreasing poverty. Everyone should have a minimum "capability" (compare Sen) of reaching his/her basic needs. The western form of democracy and anti-communism is a problem as a world value. This point isn't shared on a global scale (compare Rawls: The Law of Peoples). In my point of view, the value of redistribution and the Rawlsan theory of justice are good point against postmodernity, communitarim or libertarians and not a value of communities (in a communitaristic sense).

After my strong critic of the political ideas of Rodrik, I want come back more closely to inequality and globalization. I have shown non-materialistic part of inequality and I mentioned the human development index. One point is very interesting. When we compare Kerola in India with the USA, we can find a lot of places in the United States, where people are more worse of than in Kerola. The debate of different kinds of capitalism is also very interesting, because there are at least three strongly different political economies in Japan, Europe and the United States. This countries represent very different levels of inequality and "capability."

European economies like Germany or Sweden are still maintaining a great welfare state, but are under the pressure of global "negative integration." This argument is too fast, but I want finish my paper. I only want to show forces, that lead to higher inequality and are related to globalization. I am not convinced by the argumentation of our readings. The contradictions are too great. Or is there no mechanism of negative integration?

At last, I want to discuss the solutions for 'inequality.' Leamer is in favor of more education, but this is only a competitive answer against others. If we have better 'human capital,' we are able to get a greater piece of the world economic cake. In my point of view, this is too a great extend an answer against others. The best answer for me is redistribution. The answer of Keynes is very interesting (compare Rodrik, footnote 18, p. 48). Keynes put economical autarky forward. This is a very important idea, but will globalization and a global deviation of labor give us this possibility?

Inequality rises in advanced societies. The readings judge globalization innocent. I have numerous problems with their argumentation, besides the dangerous political ideas of Rodrik. Globalization is an uneven process, but inequality doesn't increase. Is this not a contradiction?