Income inequality and globalization

It has now become widely acceptable that the rising income inequality in the world is the cause for the rise of populism and much of the social upheaval we are now seeing throughout the world – in both rich and poor countries. The fact that the combined wealth of 67 or so individuals in the worlds is equal to the combined wealth of the bottom 50 percent – 3.0 billion – population of the world is staggering and disturbing. 

Globalization and technological change have been viewed as the main culprits of the rise in income inequality. I have just finished reading another book on this topic – GLOBAL INEQUALITY: A New Approach for the Age of Globalization by Branko Milanovic. It is not an easy book to read – full of charts and formulas. Part of the introduction reads:

“Drawing on vast data sets and cutting edge research, he explains the benign and malignant that make inequality rise and fall within and among nations. He also reveals who has been helped the most by globalization, who has been held back and what policies might tilt the balance toward economic justice... The recent surge of inequality in the West has been driven by the revolution in technology, just as the Industrial Revolution drove inequality 150 years ago.”

This column is not a book review because I will need to read this book a few more times before I can write an intelligent book review. However, after my first reading, there are a few interesting lessons and insights that I feel are worth sharing.

Technological Change + Globalization = Inequality

The two dominant explanations for the increase in wage inequality are skill-based technological change and globalization. The lower price of capital goods (machinery and equipment) leads to technological change which leads to replacement of routine labor. But all these happened only because of globalization where reduced prices of capital goods were made possible thanks to the existence of cheap labor in China and the rest of Asia.

 “In simple language, it could be that SAP software, Lenovo computers and Apple iPhone did replace the jobs or reduce the wages of travel agents, hotel clerks, accountants and shop assistants, but what we may interpret as skill based technological change happened because cheap labor for these products was produced in low wage Asian countries... Technological change and globalization are thus wrapped around each other and trying to disentangle their individual effects is futile.” 

Will Winner Take- All Remain the Rule?

Winner take all is one of the characteristics of the current globalization. This is the main reason for the massive income differences between people with approximately the same abilities. 

“As in tennis, a tiny difference in skill level is sufficient to make one person number one in the world, earning millions of dollars and another person number 150, covering the costs out of his own pockets in order to participate in tournaments...A typical example is that of a top pianist who in the past could sell her ability to those who would come and listen to her. Then, with the invention of the record player, she could sell it to all who would buy her recordings; today, via the Internet, YouTube, and webcasting, she can sell it practically to the entire globe.” 

He calls these jobs where the same unit of labor can be sold over and over again as “ scalable” jobs. Famous boxers like Pacquiao and Mayweather do not need to have a boxing match for every spectator who watches them. They perform once and get paid millions because of individuals sales through pay TV. They get millions while those who box in the undercard or preliminary rounds hardly get anything.

The massive wage differences are the result of technological changes which make the jobs scalable (without the ability to record and film, the pianist’s performance would not be scalable), and globalization or the ability to reach every corner of the world which is also possible through technological change. Here again we see that technological change and globalization cannot be separated.

The most important change is the increasing number of activities that are becoming “scalable.” In other books, there are some professions that are given as examples as not “scalable.” Among these are examples of a sex worker and a cook. 

 “But this is no longer necessarily the case. Entire industries have grown up on the Internet with people advertising their own nudity or teaching cooking and doing this for thousands of fee paying viewers simultaneously. The point is that technology has tremendously expanded the ability of sex workers, cooks, personal trainers, teachers and many others to sell their services.” 

In the future we can envision service that can become sold globally through technological change that may sound impossible today. For example, a surgeon in the United States, controlling scalpel wielding robots can operate on a patient anywhere in the world without leaving his hospital in the United States. A Professor in Harvard or MIT will be able to conduct classes and lecture students located in classrooms scattered all over the world. He may even be able to interact with them as if they are in the same classroom where he is teaching. 

The second technological revolution combined with globalization will continue to expand the number of jobs that are “scalable.” The result will be increasing wage inequality and income inequality unless governments and society take the necessary steps to restore economic justice.

Creative writing classes for kids/teens and adults

Young Writers’ Hangout for Kids & Teens on September 9, September 23, October 7 and October 21 (1:30-3pm/independent sessions). Speculative Fiction Writing for Adults with Dean Francis Alfar on September 16, 2017 (1:30pm-4:30pm). All sessions are at Fully Booked Bonifacio High Street. For registration and fee details text 0917-6240196 or email [email protected].

* * *

Email: [email protected]