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Issues in Global Political Economy

Free Essays of Economics

Reasons for Concern about Rising Levels of Inequality in the Global Economy

The rising levels of inequality in the global economy should be of great concern to people since it is likely to generate many problems. Inequality happens at two distinct levels — between nations and between individuals within states. The inequality between the developed and the developing countries is huge and it continues to increase. The same pattern is observed in countries where the upper class continues to get rich while the conditions of the middle and bottom classes worsen economically. Although some level of inequality may function as the incentive to those in the middle and the lower classes to strive to improve their conditions, the current situation is not acceptable. This paper will advance the argument that people should be worried about inequality and discuss the possible consequences of it.

Inequality affects almost all sectors of society, not only the economic aspects of the citizens (Atkinson 2015). As the economic disparity grows, the wealthy people gain unprecedented control over the lives of people in the middle and lower classes. Uneven distribution of wealth provides the rich with the ability to determine the places and the conditions under which the poor can work, and the products accessible to them. For instance, when affluent individuals own large public media outlets, they gain the power to control the society’s perception and its understanding of people’s lives. When the small upper class owns most of the media channels, the issues highlighted by them are generally skewed to favor the prosperous and ignore the plight of the poor. In countries with less level of inequality, the media shapes social dialogue, influences perception, and enlightens the citizens in regard to actions that are likely to improve their lives socially and economically (Benner, Leete & Pastor 2007). When the rich own the media, it means that the national dialogue focuses on their needs, which further increases inequality.

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The economic inequality also affects the political institutions’ fairness. The political establishments are the vehicles through which the citizens of all classes can influence policies and shape their social and economic conditions. Elected politics represent the wishes of the people. However, when economic inequality permeates through the entire society, wealthy people start to fully control the political systems. When the disparity is large, the middle and lower classes can not afford to contribute towards the elections of their preferred political candidates. As such, the candidates depend on the contribution of the wealthy. Consequently, when they get elected, they become more responsive to the needs of the rich and not those of the poor. Therefore, the inequality compromises the political institutions that should provide support to the underprivileged through favorable social programs, aimed to reduce the gap in wealth, income, and opportunity disparity between different classes.

Inequality undermines the economic system’s fairness. When some households’ income continues to grow while that of the others either decreases or stagnates, it affects children born in each. For instance, those from rich families have access to the best education and thus are better prepared to join the workforce. On the other hand, children from underprivileged families can not access the same quality of education and thus will be less competitive in the labor market. The overall effect is observed in the fact that the children of the rich will replace their parents in the upper class while the poor will replace theirs in the middle and lower classes. Such a situation is likely to continue for generations, which makes the economic system unfair as it supports the smallest percentage of society at the expense of the majority of the citizens. According to Marshall (2009), wages for most American workers have improved minimally while the top 1% of the earners have experienced tremendous improvement in their wages by up to 165% since the 1970s. Those who support the existence of inequality argue that the economic system should reward top performers and those who endeavored to gain the required skills for the best jobs. Such an argument purports that those without the skills are lazy and thus should be contented with what they get. Such an argument fails to recognize that without access to the best education, the skills of the upper and lower classes can not be compared, no matter how hard people from the lower classes work. Equal opportunities that the economic system has denied the majority of the workers are the only remedy to flattening the competitive field for people irrespective of their social and economic class.

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The final reason for concern is the expectation that all those who participate and cooperate in the production of national income have a right to a fair share of the outcomes of their contribution. John Rawl’s Difference Principle asserts that the income and wealth inequalities should only be permissible when their reduction is impossible without worsening the position of the deprived people (Weeks 2014). However, people and governments can reduce the inequalities that exist in the world economy without making the situation worse for those oppressed. As long as the economy is producing services and goods at an increasing rate, those who take part in the production should share the benefits. The fact that all the citizens participate but just a few benefits disproportionately point to the injustices of the economies.

Problems that the Inequalities Are likely to Cause to the World Economy

Inequality hinders the growth of the middle class in various countries. According to Stiglitz (2013), markets in the global economy reward those with important assets, such as human and financial capital and entrepreneurial skills. Education is the most fundamental asset with which the middle class can grow and reduce the gap in wealth, opportunity, and income disparity. The failure of the middle class’ income to grow while the cost of goods and services has increased makes it impossible for people from the class to afford education. In many countries, the middle class is very influential because it demands accountability from the government. As such, good governance depends on the ability of the middle class to question the governments’ actions. Therefore, the growth of the middle class is likely to contribute to accountability in any country. In the absence of such growth, the authorities in different nations participate in activities that have the potential to harm the world economy. Governments that have no accountability engage in activities such as corruption and resource misallocation. Corruption diverts public resources from development programs that help the majority of the people and directs them towards the fulfillment of personal agendas of those in power. Consequently, the world economy loses an opportunity to expand because of the misappropriation of public funds. Misallocation of resources leads to suboptimal results that deny all citizens of the world the best living conditions.

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The combination of inequalities and globalization has created problems that may be catastrophic to the world economy (Bond n.d.). Most of the developed countries use the capitalism model. According to Hilary (2013), capitalism is a source of inequalities because it promotes growth at all costs. Such growth is unsustainable because it causes destruction of the communities and depletes natural resources (Deacon 2010). Hilary’s assertion is evident on occasions when the developed countries relocate their production facilities to the developing world because of labor cost advantages. Because of the inequalities among nations, the developed countries have shifted their manufacturing plants to the developing countries in order to take advantage of low labor costs. Since the developing countries require jobs to boost their weak economies, they rarely negotiate the terms of operations with the developed nations. Consequently, manufacturing processes pollute the environment. The developing nations suffer the consequences while the developed countries pay no cost for their actions. Pollution leads to global warming, droughts, and famines that have a further negative impact on the global economy.

Inequalities stifle economic growth. When income and opportunity disparities are significant, the level of poverty increases. As a result, the neighborhoods in which the middle and the lower classes live become insecure as crime emerges. The poor conditions also lead to insufficient public health, which in turn becomes burdensome to the economy. When people are insecure, unhealthy, and poor, they lack the energy and enthusiasm necessary to promote economic growth. Another aspect of inequalities that affect economic development is the power that wealthy citizens possess. Since the few who own the means of production can sponsor politicians to win electoral positions, they have an influence on how they legislate. As such, the collusion of politicians and wealthy people leads to the development of inefficient tax structures that favor the rich (Rousseau 2012). Therefore, those who can afford to pay taxes pay less while the largest burden shifts to the poor who can not afford even the basic necessities. Since the wealth of the country is concentrated in the upper class, the entire economy does not feel its effects. In the absence of the disparity, the wealth distribution would be fair and would lead to increased economic activity that would stabilize the world economy. In the case of an economic crisis, the poor pay a heavy price because such problems call for austerity measures (Blyth 2013). When the government reduces its spending as a means of curbing the impact of the economic crisis, it can not afford to extend tax breaks and subsidies to the middle and lower classes (Blyth 2013). Since the subsidies and tax breaks represent the relief from the burden created by inequality, the poor continue to suffer.

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Inequalities are likely to result in chaos in different societies (Collier 2008). According to McNeish (2010), wealth inequalities can cause civil wars. When people feel that their efforts in nation-building are not commensurate with financial gains, they become frustrated. Only the government can alleviate the problems they face. Unfortunately, the same wealthy people who benefit at the expense of the poor control of the government. When chaos erupts in one part of the world, the middle and lower classes resist the exploitation, and the effects can spread all over the world because of the process of globalization. Such instability can negatively affect the world economy, especially the financial markets that are vulnerable to the conditions of uncertainty (Foster & Magdoff 2009).

The existence of inequalities has far-reaching consequences from the social point of view. Those at the lower end of the inequality continuum are always economically, physically, and health-wise insecure (O’Donnell 2009). They worry about losing their jobs and being unable to support their dependents. The lack of income mobility has limited the ability of the lower and middle classes to save money and invest it in order to support themselves in case of a job loss. Losing a job is a serious problem because it creates a series of issues that end with broken families. When an individual disadvantaged by inequality loses a job, they lose health insurance as well. In the case of a disease in the family, there is no way to cater to the sick, which may strain the family bond and break it.

Since the economic stability of a nation is part of its national security issues, inequalities can cause insecurity. Poverty, which is a consequence of inequality, has motivated young people to join radical terrorist organizations (Ohnmacht, Maksim &Bergman 2009). Once they join the groups, they later return to their home countries and organize the attacks. A widespread recurrence of such scenarios can destabilize the global economy as no investor would feel comfortable investing in unsafe countries.

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There are several solutions that governments can adopt to reduce the disparity between the poor and the rich. First, the government should fund education to enable full access at all levels for people regardless of their social class. Since education is the appropriate asset in the global economy, it should become universal in order to ensure that everyone has access to it regardless of their economic status. When higher education is accessible to all, children from poor backgrounds have a relative chance of success compared to those from rich families. Secondly, funding of political institutions should be done by the government. Part of national budgets should concentrate on the election of leaders to prevent them from seeking assistance from wealthy people, who expect them to cater to their interests when they get elected. The financing of the political processes is the most fundamental reform that governments should undertake, because it can separate the political processes from the influence of wealthy citizens, thus ensuring that the institutions are not compromised. The global collaboration of world leaders in fighting inequality is another approach that can help to minimize inequality. Currently, developed countries use resources in developing countries without considering the consequences of their actions. Consequently, the implications of national security and the nature of globalization have made the collaboration necessary, because ignoring the situation in the developing countries will eventually affect the developed countries’ economies negatively.

Conclusion

People should be concerned about the rising inequality levels in the global economy for various reasons. First, inequality has endowed the wealthy with a lot of power to influence the lives of the poor. It also undermines the economic and political systems’ fairness. Finally, the disparity denies the poor a deserved outcome of their contribution to the national income generation. The problems that the world economy may face as a result of inequality include social disorder, stifled economy, the growth of the chaos, pollution, and unsustainable growth of lower and middle classes. The solutions to the problem include funding education and political institutions, along with forming a global collaboration.

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