6.6: Student Resources

Key Terms/Glossary

• Austerity: a wide range of economic reforms, centered on major reductions in government social spending, aimed to balance a country's budget or meet certain debt ratios.
• Digitization: the process of converting information into a digital format.
• Economic inequality: the unequal distribution of income and opportunities among various groups within society.
• Global Happiness Index: a measure of subjective well-being and happiness among countries around the world and is based on survey data.
• Global inequality: the disproportionate distribution of resources, opportunities, and power that shape well-being among people across the globe
• Gross National Income (GNI): a measure of the average income earned by individuals in a country in a given year.
• Human Development Index (HDI): a metric which provides a summary of the average achievement in essential aspects of human development: longevity and health, knowledge, and a decent standard of living.
• Income: the measurement of one's earnings from a job, self-employment/business, savings, investments, social programs.
• Inheritance tax: defined as the tax someone pays on assets inherited from a deceased person, such as a relative.
• Living wage:  the wages a full-time worker must earn to cover the cost of their family's essential basic needs.
• Outsourcing: when manufacturing has largely been moved to other countries for cost savings.
• Political economy: a subfield of political science that considers various economic theories (like capitalism or socialism), effect the practices and outcomes either within a state, or among and between states in the global system.
• Poverty: a condition characterized by a lack of material possessions or basic human needs, such as food, shelter, clothing, and access to education and healthcare.
• Race to the bottom: A competitive situation in which working conditions and environmental stewardship are of secondary importance to maximizing profits.
• Structural Adjustment Programs (SAPs):  comprehensive economic programs that major international lenders, such as the IMF and the World Bank, required of developing countries as a condition for granting loans
• Sovereign debt: the accumulated amount of money that a country's government has borrowed and has yet to pay back.
• Subsidies: a form of financial aid provided by a government so that the cost of production is offset, resulting in the competitive price for the goods/services produced by the subsidized producer.
• Technology transfer: the process of transferring results from scientific and technological research to the marketplace and broader society, including the related skills and procedures.
• Washington Consensus: a set of ten economic policy proscriptions considered to constitute the standard financial reform package.
• Wealth: the value of accumulated assets of an individual or a family over a certain time period.

Summaries

6.1: Introduction to Global Inequality

Economic inequality is defined as the unequal distribution of income and opportunities among various groups within society. Income differs from wealth, with the former focusing on earnings and the latter on the value of accumulated assets of an individual or family. Poverty is defined as a condition characterized by a lack of material possessions or basic human needs, such as food, shelter, clothing, and access to education and healthcare. Global inequality is defined as the disproportionate distribution of resources, opportunities, and power that shape well-being among people across the globe. The World Bank categorizes global inequality through the use of three levels. These three levels include extreme or absolute poverty, moderate poverty, and relative poverty. Global patterns of economic inequality can be approached from three distinct frameworks: examining inequality within individual states, comparing inequality across states worldwide, and assessing disparities between affluent and impoverished individuals globally. One notable trend is that economic inequality within most states is increasing.

6.2: Background: What Does Global Inequality Look Like?

Within global inequality, economic inequality receives the most attention and is measured various ways. The GINI index quantifies the degree to which the distribution of income or consumption among individuals or households within an economy diverges from perfect equality. The Human Development Index is a metric which provides a summary of the average achievement in essential aspects of human development: longevity and health, knowledge, and a decent standard of living. The Global Happiness Index is a measure of subjective well-being and happiness among states around the world and is based on survey data.

6.3: Theories and Concepts: Drivers of Global Inequality

Much of today's global inequality can be attributed to the direct effects of colonialism, though there are a number of recent factors that have either reinforced or exacerbated that inequality. These are the direct consequences of certain neoliberal policies, particularly those of Structural Adjustment Programs (SAPs) of the 1980s and 1990s. SAPs refer to comprehensive economic programs that major international lenders, such as the IMF and the World Bank, require as a condition for granting loans. SAPs mandate economic liberalization to facilitate market functioning and increase openness to foreign investment. The desire was for developing countries to structurally adjust their economies to prevent reoccurring debt crises, which at the time was seen as a major threat to the global economy. This is referred to as the Washington Consensus, where states were expected to embrace free market systems and reduce state involvement in their economies as the solution to financial challenges. Austerity occurs when a state implements a wide range of economic reforms to balance a country's budget or meet certain debt ratios. These reforms center on major reductions in government social spending. Austerity has its roots in the 2008 Global Financial Crisis, often referred to as the Great Recession in the United States. A number of EU states, including Cyprus, Greece, Ireland, Portugal and Spain found themselves unable to pay back their sovereign debts and were in danger of defaulting.

6.4: At Home and Abroad: If Globalization is the Answer, then Why are So Many People Still Poor?

While there has been an increase in global wealth, it has largely been concentrated amongst the top income earners. The already-high level of inequality is likely to persist or, worse, increase without some kind of responsive policy intervention, such as an inheritance tax. Why isn't wealth more evenly distributed? The simple answer is that wealth is needed to create more wealth, particularly if states want to develop and grow economically. Since wealthier states have more resources to invest, they benefit the most from these investments. The clear loser in outsourcing is the industrial working class, both those in the home state and abroad. Workers who see their jobs outsourced often barely earned a living wage, what one must earn to cover the cost of their family's essential basic needs, and so the outsourcing of their jobs can leave them, and their families, at financial risk. Technological advancements have contributed greatly to labor income inequality. For example, new technologies, such as automation, have reduced or eliminated many low-skilled and unskilled labor positions. Countries such as China are competitive as they embrace a "race to the bottom" in terms of manufacturing costs.

Suggestions for Further Study

Websites

• United Nations Development Programme, 2023 Human Development Index (HDI). (The HDI is the most widely used indicator of human development).
• World Bank, 2022 Income Inequality: Gini Coefficient. (The Gini coefficient measures inequality on a scale from 0 to 1. Higher values indicate higher inequality. Depending on the country and year, the data relates to income measured after taxes and benefits, or to consumption, per capita).
• World Inequality Database, 2022 World Inequality Report. (Presents the most up-to-date and complete data on the various facets of inequality worldwide as of 2021: global wealth, income, gender and ecological inequality).

Books

• Acemoglu, D., & Robinson, J. A. (2013). Why Nations Fail: The Origins of Power, Prosperity, and Poverty. Crown Business.
• Milanović, B. (2005). Worlds Apart: Measuring International and Global Inequality. Princeton University Press.
• Milanović, B. (2016). Global Inequality: A New Approach for the Age of Globalization. The Belknap Press of Harvard University Press.

Journal Articles

• Alvaredo, F., Chancel, L., Piketty, T., Saez, E., &\and Zucman, G. (2017). Global Inequality Dynamics: New Findings from WID.world. The American Economic Review, 107(5), 404–409.
• Milanovic, B. (2024). The Three Eras of Global Inequality, 1820–2020 with the Focus on the Past Thirty Years. World Development, 177, 106516-.
• Pieterse, J. N. (2002). Global inequality: Bringing Politics Back In. Third World Quarterly, 23(6): 1023–1046.

Review Questions

1. Which answer below is not one of the three categories of global inequality provided by the World Bank?
   1. Absolute poverty
   2. Moderate poverty
   3. Relative poverty
   4. Desperate poverty
2. Which statement below is true about global poverty?
   1. There is a decline in within-country inequality and a decline in inequality across states.
   2. There is a decline in within-country inequality and a rise in inequality across states.
   3. There is a rise in within-country inequality and a rise in inequality across states.
   4. There is a rise in within-country inequality and a decline in inequality across states.
   5. None of these answers are correct.
3. The GINI Index
   1. Assesses income inequality in states by analyzing how income is distributed among their populations.
   2. Is a metric which provides a summary of the average achievement in essential aspects of human development: longevity and health, knowledge, and a decent standard of living.
   3. Is a measure of subjective well-being and happiness among states around the world and is based on survey data.
   4. Is the study of the relationship between the market and powerful actors, such as a state's government
   5. Refers to comprehensive economic programs that major international lenders, such as the IMF and the World Bank, require as a condition for granting loans.
4. Austerity
   1. Occurs when a state implements a wide range of economic reforms to balance a state's budget or meet certain debt ratios.
   2. Centers on major reductions in government social spending.
   3. Restricts government responses to public demands and give them little control over internal economic policies.
   4. Severely weakens pre-existing social protections through the adoption of neoliberal reforms as conditions of the bailouts.
   5. All of these answers are correct
5. What is a 'race to the bottom' effect regarding manufacturing costs?
   1. It is a form of financial aid provided by a government so that the cost of production is offset, resulting in a competitive price for the goods/services produced.
   2. It is a strategy used by states to prioritize their competitive advantage, often by lowering manufacturing costs at the expense of product quality or sound economic decision-making.
   3. It is the process of converting information into a digital format is another technology that has dramatically impacted commerce.
   4. It is the process of transferring results from scientific and technological research to the marketplace and broader society, including the related skills and procedures.
   5. It is what one must earn to cover the cost of their family's essential basic needs, and so the outsourcing of their jobs can leave them, and their families, at financial risk.

Critical Thinking Questions

• Of the three global inequality indices presented in Section 6.2: GINI Index, Human Development Index, and the Global Happiness Index, which one do you find most appealing? Explain your answer
• What are Structural Adjustment Programs (SAPs)? Why are they roundly criticized? Is this criticism warranted?
• Should governments adopt higher inheritance taxes? What would be the arguments for this? What would be the arguments against this? Pick a side to defend.