Chapter 2: The Global Economy
TABLE OF CONTENTS
• Economic Globalization, Poverty, and Inequality
1. Global Income Inequality
2. The Third World and the Global South
3. The Global City
Economic Globalization, Poverty, and Inequality
"The 1 to 2 billion poorest in the world who don't have food for the day suffer from the worst disease, globalization
deficiency. The way globalization is occurring could be much befter, but the worst thing is not being a part of it.
- Swedish statistician Hans Rosling
Economic and Trade Globalization
Is the result of companies trying to outmaneuver their competitors.
As consumers search for cheaper places to buy products, they search for the cheapest ways to make that product
like machinery, raw material and labor.
The result is that labor-intensive products are often produced in countries with the lowest wages and weakest
regulation.
This process creates winners and losers.
Multiplier Effect
It means an increase in one economic activity can lead to an increase in other economic activities
For instance, investing in local businesses will lead to more jobs and more income.
On Protecting Workers
Not everyone agrees to economic globalization. The root cause of many arguments against economic
globalization is that companies do not have to follow the same rules they do in developing countries.
In the absence of regulation, it is still possible that workers would not be horribly mistreated:
1. Public awareness + pressure from interational community: and
2. More opportunities to workers and more competition for labor.
"In my experience, poor people are the world's greatest entrepreneurs. Every day they must innovate in order to survive.
They remain poor because they do not have the opportunities to turn their creativity into sustainable income."
- Nobel Peace Prize recipient Bangladeshi professor Muhammad Yunus
He implemented microcredit, in which he would give small loans, to low-income people in rural areas. They in turn would
often use the money to fund plans to raise their income such as starting a small business
Global Income Inequality
"While at the bottom half collectively own less than 1 percent of total wealth, the wealthiest top 10 percent own 89 percent
of all global asset."
- Global Wealth Report 2016 by the Cred Suisse Research Institute
Types of Economic Inequality
1. Wealth Inequality
o Wealth refers to the net worth of a country.
o It takes into account all assets of a nation less than liabilities.
o Wealth Inequality speaks about the distribution of assets.
2. Income Inequality
Gross Domestic Product (GDP)
Income is the new earnings that are constantly being added to the pile of a country's wealth.
Income inequality means that new earnings are being distributed.
Inequality in the Global Level
According to the Global Wealth Report 2016 by the Credit Suisse Research Institute.
Estimated global wealth today is 3.5 trillion dollars and it is not distributed equally.
Increase in wealth by countries like United States and Japan.
United Kingdom in decline because of currency depreciation.
Income inequality continues to rise.
"Economic Big Bang"
Described by Branko Milanovic (2011) to refer to the Industrial Revolution.
The "explosion" caused by this revolution transformed some nations to be economically developed while others
were developing.
Economic globalization and international trade are the forces responsible in today's global income inequality.
Skill-Based Technological Change
Access to technology also contributed to worldwide income inequality.
It complements skilled workers but replaced many unskilled workers.
Educated and skilled workers thrive while unskilled workers will be left behind and be replaced by machines or
more skilled labor.
Third World and the Global South
First, Second, and Third World Hierarchy
Cold War origins; Westem policy makers divided the world into three distinct political an economic blocs:
1. "First World" - Wester capitalist countries
2. "Second World" - Soviet Union and its allies
3. "Third World" - Everyone else
These terms are inaccurate for there are more than 100 countries that fit the label of "Third World", but they have
vastly different levels of economic stability.
Nowadays, social scientists use the Gross Domestic Product (GDP), and the Gross National Income (GNI) in
sorting countries based on economic productivity.
A World Map Depicting the First, Second and Third World
Global North-South Divide
A new and simpler classification as the Second World countries got added into either the First or Third World
categories
The world is classified as such:
1. "Global North" - First World countries and developed parts of Asia
2. "Global South" - Caribbean, Latin America, South America, Africa, and parts of Asia
The economic differences between the wealthy Global North and poor Global South "have always possessed a
racial character" (Winant, 2001, p. 131).
A World Map Depicting the Global North and Global South
Red symbolzed the Global South
Blue symbolzed the Global North
First, Second, and Third World
Global North and Global South
The Global City
Cities in Globalization
The (North-South] relations of agricultural production have been altered due to the rise of global agribusiness and
factory farms (McMichael, 2007).
Schlosser (2005) pointed out that as commercial agriculture replaces local provisioning. the relations of social
production are also altered.
Sassen (1991) used the concept of global cities to describe the three urban centers of New York, London, and
Tokyo as economic centers that exert control over the world's political economy.
Effects of Global Cities
Not only are there inequalities between these cities, there also exists inequalities within each cities (Beaverstock
et. al., 2002).
Alternatively, following Castells (2000), these cities can be seen as important nodes in a variety of global
networks.
Bauman (2003) states that cities are also the most severely affected by global problems.
Therefore, the cities faces peculiar political problems, wherein if is often fruitlessly seeking to deal locally with
global problems and "local politics has become hopelessly overloaded" (p. 102).
A map showing the distribution of GaWC-ranked world cities (2010 data).
A World Map Showing the Global Cities
Conclusion
1. Globalization benefitted people and nations to have more, however some got the lion's share in it's benefits than
the rest:
2. Initiatives have been done in order to equalize the benefits such as microcredit:
3. Those benefits include wealth (what they already have) and income (what they would get):
4. The Industrial Revolution, intemational trade, and skill-based technological change created a rift on the shares of
wealth and income among countries;
5. The countries that have less are once called "Third World" are now called "Global South" and the countries that
have more are once called "First World" are now called "Global North"; and
6. Global cities are cities that are exerting control and influence in globalization.