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Globalization And Income Inequality

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Instructions: Answer the following question

  1. What explains the growing concern with income inequality in the era of globalization? Discuss by making reference to conceptual frameworks as well as recent trends in income inequality.



Globalization is a trading and commerce concept which has been gaining traction all over the world in the last three decades. In a bid to cut down on operating expenses, many companies especially multinationals, have opted to outsourcing their production of goods, parts or machine components to areas that are far from their original area of operation. Others have opted to source for raw materials from other regions where they are cheaper while for others, it has globalization has provided them with cheap labor. However, there have been concerns that globalization has in many cases been leading to income inequalities instead of bridging income gaps between people from different regions. Here, we will discuss how some globalization practices lead to income inequalities and what can be done to bridge the inequalities in cases where they exist.

Globalization and income inequalities

By definition, income inequality is the difference in mean incomes between countries or regions. While globalization a a concept is supposed to bridge income gaps, there are many instances where practices associated with globalization have led to an increase in income inequalities. To capture this correctly, one has to describe the process through which an item is produced from conception to delivery at the customer’s doorstep.

Values chain analysis

For goods to be produced through a globalization process, there are several steps which have to be followed. First, the globalization idea has to be conceptualized by the company followed by an intermediary phase where the company has to outsource the manufacturing process of the goods to an international company which operates in a foreign jurisdiction. Next, the product has to be delivered from the company manufacturing it, through the supply chain, to the consumer. Lastly, the used product has to be disposed of in a proper manner. Throughout this process, there are many instances where income inequalities are likely to happen. Here are some of them: –

During manufacturing process

Through globalization, many companies are outsourcing the manufacturing process of goods to other companies in countries where they have no control of the operations. Many of the countries where manufacturing is outsourced have weak labor laws or weak mechanisms to enforce the existing laws. This leaves employees who work in those companies at the mercy of their employers. A situation arises whereby the income levels of the factory workers are very low compared to those of their employers, and the other employees who work for the multinational company resulting in high income inequalities. To bridge this gap, multinationals should ensure that they partner with the companies they outsource manufacturing process to in order to put in place measures to ensure employees are paid according to international salary standards and work in safe and healthy workplaces (Globalization and un-equalization: what can be learned from value chain analysis – Page 135)  .

During raw material extraction process

Due to globalization, growers of cash crops which serve raw materials for consumer products such as cocoa, coffee, tea and others can get markets for their produce. The yields from the crops are bought by multinationals as raw materials. Farmers incur many expenses during the crop-tending stage in the form of farm inputs, labor costs, etc. When it comes to prices for the yields, multinationals tend to buy them at prices which give little returns to the farmers. This creates an income inequality situation where the farmers and laborers who tend to the raw materials have very low income as compared to the middle-men, the multinationals who buy the yields to manufacture the final product and the people involved in the supply chain.

To bridge the inequality gap in this scenario, the multinationals need to employ supply chain practices that will add value to the farmer’s activity. This includes practices such as cutting-out middlemen, partnering with farmers to produce high-quality yields, educating farmers on better farming practices and farming management etc. (Globalization and un-equalization: what can be learned from value chain analysis – Page 132)  

During supply-chain process

Many multinationals supply their products through direct-to-customer supply chain process or through the use of conventional supply chain process. Both processes involve delivery of the product from the factory, through a distribution network, to the wholesaler, retailer and finally to the customer. Income inequality can happen in many instances in a supply chain process. For instance, cases abide of retail store attendants who are paid very low salaries as compared to the store owners or the multinational managers who manage production of the goods they are selling. (Channels and policy debate in the globalization-inequality poverty nexus – Page 13)

In such cases, it is upon companies to only partner with supply chain companies who share similar organizational ideals with regard to employee rights and remuneration.

Solution to income inequalities

Multinationals practicing globalization through outsourcing of manufacturing or sourcing of raw materials from other countries should ensure they deal with companies in countries which have robust employee labor rights, including the right to a wage that is commensurate with their work input. They should also partner with those companies or farmers in order to ensure working conditions and pay of workers is more equitable. (Inequality, Growth and Poverty in an Era of Liberalization and Globalization – page 32)

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