By Jason Meade, MA in IPE
15 January 2001
3,300 words
I. The Gap
A. The Divide Between North and South
B. Origins of the Divide
1. Industrial Revolution
2. Conflict as a bar to prosperity
3. Inefficient use of human resources
II. The Effects of Globalization
A. Globalization
1. Overview
2. Labor market instability
3. Breakdown of compromise
4. Backlash against globalization
5. Destabilization of government
and society
6. Generalized volatility and uncertainty
B. Conclusion
?Has globalization increased the economic divide between North and South??
I. The Gap
?Globalization? is notoriously indefinable. Thomas
Biersteker writes that ?the vast majority of scholars... define it in terms
of a dramatic increase in the magnitude of international transactions.
Most concentrate on increases in economic exchanges such as trade, financial,
or investment flows, or on related technologically driven transfers of
information, ideas, and culture.? (Biersteker in Woods, 2000) In this sense,
globalization is a relatively recent phenomenon, beginning after World
War Two. This is the version of globalization that will be referred to
in the remainder of the essay.
A. The Divide Between North and South
In 1997, the difference in per capita GDP between the US and France on the one hand, and China on the other, was 30 to 1. The difference between the US and France and India was 60 to 1. (Sociology in Global Perspective, 2000) And yet according to Fernand Braudel (quoted in Sociology in Global Perspective, 2000), 200 years ago the average incomes in Europe and North America were roughly the same as those in China and India. The UN Human Development Report 1999 writes that the distance between the richest and poorest country was about 3 to 1 in 1820. The gap had grown to 11 to 1 in 1913, 35 to 1 in 1950, 44 to 1 in 1973 and 72 to 1 in 1992.
Despite the range of estimates for the differences between richest and poorest, it is clear that there is actually a gap and that it has been growing since approximately 1800. The question at hand is whether or not globalization has widened the divide. But this question is part of the larger question of why there is a gap at all.
B. Origins of the Divide
1. The Industrial Revolution
The first reason must be the Industrial Revolution. The relative wealth of Europe and its descendant countries began to rise dramatically just at the time of the beginning of the Industrial Revolution. To quote ?Sociology in Global Perspective? (2000):
A strong negative relationship exists between per capita GDP and percent of the labor force in agriculture, ...there is less labor power available in poor countries for pursuits that could produce economic advance.
Despite the existence of large cities in many parts
of the world, it was only with the Industrial Revolution that significant
numbers of Europeans and North Americans began to move away from agriculture
and into more economically productive activities. The previous rough similarities
of economic levels around the world can be partly attributed to the rough
similarity of economic pursuits. In a world where virtually every economy
relied on agriculture it is hardly surprising that economic levels did
not vary significantly. It has only been with the introduction of a radically
different mode of production and economic organization that the new levels
of prosperity have become possible.
So, it would seem that one explanation for the growing
divide between the North and South might simply be the fact that agricultural
societies have already progressed as far as they can go as agricultural
societies. Industrial societies on the other hand, appear to have a capacity
for further growth. Or it may be that, as Alvin Toffler writes (Toffler,
1980), industrial societies are in the process of moving on to yet another
radically different mode of production and economic organization.
In either case the result is the same; the North is pressing ahead and
the South is being left behind.
2. Conflict as a bar to prosperity
However, there are still more pieces to the puzzle
of the growing gap. People in poor, agricultural societies can see that
they are being left behind. It seems natural that they should try to catch
up. The fact that the majority of such countries have not caught up has
traditionally been explained by one of two theories, the modernization
theory and the dependency theory. The modernization theory contends that
countries that wish to become as rich as the Northern countries must become
like them. The poorer countries must adopt the institutions, economic policies
of the North, and values which support such institutions and policies.
According to this theory it is the failure to ?modernize? that is holding
poorer countries back. Dependency theorists on the other hand, attribute
the relative poverty of the South to the selfish actions of the North.
In this theory, the rich countries benefit from the cheap labor and raw
materials of the South and have structured the world economic system in
such a way as to ensure a steady supply of cheap labor and materials by
keeping the poor countries poor.
There are several objections to these theories.
David Landes (1998) points out that Ireland, Finland, Taiwan, South Korea
and many other countries were all poor, pre-industrial colonies at some
point since the beginning of the Industrial Revolution. All of them were
forced to operate within the system that had been structured by the rich
countries, and yet they have not met the same fate as other less-developed
countries. The process seems to be continuing today with the rise of China
and several of the countries in Southeast Asia.
In Centuries of Economic Endeavor (1994), John Powelson
takes issue with the modernization school of thought. According to his
theory, a process of ?power-diffusion? took place independently in Northwestern
Europe and Japan over the course of several centuries. This ?power-diffusion
process? led to the creation of stable societies based on compromise and
responsive to the needs of the people, particularly the economic needs.
He argues that it was only by painstakingly building and institutionalizing
a culture of compromise particularly suited to the conditions of the different
groups in these areas that they were able to launch and sustain industrial
growth and prosperity. He argues that the imposition of values and institutions
developed and nurtured in the North upon the people of the South will not,
and cannot, work. Only indigenous values and institutions can command the
trust and support of indigenous people.*
Instead of the problems of dependency or modernization,
Powelson identifies a different set of problems which hold back poorer
countries. These are cultural differences between North and South. A key
difference is the ability of groups to avoid one another. He finds that
historically, abundance of land or the possibility of migration has allowed
groups to avoid conflict, and thus also compromise. The failure to develop
a culture of compromise means that conflicting groups are inclined to attempt
all-or-nothing resolutions to their disputes. This leads a second difference,
the legitimacy of violence as a means of conflict resolution. He also points
to a number of other common factors such as chronic instability, warfare,
the central role of the state in economic affairs, and the over-centralization
of power which leads to inefficiency. All of these cultural factors tended
to be detrimental to the growth of economic activity and prosperity.
3. Inefficient Use of Human Resources
David Landes (pg. 200, 1998) points to yet another set of problems. He identifies several key processes that were at work in the Europe of the Industrial Revolution which contributed to European success. These are:
1. the continuous build-up of ?knowledge and know-how? unchecked by
overwhelming opposition from conservative cultural forces
2. autonomy of intellectual inquiry
3. the development and use of the scientific method and peer review
process
4. the routinization of research and its diffusion and its combination
with technological progress
He argues that the lack of these kinds of processes continues to hold back development in many parts of the South. He also cites the lack of female labor as a retardative factor (Landes, 1998, pp. 412-3), ?to deny women is to deprive a country of labor and talent....it cannot compete with other societies that ask performance from the full pool of talent.? In short, many countries tend to place unnecessarily narrow restrictions on the use of their own human rescues. It is unreasonable to expect to catch up and equal developed countries under such circumstances.
II. The Effect of Globalization
A. Globalization
1. Overview
With all these other factors working against the South it seems a bit gratuitous to heave in yet another major impediment. And yet, it seems that this is exactly what has happened with the modern process of globalization defined by Biersteker (Section I). To quote Ngaire Woods (2000, pp. 8-9):
...as governments have liberalized policies to integrate
into the world economy, almost without exception inequality increased.
As weak governments try to deal with increasing
economic inequality and political, religious, and tribal backlashes to
globalization.... the result is a further weakening of the state and democracy
and a heightening of the turmoil and poverty.
Globalization has increased global economic inequality in several ways. First of all, globalization has increased instability and volatility in labor markets. Secondly, globalization has weakened the forces of compromise between mobile capital and immobile communities and labor. Thirdly, Biersteker?s ?technologically driven transfers of information, ideas, and culture? have led to a backlash against the globalization process in the areas where such ideas and culture are most alien. Finally, all of these factors have come together to destabilize many Southern governments and thereby amplify the volatility, lack of compromise, and backlash in a vicious circle of degeneration.
2. Labor Market Instability
Dani Rodrik (1997, pp. 19-24) writes that globalization has led to ?increased churning in the labor markets? which has caused downward pressure on the wages of less-educated workers. The globalization process has also made it more difficult to maintain high labor standards. Rodrik writes (1997, pg. 19) that in the past there were three main methods of covering the increased costs of higher labor standards. A country might devalue its currency in terms of foreign currency to offset the loss of competitiveness. It also might raise taxes to finance the higher standards. Finally, workers could experience a downward adjustment in their wages to make up the increased costs. Unfortunately, under globalization mobile capital and business can leave a country in the event of unfavorable fiscal or tax policies. This leaves only the workers themselves to bear the burden of increased labor standards. Thus the workers are faced with the choice of maintaining working conditions at the expense of wages or vice versa.
3. Breakdown of Compromise
The second problem of globalization is the weakening of the forces of compromise and cooperation. As Rodrik writes (1997, pg. 70), ?globalization reduces the willingness of internationally mobile groups to cooperate with others in solving problems.? This has become a world-wide problem. When local conditions are perceived to be turning in an unfavorable direction, international capital and business interests feel little obligation to work with the society to arrive at a mutually acceptable modus vivendi. More importantly, internationally mobile groups are notoriously difficult to hold accountable when they violate local laws or norms. Furthermore, the dynamic at work in the erosion of labor conditions is at work on a larger scale as a result of this lack of engagement and compromise. Just as the workers must bear the cost of improvements in labor conditions at the expense of their wages, Southern countries are increasingly being forced to bear the costs of improvements in their own societies without the benefit of input from internationally mobile groups. This is the case even when such groups are responsible for the need to improve conditions (for instance, when mining interests damage a region?s environment).
4. Backlash Against Globalization
The lack of compromise and cooperation, increasing uncertainty of employment, the increasing costs being forced upon those least able to bear it, and the intrusion of alien customs and ideas have all led to backlashes against globalization. These backlashes have been most destructive in the South. Ngaire Woods distinguishes between two kinds of states, ?strong? and ?weak?. ?Strong? states ?come ready-armed to the world economy with ideas of their own to stave off what Robert Wade has called ?coercive liberalism?.? (2000, pg. 11) ?Weak? states on the other hand, have succumbed to the ?coercive liberalism? and ?forced harmonization? of the global economy. They have reduced the role of the state and left themselves open to non-state actors who can provide social goods and challenge the legitimacy of the state. And therefore these states are least able to bear the backlashes.
5. Destabilization of Government and Society
This naturally leads to destabilization. After all, a state in the process of abandoning its social responsibilities frequently appears to have little value to the average citizen. Still, the government tries to defend itself. Other groups try to convince the government to restore the social benefits that have been lost. Still other groups try to replace the government altogether. Since these are areas with little experience in compromise, the conflicts will tend to degenerate and become intractable. The unsettled atmosphere gives ample opportunity for conservatives forces to reassert themselves. Both of these eventualities are detrimental to growth and stability. In short, globalization, acting through a number of channels, is increasing volatility in the South. Uncertainty, frustration, and division are on the increase and leading to increasingly problematic situations throughout the South.
6. Generalized Volatility and Uncertainty
The most pernicious result of all of these problems
is the increase in volatility and uncertainty. Rodrik notes the adverse
effect of increased volatility on wages. Woods points to volatility as
having adverse effects on the capacity of states to deal with economic
and social problems. Dr. Paul Stevenson (1999) writes that unemployment
(a frequent symptom of increased volatility) has been linked to ?increased
rates of mental illness, suicide, homicide, divorce, heart attack deaths,
stroke deaths, cirrhosis of the liver deaths, aggression, and so on.? All
of these problems tend to make the climate for business and economic growth
even worse and thus the cycle continues.
The following several charts (see
pages 12-18) may help to illustrate this point, particularly as regards
volatility. Charts 1 and 2 show the percent change in GDP of Western Europe
and the US over the past several decades. These charts are both fairly
stable; only the oil shocks of the 1970?s show up significantly in the
data for Western Europe. The following two charts (3 and 4), showing similar
data for Latin America and some countries of the former Soviet bloc show
much more variation. Changes in GDP in Latin America range from a low below
-15% to a high of near 15%. The data forr the former Soviet bloc shows a
similar pattern. Bulgaria?s highest rate of annual growth was over 10%
and its lowest rate below -10%. The chart comparing changes in unemployment
rates across Latin America (chart 5) tends to reinforce the impression
given by the charts of GDP. Chile has the greatest variation with unemployment
ranging from a low of 9% to a high of 20% over the course of a single year.
It is interesting to compare the chart for Asia
(chart 6) to the preceding ones. The changes in GDP for Asia resemble those
for Western Europe much more than they do those for Latin America and the
former Soviet Union. The countries shown have tended to be more stable
for the most part. Although they are predominantly authoritarian, most
of them have faced some kind of outside threat (North Korea for South Korea,
China for Taiwan, etc.) which led national leaders to court the support
of the populace in what may be a form of power-diffusion. And, these countries
have tended to be more open to outside influences and more progressive
than countries in other parts of the developing world. This is reflected
in both stability and greater relative wealth.
B. Conclusion
Globalization has increased
the economic divide between North and South. The states least able to benefit
from globalization have also been the ones least able to resist it. This
has resulted in a ?domino effect.? First, weak states voluntarily relinquish
some of their rights and responsibilities as a result of ?coercive
liberalism?. This opens the population to the volatility of the world economy,
while simultaneously reducing the scope of the social safety net. A backlash
against globalization frequently follows with generalized social conflict.
As a result, states and entire societies become further destabilized. This
destabilization then combines with the reduced accountability of globally
mobile actors to bring about the breakdown of compromise between global
and local actors. The resulting frustration feeds back into the general
atmosphere of social conflict. The increased labor volatility and downward
pressure on wages exert a similar influence. This leads to greater unemployment
and associated ills as Dr. Paul Stevenson pointed out. Furthermore, the
preceding charts show that the poorer developing countries of the South
in Latin America and the former Soviet Union also have a greater degree
of volatility. This also creates an uncertain business climate and
again feeds into the other processes mentioned above. So, it is clear that
globalization is having a detrimental effect on the South and helping to
increase the divide between North and South.
However, it is important to note that globalization
appears to be mainly acting as an amplifier of pre-existing divisions and
trends. The Industrial Revolution seems to have inaugurated the division
between North and South, but it pre-dates the current move towards globalization
by approximately 150 years. It should be noted that the gap was already
35 to 1 between rich and poor countries in 1950 (1999, UN Human Development
Report). It should also be noted that the fact of a division has not prevented
many countries from crossing it. It seems that the South?s fault lies not
in its stars, but in itself. This is not to absolve globalization of any
responsibility for the current state of affairs. Rather it is to affirm
the idea that the South must finds its own way in the world. Globalization
is certainly not helping the South, but if globalization were to disappear
tomorrow the divide between North and South would still exist and it would
probably still be on the increase, albeit at a slower pace.
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