Question

1. Evaluate the extent to which globalisation inevitably leads to a rise in income and wealth inequality in one or more countries of your choice . Please Discuss in Detail

Answer 1

1.Globalisation can increase inequality is through the effects of increasing specialisation and trade. A rise in trade-to-GDP ratios signifies an increase in the volume and value of trade between countries and regions. Although trade based on comparative advantage has the potential to stimulate economic growth and lift per capita incomes, it can also lead to a rise in relative poverty. Example In UK Due to deindustrialization there had been increased Unemployment and worsening of economic and social deprivation.

Evaluation

The benefits of globalization can be used to correct poverty and inequality. Due to increased trade GDP will grow. This will lead to high tax revenue.This can be used to make investment in public goods and services, including retraining programs and development of infrastructure in economically backward area.

2.Globalization can lead to high inequality as MNC make huge profits.Due to this the senior executives receive hefty pay outs and shareholders receive increased MNC generate 10 percent of the world’s annual GDP and more than 50 percent of the value of world trade. A major issue is that a transitional company can resort to shadow pricing other forms of legal tax avoidance to reduce their liability to pay tax and thereby increase the return to those with an equity stake. Because of tax avoidance, national governments do not generate the revenues needed to pay for public services and welfare systems - both of which can have a progressive effect on the final distribution of income. It has been estimated by the UK government that, in 2017, multinational businesses managed to avoid paying nearly £6 billion in tax revenues.

Evaluation

Government can take concrete steps to collect tax and bring transparency. This may include proper financial reporting based on county by country mechanism to have clear idea abou profits that are made. Another method that can be adopted is restrictions on interest rates charges from one subsidiary of a TNC to another. There are also moves to reduce the amount of intra-company loans made by TNCs which can shift profits to countries with lower corporation tax.

3.Globalization can also create inequality by creating an imbalance of demand for high skilled and low skilled workers.This will result in high income for high skilled workers and low income for low skilled workers thus creating inequality.FdI results in flow of resources to places where unit cost of production is low. This has resulted in high income for workers in places like Vietnam, Indonesia, Bangladesh etc .But at same time the workers in developed countries have become Unemployed or are forced to do low paying jobs thus creating inequality and poverty.

Evaluation

It would be wrong to blame globalization and trade for loss of jobs by unskilled workers. Infact technological development and automation are responsible for such job loss. Steps should be taken by government to absorb such low skilled workers in alternative projects. Also steps should be taken to improve human capital by providing skill enhancement training to such workers and entrepreneurship should be encouraged.

Conclusion

To conclude we can say that yes Globalization has increased income and wealth inequality but there are many positive impacts of Globalization also which can't be ignored. One paradox of globalization is that it has probably reduced inequality between countries but increased it within nations. Steps should be taken by government to enhance knowledge and skills of workforce and also proper utilization of tax revenue should be done to enhance public services and development of infrastructure. The key factor is to development of strategy which will increase the positive features of globalization and reduce the negativity.