A Turning Point for Globalization Inequality, Market Chaos and Angry Voters
Part 3: The Growing Gap between Rich and Poor
The report also notes that, in addition to a shrinking economy, these crises also lead to an increase in inequality in the countries affected. As numerous scientific studies have shown, excessive inequality between rich and poor limits growth, "the very thing that the neoliberal agenda is intent on boosting."
Determining whether globalization is in fact the cause of growing inequality is far from straightforward. There are, after all, other forces at work in the restructuring of the global economy. One of those is digitalization. Michael Förster has been researching the issue for decades for, among others, the Organization for Economic Cooperation and Development and is respected globally. But even he doesn't have a straightforward answer. "As clear as it is that the gap between the rich and the poor is growing, " he says, "the reasons for this development are less obvious."
The standard indicator of inequality used by experts like Förster is the so-called Gini coefficient: A value of zero would indicate that everyone earns the same while 100 would describe a situation in which one person earns all income and everyone else gets nothing. When calculated across all 34 OECD countries, the Gini coefficient has risen from 29 to 32 percent since the mid-1980s. "There is hardly a country in which inequality has fallen in this time period," Förster says.
The gap between the rich and the poor, in other words, has increased almost everywhere, if not at the same rate and not always as one might think. While the Gini coefficient has climbed significantly in the more capitalist US, in Sweden, despite the country's egalitarian tradition, the jump has been even greater.
In Germany, by contrast, where the debate over inequality has been raging for some time, the development has been less severe. Indeed, the rise has come to a virtual standstill since 2005. Nevertheless, the top 10 percent in Germany earn seven times the income of the bottom 10 percent.
Clear Losers of Globalization
Ironically, one significant reason for the broader growth in inequality is the rapid divergence of salaries among top earners. It's not just that the rich are becoming richer, but that the super-rich are becoming super-richer.
Many members of this top 0.1 percent, who have seen their earnings multiply several times in recent decades, are financial industry executives or founders of startups. They are the superstars of globalization because they profit from it to a greater degree than others.
The clear losers of globalization, meanwhile, are workers in traditional economic sectors, particularly in the United States. According to a study by economists David Autor, David Dorn and Gordon Hanson, the increase in imports from China alone has resulted in the loss of 1.5 million manufacturing jobs since the early 1990s. In total, some 6.9 million industry jobs were lost in the US between the early 1990s and 2011. Economists often point to the advantages such developments bring to a nation's economy as a whole -- lower prices for goods and new foreign markets for products manufactured domestically, for example -- but that doesn't help those who have lost their jobs. They feel as though their political representatives have forgotten them.
In Germany, the number of globalization losers is lower because open markets provide a significant boost to the country's export-oriented economy. But jobs have been lost here too as entire sectors, such as the textile and toy-making industries, have emigrated. Middle-class incomes have also stagnated in Germany.
The consequence has been a widespread feeling that the system isn't fair and that globalization primarily helps the elite and large corporations, which keep growing in size and wealth. "Many people are unhappy," European Union Competition Commissioner Margrethe Vestager of Denmark said at a September symposium in Washington, DC. "They see the executives and shareholders of big companies getting richer, and they ask -- is this economy for everyone, or only for a lucky few?" Open economies in a globalized world only have a future, she said, if they are good for everyone.
The Danish commissioner isn't afraid of confronting the most powerful corporations in the world in pursuit of that mission. Apple, for example, managed to funnel $215 billion-worth of more-or-less untaxed profits to a Caribbean tax haven using all sorts of tricks, including many billions that the company earned in Europe. Vestager has now demanded that Apple pay 13 billion euros in back taxes.
Tax havens are the tumors of the globalized world. Oligarchs and Mafiosi use them for shady deals while ostensibly reputable companies and corporations take advantage of them to avoid contributing their fair share to society in the form of taxes.
The 30 most assiduous tax evaders among top US corporations have stashed $1.65 trillion in overseas tax havens, partly in response to a US tax code which requires them to pay an almost 40 percent tax on every dollar they earn, even if it is earned abroad. They are hopeful that president-elect Donald Trump will reduce what they see as a prohibitive tax burden.
In Europe, corporations take advantage of tax loopholes that individual countries have created. Such countries hope that their generous tax codes will attract foreign companies, as Ireland was able to do with Apple. The Netherlands, Luxembourg and Belgium have struck similar secret deals with companies like IKEA, Starbucks, Fiat and Amazon. Countries everywhere resist slapping higher tax rates on corporations because they never know when the finance minister of a neighboring company might lure them away with a better deal. German companies like BASF, Bayer and VW are also well-versed in the art of booking their losses in places where the tax rate is highest and profits in places where the tax rate is lowest.
Those seeking to take action against the cartel of tax dodgers can count on trouble. As Vestager prepared her decision against Apple, the US Treasury Department threatened retaliation in August, saying it would "consider potential responses." The Business Round Table, an association of CEOs of top American companies also warned in a letter to German Chancellor Angela Merkel that if "legal certainty" wasn't restored, it would jeopardize foreign investment in Germany.
Vestager countered that most of the decisions made on illegal state aid had targeted European companies. The European Commission is currently reviewing 1,000 arrangements made between EU member-state tax authorities and companies. Most, she said, had been done correctly, but there are still likely to be more cases brought.