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.

Graphic: Growing Inequality

Graphic: Growing Inequality

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.

Fair Share

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.

Graphic: Profits Stashed in Global Tax Havens

Graphic: Profits Stashed in Global Tax Havens

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.

Discuss this issue with other readers!
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petertx 11/17/2016
1. Globalisation and Free Trade are not two sides of a coin
A great article. Thanks! I take issue with how you assume globalisation and free trade go hand-in-hand. Countries with high growth rates, e.g., China and India, are protectionist. Their import tariffs are higher, especially in sectors where they perceive growth opportunities. Free trade is only advantageous if (1) everybody plays ball and (2) you are market dominant and do not need to grow domestic industry. You seem to believe that globalisation is some kind of natural phenomenon. In fact, it largely exists because of effective subsidies. To give just two examples. We heavily tax local transport for environmental reasons, but we do not tax global transport. Lastly, we turn a blind eye to the army of slave labour made up of political prisoners in China, yet we marvel at their low unit labour costs.
Inglenda2 11/17/2016
2. The Trump vote was for more honesty in politics
When an American Pesident says Frau Merkel has credibility, he obviously does not do this without some sort of motive. Whether this statement was a blatant lie, propaganda, or an antempt to intervene in the next German general election may be a matter for discussion. Whatever the case, Barack Obama is an extraordinary actor, who is able to depict properties which are not his own. He received a peace prize in advance of actions, which he had promised, but never carried out. It would appear that despite all his speeches, about western values, he not ready to return the prize which he has not earned. Trump may be less intelligent, but is open with his statements, even if many of us do not agree with what he says. The only values Obama and Merkel seem to know, are Dollar and Euro. That is why they fear a division of industrial Nations. Honesty, morals and patriotism only play a role in western policies, when they can be used as a tool to yet more power.
praha7 11/17/2016
Until governments around the world act responsibly and tackle the problems outlined in the article it is pointless to blame the electorates for attempting to find their own solutions. At the moment we have governments of whatever colour that have fallen for the neo-liberal economic idea and consequently offer no choice to the voters. The result of this is obvious and, despite the handwringing of the main street media, the people will continue to search for a solution. That the solutions they find, like Trump or Brexit, may be contradictory and may not provide the answers, they are nonetheless real and have a large effects. If the world becomes protectionist then the blame will lie with all those who, instead of concentrating their efforts on solving the problems that globalisation has caused, are still trying to force more globalisation on populations that are clearly signalling that they have had enough.
verbatim128 11/18/2016
4. Globalization, how far?
USA Today just quoted Mrs. Merkel, unrepentant as ever, from her first meeting with President Obama on Thursday: ""It is my conviction that globalization — and I think we share this conviction — globalization needs to be shaped politically, it has to be given a human face, but we cannot fall back to pre-globalization times," Merkel said at a joint press conference after meeting with Obama in Berlin."" Someone ought to have told her that "the human face", Dubcek's idealistic attempt to shape communism in 1968, was socially, economically and politically a failure. She borrowed the wrong phrase, and it is even more expedient for "globalization" then it was for communism.
tonypappas 11/18/2016
5. Awakening To Freedom
The European pundits like the elitist establishment, who pontificate and posture and like to label those who disagree with them with code words like MISOGYNIST and other intellectual sounding words, have no feeling or understanding of the average citizen who gets up every morning, rain or shine and goes to work and deals with the reality, burdens and costs of every day life. They are fed up with paying for and submitting like sheep to an increasingly authoritarian and cold elitist aristocracy. If the EU does not reform it's attitude towards it's people and become more Democratic and responsive to their needs, the odds are with the national elections coming up, that it won't last another two years. Those that scoff at this prediction should look and remember, at what has already happened in the UK and the USA. !
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