Felistus Mbole a member of our Emerging Fellows program investigates the impact of globalization on inequality in her fifth blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.
The wind of globalization has been blowing for decades and digital technology is fuelling it. The world is more interconnected today than at any other point in history. There has been a significant increase in free trade and cultural exchange. Cross-border trade deals between both private sector players and national governments form part of everyday news. What are the economic implications of this massive level of interconnectedness? What does globalization mean for inequality?
Technology has created a connected world where opportunities are shared. Globalization is the integration of markets. National boundaries have become more porous to goods, services, capital, and people. While some boundaries remain physically closed, this does not hinder flow of capital, services, and data. Social media applications like Twitter has particularly accelerated movement of information. The last couple of decades have especially seen a marked growth in cross-border exchange of human capital. The increasing use of sophisticated technology has generated need for specialised skills which are globally limited. Organisations are able to hire such technical services globally. Supported by internet connectivity, technical service providers do not need permits to work in particular countries. They can permeate national boundaries by providing their services virtually.
Who are the winners and losers from globalization? Globalization doesn’t seem to be benefitting everyone. Currently, there are an anti-globalization campaigns and policies in countries that view themselves as benefiting the world at the expense of their national interests. Offshoring of certain aspects of business to developing countries has enabled them to participate in global supply chains, positively contributing to their economic growth. On the other hand, labour has tended to flow from the less developed to developed countries and capital in the opposite direction. Developing countries have therefore benefitted most from globalization compared to the more developed ones. The effect has been decreased inequality between the global north and south.
Nevertheless, it is only the economically productive developing countries that benefit from joining global supply chain. The less productive ones that are simply an end market for goods manufactured in other countries. For instance, India and China are big beneficiaries of globalization currently. However, many countries in Sub-Saharan Africa continue to lag. The less skilled segments of the population, both locally and globally, are being left behind economically, widening the inequality divergence. Globalization is clearly a tide that is not lifting all boats.
What does this mean? The perceived inability of globalization to create mutual benefits could lead to political tensions between countries as seen currently between the United States of America and China. Trade wars and related conflicts could emerge if these perceived imbalances are sustained. Trade has been shown to be the greatest driver of economic success and thus the convergence between developing and developed economies. Policies aimed at enhancing human capital through broadened access to quality education and healthcare, and reducing barriers to trade could reduce global inequality.
Globalization is a good thing. As the ageing economies such as Japan and parts of Europe start to fall short of the labour that is needed to drive their economies, Africa will be experiencing its demographic dividend. The world’s labour can be developed and effectively harnessed and distributed to benefit everyone. This is only possible if the wind of globalization continues to blow unabatedly.
© Felistus Mbole 2019