1. Why study the topic?
Apart from our countries' performance, people actually are more care about their living standard. Since globalization changes the way that we live, we would want to know the change of living standard under globalization. There are many global indicators measuring the standard of living, and some of them are used to measure the poverty. In this essay, we are going to use gini coefficient to measure the poverty gap/income gap of three countries, namely US, South Africa and China.
Slums next to high-rise commercial buildings in Cochin, India2. Global Indicator-Gini Coefficient
Gini coefficient is a global indicator which has been widely used to measure the income distribution of the economy. Its value ranges from zero to one in which zero means total equality and one means perfectly inequality.
But be aware that using gini coefficient alone cannot give the whole picture of the poverty situation nor living standard. Normally, gini coefficient would use with other economic and poverty indicators like (1)Percentage of population living under poverty line (PPP), (2) unemployment rate, (3)inflation and etc.
2.1 Methodology
The number comes from the measurement of the ratio of the two areas shown in the Lorenz Curve graph. The 45 degree straight line represents perfect equality condition. The x-axis measures the cumulative number of people from lowest the highest while the y-axis measures the cumulative number of income earned. The Lorenz Curve then can be plotted to represent the proportionality of a distribution. The gini coefficient = area A/ (Area A+ Area B).
Gini coefficient is a global indicator which has been widely used to measure the income distribution of the economy. Its value ranges from zero to one in which zero means total equality and one means perfectly inequality.
But be aware that using gini coefficient alone cannot give the whole picture of the poverty situation nor living standard. Normally, gini coefficient would use with other economic and poverty indicators like (1)Percentage of population living under poverty line (PPP), (2) unemployment rate, (3)inflation and etc.
2.1 Methodology
The number comes from the measurement of the ratio of the two areas shown in the Lorenz Curve graph. The 45 degree straight line represents perfect equality condition. The x-axis measures the cumulative number of people from lowest the highest while the y-axis measures the cumulative number of income earned. The Lorenz Curve then can be plotted to represent the proportionality of a distribution. The gini coefficient = area A/ (Area A+ Area B).
2.2 Relationship between Globalization and Poverty Gap
3. Perspectives Regarding Economic Inequality
There are lots of research investigating the correlation between globalization and poverty gap, and most of them conclude that they have positive correlation.
A team of researchers from World Bank, Lundberg and Squire (1999) studied 125 countries between 1960-1998 on the openness effect on income growth of bottom quintile concluding that the openness has a negative effect on income inequality in poor countries.
From the graph shown below, we can see that despite most African countries which do not have the income data, most merging and developing countries' income gap are on average larger than the developed countries. It implies that different political systems may have impact on the income gap.
Differences in national income equality around the world as measured by the national Gini coefficient (2009)http://3.bp.blogspot.com/_kdA6FENG6Qk/TT6FGvLcJJI/AAAAAAAAAA8/0tXdKVdyrEM/s1600/800px-Gini_Coefficient_World_CIA_Report_2009.svg.png
3.1 Marxism
Marxism favours a society where distribution is based on an individual's needs rather than his ability to produce, inheritance, or other such factors. In such a system, inequality would be minimal. Economic equality is necessary for political freedom : when there is economic inequality then political inequality is assure.
Once the means of production are owned in common and worked for utility rather than profit, that all workers receive a voice in a democratic workplace and the money incentive removed, economic equality will be achieved.
Once the means of production are owned in common and worked for utility rather than profit, that all workers receive a voice in a democratic workplace and the money incentive removed, economic equality will be achieved.
3.2 Meritocracy
Meritocracy favours a society where individual's success is a of his merit, or contribution. Therefore, economic inequality is beneficial inasmuch as it reflects individual skills and effort, and detrimental inasmuch as it represent inherited or unjustified wealth or opportunities. From a meritocratic point of view, measuring economic equality as one parameter, not distinguishing these two opposite contributing factors, serves no good purpose.
3.3 Liberalism
There should be equality under the law regardless of whether it leads to unequal wealth distribution.
Men are born unequal and that it is precisely their inequality that generates social cooperation and civilization. Equality under the law was in their opinion not designed to correct the inexorable facts of the universe and to make natural inequality disappear
4. Poverty and Income Gap in US
During the last decades, the US have experienced a dramatic growth of severe poverty. The number of people living in extreme poverty has grown by 26% since 2000.This reflects the reality of declining living standards for the majority of the population 12.6% of the US population, or 37 million people, live below the official poverty line. The rise in severely poor residents isn’t confined in the large urban counties but extends to suburban and rural areas. Only the very richest individuals have benefited from the economic expansion since 2001. The vast majority of Americans have seen a decline in living standards, job security, retirement prospects, and savings. While wages stagnated, cost of living rose significantly, and access to social programs for the poor have been greatly reduced. Debt, foreclosures and bankruptcy have all increased substantially. The growth in severe impoverishment is an unmistakable manifestation of inequality, itself the product of definite policies aimed at diverting social resources into the hands of a financial elite. Poverty is more likely to concern ethnic minorities, especially black people and latinos as they tend to have low-paid occupations, high risk of unemployment, and low health care coverage.
The main causes of the rise in income inequality are:
- The large increase in immigration in the past decades of people from poor countries
- The large increase in single parent households
- The return to education due to changes in technology and a rise in compensation based on performance
- The growing income discrepancy between professional and working class
Causes of international inequality and poverty gap
- Poor countries may have been subject on the past to exploitation or colonialism, preventing their good development.
- National inequality can also be an important factor in underdevelopment
- The lack of institutions, for example those protecting property right
- Corruption
- Education, including technology and human development
- International commerce
- Geographic advantages
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4. Poverty and Income Gap in South Africa
For decades South Africa has been marked by apartheid and a widening income gap. There has been significant economic progress since apartheid has ended, although there is still a long way's to go to gain true equality in South Africa. As of 2007, South Africa had a GINI rating of 57.8 which then ranked the African nation at tenth highest in the world in relation to inequality. Events such as the world cup have undoubtedly improved South Africa's economic status and have created more less skilled jobs for poorer people. It has also resulted in the richer getting richer. According to statistics, the upper class of South Africa is getting richer significantly faster than the lower class. This is creating an even wider gap than before. Moreover, there is and has always been a divide income between whites and blacks in South Africa.
"What often happens in the growth process is that the gains of poverty reduction are stolen by inequality increases,"
In conclusion it is an undeniable fact that the South African upper class is becoming richer far more rapidly then the lower class can gain higher income. It is also undeniable that the situation for poor South Africans has improved dramatically thus suggesting that poverty or income gap may not be the best tool in measuring a country's economic status.
http://www.youtube.com/watch?v=hKWfhfyi8Qc
5. Poverty Gap in China Under Globalization
Everything about China is now a hot topic. With the fast economic growth and the mass population, China becomes a place for everyone looking for investment. One of the reasons is that firms and investors expect the growing purchasing power of Chinese would be one major driving force in the future world economy. Actually, the expectation is coming true. ICBC, a Chinese bank with the largest market value in the world, has opened its branches in Paris, Amsterdam, London, and etc. It seems that China is going to be globalized. Is it true?
5.1 Globalization of China
How does the globalization process in China? According to the Globalization Index released by Ernst & Young in 2010, China ranked 39th while Malaysia ranked 27th and Japan ranked 42nd. Even the ranking of China is higher than Japan; it does not mean that China is a more globalized country than Japan. So what is globalization?
The recent appeal of definition is “Globalization is simply an extension of economic freedoms beyond national boundaries.” (Prakash Loungani, 2007) With this definition, China still should not be ranked higher than Japan.
5.1.1 Economic Freedom- Google Experience
In the case of implementing censored search engine on Google website by China’s government aiming at controlling information flow and media exposure, it resulted in a move of website from Google China home page to Hong Kong site. In this case, Google gained positive image from the world users but lost the opportunity to expand in China while China also was accused of its censorship policies and questioned about the business operating environment in China.
Apparently, China's decision to interference the market draw out foreign companies from the country, and it reflects one fact: Direct political involvement aims or tries to control market hinders foreign direct investment as well as economic freedom. Tian Shuoning, chairman of Media China Corporation, commented the case with the following comment “Google is not just for searching. Google represents the future of information technology.” (“Google’s License Renewal in China: Victory, Defeat or Stalemate?” 2010) It seems that China is drawing out its future too. Back to the case of Google, the drawback of the censorship programme seems to be long-term.
5.1.2 Political Trend and China's Corruption
In “Globalization: A world-systems perspective”, Christopher Chase-Dunn, Yukio Kawano and Denis Nikitin (1998) stated the relationship of geopolitics and geoeconomics had a significant impact on globalization development. Christopher Chase-Dunn et al. (1998) also stated that “The sequence of these “proto-world-states” contributes a process ...this one is slowly emerging by means of condominium among core states rather than conquest. This is the trend of political globalization.”
But China is falling behind the world in terms of political globalization.
One of the reasons for the political development in China is falling behind is its serious corruption. Minxin Pei (2007) estimated that the direct cost of corruption in 2003 was around $86 billion, a 3 percent of GDP in 2006. He also stated that “Corruption endangers foreign direct investment because illicit behavior by local officials could expose Western firms to potentially vast environmental, human rights and financial liabilities.” 5.2 Poverty Gap in China
The recent appeal of definition is “Globalization is simply an extension of economic freedoms beyond national boundaries.” (Prakash Loungani, 2007) With this definition, China still should not be ranked higher than Japan.
5.1.1 Economic Freedom- Google Experience
In the case of implementing censored search engine on Google website by China’s government aiming at controlling information flow and media exposure, it resulted in a move of website from Google China home page to Hong Kong site. In this case, Google gained positive image from the world users but lost the opportunity to expand in China while China also was accused of its censorship policies and questioned about the business operating environment in China.
Apparently, China's decision to interference the market draw out foreign companies from the country, and it reflects one fact: Direct political involvement aims or tries to control market hinders foreign direct investment as well as economic freedom. Tian Shuoning, chairman of Media China Corporation, commented the case with the following comment “Google is not just for searching. Google represents the future of information technology.” (“Google’s License Renewal in China: Victory, Defeat or Stalemate?” 2010) It seems that China is drawing out its future too. Back to the case of Google, the drawback of the censorship programme seems to be long-term.
5.1.2 Political Trend and China's Corruption
In “Globalization: A world-systems perspective”, Christopher Chase-Dunn, Yukio Kawano and Denis Nikitin (1998) stated the relationship of geopolitics and geoeconomics had a significant impact on globalization development. Christopher Chase-Dunn et al. (1998) also stated that “The sequence of these “proto-world-states” contributes a process ...this one is slowly emerging by means of condominium among core states rather than conquest. This is the trend of political globalization.”
But China is falling behind the world in terms of political globalization.
One of the reasons for the political development in China is falling behind is its serious corruption. Minxin Pei (2007) estimated that the direct cost of corruption in 2003 was around $86 billion, a 3 percent of GDP in 2006. He also stated that “Corruption endangers foreign direct investment because illicit behavior by local officials could expose Western firms to potentially vast environmental, human rights and financial liabilities.” 5.2 Poverty Gap in China
As stated before, the potential of purchasing power of Chinese is great. Actually, we may have a glance now. It is not uncommon to see that a lot of mainlanders wait outside of LV and Gucci stores at Canton Road, Hong Kong during weekends. They have to be waited because the number of people is far more than the store’s capacity even they are customers with a lot of cash in their hand. It seems that people in China enjoy the fruit of its strong economy and get rid of poor. Is it truth?
By looking at the graph of Gini coefficient of China (1990-2009) shown below, we may have a different view on the current situation of China. The increasing straight line in the graph shows that the inequality on income distribution is growing larger especially after 2000. With the recent data, the Gini coefficient in 2007 is 41.5. The number is quite high if compared to 56.7 of Brazil, 43.7 of Nigeria, 65 in South Africa. (The World Bank)
On the other hand, the percentage of population living under poverty line (PPP) in China i.e. $ 1.25 a day decreases from 28.4% in 2002 to 15.9% in 2005. (The World Bank & Development Research Group) Given these numbers, we can conclude that the economic growth, on average, helps Chinese to raise its income to be above the poverty line but the unevenly growth of income enlarges the gap between the rich and the poor.
By looking at the graph of Gini coefficient of China (1990-2009) shown below, we may have a different view on the current situation of China. The increasing straight line in the graph shows that the inequality on income distribution is growing larger especially after 2000. With the recent data, the Gini coefficient in 2007 is 41.5. The number is quite high if compared to 56.7 of Brazil, 43.7 of Nigeria, 65 in South Africa. (The World Bank)
On the other hand, the percentage of population living under poverty line (PPP) in China i.e. $ 1.25 a day decreases from 28.4% in 2002 to 15.9% in 2005. (The World Bank & Development Research Group) Given these numbers, we can conclude that the economic growth, on average, helps Chinese to raise its income to be above the poverty line but the unevenly growth of income enlarges the gap between the rich and the poor.
Table 5.1 China’s Gini coefficent (1990-2009)
Sources: UNU-WIDER World Income Inequality Database, Version 2.0c, May 2008
5.3 Conclusion
To conclude, the whole situation of poverty in China is improving under globalization, but China needs to find ways to lower the gap between the rich and the poor. The obstacle of processing globalization further is its political involvement and its corruption. China have to change its political system in order to intergrate its to the world one.
To conclude, the whole situation of poverty in China is improving under globalization, but China needs to find ways to lower the gap between the rich and the poor. The obstacle of processing globalization further is its political involvement and its corruption. China have to change its political system in order to intergrate its to the world one.
Reference:
Brian. Slack & Jean-Paul, R. (2011). Gini Coefficient. The Geography of Transportation Systems. http://people.hofstra.edu/geotrans/eng/ch4en/meth4en/ch4m1en.html
Chase-Dunn, C & Kawano, Y & Nikitin, D. (1998). Globalization: A World-Systems Perspective.
(2010, August 10). Google's License Renewal in China: Victory, Defeat or Stalemate? Arabic Knowledge@Wharton.
Minxin, P. (2007, October) Corruption Threatens China's Future. Carnegie Policy Brief 55.
Taiwan ranks 12th on Ernst & Young 2010 Globalization Index. Taiwan Headline.
Taiwan ranks 12th on Ernst & Young 2010 Globalization Index. Taiwan Headline.
(2011, January 24).
UNU-WIDER (2009). Gini Coefficient in China 1990-2009. Retrieved Jan. 28, 2011, from Database WIID2c.
The World Bank. (2011) .Poverty gap at national poverty line 1990-2010. Retrieved Jan. 28, 2011, from World Bank database.
Hi! My name is Victoria. I am an exchange student in Business Administration and this is my second semester in Hong Kong. I am from Belgium but I study in England, at the University of Kent, Canterbury.
