Dealing With Global Income Inequality and its Consequences

Tim Mulligan

Problem Background:

The passing of time has generally served to benefit many of the problems revolving international relations. As time has progressed, so have human development policies, international organizations and missions for global peacekeeping. Time has brought us to an era where nuclear weapons have made all-out war is obsolete, and where greater efforts towards controlling climate change are technologically possible. Time has not served the world’s income inequality well, though. Income inequality is one of international relations seemingly insurmountable obstacles and this can be attributed to several factors that have continuously plagued and complicated the issue.

Although recent studies may report increases in the world’s average income within the past few decades, rates of economic inequality have largely remained the same. (Milanovic, para. ) Moreover, the income inequality rates of the world have risen seventeen percent since the year 1820 and only show signs of continuing this pattern. (“Breaking the Camels Back”) These global rates have experienced rises and falls in correlation to the well-being of the world’s economy, higher equality in positive economic times and lower equality in times of economic crisis. But, the explanation for why income inequality has fallen—and continues to fall—transcends the simple explanation of poor economy=poor economic equality and good economy=good economic equality. The worlds declining rate of equality is a product of a number of internal and international aspects including governmental policies, ethnic discrepancies, colonization and the earth’s limited resources, all of which have undermined the financial equality of individuals for centuries. The complexity in the causality of this issue is what makes the development and implementation of appropriate international policies such a difficult task.

It is also important to note that income inequality does not strictly affect individuals, but also has a large impact on states and furthermore the world as a whole. The income inequality of individuals within a state or nation will often be indicative of the state’s overall power and more importantly its stability. Everything from economic influence, military power, the standard of living, and political participation are byproducts of a state’s level of income inequality. This is because the individuals who experience this degree of poverty typically go unrepresented, either because the wealthy control the interests of the state or because they are under a dictatorship that does not allow them representation. Without equal representation politically and economically, states often face internal struggles with rebellion, constant regime changes, education, extreme poverty and even civil war. These are indicators of a “failed state”, which is a state in which the government is not in control of its citizens. This lack of stability can shut down government, international trading, national defense, human development and other things that are imperative not only to internal stability, but to relations with the rest of the world.

Analysis of the Policy Problem:

Several experts provide potential policy options for the improvement of global income inequality levels:

Robert Muggah suggests that positive changes in income inequality and poverty are rooted in the structure and policies of urban city governments. He approaches the issue on the basis that the governments of dense urban cities have a more direct impact on the level of income inequality throughout the world than state governments. His emphasis is on communication between city mayors and citizens as well as communication and cooperation between poor cities and wealthy cities. (Muggah, Urban Renaissance)

Muggah takes a liberal and very unique approach to the problem. In his expert opinion, he believes that local mayors need to be more receptive to the opinions of their citizens. This is in order to generate an agenda that better embodies the opinions of those who may go unrepresented because of their impoverished status. Muggah believes that the most commonly shared opinions may not in fact be the ones that are receiving treatment through policies and that a better line of communication between government and citizen could bring about more effective governing in regards to dealing with income inequality. (Muggah, Urban Rennaissance)

Muggah also finds value in unifying wealthy cities with poor cities. He views this not only as a source of financial aid for struggling cities, but also as an opportunity for impoverished cities to observe potentially more effective income inequality policies. (Muggah, Urban Rennaissance)

A second policy position to observe is that of David Dollar and Aart Kraay. They take a stance promoting the benefits of globalization as a means of lowering the level of income inequality throughout the world. They believe that many countries with high rates of income inequality are in such a state because they lack a connection with other, richer countries. They are losing the battle of income inequality internally without looking outward for opportunity and aid from other countries. Dollar and Kraay also stress the idea that the economic decisions of powerful countries play a huge role in the level of global inequality. (Dollar, Kraay, A Rising Tide)

The primary point of Dollar and Kraay is that countries that are struggling with income inequality need to find opportunities in international trade and foreign investments. This is because the improvement of impoverished countries is at the will of the world’s more powerful countries. They believe that rich countries that deny economic integration with poor countries need to be dealt consequences or be convinced to do otherwise. Another theory of theirs is that poor countries need to construct governing systems that are consistent with the process of globalization. (Dollar, Kraay, A Rising Tide)

Branko Milanovic maintains a viewpoint that is contradictory to Dollar and Kraay’s. Milanovic does not find globalism to generate the amount of wealth for a country that is necessary to bring it’s impoverished out of inequality. He stands firmly behind the idea that extreme capitalism has the greatest chance of decreasing the amount of global income inequality. His idea is that the generation of wealth and jobs from capitalists will in turn generate a larger pool of wealth and opportunities to be shared with the poor. (Milanovic, para. 11-20)

Milanovic’s argument is that capitalism is an unstoppable force and that mitigating an individual’s desire for more wealth is impossible. Because of this, he believes that it is a better idea to employ capitalism for its economic growth advantages rather than push for individuals to redistribute their funds among the poor. With that said, Milanovic also calls for a reform in the mindset of the modern capitalist that focuses more on entrepreneurship and the saving of wealth rather than illustrious spending. He specifically refers to the winner-take-all attitude that capitalists have taken on since the 1980’s which he believes has caused wealthy businessmen to focus on personal growth rather than expansion that can benefit all. Milanovic finds that a country benefits more from internal wealth and job creation than becoming interdependent with other countries. (Milanovic, para. 13-21)

Ryo Arawatari’s policy position is based on the effect that voter turnout has on the income inequality level of countries. Arawatari tested his theory that low voter turnout may have a negative impact on the level of income inequality in a country with a series of mathematical equations. (Arawatari, pg.32- 53)The results of his tests found that there is a significant negative relationship between the two, mathematically speaking.

Arawatari proposes that perhaps income inequality could be lower if more citizens that were impoverished voted and provided themselves with representation regarding the distribution of wealth in their country. He also found that lower voter turnout (statistically) stunts a countries GDP growth rate which could in turn increase the level of inequality in the country. Although he does not specifically propose a change in policy, Arawatari analyses the value of voting and democracy as a potential factor to change the level of income inequality globally. (Arawatari, pg. 29-32)

It is important to note the variety of policy positions that are presented. The experts that are cited have fairly different viewpoints in regards to addressing the problem of global income inequality. The two views that seem to contain similarities (if any) are Robert Muggah and Ryo Arawatari’s. Both of these experts advocate an increase in citizen-to-government involvement. Muggah promotes the value of communication between citizens and their local government officials and Arawatari promotes the value of the democratic vote. (Muggah, Urban Renaissance) These are both solutions to global income inequality that rely on the internal processes of countries rather than their policies on foreign affairs. Branko Milanovic also proposes a solution that involves countries working from within their borders but he focuses on what wealthy capitalists can do to lower inequality rather than what the impoverished can do for themselves. (Milanovic, pg.13-20)

Branko Milanovic and David Dollar and Aart Kraay have the most conflicting policy stances. Milanovic belittles the value of globalization, which on the contrary Dollar and Kraay are strong proponents. They disagree not on whether globalization has a positive effect on global income inequality, but whether this affect is influential enough to cause a swift, significant and positive change in the problem. (Milanovic, pg.13-20) Not only do they contradict each other on which policy provides the greatest reduction in income inequality, Milanovic goes as far as claiming that globalization will not produce results quickly enough. Milanovic includes timeliness as an important tool for the support for his argument which other experts did not appear to touch on. (Milanovic, pg.13-20)

Robert Muggah may have the most unique position on the problem of global income inequality. His addressing of global inequality at the local government level provides a far different solution than other experts. As Milanovic, Arawatari, Dollar and Kraay champion policies that take place at the national or international level, Muggah has a grassroots approach which calls for change at the lowest level of government. Not only that, but his policy relies on a humanitarian and moral policy change while the other experts look more into more structural changes and globalization efforts. Muggah proposes working from the bottom up instead of the more popular policies which work form the top down to solve global income inequality. (Muggah, Urban Renaissance)

Major Conclusions:

The opinions of these experts are drastically different from one another in regards to their range of options and applicability. Robert Muggah’s serves as the most loosely applicable option. As a policy based simply on “better” communication between urban city mayors and citizens, the policy can hardly be called a policy, as there is no structural way to implement the idea either within a country or on an international level. This policy could only be applied to cities which are a part of democratic regimes and in states that have local governments. (Muggah, Urban Renaissance)

Arawatari’s policy is much more comprehensive than it is ad hoc. Arawatari does not propose a structural policy either, he calls for an initiative to increase voter turnout which greatly limits the potential application for his ideology. This policy would also be limited to use in democratic regimes that have an electorate and even more specifically, states with low voter turnout. (Arawatari, pg.29)

Milanovic is also proposes a fairly comprehensive policy that could only be exercised by a select group of countries, or individuals for that matter. His advocacy for extreme capitalism would only apply to countries that have a capitalistic economy which is a fairly small percentage of the countries which have high rates of income inequality. Also, the aspect of his argument that calls for modern capitalists to focus more on entrepreneurial values of job growth and distribution is not enforceable by government which limits its application. (Milanovic, para.13-20)

Dollar and Kraays policy is the more as hoc of the group. Their advocacy for globalization is not only a policy that can be implemented in nearly every country, but it can also be instituted through the means of foreign policy efforts, economic interdependency and foreign investment. In promoting globalization, Dollar and Kraay are actually advocating the expansion of the applicability of their own policy. (Dollar. Kraay, A Rising Tide)

The policies put forth by these experts have applications that would not yield results for a long period of time as income inequality and other such economic factors are not susceptible to quick changes. The complexity and depth of global income inequality alone could cause even the most successful policy to take a significant amount of time to impact the world.

Arawatari and Muggah’s policies although being the most abstract of the policies, could yield the quickest results due to their more direct approach to increasing the representation of individuals who are impoverished. Muggah’s policy of communication between citizens and mayors could have an immediate effect on the representation of cities and their potential changes to help increase income equality depending on the legislatures of the city. If the legislature considers the opinions of the impoverished citizens then perhaps change can come about through statutes. (Muggah, Urban Renaissance) Arawatari’s policy of increased voter turnout can also bring about immediate changes in legislature or public figures that can provide for higher rates of income equality for the impoverished.

Milanovic, Dollar and Kraay have more long term policies. Milanovics policy hinges upon the changing of the mindset of capitalists which may not be a goal to rely on as it is abstract. Also his advocacy for extreme capitalism would not generate an immediate change in income inequality because even if the mindsets of capitalists were to align right with his proposed ideal, these individuals could take decades to make an impact that would have an effect on an entire countries economy. (Milanovic, para. 9-20) Dollar and Kraays globalization policy would take the longest not only to implement, to take effect. Creating economic interdependency and expanding relations with other counties alone is a task, but the economic growth that would be expected to follow would take even longer. There are also many factors that can inhibit the policies continuity like war, terrorism and global economic crisis.

References

Arawatari, Ryo. “Informatization, Voter Turnout and Income Inequality.” Journal of Economic Inequality 7, no. 1 (2007): 29-54. Accessed April 27, 2015. doi:March 2009.

“Breaking the Camel’s Back.” The Economist. October 4, 2014. Accessed April 15, 2015. http://www.economist.com/news/finance-and-economics/21621908-what-impressive-work-economic-history-tells-you-about-inequality-breaking.

Dollar, David, and Aart Kraay. “Spreading the Wealth.” Foreign Affairs. January 1, 2002. Accessed March 20, 2015. http://www.foreignaffairs.com/articles/57626/david-dollar-and-aart-kraay/spreading-the-wealth.

Milanovic, Branko. “Inequality and Its Discontents.” Foreign Affairs. August 12, 2011. Accessed March 28, 2015. http://www.foreignaffairs.com/articles/68031/branko-milanovic/inequality-and-its-discontents.

Muggah, Robert. “Fixing Fragile Cities.” Foreign Affairs. January 15, 2015. Accessed

March 20, 2015. http://www.foreignaffairs.com/articles/142760/robert-muggah/fixingfragile-cities