Globalization and Technology as Catalyst for Economic Inequality

The global divide between the wealthy and the poor continues to grow, with the rich being wealthier while the poor continue to be exploited and remain poor. Scholars have proposed that some aspects continue to intensify this economic problem. Globalization and technical development are two modern-day economic features that are adding to the expansion of the divide (MacDonald and Muhammad 2010). Others, such as the availability of inexpensive labor forces and the rising unemployment rate, also raised the number of people able to work for minimum wage. The paper will focus on globalization and technological advancement as the main factors that have contributed to the widening gap between the rich and the poor.

The choosing of this topic is for the primary purpose of exploring this economic issue discussed by Robert B. Reich in more depth. In his essay Why the Rich are Getting Richer and the Poor, Poorer, the author argues that the rich are adding to their pockets through cheap labor and the advancement of technology. In turn, the poor are suffering from the financial restraints put on them through lower wages and few jobs available. Trying to understand what is driving this gap further apart will hopefully lead to a smaller gap in the future.



Globalization as the Factor to the Widen the Economic Gap

Globalization involves increasing the ability of people to interact on a global level that is facilitated by growth in the international exchange of money, ideas and culture. Florence, Subir, and Chris (2) argued that globalization is a catalyst for technological advancement. Although technological advancement and globalization are seen as founding blocks for global economic growth, their effects are not felt across the board. In the majority of the nations, both developed and developing, technological progress and globalization have continued to fuel the widening gap between the rich and the poor. Some scholars argue that some level of inequality is not bad.

Dabla-Norris, Kochhar, Ricka, Suphaphiphat, and Tsounta (6) argued that some levels of inequality motivate people to work and innovate and that this has a positive impact on growth and development, but understanding the causes and effects of inequality is paramount if we are to develop sustainable policies directed toward empowering the poor and crossing the economic inequality gap. Over the last couple of years, the global market has enabled most of the multinationals to diversify on their processes of productions. As Reich (240) observed, many multinationals have turned into the automation of their businesses in order to increase efficiency and profitability. He observed that modern production techniques and their application in most businesses are directly linked to the loss of jobs among the routine producer’s in-person servers.

It is common in modern day to have multinationals with extension units in different countries. The transfer of such production units to countries where there is cheap labor affects the availability of jobs in their mother countries (Dabla-Norris, et al. 25). Such moves always lead to massive layoffs and loss of income among the people employed while the said multinationals increase their profitability through the exploitation of cheap labor. When multinationals shift some of their production processes to developing nations, they use and pay higher wages to skilled labor forces in those countries. The skilled workforce is paid more wages as they can exploit their skills and even work extra hours. This is not true for lower skilled workers. Due to higher rates of unemployment, the low skilled labor force is always willing to work under minimal wages which does not improve their economic status but only offer them enough wages to live on. Such multinationals as Reich (182) argued will continue shifting to countries that offers cheapest labor. It is also evident that, when such companies invest in developing nations, they do so in the name of improving the economic condition of the locals through job creations. After establishing such extensions such companies tend to automate their operations, reduce amount of opportunities, especially for the low skilled labor force that they can produce.

Kaplinsky (20) noted that during the 19th century the gap between the poor and the rich was not as wide as it is in modern days. He argued that previous and current revolutions have shifted the way people do business and the balance between the haves and have-nots. Financial globalization as a sub-component of globalization has exploded financial integration among the developed economies. Trade tariffs have been introduced that reduces the cost of doing business between countries. These trade tariffs and understandings according to Jaumotte, Subir, and Chris (3) affect the inequality and increase the gap between the poor and the rich. When such tariffs are implemented, those with assets and finances will imports more goods as they become cheaper than producing locally. Such moves affect local manufacturing industries which are forced to cut on available jobs due to increased competition between the locally manufactured and imported goods. As more goods continue to be imported, the local markets become flooded with cheap goods.

Technology and Global Economic Inequality

Technological growth entails development, innovation, utilization and incorporation of new ideas and methods in an effort to increase and enhance productivity. In the past few years, technological advancement has altered how traditional businesses were being operated. Multinationals are investing in automation of their operations in an effort to minimize operating costs and increasing efficiency. As observed by Khaled and Sonny (2) globalization and advancement in technology have enabled the emergence of virtual workplaces and catalyzed the rise of e-workers. Through such platforms, people who would otherwise not be able to access employment have reduced the physical location issue as they can work from different physical locations. Such platforms exploit lack of employment a high number of available e-workers are willing to work at reduced wages.

Florence, Subir, and Chris (4) observed that although technology replaces human labor in most businesses that adopt such technological innovations, there are more jobs created elsewhere. They argued that the middle and developed country’s workforce is at risk of losing more jobs as the introduction of artificial intelligence has enabled development and innovation of technologies that were never reality some years ago. Technology has enabled the emergence of strong monopolistic multinationals such as Facebook and Uber. Through the creation of platforms where such monopolies are operated on, the creating of a sense of sharing does not help the case. Freelancers are forced to lower their wages and rates to compete with those who are willing to accept less pay. The main beneficiaries of such economic forces are the owners of such platforms who end up making more from the forces of unemployment (Kaplinsky 38). As Wajcman (2) also indicates, most of the jobs will be automated by the next 10 years. She also observed that, the causal relationship between technology and economic inequality started way back in the year 1970 when the world felt the impacts of ICT revolution and with the “fourth revolution” picking up the pace, the impact on job loses will be felt globally.

Technologies that complemented the labor of high-skilled workers became beneficial to those who could use them and it impacted their wage increment. As more people continued to gain technology-based skills, the supply of skilled workers increased more than the demand. The critical effect of technology on economic inequality both within and between countries is felt through automation of services and processes of production (Wajcman 3).  In the banking industries across the globe, more people continue to lose jobs as the majority of banks adopt technologies that shift their services online. The internet of things (IOT) has enabled such processes to be cheaper compared to human labor. Such moves have resulted in the loss of thousands of jobs. Other industries such as motor vehicle production industries, manufacturing industries, and even agricultural industries are not left behind. Over the last couple of years, introducing artificial intelligence (AI) as observed by Smith and Janna (2) has enabled the development of smarter robots which are replacing human workers in the said industries.

What is more worrying is the direction automation is heading. As more and more AI enabled robots continue to be trained in basic administrative jobs, the majority of workers who cannot re-train and gain better skills will continue losing their job. It is evident that robots are being adopted widely by firms such as spread farm in japan, Wal-Mart warehouses, best buy, Adidas, DHL, Amazon, Capita and even hotels such as Yotel where robots are used in clean rooms and even take care of customers bags and luggage taking front stage. As Smith and Janna (3) argued, the main aim of adoption of robotics and AI is cost cutting and this will aim at reducing the number of human employees in such companies. This will cause loss of thousands of jobs that are held by low skilled workers.

The fourth revolution has already started. Companies such as Nestle are already using robots as salespeople and even as customer care representatives. What happens to people holding such positions?  Production of self-driving vehicles cannot be left behind. Companies such as Uber have already ordered hundreds of self-driving vehicles. Where will the drivers and other low skilled workers go? Companies that adopt these technologies continue to rake in billions of shillings because of increased efficiency and reduced cost of production. Such benefits continue to be enjoyed by the minority 0.1% of the world population and owners of production while the majority of lower skilled workers continue losing their jobs and properties as they can no longer afford to pay up their mortgage, education loans, and health care (Kawachi and Subramanian 130).

Health and longevity are not left behind in this automation and “crazy innovative ideas”. With the continued development of genetic engineering and biohacking, the world will experience a new breed of physically and mentally enhanced labor force. Additionally, longevity will also increase the number of available workers who possess skills and experiences. Although this is a future problem how will affect the current economic equality, employment opportunities and social stability remain unexplored.

Conclusion

In conclusion, economic inequality is a complex phenomenon that requires strategic approaches if it will ever be eliminated. As globalization continues to change rules of doing businesses, its impact on the economic characteristic of most nations keeps on shifting. Many sources indicated mixed impacts of such shifts as developing nations may benefit and the number of people living below the poverty line continues to reduce. This may not be the case for the developed nations whose economies are characterized by automation and increased use of artificial intelligence.

Work Cited

Dabla-Norris, Era. “Causes and Consequences of Income Inequality.” IMF, 2015. www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf. Accessed 13 Nov. 2017.

Elmawazini, Khaled and Sonny Nwankwo. “Globalization and the Income Gap between the Rich and the Poor.” Economic Issues, vol. 18, no. 2, 2013, pp. 19-44. www.economicissues.org.uk/Files/2013/213Elmawazini.pdf. Accessed 8 Nov. 2017.

Jaumotte, Florence, Subir Lall, and Chris Papageorgiou. "Rising Income Inequality: Technology, or Trade and Financial Globalization?" IMF Economic Review, vol. 61, no. 2, 2013, pp. 71-309. https://doi.org/10.1057/imfer.2013.7

Kaplinsky, Raphael. Globalization, Poverty, and Inequality: Between, a Rock, and a Hard Place. John Wiley & Sons, 2013.

Kawachi, Ichiro, and S. V. Subramanian. "Income inequality." Social Epidemiology, vol. 126, 2014.

MacDonald, Ronald, and Muhammad Tariq Majeed. "Distributional and Poverty Consequences of Globalization: A Dynamic Comparative Analysis for Developing Countries." SIRE Discussion Papers, no. 2010-62, 2010, pp. 1-30.

Smith, Aaron, and Janna Anderson. "AI, Robotics, and the Future of Jobs." Pew Research Center 6 (2014).

Wajcman, Judy. "Automation: is it really different this time?." The British Journal of Sociology 68.1 (2017): 119-127.