A chasm grows in 'flat' world

Labor day assessment: Globalization has not eased global income inequality.

At a meeting 11 days ago in Chicago, representatives from 900 unions worldwide coalesced around a common idea: Turn up the pressure on Wal-Mart globally to boost pay and benefits.

The move, by the federation known as Union Network International, encapsulates an anxiety shared by millions of workers, especially in advanced and middle-income nations. As corporations mine an expanding global labor market for the maximum efficiencies, will many workers be left behind?

If we live in an increasingly "flat" world where commerce and jobs can flow easily from Berlin to Beijing and New York to New Delhi, the world remains far from flat in income terms. As Americans celebrate Labor Day this weekend, enormous rich-poor income gaps continue to strain relations and resources. Indeed, one lesson may be that globalization isn't the great leveler of poverty that some hope.

But it doesn't appear to be the great destroyer of rich-country wealth, either.

Thus, for advanced nations, income gaps can look comforting. Overall, wages aren't plunging, even if some workers have been hit hard. But globally, inequality is worrisome.

"Unquestionably the average Chinese is incomparably better off," says economist James Galbraith at the University of Texas. "India is also vastly different. But in other major parts of the world, particularly Africa, the situation is extremely bleak and has been getting worse."

The challenge is surfacing simultaneously at the United Nations and the World Bank. A recent UN study finds much of the world trapped in deepening inequality and will convene next month to focus on ways to radically reduce poverty. Also next month, in its world development report for 2006, the World Bank will focus on "equity and development."

If the problem of inequality is a thorny one, it is hardly new. In part, inequality has arisen as a symptom of progress, especially since 1800, as some nations have advanced far faster than others. For many economists, the way to help the most people is to promote rising living standards for everyone. In other words, focus on economic growth, not mere equality.

Yet equality, too, is important, a growing number say. More-equal income distribution within nations is seen by many as aiding political stability (both internally and internationally). It can broaden the base of consumers, fueling new economic growth. It could even reduce migration pressures of people leaving poorer countries for richer ones.

More important, it can mean more fulfillment of human potential and less suffering.

On average, per capita incomes have been rising globally over the past couple of decades, according to UN statistics. Yet about half the world's population is still living on less than $2 a day, defined by many as a key poverty line, according to the Population Reference Bureau.

Millions in the world's most populous nations, China and India, have been lifted out of poverty due to rapid development since the 1980s. That, in turn, has by some measures reduced global inequality somewhat in recent years.

"Inequality has been rising and rising and rising since 1820," explains Kevin O'Rourke, an economics professor at Trinity College in Ireland. "It may be flattening out now. It may even be falling."

It's potentially a historic change - if those gains can continue in India and China and be replicated in any degree in Sub-Saharan Africa and beyond.

In theory, as economies open up to commerce, there should be greater equality of opportunities - and incomes.

At the opening of the 19th century, during the first great experiment with globalization, "The gap between Europe and the rest of the world was pretty small, say 2 to 1," says Jeffrey Williamson, a Harvard University economist. Globalization "should have helped them catch up."

Instead, the gaps between per capita incomes of rich and poor nations today are more on the order of 15 or 20 to 1, he says. Still, he says the key factors driving the divergence are not globalization per se, but things like education, technology, and domestic conditions.

Among those domestic conditions that support growth, experts cite such factors as spending on infrastructure (from communications to clean water), a banking system that creates access to credit, and judicial systems that support property rights - from patents to small farming plots.

Another factor is labor markets. On this front, where some economists stress the need for a flexible job market, labor advocates say protections for workers must be enhanced.

"Clearly, unless we put new rules around the global economy - real guarantees of workers' rights and environmental safeguards and new constraints around global corporations - we will all be driven to the bottom" in wages, warned AFL-CIO President John Sweeney at labor's recent meeting on Wal-Mart.

Yet a World Bank study of 14 nations, focusing on how to reduce poverty, cites Bolivia and Romania as cases in which "pro-worker" regulations supported by unions restrained job growth.

Among Professor Williamson's recommendations, for rich nations and poor alike, is a sharp focus on training and education, which would allow people to climb the skill ladder and avoid the race to the bottom.

"If you go global, you grow faster," he says. But "the other things matter a lot more."

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