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Discuss the cause and consequences of the uneven distributionof global income and wealth

Introduction:Refer to stimulusGeneralized statement to the extent of inequality

Causes:

GLOBAL:

a) trade system

a. Agricultural Protectioni. high agricultural protection OECD farming support 2010 $250

billion

ii. Subsidies in Japan 50% of farmers incomes and 20% in Europeiii. 31% of EU budget goes to agricultural policy

b. Expanding regional trade blocsi. EU, NAFTA excludes other nations

ii. If Africa, East and South Asia and Latin American couldincreased share of world exports by 1% 128 million would belifted out of poverty

c. WTOi. High cost of arrangements and appeals exclude developing

nations1. Dispute resolution only works for smaller nations

ii. Failure to implement Doha round as high income nationsresisted concessions on agriculture

1. World bank estimated that if implemented would haveincreased economic activity by $520 billion and lift>140 million people out of poverty by 2015

b) financial architecture

a. FDI traditionally favored developed economies. Now almost 50% goesto emerging economies (BRICs) but 2011 worlds 48 least developedeconomies received only 1% of total FDI

b. TNC massive growth (now ~104,000) employ 69 million and accountof >25% of GWP

i. Positive in terms of offering employmentii. Negative in terms of where the profits go, labour,

environmental standards etcc. Financial architecture has lead to volatility which has a greater impact

on developing nationsi. Asian financial crisis 1998

ii. Latin America early 2000sd. Loopholes exploited by high income economies

i. US $9.8 trillion in Cayman islands (populations 92,000)ii. Tax Justice Network report: tax havens have total $ equivalent

to US GDPe. IMF criticism

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i. Voting rights based on contributions (therefore high income hasmajority)

ii. Loans given on basis of structural readjustment (increasedtaxes, decreased government spending etc) often damagesrecipient economy

f. Foreign debt burdensi. 2010 developing countries external debt $3.7 trillion

c) Aid and assistance

a. High income countries promised 0.7% GDP only gave 0.3% since1970s. 58% short fall

b. phantom aid aid given that doesnt help the poori. 17% aid technical cooperation (consultants of high income

countries)ii. 5% aid admin costs

iii. tied aid conditional aidc. Reflects strategic and military considerations rather than needs

i. Since 2002 50% of US $178 billion aid from wealthy countriesgiven to Iraq and Afghanistan

d) technology Flows

a. Often too expensive for developing economies to produce manyproducts leading to digital divide

i. Intellectual property rightsb. Technology absorbed at a greater rate in economies with better

infrastructurec. Focuses on need of high income countries such as aging population,

labour saving etclow income countries generally have no problemwith labour supply and need medical technology to assist curingcommon curable diseases

DOMESTIC

a) Economic Resources

a. Natural resources each country does not have an equal distribution ofi. Australia minerals Middle east - oil

b. Labour supply and quality better in high income countriesi. Singapore highly educated, highly skilled labour force

c. Access to capital and technology major structural weakness in lowincome economies (low income = low savings = no funds for I)

i. Some help through micro finance schemesd. Entrepreneurial culture depends on history, social institutions, workethic etc

b) institutional factors

a. Political and economic institutions generally corrupt and instable inlow income economies. Does not encourage investment

i. Somalia index 1.0 on corruption perception index New Zealand9.5

b. Economic policies in low income economies generally favor economicgrowth rather than economic development

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SUMMARY

Gittens accounts global inequality to five main causes: import ideas, technology andknowledge, high savings and investment, market system to allocate resources,committed, credible and capable governments

Consequences:a) categories of economies

a. Advanced:i. GNI per capita > U$12,276 pa

ii. Slow growth recentlyiii. Focus on services and ETMs

b. Emerging:i. Y levels vary

ii. Fast growthiii. Industrialization

iv. Focus on manufacturing and exportsc. Developingi. Low Y levels (48 least developed GNI per capita