Global Political Economy 101: Why Few Have Much, and Many Have Little - Inequality

Foreword

It is common to hear in public discourse that the world has never been as interconnected and interdependent as it is today. Technological progress in the fields of communication and transport has promoted giant leaps in the last 100 years in terms of the internationalisation of the economy. The term globalisation, in fact, has become of common use, and national economies can no longer be studied without facing their embeddedness in the world economy. The series of articles Global Political Economy 101 strives to address the complexity of the global economy by historicising the process that led to the present situation, providing an overview of the different academic approaches, and finally coming up with critical interpretations of the global economy and globalisation. The study of global political economy as a coherent subject of inquiry provides valuable insights into the big issues of our days, such as poverty, inequality, development, and sustainability. The pieces will maintain a humanities-based approach. Therefore, the economy will be seen as the intertwining between several factors like politics, society, culture, and human agency rather than the result of mathematical calculations. The set of articles will be divided into three blocks, each one composed of three articles. The first block will analyse the world economy from a historical perspective. The second one will provide an overview of the main theoretical interpretations of the world economy. The third one will address some of the main questions of today’s global political economy with the analytical tools previously provided.

Global Political Economy 101 is divided as follows:

1. Global Political Economy 101: From the Discovery of the Americas to Imperialism

2. Global Political Economy 101: Decolonisation, World Capitalism and Neoimperialism

3. Global Political Economy 101: Neoliberalism and Globalisation

4. Global Political Economy 101: Liberal and Neoclassical Interpretations

5. Global Political Economy 101: State-centric & Developmentalist Interpretations

6. Global Political Economy 101: Critical Approaches and Dependency Theory

7. Global Political Economy 101: Why Few Have Much, and Many Have Little - Inequality

8. Global Political Economy 101: The Wretched of the Earth - Development and Poverty

9. Global Political Economy 101: The Mantra of Our Times - Sustainability

Introduction

The present article is the first of the last block of this 101 series, which aim is to analyse major contemporary issues in the Global Political Economy (GPE) through the analytical tools provided in the previous pieces. Both the history of GPE and the different theoretical approaches will be used here to unravel the complex problem of inequality, which is one of the big problems of nowadays GPE and has acquired particular relevance recently. Such an issue is tightly related to the structure of the world economy, for the latter constitutes the scheme through which resources are allocated among and within countries. Hence, the aim of this article is to address inequality from different perspectives, both historically and theoretically. This article will refer to inequality as the uneven distribution of wealth; other types of inequality do exist but will remain marginal here. The first part will address the historical development of inequality and of its preconditions; the second part will enunciate how the main theoretical stands in GPE scholarship approach inequality.

The History of Inequality

Inequality is one of the features of societies (Stiglitz, 2002), and it traces back to the history of humankind. Capitalism has cohabited with inequality, and to a certain degree, it was fostered by it. However, as Karl Marx (2017) — the intellectual forefather of critical scholarship himself — argued, capitalism is the step in human history that managed to overthrow the feudal system, which was based upon the unfair allocation of resources based on census. Even though he was one of its harshest critics, the German philosopher understood that capitalism — even though it is inherently exploitative — is the most advanced economic system if compared to the previous ones. Starting from the emergence of capitalism — intended as mercantilist capitalism in the 16th century — inequality becomes inherently linked to GPE. As the previous articles of this series have explained, GPE aims at examining the world economy as a coherent object of inquiry, which can be only done from the 16th century onwards, given the growing importance of trade relations spurred from the discovery of America (Arrighi, 1994). This does not mean that inequality did not exist before the discovery of America — on the contrary, it was a salient trait of many human societies — but rather, it was not yet directly connected to the global nature of the economy, because the economic realm at the time was dominated by local relations. From a GPE point of view, both inter-state and infra-state inequalities are interesting since they are seen as a manifestation of the functioning of the world economy.

Image 1: Unknown (n.d). Inequality [Illustration].

During the early phases of capitalist development — after the discovery of America (1492) — the different, and uneven, allocation of resources and wealth among different regions started to be shaped. As the important GPE scholar of Arrighi (1994) argued, during the colonial rule of Latin America, and later Africa and Asia, hegemonic powers — a position that would be acquired by different countries throughout history — obtained their political and economic dominance from the exploitation of the natural and human resources of their colonies. According to the scholar who conceptualised world-system theory Wallerstein (2000), the inequalities between countries lie in the fact that world capitalism required some countries to be commodities exporters, while others to produce manufactured goods. This leads to the notion of unequal exchange, meaning substantially that the production of raw materials — to which colonised countries were relegated — does not produce the same benefits as industry or manufacture. Therefore, as much as the economic interaction between the colonies and the colonisers might grow, their economic growth will always be unequal, in the measure that the coloniser will always grow faster than the colonised for as long as the unequal trade relations endure (Wallerstein, 2000). The latter idea is the basic assumption of world system theory — of which Wallerstein is the most relevant personality. World system scholars point out that inequality between countries, in terms of economic development is due to the conditions under which their access to world capitalism was produced (Arrighi, 1994; Wallerstein, 2000), which in turn caused the development of some countries — which world system scholars called metropolitan countries — at the expenses of others — the periphery. The unequal distribution of wealth between states, therefore, must be attributed to the primitive appropriation of a dominant position in the world economy made by metropolitan countries, which spoiled peripherical countries from the very opportunity of developing an advanced economy (Arrighi, 1994).

Image 2: Unknown (n.d). World-system [Illustration].

Within-countries inequality is also a theme of interest for GPE, for it is tightly related to the structure of the world economy understood as a whole. The issue has important implications. Dependency theory scholars, e. g., argued that the unequal structure of society of underdeveloped or developing countries was the inheritance and the perpetuation of colonial rule, which established a relationship of dependence between colonies and the motherland (Quijano, 2014). The internal structure of developing countries — in terms of power and wealth distribution — is the manifestation of processes of development “imported” from metropolitan countries, and thus reproduces their needs. Those needs do not tend towards the equalisation of wealth, but rather require unequal societies (Quijano, 2014). Concerning, instead, developed countries, a major contribution comes from the former head of the world bank and Nobel prize Joseph Stiglitz (2002) and his critique of neoliberalism, for in his opinion it enhanced within-countries inequalities, both in developed and underdeveloped countries. By encasing the market and its actors (Slobodian, 2018), neoliberalism exacerbated some features that are inherently present in capitalism, and that previously were constrained by the presence of the state or social structures. As Stiglitz (2002) points out, inequality has grown since the emergence of neoliberalism within most countries. This was a consequence of what Harvey (2005) defined as the “economisation of society“ and “financialisation“. Thus, neoliberalism caused the steep growth of inequality within countries, for it critically expanded the space in which market actors can move profitably through the enlargement and promotion of financial markets, the general reduction of trade barriers, and the economisation of society (Stiglitz, 2002).

Image 3: M. Wuerker (n.d). Inequality and neoliberalism [Illustration].

As it has been briefly presented, inequality is historically rooted in society, and it still is one of the main features of contemporary GPE. However, very different standpoints have been adopted when looking at inequality. The next section will briefly explore the most relevant views on inequality from different theoretical standpoints.

What Is Inequality?

As it has been explained in previous articles of this section, GPE scholarship encompasses a variety of theoretical standpoints whose aim is to make sense of how the world economy works and has worked. Inequality is one of the main issues contemporary GPE scholars, therefore, have approached it from different — and often conflicting — angles, which reflect their theoretical inclination and ultimately their view of the world. This section will briefly explore the very much debated topic of inequality through the analytical lens of liberal, statist, and critical GPE.

Liberals address inequality as the byproduct of capitalism and the fair reflection of an economic system that allocates resources in the most efficient way. This means that wealth “is put” in the hands of some individuals because they have the personal qualities to deserve it (McCloskey, 2016) — in economic terms, this is encapsulated in the concept of utility. According to liberal thinker McCloskey (2016), the only way the world can progress towards a fairer distribution of wealth is through the improvement of market mechanisms, letting them decide who should own what. In fact, since the rise of capitalism, she argues that global inequality has decreased drastically and will decrease more and more as more people are able to access a free market around the world. Liberals base their conception of inequality on the concept of specialisation, according to which each country should engage in the production of whatever product allows them to compete in the world market (Arrighi, 1994). This leads to a situation of comparative advantage, in which every country specialises in a sector of production, and trades such a product for those it needs to purchase in the world market (McCloskey, 2007). Hence, inequality is the result of the incorrect functioning of the capitalist market, which is hindered by the imposition of trade barriers and protections which impede specialisation (McCloskey, 2007).

Image 4: Unknown (n.d). The liberal idea of equality [Illustration].

Statist approaches to GPE crucially question the liberal assumptions of market efficiency and specialisation. According to them, the state should have a central role in promoting economic development. They do acknowledge that the unequal distribution of wealth among states is caused by the fact that some countries specialise in convenient and lucrative economic sectors, while others do not (Selwyn, 2009). The structure of the world market as it was conceived by liberals only reproduces inequality between countries and, hence, underdeveloped countries should engage in protectionist measures to promote industrialisation from within (Selwyn, 2009). This resulted historically in import substitution industrialisation policies, aimed at producing nationally those products that were previously imported, insofar as spurring the formation of a national industry (Selwyn, 2009). According to them, internal inequality can also be tackled by promoting internal industrialisation, for industry generates more income which can eventually be redistributed more easily.

Image 5: Unknown (n.d). Import substitution industrialization [Illustration].

Critical GPE, contrary to both previously addressed strands of scholarship, points out that inequality is an inherent feature of capitalism. On the one hand, inequality between countries is the result of historical processes such as imperialism and colonialism, which resulted in a world market that is inherently unequal (Arrighi, 1994). As mentioned earlier, the conditions of trade between the metropolis and the periphery — and still are — deeply unequal, fostering uneven economic growth and as a result, an uneven distribution of wealth. The relation between formers and the latter, according to critical scholars, is inherently unequal because of the very nature of world capitalism, which needs some regions to remain poor and underdeveloped in order for others to be rich and developed (Arrighi, 1994; Harvey, 2014). This is because the economic activities carried out in the centre could not be profitable if it was not for the fact that cheap inputs are provided from the periphery (Harvey, 2014). Furthermore, in the neoliberal era, inequalities are exasperated as the market logic has penetrated the whole society. Institutions that before the rise of neoliberalism were intended to be curbing the exaggerated inequalities that capitalism produces — such as the state and its apparatus — were submitted to the logic of market competition. This resulted in a generally steep increase in wealth inequality within countries, for the extreme effects of capitalism were no longer constrained by those institutions but rather enhanced (Harvey, 2005). Therefore, it is the very nature of capitalism and the capitalist world market that is questioned by critical scholars. On the one hand, they reject the liberal assumption that the best allocation of wealth is provided by the market. On the other, they question the statist claim that inequalities can be curbed through access to the world market mediated by the state, for capitalism is itself the inherent source of inequality.

Image 6: Unknown (n.d). Capitalism is the problem [Illustration].

Conclusion

Inequality is one of the major issues of all time. It has been present in most human societies, however, its connection to GPE can be traced back to the very beginning of mercantilist capitalism. The shape that colonial powers gave to the world economy is at the origin of nowadays inequalities, and neoliberalism has increased its societal relevance. Many positions have been taken regarding inequality. Liberals argue that inequality is the product of the incorrect functioning of the market, and that it can be undermined by extending market participation to every country and every individual. Statist GPE scholars argue that the liberal concept of the free market is the source of inequality, and therefore, states should protect their economies in order to promote the development of the internal market and shield the country from the worst effects of the free market in terms of inequality. Critical scholars question both assumptions claiming that inequality is at the very core of capitalism, and thus it cannot be solved by promoting unconstrained access to the free market, nor by promoting state-mediated access to it.

Bibliographical References

Arrighi, G. (1994). The long Twentieth Century; Money, power, and the origins of our times. Verso.

Harvey, D. (2005). A Brief History of Neoliberalism. Oxford: Oxford University Press.

Harvey, D. (2014). Seventeen contradictions and the end of capitalism. London: Profile Books Ltd.

Marx, K. (2017). Antologia. Milano: Feltrinelli.

McCloskey, D. (2007). The Bourgeois Virtues: Ethics for an Age of Commerce. Chicago: ‎University of Chicago Press.

McCloskey, D. (2016, September 2). The Formula for a Richer World? Equality, Liberty, Justice. The New York Times.

Quijano, A. (2014). Dependencia, cambio social y urbanización en Latinoamérica. In A. Quijano, Cuestiones y horizontes : de la dependencia histórico-estructural a la colonialidad/descolonialidad del poder (pp. 75-124). Buenos Aires: CLACSO.

Selwyn, B. (2009). An Historical Materialist Appraisal of Friedrich List and his Modern-Day Followers. New Political Economy, 157-180.

Slobodian, Q. (2018). Globalists. Milano: Meltemi.

Stiglitz, J. (2002). Globalization and its discontents. W.W. Norton & Company.

Wallerstein, I. (2000). The Essential Wallerstein. The New York Press: New York.

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