The Limits of Globalization: Injustice, Inequality and the Progressive Response

Tuesday, 12 September 2023

On the evening of December 25, 1991, the red flag of the Soviet Union was lowered from the Kremlin for the last time. The following day, members of the Soviet parliament voted unanimously to dissolve the USSR, thereby transferring most state functions to the newly formed Russian Federation.

Described by academics Matt Killingworth and Matthew Sussex as a major “seismic event in international relations,” the fall of the Soviet Union meant the end of the Cold War and the advent of the current unipolar world. It also marked the beginning of globalization, as 287 million people were suddenly thrust into the global economy. With capital now free to roam across a vast expanse that covered a seventh of the Earth's surface, new businesses were created, often emerging from state-run enterprises that were sold to the private sector.

But the fall of the Iron Curtain also had profound consequences for the rest of the world. Capitalism's expansion into the former Communist Bloc meant increased international trade and greater market integration, which led, in turn, to the unprecedented movement of people and goods across countries.

The impact of these developments was especially felt in the Global South, where a number of former colonies had earlier emulated the Soviet system in the hope of achieving rapid industrialization. However, with the dissolution of the USSR, the developing world was now left with no alternative model, prompting most of these nations to conclude that the capitalist approach was the only sensible way of organizing their economies.

Using the market's ability to generate wealth, non-Western countries had contributed significantly to the phenomenal growth of the global economy, which (according to the World Bank) expanded from US$27.5 trillion in 1990 to US$93.8 trillion in 2021. During that period, global GDP increased by an average of 2.9 percent, while the average income per person increased by 1.6 percent.

Globalization, in other words, has expanded and accelerated growth across the world, thus leading to the “rise of the rest.” Coined by renowned author and CNN host Fareed Zakaria, the phrase refers to the economic and political empowerment of the developing world whose countries have recently become “politically stable, economically strong, (and) culturally confident.” Buoyed up by their new prosperity, non-Western nations, Zakaria observes, have now become fully capable of “asserting themselves on a global stage,” creating a world order wherein they are “no longer objects or observers but players in their own right.”

The growing confidence of “the rest” is not only reflected in their sense of parity with the West, but also in their increasing influence over international affairs. This is best reflected in BRICS—the group of countries composed of Brazil, Russia, India, China, and South Africa. Considered as the five strongest economies of the developing world, BRICS had a combined gross domestic product of US$23.5 trillion in 2021 and constituted 25 percent of global GDP for that year. They also hold their own annual summits, with Russia hosting their first-ever meeting in June 2009.

All these trends underline one incontrovertible truth: that globalization has succeeded in narrowing the gap between the West and “the rest,” resulting in growing equality among countries.

Unfortunately, the process of globalization has also created huge income gaps across the world, which has led to growing inequality within countries. This was acknowledged even by the World Bank's former Chief Economist, Francois Bourguignon, who argued that “the same factors that can be credited for the decline in inequality among countries can also be blamed for the increase in inequality within them: globalization.” Writing in 2016, Bourguignon stated that the world has become “interconnected and unequal,” with the Gini coefficient rising by more than two percentage points from 1990 to 2010.

Francis Fukuyama also arrived at the same discomfiting conclusion, conceding that, “the liberal world order did not benefit everyone.” He further added that, “inequality (has) increased dramatically, such that many benefits of growth flowed primarily to an elite defined primarily by education.”

These observations are especially apparent in the Asian region, despite its status as the world's fastest growing economic hub. In fact, prior to the pandemic, the region enjoyed an average annual growth of seven percent. This meant a four-fold increase in its per capita GDP from US$1,602 in 1990 to US$6,679 in 2020.

Though this prosperity has been undeniable, the region's wealth is largely concentrated in a small segment of the population. This was, in fact, pointed out in a 2018 report by the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), stating that, “economic growth has not been inclusive, leaving millions of people in a disadvantaged and precarious situation.”

Using Asia-Pacific's Gini coefficient, the report noticed a significant increase in income inequality during a two-decade period, rising 5 percentage points from 33.5 in 1990-1994 to 38.4 in 2010-2014. And for many Asian countries, increased income inequality meant “a higher concentration of wealth among the already rich, or the top 10 per cent of the population.” Ironically, the steepest increase in inequality were recorded in the region's two best performing nations. In India, for example, the top 10% of the population received 54.2% of the total national income; while in China, 41.1% of the country's total income went to the top 10% of their population. This situation, the report notes, has severe consequences, since “inequality reduces the impact of growth on poverty reduction.”

The present issue of PRAKSIS explores a possible set of social democratic responses to the problem of inequality that is being engendered by the globalization process. It does so in the spirit of social justice that emphasizes the just distribution of social goods as well as protection for the most vulnerable. While globalization should not, in any way, be viewed as fundamentally odious or unfair, the journal and its contributors assert that its flaws and limitations be recognized and addressed so that social democrats can build a far better future for everyone.

This issue opens with a joint article from Sustarum Thammaboosadee, Mia Hakovirta and Mirkka Danielsbacka. Claiming that globalization has led to growing inequality due to the “increase in the price of health care, education and housing,” the authors note the rise of a “new group of working class” called the precariat. Understood as those with “unstable working hours, unstable income, (and) uncertain employment contracts,” the precariat “bear the burden of suffering" due to "unstable employment conditions.” To address this phenomenon, Thammaboosadee and his colleagues call for the “development of a generous welfare system” that would guarantee a “universal comprehensive scheme, free higher education and universal pension.”

The ill effects of globalization are clearly felt in Thailand which, according to Decharut Sukkumnoed, has seen “widening wealth inequality” in the past three decades. This situation, he further argues, had generated other forms of inequality, denying millions of poor households access to “education, the internet, and learning resources.” For this reason, Sukkumnoed sees the need to “close the gap in education and human development” by establishing a “universal and comprehensive welfare system” that would protect “livelihoods from various development policies and projects.”

Indrasari Tjandraningsih's essay, on the other hand, looks at the impact of globalization on Indonesia, and how it has prompted companies to introduce labor market flexibility. Often associated with the growing freedom of capital to abruptly alter salaries, adjust working hours and terminate employees, this novel business practice, Tjandraningsih argues, was devised by the private sector to “minimize the negative impact of economic shocks...as the economy liberalizes and internationalizes.” She also sees labor market flexibility as a “capitalist strategy to reduce production cost” by downsizing companies, outsourcing “non-essential tasks”, and by hiring temporary or part-time workers. Unfortunately, this practice has “strengthened the bargaining power of employers,” allowing them to “apply stricter conditions of work and payment.”

At the same time, labor market flexibility has also undermined the power of labor unions and their ability to bargain with management. Predominantly composed of permanent workers, unions have difficulty recruiting contractual employees who are afraid that their contracts will not be renewed once they demand better working conditions. As contractual workers begin to outnumber permanent employees, unions lose their membership and with it, their main source of strength.

To overcome this challenge, Tjandraningsih notes the importance of revitalizing the unions and the broader labor movement by “mobiliz(ing) underrepresented groups of workers” and by “strengthening internal democracy.” She also emphasizes the need for “collaborations and coalitions with other civil society groups” as a way of “amplify(ing) pressures to the government.”

Malaysia's experience with globalization, on the other hand, has been more mixed. In her article, Joyce Tan Wai Wai pointed out that globalization has had a positive impact on Malaysian development, since it helped transform the country “from one that was highly dependent on agriculture and commodities into one that is driven by manufactured goods and the service sector.” But this rapid expansion of the economy also led to chronic labor shortages that had to be plugged by hiring low-skilled migrant workers. The availability of cheap foreign labor, Wai Wai emphasized, discouraged industrial upgrading, which also prevented Malaysian firms from moving up the value-chain. This predicament then created new forms of social exclusion, which was exacerbated by the COVID-19 pandemic.

In response, the ruling Pakatan Harapan, according to Wai Wai, issued a document entitled Action Plans that outlines their strategy to “protect the most vulnerable in society.” Specifically, the coalition aims to strengthen worker protection by both “improving the minimum wage, (and) social security schemes.” They also intend to reduce inequality through a package of programs that include Micro-credit Financing, Direct Cash Transfers, and Community Health Access.

Nepal also had a similar experience, which is the focus of Kamal Dev Bhattarai article. In the 1980s, the Nepali government began liberalizing the economy under the structural adjustment program of the International Monetary Fund (IMF). Bhattarai sees the introduction of this policy as the “first phase of globalization.” As a result, massive foreign capital entered Nepal which rapidly expanded the market. This also placed tremendous pressure on Nepal to adhere to the rule of law and international human rights norms.

But the policies of liberalization and privatization associated with globalization also led “to the closure and collapse of government-owned industries,” and to “rising inequality between rich and poor.” In fact, as Bhattarai points out, the income of Nepal's richest 10 percent is more than three times of the poorest 40 percent.

This led, according to Bhattarai, to “intense debate within the Nepali Congress,” with some senior party leaders condemning “the growing inequality in health, education and agriculture due to the wave of globalization.” Clamoring for democratic

socialism, these leaders have proposed a progressive tax system which would impose additional taxes on the income of the rich while waiving taxes for the poor.

The next article by Justine Balane and Mark Diaz looks at the specific impact of globalization on the Philippines' education sector. They assert that globalization has been characterized by the “neglect of social services (and) the shrinking of local industries,” which led to a “chronic state of crises” for the country. This has been particularly felt by education sector since it “bore the brunt of the consequences of globalization.”

To meet the demands of the world market, the Philippine state, Balane and Diaz wrote, has surrendered its role as “provider of education services,” allowing private schools and universities to crowd out state-run institutions and create human capital for the global market. This situation has led to rising school fees that students from low-income families simply cannot afford. Globalization has also altered the rationale of education, which is now training students for future deployment as overseas employees, instead of instilling citizenship and civic consciousness. As a result, the Philippine education system, Balane and Diaz argues has “steadily degraded” since the latter part of the Cold War.

This host of problems, the two authors point out, has prompted Akbayan Youth and the Student Council Alliance of the Philippines (SCAP) to issue a statement in August 2022 calling on the government to declare an “education crisis.” The document further demanded to “increase the education budget and expand budget utilization monitoring,” as well as “ensure all-inclusive and accessible education.”

While globalization is often associated with the expansion of liberal democracy, Andina Dwifatma's article has a more nuanced take, arguing that there is an ongoing “trend of shrinking civic space for civil society organizations (CSOs), media, and academics.” The implications for democracy are extremely troubling, since the deterioration of civil society means that “the state and the market are becoming stronger.” Because of the common threat of shrinking civic space, Dwifatma echoes the call of the Bali Civil Society and Media Forum (BCSMF) 2022 for “cross-sectoral collaboration among civil society to promote democracy.”

Francis Isaac continues the discussion on globalization and inequality by citing the study of Francois Bourguignon. The former Chief Economist of the World Bank, Bourguignon claims that while globalization has led to growing equality among countries, it is also creating growing inequality within countries.

For Isaac, the problem of inequality has led to the of rise transnational movements that seek to advance social justice and solidarity by engaging various levels of decision-making--from the grassroots to the global arena. One good example is the Progressive Alliance (PA)—a network of 118 political parties and 28 associated organizations—which seeks to preserve and expand the welfare state as a way of protecting the wellbeing of all citizens. Socdem Asia has a similar attribute, albeit operating at the regional level. With a dozen parties and organizations operating in 13 countries, the Network emphasizes the importance of building a social state that can extend important social services to the most marginalized groups.

The issue ends with Saiful Haq's article on the ideological development of social democracy. Arguing that social democracy is not a fixed set of doctrines, Haq asserts that this political tendency has evolved over time as it addressed specific historical circumstances.

During the early 20th century, for example, social democracy “proposed replacing private property with the social ownership of the means of production.” But social democracy eventually began reforming orthodox Marxism after the Second World War, advancing instead “a set of reforms that focused on social policy as a transition from capitalism to socialism.” This is often described as the 'social democratic compromise' wherein the welfare state plays a vital role in prioritizing human needs over the profit motive. The advent of globalization, however, gave neoliberals the opportunity to question social democracy, claiming that its policies “hinder competitiveness through excessive wages and taxes.”

But the 2008 Financial Crisis, Haq argues, has since muted these criticisms, adding that “social democratic welfare states and labor regimes have proven to be highly resilient.” Therefore, for Haq, social democracy is still the best response to globalization since its egalitarian policies “have made an important contribution to improving literacy skills at the bottom, which in turn facilitates the integration of the entire workforce into productive activities that are competitive.”

In this entire issue, our authors agree that the problems of inequality and social exclusion have been aggravated by globalization. Yet, they remain optimistic that a far better world is not only possible but it is already on her way. And “on a quiet day,” so wrote Arundhati Roy, “I can hear her breathing.”