Social Impact: Good Or Bad, It All Depends On How You See It

Updated: Feb 27 2004, 05:30am hrs
In order to assess the social impact of globalisation it is essential to go beyond economic performance and examine what happened to employment, income inequality and poverty over the past two decades of globalisation.

For the world as a whole, latest ILO estimates show that open unemployment has increased over the last decade to about 188 million in 2003. However, employment performance over the past two decades has varied across regions.

It is also noticeable that within the developing world, unemployment rates have increased since 1990 in Latin America and the Caribbean and South-East Asia, and since 1995 in East Asia. One factor behind the rise in unemployment in these regions was the financial crisis at the end of the 1990s. For example, in some major countries affected by crises, unemployment rates did decline after the crisis, but in many cases not to the pre-crisis level.

The share of self-employment, which for most developing regions is a proxy indicator for the size of the informal economy, increased in all developing regions, except for East and South-East Asia. Direct data on employment in the informal economy are not readily available. Such an increase is typically linked to stagnation or slow growth in modern sector employment and the consequent increase in labour absorption in the informal economy.

The share of self-employment, which for most developing regions is a proxy indicator for the size of the informal economy, increased in all developing regions, except for East and South-East Asia. ...Such an increase is typically linked to stagnation or slow growth in modern sector employment and the consequent increase in labour absorption in the informal economy
In industrialised countries, employment performance has also been mixed. Over the last decade there was a steady increase in unemployment in Japan, but a sharp decline in unemployment in some small open European economies, as well as in the United Kingdom. The United States also experienced declining unemployment, despite substantial job losses in some manufacturing industries, until the recent economic downturn.

Income inequality has increased in some industrialised countries, reflected in an increase in the share of capital in national income as well as an increase in wage inequality between the mid-1980s and the mid-1990. Even more striking has been the sharp increase in the share of the top 1 per cent of income earners in the United States, United Kingdom and Canada. In the United States the share of this group reached 17 per cent of gross income in 2000, a level last seen in the 1920s. This increased concentration in wealth has been the prime factor in the rise in income inequality in the United States; the declining share of the bottom decile of wage earners has been in reverse since 1995.

This emergence of wealth is important for the analysis of globalisation since exceptionally high earnings have typically been linked to compensation paid by MNEs, the development of new business with a global reach and global superstardom. The increased concentration in wealth is likely to imply increased market and political power, both nationally and globally, for those who have benefited from this. It is also an important influence on peoples perceptions of globalisation.

Outside the industrialised countries, there has been a similarly mixed picture on changes in income inequality. While the large majority of countries have experienced a rise in income inequality, it remains an open question as to what extent globalisation is to blame.

The impact of globalisation on poverty is also difficult to assess. The number of people living in absolute poverty worldwide has declined significantly from 1,237 million in 1990 to 1,100 million in 2000. However, most of this improvement is accounted for by the changes in just two very large countries, China and India, where 38 per cent of the worlds population live. In China alone the number of people living in poverty declined from 361 million to 204 million.

Elsewhere, in sub-saharan Africa, Europe and Central Asia, and Latin America and the Caribbean, poverty has increased by 82, 14, and 8 million, respectively. However, regional and country-specific factors unrelated to globalisation were also key factors in these differences in poverty reduction. All this leaves a basic ambiguity in the interpretation of the data on trends in global poverty. While it is clearly a cause for celebration that world poverty in the aggregate has been reduced, this is little consolation to those outside the few countries where these gains have been concentrated.

The number of people living in absolute poverty worldwide has declined significantly from 1,237 million in 1990 to 1,100 million in 2000. However, most of this improvement is accounted for by the changes in just two very large countries, China and India, where 38 per cent of the worlds population lives. In China alone the number of people living in poverty declined from 361 million to 204 million
An additional ambiguity is that there can be real social costs involved even if aggregate indicators such as the unemployment rate or the level of poverty do not show any deterioration. The reason for this is that the stability of these rates could mask considerable churning in labour markets and movements in and out of poverty. There is some evidence that these phenomena have become more marked with increasing globalisation. Again, it is cold comfort to those who have lost jobs or fallen into poverty that others experiencing opposite fortunes have prevented a fall in the unemployment or poverty rate.

This type of mobility is one of the main reasons why people have different perceptions of the social impact of globalisation. Personal experience (or direct observations) of job or income loss by particular social groups or localities largely colours perceptions, regardless of what the overall picture may be. As a result, at least part of the heated debate over the social impact rests on such differences in perceptions and in the way aggregate social indicators are interpreted.

The mixed picture that emerges on economic performance and on changes in employment, inequality and poverty makes it extremely difficult to generalise on what the impact of globalisation has been. In part this is because globalisation is a complex phenomenon. Observed outcomes such as changes in the level of unemployment and of poverty reflect the combined results of a complex of factors of which globalisation, however broadly defined, is but one. Domestic structural factors such as the degree of inequality in the distribution of income and wealth and the quality of governance are often important fundamental influences on these outcomes. It is important to avoid the common error of attributing all observed outcomes, positive or negative, entirely to globalisation.

Excerpted from the document, A Fair Globalisation: Creating Opportunities For All, brought out by the World Commission on The Social Dimension of Globalisation