Globalization and Social Inequality

Effects of Globalization

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Running head: EFFECTS OF GLOBALIZATION

The Effects of Globalization on Social Inequality in

China and the United States

Kevin Rogers

Western New England University

In partial fulfillment of the requirements for SO 413-01

Dr. Michaela Simpson

11/17/14


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Abstract

This research review studies two countries in particular, the United States and China, and

the effects globalization has had on both of these countries. First, this research review examined

the political and economic atmospheres of each country in the years leading up to the onset of

globalization. After the history of each country was established, the effects globalization has had

on each country were examined. To do this, the responses of each government to increasing

pressures from the global economy were scrutinized and why they responded in such a way have

also been studied. Data is then provided to support these claims. The results are shocking and are

discussed with reference to contemporary sociological theory.


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The Effects of Globalization on Social Inequality in China and the United States

Recently, many governments have realized the importance of using globalization to

promote social good. The G8 Social Impact Investment Task Force released its first report this

year, discussing the importance of impact investing (Russell, 2014). Through impact investing

governments and businesses could make smart, profitable investment decisions all while helping

tackle social problems (Russell, 2014). Impact investments are different than traditional

investments, in that they are made to companies with aims to address social issues instead of

only maximizing profits. The G8 Task Force calls on governments to undertake tax and

regulatory reforms which will incentivize businesses into impact investing (Russell, 2014). If this

is done, billions or even trillions of dollars may be made available to help with the issue of

increasing social inequality.

This is a radical step, as globalization itself has been the cause of increasing social

inequality in many nations, developed and developing. Before the onset of globalization, many

countries enjoyed eras of increasing social equality and emphasis on social good. These countries

had strong welfare states which provided many benefits to their citizens. Once globalization

began to invade these nations, periods like this did not last long. Societies once characterized by

a concern for the general good transformed into capitalist ravaged states with no concern for the

public. Two countries that display this trend are the United States and China, who both have

been subjected to the forces of globalization.

This research review will be broken down into three sections, which will then each be

broken down into two more sub-sections, one for each of the countries in study. The first section

will focus on the history of each nation in the 30 to 40 years leading up to the onset of


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globalization. This is to inform the reader of the political and economic climates of the country

before so that the changes brought about by globalization are more apparent. The next section

will focus on globalization, the effects it has had on each country, and why they occur. The last

section will provide and discuss the data to support the claims made in the second section. It is

the purpose of this paper to show that globalization has significantly changed political and

economic policy in each country to favor the corporate elite and their corporations, causing

increasing social inequality.

History before Globalization

United States

After coming to life in 1936 through John Maynard Keynes’ General Economic Theory,

Keynesianism became a central component of the American economic and political systems

(Jenkins & Eckert, 1989). Central to Keynesian economics is the belief in a mixed economy,

characterized by a main private sector with government and public sector intervention to

promote economic stability (Beckert & Zafirovski, 2006). Just beginning to recover from the

Great Depression and hit with the Recession of 1937, many economists and policy makers were

starting to see the importance of the state in economic stabilization and that the market could not

correct itself (Jenkins & Eckert, 1989). Jenkins and Eckert (1989) claim that, “the national

government should adopt the strategy of systematically intervening with simulative fiscal and

monetary policies to boost aggregate demand and thereby establish an equilibrium at a higher

employment level” (p. 124). Focusing on reestablishing demand, economic and political policy

in the late 1940s shifted towards a focus on tax reform, specifically progressive taxation,


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collective bargaining in the form of labor unions, and federal regulation of product quality and

prices (Beckert & Zafirovski, 2006; Jenkins & Eckert, 1989).

Emerging from World War II in the 1940s the United States was enjoying an era of

prosperity, compounded by new economic policy. Being one of the few nations emerging from

the war with its economy still intact, the United States was ready to begin massive business

expansion internationally (Doob, 2013). It was in the 1950s and 60s that this expansion began,

with many private American firms establishing multinational firms abroad (Thurow, 1984). In

order to solidify the domination of American business in the international setting, the

government developed the Marshall Plan, a $22 billion financial aid package to western Europe

(Doob, 2013). This was done with the belief that American economic superiority would last and

domestic firms would not have to worry about international competition (Thurow, 1984). For

almost 30 years this was true, with the United States responsible for two thirds of the world’s

industry and three fourths of its invested capital (Doob, 2013). The benefits of this economic

prosperity were significant and spread to a large amount of people (Morris, 1999). Income

inequality remained stable, and the income of the median worker increased by more than double

from 1950 to 1970, with those at the bottom experiencing the greatest increases (Morris, 1999).

These post-war years of prosperity and international economic advantage did not last

forever though, and by the mid-1970s countries with previously destroyed economies, such as

Germany and Japan, had recovered and were becoming prominent industrial nations (Doob,

2013; Thurow, 1984). Because of their rising industrial power, these nations began importing

less industrial and agricultural goods from the United States, and at the same time began

exporting quality goods to the United States. As a result, US firms saw a decline profits, with


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return on investment falling from 15.5 percent in 1960 to below 10 percent in 1975 (Doob,

2013). Politicians, corporate leaders, and media personalities were quick to criticize everyone but

themselves, attributing the decline in American business to several factors. First being organized

labor, claiming their push for higher salaries and greater benefits caused American products to be

too expensive (Doob, 2013). Second, they stated that strict environmental, health and safety, and

product quality standards raised business costs (Beckert & Zafirovski, 2006; Doob, 2013). In

response, policy intellectuals from various business backed groups such as the Business

Roundtable, Hoover Institution, and Heritage Foundation began developing new economic

policy which would completely change the American economy. It was at this time in 1975 that

many Americans started to experience declines in income, employment, and union support

(Doob, 2013). This was only the beginning, with major changes occurring in the 1980s under the

Regan administration.

China

Marking the begging of a new era, Mao Zedong, the chairman of the communist party

declared the establishment of the Peoples Republic of China in 1949. With the civil war finally

over, many Chinese citizens were desperately poor and in need of assistance. The new

government recognized this fact and began to form a modern social welfare system in the early

1950s (Xinping, 2001). For the next 30 years, until globalization began to affect social policy,

the Peoples Republic of China developed a multiple-tiered system for social welfare. The first

level consisted of a safety net for the general population, which entailed full employment,

collective farmland arrangements for rural areas and in urban areas a ration system providing

basic sustenance to all citizens (Xinping, 2001). This first level of social welfare was an


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incredible step for the Chinese government, as they were providing more services to their

population in its entirety than they ever had before. The second level provided public personal

services and social assistance systems to help support individuals who were having trouble

meeting basic living requirements through either work or family support (Xinping, 2001). The

last level focused on government and urban state workers, and provided welfare provisions such

as, but not limited to, public housing, pensions, and free medical care (Xinping, 2001). These

provisions were essential to the newly developing state enterprises, which were the main

components of the countries industrialization effort (Xinping, 2001). Because China was still a

poor country however, it could not extend all aspects of the social welfare system to all citizens,

and had to disproportionally focus its resources to urban areas (Xinping, 2001). This caused

urban residents to become dependent on these benefits, and it was very detrimental when they

were stripped away.

Also developing in the 1950s, China began to reform its economic system in conjunction

with its social welfare system. The new economic system followed a Soviet socialist model

which emphasized public ownership and a centrally planned economy (Xinping, 2001). Being

restructured to coordinate with each other, the new economic and social welfare systems became

very closely intertwined. We can see this in the required pensions and free medical care in the

new state enterprises brought about by the new economic system (Xinping, 2001). China was

now following a statist welfare model, which was seen as most compatible with its socialist

ideology emphasizing equality, social justice, and collective action in both social and economic

spheres (Xinping, 2001). Under this new statist welfare model, it was the government’s


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responsibility to protect all of its citizens from malnourishment and to provide social services

and security to people in need (Xinping, 2001).

Up until the late 1970s, China’s new social welfare strategy performed reasonably well.

Xinping (2001) states that “Most Chinese people were assured of basic security, and China as a

whole witnessed great achievements in social development, as measured by its people’s higher

than average life expectancy, lower illiteracy rates, etc., by comparison with most other

developing countries” (p. 250). The new social welfare program was working, but the new

centrally planned economic system it was formed in conjunction with was not, and was proving

to be relatively inefficient in the context of rising globalization (Xinping, 2001). In order to

increase economic efficiency and presence in the global setting, China began economic reforms

in the late 1970s, and because the welfare system was designed in conjunction with the economic

system, welfare reforms began in the early 1980s (Xinping, 2001).


United States

With Ronald Regan being elected president, the 1980s brought about significant change

in the political and economic landscape of the United States. The American economy began to

stagnate in the 1970s, and as stated before politicians, corporate leaders, and media personalities

were quick to criticize everyone but themselves. Businesses saw this opportunity, and began to

greatly influence government policy to their advantage. Jenkins and Eckert (1989) explain that

“an ‘inner circle’ or an ‘upper tier’ of the capitalist class dominates the policy system, controlling

the largest corporations, using campaign contributions to select the leading candidates and


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directing the policy organizations that have the major impact on policy changes” (p. 123). These

policy organizations consist of foundations, think tanks, universities, and policy-making groups.

Foundations are tax-free organizations which expend money on various activities, mostly

research, and provide the funding and initial direction for think tanks (Doob, 2013). Foundations

are headed by corporate leaders and are funded by dividends from corporate stocks, so in essence

they directly represent the interests of businesses (Doob, 2013). Think tanks are the next step in

the process, as they provide the detailed research and analysis for the policy making process

(Doob, 2013). In addition to research and analysis, think tanks influence public opinion by

promoting favored policies through the media in the form of reports, newsletters, and interviews

(Doob, 2013). It is not surprising that conservative think tanks outnumber their liberal

counterparts two to one, and they receive much better funding, at about $275 million from 2003

to 2005, compared to the $75 million given to liberal think tanks (Doob, 2013).

While this country contains around 4,000 colleges and universities, only 62 qualify as

billion dollar universities, and these schools receive about two thirds of all college and university

endowment (Doob, 2013). The most prominent schools such as Harvard, Yale, Stanford, and

Princeton provide education for the future corporate and political leaders who will eventually run

foundations, think tanks, and policy-making groups (Doob, 2013). Most of the trustees of these

schools come from major corporations, and many of their presidents work as board members for

those same companies (Doob, 2013). These are not the only connections universities have with

big business however, as they provide much of the research used by foundations, think tanks, and

policy-making groups (Doob, 2013). These policy-making groups are organizations that examine

the research made by foundations, think-tanks, and universities and use it to form economic and


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political policy (Doob, 2013). They implement this economic and political policy by influencing

the general public and politicians through speeches and interviews at press releases, books,

journal articles, and lobbying (Doob, 2013). The membership of these policy-making groups

consists of heads of corporations, law-firms, banks, universities, foundations, media, and high

ranking government officials (Doob, 2013; Jenkins & Eckert, 1989).

It was in 1980 that prominent corporate campaign funders and conservative policy

organizations offered their support of the Reagan campaign, locking in their influence on

government policy (Jenkins & Eckert, 1989). In 1981 when Reagan took office, policy-making

groups such as the Business Roundtable and the Committee for Economic Development had

already developed a policy plan to help stimulate the declining economy of the 1970s. This

policy plan focused on supply side incentives, instead of the demand side policies central to

Keynesian economics (Jenkins & Eckert, 1989). Specifically, the new plan proposed major max

rate reductions, mainly for income tax, reductions on social spending in order to provide

incentives for private sector activity, restricting monetary supply to control inflation, and reduced

governmental regulation in terms of product quality and price, health and safety, and

environmental standards (Jenkins & Eckert, 1989). In other words, they wished to reverse

Keynesian policy tools to create a recession instead of economic growth (Jenkins & Eckert,

1989).

On February 18, 1981, President Ronald Regan revealed his “America’s New Beginning,

A Program for Economic Recovery” which entailed all of the policies discussed above (Jenkins

& Eckert, 1989). When brought before the political system, Regan’s plan passed with almost

unanimous support, and the largest tax cut and peacetime defense buildup in United States


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history were passed through the White House (Jenkins & Eckert, 1989). The new policies were

working for businesses and the rich, who were seeing unbelievable increases in profits and

income, but not for the economy (Doob, 2013; Jenkins & Eckert, 1989; Morris & Western,

1999). Jenkins and Eckert (1989) noted that “As the Federal Reserve restricted money supply in

response to the inflationary stimulus of the growing deficits created by the tax cuts, the economy

stalled” (p. 130).

These changes in political and economic policy in response to globalization greatly

increased social inequality in the United States, as those at the top changed policy to favor them,

mostly from tax cuts, while those at the bottom suffer the most from reductions in social

spending. Globalization itself has also changed the dynamics of US employment for those at the

bottom. Because globalization allows for increased movement of capital, goods, labor, and

investment, countries with low-wage labor (regardless of their proximity to the home market)

will draw off investment (Ho-Fung & Kucinskas, 2011; Morris & Western, 1999). This takes the

form of outsourcing, a company subcontracting certain services to third-party companies instead

of performing them themselves (Doob, 2013). This takes jobs away from the home country in

search of opportunities that provide better financial gains. With this comes an increase in imports

from less developed countries, and as these imports involve large amounts of unskilled labor, the

demand for local unskilled labor is decreased and their wages fall, and inequality rises (Morris &

Western, 1999). Morris & Western (1999) state that “The cost of an increase in the supply of

low-wage labor, for example, could be paid either by shareholders in the form of lower profits,

by workers in unemployment or lower wages, or by consumers in the form of higher prices” (p.


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650). It is known that shareholders are not experiencing lower profits, and prices have not raised

enough to account for the increase in the supply of low-wage labor, so who is incurring the cost?

This increase in the supply of low-wage labor also affects employer-employee

relationships in profound ways. Globalization forces businesses to reduce their market risks by

passing them on to their employees through increased flexibly in their relationship (Buchholz,

Hofäcker, Mills, Blossfeld, Kurz, & Hofrneister, 2009). These relationships are characterized by

part-time jobs with flexible hours, low pay, minimal autonomy and responsibility, negligible

promotion opportunities, and high risks of unemployment (Buchholz et al., 2009). This type of

relationship is not bilateral however, as employees are expected to be sturdy, reliable, and

productive. If they are not, employers will reduce their market risks through layoffs or

outsourcing, forcing employees to accept the asymmetric relationship or lose their job (Buchholz

et al., 2009). Proof of these relationships is demonstrated through the fact that from 1995 to

2006, the increase in national worker productivity surpassed real wage growth by 340 percent

(Doob, 2013).

Here we can see the direct and indirect consequences of globalization on the American

political and economic systems. As the United States economy began to stagnate in the 1970s

because of an increased presence in the global market from countries such as Germany and

Japan, American business started to impact the political system (Doob, 2013; Thurow, 1984).

Through foundations, think tanks, universities, and policy-making groups businesses

significantly influenced politicians and the policies they would implement, most notably the

Regan administration (Doob, 2013). These changes came in the form of tax cuts, decreased

social spending, and reduced governmental regulation (Jenkins & Eckert, 1989).


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China

Globalization has had very prominent effects on the social and economic landscape of

China. While globalization has resulted in a great accumulation of wealth for China and a steady

increase in per capita household income and consumption, it has been marked by an even greater

increase in income and consumption inequality and less social mobility (Hongbin, Yuyu & Li-

an, 2010; Yuegen, 2012). It is widely accepted that rising levels of inequality are associated with

an increase in Foreign Direct Investment (FDI) or globalization, as evidenced by increasing

internal inequalities in most countries since globalization gained traction in the 1980s (Hongbin

et al., 2010; Ho-Fung & Kucinskas, 2011; Lee, Nielsen, & Alderson, 2007; Morris & Western,

1999; Buchholz et al., 2009; Xinping, 2001; Yuegen, 2012). Most notable of the countries with

rising inequalities are ones that have moved from a centrally planned economy to a market-based

economic system, a category which China falls into (Ho-Fung & Kucinskas, 2011).

Globalization is the cause and consequence of this move away from state-socialism and statist

welfare models, which in turn increases internal inequality (Ho-Fung & Kucinskas, 2011; Lee et

al., 2007). It is in these countries with small public sectors that high levels of foreign investment

increase social inequality because of the absence of tax and social policies that buffer the effects

of unequal distribution (Lee et al., 2007). Since its onset of economic and social reform in the

late 1970s, China has changed from one of the world’s most egalitarian countries to one of the

most unequal (Ho-Fung & Kucinskas, 2011).

Beginning in the late 1970s, China began to feel the pressures of globalization and slowly

started to react. The initial changes were minor, with fundamental changes begging in the mid-

to-late 1980s. These fundamental changes were made to the economic and social systems in an


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effort to increase economic efficiency, which China was falling behind in. The changes began

with the government no longer promising full employment for the urban labor force, one of the

first changes made in the 1950 reforms (Xinping, 2001). Continuing the trend, the government

stopped accepting full responsibility for providing social benefits and required individuals to

share in the financing of medical care and pensions (Xinping, 2001). All of the benchmark

policies implemented in the welfare reforms of the 1950s were now being stripped away, and the

economic and social landscapes were shifting.

Following these fundamental changes in the late 1980s, the 1990s brought massive

restructuring of the state sector (Hongbin et al., 2010; Xinping, 2001). Beginning in 1992, China

experienced massive increases in foreign investment and trade, with a 1,923 per cent increase in

FDI (Xinping, 2001). In order to keep state owned enterprises in market competition the

government had to increase efficiency, mainly by reducing labor costs which they accomplished

with substantial layoffs (Hongbin et al., 2010; Xinping, 2001). During this time more than 30

million workers were laid off, with many of those individuals remaining unemployed ever since

(Hongbin et al., 2010). While private export oriented enterprises were expanding during this

time, a result of increased FDI, they were not able to compensate for the losses in the state

sector, resulting in an overall decrease in jobs (Bhat & Rather, 2012; Ho-Fung & Kucinskas,

2011). Most of the employees who were laid off came from the low end of income distribution,

and as a result income inequality in urban China increased significantly (Hongbin et al., 2010;

Xinping, 2001).

At the same time of the layoffs, China was experiencing urbanization, or large amounts

of young individuals moving from rural to urban areas in search of employment. These two


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phenomena occurring at the same time increased the negative effects, because there was an

influx of young, unskilled workers at the same time that the jobs they were qualified for were

being eliminated, the lower end of the distribution of income was inflated and wages stagnated,

with no real increase at a time when FDI and foreign trade were increasing dramatically

(Hongbin et al., 2010; Lee et al., 2007). On the opposite end, demand for skilled workers rose,

and because of their limited supply, their wages increased, further increasing income inequality

(Hongbin et al., 2010). These technical and managerial personnel are paid a much higher salary

than their subordinates, even with reference to global standards (Xinping, 2001). This polarizing

effect is further compounded by ineffective tax policy, allowing high income individuals to avoid

taxes (Yuegen, 2012). This is especially prominent in the incredibly high incomes earned by

senior executives in the state sector and the almost nonexistent taxes they pay (Yuegen, 2012).

During this time medical expenses were increasing as well, and the 30 million workers

who were laid off no longer had the government to help with them. In 1992, medical expenses

contributed about 1%-2% to consumption inequality, which increased to 6%-7% in 2003

(Hongbin et al., 2010). The rising cost of medical expenses has been accompanied by decreasing

workplace conditions, namely sweatshops. Within these sweatshops, workers are exposed to

dangerous working conditions, specifically poor fire safety, working with toxic chemicals, and a

lack of clean water (Doob, 2013; Duhigg & Barboza, 2012). In 2010, workers at an Apple

manufacturing plant in Suzou were ordered to clean iPhone screens with a toxic chemical, the

result being 137 workers obtaining serious nerve damage, to which they incur the medical costs

(Doob, 2013; Duhigg & Barboza, 2012). Other incidents include explosions at multiple

manufacturing plants, in which hundreds of individuals are injured or killed (Duhigg & Barboza,


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2012). The most appalling aspect of these explosions however, is the fact that in many cases the

companies using these factories as suppliers had been warned of the dangerous conditions, yet

did nothing about it (Duhigg & Barboza, 2012).

In addition to terrible working conditions, these sweatshops are characterized by unstable

employment and extremely low pay, usually less than two dollars a day (Doob, 2013). This

unstable employment is the result of asymmetric employment relationships characterized by

flexibility on the side of the employer and stability on the side of the employee (Bhat & Rather,

2012; Buchholz et al., 2009). This forces employees to accept the terrible conditions they find

themselves in, or else the company threatens to fire them, as shown by the banners located in an

Apple supply plant stating, “Work hard on the job today or work hard to find a job tomorrow”

(Duhigg & Barboza, 2012). It was found that two Walmart factories would anticipate

investigator’s questions and require employees give pre-arranged answers, usually involving

hours, days off, wages, and working conditions (Doob, 2013; Duhigg & Barboza, 2012). If

employees did not give the required answers and deny sweatshop conditions they would be

threatened with termination.

The Chinese economy has no interest in improving these working conditions either. It is

these working conditions that entice multinational corporations to move operations to China in

the first place. Xinping (2001) states that, “One of the main inducements for most of the foreign

investors in China is the chance to utilize cheaper labour, and thus they hope to keep labour costs

as low as possible” (p. 249). As cheap labor is one of the main sources of China’s competitive

advantage, government and corrupted officials are inclined to allow the behavior of companies

neglecting workers’ rights (Xinping, 2001; Yuegen, 2012). The success of these private


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companies then causes the belief of unequal wage as a necessity for economic efficiency,

causing many state enterprises to follow suit (Xinping, 2001).

It is easy to see here to direct effects globalization has had on China’s economic and

political systems. Based mainly on permanent job tenure in the state sector, the social welfare

system and its benefits rooted in the centrally planned economy were largely dismantled after the

1980s and1990s market reforms (Yuegen, 2012). A system characterized by central tenants such

as equality, social justice, and collective action was transformed into a market based economy

focused on profits with almost no social benefits (Xinping, 2001). This shift to a market based

economy accompanied by a decrease in state sector employment has radically decreased working

conditions and polarized workers at the top and bottom. While unskilled workers have had their

jobs eliminated and wages decreased, skilled workers and senior executives have enjoyed

increased wages (Hongbin et al., 2010; Ho-Fung & Kucinskas, 2011; Lee et al., 2007; Morris &

Western, 1999; Buchholz et al., 2009; Xinping, 2001; Yuegen, 2012).

Data

United States

[Place Table 1 About Here]

As the focus of this paper is to explain how globalization affects social inequality within

countries, the first piece of data presented will be the Gini Index coefficient. The Gini Index is a

measure of a countries income inequality, with zero indicating complete equality in which there

are no differences in income between units and a one indicating complete inequality where one

unit owns all of the income (Encyclopedia of Sociology 2001). Table one displays the Gini Index


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coefficient in the United States over a period of time. In 1986, the Gini Index coefficient for the

United States was a .370, putting them behind 79 other countries with greater income inequality.

In 2010, this figure has rose to .450, now placing the United States behind 40 other countries.

This is a significant change, with the United States passing 39 countries in terms of income

inequality in a matter of 24 years, coinciding with the onset of globalization.


To get a better understanding of income inequality in the United States, Table two

presents income shares of selected segments of tax payers from 1980 to 2005. In 1980, the top

one percent, five percent, 25 percent, and bottom 50 percent owned 8.5 percent, 21 percent, 56.7

percent, and 17.7 percent of total national income respectively. In 2007, these figures had

changed to 22.8 percent, 37.4 percent, 68.7 percent, and 12.2 percent respectively. We see here

that while all groups at the top have increased their income, with the top five percent

experiencing the greatest increase (16.4 percent), the bottom 50 percent saw their share of

income drop 5.5 percent. Income inequality displayed here is still underestimated however.

Individuals in high ranking positions receive a lot of income through job-related benefits and

gray income, which is not always fully reported (Hongbin et al., 2010). Individuals at the top of

income distribution thus actually make more than what is showed; effectively underreporting

income inequality (Hongbin et al., 2010). It is clear that the changes brought about by the Regan

administration in a supposed effort to improve the economy were only an effort by the corporate

elite to boost their income at the expense of those at the bottom.



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A big component of this decrease in income share by the bottom 50 percent is

unemployment. In his theory of Capitalism and Social Stratification, Karl Marx discussed what

he coined a reserve army of labor, which was the “bourgeoisie’s purposeful maintenance of a

distinct level of unemployment as a bargaining chip for keeping wages low” (Doob, p. 29). Table

three shows this happening in the United States. In 1990, there were 7,047,000 unemployed

individuals in the United States, which was 5.6 percent of the workforce. This number increased

to 14,825,000 in 2010, or 9.6 percent of the workforce. In a matter of 20 years the amount of

unemployed individuals more than doubled with the unemployment rate almost doubling as well.

Increasing the amount of unemployed is not the only objective however, as corporations need to

keep people unemployed for periods of time. Table four shows the amount of long-term

unemployment (unemployment lasting a year or longer) as a percentage of total unemployment

from 1980 to 2010. In 1980, long-term unemployment only comprised 4.3 percent of total

unemployment. This figured jumped to 29.0 percent in 2010, a substantial increase. We see here

that while unemployment is growing, the amount of people unemployed for long periods of time

is growing as well. This deliberate ‘reserve army of labor’ allows corporations who provide the

majority of employment to keep their wages low because these unemployed individuals will

accept almost any job, even if the wages are small.


Much of this unemployment is the result of layoffs, the product of downsizing and

outsourcing. As discussed earlier in the review, the asymmetrical relationships imposed by

employers often leads to individuals losing their jobs. Table five displays mass layoff events and


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initial claimants for unemployment insurance as a result of those events. In 1996 there were

12,614 mass layoff events, resulting in 1,320,844 unemployment insurance claimants. This

number rose to 19,432 events and 1,995,027 claimants in 2008. As the globalization process gets

further and further, companies are laying off more and more individuals so they may keep their

wages low. As stated in the above paragraph, companies also have an interest in keeping those

individuals unemployed for extended periods of time. Table 5 also displays mass layoffs lasting

more than 30 days. In 1996 there were 4,760 events with 805,810 claimants, which increased to

8,259 events and 1,670,042 claimants in 2008. This demonstrates that while layoffs are

increasing, the percentage of those layoffs lasting more than 30 days is also increasing.


The result of this high level of unemployment and these massive amounts of layoffs is

decreasing union membership. Discussed above, in the years prior to the onset of globalization, a

period of decreasing social inequality was accompanied by increased union membership. When

the economy began to stagnate however, politicians and business leaders attacked unions,

claiming they were detrimental to the United States. In order to maintain the asymmetrical

relationships which benefit them, corporations have a vested interest in decreasing union

membership, which they enforce through unemployment if an individual joins a union. Table six

shows that union membership declined from 16,996,000 (18 percent of the total workforce) in

1985 to 14,715,000 (11.9 percent of the total workforce) in 2010. As union membership declines

employees are provided with less protections and businesses are able to reduce employees wages

and give them less benefits.

China


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This section of the research review will also begin with the Gini Index coefficient, as it is

a calculation of a countries income inequality. Table seven gives us Gini Index coefficients for

China from 1981 to 2010. In 1981, China had a Gini coefficient of .291, putting it behind 121

other countries out of 141, making it one of the most equal countries in the world with a

calculated Gini coefficient. This changed dramatically however, with China obtaining a Gini

coefficient of .421 in 2010, putting it now at number 50 on the list. China moved from a very

equal society before globalization to a very unequal one after integration into the world

economy.


To get a more comprehensive look at this trend, Table eight provides income share, as a

percent of total national income, of five different segments of individuals. In 1981, the bottom 20

percent, second 20 percent, and median 20 percent owned 8.7 percent, 13.1 percent, and 17.4

percent of the national income respectively. At the same time the fourth 20 percent owned 22.9

percent and the top 20 percent owned 37.9 percent, a fairly equal distribution of income with

such a large population. Over the course of the next 29 years this distribution did not last, and

groups were further polarized. In 2010 the bottom 20 percent, second 20 percent, and median 20

percent owned 4.7 percent, 9.7 percent, and 15.3 percent respectively. The fourth 20 percent now

owned 23.2 percent and the top 20 percent owned an astounding 47.1 percent. As the top 20

percent increased their share of income by 9.2 percent, all other groups, with the exception of the

fourth 20 percent whose share remained about the same, had their share of income decrease, with

the bottom 20 percent experiencing the greatest decrease.


22


It was in the 1990s that the top 20 percent experienced the greatest increase, with 5.4 of

their 9.2 percent increase happening during this time. This coincides with the massive

restructuring of the state sector, in which many individuals were laid off and forced to search for

work in the private sector. Table nine contains data pertaining to the number of people employed

in urban private enterprises. The reason the table shows urban private enterprises and not all

private enterprises, is because most private companies established themselves in urban areas,

with almost no existence in rural areas. In 1980, there were 814,000 individuals in private

enterprises with 95,000 of those individuals in manufacturing. These numbers increased to

6,705,000 and 913,000 in 1990, a significant increase, but nothing compared to what would

come in the 1990s. Come 2000, there were 34,040,000 people employed in private industries

with 6,327,000 of those individuals in manufacturing. Here we can see that the largest increases

in income inequality correspond with the increase in private sector employment, revealing the

nature of the change in the Chinese economy.


Last, Table ten exhibits data on out of pocket health expenditure in China from 1980 to

2005. Discussed earlier in the essay was the fact that prior to the state sector overhaul in the

1990s the government subsidized most health care costs for its citizens. The move to private

owned industries brought an end to this policy however, and many individuals had to pay for

their own medical expenses. In 1980, out of pocket health expenditure for the country was

¥30,350,000 which was 21.19 percent of total expenditure. These numbers increased to

¥267,010,000 (35.73 percent) which may seem like a large increase, but are relatively small


23

compared to the increase experienced in the 1990s. In 2000, the numbers had increased to

¥2,705,170,000 or 58.98 percent of total expenditure. While the government subsidized most

health care costs prior to the state sector restructuring of the 1990s, the burden shifted to

individuals who had to pay most health care costs on their own after.

One may point out the difference in the amount of data given for each country in the

study. I am aware of this fact and wish it was not the case. The difference in the amount of data

presented for the United States and the amount available for China is the result of differences in

availability, reliability, and relevance. Being a student in the United States I have much more

access to domestic databases, providing me with access to more data on the United States than

China. Second, while much data is available for China on the internet, without the assurance that

it is from an academic database, the reliability of a good portion of it was questionable. I had

decided not to use multiple sources of data because I could not verify that it was reliable and did

not want to risk using incorrect data in this review.

Discussion

Globalization has brought about many changes in the political and economy systems of

the United States and China. These changes have brought about an era of increasing social

inequality where the rich get richer and the poor become worse off. In the United States, the

post-war years of prosperity were brought to a halt in the 1980s with the Regan administration.

Changes brought about were major max rate reductions, reductions on social spending,

restricting monetary supply to control inflation, and reduced governmental regulations (Jenkins

& Eckert, 1989). The results of these changes were increasing social inequality, most notably

income inequality, reduced social programs, and increasing unstable employment. In China the


24

results were similar, with globalization bringing an end to the modern social welfare system put

in place in the 1950s (Xinping, 2001). Following the dismantling of the social welfare system

came huge losses in state employment, decreased social spending, increasing income inequality,

and horrific working conditions (Hongbin et al., 2010; Ho-Fung & Kucinskas, 2011; Lee et al.,

2007; Morris & Western, 1999; Buchholz et al., 2009; Xinping, 2001; Yuegen, 2012).

Examining the two countries in study and how globalization affects them reveals

interesting implications. It is apparent that in countries with smaller governments, the effects of

globalization can be very detrimental to social equality. If a country wants to integrate into the

world economy without sacrificing the welfare of its citizens, it must implement structural

policies to buffer the effects. While this may decrease efficiency and profits for companies, it is a

small price to pay for the welfare of its citizens. This can only be done if the government

operates independently and without influence from the corporate elite and multinational

businesses.

It is Domhoff’s Theory of the Upper-Class-Centered Corporate Community that can help

explain the phenomenon causing these social injustices (Doob, 2013). Based off Mill’s Power-

Elite Perspective emphasizing the interconnectedness of the political leadership, military circle,

and corporate elite, Domhoff emphasized the elite’s role in social reproduction (Doob, 2013).

His theory describes “the power elite as largely upper-class people who have leadership roles in

business and government and a major commitment to retaining the prevailing rules and laws that

sustain the current income and wealth distribution” (Doob, p. 40). The changes brought about in

these countries are perfect examples of this theory, as businesses and the corporate elite used

their influence on government policy to favor those at the top while hurting those at the bottom.


25

It is important that citizens of these countries see the injustices being done to them, and take the

appropriate steps to change their governments for the better and set them on the right path.

People have blindly accepted the social order believing it to be natural, but it needs to be realized

that none of it is, and it can change.

Conclusion

Globalization has brought about many changes in the political and economic climates of

many countries, including both developed and developing nations. In the 1980s when

globalization became a driving force, noticeable effects on political and economic systems

became apparent. These changes have brought about increased levels of social inequality, and

have helped to further polarize contrasting groups.

Before the onset of globalization, both countries displayed political and economic

systems particularly different from current day. The United States was experiencing a post-

World War II economy marked by such attributes as a growing middle class, increased union

participation, and shrinking income inequality. In similar fashion, after the Communist Party

took control in 1949 under the Peoples Republic of China, a period of social welfare followed for

the next 30 years (Xinping, 2001). This period was characterized by a multiple tiered welfare

system which provided social assistance systems, welfare programs, free medical care, and

public housing among many other things (Xinping, 2001). Globalization brought this period of

increasing social equity to a halt and reversed the trend, transforming these societies into what

we have today.


26

Why has globalization brought about these changes and to what extent has it affected

these countries? It is important here to examine how both governments responded to increasing

pressure from globalization and the effects of these responses. The United States responded by

decreasing government intervention in business and rewarding overseas investment and

outsourcing. The effects of these changes include increasing income disparity, massive layoffs,

increasing unemployment, and a decrease in job security. The Chinese government responded by

moving from its state centered economy to a more free market approach in an effort to increase

economic efficiency (Xinping, 250). In China however, income disparity increased along with

reduced social programs and poor working conditions.


27

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Table 1

Gini Index Coefficient for United States from 1986-2010

Year Gini Coefficient

1986 .370

1991 .376

1994 .389

1997 .408

2000 .402

2004 .406

2007 .416

2010 .450

Change .080

Source: The World Bank. 2014. “World Development Indicators.” Retrieved November 5, 2014.




31

Table 2

Income Shares of Selected Segments of Tax Payers over Time in the United States.

Year Top 1% Top 5% Top 25% Bottom 50%

1980 8.5% 21% 56.7% 17.7%

1985 10 22 58 17.3

1990 14 27.6 62.1 15

1995 14.6 28.8 63.4 14.5

2000 20.8 35.3 67.2 13

2005 21.1 35.8 67.5 12.8

2007 22.8 37.4 68.7 12.2

Change 14.3 16.4 12 -5.5

Source: Doob, C. B. (2013). Social inequality and social stratification in US society. New York: Pearson, 6


32

Table 3

Unemployed Workers in the United States from 1990-2010

Year Unemployed (in thousands) Unemployment rate (percent)

1990 7,047 5.6%

2000 5,692 4.0 2005 7,591 5.1

2008 8,924 5.8 2010 14,825 9.6

Change 7,778 4.0

Source: Proquest LLC. (2014). Statistical abstract of the United States 2014. Bethesda, MD:

Bernan, 425


33

Table 4

Long-term Unemployment (% of Total Unemployment) in the United States from 1980 to 2010

Year LTU LTU, Men LTU, Women

1980 4.3 5.2 3.1

1990 5.5 7.0 3.7 2000 6.0 6.7 5.3 2010 29.0 29.9 27.7

Change 24.7 24.7 24.6

*LTU = Long-term Unemployment



world-development- indicators


34

Table 5

Mass layoff Events and Initial Claimants for Unemployment Insurance, Private Nonfarm, 1996

to 2013

Source: U.S. Department of Labor, Bureau of Labor Statistics. 2014. “Mass Layoff Statistics.”

Retrieved November 5, 2014. (http://www.bls.gov/mls/home.htm)


35

Table 6

Labor Union Membership in the United States from 1985-2010

Year Union members (in thousands) Percent of total workforce

1985 16,996 18.0

1990 16,740 16.1 1995 16,360 14.9 2000 16,258 13.5

2005 15,685 12.5 2010 14,715 11.9

Change -2,281 -6.1

Source: Proquest LLC. (2014). Statistical abstract of the United States 2014. Bethesda, MD:

Bernan, 452


36

Table 7

Gini Index Coefficient for China from 1981 to 2010

Year Gini Coefficient

1981 .291

1984 .277 1987 .299 1990 .324

1993 .355 1996 .357

1999 .392 2002 .426 2005 .425

2008 .426 2010 .421

Change .130

Source: The World Bank. 2014. “World Development Indicators.” Retrieved November 17,

2014.


world-development- indicators


37

Table 8

Income Share (% of Total Nationwide Income) in China from 1981-2010.

Year Bottom 20% 2nd 20% 3rd 20% 4th 20% Top 20%

1981 8.7 13.1 17.4 22.9 37.9

1984 8.9 13.5 17.8 23.2 36.6

1987 8.0 13.1 17.6 23.4 37.9

1990 8.0 12.2 16.5 22.6 40.7

1993 7.4 11.3 15.8 22.3 43.2

1996 7.2 11.3 15.8 22.3 43.4

1999 6.4 10.3 15.0 22.2 46.1

2002 5.5 9.4 14.3 22.2 48.6

2005 5.0 9.9 15.0 22.2 47.9

2008 4.8 9.6 15.0 22.7 47.9

2010 4.7 9.7 15.3 23.2 47.1

Change -4.0 -3.4 -2.1 0.3 9.2

*Percentage shares may not equal 100 because of rounding





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Table 9

Number of Employed Persons in Urban Private Enterprises in China from 1980 to 2000

Year Total In Manufacturing

1980 81.4 9.5

1985 450.1 51.4 1990 670.5 91.3 1995 2045.0 339.0

2000 3404.0 632.7

Change 3322.6 623.2

*One unit equals 10,000 persons

Source: National Bureau of Statistics of China. 2013. “China Statistical Yearbook 2013.”

Retrieved November 17, 2014.

(http://www.stats.gov.cn/english/Statisticaldata/AnnualData/)


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Table 10

Out of Pocket Health Expenditure in China from 1980 to 2005

Year Amount (in millions) Percent of total expenditure

1980 ¥30.35 21.19%

1985 79.39 28.46 1990 267.01 35.73 1995 999.98 46.40

2000 2705.17 58.98 2005 4520.98 52.21

Change 4490.63 31.02

Source: National Bureau of Statistics of China. 2013. “China Statistical Yearbook 2013.”

Retrieved November 17, 2014.

(http://www.stats.gov.cn/english/Statisticaldata/AnnualData/)


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Globalization and Social Inequality