Widening inequality: IMF acknowledges downsides of globalization

Korea Times | 19 October 2007

Widening Inequality

IMF Acknowledges Downsides of Globalization

Countries around the world have actively pushed for globalization to bring prosperity and welfare to their people and South Korea is no exception. The nation, which is heavily dependent on foreign trade for its economic growth, has been busy with globalization since President Kim Young-sam took office in 1993. At the beginning of the initiative, critics stressed that globalization was not a panacea for all the economic problems facing the country.

South Korea suffered from an unprecedented financial meltdown in 1997-98 amid the contagion of the Asia-wide currency crisis. The turbulence showed how closely countries were interconnected with each other in the aftermath of globalization. The nation successfully overcame the turmoil with the help of rescue packages arranged by the International Monetary Fund (IMF).

We are now speeding up globalization to become richer and enjoy a better quality of living. Many South Koreans believe the nation has no other choice but to pursue the international trend in a bid to survive fiercer competition with other countries. Policymakers are trying to open the local market wider to foreign products, while promoting sales of Korea Inc. under the spirit of freer trade. They go all-out to attract foreign investment by setting up free economic zones and international business towns. Businesses are also expanding their overseas networks for production, sales and investment under the motto of globalization.

South Korea concluded a free trade agreement (FTA) with the United States in April to benefit from freer flow of goods and services between the two countries. Government officials are publicizing the expected benefits of the FTA, which they claim will create more jobs, increase incomes and bring cheaper American products and services. They are trying to downplay concerns by anti-globalization and anti-FTA protesters including farmers that the Korea-U.S. trade deal may lead to subjugation of the Korean economy to the United States. Against this backdrop, we have to take time to reconsider the real effects of globalization.

A recent IMF report caught the attention of economic policymakers, company executives, citizens and anti-globalization activists. Last week, the international body published its semiannual economic review, the World Economic Outlook, before the IMF and the World Bank meeting scheduled for Oct. 20-21. The IMF said in the report that technology and foreign investment are worsening income inequality around the world. The review tries to figure out why income inequality has widened in both rich and poor countries in the past two decades.

It is the first time that the IMF has come up with such a report admitting to the negative effects of globalization. ``Over the past two decades, income inequality has risen in most regions and countries,’’ the report said. We can learn much from the report. We have to admit that South Korea has experienced widening income inequality, especially following the Asian financial woes. The income brackets have already been divided into 20 percent rich and 80 percent poor. That is the nation’s middle class has crumbled because the gap between the rich and poor widened. The 20-80 ratio is on the verge of moving to a 10-90 ratio, further worsening the income gap.

In addition, businesses have exploited non-regular workers and migrant laborers from foreign countries who suffer from low wages, poor working conditions and other discrimination. A law protecting non-regular workers took effect in July, but little progress has been made to guarantee their equal rights. Policymakers will have to take bolder measures to narrow income inequality and tackle other negative effects of globalization.

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source: Korea Times