jmherbenerIf globalization means the further integration of everyone in the world into the system of private property and contract, then globalization will reduce income inequality for two reasons. First, differences in the price of the same things tends to be arbitraged away in the market. If wages are higher in one country and lower in another for the same labor, then globalization will bring them together. This would be true for all types of labor, including that of CEOs. The same is true of interest returns on capital investment. capitalists would tend to earn the same rate of return on similar investments anywhere in the world. Second, profits earned by entrepreneurs are imputed to wages and land rents over time. If an entrepreneur is earning sizable profit, then other entrepreneurs strive to earn them also by producing similar products. To do so, they bid up the prices of inputs. In this process, the profits diminish as wages and land rents rise.
These processes have been manifest in China for several decades. The capital accumulation processes has lifted half a billion people out of poverty in China over the last 30 years. It’s perverse to interpret such facts as claiming that the rich are getter richer and the less capable are being left behind.
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