Production and Growth

The article by Newman is a short review of the economic report published by Oxfam International, a charity organization. The author indicates that it was found in the report that in 2017, the richest 1 percent of the world’s population increased its wealth by 82 percent, while the poorest people did not see any changes to their financial position. Besides, the previous year was associated with the substantial growth of the number of billionaires in the world, and another finding was that ninety percent of over two thousand billionaires in the world are males. The author of the article also provides the reasons that are thought to have caused such a drastic gap in the income of people in the world in how plagiarism checker works. Specifically, Newman indicates that tax avoidance, the impact of corporations on policies, the weak rights of workers, and the focus on cutting production costs are the factors that have contributed to inequality. Besides, these facts demonstrate that the global economy is failing rather than thriving.

The information provided in the article may be explained from an economic standpoint because the rise in inequality is driven by other factors, too. While it is true that the avoidance of taxes, erosion of the rights of workers, and impacting policies contribute to the expansion of the inequality gap, the intensification of economic growth and production has had a substantial influence as well.

To a great extent, economic growth and production are related to trade. As indicated by Dabla-Norris, Kochhar, Ricka, Suphaphiphat & Tsounta trade has led to a large gap between the rich and the poor. On the one hand, the exchange of goods and services has a positive impact on the overall economic condition of countries by stimulating production and establishing the conditions for the satisfaction of consumer needs. On the other hand, the growth of trade is directly correlated with the intensification of production and flow of finances. At the same time, since the fundamental goal of any economic unit is to maximize revenues and reduce expenditures, manufacturers strive for the maximum decrease in costs. In most cases, the wages of workers account for the largest portion of expenses, and it is natural for manufacturers to focus on the reduction of salaries to cut overall costs. Moreover, as indicated by Newman, corporations are often capable of influencing national policies, and such abilities often result in the violation of the rights of workers to afford reduced wages. Although it is not indicated in the article, the adverse effects of the intensification of trade usually apply to third-world economies that are associated with a poor rate of law enforcement and low standards of living. Manufacturers consider these economies as destinations for their production facilities because such locations would not only allow them to have access to the low-paid workforce but also influence national employment policies. Therefore, the intensification of trade is a factor that contributes to the expansion of the inequality gap by setting the motives for growing production, cost-cutting, eroding the rights of workers, and impacting policies, especially in third-world economies.

Another important factor contributing to the income inequality intensification is the production process itself. Historically, the major constituent of the production process was the input of labor share. However, at the modern stage of economic development, production is associated with such trends as technological advancements and the reduction of the labor share. These qualitative changes derive both from the scientific progress and the economic motives of manufacturers to reduce expenditures and maximize profits.

Technological advancements and the reduction of the share of labor are related through cause and effect relations. As a manufacturer introduces new technologies into the production process, they reduce the demand for labor input. This trend was found in research focusing on the U.S. economy between 1970 and 2013. The study demonstrated that the decline in the share of labor is a cause for the expansion of the inequality gap not only in developing economies but also in well-established ones, such as the United States.

By introducing technological advancements and reducing the share of labor in the production process, manufacturers cut costs and maximize their profits and, thus, increase their wealth. At the same time, the income of workers is reduced because their labor is no longer required, and they do not get paid, which leads to an increase in the inequality gap. Therefore, as economic growth contributes to technological advancements in the long run, it leads to their introduction into the production process, which, in turn, causes the increase of income of the wealthy and the reduction of income of the poor. Thus, economic production and growth may be considered the drivers of inequality in the global economy.

I believe that it is true that the growing gap in the income of the poor and wealthy is evidence of a failing economic system because it demonstrates the inefficient distribution of resources. While the rich may be increasing their wealth, the remaining large numbers of the poor under-receive resources and cannot generate demand for the production output. In the long run, if the demand declines substantially, the supply will reduce as well, and it may cause an economic crisis. Besides, if the trend of the introduction of technological advancements and reducing the input of labor into the production process continues, income inequality will continue to grow and it will be even harder to restore the balance of resources distribution as the costs of doing so will be enormous. Therefore, I believe that the efforts aimed at reducing the income inequality gap need to be taken at this stage of the development of the global economic system.