Globalization

In the 1930's, two Swedish economists formulated a simple law of economics which goes a long way towards explaining some of the dynamics of globalization. The Hecksher Ohlin theorem states that a country will tend  to specialize  in sectors which use the factor of production it possesses in relative abundance. Thus, countries with abundant labour, like China or India, will tend to produce labour intensive goods whilst countries rich in capital, like the US or Germany, will tend to specialize in capital intensive goods. This apparently self evident law has a corollary: as world trade expands and the global economy becomes increasingly integrated, the cost of these two factors of production will tend towards equality across countries. Thus, the cost of labour will tend to fall where it is high, like in Europe, whereas the remuneration of capital will tend to rise, because capital is scarce in less developed countries with high demographic growth rates. As the cost of the factors of production become more similar across countries, so do their social structures. Hence the rise of inequalities in the developed world, where salaries are increasingly compressed - just ask any regular "mileurista" - and an increasingly smaller part of the population - those who have capital - get richer and richer. If you want to go more in depth into this, read the work of the brilliant French social scientist, Emmanuel Todd. If not, just stay with Leonard Cohen's age old wisdom: "the poor stay poor and the rich get richer ... as everybody knows".