Cold War Terminology

Cold War terminology was developed during the Cold War era (1945–1980). Familiar and still used by many, it involves classifying countries into first world, second world, and third world nations based on respective economic development and standards of living. When this nomenclature was developed, capitalistic democracies such as the U.S. and Japan were considered part of the first world. The poorest, most undeveloped countries were referred to as the third world and included most of sub-Saharan Africa, Latin America, and Asia. The second world was the in-between category: nations not as limited in development as the third world, but not as well off as the first world, having moderate economies and standard of living, such as China or Cuba. Later, sociologist Manual Castells (1998) added the term fourth world to refer to stigmatized minority groups that were denied a political voice all over the globe (indigenous minority populations, prisoners, and the homeless, for example).

Also during the Cold War, global inequality was described in terms of economic development. Along with developing and developed nations, the terms less-developed nation and underdeveloped nation were used. This was the era when the idea of noblesse oblige (first-world responsibility) took root, suggesting that the so-termed developed nations should provide foreign aid to the less-developed and underdeveloped nations in order to raise their standard of living.

Immanuel Wallerstein: World Systems Approach

Wallerstein’s (1979) world systems approach uses an economic basis to understand global inequality. He conceived the global economy as a complex system supporting an economic hierarchy that placed some nations in positions of power with numerous resources and other nations in a state of economic subordination. Those that were in a state of subordination faced significant obstacles to mobilization.

Core nations are dominant capitalist countries, highly industrialized, technological, and urbanized. For example, Wallerstein contends that the U.S. is an economic powerhouse that can support or deny support to important economic legislation with far-reaching implications, thus exerting control over every aspect of the global economy and exploiting both semi-peripheral and peripheral nations. One can look at free trade agreements such as the North American Free Trade Agreement (NAFTA) as an example of how a core nation is able to leverage its power to gain the most advantageous position in the matter of global trade.

Peripheral nations have very little industrialization; what they do have often represents the outdated castoffs of core nations or the factories and means of production owned by core nations. They typically have unstable government, inadequate social programs, and are economically dependent on core nations for jobs and aid. There are abundant examples of countries in this category. Check the label of your jeans or sweatshirt and see where it was made. Chances are it was a peripheral nation such as Guatemala, Bangladesh, Malaysia, or Colombia. One can be sure the workers in these factories, which are owned or leased by global core nation companies, are not enjoying the same privileges and rights of American workers.

Semi-peripheral nations are in-between nations, not powerful enough to dictate policy but nevertheless acting as a major source for raw material and an expanding middle-class marketplace for core nations, while also exploiting peripheral nations. Mexico is an example, providing abundant cheap agricultural labor to the U.S., and supplying goods to the U.S. market at a rate dictated by the U.S. without the constitutional protections offered to U.S. workers.

World Bank Economic Classification by Income

While there is often criticism of the World Bank, both for its policies and its method of calculating data, it is still a common source for global economic data. When using the World Bank categorization to classify economies, the measure of GNI, or gross national income, provides a picture of the overall economic health of nation. Gross national income equals all goods and services plus net income earned outside the country by nationals and corporations headquartered in the country doing business out of the country, measured in U.S. dollars. In other words, the GNI of a country includes not only the value of goods and services inside the country, but also the value of income earned outside the country if it is earned by U.S. nationals or U.S. businesses. That means that multinational corporations that might earn billions in offices and factories around the globe are considered part of the United States’ GNI if they have headquarters in the U.S. Along with tracking the economy, the World Bank tracks demographics and environmental health to provide a complete picture of whether a nation is high-income, middle-income, or low-income.

High-Income Nations

The World Bank defines high-income nations as having a gross national income of at least $12,276. It separates out the OECD (Organization for Economic and Cooperative Development) countries, a group of 34 nations whose governments work together to promote economic growth and sustainability. According to the Work Bank (2011), in 2010, the average GNI of a high-income nation belonging to the OECD was $40,136 and the average population was over one billion (1,032,856,261); on average, 77 percent of the population in these nations was urban. Some of these countries include the United States, Germany, Canada, and the United Kingdom (World Bank 2011). In 2010, the average GNI of a high-income nation that did not belong to the OECD was $23,839 and the average population was about 94 million , of which 83 percent was urban. Examples of these countries include Saudi Arabia and Qatar (World Bank 2011).

There are two major issues facing high-income countries: capital flight and deindustrialization. Capital flight refers to the movement (flight) of capital from one nation to another, as when General Motors automotive company closed American factories in Michigan and opened factories in Mexico. Deindustrialization, a related issue, occurs as a consequence of capital flight, as no new companies open to replace jobs lost to foreign nations. As expected, global companies move their industrial processes to the places where they can get the most production with the least cost, including the building of infrastructure, training of workers, shipment of goods, and, of course, employee wages. This means that as emerging economies create their own industrial zones, global companies see the opportunity for existing infrastructure and much lower costs. Those opportunities lead to businesses closing the factories that provide jobs to the middle-class within core nations and moving their industrial production to peripheral and semi-peripheral nations.

Capital Flight, Outsourcing, and Jobs in America

As mentioned above, capital flight describes jobs and infrastructure moving from one nation to another. Look at the American automobile industry. In the early 20th century, the cars driven in America were made in America, employing thousands of workers in Detroit, and providing an abundance of jobs in the factories and companies that produced everything that made building cars possible. However, once the fuel crisis of the 1970s hit and Americans increasingly looked to imported cars with better gas mileage, American auto manufacturing began to decline. During the recession of 2008, the U.S. government bailed out the three main auto companies, underscoring their vulnerability. At the same time, Japanese-owned Toyota and Honda and South Korean Kia maintained stable sales levels.

Capital flight also occurs when services (as opposed to manufacturing) are relocated. Chances are if you have called the tech support line for your cell phone or internet provider, you’ve spoken to someone halfway across the globe. This professional might tell you her name is Susan or Joan, but her accent makes it clear that her real name might be Parvati or Indira. It might be the middle of the night in that country, yet these service providers pick up the line saying, “good morning,” as though they are in the next town over. They know everything about your phone or your modem, often using a remote server to log in to your home computer to accomplish what is needed. These are the workers of the 21st century. They are not on factory floors or in traditional sweatshops; they are educated, speak at least two languages, and usually have significant technology skills. They are skilled workers, but they are paid a fraction of what similar workers are paid in the U.S. For American and multinational companies, the equation makes sense. India and other semi-peripheral countries have emerging infrastructures and education systems to fill their needs, without core nation costs.

As services are relocated, so are jobs. In the United States, unemployment is high. Many college-educated people are unable to find work, and those with only a high school diploma are in even worse shape. We have, as a country, outsourced ourselves out of jobs, and not just menial jobs, but white-collar work as well. But before we complain too bitterly, we must look at the culture of consumerism that Americans embrace. A flat screen television that might have cost $1,000 a few years ago is now $350. That cost savings has to come from somewhere. When Americans seek the lowest possible price, shop at big box stores for the biggest discount they can get, and generally ignore other factors in exchange for low cost, they are building the market for outsourcing. And as the demand is built, the market will ensure it is met, even at the expense of the people who wanted it in the first place.

Middle-Income Nations

The World Bank defines lower middle income countries as having a GNI that ranges from $1,006 to $3,975 and upper middle income countries as having a GNI ranging from $3,976 to $12,275. According to the World Bank (2011), in 2010, the average GNI of an upper middle income nation was $5,886 with an average population of 2,452,168,701, of which 57 percent was urban. Thailand, China, and Namibia are examples of middle-income nations (World Bank 2011).

Perhaps the most pressing issue for middle-income nations is the problem of debt accumulation. As the name suggests, debt accumulation is the buildup of external debt, wherein countries borrow money from other nations to fund their expansion or growth goals. As the uncertainties of the global economy make repaying these debts, or even paying the interest on them, more challenging, nations can find themselves in trouble. Once global markets have reduced the value of a country’s goods, it can be very difficult to ever manage the debt burden. Such issues have plagued middle-income countries in Latin America and the Caribbean, as well as East Asian and Pacific nations (Dogruel and Dogruel 2007). By way of example, even in the European Union, which is composed of more core nations than semi-peripheral nations, the semi-peripheral nations of Italy and Greece face increasing debt burdens. The economic downturns in both Greece and Italy are threatening the economy of the entire European Union.

Low-Income Nations

The World Bank defines low-income countries as nations whose GNI was $1,005 or less in 2010. According to the World Bank (2011), in 2010, the average GNI of a low-income nation was $528 and the average population was 796,261,360, with 28 percent located in urban areas. For example, Myanmar, Ethiopia, and Somalia are considered low-income countries. Low-income economies are primarily found in Asia and Africa (World Bank 2011), where most of the world’s population lives. There are two major challenges that these countries face: women are disproportionately affected by poverty (in a trend towards a global feminization of poverty) and much of the population lives in absolute poverty.

In some ways, the term global feminization of poverty says it all: around the world, women are bearing a disproportionate percentage of the burden of poverty. This means more women live in poor conditions, receive inadequate healthcare, bear the brunt of malnutrition and inadequate drinking water, and so on. Throughout the 1990s, data indicated that while overall poverty rates were rising, especially in peripheral nations, the rates of impoverishment increased for women nearly 20 percent more than for men (Mogadham 2005).

Why is this happening? While there are myriad variables affecting women’s poverty, research specializing in this issue identifies three causes:

1. The expansion of female-headed households
2. The persistence and consequences of intra-household inequalities and biases against women
3. The implementation of neoliberal economic policies around the world (Mogadham 2005)

In short, this means that within an impoverished household, women are more likely to go hungry than men; in agricultural aid programs, women are less likely to receive help than men; and often, women are left taking care of families with no male counterpart.