II Poverty and Inequality

What Kinds of Economic Inequality Really Matter?

Thomas E. Weisskopf

Abstract The chapter discusses the major reasons why economic inequality should be a source of concern and the forms of inequality that are principally implicated. It considers ten different arguments as to why inequality matters—two of them moral, two political, three economic, and three social. In each case it discusses the economic variable(s) whose unequal distribution is at issue, whether economic class inequality or ethnic group inequality is most salient, and what part(s) of the unequal distribution are the most problematic—i.e., is the problem primarily poverty at the lower end, privilege at the upper end, bipolarization, or the entire distribution?

Keywords Political economy Economic inequality

JEL Classification Z13

Introduction

For a long time economists concerned about the distribution of economic well-being in real-world societies have focused on poverty—generally defined as insufficient economic resources to attain a minimal standard of living—as the key problem to be documented, understood, and addressed. Since the end of the colonial era, national governments and international institutions like the World Bank have viewed the alleviation and ultimate eradication of poverty as an important policy objective. Even in affluent countries such as the United States, poverty lines are defined, the extent of poverty below those lines is measured, and campaigns to reduce poverty are launched—e.g., the “War Against Poverty” in the U.S. by the Lyndon Johnson Administration in the 1960s. It surely makes sense to accord high priority to reduction of the immense suffering associated with poverty, especially when it is as widespread as in many developing countries.

T.E. Weisskopf (H)

University of Michigan, 305 Wilton St, Ann Arbor, MI 48103, USA e-mail: This email address is being protected from spam bots, you need Javascript enabled to view it

© Springer Science+Business Media Singapore 2017 83

K.L. Krishna et al. (eds.), Perspectives on Economic Development and Policy in India, India Studies in Business and Economics,

DOI 10.1007/978-981-10-3150-2_4

For a long time too, most economists and policy-makers have seen sustained economic growth as providing the surest means to reducing poverty. History certainly shows that sustained economic growth has in the past done a great deal to reduce poverty—initially in the West, then in non-Western countries such as Japan and South Korea, and lately in “emerging nations” like China and India. In recent decades, it is true, concern has grown over the extent to which economic growth actually alleviates poverty; and the term “inclusive growth” has arisen to focus attention on policies to assure that growth does in fact do so. Up until recently, however, concern about poverty has not been matched by concern about economic inequality more generally. In other words, the focus has been on absolute economic deprivation (whether one falls short of a subsistence standard) rather than relative economic deprivation (where one stands in relation to others in one’s society). If economic growth is accompanied by a widening economic gap between rich and poor, this has generally not been seen as a problem so long as the growth also reduces the proportion and the numbers of the very poor.[1]

In recent years, however, attitudes toward economic inequality seem to be changing. In late 2010, the then Managing Director of the IMF—a bastion of mainstream economic thinking—declared that “Lurking behind [globalization is] a large and growing chasm between rich and poor—especially within countries. An inequitable distribution of wealth can wear down the social fabric. More unequal countries have worse social indicators, a poorer human development record, and higher degrees of economic insecurity and anxiety” (Strauss-Kahn 2010). Concern about the “large and growing chasm between rich and poor” has been stimulated in part by an accumulation of evidence that in recent decades economic inequality has increased substantially in a great many countries around the world.[2] It is not only that the poorer strata—e.g., the bottom 10 or 20%—are receiving smaller shares of total income and wealth. There is also much evidence of a burgeoning share for the very richest stratum (see Piketty and Saez 2011), which has contributed to a growing sense that inequality at the upper end of the distribution confers excessive power on the very rich, with problematic consequences for the well-being of a society. Although this point of view has been expressed and discussed more fully in relatively affluent countries, where evidence on the growth of a super-rich class at the top of the income distribution is more extensive, it would seem to be just as applicable to less affluent developing countries, where a class of super-rich is also often to be found.

In a recent paper (Weisskopf 2011) I reviewed a variety of arguments that have been advanced to suggest that people would be better off if the distribution of key economic resources in a society were less unequal. In this paper I would like to develop this line of analysis further by addressing an issue to which too little attention has heretofore been devoted, namely: what kinds of economic inequality really matter? I begin in Sect. 4.2 by distinguishing various forms that economic inequality can take. In Sect. 4.3 through 6 I discuss a series of moral, political, economic, and social arguments that have been made for reducing inequality; in each case I seek to identify the particular form of economic inequality that is implicated in the argument. In Sect. 4.7, I conclude with a summary of the results and a brief discussion of their implications.

  • [1] There have of course always been some economists who stress the importance of economicinequality—notably Amartya Sen.
  • [2] See the data compiled by the World Bank and by the U.N. University’s World Institute forDevelopment Economics Research, on-line at http://data.worldbank.org/topic/poverty and http://www.wider.unu.edu/research/Database/en_GB/database/, respectively.
 
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