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11. Inequality and Institutions: What Theory, History, and (Some) Data Tell Us
- Russell Sage Foundation
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Chapter 11 Inequality and Institutions: What Theory, History, and (Some) Data Tell Us RONALD ROGOWSKI AND DUNCAN C. MACRAE That institutions covary with political and economic inequality seems obvious . Societies with feudal or clientelistic politics are characterized by extreme economic inequality, and democracies are associated (despite some notable exceptions) with greater economic equality than autocracies . Even within the set of democracies, institutions and inequality seem to move together. Countries with proportional methods of election, for example, display greater economic equality than countries like the United States that have majoritarian electoral institutions. But do the institutions cause the inequality, does inequality constrain institutions, or is this link caused by some more fundamental source of change, such as technology or trade? In this chapter, we attempt to place some of the findings of this book in historical context. In the process, we emphasize that changes in economic and military technology, trade, and factor endowments influence the evolution of political institutions. We note that changes in technology , trade, or factor endowments can dramatically increase or decrease social and economic inequality. Where these exogenous changes increase inequality, we argue that political entrepreneurs have incentives to adopt less representative political institutions—or to do away with democratic institutions altogether. By contrast, decreasing inequality creates incentives for political entrepreneurs to broaden political participation. To support this argument, we present several historical case studies where substantial changes in factor endowments or technology quickly led to more inclusive or exclusive political institutions. We also present quantitative evidence that increasing labor force participation and the demand for labor created by the two world wars encouraged European countries to expand the right to vote during the late nineteenth and early twentieth centuries. Previous chapters in this book have addressed some of the outstanding challenges faced by the literature on the link between inequality and political institutions and policy. In chapter 2, Andrea Brandolini and Timothy Smeeding tackle the first of these challenges: measuring inequality trends. In the process, they point out that patterns in inequality can vary depending on the portion of the income distribution that is measured, on whether the measure tracks earnings or income, and on whether income measures include in-kind government transfers like education or health care. On the policy side of the equation, Lyle Scruggs (chapter 3) describes trends in welfare state benefits in a number of developed countries since 1970. Better understanding of these measurement issues and efforts to develop more complete indicators of long-term historical trends are critical to advancing our understanding of the basic empirical facts that support inferences about how inequality and political institutions are related. A second challenge, noted by a number of authors in this volume, is the debate about the direction of the causal relationship between inequality and political institutions such as the electoral system, centralized wage-bargaining institutions, and the ideological composition of government and policy. Many political scientists and economists who have addressed the issue argue that political institutions affect inequality. In chapter 4, for example, Torben Iversen and David Soskice present a model that shows that center-left governments dominate under proportional representation (PR) electoral systems, while center-right governments dominate under majoritarian systems, and that PR systems redistribute more than majoritarian systems and lead to lower inequality. G. Bingham Powell (2002) also demonstrated a similar connection between the electoral system, the ideological composition of governments, and redistribution .1 Centralized wage-bargaining institutions, present since the 1930s in Northern European countries with strong welfare states, are also frequently assigned a causal role in producing more equal societies. Using these institutions, strong unions can negotiate social protection in return for more moderate wage demands. Pablo Beramendi and Thomas Cusack take up this theme in chapter 5, arguing that centralized wage-bargaining institutions allow left wing political parties to choose policies that lead to a more equal distribution of income and constrain right wing parties . In chapter 6, David Rueda agrees that centralized wage-bargaining institutions can play a key role in affecting the level of inequality. In his Inequality and Institutions 355 [34.204.196.206] Project MUSE (2024-03-28 12:42 GMT) view, however, political parties can take up the slack if these institutions are weak. A number of recent papers, including some of the chapters in this volume , flip this causal relationship between inequality and political institutions on its head. In a pioneering paper, Davide Ticchi and Andrea Vindigni (2003) argue that economic inequality is likely to constrain the choice of electoral...