5 - Economic growth, social welfare spending, and income inequality

Summary

In this chapter, we consider the consequences of social welfare spending for aspects of social equality involving the distribution of income. Income inequality, conceived as the relative share of income going to different groups in the population, particularly the poorest groups relative to the richest groups, dominates discussions of social equality. Most scholars view low income inequality and low poverty as fair and just, a goal toward which societies should strive. Among large agricultural and industrial societies, none has come close to perfect equality, but some have come further than others.

If agreement exists on the goal, the means to lower inequality is, subject to considerably more debate. More so than in previous decades, strategies of economic growth and direct government income transfer are viewed as mutually exclusive. To the extent that it directs resources away from production and discourages upward mobility, welfare spending may retard the progress toward greater equality coming from economic growth. Alternatively, to the extent that it benefits the upper and middle classes, economic growth may not change inequality unless egalitarian policies redistribute income. Assuming that no contradiction exists between government intervention and economic growth – that they reinforce each other in reducing inequality – blunts the debate somewhat and offers another set of predictions concerning the determination of income dispersion.

Considering the redistributive effect of welfare spending in developing nations further incorporates issues involving the importance of national characteristics, such as economic and demographic structures, relative to external relations in the world system.