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The Political Economy of Income Inequality: A Comparative Analysis

Published online by Cambridge University Press:  10 November 2009

Steven Stack
Steven Stack
Affiliation:
Indiana University
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Type
Research Article
Information
Canadian Journal of Political Science/Revue canadienne de science politique , Volume 13 , Issue 2 , June 1980 , pp. 273 - 286
Copyright
Copyright © Canadian Political Science Association (l'Association canadienne de science politique) and/et la Société québécoise de science politique 1980

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References

1 Kuznets, Simon, “Quantitative Aspects of the Economic Growth of Nations, VIII: The Distribution of Income by Size,” Economic Development and Cultural Change 11 (1963), 1–80CrossRefGoogle Scholar; Kerr, Clark, Dunlop, J.T., Harbison, Frederick, and Myers, Charles, Industrialization and Industrial Man (New York: Oxford University Press, 1964)Google Scholar; Kravis, Irving, “International Differences in the Distribution of Income,” Review of Economics and Statistics 42 (1960), 408–16CrossRefGoogle Scholar; Jackman, Robert, Politics and Social Equality (New York: Wiley, 1975)Google Scholar.

2 Rubinson, Richard and Quinlan, Daniel, “Democracy and Social Inequality: A Reanalysis,” American Sociological Review 42 (1977), 611–23CrossRefGoogle Scholar; Vandendries, Rene, “Income Distribution in Peru after World War II,” Journal of Developing Areas 8 (1974), 421–36Google Scholar; Fishlow, A., “Brazilian Size Distribution of Income,” American Economic Review 62 (1972), 391–402Google Scholar; United Nations, Economic Survey of Europe in 1965, Part II (Geneva: United Nations, 1967)Google Scholar; United Nations, Income Distribution in Latin America (New York: United Nations, 1971)Google Scholar.

3 Hewitt, Christopher, “The Effects of Political Democracy and Social Democracy on Equality in Industrial Societies: A Cross-National Comparison,” American Sociological Review 42 (1977), 450–64CrossRefGoogle Scholar; Peters, B. Guy, “Income Inequality in Sweden and the United States: A Longitudinal Analysis,” Ada Sociologica 16(1973), 108–20CrossRefGoogle Scholar; Cutright, Phillips, “Inequality: A Cross-National Analysis,” American Sociological Review 32 (1967), 362–78CrossRefGoogle Scholar; Lenski, Gerhard, Power and Privilege (New York: McGraw-Hill, 1966)Google Scholar.

4 Rubinson, Richard, “The World Economy and Distribution of Income Within States,” American Sociological Review, 41 (1976), 638–59CrossRefGoogle Scholar.

5 Lenski, , Power and Privilege; Frank Parkin, Class Inequality and the Political Order (New York: Praeger, 1971)Google Scholar; Cutright, “Inequality”; Stack, Steven, “Inequality in Industrial Society: Income Distribution in Capitalist and Socialist Nations” (Ph.D. dissertation, Storrs, Department of Sociology, University of Connecticut, 1976)Google Scholar.

6 Kerr, et al., Industrialism and Industrial Man; Lenski, Power and Privilege; Kravis, “International Differences,” 413–15.

7 The evidence supporting economic development theory is based largely on inappropriate and incomplete measures of inequality such as the distribution of income to economic sectors (for example, manufacturing and mining), and the shares of the top income classes (Cutright, “Inequality”; Jackman, Politics and Social Equality; Kuznets, “Aspects of Economic Growth”). The problems with the sectoral measure include the fact that it assumes incomes are equally distributed within each economic sector. Research which uses more theoretically sound measures of income distribution (for example, income distribution to households) has tended to find that there is no relationship between modernization and income differences independent of other key variables (Rubinson, “World Economy”; Hewitt, “The Effects of Political Democracy”). One exception to this trend is one result from Hewitt's investigation which found that level of development is significantly related to the income share of the top 20 per cent of households.

8 Lenski, Power and Privilege; Cutright, “Inequality”; Peters, “Income Inequality in Sweden and the United Kingdom”; Rubinson and Quinlan, “Democracy and Social Inequality”; Stack, Steven, “Political Organization and the Degree of Income Tax Progressiveness,” International Review of Modern Sociology 8(1978), 113–26Google Scholar, and “Internal Political Organization and the World-Economy of Income Inequality,” American Sociological Review 43 (1978), 271–72CrossRefGoogle Scholar.

9 Lenski, Power and Privilege, 316–17.

10 Jackman, Politics and Social Equality.

11 Peters, “Income Inequality in Sweden and the United Kingdom”; Rubinson and Quinlan, “Democracy and Social Inequality.”

12 Another chief power mechanism in world economy for decreasing inequality at home is direct penetration of other nations. This involves economic control over the production of raw materials and production for export. This insures a steady supply of materials and a technique for keeping prices at an artificially low level. See Furtado, Celso, Economic Development of Latin America (Cambridge: Cambridge University Press, 1972)Google Scholar. This quickens the development of the dominant nation and, hence, its trend towards lessened inequality. The reverse is true for the subordinate nation. In addition, inequality is maintained or expanded by a small trade elite in the dominated nation which takes the cream off of the top of the import-export flow, and may use its power to suppress or limit the development of domestic industry. See Arrighi, Giovanni, “International Corporations, Labor Aristocracies, and Economic Development in Tropical Africa,” in Rhodes, Robert (ed.), Imperialism and Underdevelopment (New York: Monthly Review Press, 1970), 220–67Google Scholar, and Amin, Samir, Accumulation on a World Scale, Vol. 1 (New York: Monthly Review Press, 1974)Google Scholar. Work on the world economy perspective relevant to the study of inequality has, however, neglected to include a measure of internal political organization in its analysis. See Stack, “Internal Political Organization,” for evidence that a political model explains more of the variance than the world economy perspective.

13 Andreski, Stanislaw, Military Organization and Society (Berkeley: University of California Press, 1968), 20–74Google Scholar; Lenski, Power and Privilege, 49, 304, 317.

14 Andreski, Military Organization and Society, 38–39.

15 Ibid., 71.

16 The link between mass military participation and relatively low inequality can be illustrated with case studies of nations in modern times. For example, with the rise of mass armies in nineteenth-century Germany came the abolition of serfdom. Under Bismark came insurance schemes for wage earners. In Russia, Alexander II abolished serfdom while transforming the professional army into a conscript force. In England, the trend towards low inequality levels was accelerated by the two world wars fought by the masses of England. Following World War Two, the Labour party came to power with its program of “soaking the rich.” In Germany during the rise of the Nazi war machine, while the common people were stripped of all political rights, the loyalty of the masses was heightened by providing them with all sorts of amenities such as low-cost housing programs, the abolition of the threat of unemployment which had previously hung over their heads, and so on (Andreski, Military Organization and Society, 69–73). In the United States, the loyalty of the military has been aided by such material concessions as the G.I. Bill for higher education, government subsidized programs for G.I. housing, health care programs, and policies for discrimination in favour of veterans in hiring practices on the civilian labour market. With the rise of an American Volunteer Army in the mid-1970's, considerable effort has been made to keep the MPR at a reasonable level through such efforts as raising wage rates for military personnel and massive television advertising.

17 Cutright, “Inequality”; Jackman, Politics and Social Equality.

18 Adelman, Irma and Morris, Cynthia Taft, An Anatomy of Patterns of Income Distribution in Developing Nations, Part III (Agency for International Development, 1971)Google Scholar.

19 Paukert, Felix,“Income Distribution at Different Levels of Development: A Survey of Evidence,” International Labor Review 108 (1973), 97–125Google Scholar.

20 The present paper also utilizes comparable data on Canada from Income Inequality: Statistical Methodology and Canadian Illustrations (Ottawa: Statistics Canada, 1975)Google Scholar.

21 Alker, Hayward and Russett, Bruce M., “Indices for Comparing Inequality,” in Merritt, Richard L. and Rokkan, Stein (eds.), Comparing Nations: The Use of Quantitative Data in Cross-National Research (New Haven: Yale University Press, 1966), 349–72Google Scholar.

22 For a detailed description of the nature of the Gini index and the method for its calculation see Bronfenbrenner, Martin, Income Distribution (Chicago: Aldine, 1971), 45–53Google Scholar.

23 Hewitt, “The Effect of Political Democracy,” 460.

24 Jackman, Politics and Social Equality, 63–65.

25 Jackman's index was judged preferable to its major competitors on theoretical and empirical grounds. Cut right's measure does not include measures of participation and freedom of the press. It is, however, correlated at .82 with Jackman's index according to Rubinson and Quinlan (“Democracy and Social Inequality”). The social democracy measure used by Hewitt (“The Effect of Political Democracy”), which incorporates the post-war strength of left parties in parliament, could not be used because the necessary data were not available for all countries. Moreover, previous work by this writer has shown that Hewitt's analysis exaggerates the importance of left party strength by failing to control for political participation. See my “The Effects of Political Participation and Socialist Party Strength on the Degree of Income Inequality,” American Sociological Review 44 (1979), 168–71CrossRefGoogle Scholar.

26 This measure is based on data from Banks, Arthur S., Cross-Polity Time Series Data (Cambridge, Mass.: MIT Press, 1971)Google Scholar.

27 Rubinson, “The World Economy.”

28 The questionable validity of government revenue/GDP as a measure of state strength in the world has been discussed by the writer in his “Internal Political Organization.” Rubinson himself acknowledges the important qualitative dimensions (“The World Economy,” 642).

29 Taylor, Charles and Hudson, Michael, World Handbook of Political and Social Indicators (New Haven: Yale University Press, 1972)Google Scholar.

30 A multiplicative term (MPR x GDR per capita) was introduced to the analysis to test the nonaddhive portion of Andreski's theory. However, there appeared to be a severe problem of multicollinearity between this term and the MPR (r = .92). The results of a regression analysis involving the interactive term indicated that it did not have a significant effect on inequality. However, the Klein test for severe multicollinearity between MPR and the multiplicative term was positive. Given this problem of severe multicollinearity it becomes difficult to interpret the results of the regression analysis (Dutta, M., Econometric Methods [Cincinnati: South Western, 1975], 147–50Google Scholar).

31 Dutta, Econometric Methods, 150.

32 One possible solution to the analysis problem presented by the moderate correlation between democratic performance and GDP per capita is to substitute the rate of economic growth as an index of economic development. However, the correlation between democratic performance and the rate of economic growth is .53. even larger than the correlation between the democracy index and GDP per capita. .51.

33 The final concern of the analysis is an inspection of the residuals of cases that are poorly predicted by the model. These may tell us something about what other factors may be relevant to further studies on the subject. While most of the nations in the sample had predicted inequality levels within .06 units of their actual levels, some were poorly predicted. The two nations with the highest residual values were South Korea and Peru. The Gini for South Korea was .172 units lower than the predicted value. We would expect such a high rating for South Korea with respect to its extremely low GDP per capita ($107), and its low rating in democratic performance which is more than a standard deviation below the sample's mean. However, the actual low Gini of South Korea is probably due, in part, to its previous war with North Korea. The full destratifying effects of the large-scale war with North Korea are probably not measured by a cross-sectional index of the MPR in 1965. Future research may want to measure the MPR in longitudinal terms such as the mean MPR over recent decades. In the case of Peru, the model underestimated the degree of inequality by .128 units. The high incidence of internal war in Peru may be a factor crucial to understanding the very high levels of inequality in Peru (Jackman, Politics and Social Equality, 217). Future research might inspectthe relationship between inequality and political violence.

34 Rubinson, “The World Economy.”