Development and Inequality

A distinction was made at the beginning of the course about the distinction between the inequality of economic outcomes (income/consumption) and inequality of opportunity (wealth, access to credit, education and jobs,..). Given the various theoretical mechanisms reviewed in the course, would you agree that economic growth depends more on the inequality of opportunity than on the inequality of outcomes? Under these conditions, what should be thought of the evidence on the relationship between inequality, in general, and growth?

”We know that equality of individual ability has

never existed and never will, but we do insist that

equality of opportunity still must be sought”

Franklin D. Roosevelt, second inaugural address.

In social economy the concept of “equality” and “poverty” are basics. Social security systems in every country are based on these concepts, and their role is to ensure reduction of poverty and increase of equality. However, these two concepts are not identical. A society with high levels of inequality may have low poverty and vice versa. There are numerous definitions of poverty; Atkinson’s defines it as a “right to a minimum level of resources”. In unanimous opinion of economists and policy makers poverty is- absolute evil, and therefore it must be addressed. In relation to equality such a unanimous opinion doesn’t exist. First of all, the definition of "equality" is rather vague and ambiguous, which leads to its broader interpretation and makes it difficult to accurately determine the extent of inequality in society.

Nicholas Barr in his work Economics of the welfare state (2004) defines equality as providing all members of the society with equal opportunities. In this connection, the views on the choice of social policies aimed at increasing equality are diverging. Socialists, treating inequality in the narrower sense - as income inequality, believe that this has the same negative effect as poverty, as it leads to social tension and prevents the individuals who are poor from developing their abilities and meeting their potential. Therefore, the state must make significant efforts and use resources to reduce inequality. The result of such a policy is the progressive income taxation, high inheritance taxes, and a wide range of social programs for the poor. In turn, the liberals who understand equality more generally, argue that state’s intervention in economic activities is a violation of the principle of equality, as in this case state takes away part of the income from the more adventurous members of the society and thus prevents individual initiative. According to the liberals, this practice can lead to a slower economic growth, where as a result everyone will lose, both rich and poor. Therefore, liberals advocate