Sunday, June 4, 2023

Globalization, inequality and democracy in class

The CORE Project’s e-book “The Economy” (it's free, read it!) starts with inequality (Unit 1) and finishes with politics (Unit 22). So I thought it would be fitting to end the course discussing with the students how is it possible that democracies are compatible with inequality, and in particular the concentration of the benefits of economic growth on the richest 1%.

To discuss the answer to this question, at the end of the 16 main units of “The Economy,” we discussed a selection of the “capstone” chapters 17-22. After showing them a graph with the historical ups and downs of globalization since the end of the XIXth century and the graph of “Milanovic’s elephant,” we discussed Rodrik’s trilemma (Unit 18), and redistributive preferences (Unit 19). Then I presented the Median Voter model (Unit 22) as a benchmark with which we can compare more realistic polities. Using additional material, I proposed an exercise with three type of voters and 3 alternatives, showing that different voting systems may yield different collective outcomes (without changing the individual preferences) and none of these voting systems is perfect (echoing Arrow’s Impossibility Theorem).

Based on “The Economy” models, on the article of Bonica et al. in the Journal of Economic Perspectives, and my own thinking in discussion with the students, I came up with this list of non-exhaustive answers to the question of “why democracy is compatible with increasing inequality?:”

-Objective constraints to redistribution at the national level due to (hyper)globalization.

-Incentive reasons: Higher rates of taxation reduce labor supply and effort provision.

-Prospect of upward mobility (P.O.U.M.).

-Unequal turnout and political participation: the rich participate more (not only by voting).

-Ideological shift (persistent belief in “trickle down” economics) and cultural reasons (believe in “incentives” and “merit”, preferences for the extremes).

-In some cases, a voting system may eliminate the option preferred by the MedianVoter if there are more than two relevant alternatives (France 2002?)

-Capture, lobbying, campaign contributions, corruption (more affordable for the rich).

-A combination of electoral and ideological polarization, and institutions that are slow to change or evolve, and which reduce the accountability of oficials to the majority (“gerrymandering” in the US, non-proportional electoral systems).

-Agenda-setting and mobilization of non-distributive agendas by the rich (strategic political supply, eg plutocratic populism).

I challenged them to complement or correct the list, not necessarily on the spot in class, but as food for thought for their hopefully productive lives as social science students and graduates.

(Class slides available upon request)

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