As inequality grows, so does the political influence of the rich

Desdemona Despair

21 July 2018 (The Economist) – Squeezing the top one percent ought to be the most natural thing in the world for politicians seeking to please the masses. Yet, with few exceptions, today’s populist insurgents are more concerned with immigration and sovereignty than with the top rate of income tax. This disconnect may be more than an oddity. It may be a sign of the corrupting influence of inequality on democracy.

You might reasonably suppose that the more democratic a country’s institutions, the less inequality it should support. Rising inequality means that resources are concentrated in the hands of a few; they should be ever more easily outvoted by the majority who are left with a shrinking share of national income.

Indeed, some social scientists think that historical expansions of the franchise came as governments sought credible ways to assure voters that resources would be distributed more equitably. Daron Acemoglu and James Robinson argue that in the 19th century governments across the West faced the threat of socialist revolution. Mere promises of greater redistribution were insufficient to eliminate such threats; institutional guarantees were needed. Giving credible guarantees, they reckon, meant increasing the share of the population allowed to vote. Other researchers argue that anti-majoritarian institutions embedded within democratic systems, such as Britain’s House of Lords and America’s electoral college, were prized by elites not because they seemed likely to lead to better policies but because they served as a check on the egalitarian tendencies of the masses.

But studies of the relation between democracy and levels of inequality point in conflicting directions. Mr Acemoglu and Mr Robinson tackle the question in another paper, co-written with Suresh Naidu and Pascual Restrepo. They conclude that democracies raise more taxes than non-democracies do. But this does not translate reliably into lower levels of income inequality. […]

The rich world has seen big policy shifts over the past decade. Last year America’s government managed to make a sweeping change to taxes—one that tilts the distribution of income even more in favour of the rich. And in a recent study of European politics, Derek Epp and Enrico Borghetto find that political agendas in Europe have become less focused on redistribution even as inequality has risen. Though both inequality and public concern about it are increasing, politicians seem less interested in grappling with the problem.

Mr Epp and Mr Borghetto think another possible explanation should be considered. Rather than straightforwardly increasing pressure on politicians to do something about skewed income distributions, they suggest, rising inequality might instead boost the power of the rich, thus enabling them to counter the popular will. [more]

As inequality grows, so does the political influence of the rich