Your Federal Quarterly Tax Payments are due April 15th Get Help Now >>

Theories of Inequality Within Countries by tyndale


									   INEQUALITY &

          Lindsey King
           Junpeng Li
  The World-System Approach
• World-system theory:
  a perspective on the
  origins and
  development of
  capitalism as a
  global economic
  system (Wallerstein,
  The World-System Approach
1. The economic organization of modern capitalism is
   on a global, not national, basis
2. World-system is composed of core regions, which are
   economically and politically dominant, and
   peripheries which are economically dependent on the
3. Core regions are developed as industrial systems of
   production, whereas the peripheries provide raw
   materials, being thereby dependent on prices set in
   the core regions
   The World-System Approach
4. There are also semi-peripheries which have a mixture of
   social and economic characteristics from both core and
5. This modern world system originated in Europe in the
   “long” 16th century (1450-1640) with the slow evolution of
   capitalist agriculture
The World-System Approach
“The singular feature of this world
economy was the discontinuity between
economic and political institutions. This
discontinuity made possible and was
made possible by the creation of capitalist
forms of production, not only in commerce
and industry, but most important of all, in
agriculture.” (Wallerstein, 1972, p95)
Core, Periphery, and Semiperiphery

• “The core areas were the location of a
  complex variety of economic activities”
• The peripheral areas “were monocultural,
  with the cash crops being produced on
  large estates by coerced labor”
• “The semiperipheral areas were in the
  process of deindustrializing”
                     (Wallerstein, 1972, p96)
  The World-System Approach
• In the world economy, the various areas
  came to be dependent on each other for
  their specialized roles

• Profitability: the world system tried to
  increase its overall productivity
  The World-System Approach
 A multitude of political entities of varying
• In the core states there evolved relatively
  strong State systems
• The periphery lacked strong State systems
• The semiperiphery was in-between
  The World-System Approach

• Three particular areas
   – Poland (periphery)
   – Venice (semiperiphery)
   – England (core)
   Dependent Industrialization and
• The stratification of average income
  among nations and the internal distribution
  of income around the national average are
  mainly determined by nations‟ positions in
  the world system
  National and International Income
• “The average income possibilities and the
  internal distribution of income that are
  consequences of a country‟s position in the
  spatioeconomic hierarchy interact with the
  process of the transnational corporation‟s
  organizational imperialism to produce greater
  personal and sectoral income inequality and
  higher levels of social marginality within
  countries on lower levels of hierarchy.”
  (Bornschier and Chase-Dunn, 1985, p23)
National and International Income
• There is a harmony of interests between the
  ruling classes of core and peripheral
  countries to be the main social stabilization
  mechanism of the spatioeconomic hierarchy
• “…an alliance between core ruling classes
  and peripheral ruling classes will tend to
  produce greater inequalities within peripheral
  countries because the peripheral elite will be
  able to use the resource of core support to
  garner income and other advantages to itself.
  It will also be more able to successfully resist
  demands for redistribution.” (Bornschier and
  Chase-Dunn, 1985, p23)
National and International Income

• “…it is not a low level of development
  that creates high inequality, but rather
  peripherality in the world division of
  labor and its associated class structure.”
  (Bornschier and Chase-Dunn, 1985,
  National and International Income
• Transnational corporations affect the
  international structure of income directly
  by their transfers of profits, goods and
• By means of administered prices for
  intermediates the customers of
  transnational corporations in peripheral
  countries pay for the organizational
  superstructure of corporate activities
  National and International Income
• Export of proletariat: “These flows of
  resources to the core countries contribute
  to their further development of
  technological innovations, and expansion
  of clean and well-paid jobs, whereas
  routinized and standardized, dirty and
  simple tasks with low incomes are
  increasingly transferred to the periphery.”
  (Bornschier and Chase-Dunn, 1985, p24)
National and International Income

• Superimposed stratification: in many
  peripheral countries the subsidiaries of
  transnational corporations constitute the
  majority of the largest industrial enterprises
• “The extent of the superimposed stratification
  by transnational corporations is generally
  greater the less developed a country is.”
  (Bornschier and Chase-Dunn, 1985, p24)
 National and International Income
• Zero-sum game: The expansion is not
  necessarily diminished by reaching the
  limits of market demand. “Rather,
  competition causes aggressive,
  innovative, and powerful firms to continue
  to grow at the expense of other firms and
  many of the latter are either driven from
  the market or absorbed.” (Bornschier and
  Chase-Dunn, 1985, p24)
 Capitalist Economic Growth in the

• Development of trade unions → Increases
  in real wages → Replacement of labor
  with capital → unemployment
Capitalist Economic Growth in the

Leading companies implement various strategies to
  overcome these growth limitations
 1. The institutionalization of technological change
  which continually devaluates existing capital and
  induce demand for new capital goods
 2. Leading firms tend to spread the risks by
  diversifying their activities, often by takeovers or
 3. The market might be expanded by an intensification
  of exports
 4. Going transnational (exporting capital) in order to
  circumvent stagnation tendencies in the home market
  by taking advantage of investment opportunities in
  other countries
                (Bornschier and Chase-Dunn, 1985, p26)
     Obstacles to Growth in the
• In contrast to what happens in core
  capitalism, the effects of monopolization
  are much more destructive in peripheral
• “…the mechanisms by which the
  advanced country can counteract or
  stave off such stagnation tendencies,
  are in the underdeveloped economy,
  both fewer and less effective” (Merhav,
  1969, p6)
  Obstacles to Growth in the Periphery
• “The small size of domestic markets in peripheral
  countries, even in those with large populations, produces
  a situation in which the stagnation tendencies that show
  up in core countries only at a late stage of industrialization
  are present practically from the beginning.”
• In addition to the small size of the domestic market, it is
  also related to the scale of technology and limited
  possibilities to produce for export markets
• “Shares of the world market are already distributed
  among industrial producers and are relatively closed to
  late industrializers.”
• “...what was possible 150 years ago for a small country
  like Switzerland is no longer possible in the industrialized
  world of today” (Bornschier and Chase-Dunn, 1985, p27)
     Transnational Firms and
    Inequality in the Periphery
• The “trickle-down” effects are few: the basic
  needs of the majority of the population in
  peripheral countries are not satisfied
• Income inequality becomes a necessary
  condition and a consequence
• “…given a particular peripheral country in
  which average income is low and world
  market prices for transnational corporate
  products prevail, the effective demand…is
  larger and of more interest to transnational
  corporations the greater the income
  inequality” (Bornschier and Chase-Dunn,
  1985, p28)
  Causes of National Income Inequality
• “The spatioeconomic hierarchy…creates a
  corresponding stratification of socioeconomic
  structures that have different income
  possibilities and profiles.” (Bornschier and
  Chase-Dunn, 1985, p119)
• The political regime of a dependent country is
  likely not to be willing or able to act in favor of
  income equilibration via redistribution
• “The sociopolitical basis of such inability of the
  state is a specific type of class structure, that is,
  a class coalition within the integrated segment
  against the marginalized majority.” (Bornschier
  and Chase-Dunn, 1985, p119)
     Causes of National Income
• The striving for participation in the bourgeois
  lifestyle produces privileges relative to the
  average life situation in peripheral countries
• “The integrated population tries to increase its
  consumption in order to keep up with core
  standards.” (Bornschier and Chase-Dunn,
  1985, p120)
• These lead to a larger income gap and more
  intense marginalization in poorer countries
  than in richer ones
      Causes of National Income

• “Transnational corporations are less
  opposed to greater income inequality
  within core countries.” (Bornschier and
  Chase-Dunn, 1985, p120)

• Their market chances are larger the higher
  are the incomes of the masses of the
      Causes of National Income
• Types of activity of transnational
  corporations in the periphery
  1. Transnational firms active in
  agricultural, mineral and oil extraction
  2. Those active in manufacturing for the
  world-market (“world-commodities”)
  3. Transnational firms active in
  manufacturing for the domestic market
      Causes of National Income

• Lenski (1966) finds that the magnitude of
  inequality increases as we move from
  hunter/gatherer through to advanced
  agrarian societies. When industrial society
  appears, inequalities decrease due to
  changes in the power of the producing
      Causes of National Income
• “These industrialized national societies are
  not themselves whole systems, but are
  instead parts of a larger world-economy.
  Thus, the unit which should be considered
  in a discussion of the relative magnitude of
  inequalities in social evolution is the
  modern world-system itself.” (Bornschier
  and Chase-Dunn, 1985, p127)
      Causes of National Income
• The rank order of production systems in the
   modern world regarding productivity and surplus
  · horticultural production systems
  · simple agrarian production systems
  · advanced agrarian production systems
  · industrial production system: periphery and
  · industrial production system: core
      Causes of National Income

• “…inequality in the industrial system is still
  greater than in advanced agrarian
  systems” (Bornschier and Chase-Dunn,
  1985, p127)
       Causes of National Income

• “Productivity in the core is much higher and the
  organizational forms of production are much
  more complex, reflecting a more even
  distribution of power, whereas in the periphery
  standardized and routinized production prevails
  within the world division of labor, and this is
  accompanied by a larger marginalized segment
  of the population.” (Bornschier and Chase-Dunn,
  1985, p127-8)
• “…the strength of the state as an institution
  reflecting group and class alliances structured by
  the world-economy is greater in the core than in
  the periphery” (Bornschier and Chase-Dunn,
  1985, p128)
       Causes of National Income

• “…the coexistence of different production
  systems with different levels of productivity,
  surplus and power structures, that is,
  horticultural, agrarian and industrial systems –
  the latter differentiated according to peripheral,
  semiperipheral and core position – explain the
  observed pattern between level of economic
  development and income inequality within
  countries” (Bornschier and Chase-Dunn, 1985,
Inverted U-Shaped Relationship between Inequality
       and Level of Economic Development
Legend: I: Horticultural systems II: Simple and advanced systems III: Industrial
system. a=Peripheral position with still dominant agrarian system; b=Peripheral
     position with small importance of agrarian system; c=Core position.
Empirics of World Income Inequality
             (Firebaugh, 1999)
 • Different rates of population growth among
   nations played the predominant role in
   determining change in the distribution of
   per capita income across nations

 • The centuries-old trend of rising inequality
   leveled off from 1960 to 1989
         Convergence Theory

• National economies will tend to converge
  because of the principle of diminishing
  returns to capital and labor (Solow, 1956)
• “As rich industrial nations begin to
  experience diminishing returns, poorer
  nations (who are farther from the point of
  diminishing returns) will tend to catch up
  as they industrialize.” (Firebaugh, 1999)
           Convergence Theory

• The new growth theory (endogenous growth
  theory) (Romer, 1986; Lucas, 1988) challenges
  the convergence thesis by arguing that the
  principle of diminishing returns can be overcome
  by specialized inputs made possible by research
• Conditional convergence (Barro, 1991: Barro
  and Sala-i-Martin, 1992: Mankiw, Romer, and
  Weil, 1992)
• Unconditional convergence
        The Polarization Thesis

• World-system and dependency
• “If rich nations benefit more from
  international exchange, and if this
  exchange is the primary source of
  national income differences…then so
  long as rich and poor nations continue
  to engage economically we can expect
  national incomes to continue to
  diverge.” (Firebaugh, 1999)
       Cross-national Evidence

• Berry et al., 1983; Peacock et al., 1988;
  Schultz, 1998: there has been little or no
  change in intercountry inequality in recent
• Jackman, 1982; Sheehey, 1996; Jones,
  1997; Korzeniewicz and morgan, 1997):
  national incomes have continued to
       Cross-national Evidence

• Making sense of these findings
  - weighting: studies that do not weight
  generally find divergence, whereas studies
  that weight generally find little change in
  intercountry inequality over recent
  - purchasing power parity (PPP)
  - China: weighted studies that exclude
  China are suspect
       Cross-national Evidence

• When each national economy is given the
  same weight, the data indicate national
• Weighted studies find stability
• Do we want to give nations or individuals
  equal weight?
    Weighted versus Unweighted
• Economists: each nation represents one
  unit (one economy); economic trends in
  Luxembourg count just as much as
  economic trends in China, even though
  China has nearly 3,000 times more people
• Sociologists: whether there is intercountry
  convergence in the case where
  individuals, not nations, are given equal
   Changing Income Ratios versus
    Changing Population Shares
• The income ratios are in fact diverging, yet
  change in population shares across countries
  offsets that divergence, so weighted intercountry
  income inequality does not increase

• “…all the important dimensions of the 1960-89
  trend in intercountry income inequality are
  related to differences in the population growth
  rates of richer and poorer nations” (Firebaugh,
Theories of Inequality Within
   Kuznets, Nielsen, and friends
                                     Hi, I‟m Simon
The Kuznets Curve                  Kuznets, the man
                                   behind the curve.

• Kuznets theorized about
  long-term changes in the
  distribution of income
• Examined changes in
  inequality within countries
   – Each country treated as an
     insulated unit
   – Development trajectory of a
     given country unrelated to
     that of other countries
   Two Primary Forces Leading to
  Increased Intracountry Inequality
1) “Concentration of savings in the upper-income brackets”
   (p. 7)
   – Kuznets found that most savings in the United States were
     possessed by individuals in the upper income brackets
   – Saving has a cumulative effect; over time, the upper income
     groups would come to control increasing shares of assets
2) Shift in income distribution from agricultural to
   nonagricultural sectors
   Differences in structure of income distribution (p. 7):
   – “(a) the average per capita income of the rural population is
     usually lower than that of the urban”
   – “(b) inequality in the percentage shares within the distribution for
     the rural population is somewhat narrower than in that for the
     urban population”
           Shift from Agricultural to
           Nonagricultural Sectors
Kuznets focused on inequality resulting from population shifts from
   sector A (agricultural) to sector B (nonagricultural)
As the population shifts from rural to urban, inequality increases
• The nonagricultural sector is characterized by higher levels of
   within-sector inequality.
• The greater income inequality in the nonagricultural sector, as
   compared to the agricultural, increasingly affects overall income
   inequality as greater proportions of the population become
• Inequality between agricultural and nonagricultural will widen over
   time as urban productivity outpaces rural productivity
 Level of Inequality According to the Interaction of
  (1) Proportion of Population in Sectors A and B,
     and (2) Income Disparity between Sectors
• When income
                                                                       Income Disparity
  inequality is low, the                                            Level of income
                                                                       Between Sectors
  range is widest at a

                           Level of Inequality
  proportion of A to B
  of 0.6
• At high levels of per
  capita income
  disparity, inequality
  peaks at a higher
  proportion of A to B
                                                 Proportion of Population in Sector A
            Kuznets‟ Konclusions
• Assuming that inequality in sector B is greater than sector A, lower-
  income groups should have commanded an ever-decreasing share
  of income
   – However, overall income inequality in developed countries
• The narrowing of inequality can be attributed to an increase in
  shares of income within low-income groups
   – Specifically, the lessening of inequality is attributable to sector B
   – Sector A may also have experienced decreased inequality, but
      the effect would be minimal when compared to sector B, which
      commanded a far larger share of the income distribution
• “Hence, we may conclude that the major offset to the widening of
  income inequality associated with the shift from agriculture…must
  have been a rise in the income share of the lower groups within the
  nonagricultural sector of the population” (p. 17)
      Longitudinal, Within-Country
       Explanations for the Curve
Kuznets explains differences in inequality at various stages
  in industrial development through the relative position of
  low-income groups
• “the dislocating effects of the agricultural and industrial
  revolutions, combined with the “swarming” of population
  incident upon a rapid decline in death rates and the
  maintenance or even rise of birth rates, would be
  unfavorable to the relative economic position of lower-
  income groups” (p. 18)
• Thus, inequality steadily rises during the early stages of
  industrialization; the trend stabilizes and then reverses in
  later stages
Nielsen: Elaboration of Kuznets
Main argument: “The inverted-
U shaped relationship between
income inequality and
development (Kuznets curve)
is largely accounted for by
transitional development
processes related to the
dualism (both economic and
generalized) of traditional and
modern sectors of developing
societies. Whereas Kuznets
identified the central role of
sector dualism in the evolution
of income inequality, [Nielsen]
identif[ies] generalized
sociocultural dualism as a
second critical factor
Application of the Kuznets Curve
Kuznets hypothesized (and tested with limited
data) that the curvilinear trajectory of income
inequality could be applied to both currently
developed and underdeveloped countries
– As a country becomes industrialized, inequality
  increases, stabilizes, and declines over the course of
– Due to a dearth of longitudinal data, the Kuznets
  curve is usually displayed as a cross-sectional
  analysis of countries at varying levels of development
 Sociological and Economic Explanations of
           Changes in Inequality
Sociological: “focuses on long-term structural and
  institutional changes brought about by industrial
  development, such as the spread of education, the rise
  of democratic systems of government, or the specialized
  position of a country within the world system” (p. 655)
Economic: focuses on dualism
• “Dualistic explanations emphasize the inequality
  implications of aspects of development that are
  inherently transitional. Inequality is viewed as being
  generated by social heterogeneity related to a specific
  stage of the development process, rather than as an
  equilibrium” (p. 655)
• Sector dualism: population shifts from agricultural to
  nonagricultural sectors affect levels of inequality
    Partial and Selective Diffusion
• Aspects of industrial development diffuse at an
  uneven rate throughout the population
  – The differential spread of variables such as
    education, urbanization, and democracy lead to a
    form of dualism that Nielsen terms generalized
    sociocultural dualism (to distinguish the concept from
    sector dualism)
  – “different subsets of items from the set are adopted by
    different people in the traditional society at different
    times” (p. 662)
  Measures of Partial and Selective
Nielsen uses the natural rate of population increase (birth rate minus
   death rate) as a proxy for partial and selective diffusion
• This substitution is appropriate because the rate of population
   increase is directly affected by technology that reduces mortality
• Reproduction is also reduced, but only after a slight lag, thereby
   creating a temporary upswing in natural rate of population increase
The rise in rate of population increase contributes to greater inequality
    – Elevating the number of young, unskilled laborers
    – Lowering the wages of all unskilled laborers
This parallels the “swarming” of the population predicted by Kuznets:
   the inequality gap widens during periods of rapid growth because
   the relative standing of low-income groups (such as those listed
   above) is diminished
The Demographic Transition
     Inequality a la Lenski: Exogenous
Inequality is determined by a society‟s level of subsistence technology
• Inequality rises as one moves from hunting/gathering to horticultural
   to agrarian societies
    – Agrarian societies represent the apex of inequality
    – High levels of inequality persist into the early stages of industrialization
• After the early phases of industrialization, inequality then begins to
• For Lenski, this reversal results from increases in the value of
  human capital (elites become increasingly dependent on the higher
  levels of human capital necessary for advanced technological
  production) and increases in political democracy
However, since exogenous explanations of inequality should theoretical
  follow a monotonic pattern, what could account for the reversal in
  inequality as a society shifts from agricultural to industrial?
    – Hmmm…..
   Kuznets and Lenski Resolved
“The transitory increase in inequality due to the industrialization process
   itself (and its inherent dualism) is…superimposed on the long-term
   decline in inequality that industrial technology brings forth” (p. 673)
• As a society begins the shift from an agrarian to industrial mode of
   production, economic inequality increases
• Income inequality grows “as a modern economic sector with vastly
   greater productivity emerges, as a small educated elite is paid a
   premium for its skills, as some regions take off economically and others
   are left behind, and as the contrasts between the cities and the
   countryside increase” (p. 673)
Thus, inequality does not peak in the agrarian stage and gradually
   decrease and industrialization emerges; rather, sector and generalized
   sociocultural dualism interact with the transition to temporarily inflate
   inequality in the beginning phases of industrialization
After the transition (from agricultural to nonagricultural predominance) is
   well underway, levels of inequality begin to decline
World-Systems Theory and the
 Kuznets Curve Reconciled
   (Alderson and Nielsen)
  Internal-developmental Model of
The “baseline model of the relationship of income inequality
    with development that incorporates three major
    processes: labor force shifts and sector dualism; the
    demographic transition; and the spread of education”
    (p. 5)
(1) Labor force shifts and sector dualism
   –   Labor force shifts: Movement from agricultural to
       nonagricultural sectors causes inequality over time to plot as
       an inverted-U shape
   –   Sector dualism: the level of inequality brought about by labor
       force shifts
   –   Measured by level of sector dualism (positive effect) and
       percentage of the labor force in agriculture (negative effect)
  Internal-developmental Model of
          Inequality (cont.)
(2) Demographic transition:
  – “Rapid population growth produces a large cohort of
    young and typically lower-paid workers. This influx is
    expected to increase income inequality by inflating
    the bottom of the income distribution and by
    contributing to excess labor supply, further…widening
    wage differentials” (p. 6)
  – Measured by the natural rate of population increase
    (birth rate minus death rate; positive effect)
  Internal-developmental Model of
          Inequality (cont.)
(3) Spread of education:
  – As the availability of education rises, the
    earnings of skilled workers relative to
    unskilled workers declines
  – Measured by the ratio of secondary school
    enrollment (negative effect)
    Foreign Penetration School
Based on world-systems theory
• As posited by Bornschier and Chase-Dunn
  (1985), income inequality within a developing
  nation rises with increasing levels of as
  transnational corporate penetration (positive
• “dependence on foreign capital increases
  income inequality by distorting the occupational
  structure of Third World countries, „bloating‟ the
  tertiary sector and producing both a highly paid
  elite and large groups of marginalized workers”
  (p. 7)
    Test of Bornschier and Chase-
             Dunn (1985)
• The baseline model (labor force shifts and sector
  dualism, the demographic transition, and the spread of
  education) is significant in the predicted directions
   – Sector dualism (between-sector inequality) positively effects
   – Labor force in agriculture (within-sector inequality) negatively
     affects inequality
   – Natural rate of population increase raises levels inequality
   – Secondary school enrollment reduces inequality
• Foreign capital penetration positively affects inequality
   – However, “the overall positive effect of foreign capital penetration
     on inequality is cancelled out for core countries” (p. 15)
   – These findings support those of Bornschier and Chase-Dunn
  Interpretation of Findings Using
  Investment-development Model
As accumulation (stock) of foreign
 investment increases from low to
 intermediate levels, dependence of foreign
 investment simultaneously increases
Moving from intermediate to high levels of
 foreign investment stock, levels of
 dependence on foreign investment decline
(Measure of

   (Measure of
    Accounting for the Findings
A possible explanation: the findings of world-systems
   theorists may be “less the effect of foreign capital
   penetration…and more the effect of a nation‟s net
   foreign investment position” (p. 20)
At low to intermediate levels of foreign investment:
   transnational firms pay above the current rate in less
   developed countries, thereby increasing inequality
As amount of foreign investment moves from intermediate
   to high levels, indigenous firms begin to adhere to
   international standards and invest on their own, thereby
   decreasing dependence on transnational corporations
“In sum, [Nielsen] conclude[s] that it is relative dependence
   on foreign investment that is associated with greater
   inequality” (p. 22)
  Characteristics of the Industrialization
          Process (Kerr et al.)
(1)    The industrial work force
•      The development of industrialization creates the need for a highly skilled
       work force
•      Requisite skills are constantly changing
(2) Mobility and the open society
•      Emphasis on continual training
•      Extended families decrease in prevalence: Nuclear families more
       conducive to mobility
(3) Education
•      The educational system functions to impart skills necessary to
•      Education serves as a means of social mobility
(4) Structure of the labor force
•      Highly differentiated; classified by occupation
•      Hierarchy and specialization  heterogeneity (as opposed to the
       homogeneity of traditional societies)
          Pluralistic Individualism
“This term is used to refer to an industrial society which is governed
   neither by one all powerful elite…nor by the impersonal interaction
   of innumerable small groups with relatively equal and fractionalized
   power (the atomistic model)” (p. 799)
Some characteristics of pluralistic individualism
• Increased state responsibility: mediator of conflict between various
   combinations of management, labor, and consumers; regulator of
   organizations and their memberships
• Productive enterprises will play a key role
• Rise in influence and prevalence of occupational or professional
• Proliferation of rules
• Conflict will be less between classes than between bureaucratic
    Beyond Industrialism: Esping-
• Declining demand for unskilled workers can be explained
  by technological change
   – “Employment lost due to trade competition from [Asia or the
     Third World] is rather trivial in comparison with the volume of job
     loss due to „structural change‟” (p. 831)
   – Thus, inequality is caused primarily by within country variables
• With the decline in manufacturing jobs in developed
  nations comes an attendant rise in service jobs
   – Jobs become increasingly polarized: highly skilled jobs requiring
     high levels of education creates a mass of “lousy jobs” occupied
     by those unable to obtain educational credentials

To top