The Impact Of Inequality On Politics
Because these groups disagree, there is less willingness to invest in a common legal system than there would be if the population shared a common set of legal needs. This is certainly one interpretation of the finding that crime is higher in more unequal societies (Fajnzylber, Lederman, and Loayza 2002). One natural interpretation of this connection might be that as inequality rises, the returns to crime increase for the poor (because rich victims are richer) and the opportunity costs of crime are lower (because the poor are poorer), but many researchers doubt this hypothesis because most crime is poor-on-poor not poor-on-rich, and because the cross-national evidence suggests that the aspect of inequality that matters most for crime is the amount of inequality among the upper income quintiles. Another interpretation that squares with those facts is that more unequal societies have less public policing because rich private individuals invest in private policing and choose not to support public safety. In this view, because in highly unequal societies the very rich are so different from everyone else, they have no interest in supporting public goods (like public safety) but rather invest in private alternatives. This view explains why, for example, there are only 12,000 police officers in Bogotá, Colombia, and 28,000 police officers in New York City. These two cities have similar populations, but Colombia is a particularly unequal nation (of course Colombia is also poorer). While the most cited papers on inequality and policy outcomes have focused on results within a median-voter context, inequality of resources will also change the political clout of different groups.
Indeed, the most important impact of inequality may be changing the power with which the rich and poor can impact outcomes. For example, if the rich can influence political outcomes through lobbying activities or membership in special interest groups (Prat in this volume discusses the influence of pressure groups), then more inequality could lead to less redistribution rather than more. This negative correlation can be seen in Figure 34.3. According to this view, as the rich become richer, they acquire a greater ability to influence policy and achieve the policy goals that they want. Glaeser, Scheinkman, and Shleifer (2003) provide one connecting inequality of resources with the ability to manipulate political institutions. This model focuses on bribing judges. It suggests that when the judicial system is sufficiently weak, so that the expected penalty facing a judge who accepts a bribe is small, then the ability to bribe will determine the outcome in court.
This work emphasizes the subversion of legal and political processes and argues that this subversion will be more likely in societies where different actors have unequal access to the resources needed for subversion. Inequality may lead courts to break down or, as in the Engerman and Sokoloff examples, rich magnates may use their economic power to make a mockery of popular democracy. These arguments are related to a third literature on the connection between inequality and political outcomes which emphasizes that inequality will lead to different political institutions, and in some cases less democracy (the Przeworski chapter in this volume discusses the determinants of democracy). Indeed, stable democracy is much more common in highly equal societies (and in richer societies, as Przeworski illustrates in his chapter). Dividing the world into more and less equal countries based on World Bank Gini coefficients shows that 95 per cent of the more equal countries are classified as democracies by Jaggers andMarshall (2000) and only 75 per cent of the less equal societies are classified as democracies. The correlation between inequality and democracy might be the result of reverse causality where democracy reduces inequality, but Engerman and Sokoloff (2002) provide some historical evidence showing that in the Americas initial inequality seems to deter the development of democracy. Inequality, which was itself the result of long-run economic factors, led many seemingly progressive groups to oppose extending the franchise. Educated urban workers feared extending the franchise in many cases because this would empower rural magnates who would totally control the votes of their poor employees.
On the other hand, the historical patterns in Asia and Africa appear much less consistent with the view that initial differences in inequality drive the development of democracy. Many models predict a causal link between equality and democracy. It may be that in less equal countries, elites are less willing to share power with the poor because of fear of expropriation. Alternatively, potential enemies of democracy may find it easy to build support among the poor.While there is a great deal of history providing support for both phenomena (Finer 1962), little empirical work exists to assess the relative importance of the different stories. Inequality is not only correlated with dictatorship, but also with other measures of political problems. For example, Figure 34.4 shows that inequality is positively correlated with subjective assessments of the risk of governments expropriating private wealth. Most similar measures of property rights protection show a negative correlation with inequality. You and Khagram (2004) indeed find a connection between inequality and corruption.
Again, causal inference is impossible, but these correlations are strong and suggestive, and they at least raise the possibility that inequality may be causing bad government..
