The political economy of inequality

Frank Stilwell

Readers of this website don't need to be reminded that inequality is a pervasive concern. During the last few decades, the gap between the incomes, wealth and living standards of rich and poor people has increased in most countries. Prominent public figures, including the Pope, the CEO of the International Monetary Fund and numerous heads of state, have described current levels of inequality as unacceptable. Whether and how public policies should try to narrow the gap between rich and poor remains controversial, however, and governments are often unwilling to except the challenge in practice. Vested interests are at stake.

The dimensions of wealth inequality in Australia have been carefully analysed in previous publications by the Evatt Foundation. The nation is mid-ranking in OECD league tables, not the egalitarian society that many people would like to think it is, and the extent of inequality is increasing.

The issue currently looms particularly large because of the Federal election. What is the principal choice on offer? The incumbent government has overseen substantial redistribution of income and wealth to the already most privileged sections of society. The alternative is a Labor government that is committed to closing tax loopholes which have mainly benefited the rich and to investing more in public infrastructure and services to enhance social mobility and bring about greater equality of opportunity.

The choice is clear to anyone who takes a serious interest in politics. However, achieving a fairer society will need a strong and sustained commitment over decades to come. Changing the government would be a good start, but it would need to be followed by strong and ongoing public support for egalitarian policies. In effect we would need to shift from emulating the profoundly inequitable US economic model to emulating the Nordic states which have much more equitable societies. And doing so in a distinctively Australian way that taps into cherished beliefs about a fair go.

Of course, the alternative road has major obstacles on it. There are relentless forces operating in all modern capitalist economies that create cumulative economic inequality. Those with capital assets, deriving income from profits, rent and interest payments, have been capturing an increasing proportion of national income. Waged workers have been doing it much tougher, facing stagnant wages, increased job in security and a falling share in national income. Historical experience indicates that only where there is a strong labour movement and committed social democratic governments can the tide be turned.

I have written my new book on economic inequality to explain the nature of the challenge ahead, not only for Australia but for all modern societies. The book considers the patterns of inequality, the processes that cause it, the problems that result and the public policies that could reform it, given the political will to act. It is a work of committed scholarship, setting out to cooly consider the issues, the evidence and the competing currents of analysis, leading to the development of potentially progressive solutions.

There are already many other books on the topic. Indeed, the publication five years ago of Thomas Piketty's blockbuster Capital in the Twenty-First Century was something of a watershed. It stimulated worldwide attention on the topic and has led to a veritable flood of publications. Piketty, working together with other international in a quality analysts, now compiles a regular 'World Inequality Report' that shows quantitative  trends in the inequality of income and wealth for a wide array of nations. My book draws on this information and other sources to provide a stocktaking of what we know and what we need to know if we are to make real progress. 

The book is in six parts, dealing with preliminaries, patterns, processes, problems, policies and prospects. The first of these sections explores what we mean by inequality and introduces concepts that are useful for its systematic study. It looks at different interpretations of income, wealth, wellbeing, poverty and development, and at the different ways in which these can be measured. It also considers the basis on which we make judgements about equity or fairness.

The next section of the book - looking at patterns of inequality - is  its most data-rich part. It shows the principal contours of current inequalities – between nations, within nations and globally. It also looks at how the shares of income and wealth have shifted during recent years, distinguishing between the world's richest and poorest people and the broad 'middle class' group in-between. It also assesses the importance of location, class, gender, race, age, ability and disability as seams along which major socio-conditions occur.

Seeking to make sense of these patterns, the next section of the book considers how we may explain 'who gets what.' Do the inequalities of income and wealth reflect productivity or power? As ever in political economy, there are rival theories. Broadly speaking, the competing views reflect conservative, liberal and radical interpretations of the issue. If you want to engage in debates about the causes of inequality, some understanding of the rival theories is essential. So too is consideration of the broad political economic drivers operating in a changing world, including globalisation, financialisation, neoliberalism, technological change and urbanisation. There will never be unanimity on which of these are the key drivers of economic inequality and wealth concentration in a changing world, but we do need to see and try to make sense of the 'big picture'. I set out a framework for doing so in the book.

That engagement is crucial for people of radical reformist inclination. It also needs to be accompanied by a clear analysis of the case for change. The existence of inequalities only becomes a reason for societal concern if there are demonstrably deep problems that result. Yes, it is obvious that poor people face more problems than rich people. But are very unequal societies always more problematic than less unequal ones? The fourth section of the book poses the 'so what?' question: why does inequality matter anyway? It reviews internationally comparative evidence about links between inequality and the intensity of economic, social, environmental and political problems. It also raises concerns about how inequality impedes social goals of peace, prosperity, democracy and human rights. Finally it explores whether the people in unequal societies are generally unhappier. The overall conclusion is that the size of the rich-poor gap is crucial for our collective well-being, perhaps even for our survival.

What could governments do to narrow the gap? The following section of the book considers policies, some already existing and some potential new ones. It looks at possibilities for redistribution and progressive pre-distribution. Redistribution is what comes to mind for most people when they think about policies for reducing poverty and fostering greater social cohesion. It can be done through various forms of tax reform, and Labor in Australia is currently to be commended for signalling in advance of an election some of these types of policy. But pre-distribution digs deeper, seeking to reduce the gap between high and low incomes before government taxes and spending come into play. Progressive pre-distribution seeks to narrow the range of 'market' incomes. This is a bigger challenge because it addresses the power structures underpinning capitalist economic processes. But there is an array of possibilities, such as capping the salaries of CEOs, raising minimum wages, introducing universal basic income and creating the conditions for workers' cooperatives to flourish as alternatives to capitalist business enterprises.

There is also a chapter in the book about the global challenge – reducing inequalities between countries as well as within them, so that inequality on a global scale is further reduced. The challenge is to link the long-standing concerns about the redress of absolute poverty with contemporary concerns about inequality. Oxfam has been leading the way in this endeavour (which is one reason why I am donating all royalties from the book to that non-governmental organisation and its commitment to tackling inequality). Balanced development requires assistance to the poor nations to help them achieve more egalitarian paths for development. Currently, this is not happening: countries like China and India, indeed all the BRICS, are rapidly becoming more economically unequal. The problems of the more economically developed nations are being reproduced worldwide. This section of the book sets out an alternative way forward.

Finally, the book asks about the overall prospects for change. Should we be optimistic or pessimistic about the potential to create equitable societies? Can radical reforms or even mildly progressive redistribution, be effective? Certainly, there are big obstacles – ignorance, ideologies, interests and institutions – so a careful consideration of how to address them is essential. But, as the final chapter argues, there are grounds for making a more positive assessment. With greater clarity about critique, vision, strategy and organisation, progress is possible. In this respect there is a clear parallel with the challenge of climate change. In both cases there is a social choice to be made between continuing on a disastrous trajectory and radically changing track.

Books are sometimes said to change the world. Probably every author would like to imagine that possibility, but its general likelihood is soberingly slight. Yet if the world is already changing, timely books can have significant impact and influence. I hope that mine will add to the momentum. It directs attention to the political economic forces that cause ever-growing inequalities, the reasons why we should all be concerned and the possibilities for making a difference.


The Political Economy of Inequality by Frank Stilwell is published by Polity Press (Camb: 250 pp, RRP $37.95). It is distributed in Australia by Wiley, Melbourne, and can be ordered at Gleebooks or from any good bookshop. Frank Stilwell is Emeritus Professor of Political Economy at the University of Sydney and Vice President of the Evatt Foundation. This article is an edited version of his remarks on the launch of the book at the Sydney Trades Hall on 8 May 2019.


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Suggested citation
Stilwell, Frank, 'The political economy of inequality', Evatt Journal, Vol.,18, No.1, May 2019.<https://evatt.org.au/papers/political-economy-inequality.html>