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| Sangheon Lee |
Income distribution is now back to the centre of economic growth, with a broad consensus that inequality has been increasing to a worrying level which require serious policy interventions. Most recently, Thomas Piketty’s book, Capital in the Twenty First Century, has offered a powerful historical reminder that income inequality has been a thorny issue with which the modern society is been struggling and that, excessive inequality, if left unaddressed, has severe social and economic consequences. Thus, the “conventional wisdom” that inequality was an inevitable by product of the structural transformation from rural/ agricultural to industrial/urban employment and that after this initial rise of inequality growth would be eventually taking care of inequality without “artificial” non-market intervention has lost its empirical ground and is now in retreat. The Kuznets curve which was once understood to embody such belief is being discredited.
Trends in inequality are not automatically determined by economic growth. Rather, it is the matter of social and political choice. Paradoxically, once we move away from the “comfort zone” of the Kuznets curve, we can listen to his original message. In fact, Kuznets’ turning point beyond which inequality begins to decline is not economic. He said that the period of falling inequality was driven by “legislative interference and ‘political’ decisions” that reflected a “re-evaluation of the need for income inequalities as a source of savings for economic growth” (Kuznets 1955). And he added that these processes themselves were driven by “the growing political power of the urban lower-income groups”. With these observations, it should not come as a surprise that he called for “a shift from market economics to political and social economy” (Lee and Gerecke 2015).
