Many industrialized countries, developing countries, and countries that have
recently made the transition from communism to market-oriented economies are
characterized by high and increasing income inequality. Trends in income
inequality have been understood to have ethical significance for different
reasons. Some have argued that lessening income inequality is a valuable goal in
itself. This essay, on the other hand, focuses on three instrumental reasons for
pursuing economic policies that engender less income inequality, particularly in
developing countries.
- Inequality can inhibit growth and slow poverty reduction.
- Inequality often undermines the political process: that may lead to an inadequate social contract and may trigger bad economic policies-with ill effects on growth, human development, and poverty reduction.
- Inequality may undermine civic and social as well as political life, and
inhibit certain kinds of collective decision-making; at the societal level it
may also generate its own self-justifying tolerance, perpetuating a high
inequality equilibrium despite the potential economic and political
costs.
The author concludes that while societies with relatively high income inequality can, in principle, be equitable, it is more likely that income differentials will compound and aggravate unfairness in the allocation of opportunities, the functioning of the political process, and efforts to improve the well-being of the least advantaged.
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