Italy’s pallid growth in the 21 st century
Leonardo Coiro
Introduction: income inequality and opportunity inequality
Inequality refers to the uneven distribution of economic variables within or between populations (such as standard of living, income and wealth, education, and health), and opportunity is the circumstance which allows something to be possible. The relationship between income inequality and economic
growth is – from both a theoretical and empirical lens – controversial. The classical viewpoint (i.e., Kuznets, 1955) 1 has pointed to at least some measure of inequality as a necessary outcome of the rewards to innovation and risk-taking, and a driver of work incentives (Fig. 1). However, others (such as the OECD) 2 have challenged ideas of the positive effects of income inequality on economic growth, positing that it can depress investment in both human and physical capital, two key sources of long-term growth. 3
Figure 1: The Kuznets Curve
Despite this ambiguity, it is more widely accepted in western liberal societies that equality of opportunity is the prevailing conception of social justice, 4 rather than equality of individuals’ final outcomes. Once the means or opportunities to reach a valuable outcome have been equally split, which particular opportunity, from those open to her, the individual chooses, is outside the scope of justice. 5 1 The Kuznets Curve (Fig. 1) hypothesized that industrializing nations experience a rise and subsequent decline in income inequality, making an inverted ‘U’ shape. The rise in inequality occurs after rural labour migrates to urban areas and becomes socially mobile. After a certain income level is reached, inequality declines as a welfare state takes hold. Many future studies have found similar results. An example is Paukert (1973), who studied the relationship between income distribution and GDP per capita of 56 countries, 40 of which were developing countries, finding that the degree of inequality is indeed associated with the level of GDP per capita, confirming Kuznets’ inverted ‘U’ theory. The same results were found by many studies using cross -sectional data sets such as Ahluwalia (1976), Cline (1975), Chenery and Syrquin (1975), and Papanek and Kyn (1987). However, other studies, such as Fields (1989), have found that there is no relationship between the change in inequality and the rate of economic growth (or the level of national income), and argues that (1) the main factor that causes inequality to either increase or decrease is not economic growth but rather the type of growth, and (2) that countries need to maintain equal income distribution to grow rapidly. Other such studies include Lee and Roemer (1998), Castelló and Domenech (2002), Panizza (2002), and Lopez (2004). 2 Recent OECD cross-sectional analyses (2014) – as stated by Angel Gurría, former OECD Secretary-General – have suggested that a widening gap between lower-middle class and poor households compared to the rest of society is the ‘the single biggest impact on growth’, suggesting a negative correlation between the two variables. 3 Cingano 2014. 4 However, the notion that equality of opportunity is fair should also be challenged. As Ha- Joon Chang states: ‘in order to benefit from the equal opportunities provided to them, people require the capabilities to make use of them’. It is no use that someone from Sicily has the same opportunity to get a highly paid job as someone from Lombardy, if they lack the educational background to qualify for those jobs. 5 Checchi and Peragine 2005.
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