Economic inequality is a factor undermining social cohesion, which policy-makers would do well in monitoring, since it negatively affects the stability of their governments. It can even lead to armed conflict, as is the case in many developing countries. Understanding the dimensions of inequality is thus crucial to appraise the factors hindering development. Already in 1964, political scientist Bruce Russett found a positive relationship – albeit not a robust on – between political instability and inequality in land distribution. Over the subsequent 25 years, the idea was further tested in no less than 42 empirical studies, but these failed to reproduce unambiguously such a relationship. The theory behind the positive correlation between inequality and conflict is called “relative deprivation”. The idea is that while absolute poverty usually engenders resignation and apathy, while an unfavorable comparison with wealthier members of society can generate frustration, pushing people to act and possibly to violence.
A rival theory is named “mobilization of resources”, and posits the idea that dissatisfaction and rebellion are universally present in any society. According to the supporters of such a theory, the factor triggering violent conflict would the relative ease or difficulty in mobilizing countervailing groups. The novel concepts of inequality are hereby important: horizontal inequality among and within groups of individuals, such as the case of ethnic minorities. If income distribution within such minorities mirror the existing inequality in general income distribution, it is less likely that a conflict occurs. But if the ethnic minority’s income distribution is skewed (either in the richer or poorer sense) with respect to the general population, a social rift can ensue, which can lead to civil conflict.
Another important concept is income polarization. Polarization not only measures if economic resources are unequally distributed, but if such inequality creates counterpoised masses of individuals. Income redistribution could thus decrease inequality but increase polarization. To understand why, consider 6 ordered individuals: the poorest has an income of €1000, the second receives an income of €2000, the third €3000, and so on up to richest, who enjoys an income of €6000. If we transfer €1000 from individual #3 to individual #1, inequality will decrease. And it will further decrease if we transfer €1000 from #6 to #4. However, society ends up being more polarized, since two antagonistic classes have now been created: one with a €2000 income (individuals #1-3) and the other with a €5000 income (individuals #4-6). It is conceivable that social tension might increase as a result of the new income distribution. Recent studies suggest a positive relationship between horizontal inequality and the probability of conflict, as well as between ethnic polarization and the probability of conflict. But there have so far been no decisive empirical tests about the relation between polarization and conflict, since a cross-country database on polarization comparable to that existing for world inequality has yet to be constructed.
by Eliana La Ferrara,
Full Professor of Economics and Director of the Bachelor of Economics and Social Sciences, Università Bocconi