The role of inequality

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Markets and democracy

Another approach to understanding the causes of democratisation focuses on incentives that may encourage key participants in the political process to abide by an electoral outcome. Given that a winning majority has the potential to redraw the political and economic rules of the game, voters (and parties) will accept democracy if losing an election does not threaten their living standards or political survival. Similarly, election winners will uphold democratic institutions if the political value of the offices they hold and the decisions they are empowered to make are kept in check by other institutions of governance.¹

Democracy, then, is more likely when all voters and their representatives live under relative economic equality. Where income inequalities among voters are not excessively large, elections will not threaten asset holders or high-income individuals. In contrast, if a small minority control most of the wealth, the less well-off majority will seek redistribution through the ballot box and the tax system. In those circumstances, the wealthy will probably prefer an authoritarian political regime that acts in their interests, rather than those of the majority, and blocks any introduction of high, quasi-confiscatory taxes.²

Industrialisation and development have sometimes been associated with increased inequality in the short term.³ However, in the longer term, development has generally been correlated with lower levels of inequality through the expansion of education, the accumulation of a skilled labour force and a consequent improvement in wages and conditions across the population.⁴ This would explain why, in 1999, 94 per cent of countries with average per capita income of more than US$ 10,000 (in constant 1996 US dollars) held free and competitive elections, while only 18 per cent of those with average per capita income of less than US$ 2,000 did so.⁵

1. The idea of democracy as a political equilibrium ‒ that is, as an outcome that is only possible if all political participants accept it (and the related possibility of losing elections) over any other political regime ‒ was first developed informally by Dahl (1971), before being developed analytically by Przeworski (1991) and Weingast (1997). [back]
2. The effect of economic inequality on democracy has a long tradition in the literature, going back to Aristotle and Machiavelli's Discourses. For more recent analysis, see Boix (2003) and Acemoğlu and Robinson (2006). [back]
3. See Kuznets (1955). [back]
4. See Atkinson et al. (2009), Davies and Shorrocks (2000) and Morrisson (2000). [back]
5. This empirical relationship between income and democracy is even closer for earlier historical periods. Just by looking at per capita income, we can successfully predict 76 per cent of annual observations regarding political regimes in sovereign countries after the Second World War. The proportion of cases that are predicted correctly rises to 85 per cent in the inter-war period and 91 per cent before the First World War. These results are taken from Boix (2011). [back]

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