By the early 90s, capitalism has established itself as the ideal economic system in the world after the collapse of command economy in Communist countries and abandonment of import-substitution strategies in Latin America and other developing countries1. However, over the past two decades, one of the main challenges of capitalism has emerged in the form of widening income inequality across most developed and emerging economies2. The negative effect of income disparity is succinctly bipolar for the market capitalism of US: The rich continue to generate disproportionate growing returns and consume only a small fraction of their income3 while the “remaining 99.9%”4 suffer economic discrimination and insecurity5.
In this exploratory research, …show more content…
US, Japan, Germany, Sweden, China and India. The time scale chosen for the analysis is 1990-2006, to coincide with the rise of globalization and due to data availability. The metric I utilized to track income inequality is the Gini coefficient (0 represents everyone of the nation having the same income while 1 represents one person amassing the entire nation’s income). For government fiscal policies to reduce income inequality, I will look into (i) tax revenue and (ii) social spending (education, health, housing, unemployment and social services)6. All data sources are obtained from United Nations University (UNU-WIDER), OECD, World Bank (World Development Indicators) and Asian Development …show more content…
In fact, the state’s central and bureaucratic role subordinates economic efficiency to social equity9. However, in lieu of the country’s marked economic slowdown since the 90’s, it remains to be seen if this emphasis is sustainable.
For the state capitalism systems of China and India, the state priority is decidedly political stability through maximizing of economic growth10, to the detriment of social welfare generosity. Another factor for the inevitable wide income separation is the urban-rural divide of the large population in both countries. In China, the urban areas are growing at a rate one-third faster compared to the rural, and this is certainly accelerating the income divide11.
Finally, the market capitalism of the United States undeniably places more emphasis on market autonomy and wealth creation over equitable distribution of wealth. Highly influenced by the neo classical model, there are only minimum roles for the state i.e. correcting market failure and providing public good12. Most importantly, the disconnection between redistributive policy and growing inequality of US capitalism compared to other economies found in this research seems to confirm the critique by Baran and Sweezy in Monopoly Capital that this is indeed an irrational