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Inequality and Welfare: Is Europe Special? 525 economists dealing with economic inequality by suggesting that the normative judgment about the fairness of an allocation depends as much on the process leading to inequality as on the resulting inequality level. Political philosophy continues to fuel economics with new ideas regarding equality and attention needs to be paid to how they cope with new problems. I will drop a few names whose thesis has received widespread attention among economists and social scientists. Robert Nozick with his 1974 book Anarchy, State, and Utopia (see Nozick, 1974) expressed a libertarian viewpoint in a rejoinder to John Rawls, Parfit (1984) with the repugnant conclusion of utilitarianism when applied to population ethic problems, Barry (1994) and Van Parijs (1996) for their support of the universal basic income, Elster (1992) for studying how institutions allocate rights and goods to cope with social justice, Dworkin (1981a,b), Scanlon (1986), Cohen (1989) and Arneson (1989) for focusing on the issue of responsibility, the former two where individuals are held responsible for preferences as long as they identified with them, the latter two where individuals are responsible for what they control. All these ideas have been brought into the full view of the economic profession by the textbook of Roemer (1996) on distributive justice, where the axiomatic method is used to understand the prerequisite of each normative ethic in depth by the choice of some primitive principle. They also fuse political philosophy and modern economic thinking with their own proposals on equality of opportunity, Roemer (1993), Roemer (1998) and Fleurbaey (2008) following the example of their elders, Sen (1985) with his capability approach and Serge-Christophe Kolm, when he was promoting envy-free allocations (Kolm, 1972) or the ‘Equal Labour Income Equalisation’ (ELIE), (Kolm, 2005). 12.3.2 History If philosophy is helpful on the normative side, History or maybe more accurately the use of historical data in departments of economic history, has been extremely helpful on the positive side to give a sense of the degree of magnitude of income or wealth inequality nowadays in comparison to the past. I here give the example of the extraction rate a simple but meaningful concept by Milanovic (2006). It is computed as the ratio between the actual Gini of some income distribution and the maximum feasible Gini. It is defined as the Gini which will prevail if almost all the population except a tiny fraction of the population received an income just allowing them to struggle with life. The subsistence level has been defined nearly as $1 a day (in purchasing power parity terms) for all periods. The original ‘$1 a day’ line was a typical line amongst low-income countries in the data available in the 90s. 8 A tiny fraction of the population receives all the surplus of the economy. Ancient Egypt comes to mind as a typical example. The inequality possibility frontier (IPF) (see Figure 12.5) delineates two regions. Above the frontier, we should not observe
526 Alain Trannoy 80 IPF Gini index 70 60 50 40 30 20 10 0 Nueva España 1790 Chile 1861 Holland 1732 Maghreb 1880 Holland 1561 India 1938 Old Castille 1752 France 1788 Netherlands. 1808 USA1860 India 1750 Siam 1929 USA 1774 England 1801 kenya 1927 Brazil 1872 Peru 1876 Florence 1427 Engl1759 Byzant 1000 Engl1688 Java 1880 Rome 14 Russia 1904 Engl 1290 Levant 1596 Kenya 1914 Bihar 1807 Japan 1886 Java 1924 Naples 1811 China 1880 Serbia 1455 0 300 600 900 1200 1500 GDI per capita (in 1990 $PPP) 1800 2100 2400 Figure 12.5 Estimated Gini coefficients and the Inequality Possibility Frontier (pre-industrial economies, Milanovic, 2013). Updated from Milanovic et al. (2011). any society unless some fraction of the population is going to starve and the population is going to decrease. Then above the frontier, it cannot be a steady state. Below the frontier, we observe societies where either the exploiters are not a tiny group or the exploited are going to get an income higher than the subsistence level or both. The graph extracted from Milanovic (2013) based on Milanovic et al. (2011) in Figure 12.5 is absolutely fascinating. It provides the most damning indictment of colonization of the rest of the world by Europeans. All the regions above the IPF are colonized regions except Byzantium and the Moghul Empire (India, 1750). It proves that the colonial regimes were just regimes of total extraction of the surplus to the benefit of the colonizers. Latin America is still trying to cope with this daunting legacy in terms of inequality. Rome in the beginning of the first century or England in the late thirteenth century performed a little bit better, but it is quite amazing how the slow growth of England from that century onwards was pro-poor. The same went for Holland. In contrast, on the eve of Revolution, France was extraordinarily unequal with modern current deep consequences for the way the French view any form of inequality.
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Economics without Borders If treate
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vi Contents 1.4.3 Reforming the Sta
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viii Contents 5.3 Approaches in Ind
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xii Contents 12.4.4 Inequality of O
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Figures 1.1 Entry effects near and
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Tables 2.1 Chronology of EPL reform
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xx Foreword Another important facto
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Contributors roberto barcellan Euro
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Contributors xxv vigdis kvalheim No
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Introduction Richard Blundell, Este
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Introduction 3 2. Knowledge-based g
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Introduction 9 however, quite clear
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Introduction 13 An overarching them
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Introduction 17 proportion of rail
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Introduction 19 ‘macroeconomics i
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Introduction 21 private equity mark
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Introduction 27 Chapter 14 starts b
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1 Innovation and Growth: The Schump
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Innovation and Growth: The Schumpet
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Winners and Losers of Globalization
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10 Fiscal and Monetary Policies aft
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634 Index Diversified Cities, 385 D
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