Hwan Joo Seo

In Chapter 2, we categorize the respective inequalities into three types: income inequality, political inequality, and opportunity inequality. We study these inequalities in both democratic and non-democratic countries and examine their worldwide trends. Additionally, we analyze the relationships between these three types of inequalities using cross-national data and modeling. Thus, the primary objective of this chapter is to analyze cumulative causal relationships among various types of inequality to elucidate processes through which multiple inequalities are escalating in the world today.

Our objectives in this book encompass three key elements: Examine the unexplored aspects of policy alternatives. Often, economists either presuppose the effective resolution of complex political issues or focus exclusively on problems for which solutions already exist. Consequently, they harbor an optimistic expectation that identifying appropriate policy alternatives can readily resolve societal issues. However, our interest lies in probing the intricate and conflicting political processes that underpin the formulation of policy alternatives. Specifically, we aim to comprehend the mechanisms of policy decision-making, the actors wielding decision-making power, and the motivations driving such decisions. Re-engage with the significant debates surrounding the hypothesis of Meltzer and Richard (1981, hereafter M-R) . As previously explained, the research objective of this book is not to introduce new discussions on the M-R hypothesis, but rather to systematically organize existing discussions and compare differing perspectives within a consistent analytical framework. To accomplish this, we aim to reinterpret and reorganize the discourse on M-R, using the interplay between power distribution, policies, and income redistribution depicted in Figure 1.1. Additionally, we plan to analyze and compare discussions on M-R through modeling and undertake empirical research based on this groundwork. Re-evaluate the importance of maintaining a balance between the political and economic domains. Our objective is to explore strategies that can prevent the conversion of economic inequality into political inequality, ultimately facilitating effective income redistribution. How can we prevent the transformation of economic inequality into political inequality? How can we break the cycle that perpetuates economic and political inequality?

This book examines why democracy has failed to deliver effective solutions to income inequality problems over the last four decades, and if democracy can offer solutions to various increases in inequality in the future. It also addresses what elements are necessary for democracy to serve as an effective alternative for addressing inequality issues. Historical experiences over the past 40 years, including the global financial crisis, not only underscore the need for fresh perspectives on income inequality in economics but also question the ability of democracy to continue providing alternatives for addressing the escalating forms of inequality. Seo and Kang’s response to these inquiries diverge from conventional research in several significant ways. Primarily, what sets this research apart from existing studies is its intensified focus on income inequality as a product of the complex interplay between the political and economic domains, rather than a standalone examination of income inequality in isolation. Through a political economy perspective, this book argues that income inequality and income redistribution are shaped by the institutions, policies, and laws generated by the political system, with their formation and nature being determined by the power distribution among socio-political groups. A useful resource not only to researchers who study political phenomena in the field of economics, but also to scholars who study economic phenomena in the field of politics. Furthermore, it will be particularly intriguing for policy makers concerned with issues of inequality and income redistribution.

In the concluding chapter of this research, we offer a synthesis of our findings thus far and propose a series of alternatives grounded in these research outcomes. Our investigation has affirmed the simultaneous escalation of various forms of inequality in both democratic and non-democratic nations. Utilizing modeling techniques, we have illuminated a cumulative relationship among three distinct dimensions of inequality: income inequality, political inequality, and inequality of opportunity. Subsequently, we delve into the M-R argument, elucidating its framework through a model. This model is then extended to scrutinize the reasons behind the limited applicability of the M-R hypothesis in democratic nations, and these reasons are categorized into five distinct groups. Regarding policy implications, we put forth a range of alternatives rooted in these five diagnostic categories. These policy recommendations are designed to address the challenges posed by mounting inequality and its repercussions: Preventing economic inequality’s translation into political inequality; ensuring equality within the political domain: Strive to guarantee that all citizens enjoy an equal voice in the political arena; introduce political party systems and electoral processes that authentically represent the diversity of voices within society; explore the development of fresh policy regimes that prioritize addressing inequality and promoting social justice. In summary, this research not only highlights the presence of inequality but also furnishes profound insights into its intricate dynamics within democratic and non-democratic contexts. The policy alternatives we advocate aim to alleviate these inequalities and foster a fairer and more inclusive societal landscape.

Using panel data for income inequality and democratic indicators, this chapter conducts a graphical comparison between redistribution and market income inequality and applies fixed-effect panel estimation to test the validity of the M-R hypotheses. From a positive correlation between market income inequality and redistribution, even under simple regression, it can be inferred that the M-R hypothesis is confirmed. However, graphical comparison presents a different trend between redistribution and market income inequality, found to vary by democratic status. Democratic countries show two distinct positive relations. However, non-democratic countries do not show a significant correlation. The fixed-effect panel estimation results show that five main hypotheses, reviewed from the related literature, confirm why and how the M-R hypothesis does not hold, even under democratic countries.

Chapter 3 explored the reasons why democracy struggles to achieve income redistribution, focusing specifically on the limitations of the M-R model’s hypotheses. In this chapter, our objective is to investigate why the M-R hypothesis, which posits that income redistribution policies would be more vigorously implemented as market inequality rises, does not align well with democratic countries. To do this, we will scrutinize the policy-making process, where the economic and political domains interact, and provide an explanation. Therefore, the approach adopted in Chapter 3, centered around the M-R model’s hypothesis, and the approach taken in Chapter 4, focusing on the dynamic process of policy formulation, are expected to offer complementary perspectives that illuminate the reasons behind the unfulfilled realization of the M-R hypothesis in democracy.

Chapter 3 examines the equalizing effects of democracy suggested by the M-R hypothesis and reviews the theories and empirical findings related to the M-R hypothesis that are currently being explored in various social science disciplines, including economics, political science, and sociology. In Chapter 3, we examine the central message of M-R through modeling and assess the validity of the M-R hypothesis by reviewing the outcomes of previously conducted empirical studies connected to the M-R hypothesis.

This study empirically tests the effects of income inequality on growth for 43 countries from 1991 to 2014 based on a cumulative growth model. The results show that, first, the estimation results using a reduced equation reveal a positive correlation between the income inequalities of lagging countries and the respective growth gaps with the frontier country. This confirms that the increase in income inequality negatively affects growth. Secondly, a cumulative growth model using 3SLS estimation shows that income inequality has a negative effect only on investment. However, we fail to find correlations between technological innovation and income inequality and between human capital accumulation and income inequality. Considering that investment has a positive impact on productivity, we conclude that income inequality has a negative impact on investment and that the resulting sluggish investment has a negative impact on productivity, which in turn negatively influences growth. Third, contrary to Kaldor and Barro’s prediction, we find that income inequality in developing countries is negatively correlated with growth, particularly for investment. The effects of income inequality on investment are found to be similar in both developed and developing countries. We also find region-specific differences in the paths through which income inequality affects sustainable economic growth.

This study looks at how financialization has changed technology innovation strategy. It is our contention that, as conditions of managerial myopia worsen in line with deepening financialization, economic entities direct technological innovation strategy toward incremental innovation at the expense of radical innovation that involves high-risk and long-term investment. We test this hypothesis on data for thirty-one OECD countries between 1990 and 2006 and use both generalized method of moments estimation and Poisson regression models. We find that, as financialization advanced, the radicalness of technological innovation declined, while the number of patent registrations increased. This finding could be the result of recent trends wherein financialization has led to a rise in corporate funding through financial markets and an increase in the importance of patents, which, in turn, has boosted the motivation of companies to increase their patent registrations quantitatively. On the other hand, the qualitative importance of these patents (radicalness of technological innovation) decreased over the period of study, reflecting growing short-termism in technological innovation strategy.

본 연구는 한국노동패널자료 2000년～2012년 개인자료를 활용하여 한국사회의 기회불평등을 모수적 추정방법을 이용하여 분석하였다. 분석결과 첫째, 2000년～2012년 기간 동안 전체 연령(30세～60세) 분석의 기회균등지수는 0.04～0.052 정도이며 전체 소득불평등에 대한 기회불평등의 기여정도는 약 18%～23% 수준이다. 즉 전체 소득불평등의 약 1/5정도가 기회불평등에 기인한 것으로 분석되었다. 둘째, 우리나라의 기회불평등에서 성별차이가 가족환경보다 더 중요한 역할을 한다는 것을 발견할 수 있었다. 다시 말해, 한국사회에서 환경적 조건에 의해서 결정되는 기회불평등은 노동시장에서 성별 임금격차가 매우 크게 영향을 미치고 있음을 확인할 수 있었다. 반면, 여성간의 기회불평등은 감소한 것으로 추정되며, 이는 남녀를 합한 전체의 기회불평등을 감소시킨 것으로 나타났다. 그러나 30대 남성의 경우 10년 전에 비하여 기회불평등이 증가한 것을 확인할 수 있었다. 셋째, 30대 남성의 기회불평등 증가를 직접효과(환경이 직접적으로 소득에 영향을 미치는 효과)와 간접효과(환경이 노력을 매개로 소득에 영향을 미치는 효과)로 구분하여 살펴보면, 지난 10년간 30대 남성의 기회불평등 증가의 83.3%가 직접효과에 기인함을 확인할 수 있었다. 즉, 아버지의 배경 등의 환경이 기회불평등에 직접적으로 영향을 미치는 효과가 대부분을 차지하고 있다는 것이다. 본 연구는 이상의 분석결과에 대한 정책적 함의로서 소득불평등을 개선시킬 수 있는 정책, 고용의 질 개선을 위한 정책, 그리고 공교육에 대한 지출확대 등을 제시하고 있다.