Inequality or interest-group politics?
Professor Pranab Bardhan of the University of California at Berkeley has recently resurrected inequality as the key explanation for the impasse on the reforms (Financial Times, August 8, 2006). Is his claim right? At least as a general proposition, the link between inequality and the ability to implement reforms is highly tenuous.
It is the collective action theory, pioneered by the late Professor Mancur Olson, rather than inequality that explains better the past reforms and current impasse.
Abstract:
Professor Pranab Bardhan of the University of California at Berkeley has recently resurrected inequality as the key explanation for the impasse on the reforms (Financial Times, August 8, 2006).
He rightly argues that the recent claims of greater equality in India are in error since they compare the consumption inequality in India with income inequality in other countries. Because the rich save proportionately more than the poor, measures of consumption inequality are lower than of income inequality, biasing the comparisons in favour of India.
For consistency, Prof Bardhan compares wealth inequality for which comparable cross-country data are available. For the year 2002, the Gini indices of wealth inequality in rural and urban India at 0.63 and 0.66 respectively turn out to be dramatically higher than the corresponding figures of 0.39 and 0.47 in China.