A year ago around this time, I wrote the blog post “China and inequality” as a reflection of mine on recent academic papers within economics on the issue of income and wealth inequality in pre and post-revolution China. This week, another intriguing paper on this topic was released by Alesina et. al. 2020: “Persistence through Revolutions” (NBER Working Paper). Here’s the abstract:
“Can efforts to eradicate inequality in wealth and education eliminate intergenerational persistence of socioeconomic status? The Chinese Communist Revolution in the 1950s and Cultural Revolution from 1966 to 1976 aimed to do exactly that. Using newly digitized archival records and contemporary census and household survey data, we show that the revolutions were effective in homogenizing the population economically in the short run. However, the pattern of inequality that characterized the pre-revolution generation re-emerges today. Almost half a century after the revolutions, individuals whose grandparents belonged to the pre-revolution elite earn 16 percent more and have completed more than 11 percent additional years of schooling than those from non-elite households. In addition, individuals with pre-revolution elite grandparents hold different values: they are less averse to inequality, more individualistic, more pro-market, and more likely to see hard work as critical to success. Through intergenerational transmission of values, socioeconomic conditions thus survived one of the most aggressive attempts to eliminate differences in the population and to foster mobility.”
On the relationship between the aim of reducing inequalities of the communist revolution in China (and elsewhere, for example Vietnam) and economic growth, another influential paper titled “Distributive Politics and Economic Growth” published by Alesina & Rodrik (1994) drew quite similar conclusions, as follows:
“(…) The greater the inequality of wealth and income, the higher the rate of taxation, and the lower growth. We present empirical results that show that inequality in land and income ownership is negatively correlated with subsequent economic growth”.
Note that China was not even included in the 1994 study. Given the country’s advantage of “backwardness” and even vaster advantages in readily ample public land and a healthy and educated workforce, this conclusion would perhaps have proven to be even stronger with the addition of China. This is where economic liberalization in many countries in Latin America and South-East Asia, for instance, have ended up producing rather disappointing economic growth rates, as their political regimes have either refused or been unable to sufficiently address the questions of land and social inequalities prior to liberalization. The COVID-19 pandemic has exposed this aspect even further and perhaps confirmed that inequality ultimately is a political question and choice (e.g. read “poverty and populism put Latin America at the centre of pandemic” on Financial Times and “virus exposes weak links in Peru’s success story” on New York Times).
Speaking of politics, the fundamental question is: what kind of democracy is the most desirable? liberal? social? And to meet what particular desire? Everyone has their own desire with different levels of importance attached as to answer this question: reducing social inequalities, protecting freedom of speech, judicial independence, protecting property and power, and so on. Born and raised in the West, I used to believe steadfastly that liberal democracy was sufficient. Life was satisfactory enough. Then, the more time that I spend working in “constitutionally democratic” developing countries with a very fragmented social component, I have come to realize that liberal democracy as a system in place is completely anemic to prevent the massive natural resource, wealth, and power grabs from the sick man. Whenever I pass by a homeless family with kids in Jakarta, while they sit on the ground next to extravagant shopping malls that are thousand times bigger and more luxurious than anything alike in the West, I just want to choke myself.
Now back to the paper on persistence of revolution. I still mourn and regret the death of Prof Alberto Alesina in May 2020. He was a giant in political economics who courageously transcended the scope of “economics research questions” that touched on history, political science, sociology, among other fields (e.g. please read this obituary: “Alberto Alesina. A free-spirited economist“). He first became influential to me when I was an economics undergraduate student on the issue of fiscal austerity across Europe. It was at the height of the 2010-12 eurozone crisis. Apart from my admiration for most of his works that remain today, I must confess that I have mostly rescinded my past infantile pro-fiscal austerity views nurtured during those undergraduate years.
Modern economics has a tendency to put severe constraints on interesting research questions on methodological grounds, and I admire him for having overcome this tendency while obviously excelling in both aspects. In more intimate terms, he let a research question itself predominantly lead his methodological efforts and not the other way around. Too many economists these days let methodology guide and lead, forgetting the contextually rich aspects of a research question all together. Methodology must serve as a guide, rather than as a lead, for grounding a research question.
Prof Alberto Alesina arduously avoided this trap, and inspired students of economics to regain their innate human nature to dream again.