Douwe Osinga's Blog: Income distribution and communism

Sunday, July 17, 2005

Income distribution and communism

Some might think seeing the title, here he goes again. I do seem to mention communism a lot in this blog. It is just that I like the market/capitalism as a way of optimizing economic growth, but I'm not so sure as to the justness of the resulting income distribution - what good it is it if society as a whole get richer if the very poor don't? And yes of course communism is not solution either and certainly not the type practiced in the former Soviet Union, but it is still something to think about. Today's thesis: communism did help the poor in the West. Take a look at the following graph.

I found the reference in an article in the economist of this week and Google brought me the original paper plus an excel sheet containing the data. This is graph shows what percentage of all income in these selected countries was consumed by the riches 0.1%. At the beginning of the 20th century this number was around the 10%, meaning that 1 in 1000 of persons ate 1 in 10 of the cake. It then came drammatically down, reaching 2% in 50th - 80th and then it picket up again, especially in the United States. Why? is the question of course.

Well, you see the graph starts falling around the time of the October revolution, which first showed the world that Communism was something that happened to real countries. It is very conceivable that the shadow of this made countries think twice before making the poor poorer; what if they would start a revolution? So income inequality dropped and dropped until in most countries the communists were only a fringe party and some socialist/liberal party would just hand out niceties to the labour movements and generally keep the working class fed.

Then the Warsaw block starts falling apart at then end of the eighties. Around the same time income inequality starts rising in the US and the UK (but not in France). Could this be that with the revolution as alternative out of the picture, the superrich just start taking what they want?

Now I know the timing isn't perfect, the distribution both started dropping before the october revolution and before the fall of the Berlin wall, but for both you can argue that what happened was only the result of a process already under way.