Long-Term Trends in Income Distribution

Income and wealth inequalities in most countries - in the West, the former communist economies and in many developing states - have been growing in the last three decades. Inequalities in the late XIX century were much higher than before the rise of workers' movements in the West and the 1917 Bolshevik Revolution, the strong inequalities of the previous century declined for over half a century until the 1980s as the threat of communism spreading inspired welfare redistributive reforms, giving capitalism 'a more human face'. But these checks and balances have greatly weakened in recent decades, especially after the fall of the Berlin Wall, and the growth of inequalities resumed in most developed and many developing countries with some notable exceptions (Latin America). This article discusses long term past and possible future trends in inequality. High inequalities are associated with an array of negative consequences, which lower the competitiveness of societies and countries, especially at higher stages of development. Inequalities cannot grow endlessly, there is probably a critical level of inequality, and if it is exceeded, national states descend into turmoil of social conflicts and fall apart. If the growth of income inequalities continues, then countries can get into the bad stable equilibrium trap that reproduces itself: poor quality of state institutions, low growth, low social mobility, high social tensions. Gradual reforms could help overcoming the trap, but if they are delayed, the further growth of inequalities could lead to social revolution.