Braqnko Milanovic, Peter Lindert and Jeffrey Williamson have an interesting new paper on the measures of inequality in ancient and modern societies. Measuring Ancient Inequality, The World Bank Development Research Group Poverty Team, Nov. 2007 (available at the World Bank website at this link).
Working with sparse date such as social tables and tax census or monthly census of expenditures, the three economists try to determine whether inequality in ancient pre-industrial societies was greater or less than inequality in today's undeveloped countires or even today's modern countries, given that the convergence of incomes within industrial countries that impressed Kuznets in the 1950s has reversed itself, with gaps widening again.
Under their approach, the creation of economic surpluses beyond the resources needed for subsistence creates an opportunity for the elite to exploit the surpluses and capture an increasing share of growth, leading to greater economic inequality. This requires the introduction of two concepts: the "inequality possibility frontier" (IPF) and the "Inequality extraction ratio" (IER). The IPF assumes that each society must provide a subsistence minimum for its poorest classes but the surplus is shared among the richer classes. As average incomes increase, the surplus increases and the maximum possible inequality compatible witht that higher income also increases. A chart of the maximum possible Gini coefficients against mean income levels gives the IPF. The IPF therefore represents the "maximum inequalityh that is dynamically sustainable." (Sometimes I suspect that the "there's no time that a tax cut isn't the right answer to fiscal questions" group are aiming for that kind of a society--one in which the rich are allowed to exploit the surplus, and let the rest of the population just get by. )
The authors conclude that "inequality differences within the ancient and modern samples is many times greater than the difference between them." In other words, contemporary pre-industrial societies show about the same inequality as ancient ones, though there are some in each group that are much more unequal than others, the average Gini for the fourteen ancient societies investigated was 45.7 while the average Gini from the nine modern comparators was just a little less--43.3.
The second factor the authors assess is how countries' inequality measures compare with the maximum feasible Ginis for their income levels. I.e., as income increases, there is more of a surplus beyond subsistence, if this surplus is captured by the elite few, then the Gini coefficient will be much higher, indicating a less equal society. For any income level, there is a maximum Gini possible (related to the amount of surplus there to be extracted). The authors define an "inequality extraction ratio" as the ratio between the actual Gini inequality and the maximum feasible inequality for that society. The higher the IER, the more unequal the society. By this measure, ancient societies are more unequal--the elite were more successful at extracting the surplus than today's elite are.
They note that this additional inequality measure may provide a better understanding of the relationship between wealth and power. Tanzania, for example, has a relatively low Gini of 35, suggesting it is about as egalitarian as most of today's societies. But its Gini is very near the maximum possible for its mean income level--i.e., measured inequality lies very close to the inequality possibility frontier.
They find another interesting correlation (or rather lack thereof) between ancient and modern socieites. IN today's socieites, the change in the top 1 percent's share of the wealth provides a good approximation of the changes in overall income distribution. By that measure of course, the US is plummeting towards a highly unequal society, as the "creme de la creme" at the very top--the top one-half of one percent--are amassing huge fortunes and leaving the "just rich" behind.
the study looks at two key factors--the top 1 percent's share of the country's income and the cut-off point where the top 1 percent begins. They find that the change within the top 1 percent doesn't reflect what's going on in the ancient societies like it does for contemporary societies. Instead, they find that "the gap between poor landless labor and the landed elite, whose incomes raise the average considerably, drives the Gini, not conditions at the top."
The authors then turn to survival inequality. If the rich enjoy longer lives, then lifetime inequality is much greater. In ancient times this was a major factor, since the rich had such better resources and health that they lived much longer than the poor. It is less of a factor now, as the "global spread of better health care and public victories over many pathogens and parasites in the twentieth century created a dramatic life expectancy convergence between nations." Yet, the authors note that they haven't yet found a century where the poor outlive the rich, but lots of examples where the rich outlive the poor.
The authors summarize their insights as the following: (i) income inequality in preindustrial countires today is not very different from inequality in ancient times, (ii) the extraction ratio, however, was significantly bigger then than now, (iii) differences in lifetime survival rates between the rich and the poor were much higher 200 years ago, causing greater lifetime inequality in the past, and (iv) there was no correlation between the income share of the top 1% and inequality in ancient societies like there is in today's societies.
Left out of the paper was discussion of the social structures underpinning inequality. But the authors speculate that (i) initial resource endowments matter, (ii) the role as a colonized country matters because colonial powers tend to reward indigenous elites rather than mollify the mases; (iii) economic inequality is correlated with extreme concentration of political power that is then used to further widen income gaps through rent-seeking and rent-keeping, which in turn retard broad economic growth.
The paper is helpful in coming to terms with the relationship between economic development and inequality. I take from it some comfort that while modern socieites are about as unequal as ancient societies, the elites have extracted less of the feasible inequality surplus than the elites of ancient societies. Perhaps this means that as economic development takes place and a broader middle class with education develops, they are more likely to demand a share of the surplus rather than allowing it to be concentrated wholly at the very top. Yet the trend in the US over the last few years is worrisome in this regard--from tax cuts to executive compensation, the powers that be seem to be awarding more to those in the top 1 percentile. that's the real class warfare--a system that let's one class accumulate most of the surplus created by the productivity of the masses of ordinary wageearners. Ultimately, that policy will retard broad economic growth (see Glaeser, Scheinkman & Shleifer (2003), referenced in the article) and will impact the sustainability of democracy. I suspect that is why progressive populism has increasingly caught on with ordinary Americans--people are beginning to ask why the deck should be stacked in favor of the few at the top instead of working to the benefit of everyone. (The hedge fund managers with the preferentially favorable treatment of their compensation income are a good example--continuing that treatment which singles them out and lets them accumulate without the same tax burden that ordinary workers pay is a problem.)