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Inequality and Governance

Governance matters for social welfare. Better governed countries are richer,
happier and have fewer social and environmental problems. Good governance
implies that public sector agents act impartially. It manifests itself in the form of
equality before the law, an independent and professional public administration
and the control of corruption.
This book considers how economic inequality – both interpersonal and
interethnic – can affect the quality of governance. To this end, it brings together
insights from three different perspectives. First, a long-run historical one that
exploits anthropological data on pre-industrial societies. Second, based on
experimental work conducted by social psychologists and behavioural econo-
mists. Third, through cross-country empirical analysis drawn from a large sample
of contemporary societies.
The long-run perspective relates the inequality-governance relationship to
societal responses in the face of uncertainty – responses that persist today in the
guise of cultural traits that vary across countries. The experimental evidence
deepens our understanding of human behaviour in unequal settings and in
different governance contexts. Together, the long-run perspective and the
experimental evidence help inform the cross-country analysis of the impact of
economic inequality on governance. This analysis suggests the importance of
both economic inequality and culture for the quality of governance and yields
several policy implications.

Andreas P. Kyriacou is Professor of Economics at the Universitat de Girona

(Spain). Over the years, he has worked on a range of research topics mostly
from the perspective of Institutional Economics. These include federalism and
decentralisation, non-economic motives driving individual behaviour and, more
recently, the causes and consequences of government quality.
Routledge Frontiers of Political Economy

257 The Economics of Military Spending

A Marxist Perspective
Adem Yavuz Elveren

258 Political Pluralism, Disagreement and Justice

The Case for Polycentric Democracy
Julian F. Müller

259 Nonviolent Political Economy

Theory and Applications
Edited by Freddy Cante and Wanda Tatiana Torres

260 Cognitive Capitalism, Welfare and Labour

The Commonfare Hypothesis
Andrea Fumagalli, Alfonso Giuliani, Stefano Lucarelli and
Carlo Vercellone

261 Political Economy for Human Rights

Manuel Couret Branco

262 Alternative Approaches to Economic Theory

Complexity, Post Keynesian and Ecological Economics
Edited by Victor A. Beker

263 The Dark Side of Nudges

Maria Alejandra Caporale Madi

264 Inequality and Governance

Andreas P. Kyriacou

For more information about this series, please visit: www.routledge.com/books/

series/SE0345
Inequality and Governance

Andreas P. Kyriacou
First published 2020
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
52 Vanderbilt Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2020 Andreas P. Kyriacou
The right of Andreas P. Kyriacou to be identifed as author of this work
has been asserted by him in accordance with sections 77 and 78 of the
Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
utilised in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in
any information storage or retrieval system, without permission in writing
from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identifcation and explanation
without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
A catalog record has been requested for this book

ISBN: 978-1-138-69050-9 (hbk)

ISBN: 978-1-315-53691-0 (ebk)
Typeset in Galliard
by Wearset Ltd, Boldon, Tyne and Wear
For Arnau and Nico
Contents

List of fgures ix
List of tables x
Acknowledgements xi

1 Introduction 1

2 Concepts, measures and correlations 6

Introduction 6
Defning governance 7
Measuring governance 9
Defning inequality 12
Measuring inequality 13
Correlations 19
Conclusion 24

3 Insights from the past 27

Introduction 27
Social responses to existential uncertainty 28
The foundations of the rule of law 30
The place of religion 63
Conclusion 68

4 Insights from social psychology and behavioural economics 71

Introduction 71
Ingroup bias and unethical behaviour 72
Inequality, legitimacy and behaviour 74
Power and corruption 78
Good or bad governance as alternative social equilibria 80
Conclusion 81
viii Contents
5 Economic inequality and governance in contemporary
societies 84

Introduction 84
Economic inequality will undermine good governance 85
Bad governance will perpetuate economic inequality 88
Important covariates 91
What does the data say? 96
Economic inequality, democracy and governance 102
Conclusion 107

6 Culture, economic inequality and governance 110

Introduction 110
Measures of culture 112
The causal links 116
The impact of inequality and culture on governance 120
Culture, democracy and governance 127
Conclusion 131

7 Conclusion 135

What have we learnt? 135

What can be done? 137

Appendix: country codes and samples 140

References 145
Index 162
Figures

2.1 Measuring the quality of governance 11

2.2 Market versus net income inequality 14
2.3 Gini versus Q5 to Q1 ratio 15
2.4 Gini versus middle class share 16
2.5 Actual versus perceived Gini 17
2.6 Gini versus inequality of opportunity 18
2.7 Interpersonal versus ethnic inequality 19
2.8 Quality of governance and inequality (Gini index) 20
2.9 Quality of governance and inequality (Q5 to Q1 ratio) 20
2.10 Quality of governance and the middle class 21
2.11 Quality of governance and perceived inequality 21
2.12 Quality of governance and inequality of opportunity 22
2.13 Quality of governance and ethnic inequality 22
3.1 Two types of society 32
3.2 The basic story 33
3.3 Geography and historical pathogen prevalence 35
5.1 Democracy and the impact of inequality on governance 105
6.1 Power distance versus individualism 113
6.2 Quality of governance and culture I (controlling for GDP pc) 115
6.3 Quality of governance and culture II (controlling for GDP pc) 116
6.4 The causal relationships 117
6.5 Democracy and the impact of culture on governance 130
Tables

2.1 Correlation with real GDP per capita 24

2.2 Quality of governance and inequality 25
3.1 Pathogens, individualism and governance 36
3.2 Population and social inequality 39
3.3 Population density, property rights and social inequality 40
3.4 Social inequality and governance I 42
3.5 Confict and social inequality 45
3.6 Social inequality and governance II 46
3.7 Social inequality and the nature of production 56
3.8 Social inequality and governance III 59
3.9 Biogeography and historical inequality 61
3.10 Historical and contemporary inequality 61
3.11 Governance and historical education 62
3.12 Monotheistic religions, individualism and checks on the
executive 67
5.1 Biogeography and contemporary inequality 90
5.2 Summary statistics 97
5.3 Inequality and governance (OLS) 99
5.4 Interpersonal inequality and governance (TSLS) 100
5.5 Ethnic inequality and governance (TSLS) 101
5.6 Inequality, democracy and governance 105
5.7 Ethnic inequality and governance: autocracies versus
democracies 107
6.1 Inequality, culture and governance (OLS) 121
6.2 Inequality, culture and governance (TSLS) 125
6.3 Culture, democracy and governance 128
Acknowledgements

I’d like to thank the staff at Routledge, specifcally Andy Humphries, Anna
Cuthbert and Laura Johnson, for proposing and shepherding through this
book. Several people were kind enough to invite me for a short research stay,
thus giving me quality time to think about the issues at hand: David Cameron
and Dwayne Benjamin of the School of Public Policy and Governance at the
University of Toronto, Niamh Hardiman of the Geary Institute of Public Policy
at University College Dublin, and Alexandra Sandmark as well as Oisín Plumb
of the Centre for Nordic Studies at the University of Highlands and Islands at
Orkney. Thanks to Lluís Planes
Planas for reading through the whole manuscript and
pointing out errors and potential improvements. Thanks also to Pedro Trivin
for all his help with STATA. Finally, I would like to thank my family for their
patience and support, especially during the summer of 2018.
1 Introduction

Economic
Economic inequality
inequalityhas
has been
beenon
on the
the rise
rise around
aroundthe
theworld
worldover
overthe
thelast
lastthree
four
decades. Facundo Alvaredo et al. (2018) show that income inequality has
increased in almost all world regions since 1980, although at different speeds.
The rising trend of income inequality has been attributed to a range of factors
(for a summary, see Anthony Atkinson [2015] and François Bourguignon
[2017]). In developed countries, these include technological change that is
biased in favour of high-skilled workers, increased competition from countries
with lower wages for unskilled workers, assortative mating, whereby individuals
form relationships with people with similar incomes and, fnally, the rise of
single parent households. In developing countries, it is mostly seen as the result
of changes in the sectoral composition of the economy due to economic devel-
opment in line with Simon Kuznets’s (1955) seminal argument regarding the
shift from agriculture to industry. The level of economic development also
partly explains why economic inequality varies so much across countries. Based
on the average value of the Gini index of disposable income over the period
1996 to 2016 – a measure that I will fully explain in Chapter 2 – economic
inequality in Swaziland and Namibia, is almost two and a half times greater than
that in Iceland and Denmark.1
Large economic inequalities are bad news for a range of social, political and
economic objectives. Kate Pickett and Richard Wilkinson (2009) relate income
inequality across developed countries and within the United States to a range of
health and social problems such as, life expectancy and infant mortality, mental
illness and drug use, obesity, child well-being (including experience with con-
fict), education
academic performance, teenage births, homicides and imprisonment rates
(see Wilkinson and Pickett [2017], for a recent survey of associated work).
These authors identify increasing anxiety due to the greater salience of status in
more unequal settings as a fundamental driver of many of these problems.
Status, relative or positional concerns also help explain empirical evidence
showing that inequality is associated with lower happiness levels in Western
countries (for surveys, see Ada Ferrer-i-Carbonell and Xavier Ramos [2014] and
Andrew Clark and Conchita D’Ambrosio [2015]).
Economic inequality can also affect democratisation and democratic political
engagement. High levels of economic inequality may lead economic elites to
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