Nobel Prize Winner James Robinson: Letting Inequality Go Up is a Choice

I do not think that is true. The data is not consistent with that. What you have seen in the US and quite a bit of western Europe in the past 50 years is rapid economic growth, but severely widening inequality. So, I think there is no simple relationship between levels of economic development and inequality.

The world changes. I think what you have seen in the past 50 years, for example, is globalisation. You have seen technological change, and you have seen changes in labour markets, like de-unionsation in the US or Britain. Those things have gone along with widening inequality and economic growth. It all depends on the institutions of the society, what the connection between growth and inequality is.

What has happened in India is what happened in Britain under [Margaret] Thatcher and in the US under Ronald Reagan: there was a move to a more market model. There was a withdrawal of the state from regulation and involvement in economic activity, and it was associated with accelerating economic growth.

But it was also associated with rapidly increasing inequality. From that perspective, the Indian experience, like the Chinese experience, is very similar. Deng Xiaoping started deregulating the economy in the late 1970s, and it led to economic growth and very widening inequality.

Of course, there is nothing inevitable about that. You do not see very widening inequality in Sweden, for example, or Germany. That has to do with the structure of institutions—labour market institutions and institutions of distribution, like social insurance.

I think letting inequality go up so much is really a choice. You do not adopt the policies necessary to stop inequality from going up.

If you look at a country like Sweden, the dramatic fact is that inequality before anyone does any taxational redistribution is massively lower. That is because of the way labour-market institutions are organised and the way the economy is structured.

Sweden is not so equal because it was a very unequal country that then redistributed lots of income. It is the pre-tax distribution of income that is very critical.

If you look at [South] Korea, you have had dramatic economic transformation with very little increase in inequality. Why is that? Not because there is a huge amount of income redistribution, but because there has been huge investment in education and

human capital, and because of the way the labour market functions.

My sense of the lesson for India would be that this is how you have to think about it. That is the critical thing. It is not exactly right that you just push economic growth and then everything will be fine. You have to structure growth in the right way.

I am not sure there is great evidence in economics that would allow you to evaluate that debate, which is perhaps why it carries on. Both education and infrastructure are critical for the economic development of a country like India. But I think that investing in education has the advantage, as I was just discussing in the Korean case, of mitigating the consequences of economic growth for inequality.

One thing you could say about India is that it is not just about the amount of money you spend on education, but how it is allocated between different parts of the educational system.

India has a terrifically successful higher-education system. That is about the distribution of educational resources within the educational system.

India has so much talent. It is just waiting to explode. The potential is like what China’s was.

It is probably more evident in India than it was in China in 1980 because you have all these amazingly talented, successful Indians overseas.

It should be exciting for the government of India to try to figure out how to unlock that potential, how to let it explode. And then India may be growing at 10% a year for the next hundred years.

Everybody should pay their fair share to society and rich people are able to pay much more, so that makes perfect sense. You need a way to stop people and businesses from avoiding taxes.

My main point, however, is that if you look at countries that have solved problems of inequality, they have not done it by allowing inequality to emerge and then taxing it at punitive rates. That tends not to work. You have to organise your institutions in a way that ensures economic growth and equality go together.

I think it depends a lot on ideology. Think about Latin American countries. They seem to be very stable at levels of inequality that are far higher than in the US, western Europe, India or anywhere else.

They are stable. Why? Because they have ideologies that justify it, that make it seem natural, that make it seem like this is just how things are in Colombia, Guatemala, Peru and so on.

Of course, the reason inequality causes problems in the US is that there is an ideology of mobility and opportunity. That disappeared a long time ago, but there is still this idea that you ought to have opportunities, that there ought to be social mobility. And that does not exist anymore in the US,

except for elites who can go to Harvard or Yale.

We are still living with that ideology, and that is why we have all these problems. You do not have “Make Colombia Great Again” or “Make Guatemala Great Again” because everyone is socialised into thinking that this is just a hierarchical, unequal society.

At the moment, in the US, it seems more likely to me that we will develop a kind of hierarchical philosophy where inequality will just seem natural, and we will end up in a situation like Colombia or Guatemala

I think he is probably overstating it, but there are going to be dramatic effects on the labour market. You only have to look at history to see that.

When I was a PhD student 40 years ago, every professor at Yale had secretaries and assistants. Now they have all disappeared. Everyone does everything on their own computer. There has been huge labour shedding everywhere. I think it is obvious that, while he may be overstating it, there are definitely going to be tectonic effects in the labour market.

And no one cares about the social consequences. That is what is frightening as an economist. These changes are going to have huge impacts on society because the market works, and what does the market do? It pushes down people’s wages.

Those wages are going to be pushed down, and that is frightening because those people vote, and that has social consequences. They have families. They have lives. But Musk appears completely oblivious to these social consequences.

I think that is a very important issue. I do not think this is such a big issue in India right now, but if you look at countries in East Asia like Japan or Korea that have very rapidly falling populations, people say, well, that is okay. There will be all these retired people and nobody working, but we will just get robots.

But who owns the robots? Where does the income from the robots flow? That could solve one problem, but it is going to have an enormous impact on inequality.

So, what do you do? You have to tax the robots. Absolutely, yes. Otherwise, there is going to be a tectonic effect on inequality.