Rights, equity, and economic efficiency

Abstract

The Adelman-Morris premise that economic development and equity are incompatible is not supported by the evidence of a strong relationship between equality of rights and the income distribution. The premise that equity requires the denial of individual rights and the affirmation of state control is an oxymoron. What has been overlooked in the literature on growth and equity is the effect of the rights structure on both economic efficiency and on the income distribution. The evidence is that free societies have much larger shares of income going to the middle 60 percent of the distribution than is observed in societies where men are not free to choose. In politically open societies compared to politically closed regimes the share of income to the middle three quintiles is: Q2 (10.7 vs. 8.0), Q3 (16.0 vs. 11.5), and Q4 (22.9 vs. 17.9). In the aggregate the shares to the middle quintiles are 49.6 vs. 37.4. In nations that obey the rule of law compared to regimes in which the rights of the state relative to the individual are paramount the comparisons are: Q2 (11.2 vs. 7.4), Q3 (16.3 vs. 10.6), Q4 (23.0 vs. 17.3). Summing the three quintiles yields a comparison of 50.5 vs. 35.3. In countries that have private property, market allocation of resources, and minimum intervention by the state compared to command economies the shares of income to the middle quintiles are: Q2 (10.8 vs. 8.0), Q3 (16.0 vs. 11.1), and Q4 (22.8 vs. 17.7). Aggregated the shares of the middle class in regimes with high levels of economic liberty are 49.6 vs. 36.8 for regimes with restricted private economic rights.