The Inequality of Influence

Abstract

There is now a substantial literature demonstrating the negative impact of inequality on economic growth and on a wide range of intermediate social and economic outcomes that affect growth.’ Linking these results to another well-established literature—the quality of institutions—Glaeser et al. (2002) have argued that inequality affects growth by subverting the institutions that guarantee secure property rights. The rich can use their superior resources to manipulate political, legal, and regulatory institutions to preserve and extend their privileged positions through inefficient redistributions, anticompetitive measures, and other discriminatory practices. This subversion of institutions undermines the security of property rights for those less well-endowed and thus weakens investment and growth.Yet to the extent that inequality leads to the subversion of institutions, it is not necessarily through the inequality of wealth per se, but the inequality of influence, though the two are obviously closely interrelated. The rich are assumed to be able to convert their greater wealth into greater political influence over both the formation and functioning of institutions. However, the extent to which inequalities of wealth can be converted into inequalities of influence will be mediated by different configurations of the political system. In order to understand the mechanisms linking inequality and growth, we need a much deeper investigation into the inequality of influence in developing countries.