Tuesday, 26 September 2023

The Returns to Power: A Political Theory of Economic Inequality

WZB Talk by Thomas F. Remington

Over the past forty years, since the Reagan-era paradigm shift to deregulation, income and wealth inequality in the United States has grown significantly faster than in other advanced industrial democracies. High economic inequality has contributed to severe political polarization, socio-economic and geographic segmentation, and erosion of democratic institutions. Analogous processes in Russia and China followed their market openings over the same period. In contrast, postwar Germany adopted a strategy for economic liberalization that ensured a more balanced distribution of gains from growth. The talk outlines a model in which rent-sharing between wealthy interests profiting from a semi-liberalized economy and allies in government that protect their rent streams produces cumulative inequality in both the economic and political arenas. The model implies that in settings where social power is unequally distributed, actors in a liberalizing economy can restrain themselves from exploiting asymmetries in market power by delegating power to a competition authority that enables them to realize gains from trade while curbing rent-seeking.

Thomas F. Remington is Visiting Professor of Government at Harvard University and Goodrich C. White Professor of Political Science (Emeritus) at Emory University in Atlanta, Georgia.


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