Free market capitalism and societal inequities: Assessing the effects of economic freedom on income inequality and the equity of access to opportunity, 1990–2017
| Published date | 01 September 2023 |
| DOI | http://doi.org/10.1177/01925121211039985 |
| Author | Indra de Soysa,Krishna Chaitanya Vadlamannati |
| Date | 01 September 2023 |
| Subject Matter | Original Research Articles |
https://doi.org/10.1177/01925121211039985
International Political Science Review
2023, Vol. 44(4) 471 –491
© The Author(s) 2021
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/01925121211039985
journals.sagepub.com/home/ips
Free market capitalism and societal
inequities: Assessing the effects
of economic freedom on income
inequality and the equity of
access to opportunity, 1990–2017
Indra de Soysa
Department of Sociology & Political Science, Norwegian University of Science and Technology (NTNU), Norway
Krishna Chaitanya Vadlamannati
School of Politics & International Relations (SPIRe), University College Dublin (UCD), Ireland
Abstract
Some blame free-market capitalism for increasing income inequality, arguing that richer classes could block
access to others for maintaining their privileges. By manipulating the degree of political rights and resources
available to others, the rich could reduce opportunities for others. Others argue that growth-promoting
free markets raise all incomes, increasing aggregate welfare. We argue that governments more dependent on
free markets are likely to focus on increasing access to human capital, thereby narrowing the gap between
the rich and poor by increasing opportunities, even if income inequality rises with high growth. We assess
the issue by examining the effects of an Index of Economic Freedom on income inequality measured by the
standardized GINI and measures of the equity of access to quality schooling, health, and justice covering
128 developing countries during the 1990–2017 period. Our results show that, even if economic freedom is
associated with higher income inequality, it also associates robustly with access to opportunity. Our results
are robust to alternative models, sample size, and testing methods, including instrumental variables analyzes
addressing potential endogeneity bias. Our results, taken together, do not suggest that growth-promoting
economic freedoms hamper future progress by raising inequalities—on the contrary, economic freedoms
promote equity of access to opportunities—findings inconsistent with the view that governments under
free-market conditions are easily captured by the wealthy, who then block equitable access to public goods.
Keywords
inequality, economic freedom, education, health, public services, social justice
Corresponding author:
Indra de Soysa, Department of Sociology & Political Science, Norwegian University of Science and Technology (NTNU),
Dragvoll, Trondheim, Norway.
Email: indra.de.soysa@svt.ntnu.no
1039985IPS0010.1177/01925121211039985International Political Science Reviewde Soysa and Vadlamannati
research-article2021
Original Research Article
472 International Political Science Review 44(4)
Introduction
Since antiquity, questions of poverty, equity, and justice are central philosophical concerns (Nozick,
1974; Rawls, 1993). Aristotle suggests in Politics that poverty is the root of all evil and argues that
the ideal, just society, consists of a wealthy middle class, where extremes are avoided (Ebenstein
and Ebenstein, 1992). Millennia later, we find ourselves in a divided world, both in terms of the
gap between countries and growing disparities within them. Consider that 40% of the total global
product (purchasing power parity (PPP) adjusted) is enjoyed by a handful of advanced economies.
The current gap between the rich and poor world is massive, with almost 50 countries in sub-
Saharan Africa accounting for less than 3% of the global product.1 While this gap between coun-
tries has been closing slightly in recent years, the gap within countries is thought to be growing,
particularly when considering wealth inequality, where the top 10% owns roughly 60–70% of the
wealth (Piketty, 2015). Moreover, evidence suggests that the incomes of the middle classes in rich
countries have remained stagnant in past decades, while the bulk of global wealth is concentrated
among the super-rich (Milanovic, 2016b). Despite these arguments, most agree that economic
growth is an absolute necessity for lifting people out of poverty, even if rapid growth may exacer-
bate inequalities, as we have witnessed recently in places such as China and India (Kuznets, 1995).
While many argue that the turn to more liberal economic policies around the late 1970s and the
subsequent intensification of globalization is to blame for rising inequalities within and across
countries (Rodrik, 2011), others argue that policies aimed at equity rather than growth are the real
problem (Phelps, 2018). Is there a poverty–inequality conundrum in encouraging free-market poli-
cies? Do growth-promoting, free-market policies increase income inequality and reduce access to
opportunities as opponents of free markets claim?
Using the Index of Economic Freedom from the Fraser Institute, the latest GINI scores from the
Standardized Income Inequality Dataset (SWIID), and data measuring the degree to which the poor
have access to education and health and justice on equal terms with the rich, we find that higher
economic freedom increases income inequality as measured by the GINI, but greater economic
freedom reduces inequitable access to political resources, such as health and education including
justice. The effect of economic freedom on greater equity of access to opportunity is robust to
several different estimating methods, including instrumental variables analyzes addressing poten-
tial endogeneity due to both omitted variables bias and reverse causality. The results taken together
do not support the view that economic freedom generates all forms of inequality and breeds ineq-
uitable access to political resources that block the poor. If economic growth lifts all boats and the
policies that most likely accelerate it are not based on blocking others from accessing opportuni-
ties, then economic freedoms must surely be encouraged.
Literature review
As Aristotle noted, the concentration of wealth among an elite could stymie progress. According to
him, a successful society would have a large middle class, and the best way to achieve this was to
ensure a vibrant market economy. According to him:
Property should be . . . private. For, when everyone has a distinct interest, men will not complain of one
another, and they will make more progress because everyone will be attending to his own business
(Ebenstein and Ebenstein, 1992: 81).
Orthodox (liberal) economists would agree. Private investment, where people have the right to
enjoy the fruits of their labor, increases specialization and raises productivity. These productivity
To continue reading
Request your trial