Effects of Markets on Poverty and Economic Inequality: Evolutionary and Ethical Perspectives

Taking into account Kuznet’s hypothesis, considers the general relationship between the evolution and extension of market systems and the incidence of poverty and economic inequality. It suggests that a re-evaluation of the Kuznet’s curve is needed because income inequality has been rising in many countries, with growing economic liberalisation, expansion of globalisation and greater reliance on markets. Nevertheless, societies that experience a rapid transition from traditional, centrally controlled, or social welfare economic systems to market-based ones often experience a substantial rise in their incidence of poverty and income inequality, at least initially. Some of the reasons for this and the processes mentioned are outlined. The recent upward trend in economic inequality, particularly in more developed countries, seems to have a different genesis to the initial phase of rising inequality indicated by the Kuznet’s curve. Its basis seems to be the combined effect of the growing importance of inequality in human capital, especially resulting from educational differences, and market extension. The increased adoption of the user-pays approach to education could magnify social stratification and cement social inequalities. The essay concludes with a discussion of ethical issues. These issues include whether or not the payments of income based upon market competition are just, arguments for redistribution of income such as those of some utilitarians and of Rawls, and the relevance of critiques of these redistribution proposals, especially as they apply to the poor. Critiques include that of Richard Musgrave, and those based on the assumption on that the poor have a high preference for leisure, exhibit backward-bending labour supply curves at very low levels of income, and are likely to spend their extra income on non-essential commodities, such as gambling and alcohol, expenditure disapproved of by many in society when the poor engage in it. Some consideration is also given to A K Sen’s view that lack of social entitlements is a major source of poverty.