How to teach economics of income distribution
Branko Milanović is an economist specialised in development and inequality. His new book, The Visions of inequality, was published October 10, 2023.
Cross-posed from Branko Milanović’s blog Global Inequality and More 3.0
While there is little doubt that the world currently operates only one economic system, capitalism (with different political variants), the question can be asked, Should the study of economics altogether drop all comparative system aspects and teach only what is being observed today? That leaves the possibility of teaching other economic systems in subsidiary parts of the main curriculum, like for example in economic history where one may teach economies of the ancient world, feudal economics, or communist economics. But do they have a place in the current mainstream?
There are no comparative systems and there is nothing to teach. People who see economics as mimicking natural sciences will argue that economics should not have a comparative systems part at all, or at least not so long as such alternative systems do not exist in real life. The comparative part could be limited, for example, to the study of Chinese capitalism, or West European capitalism that are, in some aspects, different from the American capitalism. This is close to the literature on varieties of capitalism that distinguishes itself by an emphasis on redistributive mechanisms but does not discuss distribution induced by production and by the difference in the ownership of assets (that is, is capital owned by a community or the state as opposed to being privately-owned). It ignores the latter aspect because production is in all cases organized along the same capitalist lines. To be clear on what I mean, I define (as in Capitalism, Alone) capitalism as a system where most of production is done using privately-owned means of production, labor is hired, and economic decision-making is decentralized. Such a definition of capitalism, following Marx and Max Weber, is rooted in the way production is organized which also determines distribution of market incomes. It is fully consistent with various forms of redistribution (including taxation of billionaires). And in all cases, we remain within the framework of varieties of capitalism literature and are concerned only with redistribution.
We should teach comparative systems even if they currently do not exist. A different point of view is taken by those who believe that economics is a social science, whose development is based on understanding of both past and present economic formations. Being conversant with how different economic systems were organized may be valuable in broadening our view of the world beyond the confines of what exists today. It also gives us greater ability to situate what we observe now and to think about possible changes in the future. Presentism in social sciences seems to reify the current system and make it seem “natural” and irreplaceable.
I write this as I was during several past semesters confronted by the comparative systems question when teaching economics of inequality. In studying inequality within countries (as opposed to studying global inequality), I review the great authors of the past (as I have done in Visions of Inequality) and then gradually move towards the present and Pareto, Kuznets, Piketty etc. I wind up the class with the discussion of inequality in the modern United States and China and some recent methodological innovations. This last part stays clearly within the limits of comparative capitalism.
But then, in an experimental fashion, I taught for one class (two hours) income distribution and inequality under socialism. (For those interested in what it involves I would suggest reading the first part of Chapter VII of my Visions of inequality). The objective of that two-hour class was not to show the values of the Gini coefficient in socialist countries, but to explain an entirely different logic of income determination. For example, that unskilled labor was paid high compared to skilled labor, that that decision was politically and ideologically motivated; that taxation had almost no redistributive role because it was proportional to incomes and not progressive; that social transfers were a significant source of income and demographically determined (one got them because of his or her age, or because they had children) and unrelated to economics per se (unlike unemployment benefits in capitalism). And finally that there was almost no private capital income except in an implicit way from self-employment. Even the latter was generally limited to agriculture (small farmer-owned plots).
As these examples show, the logic of distribution in socialism was entirely different from the logic of distribution in capitalism. Additionally, if one introduces the experience of the Cultural Revolution in China (which I discussed in this post), one can easily appreciate the historicity of our current ways of dealing with production and distribution, and thus determining incomes of households. Students can see that socialism is not just capitalism with lower inequality. It is an entirely distinct economic system where the distribution is differently organized. This, I believe, broadens the mind—even when one disagrees with such a system and believes that it leads to inefficiencies.
But the key question is: Is there sufficient interest for this kind of study? I am not entirely sure. Some students, I think, liked it because they realized that what they are used to discuss is just one segment of what types of distributional arrangements and outcomes existed in history. We are not condemned to our today’s slice of history forever. But other students might have thought that part redundant or at least not useful in any concrete way. They could (rightly) say, why do we not study the principles of income distribution under feudalism or slave-owning economies? (By the way, I believe that we should dedicate a couple of hours to that too.)
I am thus torn between two different approaches. The “cost” is not huge: two hours of teaching: should I do it or not? I decide on a whim. While I believe that in some deep sense the second approach is better, I am aware that the demand for it may be small. Do we teach something only when the demand for it is already there, or do we teach –in order to broaden students’ horizons and thus create demand—even things for which interest is not there to start with but that we believe could be useful in ways that an ordinary student cannot fully grasp before taking the class?
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