Liberalization and inequality

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The OECD has just released a massive report on inequality - see the press release, data and related materials, and the report itself, Growing Unequal? (gated). Now that a recession is beating at the gates of most of the rich countries, questions will undoubtedly be raised about how the pain is metted out to various income groups. Calls for re-regulation of many sectors of the rich economies will likely follow. And there's no doubt that financial sector regulation is due for a very close examination.

But it's worth looking at some of the countries that have liberalized the most in the past two decades to see what the consequences have been. Two things strike me in the figure below (taken from the report) concerning inequality in the post-communist countries of eastern Europe.


First, inequality in most of the post-communist countries included in the report still falls below the OECD average. The Czech Republic, Slovakia, and Hungary - all ardent market reformers at least at some point in their post-communist history - fall below the average, while only Poland has a higher Gini coefficient than the average. De-regulation and substantial reductions in state ownership have not necessarily produced highly unequal societies.

Second, the country that has probably implemented the most ambitious market reforms - Slovakia - has A Gini coefficient of only .268, tying it with the Czech Republic. Many pro-market reforms were carried out between 1998-2006, one of the most notable being the institution of a flat tax. Slovakia has seen high growth and greater integration with the global economy with only a modest increase in inequality. All of this suggests that a market-friendly economy does not necessarily entail highly unequal outcomes.


Ryan Hahn

Operations Officer

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