Hirschman & Rothschild (1973) - The Changing Toleranc..

The Changing Tolerance for Income Inequality in the Course of Economic Development
Author(s): Albert O. Hirschman and Michael Rothschild

Source: The Quarterly Journal of Economics, Vol. 87, No. 4 (Nov., 1973), pp. 544-566
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/1882024 .
Accessed: 21/09/2013 01:06
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp
.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.
Oxford University Press is collaborating with JSTOR to digitize, preserve and extend access to The Quarterly
Journal of Economics.
http://www.jstor.org
This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

All use subject to JSTOR Terms and Conditions
THE CHANGING TOLERANCE FOR INCOME INEQUALITY
IN THE COURSE OF ECONOMIC DEVELOPMENT *
ALBERT O. HIRSCHMAN
WITH A MATHEMATICAL APPENDIX

MICHAEL ROTHSCHILD
I. Gratificationover advances of others: the tunnel effectintroduced, 545.

-II. Some evidence, 548. III. Consequences for integration and revolution,
550.- IV. From gratificationto indignation, 552.-V. The tunnel effect: so-
cial, historical, cultural, and institutional determinants of its strength,553.-
VI. An alternative reaction: apprehension over advances of others, 559. - VII.
Concluding remarks, 560. - Mathematical appendix, 562.
A drastictransvaluationof values is in processin the study of

economic and political development. It has been forcedupon us
by a series of disasters that have occurredin countriesin which
developmentseemed to be vigorouslyunder way. The civil war in
Nigeria and the bloody fallingapart of Pakistan are only the most
spectacularinstancesof such "developmentdisasters."
As a result, one reads with increasingfrequencypronounce-
ments about the bankruptcyof the "old" developmenteconomics,
with its accent on growthrates,industrialization,and international
assistance,and about the need fora whollynew doctrinethat would
emphasizeincomedistribution,employment,and self-reliance.1
The presentpaper is not writtenwiththe intentionof stemming
thistide,whichsurelyrepresentsa wholesomereactionand response
to currentproblems. It is grounded,however,in the strongfeeling
and insistentrecollectionof one participantobserverthat the intel-
lectual enthusiasmfor developmentin the fifties. and early sixties
reflectedelementsof real hopefulnessthat were then actually pres-
ent in many developingcountries.What was not correctlyperceived
was the precariousand transitorynature of that early hopefuland
even exuberantphase. This essay, then,is an effortto understand
* A preliminaryversion of this paper was presented as an invited lecture

at the University of Puerto Rico at Rio Piedras in Feb. 1972. Discussions
after that lecture and during subsequent seminars at Harvard and Yale led to
a number of additions and reformulations. The author is grateful to Jorge
Dominguez and Val Lorwin for detailed comments.
1. For a particularly forcefulstatement of this sort, see Mahbub ul Haq,
"Employment and Income Distribution in the 1970's: A New Perspective,"
InternationalDevelopmentReview (Dec. 1971),9-13.

CHANGING TOLERANCE FOR INEQUALITY 545
both wherewe were rightand where we went wrong. It will pro-

ceed on a fairlyabstract level, reach out into several fieldsother
than economics,and stray,on occasion,fromthe immediateexperi-
ence and concernthat are at its origin.
I. GRATIFICATION OVER ADVANCES OF OTHERS:

THE TUNNEL EFFECT INTRODUCED
I shall start by baldly stating my basic proposition. In the

early stages of rapid economic development,when inequalities in
the distributionof income among different classes, sectors,and re-
gions are apt to increasesharply,it can happen that society'stoler-
ance forsuch disparitieswill be substantial. To the extentthat such
tolerancecomes into being,it accommodates,as it were,the increas-
ing inequalitiesin an almostprovidentialfashion.But this tolerance
is like a creditthat falls due at a certaindate. It is extendedin the
expectationthat eventuallythe disparitieswill narrowagain. If this
does not occur,thereis bound to be troubleand, perhaps,disaster.
To make this propositionplausible, I shall firstargue by anal-
ogy. Suppose that I drivethrougha two-lanetunnel,both lanes go-
ing in the same direction,and run into a serioustraffic jam. No car
movesin eitherlane as faras I can see (whichis not veryfar). I am
in the leftlane and feel dejected. Aftera while the cars in the right
lane begin to move. Naturally, my spirits lift considerably,for I
knowthat the jam has been brokenand that my lane's turnto move
will surelycome any momentnow. Even thoughI still sit still,I feel
much betteroffthan beforebecause of the expectationthat I shall
soon be on the move. But suppose that the expectationis disap-
pointedand only the rightlane keeps moving: in that case I, along
with my left lane cosufferers, shall suspect foul play, and many of
us will at somepointbecomequite furiousand readyto correctmani-
festinjusticeby taking directaction (such as illegally crossingthe
double line separatingthe two lanes).
It is easy to translatethis situationintothe language of welfare
economics.2An individual'swelfaredependson his presentstate of
contentment(or, as a proxy,income), as well as on his expectedfu-
turecontentment(or income). Suppose that the individualhas very
littleinformationabout his futureincome,but at some point a few
of his relatives,neighbors,or acquaintances improvetheireconomic
or social position. Now he has somethingto go on: expectingthat
2. See MathematicalAppendixfora moreformalstatementand develop-
mentof the argument.

546 QUARTERLY JOURNAL OF ECONOMICS
his turnwill come in due course,he will draw gratification fromthe

advances of others- fora while. It will be helpfulto referto this
initial gratificationas the "tunneleffect."
This is a simpleand, I believe,immediatelypersuasiveproposi-
tion. While it has to be formulatedwith greatercare so as to spell
out the conditionsunder whichit does or does not hold, perhaps I
shall be allowed to dwell Dn it and to advertise its novelty. The
tunnel effectoperates because advances of otherssupply informa-
tion about a morebenignexternalenvironment;receiptof this infor-
mation produces gratification;and this gratificationovercomes,or
at least suspends,envy. Though long noted as the most uninviting
of the seven deadly sins because, unlike lust, gluttony,pride,etc., it
does not provide any initial funto its practitioners,envy is never-
thelessa powerfulhuman emotion. This is attestedto by the writ-
ings of anthropologists, sociologists,and economists,who all have
proclaimed,in general quite independentlyof one another,that if
you advance in incomeor status while I remainwhereI was, I will
actually feelworseoffthan beforebecause my relativepositionhas
declined.
In economicsthis has been argued as the "relative income hy-
pothesis,"accordingto whichthe welfareof an individualvaries in-
verselywith the income or the consumptionof those personswith
whom he associates.3 In sociology the topic has been profusely
studied under the heading of "relative deprivation." While this
termis sometimesused to denote any lag of real accomplishments
behindexpectations,its predominantmeaningrefersto the feelings
experiencedby a personor groupof personswho are fallingbehind
othersor who see otherscatch up with them in regard to income,
influence,and status.4 Finally, anthropologists, who are less given
3. James S. Duesenberry, Income, Saving and Theory of Consumer Be-
havior (Cambridge: Harvard University Press, 1949), Ch. III. A clear diagram-
matical exposition. is in Harvey Leibenstein, "Notes on Welfare Economics
and the Theory of Democracy," Economic Journal,LXXII (June 1962), 300-05.
Leibenstein considers three possible ways in which individuals make compari-
sons between their income and that of others: "(1) Pure Pareto comparisons
in which each individual takes into account his own income but no one else's;
(2) the 'share of the pie' comparisons in which each individual takes into
account the income distributionfrom a relative point of view but not the ab-
solute magnitude of his income; and (3) the 'compromise Pareto comparison'
in which individuals take into account both the absolute magnitude of their
income and their relative income position" (p. 301).
The "pure Pareto comparison," where an individual's utility is not de-
creased by the improving fortunes of his neighbor as long as his own income
does not change, is a limiting case in this scheme. There is no room in it for
the possibility of a positive interaction between my and my neighbor's utility.
4. For an excellent survey and bibliography, see Thomas F. Pettigrew,
"Social Evaluation Theory: Convergences and Applications," Nebraska Sym-

to using jargon, speak unabashedly of the envy caused by isolated

advances of individualsin small,poor communities;theyview many
institutions,such as fiestas,giftgiving,and appointmentof the rich
to financiallyburdensomehonorarypositions,as social mechanisms
designed to lessen the potentiallydestructiveimpact of envy on
personalbonds and social cohesion.5
This is no doubt an impressivebody of convergingwritings,
and massive data have been gatheredin theirsupport. But relent-
less pursuitof this line of reasoningand researchmay have led to
a trainedincapacityto perceivethe tunneleffectand its importance
in a numberof contexts.
A preliminaryway of rekindlingperceptionis to reverse the
signs of the phenomenonunderstudy. Suppose my neighboror ac-
quaintance,far fromimprovinghis position,experiencesa bad set-
back such as losing his job while I am keeping mine: Do I now
experiencethe opposite of relative deprivation,that is, the satis-
factionof relative enrichment?This is unlikely,for one thing,be-
cause envy, mortal sin though it may be, is an altogethergentle
feelingif compared to Schadenfreude,the joy at someone else's
injury,whichis the emotionthat would have to come into play to
make me happy in this situation. The moreimportantreason is the
tunneleffectin reverse: once again I shall take what is happening
to my neighboras an indicationof what the futuremighthave in
store for me, and hence I will be apprehensiveand worried-less
well offthan before,just as he. This reaction is well-knownfrom
the onset and spread of depressions.6
The oppositereactionwill surelytake place whenthe economy
experiencesa cyclical upturn. Now the news that someoneI know
is gettinghis job back while I am still unemployedgives me a
pleasure that overwhelmsany possible envy,forthe event is hailed
posium on Motivation, 1967 (Lincoln: University of Nebraska Press, 1967),

particularly pp. 261-73. The concept was introduced by S. A. Stoufferand his
associates in the well-known monumental study of the American soldier in
World War II (The American Soldier, Vol. 1, Adjustment During Army Life;
Princeton, N.J.: Princeton University Press, 1949). See below note 9, p. 552.
For a development of the concept in its narrowerand more useful mean-
ing, see W. G. Runciman, Relative Deprivation and Social Justice (London:
Routledge and Kegan Paul, 1966). The wider meaning, which practically
equates relative deprivation with any form of discontent, is extensively used
in Ted Robert Gurr, Why Men Rebel (Princeton, N.J.: Princeton University
Press, 1970).
5. See Ch. 7 entitled "The Fear of Envy" in George M. Foster, Tzin-
tzuntzan: Mexican Peasants in a Changing World (Boston: Little, Brown,
1967); also Frank Cancian, Economics and Prestige in a Maya Community
(Cambridge, Mass.: Harvard University Press, 1963), p. 135 and passim.
6. See, however, note 6, p. 557.

as a confirmation that bettertimesare underway forme also. This

is close to the situationin countriesthat experiencea vigoroussurge
of development.
As long as the tunnel effectlasts, everybodyfeels better off,
both those who have becomericher7 and those who have not. It is
thereforeconceivablethat some uneven distributionof the new in-
comes generatedby growthwill be preferredto an egalitarian dis-
tributionby all membersof the society.8 In this eventuality,the
increase in income inequality would not only be politically toler-
able; it would also be outrightdesirable fromthe point of view of
social welfare.
II. SOME EVIDENCE
But this possible consequenceof the tunneleffectis a theoreti-

cal curiosum,whereasthe effectitselfdefinitelyis not. In a number
of countriesits reality has impresseditself on careful observers.
Interestingly enough,it was oftenstumbledupon by researcherswho
were lookingforthe oppositephenomenon,such as seethingdiscon-
tent and revolutionaryfervoramongthe urban poor, and were sur-
prisedand sometimesnot a littledisappointedat what theyactually
found.
The followingcommentson a sample surveycarriedout over a
decade ago in the favelas of Rio de Janeiroare a firstcase in point:
One way of testing the favelado's sense of sharing in what goes on in the
nation is to ascertain the extent to which he perceives national economic
growth as producing real gains to himself. When asked in February of 1961
whether things had improved, had remained about the same, or had become
worse for him during the last five years, nearly one out of two favelados re-
plied that his present situation is worse. Another three out of ten found that
their situation remained much the same. . . . The general sensation that things
have not improved noticeably for themselves has not created any great disillu-
sion among favelados with the idea of industrialization as a road to prosperity.
The favelado does not deny that the nation's industrial growth has produced
benefitsfor people like himself; he only states that his own situation has not
changed appreciably. Thus, when asked immediately after the above question
whether the growth of industry had benefited people like themselves, most
answered affirmatively. Their explanation, however, was almost entirely in
terms of the expansion of job opportunities for others-friends, acquaintances,
or simply other Brazilians.9
7. See, however,SectionIII below.

8. See MathematicalAppendixforan explorationof thiscase.
9. FrankBonilla,"Rio's Favelas: The Rural Slum withinthe City,"The
AmericanUniversitiesField StaffReportsService,Vol. VIII, No. 3, New York,
1961,pp. 8-9.

Writingalso in the early sixties, a well-knownMexican political

scientistcoined the term "hope factor" to explain what by then
amountedto an astonishinglylong record of political stability in
his country.' Even after this record had been shattered by the
eventsof 1968 and the Tlatelolco massacre,anotherobserverwrote:
Even though the perspectives of individual advance are limited, there is
one reason for which one finds less disappointment with the development pro-
cess among lower-class persons of all sectors than might be expected. With
education spreading rapidly and with migration on the increase, there are a
number of relatively easy ways of achieving personal advance. Thus even
when an individual has been unable to get a new job or in general has not
improved his income or position, it is nevertheless probable that he knows one
or several persons who have been successful in these respects. . .
The contrastbetweenthe objective situation of low incomes,

poor workingconditions,and generaldeprivation,on the one hand,
and the subjective mood of hopefulness,on the other,were also
foundto be characteristicof the Puerto Rico of the late fifties:
We suggest that Puerto Ricans feel far better offthan the objective facts
of incomes, education and occupations show. . . . Puerto Ricans perceive the
existing marked inequalities. Yet they do not feel particularly depreciated by
them, and certainly not overwhelmed by them; indeed, on some counts, their
views of life and how good it is have often seemed to ignore the obj ective
situation . . . on every visible count, these people at all levels are full of
hopes for the future.'
In an article dealing with the continentas a whole, two Latin

Americansociologistscatchthe essenceofthese situationsby assert-
ing that ". . . the patternsof deferredsocial mobility,even though
somewhatmythical,are nonethelesseffective." 4
Finally, we shall quote some revealingpersonalremarksabout

the general atmosphereof countrieswhere mid-twentieth-century
style,capitalistdevelopmentsuddenly"brokecut." They come from
an Americananthropologistwho reminiscesabout her stay in Ven-
ezuela, in an article in which she gives a sympatheticaccount of a
recenttripto Cuba:
1. Pablo Gonza'lez Casanova, La democracia en Mexico (Mexico: Era,
1965, popular edition), p. 133.
2. David Barkin, "La persistencia de la pobreza en Mexico: un ana'lisis
economic estructural," Comercio Exterio, Banco Nacional de Comercio Ex-
terior, Mexico, Aug. 1971, p. 673 (my translation and italics).
3. Melvin M. Tumin with Arnold Feldman, Social Class and Social
Change in Puerto Rico (Princeton, N.J.: Princeton University Press, 1961),
pp. 165-66.
4. Fernando Henrique Cardoso and Jorge Luis Reyna, "Industrialization,
Occupational Structure, and Social Stratification in Latin America," in Cole
Blasier, ed., Constructive Change in Latin America (Pittsburgh: University of
Pittsburgh Press, 1968), p. 51.

I thought about what I had seen in Cuba, and about Venezuela, and
about my own country.... I thought about how when I went to Venezuela,
I felt that for the firsttime I realized something about my own country which
I had not previously seen there: the idealism which is inherent in what I had
experienced [in the United States] as materialism and individual self-seeking.
I saw that for Venezuelans, for whom economic development had just begun
... the democratizing of material consumption and the opening up of oppor-
tunities-for those able to seize them-was a truly exciting and liberating
idea.5
This passage is of particularinterest,first,because it sensitively

rendersthe feelingof the early exuberantphase of development
duringwhich the tunnel effectoperates; and, secondly,because it
illustratesat the same time the considerablereluctanceof social-
justice-mindedintellectualsto perceivethe effect-it just goes too
much against the grain of any but the most honestto speak of this
deplorable "false consciousness"or of that vulgar frontieratmo-
sphere as an "excitingand liberatingidea"! Moreover,social sci-
entistslive in an intenselycompetitiveatmospherein which envy
and "relative deprivation"are far more prevalentthan hopefulness
caused by someone else's advance; and although one hesitates to
make these ad hominespoints,they may help explain why the tun-
nel effect,thoughwidely noted, has not been dealt with in a sys-
tematicway in eithereconomicor sociologicaltheory.
III. CONSEQUENCES FOR INTEGRATION AND REVOLUTION
A briefdigressionis in order. The various descriptionsof the

"hope factor"reportedin the previoussectionstronglysuggestthat
the subject of this paper shades over into a topic familiarto po-
litical sociologists:the effectof social mobilityon political stability
and social integration.This relationshiphas usually been examined
fromthe point of view of the reactionsof the socially mobile them-
selves,while our focus has thus far been on those who are left be-
hind. With respectto the upwardlymobile,the economist,with his
touchingsimplicity,would tend to thinkthat there is no problem:
being betteroffthan before,these people are also likely to be more
contentwiththe worldaroundthem. Social historyhas shown,how-
ever,thatmattersare farmorecomplicated:as de Tocqueville already
noted,the upwardlymobile do not necessarilyturn into pillars of
societyall at once,but may on the contrarybe disaffectedand sub-
versive for a considerabletime. The principalreason for this sur-
5. Lisa Peattie, "Cuban Notes," MassachusettsReview (Autumn1969),
673-74.

pricingdevelopmentis the phenomenonof partial and truncated

mobility: the upwardly mobile who may have risen along one of
the dimensionsof social status,such as wealth,findthat a number
of obstacles,rigidities,and discriminatory practicesstill block their
continuedascent, particularlyalong other dimensions,as well as.
theirall-roundacceptance by the traditionalelites,and consequent-
ly they feel that in spite of all theireffortsand achievements,they
are not really "making it." 6 Only as social mobilitycontinuesfor
a longperiod,and the traditionalsystemof stratification is substan-
tially eroded as a result,will the upwardly mobile become fully
integrated-or "coopted."
Discriminationagainstnouveauxrichesby the older elitesis by
no means the only reason for which the upwardlymobile may be
critical of the society in which they live and advance. A more
charitableinterpretation would point to the possibilitythat convic-
tions about social justice, once formed,acquire a life and staying
power of theirown so that they are not necessarilyjettisonedwhen
pressingpersonal problemsof materialwelfarehave been solved-
not,in any way, until aftera decenttime interval.
This dynamic of the socially mobile is thus the reverseof the
one that has been suggestedhere for those who are left behind:
duringa firstand all-roundparadoxical phase, frustration and con-
tinued alienation are the lot of the upward bound,while the non-
mobile derive satisfactionfromthe anticipationthat matters are
bound to improveprettysoon. This earlier conclusionof ours can
be maintained as the nonmobilesee only the improvementin the
fortunesof the mobile and remaintotallyunaware of the new prob-
lems beingencounteredby them. In a second phase theremay then
take place a symmetricalswitch: the upwardlymobile becomeinte-
grated,whereasthe nonmobilelose theirearlierhope of joiningthe
upwardsurgeand turninto enemiesof the existingorder. It is quite
unlikely,however,that the beginningof the second phase will co-
incide forthe two groups. Noncoincidenceof these two changeovers
will obviouslybe the norm. The upwardlymobilemay becomeinte-
grated,while the left-behindones are still experiencingthe tunnel
effect. Alternativelyand more interestingly, the nonmobilemay
experience the turnaroundfrom hopefulnessto disenchantment,
6. For an excellent survey with particular attention to this problem, see
Gino Germani, "Social and Political Consequences of Mobility," in N. Smelser
and S. M. Lipset, eds., Social Structureand Mobilityin Development(Chi-
cago: Aldine, 1966), pp. 371 ff. It is also possible, of course, that aspirations,
once aroused, will outrun achievements, but this explanation of the discontent
of the upwardly mobile is far less convincing than the one mentioned in the
text.

while the mobile are still disaffected.This last situation clearly

containsmuchpotentialforsocial upheaval. Its possible occurrence
mighteven qualify as a theoryof revolution.7At this point,how-
ever,I shall abandon the matterto the historiansforI mustreturn
to the tunneleffectand its reversal.
IV. FROM GRATIFICATION TO INDIGNATION
As was pointedout,gratification at the advances of othersarises

underthe tunneleffectnot frombenevolenceor altruism,but strictly
froman expectationalcalculus: I expect that my turnto move will
soon come. Nonrealization of the expectationwill at some point
result in my "becoming furious,"that is, in my turninginto an
enemy of the established order. This change from supporterto
enemycomes about purelyas a result of the passage of time- no
particularoutwardeventsets offthis dramaticturnaround.In this
respect,the theoryof social conflicthere proposed is quite distinct
fromthe "J-curve"hypothesis,which attributesrevolutionaryout-
breaksto a sudden downturnin economicperformancecomingafter
a longupswing.8Such a downturnno doubt increasesthe likelihood
of commotion,but it is by no means indispensable. Providential
and tremendously helpfulas the tunneleffectis in one respect (be-
cause it accommodatesthe inequalitiesalmost inevitablyarisingin
the course of development),it is also treacherous: the rulers are
not necessarilygiven any advance notice about its decay and ex-
haustion,that is, about the time at which they oughtto be on the
lookout for a drastically differentclimate of public and popular
opinion; on the contrary,they are lulled into complacencyby the
easy early stage when everybodyseems to be enjoying the very
processthat will later be vehementlydenouncedand damned as one
consistingessentiallyin "the rich becomingricher."9
7. It comes close to satisfyingthe criterion the French historian Ernest
Labrousse has suggested for the arising of revolutionary situations: namely,
that "the vast majority of the country is united in a total rejection of existing
society and of the reigningorder of things." Richard Cobb, A Second Identity:
Essays on France and on French History (London: Oxford University Press,
1969), pp. 272-73.
8. James C. Davies, "Toward a Theory of Revolution," American Socio-
logical Review, XXVII (Feb. 1962), 5-19.
9. It is tempting to suggest a reinterpretation,along the foregoing lines,
of the famous and paradoxical findings about the morale in the American
armed forces during World War II. While wartime promotions had of course
been much more prevalent in the Air Corps than in the Military Police, the
survey conducted by Stoufferand his associates found more frustrationover
promotions in the formerthan in the latter. This findinghas been the origin
and one of the mainstays of the theory of relative deprivation. The study

Semantic inventionsand inversionsare perhaps the best por-

tentsof the turnaround.To give an example: in the fiftiesthe term
"pole de croissance" (growthpole), coined by FrangoisPerroux,was
widelyused forthe growingindustrializingcities of the developing
countries. At some point duringthe next decade, this expression,
which suggestedirradiationof growth,gave way to a new term,
"internalcolonialism,"whichwas now said to be practicedby these
same cities with regardto theirzones of economicinfluence.
V. THE TUNNEL EFFECT: SOCIAL, HISTORICAL,

CULTURAL, AND INSTITUTIONAL DETERMINANTS OF ITS STRENGTH
In what kind of societiesdoes the tunneleffectarise and gather

strength?What are the conditionsunder which it will last for a
substantialtime period or, on the contrary,decay rapidly and turn
intothe opposite,namelydisappointment, alienation,and outrageat
social injustice? Answeringthis questionis crucial forbringingour
hypothesisdown to earth and for ascertainingits empirical and
heuristicusefulness.
For the tunneleffectto be strong(or even to exist), the group
that does not advance must be able to empathize,at least for a
while, with the group that does. In other words, the two groups
must not be divided by barriersthat are or are felt as impassable.
Thus, the fluidityor rigidityof class lines will have an obvious
bearingon the intensityof the tunneleffect.
But stratificationaccordingto social class is a distinctionof
limited usefulness for our purpose. However unevenly economic
growthproceeds,any strongadvance is likelyto mean gains or new
and betterjobs formembersof several different classes. One might
thereforeconclude that the tunnel effectwill always come into
being as, within each social class, those who are not advancing
empathizeinitiallywiththose who are. But this need not happen if
argued that Air Corps promotions, though frequent in comparison with those
in the other branches, lagged in relation to expectations and aspirations
aroused within the Corps by the actual promotions of those who made rapid
careers. While other social scientists have later proposed differentexplana-
tions, not enough attention has perhaps been devoted to the time dimension.
The survey was taken rather late in the war, in 1944. Is it not likely that if a
similar survey had been taken earlier, the findingwould have confirmedthe
common-sense expectation that promotion morale was higher in the Air Corps
than in the Military Police? Early in the war the rapid advances of some
most probably reinforcedmorale in line with the tunnel effect; only later on,
as the various members of the Air Corps reached their level and failed to
achieve quite what they had been led to expect, did frustrationtake over. See
S. A. Stoufferet al., op. cit., pp. 250 ff.

each class is composedof ethnicor religiousgroupsthat are differ-

entiallyinvolvedin the growthprocess.Hence, the contrastbetween
fairlyunitaryand highlysegmentedsocietiesis particularlyrelevant
forour topic. If, in segmentedsocieties,economicadvance becomes
identifiedwith one particularethnicor language groupor with the
membersof one particular religionor region,then those who are
leftout and behindare unlikelyto experiencethe tunneleffect:they
will be convincedalmost fromthe start of the processthat the ad-
vancing group is achieving an unfair exploitativeadvantage over
them. The nonmobilegroupmay thus make the predictionopposite
to that impliedin the tunneleffect:as a result of anothergroup's
advance, it will expect to be worse off. The possibilityof this re-
action will be discussedin the nextsection. In any event,it appears
that highlysegmentedsocietieswill or should eschew strategiesof
developmentthat are politically feasible elsewherebecause of the
availability of the tunneleffect.
More concretely,the capitalistroad to developmentappears to
be particularlyill-suitedforhighlysegmentedsocieties; if it is fol-
lowed there,it will requirea far greaterdegree of coercionthan it
did in the fairlyunitarycountriesin which capitalist development
scored its historicsuccesses. On the other hand, rejection of the
capitalist road does not yield a ready proven alternative,for the
centralizeddecision makingtypical of socialist systemsis unlikely
to functionat all well in segmentedsocieties.'
A variant of a segmentedsociety in which economicprogress
becomes largely identifiedwith one domesticsegmentis a society
wheremost emergingeconomicopportunitiesare created or seized
by foreigners.Once again, the tunneleffectwill not prosperin such
a situation. The greaterthe role of foreigncapital and of foreign
skilledpersonnelin the developmentprocess,the less expectationof
eventual participationin it will there be on the part of the local
population,includinglarge parts.of the local elites. Hence, toler-
ance forthe emerginginequalities of income will be low, and the
need for coercionto maintain social and political stability corre-
spondinglyhigh,even at an early stage of the process.
In passably homogeneoussocietieswhereresourcesare largely
owned domestically,the toleranceforeconomicinequalitiesmay be
quite large as no language,ethnic,or otherbarrierkeeps those who
are left behind fromempathizingwith those who are "making it."
1. For a detailed argument, see the case study of centralized vs. decen-
tralized decision making in a segmented society (rail vs. road in Nigeria) in
my DevelopmentProjectsObserved(Washington, D.C.: Brookings, 1967), pp.
139-48.

It seemsthat,once again, "to him who hath shall be given,"forthe

countrythat enjoys the manifold advantages of a nonsegmented
citizenrygains therebythe additional latitude of being able to de-
velop withouthaving to impose the serious and perhaps crippling
constraintsarisingfromthe need to make all portionsof the com-
munityadvance at a roughlyeven pace.
On the otherhand, the greatertolerance of these more homo-
geneous countriesfor inequality has a real and possibly fearful
price. As we know,the greaterthe tolerance,the greateris the scope
forthe reversalthat comes once the tunneleffectwears off(unless
the inequalitiesare correctedin time). In this fashiona somewhat
counterintuitive conclusionis reached: the more homogeneousthe
country,the more prone will it be to violent social conflictin the
course of developmentunless its leadershipis uncommonlypercep-
tive and able.2 Once again I must leave it to the historiansto
ascertainwhetherany empiricalsense can be made out of thispurely
deductiveproposition;it mightbe mentioned,however,that part of
the evidence favoringthe hypothesiscould come not fromactual
revolution,or similar civil strife,but fromprotractedlower class
alienationsuch as is foundin Argentina,France, and Italy.
National homogeneityis ordinarilydefinedin terms of static
characteristicssuch as unityof race, language,and religion.But the
mosteffectivehomogenizingagent is perhaps an intensivehistorical
experiencethat has been shared by all membersof a group. Wars
and revolutionstypicallycan be frequentlysuch experiences,and the
tunneleffectis thereforeat its mostpotentin postwarand postrevo-
lutionarysocieties.The resultcan be an irony-ladenhistoricalcycle:
revolutionsare oftenmade to eradicate a certainkind of inequality,
but aftersuch a revolutionand because of it, societywill have ac-
quired a specially high tolerance for new inequalities if and when
theyarise. A particularlyapt illustrationis the Mexican Revolution
and its subsequent"betrayal" throughthe sharplyuneven develop-
ment of recentdecades. Similarly,the egalitarianor, rather,"born
equal" heritageof the United States - the collectiveleaving behind
2. This point is similar to one that can be made about the economic
consequences of the size of countries. While the literature of economic devel-
opment has-quite properly-stressed the advantages of size, particularly in
connection with, import-substitutingindustrialization, large size also means
that it is possible for a large backward region to fall cumulatively and hope-
lessly behind-as the progressive region absorbs for a long time virtually all
of the country's industrial growth and develops a modern agriculture to boot.
So wide, protracted,and dangerous a cleavage cannot arise as easily in a small
country, as, under most circumstances, economic growth there either has to
spill over to the poorer regions or will come to a halt.
3. This important point was suggested to me by Katherine Auspitz.

of Europe with its feudal shackles and class conflicts

- may have
set the stage for the prolongedacceptance by Americansociety of
huge economicdisparities.
The moreor less unitarycharacterof a countryis probablythe
most importantsingle criterionfor appraising the likely strength
and durationof the tunneleffect.But otherdistinctionsare of in-
terest. It can be argued, for example,that the strengthof family
bonds has a direct bearing on these matters. In many cases, the
advances of otherswill generatehope not so much for oneself as
forone's children.The predictionthat my childrenwill have a bet-
ter lifethan I did shouldimprovemy own welfarein any event,but
it will do so withparticularforceif I expectmy grown-upchildren
to be livingwithme, to share in the expensesof the household,and
eventuallyto supportme in my old age. From this point of view,
then,traditionalfamilyarrangementsfacilitatethe operationof the
tunnel effectand turn out to have some development-promoting
potential.4
Provided it is not highly segmented,"traditional" society is
generallyin a betterpositionthan its moderncounterpartto take
advantage of the tunnel effect. Members of traditional societies
are typicallytied to each otherby a dense networkof obligations
that are both mutual and flexible:it is none too clear what it is
that is owed nor when it falls due. Hence, when some membersof
such a society advance, their obligations are apt to expand, and
many of those who remain behind expect to be benefitedin due
course and in some measure as a result of theirpre-existing,if im-
precise,claims on the former.La Rochefoucauldnoted this effect
in a maxim that in general is as fine a formulationof the tunnel
effectas I have come across: "The immediate feelingof joy we
experiencewhen our friendsmeet with luck . . . is an effect. . .
of our hope to be lucky in turn or to gain some advantage from
theirgood fortune."5
4. For other arguments along this line, see my A Bias for Hope: Essays
on Development and Latin America (New Haven: Yale University Press,
1971), Ch. 14. The proposition about family arrangementsthat is put forward
in the text is a special case of a more general proposition: the tunnel effect
will be the stronger,the weaker is the time preferencefor present over future
income, i.e., the lower is the discount rate. The Mathematical Appendix shows
that the discount rate enters explicitly into the expression relating changes in
B's income to A's utility. This is intuitively obvious: even a very strong posi-
tive effect of B's income increase on A's expected income will make little
differenceto A's present utility if A attaches a steep discount rate to his ex-
pected income.
5. Maximes, 582. The phenomenon in reverse was pointed out at about
the same time by Thomas Hobbes: "Griefe, for the Calamity of another, is
PITTY; and ariseth from the imagination that the like calamity may befall

Next, a distinctionmay be made betweenvarious "theoriesof

success" that typicallyprevail in differentsocietiesor cultures. If
individual advances are attributedprimarilyto chance,the success
of otherswill occasion the tunnel effect;for the next time fortune
strikes,I may well be the lucky one. Hence, the belief that the
world is governedby chance, ordinarilyconsideredso harmfulto
sustained development,has somethingto recommenditself to the
extentthat the tunnel effectis considereda valuable, if somewhat
volatile,resourceforan economyattemptingto achieve growth.If,
on the otherhand, success of othersis likely to be attributedfrom
the outsetto nepotism,favoritism,or similarunfairpractices,then
therewill hardlybe any initial feelingof anticipatorygratification
amongthose who are not participatingin the divisionof the spoils.
It is also conceivable,thoughperhapsnot verylikely,that suc-
cess of othersis attributedto theirsuperiormeritand qualities such
as hard work. Those who are leftout would thenblame only them-
selves for their lack of advance. They could, as a result, either
simply deferto the more successfulmembersof their community,
or they mightenvy them for being more richlyendowed,or they
could try to emulate them by redoublingtheir own effort.In this
case, therefore,the result would be ratherindeterminate,and one
needs more information.6
himselfe; . . . thereforefor Calamity arriving from great wickedness, the best
men have the least Pitty; and for the same Calamity, those have least Pitty,
that-think themselves least obnoxious E = exposed] to the same." Leviathanz,
Part I, Ch. 6. La Rochefoucauld and Hobbes both came upon these insights
in the course of their search for a rigorous, if unpleasant, science of human
nature. Unpleasantness of findingsalmost became a test of rigor and truth for
them. Naturally enough, it did not occur to them that, in the situations at
hand, self-centerednesshas the virtue of overcoming envy and Schadenfreude,
respectively.
6. Attribution theory, a relatively new branch of social psychology, has
attempted to throw light on this area of human behavior. Experiments have
been devised to study the extent to which onlookers pin the blame for acci-
dents on those who have been involved rather than on ill fate. Apparently
the onlooker typically resorts to what has been called "defensive attribution":
he looks for some good reason why the accident is one of the involved parties'
own peculiar fault so as to gain the assurance that the mishap could not pos-
sibly happen to himself. (Only if no such good reason can be found, if in
other words the person who might be blamed is and behaves very much like
the onlooker, then and only then will the latter tend to exonerate the former
and blame fate instead.) On the other hand, if another person, rather than
being involved in an accident, experiences a lucky break, the onlooker will
tend to credit chance rather than merit, thereby gaining some hope that a
similar lucky break is in store for him. Besides being unflatteringto human
nature, these findingsintroduce an asymmetryinto the operation of the tunnel
effect: it will be strongerin the forwardthan in the backward direction; that
is, the expectation to share eventually in the advances of others will be more
pronounced than the expectation to follow them in their setbacks. For an
experimental confirmation of this asymmetry and for references to other
research in this area, see Jerry I. Shaw and Paul Skolnick, "Attribution of

A furtherpossibilityis that the success of othersis attributed

not to their qualities, but to their defects. One oftenrationalizes
his own failureto do as well as othersin the followingterms: "I
would not want to get ahead by stoopingto his (ruthless,unprin-
cipled,servile,etc.) conduct." This sort of attributionof success is
not too dissimilar,in its consequencesforthe tunneleffect,fromthe
one that concentrateson the merits of those who have risen. It
makes it possible,of course,forthosewho are not advancingto rest
contentwith their own station in life. But it could also happen
that the next time around they will change theirconductand be a
bit more ruthless,unprincipled,servile,etc., than hitherto.To the
extentthat it is easier to be servile and unprincipledthan gifted
and hardworking,attributionof success of others to their faults
ratherthan to theirqualities may actually facilitatethe operation
of the tunneleffect.
A distinctionrelated to these theories of success is based
on the various organizationalways in which individual advances
are perceivedto come about. Such perceptionsdepend fundamen-
tally on the decision-makingsystem. If decision making is per-
ceived to be largely decentralized,individual advances are likely
to be attributedto chance,or possiblyto merit (or demerit). When
decision makingis knownto be centralized,such advances will be
attributedto unfair favoritismor, again, to merit. To the extent
that meritis not a likelyattribution,decentralizeddecisionmaking,
whichpermitssuccess.of othersto be explainedby chance,is there-
foremore conduciveto givingfull play to the tunnel effect.It is
indeed characteristicof market economies. Centralized-decision-
making economicsystemshave come typically into the world be-
cause of excessive inequalities existing in, or arising under, de-
centralizedsystems. It is interestingto note that they will strain
to be more egalitariannot just because they want to, but also be-
cause they have to: centralizationof decision making largely de-
privesthemof the toleranceforinequalitythat is available to more
decentralizedsystems.
Similar considerations apply as a given economic system
evolves in the directionof greatercentralizationor decentralization.
For example,the toleranceforinequalitycan be expectedto decline
when a capitalist economybecomes more oligopolizedand bureau-
cratized. An upsurgein populistsentimenthas usually been attrib-
uted to the greater concentrationof wealth that has sometimes
Responsibility
fora Happy Accident,"Journalof Personalityand Social Psy-
chology,XVIII (1971), 380-83.

been characteristicof such a period. But the toleranceforinequality

may decline even withoutsuch concentration, simplybecause those
who are excluded fromadvances no longerperceive such exclusion
as temporarybad luck, but as an inevitable or even calculated
effectof the "system."
VI. AN ALTERNATIVE REACTION:

APPREHENSION OVER ADVANCES OF OTHERS
It is a basic idea of this essay that changes in the income of

B lead to changesin A's welfarenot only because A's relativeposi-
tion in the income scale has changed,but because changes in B's
fortuneswill affectA's predictionof his own futureincome. The
principal case that has been consideredso far is the tunneleffect:
B advances, and this leads A to predictan improvement in his own
position as well. Mention has also been made of the diametrically
opposite situation: a deteriorationin B's situation leads A to be
apprehensiveabout his own,as is the case in a spreadingdepression.
Is a mixed case conceivable? In otherwords,could A come to feel
under certain circumstancesthat an advance on the part of B is
likely to affecthis own welfarenegatively?7Actually this sort of
predictionis not too farfetched:it is likelyto be made in a society
whose membersare convincedthat they are involvedin a zero-sum
game because resourcesare available in strictlylimited amounts.
This representationof social reality has been called the Image of
LimitedGood by GeorgeFoster,who claims it to be typicalof many
peasant societiesaround the world.8 Assume the Image prevails in
a communityand that,at one point,a numberof its citizens (group
B) improvetheirposition,whilethe incomeof the restof the people
(group A) remainsunchanged. One conclusionto be drawn from
such a developmentwould of coursebe forbothA and B to give up
the Image. But suppose the communityis stronglycommittedto it
as a resultof past experiences:one way of maintainingthe Image
is then to dismisswhat has happened as purelytransitory.And if
the advance of groupB appears to be irreversible,then the Image
can be held on to only by the predictionthat A's fortuneswill soon
sufferdecline.9
7. This questionarose as a resultof Michael Rothschild'smathematical

formulation of the tunneleffect.See-Appendix.
8. Tzintzuntzan,Ch. 6.
9. One reasonforthis predictioncould be A's feelingthat B, as a result
of his increasedwealth,will also acquiremorepower,a good that is generally
acquiredat the expenseof others,and thatthisredistribution
of power,besides

It is in fact possiblethat we have here comeupon a betterway

of accountingforwhat has been describedby Foster and othersas
the "prevalenceof envy" in peasant societies.' It may well be that
whenB advances,this makes A unhappynot because he is envious,
but because he is worried; on the basis of his existingworld view,
he must expectto be worse offin shortorder. In otherwords,A is
unhappynot because of the presenceof relativedeprivation,but be-
cause of the anticipationof absolute deprivation.
The reinterpretation of institutionalizedenvy, which is sug-
gestedhere,can actually be seen to be closely related to the tunnel
effect.In a societywithoutthe experienceof sustained growth,an
initially emergingsituation in which one group of people is im-
provingits economicpositionwhile anothergroupremainsstation-
ary is probably felt as essentiallyunstable: either available re-
sourceshave not increased,and in that case groupA will necessarily
suffera decline to compensatefor B's rise; or some windfall gain
has expandedtotal resources,and in this case groupA will soon get
its propershare of the windfall. Therefore,one or the otherof these
two outcomesis likely to be anticipatedratherthan the continua-
tion of the currentsituation. Which one will be picked as most
likely will of course make a great deal of difference to the course
of social conflictin that society. The decision could oftenbe nar-
rowly balanced, as on a knife'sedge, dependingas it does on A's
perceptionof the causes of B's initial advance. This perceptionwill
dependon the factorsbrieflyreviewedin the precedingsection. But
it now appears that the alternativefor those who are left behind
is not merelybetweenan expectationof sharingin the advances of
othersand the status quo, but betweenexpectationof advance and
anticipationof decline. This situation and the knife-edgecharac-
ter of the decision betweenthese alternativeexpectationsperhaps
explain why the forecastingof social conflictis such hazardous
business.
VII. CONCLUDING REMARKS
The precedingargumentsuggestsa few summarypoints and

concludingremarks.
being in itselfobjectionableto A, will have in time an adverse effecton his
economicposition.Such a feelingis likelyto arise particularlyif B comesto
be substantiallybetteroffthan A. Oskar Morgensternhas pointed to this
situationas one limitationto the doctrineof Pareto optimality.See his
"Pareto Optimumand EconomicOrganization," in NorbertKloten et al., eds.,
Systemeund Methodenin den Wirtschafts- und Sozialwissenschaften(Tubin-
gen: J. C. B. Mohr,1964),p. 578.
1. Tzintzuntzan, pp. 153-55.

1. If growthand equity in income distributionare considered

the two principaleconomictasks facing a country,then these two
tasks can be solved sequentiallyif the countryis well suppliedwith
the tunneleffect.If, because of existingsocial, political,or psycho-
logical structures,the tunneleffectis weak or nonexistent, then the
two tasks will have to be solved simultaneously,a difficult enter-
prise and one that probably requires institutionswholly different
fromthose appropriateto the sequential case.2 To make matters
worse, it may be impossible to tell in advance whethera given
countryis or is not adequately supplied with the tunnel effect:as
was argued in the last section,it is conceivable that only develop-
mentitselfwill tell.
2. On the basis of the distinctionjust made, it is possible to
speak of two kinds of "developmentdisasters." The firstis char-
acteristicof societiesthat have attemptedto develop by means of a
strategyimplyingthe arising of new inequalities or the widening
of old ones; but, in view of their structure,these societies should
never have done so. Nigeria and Pakistan are probably cases in
point. The otherkind of developmentdisaster occurs in countries
in which the above strategyis nicely abetted for a while by the
tunnel effect,but where ruling groups and policy makers fail to
realize that the safetyvalve, which the effectimplies,will cease to
operateaftersometime.This situationhas been increasinglytypical
of a numberof Latin Americancountries:Brazil and Mexico have
already experienceddisasters,and there are numerousportentsof
moreto come.
3. In contrastwith most conventionalrepresentations, the de-
velopmentprocess is here viewed as being exposed to crisis, and
perhaps disaster,even afterlengthyperiods of forwardmovement.
The view hereproposednecessarilyallocates a decisive role to poli-
tics. Its implicationsforthe political evolutionof countrieswhere
the tunneleffectoperatesare obvious. As longas the effectis strong,
the developingcountrywill be relativelyeasy to govern. It may
even exhibita surprisingaptitudefordemocraticforms,which,alas,
2. Politicalscientistshave describedthe difficulties
facingthe new states
of the twentiethcenturyin these terms. Whereas,so they point out, the
countriesof WesternEurope had centuriesto solve, one afterthe other,the
variousproblemsof modernization and nation building-territorialidentity,
authority,massparticipation, etc.- the newnationsare facedwithall of them
at once. See Samuel P. Huntington,Political Order in ChangingSocieties
(New Haven: Yale UniversityPress,1968),Ch. 2; SteinRokkan,"Dimensions
of State Formationand Nation Building,"in CharlesTilly,ed., The Building
of States in WesternEurope (Princeton,N.J.: PrincetonUniversityPress,
forthcoming). Various alternativesequentialpaths are exploredin Dankwart
A. Rustow,A Worldof Nations (Washington:Brookings,1967),Ch. 4.

is likely to be ephemeral; for,after a while the tunnel effectwill

decay and social injusticewill no longergo unperceivedand unre-
sisted. As a firstreaction,the coercivepowersof the state will then
be used to restrictparticipationand to quell protestand subversion.
More constructiveprogramsof respondingto crisisare easy to con-
ceive,but seemto be extraordinarily difficult
to bringintothe world.
MATHEMATICALAPPENDIX
Considera societycomposedof two types of people, labeled A

and B. We assume that utilitiesare interdependent in two distinct
ways. The utilityof people of type A, besides being determinedby
theirown presentincome,YA(t), is affectedby the presentincome
of people of type B, Y-B(t), and by their expected futureincome,
EA(t) which depends on B's presentincome,among other things.3
Hence we write
(1) UA (t) =V(YA (t), YB (t), EA (t)).
It is natural to assume that A's utilityincreases with his present
and futureincomeor that4
(2) VI>O; V3>O.
The effectof B's incomeon A's utilityis morecomplex. A evaluates
it in two ways - first,accordingto whetherB's success (or failure)
consideredby itselfpleases or displeaseshim and, second,depending
on what he thinksB's fate portendsfor him. Thus,
(3) aUA(t) = DE (t)
DYB(t) aYB(t)
In this expressionV2 is the pure effectof compassionor envy and
V3aEA (t)/ YB(t) reflectsA's concernforB's income as an indica-
tion of his own futureprospects.
The text of this paper focusedon the second termof (3). The
firstpart of this term is essentiallythe rate at which A discounts
futureincome.5 The second part of the term,DEA (t) /a YB (t), has
not been well studied. It is determinedby the methodthat A uses
3. Symmetryand completenesswould demandthat EB(t), predictedfu-
tureincomeof people of typeB, be an argumentof A's utilityfunction.Rigor
would requirerecognizing that the expectationsof futureincome,whichwill
occurover severalperiods,cannotalwaysbe faithfully representedby a single
number.These (and other)finepointswillbe ignoredhere.
4. Subscriptsdenotepartialdifferentiation.
5. From thisobservationit followsimmediatelythat the greaterthe dis-
countrate,the greaterthe tunneleffect, as observedon p. 556,note 4 of the
text.

to formexpectationsof his futureincome. Neitherformaleconomic

theorynor the weightof historicaland econometricevidence indi-
cates that there is any one preferredway to model the complex
processesthat people use to formexpectations.We are thus freeto
speculate on the implicationsof differentplausible specifications.
Not only is the formof the expectationsfunctionnot clearly pre-
scribed,but also the signs of its firstpartial derivativescan con-
ceivablybe eitherpositiveor negative.If the tunneleffectis present,
DEA(t)/DYB will be positive. But A could also feelthat an increase
in B's income does not augur well for him. In that case DEA (t)/
DYB(t) <0, and possibly aUA(t)/aYB(t) <0, even though A is a
perfectlydecentbenevolentfellow (V2>0). Conversely,if A is sub-
ject to the tunneleffectbut is mean spirited,thenhis hopes of future
good fortunemay swamp his envy. That is, it is quite conceivable
that aUA (t) /DYB(t) should be positiveeven thoughV2 is negative.
The rest of this appendix consistsof explicitmodels of possi-
bilitiesmentionedin the text. First,we give an exampleof a society
in which everyoneis made "betteroff"by an unequal distribution
of income. Then we show how an initial tolerance for income in-
equality may be reversedif the benefitsof economicgrowthare not
distributedequally.
1. PreferencesforInequality
Suppose that the utilityfunctionin (1) is linear,
(4) V(YA(t), YB(t), EA(t)) =
a1yA (t) +a2Y B (t) +a3EB (t),
and that A formsexpectationsby averaginghis income with B's,6
so that
(5) EA(t) = XYA(t) + (l-A YB (t).
Societyis composedof individualsof type A and type B in the ratio
of N to 1. A sum of moneyis to be distributedamongthe populace.
For political or administrativereasons,all people of each type must
be treated exactly alike. Let us compare the utility accruing to
personsof type A froma dollar spent on each of them,
aV
(6) DyA (t) =a?+a3X,
to that fromthe same N dollars spenton B,
6. Those who object to thesesimpleformsare invitedto thinkof them

as approximations to whateverfunctional formstheyfindmoreplausible.Since
the analysisis explicitlymarginalthis is appropriate.To the objectionthat
the weightsaccordedYA(t) and YP(t) need not sum to one,it shouldbe noted
that any deviationfromunityis absorbedin the parametera3.

Dv
(7) NDV - =N(a+a3(1-X)
D Y.B (t)
If we presumethat a2 =0, or that people of type A are indifferent
to the well-beingof B, then (7) becomes
DY
N YB (t) =Na3 (l
whichwill exceed (6) whenever
(8) N> a +a3X

So far we have not mentionedB's preferences.There is no
reason to suppose that A's preferring that B get additional income
should implythat B will not also be made betteroffby distributions
of incometo himselfthan by distributions to A.7 Suppose B's utility
and expectationsfunctionare of the same linear formas A's. Thus,
if b1 and b3 are the weightsB assigns to the utilityof presentand
expectedfutureincome (b2, the weightgiven to A's income,is pre-
sumed equal to zero for simplicityand symmetry)and u and 1-,u
are the weights accorded B's and A's present income and in B's
predictionof his own futureincome,then B will be made betteroff
if he, ratherthan A, is given additional incomewhenever
1 b b3b.
(9) (+
Nb3(1-14)
If both (8) and (9) hold, everybodywill be happier if the
benefitsof growthare distributednoticeably and unevenly rather
than equitably and imperceptibly.It is clear from(8) and (9) that
this seeminglyodd state of affairsis likely to obtain when N is
large,A small, and u large. That is, the rich must be a relatively
small segmentof the population who themselvesdo not predicate
theirown good fortuneon that of the masses (large N and u). More
crucially,the bulk of the population must findit sufficiently plau-
sible that their fellow citizens' good fortunewill spread to them
(smallx).
It is interestingto speculate when X is likely to be small. A
plausible hypothesisis that people will be confidentthat their
neighbors'good fortunewill spread to them when (i) their neigh-
bors are not obviouslydifferent fromthem and (ii) the inequality
has not persistedforlong. This is, in part,the basis of the assertion
in the text that the tunneleffectis more available to unitarythan
7. We do not considerthe possibilitythat eitherA or B prefersan equal
distributionto one in which A or B gets everything.Linearityprecludes
equalityever beingpreferredto inequality.

segmentedsocietiesand that relyingon it fortoo long may lead to

risingdiscontent,if not disaster. An example of such a reversalis
given in the next sectionin which a more explicitlydynamicmodel
is analyzed.
2. The Reversal fromToleranceforInequality to Intolerance

In this sectionwe discuss an exampleof the sortof processthat
could lead to a developmentdisaster. As developmenttakes place,
all its benefitsare distributedto B whose income grows steadily
while that of A remains constant. Initially A's utilityrises as he
expectsto share in B's bounty. As time goes on and his situation
remainsstationary,he becomesdiscouraged. Eventually his utility
falls. A's utilityfunctionis log-linearso that
(10) V(YA(t), YB(t), EA(t) )=a log YA(t) +3 log YB(t)
+ylog EA(t),
while predictedfutureincomeis a geometricaverage of YA(t) and
yB (t) ,
EA (t) = YA (t) (-(t)) [yB (t) (t))l~

or 8
(11) log EA(t) = (1\(t)) log yA(t)
+- (t) log yB (t).
A's utilityas a functionof yA (t), YB(t), and t may thenbe written
(12) WA(yA(t), YB(t) it) = (a+,y(-(t)) ) log yA (t)
+Q(3+yrI (t)) log yB(t).
We may plot the time profileof A's utility if we know the
course of his income,of B's income,and of -q(t). Suppose that ini-
tially the incomeof A and B is equal,
(13) yA (0) = yB (0) = y,
and that B's income beginsto grow at a constantrate g, while A's
remainsstatic,
(14) yA (t) = y; YB(t) = Yegt.
Suppose furtherthat A initiallyhopes to share in B's good fortune
but growsmore discouragedas time goes on. Symbolicallythis is
ry'(t)<0. A plausible specificationis that
(15) -q(t) = -eht
Substituting(13), (14), and (15) into (12), we findthat A's well-
being at time t is given by
8. Again we have chosen y so that the weightson log YA(t) and log
YB(t) sum to unity.Since we are about to examinehow -q(t), but not 'y,
changesover time,moreis impliedthan a harmlessnormalization.

(16) WA(t) = (a+y(1--e-ht)) log Y

+(p8yqeht) (log Y+gt)
= (a+8/+y) log Y+ (8+yIe ht) gt.
Differentiating(16), we have
(17) WA,(t) = g ( +,yqe-t _ gt(hyqe- kt).
It followsthat
WA' (0) = g (3+Y,/),
whichwill be positivewhenever
(18) B+.yq> O.
Thus, if thereis nottoo muchenvy (-,8 is not too large), A's utility
will rise even thoughhis own income remainsstatic. It is easy to
see that if A is malevolentor indifferent to B's fate ( ---0), then
this state of affairscannot persist. This conclusion follows from
the calculation of the limitingvalue of A's utility. If 8 = 0, then A
eventuallyreturnsto a situation in which he was just as well off
as he was initially,
(lim WA(t) =WA (0));
t->oo
if A is envious,then he eventuallybecomes infinitelymiserable,
(lim WA (t) 0x).
t->oo
If A is made better offby B's good fortune,then his asymptotic
utility is infinite(as he accords a positive weight to B's infinite
utility). However,even in this case it is possible that his fortunes
will suffera temporaryreversal. If /3is not too large and ye not
too small,thenthe equation WA'(t) =0 has a solution,say r. When
that T is reached,A's utilitywill begin to decline. Society's toler-
ance for inequalitywill reverse.
We hope these examplesillustratehow easy it is to incorporate
the tunneleffectinto formalmodels. Many othervariants are pos-
to writedown and analyze models in which
sible. It is not difficult
the strengthof the tunneleffectdepends on the absolute size of B's
incomeor on the gap (absolute or relative) betweenthe incomesof
the two classes. Similarly,models with more than two classes of
individuals are simple to construct. We are aware that the con-
structionof formalmodels of the-contentof a theoryis not equiva-
lentto the detailingoftestableempiricalimplicationsof that theory.
However,it does seem a usefulfirststep.
HARVARDUNIVERSITY
PRINCETON UNIVERSITY


Hirschman & Rothschild (1973) - The Changing Toleranc..

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Hirschman & Rothschild (1973) - The Changing Toleranc..

Uploaded by

Copyright:

Available Formats

The Changing Tolerance for Income Inequality in the Course of Economic Development

Author(s): Albert O. Hirschman and Michael Rothschild

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

WITH A MATHEMATICAL APPENDIX

I. Gratificationover advances of others: the tunnel effectintroduced, 545.

A drastictransvaluationof values is in processin the study of

* A preliminaryversion of this paper was presented as an invited lecture

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

both wherewe were rightand where we went wrong. It will pro-

I. GRATIFICATION OVER ADVANCES OF OTHERS:

I shall start by baldly stating my basic proposition. In the

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

his turnwill come in due course,he will draw gratification fromthe

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

to using jargon, speak unabashedly of the envy caused by isolated

posium on Motivation, 1967 (Lincoln: University of Nebraska Press, 1967),

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

as a confirmation that bettertimesare underway forme also. This

II. SOME EVIDENCE

But this possible consequenceof the tunneleffectis a theoreti-

7. See, however,SectionIII below.

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

Writingalso in the early sixties, a well-knownMexican political

The contrastbetweenthe objective situation of low incomes,

In an article dealing with the continentas a whole, two Latin

Finally, we shall quote some revealingpersonalremarksabout

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

This passage is of particularinterest,first,because it sensitively

III. CONSEQUENCES FOR INTEGRATION AND REVOLUTION

A briefdigressionis in order. The various descriptionsof the

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

pricingdevelopmentis the phenomenonof partial and truncated

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

while the mobile are still disaffected.This last situation clearly

IV. FROM GRATIFICATION TO INDIGNATION

As was pointedout,gratification at the advances of othersarises

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

Semantic inventionsand inversionsare perhaps the best por-

V. THE TUNNEL EFFECT: SOCIAL, HISTORICAL,

In what kind of societiesdoes the tunneleffectarise and gather

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

each class is composedof ethnicor religiousgroupsthat are differ-

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

It seemsthat,once again, "to him who hath shall be given,"forthe

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

of Europe with its feudal shackles and class conflicts

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

Next, a distinctionmay be made betweenvarious "theoriesof

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

A furtherpossibilityis that the success of othersis attributed

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

been characteristicof such a period. But the toleranceforinequality

VI. AN ALTERNATIVE REACTION:

It is a basic idea of this essay that changes in the income of

7. This questionarose as a resultof Michael Rothschild'smathematical

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

It is in fact possiblethat we have here comeupon a betterway

The precedingargumentsuggestsa few summarypoints and

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

1. If growthand equity in income distributionare considered

This content downloaded from 150.108.161.71 on Sat, 21 Sep 2013 01:06:31 AM

is likely to be ephemeral; for,after a while the tunnel effectwill

Considera societycomposedof two types of people, labeled A