Turning Points versus Bifurcations in the

Inequality Dynamics and Redistributive

Imperatives of Development
Andrew Martin Fischer
Institute of Social Studies,
Erasmus University Rotterdam

Ungku Aziz Development Forum

on Inequality, Kuala Lumpur, 15
January 2020
Broad take away points
Importance of looking beyond space of absolute poverty,
towards the middle 50-60% of income distribution
Especially in contexts of entrenched polarisation: a persisting if
not intensifying feature of income distribution in most
developing countries, distinct from inequality
Generally overlooked in poverty and even inequality analysis
Largely unprotected in most ‘developing countries’; space of
substantial vulnerability, relative poverty, exclusion and
discrimination
Potent Implications
 First, brief foray into theory
An interlude on China
Return to this question of the middle
 Turning point refers to Lewis’ Economic Growth with
Unlimited Supplies of Labour (USL) model
Classical (Ricardian) model and inspired by his reading of 19th century
England, when wages did not rise until the latter part of the century
Capitalist reinvests (= growth) and employs more labour but wage stays
constant until USL dry up – wage determined by ‘subsistence’.
Increasing proportion of the surplus goes to profits/capital rather than
wages/labour = rising functional income inequality
Rising savings rate in the initial phases of industrialisation and capitalist
growth, due to shift in the distribution of the surplus to the saving and
investing classes
Much criticism on USL, etc.
 Seminal structuralist critique by Celso Furtado
Assumption that industrialisation would lead to increasing
homogenisation, wages increase with average levels of productivity.
Polarisation typically observed in labour markets across Latin America
and the Caribbean, which peripheral industrialisation tended to
exacerbate (CEPAL structuralist theorisation, e.g. Prebisch)
Bifurcation: segmented labour markets with distinct norms in the two
(or more) parts, e.g. formal/informal
Bifurcation as such puts into the question the notion of turning points
given that wages start rising in certain segments even whilst labour is
still in surplus (e.g. in the lower segments)
(However, in defence of Lewis, he did suggest this possibility)
‘The Brazilian Model’ (tr. 1973)
Early post-war peripheral industrialisation exacerbates pre-existing
polarised income distribution typical in many post-colonial settings
Industrialisation focuses on advanced industrial products that are biased
towards the consumption of wealthy minority.
Strategy successful in driving growth but dynamism relies on intensity of
transmission of technological progress by MNCs and financial inflows
This dependence leads to financial instability in this system
State also involved in inputs of advanced products (e.g. steel), physical
infrastructure, human capital: subsidy to MNC production.
+ state action to augment consumption of more advanced goods, e.g.:
consumer credit, salaries for skilled labour, regressive fiscal
 More on Role of the State in this Model…
State also involved in suppressing wages despite productivity increases
(workers not consumers of advanced goods)
NB. common in export industries as well
Increase employment compensate for downward pressure on real wages
NB. wage containment was also a strategy in East Asia ‘Tigers’, although
within different dynamic – MNCs practically absent in SK up until 1990s.
Hence, structural tendency to exclude mass of population from the
benefits of accumulation and technological progress
Durability/sustainability relies heavily on capacity of ruling groups to
suppress all forms of opposition
NB. Critical of ISI; advocated radical redistribution
China urban employment 1990-2017 by ownership category, 1000 people
China urban wages/earnings 1995-2018 by selected ownership category
Urban Employment Structure in more peripheral
Urban employment, Tibet Autonomous Region, China
‘Staff and Worker’ employment, TAR, 1980-2014
Beyond absolute poverty and into the middle
Urbanisation, globalisation, commoditisation: other (non-food)
compelling social needs take over in precedence (or else cause
repressed food expenditure)
Development transitions also often exacerbate vulnerability and
compulsions throughout social hierarchies, with powerful effects on
social stratification, subordination, exclusion, grievance or conflict
Inequality measures can mask important exclusionary processes
occurring among middle social strata that might be related to
inequality even if not reflected by inequality statistics
Politically contentious; poverty reduction strategies can exacerbate and
it can in turn undermine strategies predicated on upward mobility
Embed our understanding of poverty, inequality and vulnerability in
notions of structural transformation
Vulnerability as vertically-occurring condition experienced throughout
social hierarchies at all levels
Movements out of poverty generally involve a streamlining of incomes,
which exacerbates vulnerability, insecurity (both Sen and Atkinson made
this point)
Highlights the imperative for more universalistic forms of social security
and social provisioning (and redistribution) as counterparts to these
transformations
Not simply to protect for negative economic events, but also for dealing
with the increasing structural vulnerabilities and mediating transforming
social needs with economic structures