In the early 1950s had Professor Simon Kuznets at Harvard University succeeded in collecting data over revenue in the US from 1913 – the year the US got income – until 1948.
The figures showed that income inequality clearly increased in the first part of the period so to be sharply reduced. As the US gross domestic product rose sharply through these 35 years, the forward cast Kuznets’s eventually known hypothesis that economic growth initially leads to increasing income differences, in turn lead to smaller differences.
The corresponding curve, which reasonable enough named Kuznets curve had shape letter U set upside down. In 1948, the distribution of income in the United States back to the level from 1913.Farmers in the city
An important reason for this development, suggested Kuznets, was that with increasing industrialization and economic growth could American farmers eventually apply for better paid jobs in the cities.
In that as many as one in three Americans of working age were employed in agriculture in the early 1900s, against one of fifty now, there was a large-scale process that was initiated.
In the beginning would reasonably capital owners who took the risk by establishing new enterprises, pulling away with most of the gain, but as the employees were better schooled, also increased wage levels, primarily for those with knowledge and skills that the labor market demand.
Fewer, but more productive farmers, also gave increased profitability in agriculture.
This reasoning – or this model for economic growth – implies a “trickle-down” -syn developments; by new waves of innovations and restructuring the capital owners, who takes the risk at the start, also take most of the growth.
Those who have the relevant skills and knowledge for the new era, will also be well on the development. But gradually comes workers most after and get their share of the pie. With more training and education will wage differentials also reduced.
Someone must get rich first?
About a model has general validity, the developing countries that start up with industrialization, or highly developed industrialized experiencing the digital revolution, not need to worry so much over income distribution in the long term.
By increasing economic growth will have become rich first, but eventually the rest comes after.
was also what China’s leader, Deng Xiaoping, said at the start of China’s modernization process at the end of the 1970s; we must accept that some get rich first.
But this model has general validity? And give it really a good description of what happened with the income in the United States from 1913 and the next 35 years to come?
The answer to both questions is no.
Income disparity in China, which in 1978 were less than those in Norway, is now larger than those in the US. The average Chinese have the better. But those at the top have so unspeakably much better, purely material. The scope of the “trickle-down” has been rather modest.
What applies income in the United States in 35 years Kuznets watched, recent research suggests that the story of less wage inequality in the US business community not struck with particular strength until after the Second World War.
An important reason for that income difference were still less, was that investors lost considerable value through stock market crash in the late 1920s, followed by “The Great Depression” on 1930 century.
It was primarily the differences in income from capital that showed the shape of the letter U set on the head; first increasing and then decreasing.
Fortunes disappeared
For the period 1900 to 1950 has Thomas Piketty, professor at the Paris School of Economics, found figures for revenue and income distribution in France and in addition clearly distinguish between income from work and income from capital.
The picture that emerges for total income equals what Kuznets found for the United States. Initially going economic growth along with increased income inequality, towards the end, the differences smaller. The reason for this is due to the revenue for capital.
Through the 1920s increased wealth for many. But the Depression of the 1930s – and even more the second world war – resulted in many large French fortunes disappeared. Differences in income from capital that had first risen, was now reduced. The large fortunes were wiped out and did not come back in France after the Second World War. The smaller fortunes did it.
What can the explanation be? The establishment of a progressive tax, suggests Professor Piketty.
Wage changed however small. The move from country districts to cities led only that there were fewer poor farmers and more poor industrial workers. Income inequality between lønnsmottagere evolved not in line with the model Kuznets; first increasing differences and then decreasing.
After the second world war established France progressive taxes on both capital and income. Passive rentiers were a dying breed. Nevertheless, economic growth in France reached record levels in the decades that followed 1945. As in the rest of Western Europe. Accumulation of much capital in a few hands was no necessary condition for a rapidly expanding economy.
Kuznets was even aware that his data, which did not distinguish between income from capital and income from work, could not support the model he highlighted. It all reflected “wishful thinking”, as he himself said. Well suited contemporary political situation where it counted to ensure that developing countries found to remedy “within the free world sphere.”
About economic growth based on the capitalist model in the first place would create problems in a more uneven income distribution , one would, based on the Kuznets curve could console themselves with the fact that over time would be less inequality.
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