Covid-19 and Liberalism #3
This is a series of three papers focused on analyzing the impacts of Liberalism on the economy and welfare, at a time when governments are called upon to interfere to maintain lives, jobs, and businesses.
The first and the second papers established a strong and positive relationship between the degree of liberalism and, respectively, per capita income and human development (HDI), considering the 30 largest economies in the world.
The last of these papers will face the biggest challenge: to observe the relationship between liberal ideas and income equality.
As in the first two papers, the Heritage Foundation's Index of Economic Freedom (IEF) will measure the degree of Liberalism. To measure income equality, the most classical index is the Gini Coefficient.
The Gini Coefficient ranges from 0 to 1, and it is expressed in percentage. When it reaches "0", it is a hypothetical situation in which all the residents earn the same remuneration. In the opposite hypothesis, when the index reaches "1", only one resident earns all the disposable income of a country. That is, the higher the index, the more unequal is the country.
The Gini Coefficient is not an index produced regularly by all the countries. For example, the most recent number for the USA is for 2016, while data for France is for 2017. Some countries published their latest index only in 2014. Therefore, the index base is not the same, and the model uses the most recent number available for the world's 30 largest economies.
The results are shown below. In the horizontal axis, the Index of Economic Freedom. The more to the right, the freer the private economic agents. On the vertical axis, the Gini Coefficient, in reverse order. The higher, the more equal the country. The bubble size represents the gross domestic production (GDP).
As at the previous models, it is possible to observe a positive relationship between the variables, but unlike the first papers, the association is not so clear, and the mathematical demonstration is weak.
This is due to two factors.
First, although Brazil and South Africa occupy the low left quadrant, with low economic freedom, and high inequality, the other BRIC economies, China, India, and Russia, perform well in income distribution, according to the Gini Index.
And second, the income distribution of these three countries is better than that of the USA, which does not perform well on the Gini Index.
These two inversions in the logic of the model make it weaker than the previous simulations, but, however, it is possible to verify the strongest point in this analysis so far: the most liberal countries, such as Canada, Netherlands, Germany, South Korea, also achieve a more equal income distribution.
And this phenomenon is particularly interesting because governments are usually called to intervene in the economy to promote a more equal distribution of income. And the model does not suggest this effect, but the exact opposite.
In other words, even if the model is weak to suggest a positive relationship between Liberalism and income distribution, it does not show the opposite, that is, it does not demonstrate that Liberalism is inefficient in promoting equality.
In conclusion, with these efforts, the three studies showed that, considering the world's 30 largest economies, liberalism promotes higher income per capita, greater human development, and is not responsible for the income concentration, and may even facilitate its distribution.
Please, check the other articles clicking in the links below:
Gustavo Bizelli
Economist graduated from Unesp, post-graduated from FGV and specialist in market intelligence from the University of California; partner of Diferencial Market Research consultancy
