Part Two of a Series
In the age of globalization, the gap between high and low income countries is not only persisting, but in many cases it is widening, as the OECD (Organization for Economic Cooperation and Development) has shown in its study of Luxembourg. While the existence of such a divide is unquestionable, its origins, structure, and consequences are not. Could one, for example, securely say that income gaps lead to conflict? Is it possible to relate intractability to this divide? Rather than answer these thorny questions, this article explores the debate with the aim of identifying its key arguments. But first, it is necessary to clarify some concepts.
Economic Logic and the Development Discourses
William Ury begins explaining his role in trying to prevent a civil war in Venezuela, where the country is extremely polarized between those who support the president and those who oppose him. Like many other countries, it is essentially a conflict between the 'haves' and 'have nots.'
Classical economists have been largely influenced by Kuznet's 1955 postulate that suggests that in the early stages of economic growth in developing countries, inequality will tend to worsen, while at later stages there will be a better distribution of income. Therefore, inequality, as well as poverty, Kuznet argued, could be tackled by efficient economic policy -- in other words, by rational development.
Though Kuznets's hypothesis influenced the study of income distribution for nearly four decades, others had previously established a direct casual relationship between economic development and overall betterment in people's life. This connection gained international political meaning on January 20, 1949, the day President Truman took office. In his Inaugural Address, Truman said:
We must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas. The old imperialism -- exploitation for foreign profit -- has no place in our plans. What we envisage is a program of development based on the concepts of democratic fair dealing.
As Sachs notes, Truman's speech "created" underdevelopment, by attaching a positive meaning to America's political institutions, which were built on "scientific advances and industrial progress." Development, then, could be achieved through science and material progress. The president also pointed out how politics and economics should work together to achieve development through "fair dealing."
For two at least decades, this rationalist view of development informed aid assistance to Third World countries. Underlying these ideas was the Weberian concept of modern (rational, urban, disciplined) versus traditional (superstition, rural, undisciplined). Weber's "spirit of capitalism" defined a life-style that reconciled discipline, diligence, and moderation, a rational hard-working principle necessary to turn "peasants into laborers." The physical distance from the natural environment, and the very nature of non-agricultural activities, would disperse superstition, an essential characteristic of traditional/rural societies. Thus, development thinking rewarded rational behavior, linked to urban entrepreneurship and capitalist development.
It was only at the beginning of the 1970s that this development model was challenged within the circles of classical economics. Robert S. McNamara, then president of the World Bank, questioned the usefulness of economic definitions of development, and opened an avenue for a more humanist way of thinking that emerged later in the decade when the International Labor Office sponsored the "Basic Needs Approach."
Since then, development theories have changed character: they have begun to consider human dimensions involved in economic development, and questioned the real meaning of "development" to the poor. Welfare economists, such as Amartya Sen, have forcefully introduced new concepts, such as human-centered development. The concept of "empowerment" has also become central in the analysis of developing countries, which many prefer to call Less Developed Countries (LDCs).
At the same time, classical economists have proven, with observations from 108 countries, that there is no support for Kusnet's hypothesis that inequality falls as economic development advances. Therefore, there is a growing perception that the main casual relationship between inequality and economic growth is in fact the opposite: inequality is likely to obstruct the rate and quality of economic growth. It is therefore possible that a country could continue its economic development regardless of the inequalities its economy produces. Growth with inequality is an explosive mixture, one in which the very rich and the very poor live side by side in large urban centers. This fuels many forms of social conflict.
By Olympio Barbanti, Jr.
 OECD, Income Distribution in OECD Countries: Evidence from the Luxembourg Income Study (Paris: OECD, 1995).
 S. Kuznets, "Economic Growth and Income Inequality," American Economic Review 45, no. 1(1955): 1-28.
 Harry S. Truman, "Inaugural Address, January 20, 1949," in Documents on American Foreign Relations (Connecticut: Princeton University Press, 1967).
 Wolfgang Sachs, ed., The Development Dictionary -- A Guide to Knowledge as Power (London: Zed Books, 1995).
 Weber M., The Protestant Ethic and the Spirit of Capitalism, (London: Unwin University Press, 1971).
 K. Deininger and L. Squire, "A New Data Set Measuring Income Inequality," World Bank Economic Review 10 (1996): 565-591.
 See international inequality database at http://www.worldbank.org/research/growth/absineq.htm.