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Faculty of Economics

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Palma, J. G.

Why the Rich Stay Rich. On dysfunctional institutions’ “ability to persist” (no matter what)

CWPE20124

Abstract: This paper returns to the Ricardian tradition of understanding the distribution of income as the outcome of the political articulation of conflict between rentiers, capitalists, bureaucrats and labour -in which history, politics and institutions matter as much (if not more) than economic ‘fundamentals’. Also, in this tradition economic underperformance arises mostly from the shift in distribution from operating profits to rents. The focus is on a key political economy question: why the rich stay rich, no matter what! This confirms the iron law of oligarchies: dysfunctional institutions tend to rebuild. In the case of Latin America, its élites' “ability to persist” relates to the fact that they have been able to enforce a “Southern-style” rule resembling a ‘stationary process’, whereby the unbalancing impact of shocks tends to have only limited life-spans -as oligarchies are able to landscape new scenarios to continue achieving their fairly immutable rent-seeking goals. They have used three main channels: forcing ‘Buchanan’-style constitutional and legal straitjackets to restrict the scope of change; resourcefulness and collective action for reengineering their distributional strategies to suit the new scenarios, and cleverly absorbing elements of opposing ideologies (such as now accepting the need for ‘social protection’) to maintain theirs hegemonic. Their trump cards are ruthlessness in the first, and “jogo de cintura e jeitinho” (fancy footwork) in the other two. The analysis of these channels is the main subject of this paper

Keywords: income distribution, inequality, poverty, Palma ratio, “reverse catching-up”, ideology, Gramsci, Foucault, neo-liberalism, ‘new’ left, institutional persistence, Latin America, Chile, emerging Asia, US, Western Europe

JEL Codes: D31 E12 E22 E24 N16 N36 O50 P16

Author links: Jose Gabriel Palma  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe20124.pdf

Open Access Link: https://doi.org/10.17863/CAM.62839