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The Link Between Economic Inequality and Democracy

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The study of the relationship between economic inequality and democracy is an increasingly important field as one of the most pertinent problems to emerge for developed democracies in the 21st century is that of rising inequality between the rich and poor. This essay will serve to examine three different studies on this topic with varying specificities before summarizing, correlating, and creating a final critique of the findings. The first two focus on the United States specifically, Stepan and Linz analyze how the US’s unique institutions impact democracy and income inequality while Gilens and Page test which of four theories of democracy is most agreeable to the political reality in the United States especially in the realm of economic actors and interests. The third study by Frederick Solt examines and tests different theories relating economic inequality to political engagement.

In the first article entitled “Comparative Perspectives on the Inequality and the Quality of Democracy in the United States” by Alfred Stephan and Juan Linz the authors seek to reexamine the idea of the US as the “Immanent Democracy” as it emerged in many literary works since 1960 and hone in on institutions to explain their contention. Looking at de-democratization, most generally this process is thought to involve coups or anti-democratic movements. However, especially in the United States, “procedural” examples of this process are more evident. Procedural refers to the de-democratization process that does not challenge the system or its leaders, but rather changes other variables such as conditions of democracy. Examples of this are the changes made in the post-Reconstruction South to suppress African-American turnout in elections, a move that was overwhelmingly effective in de-democratizing the region reducing turnout to 2% by 1912. As it relates to income inequality, de-democratization is often even more subtle. Banks spent much capital to advertise education as cheap in the 1970s to promote loans however subsequently spiked rates on those loans greatly leading to Pell Grants backed by the US Government to cover nearly half as less since that time which is undoubtedly a cause in the US dropping from 1st to 10th in the education level of 25 to 35-year olds since that time. How does income inequality come into play though? The authors point out that income inequality reached a modern low in 1968 following the New Deal and Great Society, but that at .388 it was still relatively high compared to other countries on the well-renowned GINI Index. The numbers have only worsened since now sitting at .486, the 5th worst among developed democracies and 3rd worst after taxes are considered. One principle explanation they pose for this is that the US has the highest number of veto players (4) among the 23 nations that fit the well-developed, advanced economy democracies dataset. The more veto players (malapportioned Senate, power of Senate, Residual powers resting with states, previous features being constitutionally embedded) there are then the harder it is to change the status quo. Most of the 23 nations considered (12/23) actually have just one veto power in large stemming from their parliamentary setups, 8 others have just two. It is in this dimension, that the US faces not an advantage but a huge institutional problem in enacting solutions to income inequality. Examining 3 key factors between the countries with 1-2 veto players and 3-4, the latter nations had a significant larger GINI Index Score (denoting more income inequality) than their counterparts (3.66 to 3.09) and also had 6% and 30% more poverty in elderly and single mother populations respectively. The US is also presented often as having a cultural affront to government intervention though this is challenged by the authors who cite polls showing widespread support for healthcare expansion and support for the elderly and poor even if it means raising taxes. So where then is the disconnect on enacting policy? The most likely explanation is the explosion of registered lobbying firms from 1971 to 1982 growing from 175 to 2445 though also notable is a drastic fall in representation from one of the most working class aligned groups in labor with over a third of workers being affiliated with a union after WW2 now falling to about 7%. A problem clearly presented as well as the cause, the authors then take to challenging a handful of strictly American arguments. One is that the states are 50 laboratories for policy, this they argue simply normalizes inequality given that not one state has achieved better than an average GINI index in the past 30 years. Another is that the inequality that we face is a price for diversity, this is dispelled by the fact that there is less than a 1% difference in diversity in the counties examined as an average compared to the US and yet the inequality persists. They also cite the “American Dream” in which most citizens still believe in unlimited opportunity and upward mobility, however they cite multiple studies that show the US has not only fallen below average in intergenerational mobility but has actually fallen to near last in the case set. Their conclusion is a simple cultural solution in that we must seek to adapt solutions working from other nations and shrug off the “Immanent Democracy” myth that has pervaded for the last half-century.

The second article “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens” penned by Martin Gilens and Benjamin Page looks at four historical theories of what American democracy should be classified as. The four theories are majoritarian electoral democracy, economic-elite domination, majoritarian pluralism, and biased pluralism. Majoritarian electoral democracy is a system whereby the collective will of citizens work towards a compromise, weary of the tyranny of the majority as early scholars like de Tocqueville and Jefferson believed. Economic-elite domination is a system whereby (the protection of) wealth and economic resources are key. Majoritarian pluralism is a system whereby interest groups are formed by the general public that serve the general interest in a respective manner such as the ideals touted by Robert Dahl’s “polyarchy” or James Madison’s “factions in Federalist Paper No. 10.

Finally, biased pluralism is a system whereby interest groups are formed but are not equally as powerful, for example business interests may be stronger than labor due to organization or wealth. In order to test which of these theories is most correct, the authors chose four subsequent “actors” to examine being average citizens, economic elites, mass-based interest groups, and business-based interest groups. Their study examined 1779 policies in opinion polls to find what the average views were on the policies from each actor group and then found the correlation as to whether the desired policy decision was enacted. The results were quite clear in that economic elites were by and far the most correlated group, interests had a strong influence but their correlations especially for mass interest were much weaker. Surprisingly, there was a near-zero correlation to the average citizen’s opinion on any issue. Other conclusions were that the majority does not rule and in a direct battle between the economic elite and public, the elite win almost always. Thus, the US system would be most accurately characterized under the economic elite distinction.

The last article entitled “Economic Inequality and Democratic Political Engagement” by Frederick Solt looked at political engagement in testing three theories on how economic inequality impacts political engagement. The three theories tested in this study were the relative power theory, conflict theory, and resource theory. Relative power theory states that wealth concentration is equal to power concentration therefore the rich will prevail in political conflict with the poor, the rich may even be able to stop basic debate on a subject. This will eventually lead to the poor becoming disinterested in politics which will subsequently lead rich peoples to also avoid politics as their interests will no longer be threatened. Conflict theory states the opposite supposing that inequality will lead the poor to pursue redistributive policies while the rich mobilize to stop it. Thus, the rich and poor will conflict more in countries with higher levels of economic inequality. Resource theory states that the impact will be relative to individual wealth (resources) thus the poor will be less involved in high economic inequality countries while the rich will be more involved. In defining political engagement, the author looks at three subcategories being political interest, political discussion, and electoral participation. The results in this case were sweeping, in every category more economic inequality led to less political engagement with a smaller though recognizable difference in the rich than the poor affirming the notion that the poor lose the will to fight politically thus making the rich less likely to need to defend their interests and thus also decreasing their political engagement as well. This leads Solt to a powerful conclusion, economic inequality directly undermines the basic concept of political equality.

In analyzing these conclusions as a whole, several overarching concepts can be drawn. The first is that economic inequality is a reality in the US and much of the developed world, one that seems to be accelerating exponentially. Secondly, economic inequality clearly leads to disruptions in the democratic process by lowering political engagement and skewing policy outcomes. Thirdly, the US is at a rather significant cultural and institutional disadvantage in combatting these issues as compared to other nations. With that said, each of these studies point to or at very least imply the problem or problems. Interest groups substantially expanding their influence whilst economic inequality exploded (or perhaps because of this) has led to policies which do not benefit the masses, but that hasn’t largely changed the opinion of the masses. It may discourage engagement which can’t be discounted, but fundamentally ideas relating to redistribution or fairer economic practice still pervade even in the US where cultural and historical overtones may discourage it. In terms of solutions, only Stephan and Linz provide a possible framework in that at any point the party in power if led by an effective leader with public interest in mind may sidestep veto players in the Senate and many changes can be made without constitutional interference though this discounts the influence of interest groups and the economic elite in enacting reform policies.

Another factor the authors of these studies could not have measured nor predicted was the rise of populism across the developed western nations. Has this changed the political engagement figures? Will it change policy outcomes? Thusly, one theory I will pose as a critique is that of democratic limits whereby economic inequality breeding political inequality works less in a unified pattern, but rather in a horseshoe shape. To elaborate, the poor will only be suppressed to an extent that they deem “acceptable,” when this threshold is breached trends in engagement will reverse leading to an x amount of changes in policy that will begin to reverse inequality. The rate and magnitude of x changes will depend on a number of factors among them being the level of economic inequality, the political culture, and the point at which populism overtakes the status quo. Eventually, this reversal will end to give way to a period of gradual backsliding as the poor again “accept” levels of economic inequality though it remains to be seen nor will I predict whether this will occur to the same extremes or will instead be confined to a new consensus window. In this theoretical prediction, democracy and more specifically democratic failure are inarguably correlated to economic inequality though results between cases will vary considerably. This theory does not so much oppose the conclusion of studies examined so much as it does predict the outcome of their largely unanimous results.

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