Democracy, Distribution and the Representation of Economic Interests

Scholars have long debated the so-called Robin Hood paradox: advanced democracies with low levels of inequality tend to redistribute more, while those nations with high levels of inequality redistribute less. In an ideal world, however, the correlation should go the other way, as the most unequal democracies have the greatest need for redistribution. How can we understand this puzzling yet persistent relationship between income inequality and redistribution?

Political scientists Torben Iversen and David Soskice have developed a comprehensive theoretical, historical, and statistical explanation for this phenomenon. The investigators’ novel approach emphasizes the historical co-evolution of political and economic institutions. Their argument points to two crucial factors: a nation’s electoral system and degree of economic coordination. Specifically, they claim, proportional representation promotes Left-leaning governments, distributive equality, and redistribution of wealth. Coordinated capitalism results in similar outcomes by encouraging investment in specific skills and reinforcing support for wage compression and social insurance. The researchers suggest that a strong positive relationship between proportional representation and coordinated capitalism dates back to the late nineteenth century. They argue that today’s more egalitarian democracies—which also have higher levels of redistribution—are those nations that historically had more coordinated economies. These countries also tended to have systems of representation that functioned similarly to contemporary systems of proportional representation. This long-standing coupling of economic coordination and proportional representation, they suggest, produces the observed Robin Hood paradox. Liberal capitalism and majority-rule systems would conversely produce both high levels of inequality and lower rates of redistribution.

Iverson and Soskice will write a book advancing their argument that the relationship between income inequality and redistribution is rooted in the link between coordinated capitalism and proportional electoral systems. The book will take an interdisciplinary approach, drawing on insights from economics, history, political science, and sociology. Iverson and Soskice will make use of historical case studies, statistical analyses, and formal game theory. Until now, the dominant approach to this question has involved power resource theory, which suggests that strong unions are the source of egalitarian wages while governments of the Left are the source of redistribution. Iverson and Soskice, however, will break new ground in this field by going beyond power resource theory to emphasize interactions between economic, political, and social institutions. The book promises to shed important light on inequality, links between economics and political representation, and the origins of democracy itself.