[Kaushik Basu] Economic inequality and the erosion of democracy

Korea Herald

4 days ago

There is growing concern about the erosion of democracy and the capture of power by authoritarian figures around the world. This is happening not just by individuals capturing power by force and military coup, but by politicians who come to power by democratic means, that is, by winning elections, and then turn authoritarian, capturing the nation's institutions and damaging freedom of speech and press. The Democracy Report 2025, produced by the V-Dem Institute, the most dependable data source on world democracy shows that the level of democracy for the average person in the world now has dropped to the level seen in 1985, and freedom of speech over the last year has declined in 44 countries. By their calculation, the world now has 88 democracies and 91 autocracies.
The capture of power by autocrats in so many countries is tragic news for the common person, because this means an erosion of the common person's power -- economic and political -- and the loss of voice of the masses. After so many decades of progress, why is the world turning back on democracy?
For such a major political and social change, the underlying factors will be complex, and there will no doubt be a lot of writing and analysis. However, I have a hypothesis that I want to share with the reader. My conjecture is that the core answer lies in economics. It is the high level of economic inequality that is causing the democratic backsliding.
Global inequality has been high for a long time but there is a new dimension to this in today's world of digital connectivity, social media and online platforms. In the past, the super-rich did have more houses, cars, yachts and maybe even airplanes. In today's digitally-advanced world the super-rich have all that but, in addition, they can control platforms and exert influence in ways that they could not earlier. Anthropologists have written about how, in village meetings, when the rich landlord walks in, ordinary village people who were earlier voicing their opinions, go silent. With the world linked up digitally, this is now happening at a global level. Ordinary people are losing their voice with a handful of billioinaires controlling most of the levers of influence.
There are studies that reveal a clear connection between economic inequality and democracy. A recent paper by Eli Rau and Susan Stokes, published in PNAS 2025, using large-scale cross-national data finds that economic inequality is one of the strongest predictors of the erosion of democracy. They do their analysis using Gini coefficient as the measure of inequality.
In economics there are different ways of measuring inequality. The Gini coefficient is an average measure of inequality across the whole population. A different kind of measure is to take the gap between the average income of super-rich people, such as the richest 0.1 percent of the population, and the average income of the remainder of the population. Let me call this the 'inequality gap'. My expectation is that the inequality gap will have an even higher correlation with the erosion of democracy, since this measure captures the power of the few richest people to grab influence and voice. We are seeing this happen in the United States, and in India, two countries that were known for their strong democratic tradition, but have seen a steady erosion in recent times.
The gap between the ultra rich and the average population has been rising alarmingly in recent times. A PEW Research Center study found that in the US, in 1983, the upper income families had 28 times as much wealth as the lower-income families. By 2016 this ratio rose to the shocking level of 75. A similar worsening is visible between the upper-income families and middle-income families. There is no surprise that a vast majority of people in the US are feeling disenfranchised, which is causing political turmoil.
It is time for civil society across the world to get together and fight for greater equality. This will be good for democracy but even if that did not happen, we have to fight the inequality as something morally wrong in itself. Clearly, the level to which inequality has risen is unacceptable. An OXFAM study published on May 20, 2025, notes that the 10 richest people in the world saw their wealth rise by 365 billion dollars in one year. To put that in perspective, this is four times the total income earned in one year by the entire population of Tanzania -- roughly 66 million people.
Clearly, this is unacceptable. Surely, a time will come when our future generations looking back at today will be shocked that we tolerated this level of inequality, in the same way that we are shocked that our ancestors tolerated the practice of slavery.
Those with vested interest try to stop all activism to curb excess inequality by using a host of false analogies. They argue that to take corrective action against inequality is the same as Communism, which clearly failed. They argue that inequality is a reflection of some people's ability to work hard, ignoring the fact much of life's inequality occurs at the time of birth.
I want to acknowledge and emphasize that entrepreneurship and the profit-motive are major drivers of human progress. We must not make the mistake that Communist countries made by nationalizing all productive activity. We must allow the market to function and individuals to make profit, but by having a much higher marginal tax rate for the super-rich we can create a more fair world without damaging enterprise and growth. I discuss this in my book Reason to be Happy (Korean translation by Influential Inc, 2024).
This has been a growing problem for some time. Today, with the world entering a new authoritarian age, with manipulated hatred of marginalized people, of migrants struggling to make a living and survive, and with wealth, voice and power concentrated in a few hands, we need to return to the message of early thinkers from around the world who had called for democracy, equity and justice.