Do We Need a Just Economy, or Just a Good One? Inequalities, Economic Freedom and Political Repression, 1975-2015

Some argue that a “good” economy, measured as productivity-enhancing, free market policies, is better than a “just” economy for promoting social harmony. Growth is needed to increase a middle class, but growth may also increase income disparity, creating political instability. We examine this conundrum by estimating the effects of income inequality among individuals (vertical) and political inequality among groups (horizontal) on a measure of political repression. Our results show consistently that economic freedom lowers political repression, an effect that is robust to several tests of causality, including instrumental variables techniques. Comparatively, the effects of both forms of inequality are poor predictors of political repression, their effects are substantively small and not robust to specification and estimating techniques. It seems that people might be less sensitive to inequality when they feel that processes are fair and that they expect their turn to arrive even if they see others moving ahead, the so-called “tunnel effect” identified by Albert Hirschman. Our results do not support the view that economic freedom and free market capitalism drive the dissent-repression nexus as many critical theories expect. In fact, the opposite is true.