Economic History and Income Inequality Notes

Some Economic History and Income Inequality

  • Background on Economic Change

    • Significant impact of historical economic systems on current income inequality.

    • Work is not contained in traditional texts; be sure to read notes on Amathuba. These notes are essential for examination.

The World in Pre-Industrial Times

  • Characteristics of Pre-Industrial Societies:

    • Predominantly rural with a focus on agriculture.

    • Overall poverty with a lack of modern amenities.

    • Limited transport systems and social mobility.

    • Hierarchical structures prevalent in Europe and Asia, while Southern Africa had different social dynamics.

    • Life expectancy was low, primarily due to high infant mortality rates.

    • Poor understanding of personal hygiene and medicine, where superstition often overshadowed scientific knowledge.

Traditional Economic Systems

  • Economic Structures Before 1750:

    • All systems classified as traditional; characterized by rigidity and a slow pace of change.

    • Economic growth was virtually non-existent.

    • Significant events, like the Black Death, occasionally altered living standards.

The Industrial Revolution

  • Initiation and Impact (c. late 18th century):

    • Initiated major technical advances in England, revolutionizing society.

    • Steam power transitioned away from human and animal labor, impacting mining and textile industries.

    • Displacement of agricultural workers, who moved to cities for factory jobs.

Changes in Social Structure and Economy:

  • Shift in social hierarchy:

    • Emergence of a bourgeoisie (capitalists) versus a working class, leading to declines in aristocracy and increased income inequality.

  • Working Conditions:

    • Extended working hours (12-16 hours, six days a week) with low wages and poor safety standards.

    • Prevalence of child labor and replacement of skilled artisans by machine operators,

    • Luddite riots in response to job loss due to mechanization.Luddites were members of a 19th-century English social movement where workers protested against machine mechanization in the textile industry. They believed that machines threatened skilled labor and livelihoods, leading to riots and the destruction of machinery as acts of resistance against detrimental economic changes.

  • Living Conditions:

    • Urban environments suffered from severe pollution and health crises (cholera, typhoid).

    • Economic theories of the time, such as Malthus claiming that keeping wages low prevented overpopulation.

Gradual Improvements in Labor Rights

  • Legislative Changes:

    • Combination Laws (1799-1800) initially restricted worker organization, repealed in 1824.

    • Key labor laws emerged (e.g., Mines Act 1842, Ten Hours Act 1847) to improve working conditions.

    • Formation of trade unions for better labor rights led to substantial improvements in material conditions by the end of the 19th century.

Changes in Living Standards

  • Concept of “Hockey-stick Growth”:

    • Average living standards historically low before rapid growth post-Industrial Revolution.

    • Higher income disparities emerged with industrialized countries seeing living standards at least ten times higher than pre-industrial levels.

Global Income Inequality

  • Rich countries are rich cuz theyve industrialised , poor countries haven’t

  • Disadavantages of Income inequality in a country - Lack of social cohesion, division, mistrust,high crime

  • Inequality highest in middle income countries , lowest in high income

  • Classification by World Bank:

    • High-income (16% of global population).

    • Upper-middle income (30%).

    • Lower-middle income (38%).

    • Low-income (16%).

  • The Gini Coefficient as a Measure:

    • Ranges from 0 (perfect equality) to 1 (perfect inequality).

    • South Africa's Gini index reported at 0.63, indicating severe income inequality.

Observations on Income Inequality:

  • Southern Africa has among the highest levels of inequality globally, especially in middle-income countries.

  • Simon Kuznets theorized an inverted U-curve relationship between economic growth and income inequality.

The Legacy of Apartheid in South Africa

  • Key Points:

    • Historical inequality due to wealth distribution and education access.

    • High unemployment and labor rights legislation favoring those already employed.

    • Black Economic Empowerment initiatives failing to reduce overall income inequality, creating a black elite without substantial sector-wide benefits.

Influential Economists

Adam Smith (1723-1790):

  • Major Works:

    • "The Wealth of Nations" (1776) discussed the effects of the Industrial Revolution.

    • Proposed the idea of invisible hands benefitting public welfare through self-interest.

    • Emphasized the need for a stable government to support capitalism.

Karl Marx (1818-1883):

  • Major Contributions:

    • Critique of capitalism's role in creating inequalities.

    • Proposed the proletarian revolution and class struggle in producing historical progress.

  • His foundational texts include "The Communist Manifesto" and "Das Kapital":

    • Historical materialism highlighting class division and struggles.

Summary of Main Theories and Outcomes

  • The evolution of economic systems has continued to influence modern socioeconomic structures with varying levels of inequality.

  • Historical perspectives from influential economists provide frameworks for evaluating contemporary economic challenges.