Long waves, paradigm shifts, and income distribution, 1929–2010 and afterwards

Abstract

AbstractThe way income is distributed in an economy is perhaps the most notable result of its growth patterns. Understanding the joint persistence of economic crises and changes in social inequality since 1929 is considered a great challenge. This paper tries to analyze growth and income distribution in the long run using the concept of long waves, the evolutionary concept of ‘systems’, and empirical information. We conjecture that the social system is in turn an outcome of the co-evolution of four partially autonomous subdomains: (i) technology, characterized by a paradigm whose evolution follows the shape of a ‘Schumpeterian boom’; (ii) the economy or productive system, essentially defined as the succession of intermediate-length fluctuations in investments, and strongly associated to sectoral and structural changes; (iii) science, which contributes to development by generating innovations; and (iv) institutions, which set the rules in which income distribution is framed. Following this scheme, the data reveal that income distribution is an emerging result from this ‘global social system’ and not only the result of economic productivity and technology; apparently, the weight in the income distribution of institutional factors is as relevant as economic and technological factors. Second, the long-run growth trends are most possibly non-linear and, to great extent, non-deterministic, which would support the representation of long-run phenomena as long waves. Finally, we have found that in the long period 1929–2010 and afterwards, two sub-periods are manifested, with very different regimes of income distribution: (1) 1929–1975, when inequality decreased, and (2) from 1975 to present time, when inequality increased. Concerning the years after 2010, two alternatives follow: either these correspond to the recovery phase of a new long wave, or to the end of the depression phase of our second period. In both cases, we are currently moving towards the expansionary phase of a new long wave, which will have important implications for contemporary economic policies.