Are Market-Based Economies More Equitable?

ARE STRONG MARKET-BASED ECONOMIES more socially equitable? My current research looks at whether the strength of market economies — based on factors such as the robustness of capital and labour markets — relates to income equality and life expectancy in those countries. According to my analysis of current patterns in more than 160 countries, the answer is Yes: On average, a stronger market orientation correlates with both more-even income distribution and greater longevity for people born in that country.

These results stand in the face of recent populist arguments in the U.S. and Europe that are seeking to overturn market-based institutions. At the same time, though, the patterns I have observed highlight limits in market-based institutions and point to a need for more thoughtful social policies as complements to market activity.

Before I discuss the patterns identified in my analysis, it is important to remind ourselves of what every student of statistics learns in their first class: Correlation does not imply causation. As a result, we need to be careful in explaining why market economies might help create more equity. Nonetheless, in this article I will attempt to provide some insights about opportunities for achieving both market-based activity and social equity—while highlighting limits that point to a need for effective social institutions as complements to market activity.

First, let’s consider two measures of social equity. One is the Gini index, which measures the income distribution of a country’s residents. In the Gini index, 0 represents ‘perfect