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Reimar Lüst Lecture 2016: The Political Economy of Income Distribution

One of the central challenges that governments face at any point in time is, how to manage income redistribution. According to Timothy Besley, Professor of Economics and Political Science at the London School of Economics and Political Science (LSE), the way a government encounters this challenge is not only crucial for the well-being of a state’s citizens and for social stability, it also lies at the heart of the idea of building and maintaining an effective government. According to Besley, the relationship between income distribution and politics is reciprocal. Politics not only determine redistribution. Redistribution itself feeds back through different channels into future inequality, while income inequality, alongside other underlying social, political and economic cleavages, influences how successful states can be built and sustained.

Honored with the prestigious Reimar Lüst Lecture on November 11, 2016, at the Max Planck Institute for Tax Law and Public Finance in Munich, Timothy Besley painted a vast global and historical picture of how cohesive polities can be built in the face of society’s cleavages, such as rich vs. poor, old vs. young or an indigenous vs. a migrant population.

Common Interest versus Selective Interest Polities

As Besley argues, the successful development of a state requires institutional solutions to reconcile conflicting interests. He points out that in the 20th century, the development of successful states that are relatively peaceful introduced the defense of property rights, and a wide broad-based approach to redistribution was accompanied by a massive increase in expenditures or, what Besley calls common-interest policies. Contrary to popular conceptions, Besley argues that the shift in focus from selective interest policies that serve mostly those at the pinnacle of the government—as is currently occurring in Latin America—to common interest policies, cannot be accomplished simply by holding democratic elections. It must also be joined by the building of cohesive institutions like courts, parliaments and media that regulate the use of governmental power. These executive constraints are pivotal for the development of a successful state and are the key force behind the creation of cohesive common-interest programs.

The Role of Political Institutions

The concept of state capacity is at the centre of Besley’s considerations, i.e. the institutional capability of the state to carry out various policies that deliver benefits and services to its citizens and affect the level and distribution of income. Besley differentiates between three dimensions of state capacity: fiscal capacity, as the state’s ability to raise revenue from taxes; legal capacity, as the capacity of the state to protect property rights and evolve systems of law enforcement; and collective capacity, as the power to build a framework which allows the state to deliver common interest policies and run broad-based programs for its citizens.

Successful modern states, as Besley demonstrates, have built strong state capacities. But they are currently meeting great challenges, due to new cleavages created by globalization and global mobility. As Besley argues, income inequality is deepening with increasing globalization. But while the world has become a lot more integrated in recent years, almost all effective state capacity has remained at the level of nation states. Despite global interconnections, he sees very little effective scope for supra-national action. Consequently, according to Besley, the major questions to be answered in the future will be which developments in state capacity are needed to meet the new challenges: Can the world build institutions that can manage the diversity? Do we need significant moves beyond the power of nation states? Do we need supra-national institutions? All of these questions led to a lively debate between the prominent audience and the lecturer.

About the Reimar Lüst Lecture

The Reimar Lüst Lecture series was founded by the Max Planck Society in 1998 in honour of the achievements of the astrophysicist, science manager and former president of the Max Planck Society, Reimar Lüst. Each year an internationally distinguished academic is invited to hold a lecture at one of the 83 Max Planck Institutes. Reimar Lüst obtained his PhD in Göttingen in May 1951 under Carl Friedrich von Weizsäcker and received his postdoctoral lecturing qualification for physics at Munich University in 1960. After several research and teaching stays in the USA, Lüst became a Scientific Member at the Max Planck Institute of Physics and Astrophysics and, in 1963, a Director at the Max Planck Institute for Extraterrestrial Physics in Garching. His research achievements at the time laid the foundations for a successful space science in Germany. From 1972 to 1984, Remair Lüst was the President of the Max Planck Society. He subsequently held various positions within science management, including that of the General Director of the European Space Agency (ESA) from 1984 to 1990, and the President of the Alexander von Humboldt Foundation from 1989 to 1999.

About Timothy J. Besley

Timothy Besley is School Professor of Economics and Political Science and W. Arthur Lewis Professor of Development Economics at the London School of Economics and Political Science (LSE). From September 2006 to August 2009, he served as an external member of the Bank of England Monetary Policy Committee and since 2015 has been a member of the UK’s National Infrastructure Commission. He is a fellow of the Econometric Society, the British Academy, and the European Economic Associa-tion. He is also a foreign honorary member of the American Economic Association and of the American Academy of Arts and Sciences. He is the current President of the International Economic Association and served as the President of the European Economic Association in 2010. In 2018, he will serve as the President of the Econometric Society. He was appointed Commander of the Order of the British Empire (CBE) in the 2010 Birthday Honours. Professor Besley is a past co-editor of the American Economic Review, and a 2005 winner of the Yrjö Jahnsson Award of the European Economics Association. His research, mostly focusing on policy, is mainly in the areas of Development Economics, Public Economics and Political Economy.




November, 2016