INTRODUCTION: DEVELOPMENT ENTAILS EQUALIZING OPP ORTUNITIES

A society – even one that has achieved a high level of average income, education and public health outcomes – cannot be considered developed if its ordinary citizens do not believe that life is fair. But what exactly is fairness? However varied, most answers have their root in some notion of equality – equality before the law, equality of representation in politics, and so on. Building upon the work of one of the present authors (Roemer, 1996, 1998) we propose that fairness means that citizens have equal opportunities to achieve their goals. We will define the roles played by choices and circumstances in the origins of inequality and go on to propose metrics for measuring, and policies for achieving, equality of opportunity. We will conclude with a set of recommendations for policymakers.

We consider the goals of citizens as those that prior work in development has identified as important and influential in policy: Individuals seek to achieve a high income, good health, the empowerment afforded by education and other such objectives as measured and reported in past United Nations Development Programme (UNDP) Human Development Reports. We will refer to these goals as the objectives of individuals.

What does it mean for individuals to have equal opportunities to achieve these objectives? We postulate three categories of inputs that determine their success in achieving these objectives. The first set of factors are the individual's choices, which includes the effort she puts in, the decision of which sector to work in, and so on. The second set includes those that we call the individual's circumstances, which are outside her control. This includes all individual-specific factors relevant for success but which the individual did not choose. For example, individuals do not choose the ethnic group to which they belong, the socioeconomic status of their families of origin, their rural or urban background, or their gender. But it is evident that these things will matter at least to a degree in determining their lot in life. Individuals ought to be held responsible for their choices, but not their circumstances. The final category is public policy which shapes the economic and social environment in which individuals live, the benefits they receive and, importantly, the relative importance of their circumstances versus their choices.

Introduction

How can a political party whose economic policies are in the interests of only a small fraction of the richest citizens maintain a sizable vote share in a democracy with full enfranchisement? The prime example of this puzzle today occurs in the United States. My aim in this chapter is to outline the possible answers to the question and then to present in some detail a study of one of the possibilities. I cannot claim, however, to know the answer.

One might, first of all, challenge my presumption that the economic policies advanced by the US Republican Party are indeed only in the interests of a small fraction of citizens at the top of the wealth distribution. Indeed, by the standards of one hundred years ago, the US has a progressive economic policy. About 31 percent of the national product is collected in taxes (at the federal, state, and local levels), and these taxes are used predominantly for transfer payments and expenditure on public goods. There is universal public education through age seventeen, and many states provide publicly financed tertiary education with modest private co-payments. Although the United States remains unique in the degree of private financing of its health services, nevertheless approximately 50 percent of health expenditures are public. There is a universal publicly financed pension system which is redistributive.

Introduction

Harsanyi (1953) proposed a veil-of-ignorance argument for concluding that a rational soul, behind the veil of ignorance, would behave like a utilitarian – more precisely, that it would maximize a weighted sum of von Neumann–Morgenstern utilities of individuals. The argument is justly famous, as the first attempt to formalize the idea of the veil of ignorance, using the then recently developed tool of von Neumann–Morgenstern utility, that is, of decision theory under uncertainty. Indeed, Harsanyi used the terminology of the impartial observer (IO), rather than the veil of ignorance, but I shall assume these two metaphors are attempts at capturing the same, ethically correct stance. Weymark (1991) calls the argument Harsanyi's impartial observer theorem. I shall argue that Harsanyi's conclusion is incorrect: It does not follow from his argument that the IO is a utilitarian. The essential point is that utilitarianism requires, for its coherence, a conception of interpersonal comparability of welfare, and no such conception adheres to the concept of von Neumann–Morgenstern utility that Harsanyi invokes.

Let X be the set of social alternatives, or states of the world, and let H be the set of types. Think of X, for instance, as a set of possible income distributions among persons. Define the set of extended prospects as Y = H × X, whose generic member is (h, x). Behind Harsanyi's veil of ignorance, the IO faces the set of extended prospects, where (h, x) is interpreted as meaning “I shall become a type h person in state of the world x.”

POLITICAL PARTIES

For millenia, different interest groups in society - primarily, according to one prominent view, different economic classes - have fought each other for control of the economic surplus. Democracy is one institution that organizes that struggle, and it has, according to Adam Przeworski [1999], one principal virtue: it minimizes bloodshed, for an aspect of democracy is the peaceful transition from one regime to its elected successor; as well with universal suffrage, it gives every citizen a voice in the action. Of course, both of these virtues are imperfectly implemented in actual democracies, but, to a first-order approximation, democracy dominates other forms of rule with respect to these two criteria.

In the modern period, since 1789, the democratic struggle has been organized primarily through political parties. There are exceptions: some Swiss cantons practiced direct democracy until quite recently, in which decisions are made by committees of the whole polity. The party form has, however, been almost ubiquitous. Parties historically have represented different interest groups in the polity. Sometimes parties are identified by the name of their interest group, such as the Labor Party or the Farmers' Party. Often, however, they are identified by an ideology, such as the Socialist or Christian Democratic Party.

THE POLITICO-ECONOMIC ENVIRONMENT

We will model a society that reproduces itself over many generations. At the initial date, there are households led by adults (parents) who are characterized by a distribution of human capital, that is, capacities to produce income. (As I wrote earlier, human capital has other values for a person.) Each parent has one child. The human capital the child will have, when he or she becomes an adult, is a monotone increasing function of his or her parent's level of human capital and the amount that is invested in his or her education. This relationship is deterministic, and describes the educational production function for all children. Thus, more investment is needed to bring a child from a poor (low human capital) family up to a given level of human capital than a child from a wealthier family. All parents have the same utility function: a parent cares about his or her household's consumption (which will be his or her after-tax income), and the human capital his or her child will come to have as an adult. We will, for simplicity, assume that adults do not value leisure. Thus, income will be earned inelastically with respect to taxation.