Inequality in developed countries and Latin America: coordinated, liberal and hierarchical systems

The first half of this article explains the enduring disparities in inequality and welfare states across advanced economies in terms of varieties of capitalism and political systems. Where capitalism is coordinated, as in much of northern Europe, political systems are consensus-based with proportional representation (PR); consensus politics and coordinated capitalism reinforce each other in generating relatively low inequality and strong welfare states. Where capitalism is liberal – the Anglo-Saxon countries – political systems are competitive with majoritarian voting: mutual reinforcement of politics and capitalism generates relatively inegalitarian outcomes and safety-net welfare states. The second half of the article develops a model of hierarchical capitalism to show how this reinforces and is reinforced by a Latin American political system with majoritarian presidents and PR legislatures to generate high and persistent inequality and reduce development options.