Economic inequality and societal collapse

If you want to have a stable society, make sure no one is left behind

"Alger , Algérie Vue panoramique du port" by Jules Gervais-Courtellemont (1909-1911). Source: Musée Départemental Albert-Kahn. CC-00- Public Domain.

This post is part of a living literature review on societal collapse. You can find an indexed archive here.

While writing this living literature review on societal collapse, one topic that keeps popping up again and again is economic inequality. It seems that this inequality makes societies inherently less stable and less able to internally coordinate and thus more vulnerable to collapse. Some examples of us exploring how inequality makes society more vulnerable:

• Democracies are likely the best form of government if you want to be more resilient against collapse and democracies work less well if your society is highly unequal (Link).

• Many of societally harmful processes seem to increase with higher inequality (Link).

Therefore, this post is meant to explore the topic of economic inequality in more detail. We also touch upon how economic inequality contributes to inequalities of power.

Historical examples of the influence of inequality

There are many examples of how inequality has lead to worse outcomes for the societies involved, but I would like to highlight two examples here:

Comparing Egypt’s and England’s reaction to the Black Death

This case study is described in the CrisisDB paper, which we discussed extensively in a previous post. Hoyer et al. (2024) discuss how both Egypt and England reacted to the Black Death in the 14th century. They choose this comparison because at that point in time both countries were quite similar when it came to infrastructure, population, agricultural commerce and overall complexity. However, the plague affected them quite differently. While both countries faced a high death toll (up to one third of the population), they chose different strategies to cope with this crisis. Egypt’s rulers decided the best way to address their problems was to leave the struggling peasants on their own and instead funnel their resources in great and expensive construction projects. This resulted in a rise in grain prices, higher land rents and an overall drop in production, leaving Egypt much worse off than it was before the plague. England’s ruling class on the other hand did not manage to suppress their peasants as effectively, which allowed the peasants to push for higher wages. This meant that the elites, rather than the poor population, had to cover much of the costs of the pandemic. This resulted in rising living standards in England and likely contributed to England being the source of the industrial revolution.

In another recent paper by Cohn (2023) the impacts of the Black Death on Europe are explored in more detail. He highlights similar points as Hoyer and explains that the results we found in England, can also be found in much of Central Europe as well. In most of these countries, the much decimated peasant population managed to get into a better position by labor becoming the scarcest factor in the whole supply chain. It also diversified the agriculture away from only farming labor intensive wheat and instead creating a more diversified agricultural landscape with other cultures like vineyards or olive groves. This was a bottom up adaptation. Peasants just would not accept anymore the grueling conditions they had to endure before. During this time wealth inequality dropped considerably due to the better bargaining positions of the peasants, leading to overall much increased health and productivity. However, there were also places like Russia which managed to suppress their peasants brutally. This then resulted in similar problems like in Egypt, lowered productivity and a much slower development of the country in general.

Moral collapse and inequality

Another perspective on how inequality undermines societal stability comes from Blanton et al. (2020) (1). They studied 30 premodern states to understand how governmental fairness affected their resilience. Their key finding was that states with more equitable practices - like fair taxation, limits on leadership power, and impartial courts - generally achieved higher citizen welfare. However, these more equitable states faced an interesting paradox: while they didn’t collapse more frequently than less equitable states, when they did collapse the impact tended to be more severe.

The authors suggest this happens because more equitable states enable citizens to build complex, interconnected systems of mutual benefit. When elites begin abandoning their societal obligations through corruption or tax avoidance, it triggers a cascade of defection from these cooperative arrangements. Citizens who see leadership enriching themselves at society’s expense become less willing to contribute their fair share, creating a self-reinforcing cycle of declining social cohesion. The authors demonstrate this pattern through case studies of major civilizations like the Roman Empire and Ming Dynasty, where increasing elite capture of resources often preceded collapse.

This research reinforces how economic inequality, particularly when driven by elite exploitation, can erode the social foundations that make complex societies possible. When those at the top stop contributing proportionally while still extracting benefits, it undermines the moral consensus that encourages broader social cooperation.

The tricky thing is to understand why this change occurs in the first place. If the elites of your society have contributed so far, why do they suddenly defect? I haven’t yet come across a super convincing argument here, but one possibility is the idea of elite overproduction. This concept is a part of the structural-demographic idea of collapse, which we have discussed in the first post of this living literature review. To quickly recap the idea here:

Secular cycles describe a recurring pattern in history. It starts with a growing population that also has room to grow. The growth leads to more resources for everyone, which leads to an overall cooperative atmosphere. However, at some point, the room to grow shrinks, so that people can only get more resources if they take it from others. Population increases also depress real wages whilst also leading to an overproduction of elites relative to elite positions.This decreases trust and peace until it possibly triggers a redistributive event, which could be something like a civil war, which in turn decreases the population and the cycle starts anew.

This is a good starting point, but I think there is much more research needed here to get a better understanding on why this happens. For example, this could also be caused by long run cultural shifts or a change in climate.

The importance of reducing inequality across different time horizons

Let’s also consider how economic inequality manifests across different time horizons. Here Schmidt & Juijn (2024) provide a great summary. The aim of their paper is to make the argument that economic inequality is a problem across short, mid and long term time horizons and should therefore be tackled no matter how you discount the future.

Short term here means around 50 years. In such a time span we have lots of empirical research to study how inequality plays out in different societies. Schmidt and Jujin make both an individual and a societal argument. The individual argument is that life satisfaction seems to increase with wealth, but it does so in a sublinear fashion. This means that if you give the same amount of money to a rich and a poor person, the poorer person will get more life satisfaction out of the same amount of money. Therefore, if you want to have more life satisfaction in your society overall you should distribute wealth more equally. The societal argument is that if we look at societies there seems to be a clear statistical relationship of more equality and better societal outcomes. More equal societies have better mental and physical health, higher levels of trust, better educational outcomes and less crime. All things which likely make your society more stable (like having more trust and effective institutions). This means the short term case for reducing inequality is pretty strong.

In the medium term (500-1000 years) it gets a bit more tricky to understand how inequality plays out, because we have much less data. Schmidt and Jujin think that we can still extrapolate from the short term outcomes. If your society has more trust, better health outcomes and better education, it seems highly unlikely that this will be worse for society than the other way around. In addition, there is the danger of path dependency, meaning if you have inequality now, it might reinforce itself and you are stuck with it for a long time. Schmidt and Jujin also make the argument that there is some research that tries to ground this argument empirically. Specifically they highlight research that shows that how you distribute wealth in your society also influences how you distribute political and legal power in your society. Meaning, if your society has a high economic inequality for a long time, this will cement power structures in the hands of those that have the most wealth. It could also lead to less buy-in of the general population, as they feel left out (similarly to the moral collapse idea explained above, Schmidt and Jujin refer to the work of Acemoglu and Robinson a lot). As we know that more democratic governments are less vulnerable to catastrophes, this is a concerning outlook and it seems likely that reducing economic inequality is also a good thing for your society in the medium term.

To further strengthen this argument for the medium term Schmidt and Jujin also look at potential counterarguments. The strongest one they find is the idea by Tyler Cowen that over longer time periods economic growth is the most important factor that increases welfare and we should therefore be very careful around redistributing wealth. If reducing inequality would decrease economic growth, this would therefore be a strong argument against reducing inequality. There are two competing worldviews at play here. One being that more inequality creates stronger incentives to work hard and take risks, therefore increasing economic growth, the other being that more inequality reduces how well your society can function, due to decreased trust and underdeveloped public goods, therefore decreasing economic growth. The ultimate answer to this discussion seems still to be discussed a lot, but Schmidt and Jujin think that the best empirical datasets from the OECD we have right now seem to point in the direction the less inequality leads to more economic growth. So, if you consider economic growth the most important factor for welfare, you should be in favor of reducing inequality.

However, if reducing inequality really creates more economic growth, we might run into another problem: climate change. Generally, economic growth is coupled with carbon dioxide emissions. But this relationship of growth and emissions differs between countries and Schmidt and Jujin highlight that recent research has found that in many countries we can find a positive correlation of income inequality and carbon emissions, meaning the per capita emissions are lower if there is less inequality. This is potentially due to better societal coordination and higher trust in more equal societies, which enables better environmental protection. So, it seems that over the short and medium term, we can be reasonably sure that reducing inequality is a good idea. But what about even longer time horizons?

Longer term here means a few thousand years and beyond. This part of the argument gets more hypothetical and abstract, as we don’t have anything empirical we could ground this in. However, the general idea is quite straightforward. Over long time horizons the largest danger for humanity likely comes via things like global catastrophic risks, think nuclear war or runaway climate change. If we can reduce the chances of such events occurring, this is likely the most important thing we can do for the long term future. As we know from the arguments around short and medium term inequality reduction, reducing inequality leads to a more stable society and better institutions, which in turn are better able to react to crises. If people are more trusting due to lower inequality, then it becomes easier to work on international problems like climate change or arms control.

Because we do not know how the future will play out, a good opportunity to influence it positively will be to give the people living in that future a stable society and good institutions, because this will allow them to be more flexible. Therefore, reducing inequality is likely good for long term time horizons as well.

The Current State of Inequality: A Tale of Two Trends

The current state of global inequality presents a complex and seemingly paradoxical picture. While overall global inequality has actually decreased over recent decades, this decline masks significant variation both between and within countries. Inequality between nations has fallen as countries like China and India have grown faster than rich countries. However, this has been accompanied by rising inequality within many nations. This trend has been highlighted nicely in two recent papers Kanbur (2019) and Chrisendo et al. (2024).

This divergence can be seen in several clear patterns:

• Rich Countries: Countries like the US and many European nations have seen increasing internal inequality despite their overall wealth. As Chrisendo et al. (2024) show, around 68% of the global population now lives in areas where inequality has increased.

• Asian Economies: Large Asian economies like China have experienced dramatic growth alongside sharp increases in inequality. China’s Gini coefficient (2) rose from 0.35 in 1995 to 0.53 in 2010, though it has shown some signs of plateauing since then.

• Latin America: Countries like Brazil have managed to reduce inequality, though from very high initial levels. Brazil’s Gini coefficient fell from 0.55 to 0.47 between 1990 and 2021, achieved through targeted policies like cash transfers to poor families and minimum wage increases.

• Africa: The picture in Sub-Saharan Africa shows perhaps the most variation, with inequality decreasing in Western Africa but increasing in Eastern and Southern Africa. This region also faces the double burden of high inequality often combined with very low incomes.

What makes this picture particularly important is its implications for societal stability. Historical evidence, like the contrasting responses to the Black Death in Egypt and England, suggests that how societies manage inequality can profoundly affect their resilience and capacity to handle crises. The fact that inequality is rising for such a large proportion of the global population - while we simultaneously face increasing global challenges - raises important questions about our collective capacity to address future crises.

However, the varied outcomes across regions demonstrate that rising inequality is not inevitable - policy choices matter. Countries that have successfully reduced inequality have typically done so through deliberate interventions, whether through social programs, minimum wage policies, or other redistributive measures. As Kanbur emphasizes, while technological change and globalization create pressures toward rising inequality, national policy can mediate these forces - though increasingly this requires international coordination to be fully effective.

These patterns suggest we are living in an age of rising inequality not because inequality is universally increasing, but because the economic forces of technological change and globalization are aligned to exert upward pressure on inequality. How societies respond to these pressures through policy choices appears to be the crucial factor in determining outcomes.

How did we end up with the current state of inequality?

This current situation of rising in counties and lowering inequality between countries can plausibly be attributed to neoliberalism. This arc of neoliberalism over the last decades is described in a lot of detail in Centeno & Cohen (2012). In the late 20th century, neoliberalism emerged as an attractive ideology promising both democracy and prosperity through free markets. As Centeno & Cohen (2012) note, this was especially compelling in the 1990s when the success of the “Asian Tigers” seemed to demonstrate how global market mechanisms could lift countries out of poverty. The apparent triumph of capitalism over the Soviet model further cemented the appeal of neoliberal ideas.

The core tenets were straightforward: minimize government intervention, privatize public services, and deregulate markets. The theory was that this would maximize economic freedom which would, in turn, guarantee political freedom. This “indivisibility thesis” - the idea that economic and political freedom were inseparable - became deeply influential in policy circles.

However, the implementation of neoliberal policies had several consequences that increased societal vulnerability:

1. Weakened State Capacity: Through extensive privatization and deregulation, states reduced their ability to respond to crises and provide public goods.

2. Increased Inequality: The focus on deregulation and tax reduction, particularly for the wealthy, has led to growing inequality.

3. Broken Feedback Loops: As wealth and power became more concentrated, decision-makers became increasingly insulated from the consequences of their choices, as they mainly hear what needs to be done from lobbyists. This has made it harder for societies to recognize and respond to emerging threats.

All of these things tend to make a society more vulnerable to societal collapse as shown in this post and many others in this series (3). This highlights that we have to shift away from many of the neoliberal ideas of the last decades to have a better chance to face the challenges that are likely ahead of us in the next decades.

What can we do about it?

So, our current state of inequality is far away from the optimal state and it is important for both the short, medium and long term future to bring it down again. But how might we go about that?

As we have seen above, a pandemic that kills a third of the population is one option, but this is not the preferred way of reducing inequality and as we have seen above also not even guaranteed to reduce inequality. One example of reduced inequality without a brutal shock like a pandemic is described by Marienbach (2024). He explored the city of Teotihuacan in Central America. This city is quite interesting because it showed a very low Gini coefficient of 0.12 (4). This is an incredibly low value and essentially unheard of in modern states. The closest country today is Slovakia with 0.24. However, in contrast to Slovakia, Teotihuacan was the dominant power in its region and outperformed the less equal cities around it.

Marienbach goes on to look at the most common explanation of why states or cities are able to reduce their inequality to a lower level. The main things he looks at are pandemics, mass warfare, revolutions and state failure. None of these apply to Teotihuacan. Before the arrival of the Spanish, there were no large-scale epidemics in America, the city was much stronger than its surrounding cities and therefore did not need to result in large-scale warfare and it also experienced neither revolution nor state failure. So, what kept the city on a low inequality for several hundred years? Marienbach suggests it was their system of government. Due to a volcanic eruption in the vicinity in the region, many neighboring cities have to be abandoned. This led to a large influx of people into Teotihuacan. This resulted in around 20 groups of similarly powerful social units inhabiting the city. They kept each other in check and prohibited that a single faction could take power and amass wealth.

This also ties in with the findings above that inequality is not a given, but depends on how we govern and how we decide to distribute the wealth in society. Vodovnik (2024) makes some suggestions here on how a new politics that is able to withstand societal collapse might be oriented. He ties into the critique of neoliberalism and that this political ideology has left behind one very important connecting idea in society: care. In a society focused on only individuals which are always in competition with each other it becomes difficult to build shared projects and ideas and make sure that everybody is taken care of. To accomplish this we need to enable people to have both the ressources and time to do the work that is necessary to have a democracy. This means for example to be able to even afford to spend time on work in politics. As I discussed in another post, an important stepping stone here might be a universal basic income (5). This would allow people to do the care work which is ultimately necessary for a stable democracy and thus the ability to withstand large scale catastrophes.

Building a more equal society requires what Vodovnik calls “caring democracy” - a system where care for others is not subordinated to market logic but is understood as the foundation of political and economic life. This means a democratic system that prioritizes social welfare and equitable resources distribution, so its citizens gain the freedom of not having to constantly worry about their future and present day needs (6). While we may not achieve the remarkably low inequality of ancient Teotihuacan, history shows that alternatives to our current system are possible when we reimagine the basic relationships that structure our society. The question before us is not whether change is possible, but whether we can make the transition thoughtfully and deliberately (e.g. by implementing gradual policy reforms) rather than waiting for a crisis to force our hand.

Or to make things more concrete we can also look at a paper by Easterlin (2012) who found the gap in life satisfaction between rich and poor in both capitalist and socialist countries. He found that generally the gap was considerably smaller in societies that were either socialist or had a strongly redistributive capitalist economy (think Norway). This means if we want to maximize overall life satisfaction and economic equality in society we have to implement redistributive measures at least as strong as in Norway. This would address two problems brought by neoliberalism that we identified above. Namely, that we decrease inequality with all its bad consequences for societal resilience and fix the broken feedback loops, as in societies where economic power is distributed more equally, no single person can easily hijack the system just by being rich.

Thanks for reading! If you want to talk about this post or societal collapse in general, I’d be happy to have a chat. Just send me a mail to existential_crunch at posteo.de and we can schedule something.

Endnotes

(1) We also discussed this paper in the participation post.

(2) The Gini coefficient is a measure of inequality. A value of 1 means one person has all the wealth, 0 means all people have the same amount of wealth.

(3) For example, how basic democracy and state capacity are quite important for societal resilience.

(4) This was calculated by looking at the size distribution of houses in the city to serve as a proxy of overall wealth.

(5) Universal basic income also has some potential problems and is not the ultimate solution to all our problems, but it could be a good first step and I did not want to make this post even longer with a discussion of the upsides and downsides of it.

(6) Present day examples of this would be the “Wellbeing economics” in countries like New Zealand

How to cite

Jehn, F. U. (2025, January 15). Economic inequality and societal collapse. Existential Crunch. https://doi.org/10.59350/yrvk7-w7589

References

• Blanton, R. E., Feinman, G. M., Kowalewski, S. A., & Fargher, L. F. (2020). Moral Collapse and State Failure: A View From the Past. Frontiers in Political Science, 2. https://doi.org/10.3389/fpos.2020.568704

• Centeno, M. A., & Cohen, J. N. (2012). The Arc of Neoliberalism. Annual Review of Sociology, 38(Volume 38, 2012), 317–340. https://doi.org/10.1146/annurev-soc-081309-150235

• Chrisendo, D., Niva, V., Hoffmann, R., Sayyar, S. M., Rocha, J., Sandström, V., Solt, F., & Kummu, M. (2024). Income inequality has increased for over two-thirds of the global population. Research Square. https://doi.org/10.21203/rs.3.rs-5548291/v1

• Cohn, S. (2023). The Black Death: Collapse, resilience, transformation (M. Centeno, P. Callahan, P. Larcey, & T. Patterson, Eds.; pp. 192–206). Routledge. https://eprints.gla.ac.uk/292026/

• Easterlin, R. (2012). Life satisfaction of rich and poor under socialism and capitalism. International Journal of Happiness and Development, 1(1), 112–126.

• Hoyer, D., Holder, S., Bennett, J. S., François, P., Whitehouse, H., Covey, A., Feinman, G., Korotayev, A., Vustiuzhanin, V., Preiser-Kapeller, J., Bard, K., Levine, J., Reddish, J., Orlandi, G., Ainsworth, R., & Turchin, P. (2024). All Crises are Unhappy in their Own Way: The role of societal instability in shaping the past. OSF. https://doi.org/10.31235/osf.io/rk4gd

• Kanbur, R. (2019). Inequality in a global perspective. Oxford Review of Economic Policy, 35(3), 431–444. https://doi.org/10.1093/oxrep/grz010

• Marienbach, M. (2024). Egalitarianism Without Catastrophe? Teotihuacan’s Challenge to Walter Scheidel’s Four Horsemen Theory. The Maastricht Journal of Liberal Arts, 15. https://doi.org/10.26481/mjla.2024.v15.1017

• Schmidt, A. T., & Juijn, D. (2024). Economic inequality and the long-term future. Politics, Philosophy & Economics, 23(1), 67–99. https://doi.org/10.1177/1470594X231178502

• Vodovnik, Ž. (2024). Possibilities at the End of the World: (Re)Imagining Care as Politics. Teorija in praksa, 387–405. https://doi.org/10.51936/tip.61.2.387