The deep roots of inequality

12 Apr 2022

Is high inequality destiny? A new study, to be presented at the annual conference of the Royal Economic Society, sheds some light on this question. It investigates why inequality was low in rural Japan for more than 150 years, contrasts its experience with that of Europe, and points out the importance of differences in adoption.

The established view, writes Yuzuru Kumon, is that societies will naturally converge towards high inequality in the absence of catastrophes (world wars or revolutions) and the progressive taxation of the rich. However, I show that rural Japan, 1700-1870, is a surprising case where stable equality was sustained over centuries.

Over 84% of Japanese peasants owned land, the most valuable asset in an agricultural economy, and the Gini coefficients was low at 0.57. This contrasts with the societies of contemporary Western Europe, which had Gini coefficients ranging between 0.7 and 0.9. Japan was a landowning peasant society while Western Europe had landless labourer societies. Why were the outcomes so different?

My research shows that the relative equality of pre-industrial Japan can partly be explained by the widespread use of adoptions in Japan, as a means of securing a male heir.

The reasoning becomes clearer if we first consider an example from England, where adoption was not widely practiced. The first Earl Cowper was a modest landowner and married Mary Clavering in 1706. When Mary’s brother subsequently died, she became the heiress, and the couple inherited the Clavering estate. Similar (mis)fortunes for their heirs led the Cowpers to become one of the great landowning families of England. The Cowpers were not particularly lucky, as a quarter of families were heirless during this era of high child mortality. The outcome of this death lottery was wealth concentration and greater inequality.

This did not happen in Japan due to the institution of adoption. When a household lacked an heir, they would adopt a son and the family wealth would remain within the male line. This can be seen in a dataset of village censuses from the 18 and 19th centuries. It clearly shows rich male lines were not going extinct due to adoptions. Specifically, this involved adult males being adopted into the family and marrying daughters. If no daughters existed, the next generation could be formed by total strangers. Amassing a fortune in Japan was unrelated to demographic luck.

Widespread adoptions were not specific to Japan. More generally, East Asia practiced adoptions and this mechanism can also explain why landowning peasants were widespread in this region. Perhaps more surprisingly, adoptions were also common in ancient Europe where the Greeks and Romans practiced adoptions to secure heirs. For example, Augustus, the first emperor of the Roman Empire, was adopted. Adoptions were a natural means of keeping wealth under the control of the family.

Europe changed, due to the church discouraging adoptions from the early Middle Ages, leading to adoptions becoming rarities by the 11th century. The church was not motivated only by theology, but also by the possibility that wealth of the heirless would get willed to the church. They almost certainly did not foresee that their policies would lead to greater wealth inequality during the subsequent eras. It led to the development of highly sophisticated, but very different, societies across the East and West.

Contact:

Yuzuru Kumon

Email: yuzuru.kumon@iast.fr

Twitter: @YuzuruKumon

Notes to Editors:

The press release is highlighting research papers presented at the RES Annual Conference 2022 (#RES20220) for further information, please contact j.randalledwards@res.org.uk on 07970 201456 if you want the link to the full paper.

The Royal Economic Society’s popular 2022 virtual annual conference with in-person conference hubs, provides a forum for research, debate, and networking. The RES provides resources for economists and support for education and the training of students, teachers and researchers. 

The Royal Economic Society’s purpose is to promote the study of economic science. With over 6,500 members worldwide, RES is one of the oldest economic associations in the world. RES are a registered charity and membership is open to anyone who shares our aims and objectives.

The Society's two peer-reviewed journals - The Economic Journal and The Econometrics Journal – contain high quality papers from an international authorship. 

Please do tag RES on Twitter @RoyalEconSoc using #RES2022

Or further RES Social Media pages: Website  YouTube  LinkedIn