Theories of the Relationship Between Economic Inequality and Conflict: A Review of the Literature

By: Julianna Sterling ’23, an International Studies and Economics major, and French minor.

The following work was created for POL 201: Theories of Peace and Conflict.

Brief description: Intranational and domestic policies are frequently formulated on assumptions of economic and political theories, especially using theories which claim causational relationships exist between economic inequality and conflict. As these policies impact the lives of millions of people, it is essential to thoroughly analyze the existing relationships and their implications for policy efficacy. Of the findings explaining economic inequality’s implications for conflict prevention, those claiming a positive, negative, and nonexistent relationship exist are most prominently used. In this literature review, all three are thoroughly analyzed on the intranational and individual levels and future literature should observe their trends on the international level.


As national economies are increasingly intertwined with globalization, it is important to thoroughly analyze the indications of the associated policies on intrastate conflict. These policies, more frequently observed in low-income countries than in those which are highly developed, are commonly designed to assist the poor and create lasting economic equality as nations’ industries stabilize in the international markets. However, the relationships these inequality-reduction policies have with violence are highly theoretically debated, and, therefore, may be ethically unsound to practice without a factually based consensus regarding its lasting effects. Each of the arguments — that there is a positive, negative, or nonexistent pattern in causation between economic inequality and domestic conflict — have strong merits and should be acknowledged in unison before a policymaker can assume one argument to be correct then use it to impact human lives.

The theory of positive relations between economic inequality and conflict on the domestic level believes that as inequality increases, so will conflict.  This is arguably the most historically popular belief and has backed many decisions made by the United Nations and its members while enforcing social welfare policies both within their own state and within those they are tasked to assist. Internationally powerful groups such as the United Nations are comfortable practicing this theory due to frequently studying its numerous supporting occurrences, including domestic violence, illegal activity, political polarization, and health trends in developing nations as well as preexisting academic hypotheses.  An example of a phenomenon which supports the positive relations theory, unassociated with the United Nations, can be found in the southern United States where high levels of racial economic inequality are experienced in correlation with white citizens being reportedly more willing to engage in violence against minorities than in northern states to suppress them and defend their superior societal position (Pileberg, 2017). A second theory runs perfectly opposite, claiming that a negative relationship exists between economic inequality and conflict, therefore forming the conclusion that decreased economic inequality will be associated with increased conflict occurrence. Inspiring its formation and utilization are concepts including relative power theory, capitalist and communist trends following World War II, and paralleling political hypotheses including resource mobilization. An example of this argument is excellently executed by Collier, who finds civil wars only occur when rebel troops are financially viable. This viability indicates there is enough economic equality for groups which were previously disempowered but in possession of grievances that will have access to enough resources to create widespread conflict while pursuing justice (Thorbecke & Charumilind, 2002). A final theory on the subject disproves both alternative arguments, claiming there is no exiting or measurable relationship between economic inequality and conflict. This theory finds its roots in the flaws of economic inequality research methods including the Gini coefficient (Thomson, 2016), inconsistent variables (Cramer, 2003), and other tools which are used to analyze these relationships quantitatively.

Globally popular and widely practiced, positive economic inequality and conflict relationship theory has been “long suspected” (Taydas & Peksen, 2012) by scholars explaining occurrences of political polarization, illegal activity, and domestic violence. The first, political polarization, occurs when moderation in politics decreases and is replaced by extremist alignments, ultimately reaching more people as income inequality increases (Dubrow, Slomczynski, & Tomescu-Dubrow, 2008). This occurs due to widening gaps between income groups where the wealthy hold more political influence and can consequently use government processes to enact policies operating to their advantage. For those who do not possess large amounts of disposable income, and those living in poverty within a society with high inequality, the government is unreachable, so two main political beliefs form: one holding the belief that legislation and fair democratic representation are effective in conveying the needs of its people and another belief finding they are not (Ippolito & Cicatiello, 2019).

Political extremism also creates increased conflict through its manifestation in elections where one candidate starkly represents one group and covers little middle ground, resulting in discontent and distrust in democratic governments (Paris, 1997). Similar in its belief that high levels of inequality create polarization is conflict theory. However, the main difference is that polarization manifests in increased political involvement from the poor as they pursue redistribution policies to redirect wealth in their favor (Ippolito & Cicatiello, 2019). This participation, in place of indifference, heightens social inequality awareness amongst the poor, creating power struggles in finance, politics, and society between those with power (the wealthy) and those without (the poor). In their most severe cases, power struggles can result in the creation of a conflict trap, including “rebellion, political strife, military regimes, civil war, and short-lived governments” (Barner, Okech, & Camp, 2014).

Preexisting hypotheses explaining trends in health have also been found to support positive economic inequality and conflict theory, including relative income hypothesis and absolute income hypothesis. Although closely related, relative income hypothesis finds that income inequality results in conflict on the individual level by raising instances of poor health and mortality, whereas absolute income hypothesis believes poverty, amplified in unequal societies, drives high mortality rates with magnified effects in the lowest income demographics (Thorbecke & Charumilind, 2002). The umbrella theory of a positive relationship between economic inequality and conflict has similarly been proven to exist in microfinance, which is used to increase capital held by impoverished women. This decreases gender economic inequality, results in “her children (being) healthier than those of families of equal wealth where the assets belong to the man” (Kristof & WuDunn, 2014, pp. 194).

Gender equality is also significant in proving a positive relationship between economic disparity and conflict when it is threatened by domestic violence. Matjasko, Niolon, and Valle (2012) found that, out of the three intimate partner violence types, the most commonly occurring is exponentially aggravated by low incomes, unemployment, poverty, and minority status, all of which affect people more in societies with high income disparity. This individual conflict is commonly combatted by social policies that increase wealth redistribution with examples, including a microfinance program in South Africa which found a 55% decrease in intimate partner violence against its participants. Housing programs in the United States also included the Violence Against Women Act which provided victims with options to escape conflict, such as housing, to those who typically cannot afford it (Matjasko, Niolon, & Valle, 2012). These are direct implementations of positive relations between equality and conflict in policy, with both instances using decreased economic inequality to decrease violence. In separate analyses focused on social welfare spending, one showed an increase in quality of life and promotion of wealth brought about by welfare policies aimed to decrease domestic violence likelihood (Taydas & Peksen, 2012) and another found that as women gained financial equality, 54% reported increased respect from their husbands (Kristof & WuDunn, 2014, pp. 191). However, the exception to this seemingly global consensus that equality hinders conflict is rooted in East Asia, where gender ecnomic inequality in the textiles industry is reported to decrease conflict despite women earning miniscule wages in comparison to men. The resulting disparity in wages seemingly breeds economic growth and financial independence for women, decreasing domestic violence against them, despite perpetrating inequality (Cramer, 2003).

Another form of conflict that disproportionately effects women in societies with high economic disparity is human trafficking, which academics find is worsened by increases in inequality, specifically in globalization’s wake. As lesser-developed countries are exploited through their dependence on primary commodity exports, their import values exceed export values and create national deficits. This fosters the formulation and success of black markets as individuals try to make profits to survive, including illegal trade, narcotics manufacturing, war profiteering, and human trafficking, all of which use large, impoverished populations in unequal societies as either a production source or, in human trafficking’s case, to be the product themselves (Barner et al., 2014). Despite illegal activity making an excellent example of a positive relationship between inequality and conflict, countries like Sweden have decided to combat sex slavery by increasing inequality and fining prostitutes’ customers. The policy resulted in a decline in the sex-work industry and, consequently, the conflict it causes for trafficking victims by 41%, putting women who depend on prostitution for income at a disadvantage (Kristof & WuDunn, 2014, pp. 31). Aside from human trafficking, other forms of illegal activity and government corruption are shown to increase with inequality in “Economic Inequality and Its Socioeconomic Impact” (Thorbecke & Charumilind, 2002), and are combatted with policies structured after the positive economic inequality and conflict relationship theory.

Social welfare policies are arguably the most important analysis element for this theory because they actively alter the lives of the enacting governments’ constituents and frequently rely on the assumption that economic inequality promotes violence in a society. This belief is founded on conflict theories such as grievance and justice-seeking behavior, contending that factors which create grievance and injustice motivate violence against the state (explicitly naming inequality as a likely factor) (Taydas & Peksen, 2012). This inspires a consensus that governments can create effective conflict-prevention policies through social spending, doing so by decreasing economic inequality within a society (Fearon, 2005) and constructing a financially healthy middle class to enhance political stability and social harmony (Thorbecke & Charumilind, 2002) on the individual and domestic levels. Economic inequality — which has been linked to violence, mental illness, substance abuse, homelessness, disease, abuse, and mortality in literature that observes the effectiveness of social spending (Barner et al., 2014) — can be directly combatted with wealth redistribution and is therefore believed to directly counteract conflict. Entire countries are guided through economic development using this methodology under the pretense of liberal internationalism, a growth tactic valuing democracy, and free markets as tools to decrease conflict and boost workers into a strong middle class (Paris, 1997). However, capitalism’s free markets rely on inequality to function, and competition can often boil over into conflict as people struggle to acquire limited resources. Despite positive economic inequality and conflict relationship theory’s widespread support in the past two decades, these points of criticism proved to be valid as liberal internationalism was only able to cease violence in one out of eight countries where it was applied from 1989-1997 (Paris, 1997).

The previous theory’s failures lead to the explanatory theory of a negative relationship between economic inequality and conflict, believing as inequality increases in a society, conflict will consequently decrease. This hypothesis is fueled by other political theories with similar ideologies, two being relative power theory and the resource mobilization hypothesis. The former, relative power theory finds political participation decreases amongst lower income groups as economic inequality increases, because as gaps between the relative power of individuals increases, the poor become discouraged at the realization they are unlikely to influence or have their values discussed in government (Ippolito & Cicatiello, 2019). This is found to be true in “Effects of Democracy and Inequality on Soft Political Protest in Europe” (Dubrow et al., 2008) and its analysis of trends in political unrest between old and new democracies, with “old” being European Union members before 2004 and generally capitalist parliamentary democracies. Here it is found that, in both old and new democracies, increases in income inequality cause decreases in public political protests, which are considered a form of societal conflict. A “fraternal twin” theory to relative power theory is also cited in the document as egalitarian hypothesis, claiming decreases in income inequality cause social integration, increased faith in the governments’ ability to aid the poor, and therefore increases in peaceful political participation (Dubrow et al., 2008). Egalitarian hypothesis is a popular concept, also discussed in “Inequality May Lead to Violence and Extremism” by Pileberg (2017) in terms of oppression, explaining that as a society has higher inequality there is more that the rich may lose if the impoverished class chooses to revolt, resulting in the rich oppressing the poor to prevent risking their superiority in civil conflict.

Resource mobilization hypothesis also finds economic disparity decreases conflict because discontent from political grievances must be organized to rebel against them, which requires finances which those who are disadvantaged lack (Thorbecke & Charumilind, 2002). This is especially true in rural areas, where landholding inequality greatly affects the abilities of the poor to mobilize against it without resources or proximity to other rebels for communicating ideas and plans (Cramer, 2003), therefore, hindering their ability to initiate conflict. In urban areas, it is argued that economic opportunity increases, decreasing inequality and increasing the likelihood of civil war due to rebels having better financial access. Policymakers have prevented insurgents from obtaining capital with the reverse pattern of increasing inequality by cutting off primary commodity exports to decrease money inflow to rebels, hindering their ability to cause violence (Fearon, 2005). However, others who believe the positive relationship between economic inequality and conflict is stronger than the negative oppose this with democratization theory, which states that income inequality will drive the poor to seize power whether they have access to finances or not (Thomson, 2016).

Of all these preexisting political hypotheses supporting the negative relationship theory, the strongest support is the occurrence and observations of patterns in capitalism and communism. Especially in capitalist market structures relying on competition to function, there is a tendency to create economic inequality (Cramer, 2003) on both the global and domestic level as it divides societies into class structures (Barner et al., 2014). As inequality takes root in old democracies transitioning away from practicing communism towards free markets, or in those with long-established democracies, any grievances that arise are communicated peacefully through government institutions before they boil over into violent conflict, according to political opportunity hypothesis (Dubrow et al., 2008). A second theory related to these market structures and legacies of communism thesis, finds communist cultures, which consistently suppress publicly expressing economic-based societal dissatisfaction, maintain their restrictive ideology as they transition into capitalism; therefore, subconsciously restraining their constituents from rebelling against economic inequality (Dubrow et al., 2008).

Attacking both umbrella theories is the claim that no relationship exists between economic inequality and conflict, which is supported both empirically and theoretically. Its empirical claims are rooted in limitations of the Gini coefficient, a measurement method to analyze the economic inequality in a nation utilizing data based on its income distribution, with a “0” score representing perfect equality and “1” representing perfect inequality. However, this measurement is not holistic because it does not acknowledge the social or historical context of its data (Thomson, 2016), nor does it require a specific data quality, therefore disproportionately representing lesser-developed countries (Cramer, 2003) which possess higher amounts of inaccessible rural areas (Thomson, 2016) and inadequate infrastructure to communicate information. Additionally, the Gini coefficient offers no consistent interpretation method outside its zero-to-one scale, leaving room for varying conflict definitions and an infinite number of independent and dependent variables to render conclusions easily challenged and disproved (Cramer, 2003) or approved and accepted. This is proven in analyses done by Fearon and Latin in 2003 where it is found that minor tweaks in their model of analysis can change the data conclusion dramatically (Fearon, 2005), as well as in studies done on conflict in Angola and Rwanda where it is impossible to separate economic factors from political and social ones (Cramer, 2003). Supporters point out instances where countries with a shared level of inequality measured by the Gini coefficient have no shared conflict pattern, whereas critics emphasize findings where income inequality consistently shows increases in political conflict (Cramer, 2003).

Theoretically, claims that there are no proven relationships between economic inequality and conflict are supported by relative deprivation theory, which believes discontent originates from the gap between expected and achieved level of well-being and eventually starts political violence (Thorbecke & Charumilind, 2002). However, this perception is based on what is visible in close quarters on the individual level, indicating that discontent is formed horizontally within ones’ socioeconomic class. Incompatible with the Gini coefficient, a vertical inequality measurement, relative deprivation theory finds that impoverished people cannot easily access knowledge of a higher-class lifestyle. They cannot reasonably envision that life for themselves (Cramer, 2003). Regarding rural land inequality, horizontal, non-economic inequality-based grievances are more likely to foster conflict than vertical ones (Thomson, 2016).

To fully understand the possible consequences of enacting specific conflict-prevention methods in international and domestic policy, it is important to thoroughly analyze all three relationship theories — positive, negative, and no correlation — of economic inequality and conflict. Positive theory, which concludes economic inequality increases with conflict, is the most practiced but can be disproved by negative theory, which finds that as inequality increases, conflict decreases. However, both may be false, as is argued by those who believe no consistent relationship exists. While all three theories are supported by a variety of hypotheses and empirical findings, there are often overlaps in the data and contrasting interpretations of what they indicate about the relationship between disparity and conflict. Any conclusions are additionally vulnerable to bias depending on what goal a policymaker or analyst is trying to achieve, and, therefore, the relationship may vary depending on context. Additional studies of the concept should cover its indications on the international level, in middle-income countries, and for specific conflict events in depth. This may contain examining credit-constrained human capital hypothesis, which claims each relationship is present at a given time depending on the stage in economic development a country has achieved (Thorbecke & Charumilind, 2002), or claims that one or more may exist at the same time within one society.

References

Barner, J. R., Okech, D., & Camp, M. A. (2014). Socio-Economic Inequality, Human Trafficking, and the Global Slave Trade. Societies, 4(2), 148-160. doi:10.3390/soc4020148

Cramer, C. (2003). Does inequality cause conflict? Journal of International Development, 15(4), 397-412. doi:10.1002/jid.992

Dubrow, J. K., Slomczynski, K. M., & Tomescu-Dubrow, I. (2008). Effects of Democracy and Inequality on Soft Political Protest in Europe: Exploring the European Social Survey Data. International Journal of Sociology, 38(3), 36-51. doi:10.2753/ijs0020-7659380302

Fearon, J. D. (2005). Primary Commodity Exports and Civil War. Journal of Conflict Resolution, 49(4), 483-507. doi:10.1177/0022002705277544

Ippolito, M. & Cicatiello, L. (2019). Political instability, economic inequality, and social conflict: The case in Italy. Panoeconomicus, 66(3), 365-383. doi:10.2298/pan1903365i

Kristof, N. D. & WuDunn, S. (2014). Half the Sky: Turning Oppression into Opportunity for Women Worldwide. New York, NY: Alfred A. Knopf.

Matjasko, J., Niolon, P., & Valle, L. (2012, October 18). The Role of Economic Factors and Economic Support in Preventing and Escaping from Intimate Partner Violence. Retrieved November 03, 2020, from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5973802/

Paris, R. (1997). Peacebuilding and the Limits of Liberal Internationalism. International Security, 22(2), 54-89. doi:10.1162/isec.22.2.54

Pileberg, S. (2017, July 7). Inequality may lead to violence and extremism. Retrieved November 02, 2020, from https://www.sv.uio.no/psi/english/research/news-and-events/news/inequality-may-lead-to-violence-and-extremism.html

Taydas, Z. & Peksen, D. (2012, April 11). Can states buy peace? Social welfare spending and civil conflicts. Retrieved October 26, 2020, from https://journals.sagepub.com/doi/full/10.1177/0022343311431286

Thomson, H. (2016). Rural Grievances, Landholding Inequality, and Civil Conflict. International Studies Quarterly, 60(3), 511-519. doi:10.1093/isq/sqw023

Thorbecke, E. & Charumilind, C. (2002). Economic Inequality and Its Socioeconomic Impact. World Development, 30(9), 1477-1495. doi:10.1016/s0305-750x(02)00052-9


Julianna Sterling is a double major in economics and international studies with a minor in French. She thanks the professors in all three departments for introducing her to her academic passions of economic development and cultural studies and plans to attend graduate school to further explore these disciplines. On campus, she is involved with the Student Government Association, is an academic skills and French tutor, a member of the Omicron Delta Epsilon, Cater, and NSLS honor societies, and participates as a varsity athlete with the women’s field hockey team. In her future career she hopes to help others, learn as much as possible, and make her parents proud.

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