A Paradox of Economic Growth and Relative Deprivation

Abstract

Rapid economic growth sometimes intensifies people's frustration. In this article, we attempt to formulate this kind of paradox of economic growth, and to explain theoretically how economic growth increases people's dissatisfaction by way of the notion of relative deprivation by employing the theoretical framework of Yitzhaki's relative deprivation index. We introduce the problem of the China puzzle as the latest case of the paradox. Then, we introduce the definition of Yitzhaki's index of relative deprivation, and use this to explain the China puzzle. Besides, through a theoretical examination of Yitzhaki's index, we propose a proposition proving that an increase of relative deprivation in the society can occur even when the amount of wealth increases and the degree of inequality reduces.

Keywords:

• China puzzle
• economic growth
• Gini coefficient
• inequality
• relative deprivation
• subjective well-being

ACKNOWLEDGMENT

We are grateful to Thomas J. Fararo for his comments on an earlier version of this article.

Notes

¹Another way of explaining a possible paradox between economic growth and the increase of relative deprivation is given by James C. Davies’ (1962) idea of the J-curve. Davies hypothesized that “revolutions are most likely to occur when a prolonged period of objective economic and social development is followed by a short period of sharp reversal,” which generates an “intolerable gap between what people want and what they got” (p. 6). Davies stressed on the notion of process, or “time sequence” (to use his own expression), which leads to an increase in relative deprivation perceived by people, although he himself does not use this term.

²Chakravarty (2009) also proposed an intermediate notion of deprivation, that is, one between absolute and relative, defined as D(y _i )/(αμ + 1 − α), where 0 ≤ α ≤ 1.

³It is interesting to note that the average life satisfaction score in China in 2007 survey conducted as a part of the World Values Surveys is 6.76, which is slightly higher than that of 2000.