Two men, both in their forties, are sitting at their kitchen table late at night, nursing a drink. Both are laden with pressing anxiety. One is worried about a potential 500 million loss in his holdings. It is very big loss. It will make him a mere millionaire among his peer of billionaires. The other is worried about taking out a second mortgage on his house. It is the only way he can pay for his cancer treatments since he is without health insurance. He is worried about his wife, who would be left to make the payments if he does not survive. The disparity between anxieties of these men is a reflection of the socio-economic disparity of the society to which they belong. How did this disparity in anxieties come about? Is it simply the cumulative result of their lifelong choices or do the social and political institutions of the society to which they belong play a role in the the intimate anxieties of these men?
This is a visual and analytical interpretation of the causes of inequality based on the book Why Nations Fail by Daron Acemoglu and James Robinson. Acemoglu and Robinson argue that social and political institutions within a society are an important and often overlooked determinant of broader social inequality. To a large degree, levels of inequality within a country, can be understood by look at how institutions, public and private, affect the two key issues of Social Mobility and Wealth Distribution.
Institutions within a society can either facilitate social mobility by being Inclusive or limit the movement between economic classes and thus be Restrictive. Institutions can also divide wealth within a country in a way that favors the elites, thus being Extractive or ensure that wealth is actively shared by a larger share of the population, thus being Redistributive. Below is a list of the many mechanisms that make institutions either Inclusive or Restrictive in terms of social mobility, and Extractive or Redistributive in terms of wealth distribution.