Distribution of income and the structure of economy and society

Purpose – Many economists and politicians have declared the price mechanism to be the most effective coordination mechanism. On the contrary, the economic perspectives at the beginning of the twenty-first century reveal that an increase in the supply of products does not necessarily engender an increasing demand. That is why more and more economists agree that every society not only can, but also must, choose the combination of coordination mechanisms that are most appropriate under its specific conditions. Design/methodology/approach – Economic development and growth are approached as being dependent on the development of society and vice versa. The empirical relation between economic openness of a country and the structure of its industrial relations is analysed in relation to different economic outcomes. Special attention is paid to the question whether a policy to engender smaller income differentials does or does not provide a positive drive for the structural change towards a modern information technology-based economy. Findings – Although some authors argue that smaller income differentials coincide with lower productivity rates, this study reveals that there is no such trade-off. Different sets of coordinating mechanisms determine economic performance. The market mechanism is therefore not the overriding force determining economic development. On the contrary, income and education seem to be two drivers of the sectoral shift to an ICT-based service economy. Originality/value – Different sets of coordination mechanisms seem to support the same economic performance. This implies that governments should once again take responsibility for structuring the economy and society – that is to enforce a system of reliable justice for the vast majority of citizens.