Inequality, the internal enemy
Introduction
The twin curses of the World are climate change and inequality. Momentum is building for decisive action on climate change but there is less appreciation of the urgency for action on inequality. Yet, the two are linked. The cost of action on Climate Change must be shared equitably to be successful and both are urgently needed for future World harmony.
Between 1945 and 1980, economies expanded and great opportunities abounded for most of us with governments investing heavily in social and physical infrastructure. It was the golden age for equality. However, since 1980, inequality has risen steadily to what are now extreme levels. Australia has just had a Federal election fought on two slogans — a fair go and a fair go for those who have a go. The winner was the latter. This does not bode well for equality.
Inequality is an invisible and pernicious destructor of a healthy and robust society. It is an enemy much like the Trojan Horse of Virgil’s Aeneid. It is not a foreign invader; it is a threat from within.
This essay is my take on inequality.
What do we know about inequality?
Inequality is omnipresent — the Dior dressed celebrity can walk past a homeless beggar anywhere. Economists are measuring it, social researchers are assessing it, journalists are writing about it, peak bodies are raising awareness of it and front line agencies are trying to ameliorate it.
This essay draws heavily on both the work of the French economist, Thomas Piketty[1], who has extensively charted the historical patterns and changes in inequality, and the Anglo-American social researchers, Richard Wilkinson and Kate Pickett[2] who have done exhaustive research into the social impacts of inequality.
The nature and scale of inequality
Inequality is often considered as only extreme wealth and poverty but it is much more complex and has much broader impact.
At a numeric level, the most well-known inequality index is the Gini. It defines the whole wealth distribution as a number from 0 to 1. Piketty and others use the simpler, more transparent percentage share of wealth. The graph below, taken from Piketty et al’s 2018 Inequality Report[3], shows the extreme nature of inequality, in the United States. Since 1980, the top 1% of US citizens, largely at the expense of the bottom 50%, doubled their share of income to 20% and for wealth ownership the “share” is now around 35% — quite mind boggling!
In Australia, inequality sits between the United States at one end and Japan and Scandinavia at the other. In recent times, Australia has moved markedly towards the US end of the spectrum.
Australia has some 110,000 homeless people, 13% of the total population live below the poverty line and 730,000 children (17.4% of all children) live in poverty. Peter Whiteford[4], expresses it as:
…. Rising inequality and rising prosperity are therefore characteristic of Australia’s experience over recent decades.
Because of this duality, the Gini index has not identified recent Australian inequality trends that well.
Worldwide, wealth concentration is now exceeding the extremes experienced towards the end of the 19th Century and the early 20th Century in Britain and France.
Why has inequality increased since 1980?
Piketty observes that when the private rate of return on capital is significantly higher than the rate of growth of income and output, wealth grows more rapidly than output and wages. He describes the resulting malaise as:
The entrepreneur inevitably tends to become a rentier, more and more dominant over those who own nothing but their labour. Once constituted, capital reproduces itself faster than out put increases. The past devours the future.
The factors of relevance to this question include:
Neo-liberalism, which advocates the individual over the state, has enabled the wealthy to thrive whilst shrinking opportunity for the rest of us. Tariff and tax reduction, labour market reforms and privatisation, done in the name of neo-liberalism, have all contributed to increasing inequality.
Technological change, sometimes associated with neo-liberalism and sometimes not, has changed the World’s workplaces fundamentally. In the developed world, employment structures have “hollowed out” and many have been left by the wayside, many are paid at or below survival rates whilst a few can sustain opulent lifestyles.
Poverty is often judged as self-inflicted. Australian Government ministers use slogans such as lifters-and-leaners and a fair go for those who have a go to denigrate the poor and lionise the rich. This only encourages broader prejudicial attitudes towards the poor and other disadvantaged people.
Wealth is often uncritically judged as deserved or entitled thus denying the benefits of privilege, connections and money. People are often uncritical of, even fascinated by, the excesses of rich and famous. If Karl Marx was alive today, his opioids of choice might be sport, Hollywood and the Royals. To be critical of the excesses of wealth runs the risk of an envy, jealously or even class warfare accusation.
Taxation subsidies for investment in property have resulted in 1.7 million investor rent seekers in Australia. This investment has been a route to joining the top 10% owners of wealth and has restricted the capacity of a whole generation to own a home.
Reducing taxes to be “competitive” is a race the bottom. It is argued that tax reduction stimulates investment and hence, growth and jobs. However this is not happening. Profits continue to increase and wages are static. Furthermore, tax reduction is shrinking the capacity of governments to provide adequate social services, thus giving rise to more user-pays social service provision.
The deregulation of labour and declining union power has resulted in reduced worker wages and conditions. Casualisation and dereliction of employer obligations are endemic.
Wage differentiation at both public and private levels, once egalitarian, is now highly hierarchical. Executive package growth far exceeds broader economic or average wage growth. The unemployed get 40% less than the poverty line and 35% of the minimum wage. Heaven help you if you are.
Australia’s immigration policies are not meeting deficit skills but, rather, are creating a pool of unskilled labour. The demographer Bob Birrell[5] finds that:
The great majority of those visaed in the skill program are professionals, an increasing share of whom hold occupations that are oversupplied.
These immigrant professionals must therefore accept lowly paid casual work. Piketty, in commenting on immigrants grateful to be in the United States writes:
…. It is also the force that makes the increasingly large inequalities of labor income in the United States politically and socially bearable.”
Australia’s Indigenous peoples are disproportionately represented in inequality indicators. Jericho[6] writes that:
The ABS found that nearly half of all Indigenous people in Australia are in the bottom 25% of advantage, compared with just 17% for non-Indigenous people
The “Bridging the Gap” program, in the 2018 report, was declared not on track for three out of four key objectives, namely — child mortality, school attendance and life expectancy.
Educational inequality continues to worsen. At secondary level, private schools are over funded and over resourced compared to public schools. At tertiary level, ever increasing costs mean students enter the workforce with large debts. Inequality in education today is inequality in society tomorrow
The generations
The generation wars, which set Baby boomers, Millennials, etc. against each other, are a distraction to dealing effectively with inequality. Each generation experiences factors (some common and some unique) that influence individual trajectories in life. The debate misses the point that wealth inequality is a shared problem. The particular problems are — for the aged, inadequate superannuation and limited employment opportunities and for the young, the cost of owning a home and unemployment.
World extremities of inequality
The following graph[7] shows that the most unequal countries in the World are in the Middle East, followed by India, Brazil and Sub-Saharan Africa. A little lower are the US/Canada, Russia and finally China. Europe and particularly the Scandinavian countries have the least inequality.
The Middle East, Brazil, India and even the United States are not models of equality that Australian people aspire to.
The impact of inequality
A recent newspaper series[8] outlines a range of poverty issues — economic inefficiency, denial, societal and psychological malaise, disproportionate impact on women, children and the aged, unresponsive social welfare bureaucracy and lack of affordable housing and homelessness. It is not a happy story.
Wilkinson and Pickett, analysed, for 23 developed countries, the relative impacts of inequality on nine key health and social performance indicators.[9] These findings are summarised in the graph below. Their work demonstrates the social and economic benefits for societies that have low inequality. For almost all the social indicators measured, Japan and the Scandinavian countries, with the lowest inequality, were the best performed. Conversely, the United States and Portugal, the most unequal countries, performed the worst. Australia, with mid-range inequality had social and health problems to match.
Who has “skin in the game”?
The Wilkinson and Pickett investigations[10] show the impact of inequality extends beyond the rich and the poor to the wider community. They concluded:
….. The reason why these differences are so big is, quite simply, because the effects of inequality are not confined just to the least well-off: instead they affect the vast majority of the population.
Hence, we all have skin in the game. This is a critical justification for action on inequality
Inequality and Climate Change
It is clear that action on climate change won’t be successful without dealing with inequality[11]. In the words of Wilkinson and Pickett:
How might greater equality and policies to reduce carbon emission go together? Given what inequality does to a society and particularly how it heightens competitive consumption, it looks not only as if the two are complementary, but also that governments may be unable to make big enough cuts in carbon emissions without [12] also reducing inequality.
What next?
The massive household debts, declining real wages and social dysfunction attributable to inequality paint a grim picture. As I finish this essay there is news of the murder of a young homeless woman in a popular park in my city, Melbourne. This is a sanguine reminder that violence against women and children is endemic. We have record levels of incarceration, suicide and enormous mental health problems.
The Australian Government continues to reduce taxes, particularly for the wealthy and for major businesses. However, the promised jobs and higher wages are illusionary. Our economy, which is heavily dependent on mining for export — thermal coal and iron ore — is under stress and a recession looms. This can only mean further reduction in social services as the Government seeks to balance its books.
With this as context, inequality in Australia is expected to increase further and with it the social dysfunction. A better path is available but to gain support it will require political will and leadership and intensive consultation and co-operation with communities. The possible choices and necessary commitments must be understood and accepted. Again, Wilkinson and Pickett:
The aim is to increase people’s sense of security and to reduce fear; to make everyone feel that a more equal society not only has room for them but also that it offers a more fulfilling life than is possible in a society dominated by hierarchy and inequality.
The task of reducing inequality will be a difficult because of entrenched privilege. However, the reward of a healthier and more balanced society, (high home ownership levels, lower household debt, affordable social services and education and quality employment, lower suicides, less incarceration, etc.) will be well worth it.
Endnotes
[1] Piketty Thomas, Capital in the Twenty-First Century, The Belknap Press of Harvard University Press.
[2] R Wilkinson and K Pickett, The Spirit Level — why more equal societies almost always do better.
[3] Piketty Thomas et al, World Inequality Report, 2018, World Inequality Lab.
[4] Whiteford Peter, Australia: Inequality and Prosperity and their impacts in a Radical Welfare State, Crawford School of Social Policy, ANU, 2013
[5] Birrell Bob, Australia’s Skilled Migration Program: Scarce Skills Not Required, The Australian Population Research Institute, March 2018
[6] Greg Jericho, Australian poverty in graphs: it’s a desperate state of affairs, The Guardian, Australia, 16 April 2019
[7] Piketty T et el, 1918 World Inequality Report
[8] The Guardian Australia, The Fair Go series of daily opinion pieces and videos, 25 April to 17 May 2019.
[9] The social indicators assessed against relative inequality in the 23 countries were trust, mental illness, life expectancy and child mortality, obesity, educational performance, teenage births, homicides, incarceration and social mobility.
[10] Richard Wilkinson and Kate Pickett, The Spirit Level — why more equal societies almost always do better, Chap 13, Everyone Benefits.
[11]In France, the Macron Government imposed an environmental levy on diesel. The result was the Yellow Jacket (Les Gilets Jaunes) movement of acutely impacted lower middle class people living in regional areas. In Australia, the concern of many low-income people is of rising electricity tariffs attributable (mainly falsely) to the carbon tax.
[12] My emphasis.
Other graphs of relevance (Piketty et al)
