‘Inequality – six of the best from Andrew Leigh, MP: highlights reel’, Honest History, 1 September 2015 updated
Inequality has been a special interest of Honest History, as we have noted the procession of reporting organisations confirming Australia’s growing reputation in this field. It is not a good reputation to have, although we are in the same boat as OECD countries generally. Most recently, the Foundation for Young Australians has added to the body of evidence, showing how our education system currently does not equip young people for tomorrow’s economy, thus adding further to the potential for inequality.
We saw that GH Knibbs, even with his flawed methodology a century ago, was able to point to a degree of inequality which, though less than other advanced countries at the time and than Australia today, was still notable for a country that was regarded internationally as a social laboratory and progressive pioneer. The poems of Henry Lawson, particularly ‘Faces in the street’ (1888), were not just the grumblings of an alcoholic misfit. They reflected the reality for some Australians at that time. ‘They lie, the men who tell us in a loud decisive tone/That want is here a stranger, and that misery’s unknown.’
Honest History found that the Hon Dr Andrew Leigh, the Member of Parliament for the electorate of Fraser (now Fenner from 2016), within which our bustling office is located, was a noted authority on inequality, both before and after he became our representative. This highlights reel links to and extracts from some of Dr Leigh’s writings and speeches on this important subject. This post is not meant as a plug for Dr Leigh but his well-organised, developing and clear work casts light not only on Australia today but also on our history.
In 2007 Leigh collaborated with English economist, Anthony Atkinson, to use taxation statistics to estimate the income share held by top income groups in Australia 1921-2003. Readers should note the authors’ cautions about the reliability of income tax data and the need to compare it with other data, such as wages records and surveys of income and housing. They should also consult the extensive bibliography.
Given Lawson’s lament above, it is interesting that Atkinson and Leigh start from the 1886 claim of statistician TA Coghlan that ‘the contrast between rich and poor, which seems so peculiar a phase of modern civilisation, finds no parallel in these Southern lands’. Such claims are highly political, as Atkinson and Leigh recognise:
The share of income accruing to the very top groups is of importance both because their share of the total is significant and on account of the economic power that it conveys. They are also a “marker” of social and economic evolution. Tracing these shares over much of the twentieth century provides insights into the long-run development of societies and the impact of events, such as the World Wars and the Great Depression (page 259).
Testing Coghlan’s claim, Atkinson and Leigh find, after extensive interrogation of the data, lots of figuring and a number of graphs, that:
- There was a decline in ‘top income shares’ – the income going to the top few Australians, compared with the mass – in the three decades after World War II, followed by a sharp rise in these shares from the mid-1970s, through the 1980s and 1990s. Much the same thing occurred in Canada, New Zealand, the United Kingdom and the United States.
- By 2001, the income share of the richest one per cent of Australians was larger than it had been since 1951, while the share of the richest ten per cent was higher than it had been since 1949.
- The probable drivers of this trend were higher executive pay rates, lower top marginal tax rates through the last decades of the twentieth century, ‘skill-biased technological change’ (high salaries for people with technical ‘smarts’) and ‘evolving social norms about inequality’ (inequality is OK, perhaps even ‘greed is good’). (Note that the two translations in parentheses are Honest History’s not Atkinson and Leigh’s.)
Schoolchildren line up for free issue of soup and a slice of bread in the Depression, Belmore North Public School, Sydney, 2 August 1934 (Wikimedia Commons/State Library of NSW/Sam Hood)
This brief note from Leigh had take-outs from the OECD’s May 2011 report Growing Income Inequality in OECD Countries: What Drives it and How Can Policy Tackle it? The key points he noted were:
- From the mid-1980s to the late 2000s, real average household incomes in Australia grew by 3.6 per cent a year. This compared with 1.7 per cent a year across OECD countries.
- Over this same period, the top-earning decile (ten per cent) of Australians enjoyed income growth of 4.5 per cent annually, compared with 3 per cent for the bottom decile.
- In 2007, the richest one per cent of Australians earned 10 per cent of all household income, double their share in 1980, and the richest 0.1 per cent of Australians earned 4 per cent of all household income, compared with one per cent in 1980.
[W]ork by the OECD reinforces the finding that the gap between rich and poor has widened in Australia over recent decades. True, the incomes of the poorest tenth of Australians have improved. But top incomes have increased faster still.
This book brings together Leigh’s work on inequality to that date; it is sub-titled, The Story of Inequality in Australia. Leigh repeats his summaries of long-term trends and goes on to look at the implications of inequality and the policy options for addressing it.
Leigh also places the evidence in the context of what he sees as Australia’s ‘egalitarian spirit’. ‘Yet’, he says, ‘an egalitarian spirit is no guarantee of true equality’ (loc 82, Kindle edition). Early in the book, Leigh links income inequality with feelings of happiness, experience of pain and violence, degree of political engagement, and gender and race (loc 163). This is indicative of the wide range of his interests. Then:
- Chapters 1-3 trace the history of inequality in Australia;
- Chapter 4 makes international comparisons and looks at the ‘drivers’ of inequality (technology and globalisation, taxation, the degree of unionisation and education);
- Chapter 5 considers the consequences of inequality, its costs and benefits (on economic growth, social mobility, democracy, and psychic well-being);
- Chapter 6 is about social mobility and the connections between equality of opportunity and equality of outcomes;
- Chapter 7 discusses what Australians think about inequality; and
- the Conclusion sets out ‘a modern egalitarian agenda: how do we maintain an open economy, but ensure that prosperity is widely shared across Australia (loc 208)?’ Leigh punts for maintaining economic growth, improving our education system, supporting family structures, supporting the work of trade unions, targeting social policy to areas of need, maintaining a progressive taxation system, evaluating social policies robustly, and keeping ‘egalitarianism at the heart of our national story’ (loc 1766).
Thomas Piketty (Guardian/Graeme Robertson)
Leigh admires Piketty’s work for both its vision and breadth and its command of detail. As the present article does, he kicks off with Lawson as the prophet of Australian egalitarianism and goes on to consider whether this prophet has been honoured in his own country.
But it is Piketty, the modern prophet, who gets Leigh’s close attention in this long review; it is a good introduction to Piketty’s doorstopper-size book. Leigh notes that Piketty’s theories (on the relationship between the degree of inequality and a ratio between wealth and income) don’t quite work for Australia until you get to the period from 1980 on. Before then, mass immigration helped balance the accumulation of inherited wealth. ‘When a nation grows as much as the US and Australia have, it is more difficult for privilege to be perpetuated down the generations.’
Leigh suspects that returns on inherited wealth are becoming more important as drivers of inequality in Australia – and than he allowed in Battlers and Billionaires – but he returns to some of the policy remedies he introduced in that book. He concludes that some of the oomph in Piketty comes from his making inequality important, for Australia as for everywhere else.
If Australia continues to become more unequal – as Piketty’s capital theory suggests it might – then it will become increasingly difficult to hang on to these [egalitarian] values. A veneer of fairness might persist, but a shallow equality of manners would be a poor substitute for the deeper egalitarianism that has traditionally characterised our nation. How much should we let inequality grow? There is no right answer to this question, but we should not shrink from asking it.
The audience here were public servants so the content is suitably practical. It starts with nods to Battlers and Billionaires and Piketty – and a swing at the 2014 Budget. Leigh then updates the history:
From 1975 to 2014, real wages have risen by $7000 for the bottom tenth, but $47,000 for the top tenth. Put another way, the top tenth of Australian earners have received a pay rise that is bigger than the total pay of the bottom tenth.
In percentage terms, those at the bottom have seen an earnings rise of 23%, while the top have seen an earnings rise of 72% – three times more.
Leigh goes on to ask why inequality matters and what can be done about it. Much of this reinforces his earlier work. His concluding riff on the egalitarian spirit, however, is heartfelt.
Our egalitarian spirit helped make Australia a stable, cohesive and prosperous nation over the past two centuries. We still have this ethos strongly present in our society, even as inequality has risen starkly and significantly in the past generation.
Egalitarianism is a value that runs deep in the Australian popular psyche, with undeniable origins in our history and culture and undeniable continued appeal in our democratic society.
But I worry that unless we consciously re-focus on equality as our shared goal and egalitarianism as our common value, Australia will sleepwalk into a more unequal and divided future. That we will find ourselves split into “Two Australias”.
Again, much of this presentation is a reworking of earlier material but it does include four significant additions to the Leigh list of policy prescriptions. They draw upon the work of his erstwhile collaborator, Sir Anthony Atkinson, particularly his latest book, Inequality: What Can be Done? Numbers 9 to 12 in the list run as follows:
- ‘Put new policy ideas under the equality lens’: look at the distributional effects of policies.
- ‘Encourage ethical behaviour by firms and executives’, including pay equity and some sort of conscionable relationship between top and lower salaries.
- ‘Consider inequality in competition policy’: does competition policy at present have an equity element?
- ‘Recognise the relationship between economic inequality and gender inequality. According to figures released earlier this year, the gender pay gap is now at a 20-year high.’