Is inequality in Australia getting worse? Is the Gini coefficient going up or down? Who’s right, Bill Shorten or Scott Morrison and the conservative newspapers beating the bushes for academics who’ll back them up?
It doesn’t matter, and the longer the government and its media allies debate it, the more they’ll play into Shorten’s hands on what will become a key issue for the next election.
Inequality is a central outcome of the kind of market-based economic reforms we’ve pursued since the 1980s. That’s how neoliberalism works. It has made us all wealthier — even the poorest Australians are wealthier than they were 30 years ago, in real terms. But the wealthiest have benefited more than the rest of us. This is indisputable. A Productivity Commission paper in 2013 explained it:
“Between 1988-89 and 2009-10, the incomes of individuals and households in Australia have risen substantially in real terms and in comparison to trends in other OECD countries, with particularly strong growth between 2003-04 and 2009-10. The increase has mainly been driven by growth in labour force earnings, arising from employment growth, more hours worked (by part-time workers) and increased hourly wages. While real individual and household incomes have both risen across their distributions, increases have been uneven. The rate of growth has been higher at the ‘top end’ of the distributions than the ‘bottom end’.”
Sign up for a FREE 21-day trial and get Crikey straight to your inbox
One graph from the paper sums it up well:
It also makes intuitive sense — unusually, for economics. Everyone has done well from a more open economy coupled with Australia’s very effective welfare system, but it has allowed high-income earners both to make more money in a more globalised economy, and to keep more of their income because we’ve reduced the redistributive nature of our tax system.
Arguing the toss about this doesn’t help neoliberal advocates, because two things have happened in recent years that have changed the political debate.
One is we’ve realised that increasing inequality comes with a price. We might in the past have grumbled about high corporate remuneration, for example, but it was mainly envy talking. Now we’ve worked out greater inequality is economically harmful. Who says? Such raving lefty institutions as the International Monetary Fund and the OECD. A 2016 IMF paper concluded that while “there is much to cheer in the neoliberal agenda”, “the costs in terms of increased inequality are prominent … Increased inequality in turn hurts the level and sustainability of growth. Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.”
A 2014 OECD paper found that “income inequality has a negative and statistically significant impact on medium-term growth. Rising inequality by 3 Gini points, that is the average increase recorded in the OECD over the past two decades, would drag down economic growth by 0.35 percentage point per year for 25 years: a cumulated loss in GDP at the end of the period of 8.5 per cent.” How? The OECD argues via education. “The evidence is strongly in favour of one particular theory for how inequality affects growth: by hindering human capital accumulation income inequality undermines education opportunities for disadvantaged individuals, lowering social mobility and hampering skills development.”
Inequality isn’t a harmless, if annoying, by-product of neoliberalism, but actively harmful to economic growth.
What’s also happened is that the electorate has started to react to not merely inequality in outcomes, which debates over Gini coefficients etc deal with, but the perception the entire system is unequal. At one end are corporations, which pay little tax, gouge consumers, cut wages and get “consulted” on any changes that might affect them, and high-income earners who, as Bill Shorten cannily argues, get first-class treatment in the tax system, and then there’s everyone else, who have to endure stagnant wages, soaring prices from privatised and corporatised utilities, and who have little choice about how much tax they pay.
Arcane debates about Gini coefficients — 98% of voters wouldn’t have a clue that that is — are no match for the lived experience of households who think the economic system is delivering for elites but not for them. Shorten is working on that level. Morrison and the government’s cheerleaders in the media are operating at the level of a common room argument in an economics faculty. Some, like Tony Abbott and One Nation, are operating at an even more visceral level, telling voters it’s all the fault of various designated, recently arrived Others.
And that’s just in Australia where, thanks to Medicare, a good welfare system and public education, overall inequality has only risen a little. In other countries, where wages have been stagnant for longer and inequality has grown a lot more, the issue is far more live. In the United States, Donald Trump rode exactly these sort of concerns into the White House, only to preside over attempts to implement an even greater pro-inequality agenda than previously.
Scott Morrison better hope that eagerly predicted wages surge arrives sooner rather than later.