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Economic Inequality: What is happening? What is to be done?

by Frank Stilwell on February 10, 2015
Piketty Forum

Economic inequality, perhaps somewhat surprisingly, is currently in the spotlight. Neoliberalism was supposed to have banished this concern, turning our attention to how we all get rich by embracing free-market capitalism. But something went wrong, didn’t it? Now we find the Pope saying that economic inequality is the root of societal problems. Barrack Obama has identified it as a key political concern, while Christine Lagarde, head of the International Monetary Fund, has also posited that its redress should be a high political priority. Here in Australia, the Senate has been conducting an inquiry into the local dimensions, causes and consequences of economic inequality, following a Federal budget which was widely perceived as unacceptably inequitable.

Fuelling this flurry of concern with economic inequality has been a bestselling book that has been making major waves worldwide during the last year. One does not normally look to large, academic tomes that are full of economic statistics to find triggers for widespread public concern. But Thomas Piketty’s Capital in the Twenty-First Century, Piketty’s big blockbuster book, evidently has done just that. It feeds on, and contributes to, widespread public concern about how growing economic inequality impairs social justice, social cohesion and social stability .

PickettOther studies have also shown the statistical and causal connections between economic inequality and a range of economic, environmental and social problems, such as mental and physical health, crime and violence. For example, The Spirit Level: Why Equality is Better for Everyone by Richard Wilkinson and Kate Pickett, is an accessible compilation of some of the international evidence. It shows strong reasons to be concerned about keeping income inequalities in check. Failure to do so generates considerable public economic and social costs (in provision of health services, in policing and in prison incarceration, for example).

Surveys also show that, in general, nations that are relatively equal in their distribution of wealth have happier people: the correlation is not perfect but the evidence coming from the growing field of ‘happiness research’ points in this direction. Australian surveys have fairly consistently shown most people think society should be more equal.

These issues will be carefully considered at this week’s meeting of Politics in the Pub at 6.30pm on Thursday 12th March at the Harold Park Hotel, Glebe.

The first speaker, Chris Sheil, will explain and assess Piketty’s analysis of wealth inequality. As second speaker, I will be looking at why inequality matters and what could be done about it.

The two presentations will be followed, as usual for Politics in the Pub events, by a Q&A that should generate an interesting discussion. Certainly, there are good reasons for thinking that the issues have particular traction here in Sydney.  A managerial elite creams off ever higher incomes while low and middle income households cope with modest incomes and ever more insecurity in employment. Meanwhile, relentlessly rising values in the housing market shift wealth to existing asset-holders while consigning others to the stresses of unaffordable housing, even homelessness.

battlersThe recent book Billionaires and Battlers by Andrew Leigh shows the dimensions and duration of these long-standing inequalities in Australian society. Indeed, all the evidence confirms that Australian economic inequalities are larger than is popularly perceived; they are stratified by class, gender, ethnicity and region; and they vary over time in long swings. Notwithstanding a popular self-image of being an egalitarian nation, Australia never has been an egalitarian society: rather, it is generally middle-ranking on the international league tables for the standard measures of economic inequality. It is also becoming more unequal. Its increased income inequality during the last three decades is similar to many other countries, especially those whose economic policies have been influenced by neoliberal policy prescriptions.

So is the pursuit of greater economic equality a concern whose time has come? It previously had traction following the second world war when it led to progressively redistributive tax policies and a more fully developed welfare state, but the last quarter century has seen those reforms partly reversed by a neoliberal backlash. This has compounded the effects of the lower average economic growth rates that Piketty emphasises as a main driver of the increased wealth inequalities in recent decades. Australian government policies in this period have put the primary emphasis on trying to pump up the economic growth rates and have made the tax system less progressive and redistributive. The resulting erosion of the tax base, particularly during the period when Peter Costello was Treasurer in the Coalition Government led by John Howard, has left us with a sorry legacy.

The big challenge now is to chart a different direction with more egalitarian characteristics. Is this possible? What form could it take [after the Abbott government is gone]? What would it take to generate the necessary political commitment and economic changes?

You’d be welcome to join us for the discussion of these issues on Thursday evening – or subsequently check out the Politics in the Pub website for an edited video of this and other previous sessions.

Frank Stilwell
Emeritus Professor of Political Economy at the University of Sydney, co-ordinating editor of the Journal of Australian Political Economy (JAPE), and Fellow of the Academy of Social Sciences in Australia.
1 Comments
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  • Carlos Beca
    February 17, 2015 at 11:43 am

    It is not surprising that Australian society is suffering from the same disease the rest of us are. It is certainly impossible to say that this is not a consequence of Neo-Liberal / Neo-Conservative policies started by Margaret Thatcher and Ronald Reagan in the early eighties and fully supported my Milton Friedman in the Chicago School of Economics. The consequences are not surprising but in accordance to what Margaret Thatcher believed in, which was very well expressed in her now famous ‘Society does not exist, only individuals….’
    Although Obama and the Pope have shown concern, neither has done anything about it and Obama, who by the way is part of the American elite, woke up at the end of his presidency after having been the biggest supporter of Neo-Con policies right from the start. The 2008 Global Financial Crisis (GFC) was handled in accordance with what the Banks and corporate elites told him to do.
    Here in Canada, the situation is even worse because our prime minister is purposely designing a Neo-con paradise and as a result we have the fastest growing inequality in the world, only second to the UK, I think. We have a prime minister that muzzled the scientists, stopped the flow of information from Canadian civil servant scientists from providing information that was easily available before and openly calls environmental activists eco-terrorists.
    The solution is not going to be easy and in my opinion not possible without some major event. Once again and just like history has shown us, some heads are going to roll.

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