The inequality divide, Tim Hazledine

Inequality: A New Zealand Crisis
Max Rashbrooke (ed)
Bridget Williams Books, $40.00,
ISBN 9781927131510

Judgements of All Kinds: Economic Policy-Making in New Zealand 1945-1984 
Jim McAloon
Victoria University Press, $50.00,
ISBN 9780864738974

Inequality: A New Zealand Crisis is more than just a book. It’s really a project, with an advisory group, 17 major contributors coordinated by editor Max Rashbrooke – who also wrote two cogent introductory chapters (which I read in draft form) and interviewed individuals and families affected by inequality – plus an unusually energetic and highly successful market launch, driven by Bridget Williams Books with support from charitable trusts.

The launch was a roadshow through the major cities, featuring public lectures by the most distinguished contributor to the volume – the London-based New Zealand political economist Robert Wade – followed by a book-launch ceremony.  (I participated in the Auckland launch.)  These events were invariably packed out, and moved a lot of copies of the book, all of which I hope have by now been carefully read from cover to cover. But there’s a bit of a sting in the tail to this apparent success, to which I will return.

The facts of the matter – in decreasing order of likely familiarity – are these: (1) New Zealand used to be a relatively egalitarian country – socially and economically; (2) income gaps between rich and poor have widened here over the past quarter-century, such that (3) we are now one of the more unequal of the developed economies; (4) to a striking extent the trend in inequality is accounted for by a sharp increase in the income share taken by the very well off – the top one per cent of the population now claim around 10 per cent of the economic pie each year (23 per cent in the USA!), which is almost double what they used to get; (5) widening income gaps are largely a phenomenon of the English-speaking world – in Europe (and Japan) inequality has not increased much overall, and has even decreased in France and other countries.

It is this last fact which should give us pause to think.  Supposing you personally are worried about increasing inequality in New Zealand.  The counter examples of European experience might seem good news – this is evidently not a “TINA” (There Is No Alternative) situation. Other roads can be taken. But, on the other hand, we are a free country like the others: if France, Spain etcetera have chosen not to let inequality increase, doesn’t this imply that we must have chosen the opposite?

Rashbrooke sees the problem here. He notes that support for the proposition that “the [New Zealand] government should reduce income gaps between the rich and the poor” has fallen in surveys from 50 per cent in 1999 to 40 per cent just a decade later, consistent with support for the rich paying more in tax dropping from 71 per cent in 1972 to just over 50 per cent in 2009.

Of course, interpreting answers to survey questions can be tricky. Perhaps what some respondents are really telling us is that their confidence in the effectiveness of government actions has eroded over this period. Wade recounts that the proportion of American respondents agreeing with the proposition “You can trust the government to do the right thing most of the time” has dropped from three-quarters in the mid-1950s to a distressing 10 per cent today.

But we don’t have a Tea Party in New Zealand, do we?  I’d expect that the Rashbrooke numbers do reflect a significant switch away from egalitarian attitudes in our country. This is the twist in the tale of the packed-out book launches. It was evident to me in Auckland – and  Wade has told me that the pattern was repeated everywhere – that the audiences had two characteristics:  (a) old; (b) not “intellectuals” – that is, caring baby-boom burghers confused about a world changed so much from the 50s and 60s, when it was just about axiomatic that children – them, then – would grow up to have better opportunities and economic outcomes than their parents’. But maybe the boomers’ own babies and grandchildren are willing to take their chances in a more unequal world. Perhaps, as Rashbrooke suggests, the fundamental attitude was always more about process than outcomes: a “fair go”, rather than a “fair society”.  After all, take the most outrageously unequal process of all – the national lottery. One person gets $33 million; a million people get nothing! Fair enough … .

Nor was there mass outrage when young Sam Morgan sold his TradeMe start-up for hundreds of millions of dollars. We could all see and admire and benefit from what he and his colleagues had achieved – good on them, keeping the American giant eBay at bay; the only English-speaking market where this had happened.

Fair enough, indeed.  But there really is a problem of dodgy process driving the inequality divide. That doubling of the top one-percent share – how did it happen? And who got it? Taking the second question first, the gains were – in the US – split roughly 50:50 between two specific sectors or activities: money market traders in the “Other Finance” industry and “Top Pay” everywhere else – CEOs and their side-kicks. Other Finance didn’t really exist 30 or so years ago – it’s the business of repackaging savings and debt into complex “instruments” which can then be repackaged into even more complex products until no-one – almost literally – has a clue what anything is really worth, or how risky the whole system has become. Global Financial Crisis – hello!

As for chief executives and other high-level managers: well, at least the work they do is useful – big companies don’t run themselves. But is it any more useful than it was 30 years ago, when the average CEO’s pay was about 30 times that of the shop-floor worker, compared to around 300 times now? There’s really no evidence that it is – they are just taking the money because they can.

Why less top one-percent inequality in New Zealand than the US? Because our finance sector is less developed, and our businesses smaller. Why less in Europe and Japan than in the English-speaking countries? They tend to have more closely regulated, “boring” banking; there is more of a culture of restraint in large corporations; labour market institutions are stronger, and the international market in executive and banking talent is predominantly an English-language market. The book has some sensible suggestions for action on inequality, focusing on a bottom-up rebuilding of good jobs (Nigel Haworth) with appropriate skills training (Paul Dalziel).  But the squeeze from the top one per cent isn’t really dealt with.

Jim McAloon’s very readable book explains how a policy-regime shift resulting in dramatic shifts in the income distribution was so easy to achieve politically in New Zealand. McAloon’s first words are “I have been working on this book for far too long”, and unfortunately that means there are no last words – the book just stops, with no synthesis or summing up. But my take – which I did appreciate before, but now know in much more detail – is that it is the thinness of our political and perhaps cultural institutions that allowed determined bullies and zealots  (most dangerously, the two combined) to take over the commanding heights of the polity and impose their will or even whim on the rest of us. From Robert Muldoon, for example, we got an incomes policy he cobbled together over Saturday morning drinks with Federation of Labour leader Tom Skinner – that is, the byproduct of a lonely man seeking some weekend whiskey company.

Hopefully, MMP has given our politics more texture, and indeed McAloon mentions MMP (once) as a possible source of “consensus” in dealing with our current difficulties.  He also gives a good account not just of the economic difficulties that New Zealand faced after the 1950s – declining terms of trade and loss of access to traditional markets – but also, if you look for it,  how well we (ie the baby-boomers’ parents) coped. The concept of “manufacturing in depth” – which resurfaces in Rashbrooke – gained traction, and manufacturing exports increased from 18 to 29 per cent of the total over the 1975-84 decade, only for the sector to be cruelly crushed by the Rogernomics “reforms”.

Reading these well-written books left me feeling a bit glum. But then for some reason I remembered back to Monday, July 1st of this year. I had just arrived in Vancouver and was puzzled by the Canadian maple leaf flags sprouting from every second or third car window and front lawn. Had Canada just won the Hockey World Cup? No World Cup – the first Monday in July is Canada Day, the national anniversary holiday. On the evening news, I saw Prime Minister Stephen Harper addressing the relaxed, multiracial throngs on Parliament Hill, in Ottawa.  He said: “Give thanks that we all can live in our peaceful and prosperous country”.

Here in New Zealand we don’t have a proper flag, nor indeed a national day. But we too live in a prosperous and peaceful country by any reasonable standard. I don’t want to lose that perspective when I am puzzling over the things, including income inequality, that we could be doing better.


Tim Hazledine is a professor in the University of Auckland Business School.


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