Aspiration & inequality

Editorial
Evatt Foundation

Many Australians no doubt winced last week when the Turnbull government claimed to represent ‘aspirational’ voters. In case anyone didn’t recognise the ghost of former Labor leader Mark Latham, this week Treasurer Scott Morrison recalled his signature image: ‘the ladder of opportunity’. Back in 2004, the country’s political scientists and sociologists felled a forest in search of Latham’s ‘apirationals’. Did they exist? Who were they? Where were they? What distinguished their aspirations from those of the rest of the citizenry? Whoever, wherever, whatever and however, they ended up voting against Latham in the 2004 federal election, giving the Liberal-National Party a fourth consecutive term in government. In the alchemy of political imagery, Latham’s ‘apirationals’ subsequently merged with the supposed ‘battlers’ that supported John Howard, only to vote against him in turn in the 2007 election. As dangerously fickle as they were socially elusive, at that point both parties were happy to leave the apirationals for history, or so it thankfully seemed, until Malcolm Turnbull resurrected them last week. Keen to create some political traction for the government, the mainstream media fell into line. ‘Labor fairness v Liberal aspiration in political slugfest’, thundered the Sydney Morning Herald.  

But this is 2018, not 2004. In the interim, the Global Financial Crisis forced a re-evaluation of the relationship between economic growth and inequality, the implicit issues underlying the supposed political polarity. At least since Arthur Okun’s 1975 book, Equality and Efficiency: The Big Trade-off, orthodox economists had assumed that income redistribution would take a toll on economic growth. No more. Two landmark studies by the International Monetary Fund refuted the doctrine. The first, Inequality and Unsustainable Growth: Two Sides of the Same Coin? (2011), found that ‘longer growth spells are robustly associated with more equality.’ The second, Redistribution, Inequality and Growth (2014), found that ‘lower inequality seems to drive faster and more durable growth’ and ‘redistribution appears generally benign in its impact on growth.’ Thus, concluded the IMF’s economists contra Okun’s trade-off, ‘the combined direct and indirect effects of redistribution—including the growth effects of the resulting lower inequality—are, on average, pro-growth.'

A flood of further findings followed. The OECD’s 2015 report, In It Together: Why Less Inequality Benefits All, found that ‘growing inequality is harmful for long-term economic growth’, estimating that rising inequality ‘knocked 4.7 percentage points off cumulative growth between 1990 and 2010, on average across OECD countries.’ The ‘key driver’, wrote the OECD, ‘is the growing gap between lower-income households—the bottom 40% of the distribution—and the rest of the population.’ More recently, in Growth-Equity Trade-Offs in Structural Reforms published in January this year, the IMF hit closer to home, finding evidence ‘that decentralization of collective bargaining may increase inequality without raising growth while network liberalization in the electricity and telcoms sectors seem to yield insignificant growth payoffs but may increase inequality.’

There are many objections to increasing economic inequality besides the adverse effects on GDP, as the Evatt Foundation has shown in numerous papers published over recent years. The growth of inequality offends the idea of a just society, destroys social cohesion, undermines democracy, and exacerbates myriad social problems, not to forget that it upends the national ethos of egalitarianism, the land of the fair go. Equally, there are many cogent critics of the current trends besides the official international agencies, including Nobel laureates such as Joseph Stiglitz and Paul Krugman, distinguished scholars such as the late Anthony Atkinson and James K. Galbraith, and the cluster of international researchers associated with Thomas Piketty and the World Inequality Database, not to forget Australia's specialists, such as Shadow Assistant Treasurer Andrew Leigh and Evatt’s own Vice President Frank Stilwell.

The import of the international agencies lies neither in the scope nor the novelty of their work, but rather in their position as representative of the post-GFC orthodoxy. In other words, the proposition that voters can choose between economic aspiration and social fairness is a musty polarity leftover from the 1970s. ‘With the right policies’, the IMF’s Jonathan Ostry writes in the current issue of Finance and Development, ‘countries can pursue both objectives.’ Indeed, countries can no longer aspire to one objective without the other if they are to avoid the real alternative, exemplified by the reactionary and protectionist policies of the president of the grossly unequal United States of America.


See also:

Suggested citation
Evatt Foundation, 'Aspiration & inequality', Evatt Journal, Vol.17, No. 2, June 2018.<http://evatt.org.au/news/aspiration-inequality.html>

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