Economic inequality in Australia

Frank Stilwell

The recent release of the report on 'The State of the World's Wealth' by Merrill Lynch and Capgemini reveals the relentless rise in riches. There are now 9.5 million people worldwide who have over $1 million in financial assets. 160,600 are in Australia, a jump of over 10 per cent since 2006.

Top business executives have been doing particularly well. A University of Sydney study, examining the incomes of chief executives in the top fifty-one companies who are members of the Business Council of Australia, shows that their average cash remuneration was sixty-three times the average annual earnings of full-time Australian workers in 2005. It had been a mere nineteen times the average wage in 1990.

Meanwhile, poverty persists - at least relative to the general standard of living - despite the greater affluence of society as a whole. Particular groups, defined according to ethnicity, gender, location and socio-economic status, face persistent problems of economic marginalisation and social exclusion.

Other recent figures, issued by the Australian Bureau Statistics, indicate a growing gulf between rich and poor. The top 10 per cent of houselds raised their average incomes by $139 a week between 2004 and 2006 while lower income households (in the second and third deciles) got an average of only $24.

Even more striking than the disparities in income are the inequalities in the distribution of wealth - financial and physical assets, such as cash, shares and real estate. In 2005-06 the wealthiest 20 per cent of households had 61 per cent of the total Australian household wealth, while the poorest 20 per cent had just 1 per cent of the total between them.

Should this gulf between rich and poor be a matter of public concern? There are strong social, economic, political and environmental reasons for thinking so.

"This issue is particularly pertinent in the context of WorkChoices, of course, since inequalities are bound to increase if this set of new industrial relations rules is allowed to persist."

Major economic inequalities impede the development of a contented society. If people's perception of their happiness is judged according to what they have relative to others, then economic inequality is a recipe for widespread and permanent social discontent.

The emerging social science of 'happiness research' shows that more affluence is not, in general, making societies happier. Because people's wellbeing depends on their relative position in society, as well as their absolute living standards, we have to give more attention to distributional issues in pursuit of social progress.

Greater equality can also have significant economic benefits. Consider labour productivity, for example. Neoliberals argue that big inequalities provide incentive for productive effort. In practice, inequality is just as likely to impact adversely on co-operation in the workplace and thereby undermine labour productivity. This issue is particularly pertinent in the context of WorkChoices, of course, since inequalities are bound to increase if this set of new industrial relations rules is allowed to persist.

To the extent that economic inequality reduces the integration of different social groups and the density of social networks, it can also undermine the conditions for social stability. In the extreme case, the juxtaposition of a marginalised underclass and an affluent elite is conducive to the periodic breakdown of social order, as the experience of many other countries has shown. Economic inequalities damage social capital and require an ever greater share of society's economic resources to be used for maintaining security and stability.

Expenditures on transfer payments are also a heavy fiscal burden for government in an unequal society. These costs of welfare provision have fuelled the attack on so-called 'welfare dependency'. This increases public suspicion of those on welfare and correspondingly increases their sense of exclusion. Part of the appeal of greater equality is the prospect of resolving these problems 'at source' rather than putting more and more band-aids on their symptoms.

There is also a political rationale. Our political institutions are based on a fundamentally egalitarian principle - 'one person, one vote'. They work best when this political principle is aligned with economic conditions. Economic inequality concentrates resources and power, enabling the wealthy to effectively 'capture' political institutions. In the extreme, corruption results, such as where donations by urban property developers lead political parties to adopt policies that serve their interests.

So, can we anticipate stronger support for policies that directly seek to reduce inequalities? While opinion polls indicate a widespread preference for less extremes of wealth and poverty, politicians continue to shy away from redistributive policies. The leaders of the current Coalition government understandably shy away from discussing a problem to which their policies - on tax, superannuation and housing, as well as industrial relations - have contributed so much.

Generating more egalitarian outcomes would require strong commitment by the nation's alternative political leadership. It will be interesting to see what evidence of that appears in the run-up to the coming general election.

Frank Stilwell is Professor of Political Economy at the University of Sydney. His new book, co-authored with Kirrily Jordan and just published by Cambridge Universty Press, is called Who Gets What? Analysing Economic Inequality in Australia. This book presents comprehensive information about trends in the distribution of income and wealth in Australia, the drivers of economic inequality, its consequences, and the policies that could turn the tide.