Achieving equality of opportunity

Where to from here?
Fred Argy

My new book focuses on three of the traditional pillars of economic egalitarianism in Australia:

  • 1. a strong, unconditional, need-based welfare safety net (to minimise the risk of poverty),
  • 2. a broad sharing of national productivity gains (through a "just" wage, progressive taxes and nation development); and
  • 3. equality of opportunity.

These three tenants have become steadily debased over the last quarter of a century and especially in the last decade. In today's talk I will concentrate on equality of opportunity.

As a policy target, equal opportunity is about ensuring that everyone has an equal chance to develop their capacities to the full, so that excessive market inequality - inequality that cannot be explained and justified in terms of differences in effort and talent - is kept to a minimum. By narrowing the disparity in market incomes and thus reducing the need for passive redistribution in the long term, equal opportunity policies strike at the root causes of self-perpetuating disadvantage.

The notion of equality of opportunity has wide support throughout the community. Australians appear a little unsure about the role passive redistribution policies should play (especially in assisting persons of working age). But they overwhelmingly and unambiguously support government programs that promote equality of opportunity. It is in essence what they understand by a 'fair go for everyone'.

However equality of opportunity can become a 'political motherhood' if it is defined too narrowly. For example when John Howard and neo-conservatives profess support for a level playing field and a fair go, they mean 'equal treatment for everyone, without discrimination on the base of race, ethnicity, gender, sexual preferences etc'.

On this narrow definition, Australians would have every right to feel smug, as we have continued to roll back formal discrimination over the last quarter of a century - through a mix of legislation and moral leadership, especially under the Whitlam and Hawke-Keating governments. For example, compared with the 60s, we now have a less discriminatory and more tolerant immigration stance, tougher anti -racist laws, greater gender equality, more tolerance of gays and lesbians, better access to legal aid and wider superannuation coverage.

But treating everyone the same does not go nearly far enough. The concept of equality that the labour and social movements fought for in the past is much more substantive. It envisages unequal treatment of disadvantaged minority and low-income groups that start too far behind the rest of the field. It accepts (a) that these groups need something extra, through affirmative action or additional government per capita assistance; and (b) that efforts should be made to avoid high levels of wealth concentration because of the unequal power this engenders.

The retreat

Starting from this broad perspective, my book examines the evidence and concludes that there is less equality of opportunity today than a quarter of a century ago. For example:

  • employment opportunities - across households and regions - have become more polarised, with a steady rise in the incidence of long term unemployment, casual work and jobless households;
  • many people down on their luck are being denied the right to unconditional, need-based and dignified welfare support;
  • in the workplace, the voice of most low-paid workers has become stilled, even on vital issues such as working hours and conditions, as the balance of industrial and institutional power has swung markedly against them;
  • the competitive gap between kids in private and public schools is widening;
  • the relative health experience of lower income people is worsening;
  • home ownership and rental accommodation are becoming less affordable for many low income families;
  • public transport is becoming more costly and less accessible for many outer suburb low income families; and
  • child care facilities and disability services are under increasing stress.

We are also seeing, across these various areas, a widening opportunity gap between indigenous and non-indigenous Australians and between different geographic locations. And the distribution of wealth, already very skewed, is becoming increasingly more concentrated.

The signs are clear. We are developing into a two-tier, fragmented society in a way that was never true in the 1970's. A growing "under-class" of Australians faces the prospect that their lifetime earnings and quality of life will fall steadily behind the "over-class" of upper and middle managers, professionals and technocrats. They are increasingly becoming isolated - in terms of employment, income, location, school choice, health care, social attitudes and way of life.

An equal opportunity policy agenda

If a government wanted to stop or reverse these trends, the broad policy directions are clear. They include:

  • special measures to help indigenous Australians overcome their health and education handicaps,
  • early intervention and prevention policies and generous scholarships to assist families at risk of long term social and economic disadvantage;
  • active labour market and job creation programs to enhance the employment opportunities available to, and job readiness of, the long term unemployed and unskilled youth;
  • a restructuring of the tax and welfare systems, to minimise the poverty traps facing many of our single parents and disabled people;
  • improved access by low income families to public training and education, housing, health, transport, child care, electronic information services etc.;
  • measures to reduce the special disadvantages (such as in employment, education and health ) experienced by people in geographically isolated areas or suburbs;
  • assistance to low income families to build up savings, superannuation and learning accounts and to access credit, so as to help offset the effects of wealth inequality; and
  • greater safeguards to protect vulnerable workers from exploitation (e.g. giving them better control of their working hours and working environment and better access to trade unions).

Implementing the agenda

Some of this agenda could be implemented by tapping here and there into local and community capacity, supporting social entrepreneurs, making a little more use of social regulation (especially on quality of life issues), by rearranging spending priorities and so on.

But a social democratic government that was serious about enhancing equal opportunity would almost certainly need to broaden its funding options. The challenge would be a dual one.

  • to find new sources of revenue without further burdening ordinary workers; and
  • to break out of its psychotic dislike of public borrowing over the medium term.

Let me stress here that my social agenda would only require modest increases in taxes and public debt. I am not proposing a grand new vision a la Clive Hamilton or Michael Pusey. Even so, my agenda would undoubtedly require a significant cultural shift from the past; in particular it would require a review of the extreme fiscal conservatism of the Peter Costello and Bob Carr kind.

Is such an agenda realistic?

Is it all a pipe dream? Perhaps it is - but not for the reasons commonly given.

It is frequently said that a social agenda like mine would put an end to Australia's decade-long productivity 'miracle'. This economic-based attack has two strands to it. One is that governments would have to turn their backs on a major part of the liberal economic reforms of the 80s and 90s. This is a gross distortion of reality. The productivity-enhancing reforms were essentially about better ways of doing things - about achieving the community's goals and preferences more efficiently and effectively (examples are in the glossary to my book under 'economic liberalism'). These reforms were intrinsically value-neutral and did not require a retreat from egalitarian norms.

The egalitarian retreat was not driven by efficiency concerns and economic reform. It was driven either by mistaken economics and timidity or more often by ideology. Examples include the downgrading of full employment as a policy goal, the attack on welfare and trade unionism, the relentless attack on public borrowing, the strong in principle presumption in favour of private ownership and individual workplace bargaining and against social regulation. These had nothing to do with our productivity miracle. They were about a shift in policy values and priorities.

The other line of attack by economists on my social program is that it would discourage effort, skill and innovation. Yet there is no reason why, starting from a small government base like ours, well-chosen instruments of redistribution should seriously affect Australia's incentive structure and economic dynamism. Indeed, they might have net positive economic effects.

Another furphy of the Right is that redistribution is no longer effective in achieving its own social objectives. This is nonsense. Despite the explosion in 'middle income welfare' and the development of a few serious poverty traps, we still have one of the most cost-effective tax/transfer systems in the world.

And the assertion of neo-conservatives that Australians have had a gut full of redistribution is also largely untrue. The community is becoming a little more accepting of inequality and is cooling a little towards passive welfare. Any reform agenda needs to recognise this. But Australians still give higher priority to health, education and employment than to tax levels and interest rates and might actually welcome an equal opportunity agenda if it was properly marketed. Of course the opinion climate is fluid and fungible and can change easily, especially if cleverly manipulated by political spin-doctors and vested interests. But at this stage, the evidence suggests public opinion is supportive of the right kinds of egalitarian policies.

If I am right on all this, why then is a social democratic party like the ALP failing to respond strongly to what they themselves acknowledge as a serious social malaise? I am not on the inside so I can only speculate.

Perhaps it is because Labor leaders do not accept that the economic costs are low. Or perhaps they fear the Government's brilliant opinion management skills and want to remain a small target. Perhaps their private polling is telling them that traditional Labor voters are becoming more 'aspirational' [because of the increase in the proportion of small business contractors relative to employees, the reduced, more fractured, solidarity of workers and the growing equity culture in the Australian psyche]. Perhaps the prospect of an ageing population is adding to their timidity, with the Treasurer's warning not to "steal from our children" still ringing in their ears. Or perhaps, as I suggest in my book, they have been freaked by globalisation - the fear that global financial markets, multinationals and rating agencies will react savagely to an increase in social spending and borrowing.

I can understand all these concerns but I feel they do not warrant a rejection of the kind of modest social reform agenda I propose. Take globalisation. Sure, it has narrowed the range of revenue raising options available to governments but I believe there are good revenue sources still available, such as by targeting wealth, especially unimproved land values. And there is also much that can be done to curb the abuse of trusts, income splitting and, YES, negative gearing 1. Again, it is true that globalisation puts a limit on the kind of public debt build-up that would be acceptable over the medium term. But, with Australia's record low public debt levels, both historically and relative to the rest of the developed world, a more flexible stance on public borrowing would not worry global markets,. As the London Economist said, "when governments claim that globalisation ties their hands, they are conning voters".

Another red herring relates to the prospective ageing of the population. The so-called revenue gap only starts to bite in a decade or so and can be partially addressed through measures to encourage greater participation rates of older workers. Any residual revenue gap can be fairly left to future Australians. Remember that much of the gap will be due to the costs of new and improved medical technology, not ageing, so future Australians will reap the benefit of superior health care as well as paying the cost. Remember too that, even with some slow down in economic growth, Australians will be 85 per cent richer on average in 2042 than we are now. So it would be reasonable to expect a little extra sacrifice from them.

Clearly, there is a need for a more balanced perspective on these and other issues that have so spooked social democrats. And the ALP can take comfort from several political indicators. One is that, if it is properly explained to them, Australians support programs that promote equal opportunity. Another is that conservative governments are facing diminishing political returns from further claw backs to our egalitarian society. The easy targets (such as younger unemployment benefit recipients) have been done to death; the remaining ones (e.g. disability pensioners, sole parents. education and Medicare) will prove much more difficult politically. It will be fertile ground for the ALP to fight on. Yet another political positive is that as Australians become wealthier, they are likely to give higher priority to fairness and quality of life issues.

Conclusion

To sum up, Australians should generally respond well to an egalitarian reform agenda provided:

  • it has equal opportunity as its central goal;
  • implementation is gradual, say over a five year period (no Whitlam-like revolution);
  • the sacrifice is seen to be equitably borne; and
  • it is effectively marketed.

It calls for the type of political skill, courage and leadership shown by John Howard and his team - but in order to rescue rather than destroy egalitarianism.


Fred Argy has advised Australian governments from Menzies to Keating, has been awarded an OBE and AM for his services to economic planning, and is the author of Where to from here? Australian equalitarianism under threat (Allen & Unwin). This is a slighly revised version of the paper he presented to the Evatt Breakfast Seminar on "Australia's retreat from egalitarianism" held on 9 July 2003. His previous book was Australia at the Crossroads: Radical Free Market or a Progressive Liberalism? (Allen & Unwin: 1998).


Notes

1. The system can be modified in two ways - by limiting the ability to offset rental losses against non-rental income and by putting a cap on the amount of negative gearing any one household can engage in.

See also:

 

Suggested citation
Argy, Fred, 'Achieving equality of opportunity', Evatt Journal, Vol. 3, No. 3, May 2003.<http://evatt.org.au/papers/achieving-equality-opportunity.html>