Talking Battlers & Billionaires with Steve Austin

Andrew Leigh MP
Member for Fraser
1 July 2013

Topics:                        Battlers and Billionaires

Steve Austin:           When I was presenting the evening program, I interviewed a chap by the name of Andrew Leigh. Andrew Leigh’s background is one of being a sociologist and economist. He got into federal politics, he’s now the Federal Labor Member for Fraser in New South Wales, and I interviewed him about a book he wrote then called Disconnected, and it looked at social capital and how it had weakened over the past generation - less people volunteer, less people part of community groups, church organisations, social groups and things like that. He’s changed direction this time, using his educational background, but he’s come to the conclusion that Australia is more unequal today than it was a generation ago. Andrew Leigh good morning to you.

Andrew Leigh:        Good morning Steve.

Steve Austin:           Andrew I want us to go back and look at how the people who have money are making it. How are the rich, the very rich, the stinking, filthy rich of Australia making their money.

Andrew Leigh:        Well Steve, of course governments never use words like ‘stinking’ or ‘filthy’. But if we look at the top 1% of the distribution, about half of those earnings are coming from salaries and about the other half from things like dividends and capital gains. And that’s been a big increase, so if you look back at the 1950s and 60s, the top 1% tend to be much more what the Americans derisorily call ‘coupon clippers’. Increasingly now it’s what labour economists call ‘superstars’: top accountants, top lawyers, top businesspeople, even top sports stars have seen their earnings go up, so it tends to be highly paid workers at the top of the distribution now.

Steve Austin:           Isn’t that funny, I expected you to talk about mining and resource billionaires.

Andrew Leigh:        There’s certainly a bit of that, so you don’t get into the top 200 - you don’t get into the pages of the BRW magazine [rich list] - without some very serious capital gains. So clearly the mining boom has had an impact over the last decade. But the story of the past sort of generation, which is really the period over which we[‘ve seen the recent rise of inequality, is one of labour incomes prevailing. And also that’s been part of the mining boom story. So WA used to be about as unequal as the typical Australian state or territory, now it’s by far our most unequal jurisdiction. The level of inequality in WA is the same as the level of inequality in the United States, which is very high. And a lot of that is because there’s a huge gap in salaries in Western Australia.

Steve Austin:           So wages have gone up for people in certain industries?

Andrew Leigh:        That’s right, and so labour economists talk about these superstar labour markets as being a function of technology. So, one of the stories I talk about in the book, is to compare an opera singer of the eighteenth century, Elizabeth Billington, with Luciano Pavarotti. Billington, the best thing she could do was to sing to full houses in Covent Garden and Drury Lane, and so she earned slightly less than $1 million dollars a year in that period (in today’s money). Pavarotti was getting at least $20 million a year because he was playing to a global audience through CD sales and music downloads.

Steve Austin:           Andrew Leigh is my guest, we’re talking about his latest book, Battlers and Billionaires: The Story of Inequality in Australia. This is 612, ABC Brisbane. So if that’s how the very rich are making their money, how are the very poor losing their money in Australia, Andrew?

Andrew Leigh:        Well the very poor aren’t going backwards in the main Steve, but their incomes aren’t keeping pace. Since the mid-1970s, if you’re in the bottom 10% of the earnings distribution, you’ve seen about a 15% increase in incomes (after inflation), if you’re in the top 10% you’ve seen a 59% increase in incomes. Put another way, if the bottom 10% had seen the same increase in incomes as the top 10% they’d be $14,000 a year better off. So you’ve seen all boats rising but the ocean liners are rising faster than the tug boats.

Steve Austin:           Why aren’t the very poor getting jobs in the mining and resource sector, I mean things, whether you can drive heavy machinery, it doesn’t require academic qualification to get a well-paying job.

Andrew Leigh:        They are to some extent, and the very low unemployment rate in Western Australia is an indication of that. Full employment is one of the best policies that you can have to benefit the whole income spectrum. But you know you also see gaps in educational attainment, and this goes back to the very beginning. So if you take a three year old from an affluent household and a toddler from a disadvantaged household, the toddler in the advantaged household has heard 30 million more words than the toddler in the disadvantaged household. So these educational gaps begin early, and that then plays into people’s ability to make the most of technology. If you’ve gone to university, you’re much more likely to benefit from technological advances than if you struggled through school and then left in year 10.

Steve Austin:           So are you telling me Andrew that you can actually tackle inequality somewhat in a poorer household by reading to your children? Or what’s the word, exposing them to reading and books as soon as possible if you’re in a low income household?

Andrew Leigh:        Absolutely, it’s not just of course about the number of books. So there’s a famously failed program by Rod Blagojevich, the disgraced governor of Illinois, who thought that he could change the outcomes of children just by posting book packs to new parents. It doesn’t have any impact because people in the affluent households read them, people in the disadvantaged households don’t read them. So there’s something happening differently in those households. It’s part of the book I found most difficult to talk about, because progressives don’t normally talk about what’s happening inside families, but you see very big differences in family structure and also in parenting style, and it’s just so strong through the research …

Steve Austin:           Which is why I like interviewing you Andrew Leigh by the way,  you do talk about what’s happening inside the family structure, which is unusual for the left of politics.

Andrew Leigh:        Yeah, you’ve nailed it there, and to give you one statistic that makes me uncomfortable, one third of Northern Territory Indigenous kids don’t have a father’s name on the birth certificate. I ‘m not sure I know how to fix that, but I do know that it’s a concern. We also know for, example, that there’s differences in parenting practices. The sociologists talk about ‘concerted cultivation’ – treating children like small adults, providing them, encouraging them to sit at the dinner table, to engage in conversation, to talk to the doctor, to basically, to feel like they have a bit of a sense of entitlement in the world. You don’t see that sort of same phenomenon going on in the most disadvantaged households according to the sociologists. How do we change it? Well that’s a hugely difficult questions, but I think it’s worthwhile people like me at least talking about this issue.

Steve Austin:           It’s unusual to hear someone from the Labor party talking about it in these terms. Andrew Leigh, is there anyone, I mean you’ve written this book more as a sociologist than a politician, is there anyone else acknowledging that in the Labor side of politics that you’re aware of?

Andrew Leigh:        I think there certainly is, and we’re very aware in the changes we’re making, making childcare more accessible for example, that that has a big impact on children’s life chances. The means-testing of social welfare which we’ve engaged in through the last two terms of government, have been very much about recognising that if you want to make sure everybody finishes the race, it’s not about putting lead in the fastest runners’ shoes, but it might be about buying a pair of runners for the person at the back who’s barefoot at the moment.

Steve Austin:           So Andrew Leigh, you’re telling me, those families that just get on with it … sorry let me rephrase my question, if you see yourself as a victim and complain about being disadvantaged and as a victim, it becomes a prophecy, a self-fulfilling prophecy in your life?

Andrew Leigh:        I’m not sure we know a great deal about that Steve. I certainly think that there is, there’s big institutional factors that affect people’s outcomes, there’s the luck of the skills that you’re born with, but there’s also the luck of the society you’re born into. So I’m a fairly lightly built guy, I don’t think I’m a particularly good fighter. So if I’d been born into the prairies, where the main activity was fighting with other people and managing to hunt down wild animals, I would have done very, very badly. So people who talk about merit – ‘well let’s just make it a meritocracy’ - forget the important role luck plays. And I think that’s why when you look at the survey evidence, most Australians prefer a more egalitarian distribution of income. Most Australians prefer a society in which we help up those most in need.

Steve Austin:           I know the billionaire Warren Buffett often puts a lot of his success down to the luck of birth, being born in the United States, which he says played the greater part in why he’s so wealthy today.

Andrew Leigh:        Warren Buffett is extremely articulate on this point, and I think it’s a really important one to recognise. And once you recognise that luck plays a role in where we end up, you realise it might not only be fairer but perhaps more interesting to have a society with a fair amount of redistribution. Let me tell that through a football analogy, that’s probably ill-suited to Queenslanders. Compare English Premier League and AFL. In English Premier League, Manchester United’s won 12 out of the last 20 season. In AFL, no team has won more than 3 out of the last 20 seasons. And that’s not an accident, AFL has a whole lot more redistribution, they have salary caps, they share the TV revenue more equitably, they have player transfers. And the effect is that the game becomes more interesting. English Premier League has become deathly boring because of the incredible inequality that’s entrenched within it.

Steve Austin:           My guest is Andrew Leigh. Andrew Leigh is a Federal Labor Parliamentarian from NSW, he’s a sociologist and economist by training, we’re talking about his latest work, Battlers and Billionaires: The Story of Inequality in Australia. His previous book was called Disconnected, which was a personal favourite, Andrew Leigh. But I’ll keep going on this one now, can I ask you about mining billionaires, because I get the call from listeners quite often that they see a sense of illegitimacy, or ill-gotten gains from mining magnates in Australia. That, yes they’re successful, and yes they’ve done well, but there’s a sort of a … they don’t deserve it because they didn’t actually create the mineral resources they’re digging out of the ground. Now you haven’t mentioned them per se and I sort of expected you to as a Labor politician, what’s your view on the extreme wealth of Gina Rhinehart in Western Australia, Twiggy Forest over there, and say Clive Palmer here in Queensland?

Andrew Leigh:        I’m very happy to talk about it, and I think there’s certainly an element of entrepreneurialism, but there’s also an element of luck. One way in Battlers and Billionaires: The Story of Inequality in Australia that I talk about that is by comparing Gina Rinehart with her father Lang Hancock. Lang Hancock when he died was worth $150 million, Gina Rhinehart is now worth somewhere around the vicinity of $20 billion. So, either you believe that Gina Rhinehart is hundreds of times more ingenious than her father, which doesn’t seem to hold up with the way in which she describes her father. Or else you think that when the iron ore price jumped tenfold, that delivered significant windfalls to Ms Rinehart. And if you believe that there is an important component of luck, then I think that makes something like a profits-based mining tax seem like a more reasonable response to the big jump in commodity prices.Steve Austin:           So would you recommend that Kevin Rudd have another look at his MRRT tax and bring it back in, sorry his super profits tax, and bring it back in?

Andrew Leigh:        I think the Minerals Resource Rent Tax is in some sense the real world version of the Resources Super Profits Tax. That’s partly because of the political challenges of getting something like this into place. But it partly also just reflects the fact that in the design of the Resources Super Profits Tax, there hadn’t been enough account taken of how, for example, the banks would treat deductibility. But certainly I wouldn’t be advocating the removal of a profits-based mining tax and going back to the old outdated royalties regime, which is of course what the other folks on the other side of politics are suggesting.

Steve Austin:           Andrew Leigh, another point you raise in your book Battlers and Billionaires: The Story of Inequality in Australia I think is really interesting - that the poor have disengaged with politics. Now under previous, in previous times that was not the case. Particularly with previous Labor leaders, they came from you know railway clerks, and those really working class occupations that weren’t high wage levels. What happened? Why have the poor disengaged from politics when it’s their biggest defender, potentially?

Andrew Leigh:        It is striking isn’t it Steve. I mean you, you notice, for example, if you look at the share of people that have participated in a protest or a march, that that’s only 7% of low income earners, but it’s 14% of high income earners. Or people who say they’re interested in the election campaign: 75% of low income earners, 85% of high income earners. And I think that’s part of the challenge that we face in making sure we’ve got a democracy that includes everyone. On the one end, I’m concerned about the role that excessive campaign contributions might play in distorting political outcomes. On the other, I want to make sure we’ve got an Australia in which everybody feels included in the common good. And that’s at risk where you have a sort of two Australias scenario, in which you have a group of people who are so affluent that they can opt out of public schools, opt out of public hospitals, opt out of even publically provided roads and publically provided police forces, and buy all of those things privately. I think that then is a risk to the common good and I’d like to see more people recognise that challenge.

Steve Austin:           I’ll leave it there Andrew, best of luck with the book, it’s lovely speaking with you, thank you very much.

Andrew Leigh:        Thank you Steve.

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