Andrew Leigh

Equal to our core: making the case for egalitarianism as Australia’s national value 

Speech at the launch of the Bachelor of Economics (Advanced)

University of Adelaide

14 October 2014

 

 

 

I could not be more delighted to be with you this evening on this terrific occasion, the launch of the university’s Bachelor of Economics (Advanced) degree.

I know your degree will be one of only two available in Australia – and as the other one is being offered in Melbourne, I’m serenely confident yours will be the better. When I was Parliamentary Secretary to Prime Minister Gillard, I am sure she once told me she was glad to have had the dual benefit of a Melbourne degree and an Adelaide education. 

Or perhaps I made that up. Never mind. I read in the publicity that the degree will be both a “pathway” to Honours and a “springboard” into leadership…I suppose as long as there’s a “ladder of opportunity” at the end of the “pathway” providing access up to the “springboard” it’ll all work just fine.

Your aspiration is admirable and I congratulate you for it. This degree will offer seriously high achieving entrants to the university a seriously challenging point of entry into our discipline and our profession. It will offer students the opportunity for achievement and the preparation for leadership, and lead them into careers in research, industry, advice and decision. Surely we have never needed that more.

I was invited here, and have been introduced to you, as “an economist committed to public service”. Which is flattering, but slightly coy. It’s a little bit like describing Mike Rann as “a journalist committed to diplomacy”. Of course here on a great campus and at a significant academic occasion for our discipline, I understand that my achievements as Shadow Assistant Treasurer are less striking and memorable to this audience than my work as a Professor of Economics at ANU.  Fair enough; not even I considered my second reading speech on Taxation Laws Amendment Bill No 4 ground-breaking.

But I am a politician; what’s more, a Labor politician. So I hope you can understand that in speaking tonight about egalitarianism and inequality in Australia, I cannot help but touch on the relation between politics and economics. I promise not to spend our time together speaking only as Andrew Leigh MP, but to pretend to speak exclusively as Professor Leigh would not be entirely honest either. 

I believe an advanced degree of the kind we celebrate tonight, with a cohort of students of the kind you hope for, and with your stated ambitions for service to the nation and leadership in the world, will not long remain a project simply in and of the academy. A course like this one will raise our young people in the heartland of our discipline – but it will do more. It will put them on a train for the border. 

Across that border, there is another country we will send our young economists into. And whether we call it leadership, or public service, or even (whisper it) politics, what lies over that border matters to the preparation you make here. So I’ve come back to tell you a bit about what the borderlands are like.

And I want to be a little specific in the way I talk about that. I want to talk to you about a particular borderland between economics and politics; one that may be the biggest political and economic question of these years: equality. 

Last year I published Battlers and Billionaires which tells the story of inequality in Australia. Much of what follows is drawn from there. 

To briefly telegraph the key points I want to make tonight: despite a generation of rising inequality, there’s good evidence that the Australian egalitarian ethos is strong. There’s an important role for economists to play in measuring that and advising decision-makers, and the experience of the Rudd and Gillard Governments is that politics can make a difference. Importantly, the debate about how equal Australia is – and should be – is far from settled. And there are fresh areas for egalitarian endeavor ahead of us – including within our federation.

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Having laid out tonight’s path, let us start down it from somewhere familiar. Let’s start in our discipline, with the economic history and the facts.

By today’s standards, the pre-settlement Indigenous Australian and British colonial societies were incredibly equal, at least in resource terms. The reason for this was simple: both communities lived so close to starvation that sharing available resources equitably was the only way to keep people alive.[1] One study of the eastern Gunwinggu people on the Gulf of Carpentaria estimated that getting 2000 calories a day (a bare minimum to survive) required everyone except the oldest, youngest and sickest to forage for nine hours a day in the wet season, and five and a half hours in the dry.[2]

Similarly, while the power imbalance between guards and convicts may have been colossal in early white Australia, the gap in material conditions between these groups was far more modest. As Robert Hughes put it in his landmark history The Fatal Shore, hunger was ‘the hateful equalizer’ between the jailers and the jailed.[3] One study demonstrated this by analysing public records for Sydney from 1788 to 1790, which show the salaries of every soldier and civilian, as well as each person’s food ration and clothing allowance. [4] After a price was put on the rations, inequality among the British settlers was estimated to be not only lower than has been observed at any other point in Australian history, but also lower than inequality in the United States, Britain and the Netherlands at that time.[5]

From the start of white society in Australia, economic equality lived alongside an ‘egalitarianism of manners’.[6] Somewhat inevitably, the relatively equal distribution of resources shaped the way people in early Australian society related to each other as well. Back in the old countries of England and Ireland, a wealthy lord was immediately distinguishable from a rural peasant by the quality of their clothing, the diversity of their diet and their refined manners and accent. In the harsh environment of colonial Australia however, such markers of distinction were either unavailable or unsustainable. Colonial Australians came to treat each other as equal because in practical terms, they basically were.

(We should never forget that this equality did not extend to their dealing with Indigenous Australians.) 

What is striking is that Australia’s egalitarian ethos persisted through the 1800s, as economic inequality grew. By the mid-1800s, one in 25 Australians worked as servants: a larger share than today work as school teachers.[7] If we were to take a time machine back to nineteenth century Australia, the extremes of wealth would remind us more of Dickens’s London than the Australia of today.

And yet even as income and wealth gaps widened, visitors to colonial Australia often remarked upon the unique ethos of a nation where Jack was as good as his master.

In the 1850s, an English gold-digger wrote home that ‘Rank and title have no charms in the Antipodes’.[8] In the 1880s, an essayist summed it up by saying: ‘In England the average man feels that he is an inferior, in America that he is a superior; in Australia he feels that he is an equal. That is indeed delightful’.[9]

Mark Twain saw it, Anthony Trollope saw it, DH Lawrence saw it; it wasn’t a dream and we didn’t make it up.

This delightfully egalitarian spirit continued to occupy an important place in Australia’s national psyche throughout much of the 20^th century. Economic inequality peaked around the 1920s, and fell strongly in the post-war decades. This was partly due to expanding educational opportunities. My paternal grandfather, Keith Leigh, could not have paid the fees for the University of Melbourne on his modest clergyman’s wage. But for thousands of men like Keith, the end of the war brought new opportunities.

By the 1960s, Craig McGregor noted that the wealthy ‘feel under some pressure to be accepted by ordinary work­ing Australians rather than the other way round’.[10] He also cited a survey of the time which found that 54 per cent of Australians described themselves as ‘middle class’, signifi­cantly higher than the share in the United States at 42 per cent, or the United Kingdom at 35 per cent.[11]

In the same decade, Donald Horne noted: ‘There are no possibilities in Australia of determining status by simple inspection. You can’t place a man in a social scale by listening to his accent or what he talks about or by looking at his clothes or observing his manners’.[12]

So despite the fact that economic inequality rose through the nineteenth and early-twentieth centuries, Australians still acted like equals. That spirit was especially strong in from the 1940s to the 1970s, as inequality fell.

There’s good evidence that this spirit of egalitarianism persists today; indeed, it seems Australians want to be more equal.

One way of measuring this is to show people different possible pictures of the income distribution and have them pick the one they prefer. In these exercises, only 19 per cent of respondents opt for a pyramid-shaped income distribution, with a few people at the top and everyone else below[13]. Most people believe that a pyramid shape accurately describes Australian soci­ety today – though few realise just how pointy the top of the pyramid is now. Even so, few regard such a distribution as ideal.[14] Indeed, the share of people who want to live in a pyramid-type society is lower than it was in the late 1980s.[15]

Other surveys have asked Australians whether they agree or disagree that ‘differences in income are too large’. In 2009, three-quarters agreed, up from two-thirds in the early-1990s.[16]

Suppose you had an equal chance of being born into any of the five wealth quintiles in Australia. Would you prefer to be born into a society where the rich had 60 times as much wealth as the poor? Or a society where the rich had about one-and-a-half times as much wealth as the poor? The first ratio represents the true distribution of wealth in Australia.[17] When surveyed about their ideal distribution, though, the majority of respondents wanted the nation to be  more egalitarian. Indeed, the ratio of the rich having one-and-a-half times as much as the poor is the average survey response of the most affluent respondents.

So Australians don’t believe equality is unrealistic or bad for the economy and we do support egalitarian policies.

But while we may express a clear preference for equality, I think we all sense that the world around us isn’t arranged that way.

In writing Battlers and Billionaires, I set out to test my uneasy suspicion that Australia has actually become a more unequal place in recent decades. Unfortunately, I was right. The data clearly shows that Australia enjoyed a golden era of equality from the 1940s to the 1970s, followed by a rapidly growing gap between rich and poor over the past generation.

To see this, let’s look at a group that has gotten plenty of attention lately: the top 1 per cent. In case you’re wondering whether this particular club will have you as a member, joining the top 1 per cent today takes an individual pre-tax income of over $200,000.

From the 1910s to the mid-1950s, the income share of the top 1 per cent fell from 12 to 8 per cent. By 1980, it was down to 5 per cent. In seven decades, the income share of affluent Australians had more than halved.

During the Menzies era, real wage growth was 4 per cent a year; five times faster than it had been from 1901 to 1940.[18] For ordinary workers, the late 1950s and early 1960s saw paid annual holidays increase from one week to three.[19] By the 1960s, most Australian homes had a vacuum cleaner, a washing machine, a radio and a television. There was a fridge in 97 per cent of Australian homes in the 1960s, an appliance that most Britons, Germans and Italians did not yet possess.[20] (Granted, unlike the Poms, we did also have summer.)

Australian incomes in the post-war era also rose faster at the bottom than the top. In one study, I looked at the distribution of incomes across Australian males. In an era when men were the main breadwinners, their income said a lot about how money was distributed across families. From the early 1940s to the late 1970s, I found a significant drop in male inequality.[21] To put the size of the equalisation in perspective, the improvement in equality over these three decades was as big a shift as you would need to bridge the modern-day difference in equality between Australia and the much more equal countries of Scandinavia.[22] Importantly, falling inequality among men was also accompanied by a steady narrowing of the gender pay gap during this period, with the equal pay cases of 1969 and 1972 being key milestones.[23]

By the beginning of the 1980s Australia had become a remarkably equal place; as egalitarian as at any point since the 1700s.

But then inequality began to rise.

Over the past thirty years, the top 1 per cent have almost doubled their share of household income.[24] Cumulatively, the increase in the affluent share from 1980 to 2009 represents a $403 billion shift from the bottom 99 per cent to the top 1 per cent.[25] And because top incomes are rising, the figure continues to increase. In 2009 alone, the rise in top incomes since 1980 represented an additional $33 billion more income for the top 1 per cent. Put another way, if our economy stayed the same size, but top income shares went back to their 1980 levels, the annual incomes of the bottom 99 per cent would rise by $33 billion (around $4,000 per household).

To this point, I’ve mostly viewed the evidence for inequality through the lens of income – and there’s plenty of it. But if you want to see some seriously large gaps, look not at what people take home each year, but at the total value of everything they own: their wealth. In general, the poor spend everything they earn (and then some), while the rich save significant amounts.

Working with Argentinian economist Pamela Katic, I pulled together data from three sources – wealth surveys, inher­itance tax records and rich lists – to build a picture of long-run wealth inequality.[26]

We see a similar pattern to that for top income shares, but with even more dramatic trends. From 1915 to 1953, the wealth share of the affluent fell from 34 to 15 per cent, and by 1978 it had fallen still further, to 7 per cent.[27] But by 2010 it had ticked up again significantly, with the most affluent 1 per cent of Australians owning 11 per cent of all wealth.

Now, even for a theatre full of wonks, all of these numbers can be a bit hard to visualise. So let’s imagine a ladder on which each rung repre­sents a million dollars of wealth. Now imagine the Australian population spread out along this ladder, with distance from the ground reflecting household wealth.

On this ladder, most of us are just a few centimetres off the ground. Half of all households – about five million of them – are closer to the ground than they are to the first rung. The typical Australian household has a wealth of about half a million dollars, placing it halfway to the first rung. A household in the top 10 per cent is one and a half rungs up, at about knee height. About ten million families are below there, and only a million above. Five rungs up, at about neck level, you can find the households in the top 1 per cent.

On her current wealth, the mining billionaire Gina Rinehart is six kilometres off the ground. People like her are so far up they look down on the mile-high club.

Another way to measure inequality is to look at the share of people living on less than half the median income. This measure, known as ‘relative poverty’, has increased in each of the 1980s, 1990s and 2000s.[28] Just as the top is accelerat­ing away from the middle, so too has the middle gotten away from the bottom. If you think of inequality as being like a horse race, yes, everyone is still moving in the same direction, but the front-runners are accelerating away from the pack, while the laggards are falling further behind.

So whichever way you cut it, it is clear from the data that Australia has become a more unequal place over the past generation.

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I believe that this is important. I believe this matters, and here’s why.

In a recent speech to the Progressive Policy Institute in Washington, I argued that Australia needs to promote and maintain a unified national identify based on shared values. We need this national identity to help us sustain social cohesion as our communities inevitably become more ethnically, culturally and religiously diverse through globalisation and transnational migration.

This evening I want to say to you that egalitarianism should be one of those core values. Indeed, egalitarianism is perhaps the value which has the best potential to unite Australians now and in the changing years ahead. 

We have been, are, and can be still, egalitarian to our core.

I am convinced that our egalitarian spirit helped make Australia a stable, cohesive and prosperous nation over the past two centuries. I am convinced we still have this ethos strongly present in our society, even as inequality has risen starkly and significantly in the past generation.

I believe egalitarianism is a value that runs deep in the Australian popular psyche, with undeniable origins in our history and culture and undeniable continued appeal in our democratic society. 

But I worry that unless Australian leaders consciously re-focus on equality as our shared goal and egalitarianism as our common value, we will lead our people into a more unequal and divided future.       

To be blunt: a more unequal Australia is a less egalitarian one, and this is simply not a value we can afford to let fade away.

But now we’re not just talking economics anymore. When we start talking about values, about the kind of Australia we want to be in the future – then we have entered the borderlands. Then we are in the realm of politics and government.

Because it is often government that chooses a path and guides our collective steps along it. When government doesn’t choose, it allows other to choose for us.

Governments of different political persuasions make very different choices, and these can have far-reaching consequences for equality in Australia.       

Consider Australia’s political history.

World War II marked an important shift in the social compact, partly because so many citizens had vivid memories of living through World War I. In 1939, unlike in 1914, there was widespread recognition of the massive sacrifice that war entailed, and a strong belief that the burden must be shared fairly across the community. Prime Minister John Curtin told parliament in 1942: ‘there will have to be a fairer distribution of wealth’.[29]

Various measures were put in place to achieve this. Prices and rents were controlled so that workers did not see their costs escalating while their wages were frozen. Ration cards were introduced for basic foodstuffs and clothing. Income taxes were federalised and the tax base expanded so that the typical worker paid federal income tax for the first time. Tax rates were increased for the more affluent as well, with the top marginal tax rate reaching 93 per cent in the latter years of the war. The effect of all these changes was to reduce the after-tax incomes of the rich and boost the buying power of the poor. Post-war Australia also held on to a social safety net that included age pensions (introduced in 1909–10), child endowment (1941), widows’ pensions (1942), funeral benefits (1943) and unemployment benefits (1945)[30].

Yet in 1950 we still spent less per person on these programs than the United Kingdom, the United States or New Zealand.[31] A key reason for this was the decision in the 1930s to means-test the Australian age pension. Other countries provided benefits that were equal across the board (some were even linked to earnings, and so more generous to those at the top – an idea whose time has seemingly returned). Their welfare states acted like piggy banks, helping people smooth income across their lives. But from an early stage, the Australian welfare state specifically redistributed income from the rich to the poor. Like age pensions, the invalid and widows’ pensions were means-tested.

This focus on the neediest has been a key feature of Australian welfare. It is one reason our system is fairer and more sustainable – and it is an important distinction between our system and those of many countries overseas. In all the debates over our fiscal future, including those arising from the fact that our people are living longer, this should not be forgotten.

Now consider more recent government measures.

The Rudd Government’s decision in 2009 to boost the single age pension by over $1600 a year reduced relative poverty by one-fifth. For people who have worked on poverty, this is virtually unprecedented – a single government decision that took one in five people out of poverty.

When the Global Financial Crisis hit, that Government delivered household stimulus through means-tested payments which were progressive and temporary – not through tax cuts which would have been regressive and permanent.

The Gillard Government’s National School Improvement Plan was also aimed at distributing resources more fairly to improve outcomes for those in disadvantaged areas – ensuring postcodes did not define the destiny of Australian schoolkids.  

The Gillard Government means-tested family payments like Family Tax Benefit-B and other benefits like the private health insurance rebate. 

Because of choices like these, the Rudd and Gillard Governments can be proud that inequality did not significantly increase in the period 2007-2013.

For the past decade, Tony Atkinson and I have been annually producing estimates of the top 1 percent income share. This year, we handed the conch over to Roger Wilkins, Richard Burkhauser and Markus Hahn. Their results, reported in July, showed that top income inequality did not grow in the period since about 2007.

It’s been amusing to me to see how these results have been reported. Last year, one serious paper reported on page one ‘Inequality rises under class warrior Swan’s watch’ – but could not present a skerrick of evidence to back up its claim. This year, another paper claimed that the flatlining of inequality since 2007 proved that Labor figures like Mr Swan and myself were wrong to make inequality a political issue.

Some of our critics are pretending that Labor exacerbated inequality. Others contend that the failure of inequality to grow under Labor means inequality doesn’t matter. We can’t win.

The fact is that the Global Financial Crisis played a part in stemming the growth in inequality, but that’s not the whole of the story. Governments can make a difference – as the Rudd and Gillard Governments did by holding back the tide of systemic financial collapse. Governments can also make a difference in quite a different way – as the Abbott Coalition Government seems likely to do.

The incoming Coalition Government’s first budget contained many policies that, if they are enacted, will lead to Australia becoming a more unequal country. In some respects, this is their stated goal. They express it in guarded terms like ‘incentive’ and ‘entitlement’, but the goal is evident nevertheless.

For example, their proposed changes to the Newstart Allowance would see unemployed young Australians left without income for up to six months, forcing many to rely on family or charity to meet their daily needs. Plans to apply interest rates to student loans could likewise place tertiary study beyond the reach of many kids from poor backgrounds. The proposal to index pensions to prices rather than wages means pensioners no longer share in any increase in general living standards.    

At the same time as introducing these measures which hurt people lower in the income distribution, the government has pursued policies which benefit people at the higher end.

It has repealed the mining tax, which will benefit some of the richest people on the planet, indeed some of the richest humans who have ever lived.

The government has also maintained extremely generous tax concessions for people with more than $2 million in superannuation. These retirees receive more government assistance than someone on the full pension. Indeed, someone with $20 million in superannuation is receiving nearly half a million dollars a year in government support.[32]

At the same time, the government proposed to cut the Low Income Super Contribution scheme which helps those with limited incomes save for their retirement. So while the Government plans lower taxes on people earning over a million dollars or with more than $2 million in their superannuation accounts, it planned higher superannuation taxes on people earning less than $37,000 a year. Luckily my party and our crossbench colleagues in the Senate were able to defeat that particular plan, as we will intend to do with the NewStart, pension and higher education changes.

We oppose all of these measures because they would make our society less equal. 

In this respect, it is clear from measured public opinion that Labor is far from alone.

Indeed if the first conservative Federal Budget since 2007 has been bad for equality, it may have been good for egalitarianism. For the first time in a good while, questions of fairness and equity have been occupying front pages and front bar debates across Australia.

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Certainly no one can have missed the noisy and passionate public discussion about whether the budget was fair. But there is another argument about equality coming, and for the moment, it is approaching with far greater stealth.

I am thinking of the Federation; of the literal constitution of our ‘common wealth’.

A few months ago the Prime Minister launched a review on reform of the Federation. This is the opening salvo in a debate about how our hundred-year-old system of government should be renewed for the future. 

It is clear from the Terms of Reference provided that the government has bigger plans in mind than a bit of spring cleaning. Major renovations are on the cards.

The Coalition has flagged a smaller role for the Commonwealth government; reducing or eliminating overlapping areas of service and funding delivery; and providing more autonomy and equity for state governments.

It’s hard to disagree with any of these things as principles. But if we care about equality then we must keep a watchful eye on what they end up meaning in practice.

Federalism is a fundamentally egalitarian institution because it supports states in times when they’re doing it tough. As industries rise and fall, different states will do better at some times and worse at other times.

This is an inevitable fact of economic growth. But it does mean that – left alone – economic change would batter states hard.

Federalism means that we share some of the upside, and help states during the downside. And you only have to look back over history to recognize how hard it is to predict the snakes and ladders of economic fortune.

Challenges facing a great state like the one we find ourselves in tonight are caused by the decline of manufacturing and the high Australian dollar, amongst varied other causes. None of you are any less capable because you happened to be born crow-eaters.    

That understanding underpins the principle of horizontal fiscal equalization.   

Just as our personal tax system enables those with the most to support those with the least, so too federalism enables states that are doing well to support those that aren’t doing so well.

That’s egalitarianism on a national scale, and it’s a proud achievement of our federation. The state you live in shouldn’t define your access to proper services and infrastructure any more than your postcode should decide this within individual cities.    

Princeton University’s Paul Krugman makes the point by comparing the European Union and the United States. Both have similar populations, but the former is primarily a monetary union, while the latter is also a fiscal union.

As has frequently been pointed out, Greece has lower productivity than the Eurozone average. This has contributed to an economic slump that may last the better part of a generation.

In the United States, Mississippi also has lower productivity than the national average, but fiscal transfers mean that its economic outlook today is much rosier than that of Greece.

The United States is hardly the world’s most egalitarian nation. But its federal structure has a redistributive effect.

In Australia, our federal system means that we reach back to help prevent those in need from falling behind.

Labor will not let this ‘Commonwealth’ become a place of ‘hoarded wealth’.

I can also tell you that we will not support scaling back the Commonwealth Government’s roles and responsibilities unless it is clear that all states have the capacity and resources to step up in its place.

We will not let ‘simplified government’ become a euphemism for service cuts and sliding standards across our health and education systems.

Let me say again: federalism is a fundamentally egalitarian way of structuring a nation. If we dismantle or drastically alter that structure, we can expect to see rising inequality between places just as we’ve seen it rising between people in recent decades.

Labor will not stand for that. And we will stand up to any party or government that claims a greatly diminished federation would be in the interests of our collective, common wealth.      

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Let me conclude by directly addressing the undergraduates here tonight.

I said earlier that I had come back to tell you what the borderlands are like; to tell you something about that other country, politics, where economics matters so much.

I took that as my theme because we’re here launching an advanced degree in economics, and we do so in the knowledge that economics matters to politics and society.

But I want to be more specific than that.

I don’t only believe economics matters.

I believe economists matter.

You matter.

Our discipline is by far the most influential social science in our society and arguably today our profession is even more influential than the law. (Though it’s possible that being an ex-lawyer has coloured my view on this question!)

And I want you to know that along with affording you great opportunities, it also delivers you a great responsibility. As Keynes put it (in a rather more male-dominated era):

‘the master-economist must possess a rare combination of gifts… He must be a mathematician, historian, statesman, philosopher – in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard.’[33]

Perhaps that passage – sexism omitted – could be the course description for the degree that we are launching tonight.

The private rewards available in this society for people who can count have never been greater. And if you want, you can take the skills you learn here, and use them to plant your own personal money tree on your back porch, and tend to it for years.

Yes, you can.

Or if you want, you can cultivate the same tree on common ground.

Only you can decide; but I want you to know I think you will find that this is the better life.

Thank you. And good luck in all your endeavors.

Notes