Why should we care about inequality? Sydney Morning Herald, 29 June
Dutch economist Jan Pen once suggested a simple way of visualising the amount of inequality in a society. Imagine, he suggested, a parade, in which each person’s resources were represented by their height.
Suppose we were to conduct such a parade in Australia. People of average wealth would be average height. Those with half the average wealth would be half the average height. Those with twice the average wealth would be twice the average height.
Let’s suppose the parade took an hour to pass you. What would you see?
For the first half a minute, people would be literally underground. These are the people with more debts than assets. Perhaps they are homeless, but have credit card debts. Or they are a business owner about to go bankrupt.
Then would come the little people. For the first few minutes, they are no bigger than Lego figures. They might have some clothing and a television, but little else. By the ten minute mark, people are the size of a child’s doll. They might own an old car.
Twenty minutes have gone by, but still the marchers are no taller than a newborn baby. Most probably don’t have regular work. Few would dream about them – or their children – breaking into the central Sydney property market.
Forty-five minutes in, and the watcher can now look the marchers in the eye. These are homeowners with well-paying jobs – in many cases probably with two full-time workers in the household.
Ten minutes to go, and the parade is suddenly getting interesting. Now, the marchers are two and a half metres tall, and their heights are rising fast. These people own multiple homes, and most likely have earnings well above average. They’ve done well over the past generation, with earnings having risen three times as fast for the top tenth of Australian workers as the bottom tenth.
Five minutes till the end of the parade, and the marchers are four metres high. Now come the giants. Ten metres high, then fifty, then one hundred metres high. Their shoes are as big as the watchers; their faces as high as office buildings.
One-thirtieth of a second before the end of the march, and we’re into the BRW rich list. The poorest person on the BRW rich list is twice as high as Centrepoint tower. The rest are taller still. Now, their heads poke into the clouds. The tallest person in the parade is over 30 kilometres high – well on the way to outer space.
That’s the situation we have in Australia today. But there’s nothing inevitable about this outsized inequality gap.
Maintaining pro-growth policies, improving our education system and ensuring our welfare spending is targeted to the neediest are good first steps at closing the gulf between the rich and the rest. But this isn’t all that needs to be done. Here are three more egalitarian ideas that governments and policymakers should consider
- Put new policy ideas under the equality lens. At present, new projects and policies might be subject to Regulation Impact Statements, Regional Impact Statements, Environmental Impact Statements, and Health Impact Assessments. Yet there is no similar process to look at distributional effects. Closer scrutiny of inequality ought to be on the agenda.
- Encourage ethical behaviour by firms and executives. In the employee-owned company John Lewis, a pay policy does not allow the highest-paid person to get more than 75 times what the lowest-paid person receives. In TSB Bank, the figure is 65. In Traidcraft, it is six. While I do not favour a compulsory cap on top salaries, I do admire firms that are beginning a conversation about pay equity within their ranks.
- Consider inequality in competition policy. Our current competition law is silent on the issue of equity. A more explicit consideration of inequality in competition policy would not change most outcomes, but might make a difference on the margins, for example when deciding on the distribution of outlets in low-income neighbourhoods.
Inequality is fast becoming a central issue of our age. Pen’s Parade reminds us that the disparities between rich and poor are significant. A richer conversation about inequality is not only in the interests of the disadvantaged, but of all Australians who want to maintain a fair society.