Chatting with Fran Kelly about Battlers & Billionaires

Andrew Leigh MP
Member for Fraser
1 July 2013

Topic:                          ‘Battlers and Billionaires: The Story of Inequality in Australia’

Fran Kelly:                           Quarter past eight on breakfast. The gap between rich and poor has focused the minds of economists, politicians and others for centuries. While perfect financial equality for everyone is unrealistic – and probably undesirable – when the gap between the haves and the have nots gets too great, it can fray or even tear the social fabric. And if we need proof of that, we just look around us. Look at what happened in Britain in recent years.

So, where and how to live in the vast space in between? They’re the questions that Andrew Leigh tries to answer. He’s a former ANU economics professor, and at the last election he was voted in as the Labor member for the Canberra electorate of Fraser. His new book is Battlers and Billionaires: The Story of Inequality in Australia. Andrew Leigh, good morning.

Andrew Leigh:                  Good morning Fran.

Fran Kelly:                           Andrew there have been rich and poor since the beginning of time, and presumably for all time to come. Why is this getting a picture of the wealth equality, or inequality rather, important to policy making?

Andrew Leigh:                  Well Fran, I think the distribution on income matters, as well as the increase in averages. And that’s because if you ask people whether they’d rather live in a society where the wealth was concentrated among a very small group of people, or in a place where the wealth was more evenly shared, the overwhelming majority of us want to live in a more equal society. It’s more interesting, and I think we also regard it as being fairer. Given that while the amount of resources we have is partly a reflection of effort, it’s also a reflection of luck, of being born with certain traits. And so we shouldn’t think of the market distribution of income as something that has to be left untouched.

Fran Kelly:                           And you make this point in effect, there’s a questionnaire that I think you recount in the book, where that question is always answered ‘yes, we’d like to be fairer’. And you talk about the foundation myth in Australia, we’re the great classless egalitarian society, a fair go for all is our mantra. And yet Australia at this moment, according to your research, the gap between the rich and the poor is wider than it’s been for a long time.

Andrew Leigh:                  That’s right. So you see over the last couple of hundred years you see Australia start from a very equal point in the late 18th century to go to become very unequal around World War I, become much more equal again and then since the 1970s again the gaps widen between rich and poor. For example, over the last 30 years the top 1 per cent share has doubled, the top 0.1 per cent share has tripled, and CEO salaries in the top 100 firms have gone from an average of $1 million to an average of $3 million. So we’re seeing this increasing, increasing gap between the rich and the rest.

Fran Kelly:                           And does it matter in real terms? Because although there’s an increasing gap, you also note that the bottom half of earners, if you like, in Australia, the bottom half are also financially much better off on average than they were 30 years ago. So does the gap matter more than the reality of people’s standard of living?

Andrew Leigh:                  It does matter, and let me use a sporting analogy to explain why. Let’s compare the AFL and the English Premier League. So over the last 20 years the English Premier League has seen one team, Manchester United, win in 12 out of 20 seasons. In the AFL, no team has won more than 3 out of the 20 seasons. And there’re structural reasons why that’s true. In English Premier League, each team gets to keep the TV revenues, in AFL it’s shared. In English Premier League, you can spend what you like on salaries, in AFL there are salary caps. And so those institutions, including the draft in the AFL, have made for a more interesting game in the AFL. And when I’m saying interesting I’m also saying it’s a more egalitarian game than English Premier League.

Fran Kelly:                           So it makes for a more interesting game, how does that translate to society? A more interesting society, a better functioning society, a society with a stronger base and a stronger economy? Tell us how it translates.

Andrew Leigh:                  Certainly a fairer society, also I think a society with more social mobility, where the circumstances of your birth don’t determine your destiny. Also potentially a society that doesn’t have the high involvement or heavy investment of the interests in politics. So for example you look at the US system recently, where you’ve seen incredibly affluent people getting extraordinarily large campaign donations, and for me that’s a bit of a concern as well. So I think they’re the main reasons we should be worried about inequality: effectively they’re what I would think of as the intrinsic reasons that we are creatures who are made to enjoy fairly equal distributions, not to give everything to one person.

Fran Kelly:                           Sure, but to stay with this notion of what kinds of creatures we are, I mean I think if you asked a poorer person ‘would you like to stay poor with only a small gap between you and the richest people, or would you like to be better off but with a bigger gap between you and the top’, people would probably say they’d prefer the latter. And as we saw when Wayne Swan, for instance, took aim at some of the rich billionaires in our society, a lot of people came to the defence of someone like Twiggy Forrest, arguing, you know, he’s made his wealth, good on him.

Andrew Leigh:                  Well on average relativities certainly matter. You can think about this again in a sporting sense, it’s great if you’re the only person standing up at the footy, but once everyone else stands up suddenly you don’t get a better view after all, and you need to get a box to stand on. And that holds also if you ask people about their ideal distributions of incomes. One US survey for example said ‘would you rather have $100 000 with everyone else having $200 000, or would you rather have $50 000 with everyone else having $25 000?’ And more people preferred to have a little less income, but be on the top of the heap.

Fran Kelly:                           You’re listening the RN Breakfast, our guest this morning is Labor MP Andrew Leigh. He’s a former ANU economics professor, and he’s written a book called Battlers and Billionaires: the story of inequality in Australia. And you do go into the history, and just to talk about that foundation myth that we talked about before, a fair go being a principle we live by in Australia. You give us an example of how that was on display in a Japanese POW camp. Tell us about that.

Andrew Leigh:                  So in the Japanese POW camps there were two ways of organising your society.  The Japanese gave a little more money to officers than they did to enlisted men, and there were only a certain amount of tents to go around. And the British decided that the best way of dealing with that was to have everyone keep what they were given. The Australians, under Weary Dunlop, took a different approach. They took the notion that the resources should be shared and that the sickest should take the tents and have a little bit more food. And as Tom Uren said in his first speech to parliament, only a creek separated the two camps, but on one side there was the law of the jungle and on the other side egalitarianism. And that affected survival rates as well: cholera ripped through the British camps, the Australians largely survived.

Fran Kelly:                           And in Australia we do have some very rich, and the mining boom has created some very very rich, there’s no doubt about that. But we also have quite a high degree of social mobility now, don’t we? We’ve seen changes, the western suburbs of Sydney for instance, we hear people talk about the McMansions and the wealth on display there. Much of that, is it fair to say, is the result of changes to government policy?

Andrew Leigh:                  I think it’s important that government policy improves social mobility. We see big impacts on early childhood development, for example. So by the age of 3 a child from an advantaged household has heard 30 million more words than a child from a disadvantaged household. And we know that there’s a range of other impacts through the family, as well as through resources, that affect social mobility. Australia’s not top of the pack in terms of how mobile a society we are, but we’re not as static a society as the United States, where it’s extremely hard to move from rags to riches over the course of a lifetime.

Fran Kelly:                           The point you make there though is that it’s not just about the dollars. The dollars have an impact on every other level of opportunity, including as you say the number of words spoken, the kind of education, the kind of parenting. Now you can’t make just widespread characterisations of people based on how much money they earn, but you do go to some of that in this book.

Andrew Leigh:                  That’s right, and for a progressive like me, it’s the hardest bit of the book to write. For example, one of the stats that shocked me was that among Northern Territory Indigenous babies, 1 in 3 now don’t have a father’s name listed on the birth certificate. Now I don’t think the solution to that is simple by any means, but I think that it’s certainly a factor that’s driving inequality and immobility in Australia and we need to look inside the black box of families and see the extent to which government policies can help ensure that every child has a great start in life.

Fran Kelly:                           The Gillard Government was working on that with the Close the Gap strategy, in terms of life opportunities and years lived, and education opportunities for Indigenous Australians. Bu the fact is the starkest gaps in wealth inequality in Australia do involve Indigenous Australians. Has that changed much over the years, indeed over the two centuries?

Andrew Leigh:                  It’s very hard to get good data on Indigenous Australians. Certainly what we know is that at the time of settlement, Indigenous Australia was an extremely equal community, and a simple way of understanding that is to imagine how equal Australia would be if each of us could only keep the possessions we could carry on our backs. Similarly, the early settlers were quite an egalitarian community. The early invitations to dinner at Government House from Arthur Phillip apparently carried the request ‘please bring your own bread’. And then we saw an increase in inequality across the population and we’ve probably seen an increase in inequality within the Indigenous population over this period as well.

Fran Kelly:                           And just finally, it probably is important for all of us to understand what the picture of wealth is in Australia because government policy tries to focus on it quite carefully. It looks at means testing, we’ve had all the discussions about middle class welfare, what is middle class? If we take a household for instance where one parent’s a teacher, one parent’s a policeman, they’re combined income is around $150 000, that sounds like a reasonably typical middle income household. No one would say they’re rich, but in fact, according to most of Australia, they are better off. What is the median average?

Andrew Leigh:                  So the median income in Australia is around $80 000 –

Fran Kelly:                           - for a household?

Andrew Leigh:                  That’s the typical household income.

Fran Kelly:                           $80 000. So how many Australian households would be on that level?

Andrew Leigh:                  So, I guess, I need to think about household size. Let’s say the household size is 2.2, that gives us 10 million households, so we’ve got 5 million households below $80 000 a year, and 5 million about $80 000 a year. So it’s useful I think to understand that broad distribution when you’re thinking about any question of public policy.

Fran Kelly:                           Ok Andrew thank you very much for joining us on Breakfast.

Andrew Leigh:                  Thank you Fran.

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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.