Andrew Leigh

‘FIVE NEW IDEAS ABOUT INEQUALITY’

OUT OF THE ECHO CHAMBER DAY

MELBOURNE ABORIGINAL YOUTH SPORT AND RECREATION CO-OPERATIVE, FITZROY

7 AUGUST 2018

Over the weekend, I read an intriguing story about the increasing size of superyachts. The article noted that one of the richest men in Australia has over recent years upgraded from a 21-metre long sports cruiser to a 27-metre flybridge cruiser. His latest is a 73-metre Hasna superyacht, worth $75 million. But it’s not the biggest privately owned yacht in Australia. Another rich-lister owns a 74-metre Italian-made yacht.

Yet as investment banker Mark Carnegie notes, no matter how large they get, ‘someone’s always got a bigger one’. Carnegie observes that people buy these megaboats ‘as a means of transport; a place to sleep; a venue to entertain; a floating activity centre; and, most important of all, to show off.’

In the world of luxury boats, one expert observes that ‘the client who 15 years ago would have been satisfied with a 40-metre yacht, which would then have been one of the largest yachts in the bay, is now surrounded by dozens of yachts of 60-70 metres, and this plants the seed that he really ought to upgrade.’ The world’s largest yachts now include multiple swimming pools, submersibles, jet skis, concert halls and dance floors. Running costs alone can be millions of dollars per year.

At the other end of the income spectrum, leisure looks a little different. As one low-income person put it, leisure spending ‘depends on the situation with bills and gas and electric and so forth’.  Another said that their only leisure is to smoke cigarettes. An unemployed person said ‘there is no social life’. Leisure activities tend to involve walks and bicycle rides, with one study estimating that for poor Australians, spending $20 a week on recreation was a ‘generous amount’. When his friends go out for a meal to celebrate, one young unemployed man said ‘it’s quite embarrassing - I’ll just sit there and not eat’.

Plenty of ink has been spilt on the topic of inequality, including some from my pen. So it occurred to me that in kicking off today’s conversation, the best approach today might be to avoid a full frontal assault on the question of income distribution. Instead, my plan is to outflank it with a surprise attack - offering five facts you might not know about inequality in Australia today.

1. First, let’s look at earnings. The good news is that there’s one group in Australia that is enjoying healthy pay increases. For that group, average real wages increased by 7 per cent in 2017 alone. The bad news? We’re talking about ASX100 CEOs, whose average pay is now around $6 million. For the rest of the workforce, things aren’t quite so rosy. Since 2012, average wages have barely budged. While productivity has grown, the benefits are flowing to firms and their owners, not to workers. Australia has a wage problem.
2. Market concentration is a challenge across the economy. In department stores, health insurance, supermarkets, domestic airlines, internet service providers, baby food and beer, the biggest four firms control more than 80 per cent of the market. In many industries, Australia's markets are more concentrated than those in comparable countries. The number of mergers and acquisitions has nearly tripled since 1992. Meanwhile, the rate of new business formation is in decline, leading to an overall decrease in the number of firms in the economy. In just the past week, we saw news of a planned takeover of Fairfax by Nine, which will increase concentration in the media market. And a new report from the Productivity Commission found that as a result of the pricing power that major banks enjoy, ‘approximately half of the average loan price that major banks charge is estimated to be a premium over the marginal cost — double the margin that other Australian-owned banks have and well above that of banks in other high income countries.’ Monopoly power may be a major cause of inequality in Australia.
3. Australia has a higher share of the population in jail than at any time since Federation. As we meet, 0.22 per cent of adults are behind bars, a rate higher than at any time in our history, and higher than many other advanced countries, such as Britain, Canada and Japan. The incarceration rate has risen despite the fact that many categories of crime have fallen over the past two decades. For example, the murder rate is down by one-third, while the car theft rate is down by two-thirds. It’s true that we have a lower incarceration rate than the United States, which jails 0.86 percent of adults, but their rate has been falling over the past decade, while ours has been rising. Indigenous Australians are more likely than African Americans to be in jail. This is especially true in Western Australia, where more than 1 in 25 Indigenous adults are currently imprisoned.
4. The rich have seven more teeth than the poor - a gap that shows with every smile. According to surveys that asked people how many teeth they were missing, the affluent were missing an average of three teeth, while low-income Australians are missing an average of 10 teeth. This was brought home vividly to me by the story of a 39 year-old Canberran, Patrick, who discovered after 18 months on kidney medication, that his teeth had been all but destroyed. He grew a 25cm beard to hide his mouth and said that his four children were embarrassed about the way he looked. Eventually, Patrick was helped by a dental program implemented by Liz Dawson, a Salvation Army worker - now sadly deceased - who coordinated with local dentists to provide pro-bono care. But thousands of others miss out on care, and the difference in teeth affects people’s access to jobs and friends. Some of those who abuse drugs or alcohol say that they started off in order to numb the pain of an aching mouth. The dental inequality gap is just one marker of health inequity. In a study I conducted with Melbourne University’s Philip Clarke, we found that the rich live six years longer than their poor.
5. This year’s AFR Rich List contains 76 billionaires - 16 more than last year. The total wealth of the top 200 is $283 billion, up 21 per cent since last year. Just the top six billionaires in Australia now have about as much wealth as the bottom fifth of the population. Keep this in mind next time you hear people claiming that inequality isn’t rising in Australia. Over the past generation, inequality has risen in terms of income and wealth, whether measured by tax data or surveys. But there’s nothing inherent in economics that says that the growth must automatically fuel inequity. Indeed, Australia’s post-war decades saw solid growth and a marked fall in inequality. From the late-1940s to the early-1980s, the fall in Australian inequality was as large as the inequality gap today between us and egalitarian Scandinavia. We can be a more equal nation - if we make the right choices.

There’s no denying that superyachts and supercars are super-beautiful. The question is how much benefit our billionaires get from having a 70 metre boat rather than a 40 metre boat, or a sports car that accelerates from 0 to 100 km/h in 4 seconds rather than 7 seconds. For Australian battlers, the home ownership rate is as low as it’s been in six decades, and real wages aren’t growing. Unions - a traditionally powerful bulwark against inequality - have a membership rate that’s now down to just one in seven workers. The share of national income going to workers is markedly lower than a generation ago. At the rate the gender pay gap is presently closing, it will literally take centuries before men and women are paid the same rates.

What could make inequality worse? Reducing the power of unions, making our income tax system less progressive, or pretending that inequality isn’t on the rise. What could make Australia more equal? A fairer industrial system, properly funded schools, and a tax system that doesn’t leak revenue to the most affluent. That’s the choice Australia faces.

ENDS

Authorised by Noah Carroll, ALP, Canberra