Muddy waters: why Vinnies are wrong on inequality

A recent St Vincent de Paul Society report claims income inequality in Australia is dramatically widening and warns of severe social disruption unless it is reduced. I responded to this report arguing it was grossly exaggerated and that some of its claims had no basis at all in fact. The Vinnies’ authors have since sought to discredit my critique, but they have ignored key points and have ended up muddying the waters.

There are five key claims in the Vinnies’ report that are clearly untrue, and nothing they have said since has justified them (my full paper (pdf file 303KB) outlines these points in more detail).

We are on a “headlong dash into the chasm of inequality”

UNTRUE: This was the key claim in the Vinnies’ report, and it is false. No matter which measure we take, not much has changed in the distribution of incomes over the last ten years. It is therefore impossible to justify the claim that Australia is on a “headlong dash into the chasm of inequality”. In an attempt to justify their claim, Vinnies cite unreliable data on private incomes to suggest the lowest earners have gained very little, but they are referring to the wages of people who work no more than four hours per week. They have also hopelessly confused private income data with data on disposable incomes to claim the real increase in living standards enjoyed by people on the lowest incomes is much lower than it really is.

We are in danger of a “return to the dismal social injustices that characterised the dawn of the industrialised era, when people were kicked when down, while governments idly stood by”

UNTRUE: This warning is absurd. The federal government spends $87 billion on income support, and total welfare state spending amounts to $8,700 for every person in the country. Vinnies have denied my statement that our tax and welfare system redistributes more money to those on low incomes than virtually any other OECD country, but my claim is correct. They compare total welfare spending in Australia with that elsewhere, but this confuses the question of how much is spent with the more important question of how much is redistributed.

Vinnies deny economic growth raises everyone’s prosperity, dismissing this as a “glossy dream”

UNTRUE: Vinnies say we delude ourselves when we think economic growth will increase “prosperity for all”. But average real disposable incomes rose by 15 per cent between 1995 and 2003, and even the least advantaged - who rely entirely on welfare transfers from other people - have increased their spending power by one-eighth. This is a staggering vindication of the “trickle-down” theory of growth that Vinnies dismiss as a “glossy dream”.

Vinnies say we are facing “severe dislocation” and “increased crime” as a result of the failure to reduce current levels of inequality

UNTRUE: Claims like this are repeatedly made by socialist intellectuals, but there is no evidence to support them, and in Australia the evidence runs the other way. As incomes became more equal before 1981, crime rose rapidly. More recently crime rates have fallen significantly yet inequality has remained more or less constant.

Four and a half million people are living in households with an income under $400 per week

UNTRUE: The data they cite are from a 2002-03 ABS survey that estimated 1.8 million households had a weekly income under $400. The Vinnies translate this into 4.5 million individuals. Analysis indicates the realistic maximum figure to be no higher than 2.5 million - they have almost doubled the realistic maximum estimate.

Why did Vinnies put out a report like this?

If their concern is to help the poor why are they so concerned with what is happening to the affluent? Despite protesting in the media that they are not trying to drag down those on high incomes, this is exactly what they want to achieve. They are on record as demanding higher taxes to reduce the incomes of high earners irrespective of whether this achieves anything by way of redistribution to the poor. So why this preoccupation with reducing inequality if the focus is supposed to be on eliminating poverty?

In my original critique I suggested this commitment to egalitarianism is part of a broader political agenda that has been developed by researchers at the Vinnies over recent years. This agenda, I said, was strongly influenced by a Marxist perspective.

This claim provoked a furious response from the Vinnies’ authors. John Falzon’s article here in On Line Opinion  denied he and his colleagues were “communists”, but I never said they were. On a different tack, a Vinnies’ media release described my comments as “vindictive name-calling” and on ABC radio John Wicks dismissed my claim as “abusive”. But describing social analysis as “Marxist” is neither vindictive nor abusive. Marxism may or may not be an appropriate framework for a Roman Catholic charity to embrace, but it is an established and well-recognised method of analysis in the social sciences.

Although I gave extensive footnoted references to back up my claim that their work is strongly influenced by a Marxist perspective, Vinnies insist my claim is “unsubstantiated”. It is therefore worth spelling out more explicitly seven close contiguities between what the Vinnies’ researchers have been saying and core elements of a Marxist approach to social analysis.

Class analysis

Marx believed that modern capitalist society is a “class society”. The capitalist class owns land, finance and businesses while the working class owns nothing but its labour power, which it sells in return for a wage. These two classes are locked in conflict over the distribution of profit (“surplus value”).