Towards a more egalitarian Australia

Australians in general have become wealthier in recent years, but that wealth is spread very unevenly. The assets of the wealthiest 200 Australians now range from $180 million to $7.2 billion. Meanwhile, poverty persists - at least relative to the general standard of living - despite the greater affluence of society as a whole. Particular groups, defined according to ethnicity, gender, location and socioeconomic status, face persistent problems of economic marginalisation and social exclusion.

One indicator of inequality is the relative size of the incomes of top business executives and average wages for all employees.

A University of Sydney study, examining the average annual remuneration of chief executives in the top 51 companies who are members of the Business Council of Australia, shows that their cash remuneration had risen to 63 times the average annual earnings of full-time Australian workers by 2005. It had been a mere 19 times the average wage in 1990. This is a dramatic increase in inequality of incomes.

Even more striking than the disparities in income are the inequalities in the distribution of wealth - financial and physical assets, such as cash, shares and real estate. The wealthiest fifth of households had an average wealth of about $1.38 million in 2004 and the bottom fifth an average of $24,000. This means the wealthiest fifth of Australian households are more than 56 times wealthier than the least wealthy fifth.

The households in the top fifth of the wealth distribution increased their wealth by an average of around $250,000 in the ten years to 2004 (two-thirds of which resulted from gains in the real estate market), whereas the least wealthy fifth increased their wealth by only about $3,000. Evidently, who gets what depends significantly on who owns what.

Should this gulf between rich and poor be a matter of public concern? There are strong social, economic, political and environmental reasons for thinking so.

Major economic inequalities impede the development of a contented society. If people’s perception of their happiness is judged according to what they have relative to others, then economic inequality is a recipe for widespread and permanent social discontent.

The emerging social science of “happiness research” shows that more affluence is not, in general, making societies happier. Economic inequalities drive the process of “conspicuous consumption”, “social emulation” and consumerism that produce only transient pleasures and accentuate the angst of “affluenza”. Greater equality would not resolve this problem, but could reduce its intensity.

In other words, the recognition that people’s wellbeing depends on their relative position in society, as well as their absolute living standards, requires continuous societal attention to distributional issues and outcomes.

Greater equality can also have significant economic benefits. Consider labour productivity, for example. Neoliberals argue that productive effort is encouraged by big inequalities, but orthodox economics actually provides no general support for this view, because high pay rates increase the incentive for people to substitute work for leisure. In practice, inequality is just as likely to impact adversely on co-operation in the workplace and thereby undermine labour productivity.

To the extent that economic inequality reduces the integration of different social groups, and the density of social networks, it can also undermine the conditions for social stability. In the extreme case, the juxtaposition of a marginalised underclass and an affluent elite is conducive to the periodic breakdown of social order, as the experience of many other countries has shown.

Differences in income inequality across countries are also closely associated with differences in rates of crime and violence. Economic inequalities damage social capital, and require an ever greater share of society’s economic resources to be used for maintaining security and stability.