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The best and worst of the U.S. and how Australia compares - Part 2

By Andrew Leigh and Justin Wolfers - posted Monday, 19 January 2004

This is part two of an article first published in AQ. Part one discusses some of the advantages of life in the States.

Now, we turn our focus to some of the worst aspects of American life.


Across the world, the U.S. is certainly not the most unequal country - that unfortunate title probably goes to Brazil. But within the developed world, the U.S. has the largest gaps of any country between rich and poor. According to the Luxembourg Income Survey, a widely recognised international income distribution study, households at the 90th percentile of the income distribution have five and a half times the income of those at the 10th percentile. Over the past two decades, the richest of the American rich have been getting even wealthier. In 1980, the top one percent of Americans earned eight percent of all personal income – in 2000, they earned 17 percent. F. Scott Fitzgerald’s observation that “the rich are not like you and me” is truer today than at any time since the Great Depression.


Yet Australia is not far behind the U.S. in the inequality stakes. According to the Luxembourg Income Survey, those at the 90th percentile in Australia have 4.3 times the income of those at the 10th, a figure that has risen dramatically over recent decades. Our own research shows that the income share of the top 1 percent of Australians has grown by more than a half since 1980. And despite claims that this is somehow inevitable, the driving forces of Australian inequality – relative declines in minimum wages, falling union membership, decentralization of industrial relations, dismantling of the welfare state, reductions in the tax burden for the rich and soaring executive salaries – have all received either a push by government policy or have been altogether neglected. Left unchecked, Australian egalitarianism will soon give way to U.S.-style inequality.

Lack of Access to Healthcare

In the United States, most people get health insurance through their workplace. While government programs provide free healthcare for the elderly and young families, low-wage workers often miss out. Around one in seven Americans are without coverage, with the problem most acute for high school dropouts, Hispanics and blacks. Without health coverage, Americans are left to queue in the public hospital waiting room when they want to see a doctor.

Over the past decade, campaigns to provide healthcare to all Americans have foundered. In 1994, President Clinton’s plan to provide universal coverage was derailed by Republicans and the health insurance industry, some of whom described it as a form of “socialism”. In the last presidential election, providing healthcare to the poor was largely ignored by both major candidates, who chose to focus instead on providing more generous benefits to retirees. While the rich receive the best healthcare money can buy, scant medical care is provided to America’s low-wage workers.

Yet while Australia still has a universal healthcare system, public spending on health has increasingly become skewed towards the rich over the past few years. The 30 percent private healthcare rebate, introduced in 1998, is perhaps the most poorly designed social policy measure in a decade. Most of its cost (a whopping $2 billion per year) goes to wealthier Australians, who are more likely to be able to afford private cover, and more likely to choose gold-plated health schemes. Indeed, one study estimates that four-tenths of the total cost of the scheme went to the richest ten percent of Australians. The rebate has also produced some gross inequities. Although Medicare provides no dental coverage, around $300 million per year of the private healthcare rebate goes to subsidise the dental health plans of affluent Australians.

If that were not enough, recent months have seen new proposals by the Howard Government to deregulate doctors’ fees, which are likely to result in high co-payments. If left uncapped, excessive up-front fees may discourage low-income Australians from visiting the doctor. On both sides of the Pacific, compassion for the poor and sick seems to be in short supply.

Disengagement with politics

In 1960, nearly two-thirds of eligible Americans went to the polls to choose between Richard Nixon and John F. Kennedy. Forty years later, only half turned out to choose between George Bush and Al Gore. Declining voter turnout has been matched by a fall in the number of Americans who say they follow politics, and a fall in confidence in politicians. In the 1960s, three-quarters of Americans believed that you could “trust the government in Washington to do what is right all or most of the time”. By the 1990s, roughly three-quarters didn’t trust the government to do what is right. And today, a majority say that they would prefer their child to grow up a professional athlete than a future President (and recall that this is not only the country of Bill Clinton, but also the home of O.J. Simpson, Mike Tyson and Tonya Harding).


As political parties have become more professionalised, the fraction of U.S. voters who work on campaigns, attend political rallies, or write to their representative has dropped markedly. Political participation has been replaced by big money, which buys stage-managed consultant-driven campaigns. This has affected both sides of politics. In 2000, former Goldman Sachs CEO Jon Corzine spent around $AUD50 million, or around $AUD200 per vote, in winning the Democratic nomination for the New Jersey senate race. Not surprisingly, he eventually won the senate race too.

Yet despite the fact that our elections remain relatively free from the pernicious influence of big money, Australia has witnessed some of this decline in engagement too. In the 1970s, one-fifth of us gave our politicians a high rating for ethics and honesty. Today, just half that number are willing to do so. Anecdotally, many Australians comment on the behaviour of politicians as the cause of their disenchantment. “If I wouldn’t allow my kids to behave like that”, they say after watching Question Time, “why should I accept it from our leaders?” In both countries, disenchantment with politics has led to large protest votes for splinter groups emerging to both the left and the right of the major parties, with our own Pauline Hanson matched by Pat Buchanan, and the Australian Greens paralleled by the rise of Ralph Nader.

Ignorance about the rest of the world

“America”, said Oscar Wilde, “is the only country that went from barbarism to decadence without civilization in between.” In the process, its citizens have developed a certain myopia about the world around them. Only a quarter of U.S. citizens hold a passport. By contrast, even though we have to cross an ocean to visit another country, Australians are twice as likely to hold a passport.

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This is part two of an article first published in AQ. Part one discusses some of the advantages of life in the States.

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About the Authors

Andrew Leigh is the member for Fraser (ACT). Prior to his election in 2010, he was a professor in the Research School of Economics at the Australian National University, and has previously worked as associate to Justice Michael Kirby of the High Court of Australia, a lawyer for Clifford Chance (London), and a researcher for the Progressive Policy Institute (Washington DC). He holds a PhD from Harvard University and has published three books and over 50 journal articles. His books include Disconnected (2010), Battlers and Billionaires (2013) and The Economics of Just About Everything (2014).

Dr Justin Wolfers is an Assistant Professor of Economics at Business and Public Policy Department of the Wharton School, University of Pennsylvania.

Other articles by these Authors

All articles by Andrew Leigh
All articles by Justin Wolfers
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