indexThis piece originally appeared on Redline back in March; we’re highlighting it again due to the latest discussions about poverty in this country, following the release of a new OECD report

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by Philip Ferguson

For twenty years inequality was off the mainstream radar as an issue of any importance.  In the past few years, however, especially since the global financial crisis has undermined the supposedly mythic qualities of the market, public discussion of the issue of inequality has become more common.  Among those raising the issue most forcefully at present are Max Rashbrooke and the people at inequality.org.nz.

Last Monday (March 17), the Canterbury Workers Educational Association hosted an early evening meeting for Max, as part of his tour promoting his 2013 book Inequality: a New Zealand crisis and the brand new The Inequality Debate, which is a shorter work drawn from last year’s book.  The meeting attracted about 50 people, not bad for a tea-time meeting in a city centre that remains largely deserted at night three years on from the February 2011 quake.

Max began by emphasising the human side of inequality: that it is real and lived.  And that it is also not something that just appears; it is created.

He looked at what has happened here since the fourth Labour government began slashing wages and conditions, with the following fourth National government doing the same.  Focussing on incomes, and adjusting them all for inflation, he noted that since 1994 the disposable income of the bottom 10% of income earners has stayed about the same.  The next 80% of income earners have seen their disposable incomes rise by only about $5,000 in the past 20 years – far, far below total inflation over that period.  The top 10% of income earners, however, have seen their disposable incomes double, while the top group within that decile, the top 1% of total income earners, have seen their pre-tax incomes double from a much higher base.  (It’s almost impossible  to work out their real and/or disposable incomes, due to their ability to hide chunks of it, avoid tax etc.)

Wealth inequality

Moreover, Max noted, on top of this is wealth inequality.  In 2007, the latest year for which full data is available, the top 1% held 16% of all net assets.  The whole of the top 10% held about 50% of net assets.  The next 40% has about 45% of net assets, and the bottom 50% of us hold a meagre 5% of net assets.

Since the mid-1980s, New Zealand has seen the world’s biggest increase in the rich-poor gap.

Maori and Pacific New Zealanders have poverty rates twice those of pakeha, but most poor are pakeha.  Max also usefully noted that in recent decades there has been a big increase in poverty within the Maori and Pacific sections of society.

He next looked at the impacts on society of the growth of income and wealth inequality.  Social cohesion is being eroded, people live more removed from each other, there’s less trust, less community involvement and the bonds that hold society together are weakened.  Health and well-being have become more problematic: there’s more stress, more heart attacks, more obesity.  Politics has been increasingly corrupted, as politicians vote in line with their wealthier constituents in increasingly unequal societies.  There’s less social mobility.  Long-term the economy suffers, as more equal societies have stronger, more sustainable growth rates (he cited the latest IMF report on this).

Rationalising the growing gaps

If there are all these problems, what’s pushing us apart; what’s causing this large and prolonged growth of inequality in New Zealand, he asked.  He then looked at several arguments that are often put forward on the right.  For instance, that it’s the result of globalisation.  He dismissed this, pointing out that the kind and rate of income and wealth inequality growth we’ve been seeing in recent decades in New Zealand is not universal.  There are other economies which are as, or even more, globalised which have not seen the gaps grow as they have in New Zealand.

Other people, he said, suggested it was through people not being qualified enough to earn big money; however, the smallest difference in incomes was between university graduates and people with only high school leaving qualifications.  Another argument is that the incomes and wealth of the rich is because they’re ‘productive’.  But, he noted, you cannot seriously say that people at the top are 30 times more productive than they were 30 years ago, especially when many people at the bottom are actually working longer hours than they were 30 years ago!  (And it’s only a matter of time before our working years are increased too!)

What, then, is driving these massive increases in wealth and income inequality?

What’s driving the widening gaps?

Max was clear on the immediate drivers of inequality in recent decades.  He noted that, if you took the average hourly wage from 1989 – $20– and increased it in line with productivity it would now be $31 an hour (as adjusted for inflation); however, it’s only $24.  This $7 an hour gap, he said, was due to people who make their money through capital.  They have managed to grab it because wage earners have lost a great deal of their bargaining power.  Moreover, he noted, the government does less to close the gap than it used to.  Benefit cuts, increases to GST, rising unemployment have reinforced the gap.

All of this is undoubtedly true.  But where do these drivers themselves come from?  What makes them necessary?

The unspoken word in all of this was ‘capitalism’.  The gaps haven’t grown because of the greed or some other character flaw of those at the top.  They’ve grown because that is the inexorable logic of capitalism.  The partial narrowing of gaps during the period from the end of World War 2 to the early 1970s, the period in which some of us were young, was an unnatural period if we take modern capitalism as a whole – ie the period from the industrial revolution to today.  (And this would still be the case if we went back to early capitalism, mercantile capitalism.)

Pre-distribution and redistribution

Because the ‘c’ word cannot be spoken, these kind of talks, useful as they may be in identifying problems of income and wealth inequality, end up in a kind of hollow place.  For instance, Max’s suggested policy answers were all within the existing socio-economic system.  They tended to be what he called ‘pre-distributionist’ rather than redistributionist, pre-distributionism referring to things which are done before wealth is distributed in the form of wages, profits, rents and interest.  So it means measures such as investing more in skills training, people having more bargaining power through the extension of collective bargaining, living wage legislation, and more scrutiny of executive pay.  He pointed to the recent referendum in Switzerland where a proposition was relatively narrowly defeated that no-one should have more than 12 times the income of anyone else.

While arguing the importance of pre-distribution policies, he also called for redistributionist policies such as a capital gains tax and the establishment of a universal basic income.

He also noted that there was no will in either of the two main parties to implement these measures anyway, so thankfully he wasn’t doing PR for the Labour Party.  Another point he made was that we kind of kid ourselves in New Zealand that our society has a long-standing commitment to equality, a commitment which runs deep.  He said if this really were the case the assault on living standards and rights that was launched by the fourth Labour government would have met much more resistance.  In reality, he suggested, the kind of civil society institutions necessary to embed notions of equality and be prepared to defend them were ‘thin’ in New Zealand.  One example is that the unions turned out to be much weaker than they appeared.

Unions, Labour, nationalism

I thought this was a very good point, although the conclusions to be drawn from this insight go rather further than Max would.  For instance, the problem with the unions was primarily political.  The unions were all about the terms on which wage-labour would be exploited, rather than on whether or not wage-labour would be exploited at all.  Most unions didn’t go any further than such bargaining and some didn’t even go so far as seriously attempting to get more pay and improved  conditions.  Moreover, the unions – or at least their leaderships – willingly subordinated themselves to the Labour Party.  So, instead of workers’ interests coming first, the interests of the Labour government and the system it managed came first.  That subordination played a large role in the fact that even a bunch of previously militant leaderships, for instance in the freezing works, simply collapsed in the face of the Labour government’s assault.

At these kinds of meetings, ‘kiwi nationalism’ usually rears its head and it did here too.  One person suggested that foreign ownership of land was pushing up prices, making it harder for New Zealanders to advance.  To my pleasant surprise, Max rejected this.  He suggested that it made little difference to poor people in New Zealand what the nationality was of the people who were becoming more and more rich than them.  Someone in the audience then mentioned foreign owners of assets here meant the repatriation of capital.  Max said that, to the extent this was true, it would have the effect of narrowing gaps within New Zealand rather than expanding them!  This is the case, but it’s extremely rare to hear someone at this type of meeting make this point.

Max and his colleagues at inequality.org.nz are doing a good job of publicising income and wealth inequality and in refuting much of the right-wing ‘justification’ of these growing gaps.  They’re also doing some useful work in identifying the gaps as the result of the collapse of much of the union movement, the loss of collective bargaining and other mechanisms by which workers tried to improve their share of access to the wealth produced by their labour.

What Max and his friends can’t do is get to the very bottom level of the problem: that the ‘drivers’ of growing inequality are themselves the necessary products of a system based on production for profit rather than human need.  No amount of pre-distributionist or redistributionist policies will change this fundamental reality.  Moreover, while governments have been forced to abandon neo-liberalism as a policy framework, they’re not about to return to a Keynesian framework because the preconditions for that simply don’t exist and haven’t for more than 40 years.

What we have these days is totally pragmatic, on-the-hoof policies from governments, as they respond to the increasingly regular problems thrown up by a system over which no-one has, or can exercise, full control.

A real alternative

The fundamental cause of inequality is the fact that, in a capitalist society, workers produce vastly more new wealth than what they are paid for.  This new, expanded value is surplus-value and is the basis for the profits of the capitalists as a class.  In other words, workers as a class are exploited by capitalists as a class.  When rates of profit are high and the working class is well-organised workers can wrench a bit more off the capitalists and the capitalists are willing to hand back a bit more of their stolen wealth in order to buy class peace.  When profit rates fall, which is a problem built into the capitalist system, they attempt to drive down wages and grab a bigger share, in the form of profit, of total socially-produced value.  Part of this profit also becomes their personal wealth.  Moreover, lower profit rates also mean they tend not to reinvest in expanding productivity, adding the saved funds to their personal wealth while trying to boost productivity by simply making workers work harder, faster and longer.

Whatever Max and his friends can do to highlight the growing gaps and their consequences for workers should be welcomed, as should their publicising of the need for workers to fight for more advantageous forms of wage-bargaining.  But it will take a whole new workers movement and a whole new left to point the only realistic way out of this mess.  Namely, the displacement of the capitalist class and system altogether through workers seizing economic and political power and creating a system based on meeting human needs.

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  1. […] For a discussion about inequality in New Zealand and the reluctance of anti-poverty campaigners to talk about capitalism, see our article on Max Rashbrooke and the ‘c’ word. […]