Forget Bruce Springsteen. Forget Treasurer Wayne Swan’s bizarre excursion into pop musicology. Forget Swan’s mediocre interview with Leigh Sales last night (it shouldn’t be hard). Forget the predictable backlash from the business lobby and the mining billionaires themselves.
Instead, focus on the actual content of Wayne Swan’s John Button Lecture yesterday: inequality and the role of vested interests in Australia’s increasingly rickety democracy. Is Australia becoming a less equal place? Are powerful business interests slanting public policy towards the interests of the few and against the many? Is it true to say, as Swan does in his speech, that "the rising influence of vested interests is threatening Australia’s egalitarian social contract"?
The answers are yes, and yes.
When it comes to inequality, the data is patchy and often difficult to analyse. But the government is in the fortunate position of having the top academic researcher in the field of income inequality sitting on its back-benches: former ANU economics professor Andrew Leigh.
Leigh has crunched the data on income inequality in Australia all the way back to the early 20th century. He finds a pattern familiar to those that have looked at the issue in countries such as the United States. Australia around the turn of the last century was a very unequal place: home to penurious shearers, as well as millionaire plutocrats. Leigh reckons that "in the 1910s and 1920s, the richest 1 per cent of Australians had 12 per cent of national income."
By 1980, this figure was down to 5 per cent. In common with other English-speaking democracies, the period between the Great Depression and the onset of economic troubles of the mid-1970s was a "great compression", in which income inequality narrowed. One reason for this was that the period after the second world war was a great time for nearly everyone in society, except the super-rich, who found their share of Australian wealth reducing. Leigh cites William Rubenstein’s book The All-Time Australian 200 Rich List, in which Rubenstein remarks that "the post-war period seemed to constitute, as it were, an age of affluence for everyone except the very affluent".
But after 1980 or so, inequality started to widen again, especially between those at the bottom and the very top. Much of the research on this phenomenon has been done in the US, where it is sometimes called the "great divergence". But much the same trend occurred in Australia, just from a lower base. As Leigh explains "From 1980 to the late-2000s, the top 1 per cent share rose from about 5 to 10 per cent in Australia, but from 10 to 20 per cent in the US. So on this measure, Australia is twice as unequal as it was in 1980 — but the US is twice as unequal again."
What was causing this divergence? By and large, it did seem to be a trend of the rich getting richer. Leigh calculates that the top 1 per cent captured 13 per cent of total household income gains since 1980. The top 0.1 per cent have seen their share of income triple in this time. It’s a widespread phenomenon not confined to top business executives: Leigh points out that many top bureaucrats and public servants such as departmental secretaries, heads of government agencies and High Court judges are also earning more than the roughly $200,000 a year it takes to make into the top 1 per cent, while Reserve Bank Governor Glenn Stevens recently smashed the $1 million figure for his annual salary.
And why are the incomes of the elites of our society ballooning? There are a range of reasons, some of which are complex and difficult to understand, but some of which are pretty simple and straightforward. Leigh gives three main reasons.
Firstly, it does seem as though the globalisation and liberalisation of our economy has had a big impact. As world trade has expanded and market barriers have been pulled down, the wages that CEOs and top managers can earn in a global marketplace for talent have exploded. Some economists call this "superstar economics", referring to the outsized value that a few top superstars in a given profession can capture — be it professional football or management of big companies.
Secondly, union membership and bargaining power has declined. This has been especially true in the US, where, as the brutal battle over union rights in the state of Wisconsin shows, unions are now empty husks compared to their post-war muscle. But in Australia, union membership has also declined, from around half the workforce in the 1940s to less than one fifth today. Basic micro-economics tells us that industries and firms where bosses have lots of power and workers have little power tend to be the same ones where wages can be held low. Sociological data from the US seems to back that theory up empirically: in the US, declining union membership has been claimed to account for perhaps one third of the increase in inequality for male wage earners.
Macro-economic data also tells us that across the economy, more value is being captured by profits and less by wages. According to the Australian Bureau of Statistics, wages accounted for 53 per cent of our economy’s total income in 2009-10, down from 62 per cent in the mid-70s. In contrast, profits have risen steadily as a share of total income, from around 17 per cent in the mid-70s to 28 per cent in 2009-10. In other words, more of our society’s wealth is being captured by bosses, in other words, and less by workers.
The final factor is easy to understand. We’re taxing the rich less. Tax rates on the wealthy have fallen significantly in Australia. The top tax bracket was 69 per cent in 1970. Today it is 45 per cent. This means that the wealthiest in our society were paying more than one and half times more tax at the statutory rate a generation ago. Of course, its worse than that, because the very wealthy have vastly more tax perks, write-offs and accounting tricks with which to legally minimise their tax, such as negative gearing, self-managed superannuation, family trusts, and all the rest. And that’s for taxpayers who stick to the letter of the law. The past 30 years has seen an explosion in sophisticated financial transactions involving tax havens globally, allowing the super-rich to park their billions well beyond the reach of domestic tax authorities.
In summary, Swan is right to say that inequality in Australia is increasing, and that this threatens to unbalance our economy and society.
But what about Swan’s second point? Does it follow that the political interventions of billionaires such as Palmer, Hancock and Forrest are skewing our political debate? Are these three trying to "manipulate our democracy and our national conversation to gain an even bigger slice of the pie"?
This one is easy. Of course they are.
Let’s look at some recent actions by each. All three oppose the Minerals Resource Rent Tax, which will levy an increased tax on the super-profits of big mining concerns. The tax itself is a fairly obvious example of redistribution: it seeks to take money off companies making profits from a non-renewable resource, and redistribute to the Commonwealth to help pay for public services such as retirement benefits and infrastructure spending. Forrest and Hancock donated substantial sums to fund an advertising campaign against the original Resource Super Profits Tax proposal. Forrest is funding a High Court challenge against the current MRRT, passed by parliament. Clive Palmer has donated millions of dollars to the Liberal-National Party in Queensland, includiung $600,000 last year. The LNP, of course, also opposes the tax.
More broadly, all three oppose higher income taxes and support deregulatory industrial relations policies that would crimp union bargaining power in ways that would increase their ability to make profits. Support for these ideas are not unexpected given their wealth and position. But, if carried out, they are likely to result in more inequality.
It’s not surprising. And it’s not surprising that a Labor Treasurer is saying this. Business interests have a lot of money. They tend to argue for policies that will increase profits and reduce union power. They use their money to spread their ideas. You don’t need a love of Bruce Springsteen to understand that.