THE CLASS DIVIDE: ECONOMIC INEQUALITY IN AUSTRALIA by Frank Stilwell

Note: This article is based on a talk given at Politics in the Pub to launch a new book titled WHO GETS WHAT? Analysing Economic Inequality in Australia, written by Frank Stilwell and Kirrily Jordan, published by Cambridge University Press, Melbourne, in August 2007.

Issues of class and inequality underpin many of the processes currently re-shaping Australian society.

An obvious example is the current Coalition government's WorkChoices agenda, which is all about class politics. The redistribution of income from labour to capital has been one of the most striking features in Australia of the last quarter of a century. In other words, the gains made by labour, particularly organised labour, in the earlier period of the long boom have been substantially rolled back. WorkChoices is the current crunch element in a process that has been going on for quite a long time.

Tax changes have also widened the economic disparities in Australian society. Tax analyst Professor Patricia Apps estimates that the income tax cuts over a three year period will have been worth eleven thousand dollars for people with annual incomes over one hundred and eighty thousand, but a mere forty seven thousand dollars to those earning eighty thousand a year, and just one and a half thousand dollars for those workers on an annual income of fifty thousand . In other words, the changes to the taxation system significantly exacerbate economic inequality.

What has been happening in the housing market is also very significant. People owning multiple properties have benefited from inflation in land values over the last two decades. Meanwhile, those just seeking to put a roof over their head face severe problems of affordability. A recent newspaper article headed 'A trillion dollars in debt' draws attention to the growth in mortgage debt among Australians trying to become home owners, noting that first home buyers' payments recently hit an average of three thousand dollars a month in Sydney. Perth-based first home buyers pay even a little more than that on average. The incidence of repossessions is rising, particularly in the areas like Sydney's Western suburbs, as a result of the negative home equity. In other words, these households' debts exceed the value of their assets, and their incomes are insufficient to continue the payments. The incidence of housing stress is even greater among those in the private housing rental sector.

Another dimension of the problem of economic inequality concerns the inadequate spending on infrastructure in Australia. When we are talking about income distribution, we are not just talking about the relationship between the rich and poor, between people who are doing nicely and others who are marginalised from mainstream society. We are also talking about the way we provide collectively for our needs. It is bizarre that a society that has been enjoying a long boom of overall economic prosperity does not provide adequate facilities, such as dental treatment, to deal with the needs of all. More generally, the neglect of infrastructure investments is associated with those tax cuts to the wealthy to which I earlier alluded. In other words, government policies have been are impoverishing us collectively by failing to provide for the needs of the low and middle income groups and for the needs of future generations through adequate public investment.

Meanwhile the wealthy have been getting much wealthier, judging by the data presented by the Business Review Weekly annual 'Rich 200' list. You now need to have assets worth at least $196 million to get into this elite group. Number one on the list is James Packer, whose $7.25 billion assets were mostly inherited from his dad. The wealthiest woman, Gina Reinhardt, is the daughter of the guy who owned much of the iron ore resources of Western Australia. At number two overall is Frank Lowy with $6.5 billion. Than comes Richard Pratt, who is much in the news at present because he conspired with his major business 'rival' to fix prices (of cardboard boxes) above the competitive market level. As classical political economist Adam Smith wrote (in 1776), 'people of the same trade seldom meet together…but that the conversation ends in a conspiracy against the public or in some contrivance to raise prices'.

Chief Executive Officers in general have been doing particularly nicely in the race for high incomes. Not all of them feature on the BRW rich list. But a study reported in the Journal of Australian Political Economy showed that, if you look at the CEO's of the top 50 companies who are members of the Business Council of Australia, their average cash remuneration alone is now 63 times average weekly earnings. In other words, these individual CEOs are typically getting more per week than the average Aussie worker is getting per year. The CEO at Macquarie Bank got over 30 million dollars last year. That's fifteen times more in one year than most workers would get in a whole lifetime.

There is nothing uniquely Australian about this tendency towards a 'winner takes all' type of society. There are now, according to the recently released Merrill Lynch and Cap Gemini report, some 9.5 million people worldwide who have over a million dollars in financial assets. 160,000 of these live in Australia: that is a jump of over 10% since 2006. There is some trickle down from concentrated wealth, to the extent that rich people pay taxes which go to finance public expenditure. But the low rate of capital gains taxation, the absence of inheritance taxes and the lack of a comprehensive national land tax means that the redistribution is modest, at best. Tax avoidance among the wealthy is also rife.

Do these class divisions and economic inequalities matter? It is the concern with the adverse impacts on Australian society that motivated Kirrily Jordan and I to research and write a book on this topic.

Our book charts the dimensions of income inequality - the changing income shares of capital and labour and the incomes of different groups of property owners, workers and welfare recipients. We examine the inequality of wealth in Australia: because, to a considerable extent, 'who gets what' depends upon 'who owns what'. We scrutinise the Business Review Weekly data over a ten-year period, tracking whether the wealth is becoming more concentrated at the top end among wealthy Australians. We study the dimensions of poverty, looking at the different groups who are particularly vulnerable.

We also analyse how economic inequality produces 'divided spaces', between rich suburbs and poor suburbs and between city and bush. These geographical dimensions of inequality in Australian society are important because they directly affect people's access to economic opportunities and social infrastructure. Equally important are the continuing gender inequalities because, as we show in the book, the narrowing of the gap between men's and women's earnings that began in the 1970s has stalled in the last decade.

An analysis of what has been driving these economic inequalities is crucial. Some would say that it is just 'business as usual' for Australian capitalism. Of course, capitalism has always produced class divisions and distributional disparities. But there are particular features of the current era that accentuate those processes - globalisation, financialisation, neoliberalism and particularly aggressive industrial relations policies. Our book tries to assess the significance of these various causal factors that have been driving disparities through Australian society.

We also have a chapter that raises questions about the association between economic inequality and social discontent. This is significant because affluent households, including middle-income recipients as well as the very wealthy, are now commonly said to be suffering 'affluenza'. Indeed, as Clive Hamilton has recurrently argued, an increasingly affluent society is not necessarily a happier one. Our reasoning indicates that the key to that conundrum is the inequality in the distribution of income and wealth. In a society that is unequal, and in some respects increasingly unequal, the aspirational element dominates. There is a faster growth in expectations than the possibility of achieving those expectations in material terms. In other words, there is a growing gap. As more and more people come to aspire to emulate 'the life styles of the rich and famous', the sense of frustration in society, even among people who are living in relatively comfortable material circumstances, tends to be compounded.

There has been other adverse social fallout from increasing economic inequality. The tendency for a breakdown in social cohesion causes more and more resources to be put into security. I am not just talking about concerns with violence and terrorism here, but also about the proliferation of 'gated communities' - exclusive housing areas that are patrolled by private security guards, defending the assets of the comfortably well off from those who might eye them enviously.

There is also economic fallout from an unequal society. Phil Raskall pioneered earlier research about whether growing inequality is part of the reason for our persistent balance of payments deficit in Australia. We need more up-to-date research on this. Also on whether growing equality tends to fracture the co-operation that is necessary for high productivity in our workplaces. Willingness to cooperate - whether in sporting teams, households or the work environment - usually depends on the perception of 'fair shares' in the fruits of that cooperation.

Questions about the political fallout of economic inequality are also interesting to explore. The political principle on which our society is organised is explicitly egalitarian - one person one vote, irrespective of gender, race, even of wealth. In the economic sphere, however, the driving principle is one dollar one vote. That is the essential nature of the capitalist market economy. So the capacity to take advantage of economic resources often tends to swamp the formal political egalitarianism. In the extreme the wealthy effectively capture the political institutions through corrupt practices. The donations to the major political parties from property developers are a case in point in Australia, providing a vehicle for those sectional interests to pervert the public policy process.

There has been very interesting research in the USA on how government policies reflect the different preferences of the rich and poor. It has surveyed the preferences of low and middle income groups, to see what type of public policies they would like, and the different preferences of upper income groups. It looks at what governments actually do, revealing that only the preferences of the latter group matter in practice. In other words, though there is a formally egalitarian political process, the outcome is geared towards the interests of a dominant class. This political science research confirms what Marxists have long asserted.

A final, deeply worrying, concern relates to environmental and ecological sustainability. Unless we see ourselves as being all in the same boat, recognising the need for equality of sacrifice, we are unlikely to make the adjustments that are necessary to achieve a more ecologically sustainable society. That is true within nations as well as between nations. In other words, some greater degree of equality is a precondition for the politics of a transformation towards sustainability. Marxists have traditionally emphasised the problems of economic and social sustainability in a class-divided society; now the problem of ecological sustainability looks even more fundamental.

To what extent are the major political parties currently addressing these concerns? The vacuum is all too evident. The Greens, the Progressive Labour Party and the Socialist Alliance continue to emphasise the need to redress economic inequalities. However, the major political parties vying for office in the forthcoming federal election evidently prefer to keep relatively quiet on the topic because of the 'divisive' nature of the issues. But the divisions are there, and the evidence suggests that they may be intensifying.

Frank Stilwell is Professor of Political Economy,University of Sydney

THE CLASS DIVIDE: ECONOMIC INEQUALITY IN AUSTRALIA by Frank Stilwell

Note: This article is based on a talk given at Politics in the Pub to launch a new book titled WHO GETS WHAT? Analysing Economic Inequality in Australia, written by Frank Stilwell and Kirrily Jordan, published by Cambridge University Press, Melbourne, in August 2007.

Issues of class and inequality underpin many of the processes currently re-shaping Australian society.

An obvious example is the current Coalition government's WorkChoices agenda, which is all about class politics. The redistribution of income from labour to capital has been one of the most striking features in Australia of the last quarter of a century. In other words, the gains made by labour, particularly organised labour, in the earlier period of the long boom have been substantially rolled back. WorkChoices is the current crunch element in a process that has been going on for quite a long time.

Tax changes have also widened the economic disparities in Australian society. Tax analyst Professor Patricia Apps estimates that the income tax cuts over a three year period will have been worth eleven thousand dollars for people with annual incomes over one hundred and eighty thousand, but a mere forty seven thousand dollars to those earning eighty thousand a year, and just one and a half thousand dollars for those workers on an annual income of fifty thousand . In other words, the changes to the taxation system significantly exacerbate economic inequality.

What has been happening in the housing market is also very significant. People owning multiple properties have benefited from inflation in land values over the last two decades. Meanwhile, those just seeking to put a roof over their head face severe problems of affordability. A recent newspaper article headed 'A trillion dollars in debt' draws attention to the growth in mortgage debt among Australians trying to become home owners, noting that first home buyers' payments recently hit an average of three thousand dollars a month in Sydney. Perth-based first home buyers pay even a little more than that on average. The incidence of repossessions is rising, particularly in the areas like Sydney's Western suburbs, as a result of the negative home equity. In other words, these households' debts exceed the value of their assets, and their incomes are insufficient to continue the payments. The incidence of housing stress is even greater among those in the private housing rental sector.

Another dimension of the problem of economic inequality concerns the inadequate spending on infrastructure in Australia. When we are talking about income distribution, we are not just talking about the relationship between the rich and poor, between people who are doing nicely and others who are marginalised from mainstream society. We are also talking about the way we provide collectively for our needs. It is bizarre that a society that has been enjoying a long boom of overall economic prosperity does not provide adequate facilities, such as dental treatment, to deal with the needs of all. More generally, the neglect of infrastructure investments is associated with those tax cuts to the wealthy to which I earlier alluded. In other words, government policies have been are impoverishing us collectively by failing to provide for the needs of the low and middle income groups and for the needs of future generations through adequate public investment.

Meanwhile the wealthy have been getting much wealthier, judging by the data presented by the Business Review Weekly annual 'Rich 200' list. You now need to have assets worth at least $196 million to get into this elite group. Number one on the list is James Packer, whose $7.25 billion assets were mostly inherited from his dad. The wealthiest woman, Gina Reinhardt, is the daughter of the guy who owned much of the iron ore resources of Western Australia. At number two overall is Frank Lowy with $6.5 billion. Than comes Richard Pratt, who is much in the news at present because he conspired with his major business 'rival' to fix prices (of cardboard boxes) above the competitive market level. As classical political economist Adam Smith wrote (in 1776), 'people of the same trade seldom meet together…but that the conversation ends in a conspiracy against the public or in some contrivance to raise prices'.

Chief Executive Officers in general have been doing particularly nicely in the race for high incomes. Not all of them feature on the BRW rich list. But a study reported in the Journal of Australian Political Economy showed that, if you look at the CEO's of the top 50 companies who are members of the Business Council of Australia, their average cash remuneration alone is now 63 times average weekly earnings. In other words, these individual CEOs are typically getting more per week than the average Aussie worker is getting per year. The CEO at Macquarie Bank got over 30 million dollars last year. That's fifteen times more in one year than most workers would get in a whole lifetime.

There is nothing uniquely Australian about this tendency towards a 'winner takes all' type of society. There are now, according to the recently released Merrill Lynch and Cap Gemini report, some 9.5 million people worldwide who have over a million dollars in financial assets. 160,000 of these live in Australia: that is a jump of over 10% since 2006. There is some trickle down from concentrated wealth, to the extent that rich people pay taxes which go to finance public expenditure. But the low rate of capital gains taxation, the absence of inheritance taxes and the lack of a comprehensive national land tax means that the redistribution is modest, at best. Tax avoidance among the wealthy is also rife.

Do these class divisions and economic inequalities matter? It is the concern with the adverse impacts on Australian society that motivated Kirrily Jordan and I to research and write a book on this topic.

Our book charts the dimensions of income inequality - the changing income shares of capital and labour and the incomes of different groups of property owners, workers and welfare recipients. We examine the inequality of wealth in Australia: because, to a considerable extent, 'who gets what' depends upon 'who owns what'. We scrutinise the Business Review Weekly data over a ten-year period, tracking whether the wealth is becoming more concentrated at the top end among wealthy Australians. We study the dimensions of poverty, looking at the different groups who are particularly vulnerable.

We also analyse how economic inequality produces 'divided spaces', between rich suburbs and poor suburbs and between city and bush. These geographical dimensions of inequality in Australian society are important because they directly affect people's access to economic opportunities and social infrastructure. Equally important are the continuing gender inequalities because, as we show in the book, the narrowing of the gap between men's and women's earnings that began in the 1970s has stalled in the last decade.

An analysis of what has been driving these economic inequalities is crucial. Some would say that it is just 'business as usual' for Australian capitalism. Of course, capitalism has always produced class divisions and distributional disparities. But there are particular features of the current era that accentuate those processes - globalisation, financialisation, neoliberalism and particularly aggressive industrial relations policies. Our book tries to assess the significance of these various causal factors that have been driving disparities through Australian society.

We also have a chapter that raises questions about the association between economic inequality and social discontent. This is significant because affluent households, including middle-income recipients as well as the very wealthy, are now commonly said to be suffering 'affluenza'. Indeed, as Clive Hamilton has recurrently argued, an increasingly affluent society is not necessarily a happier one. Our reasoning indicates that the key to that conundrum is the inequality in the distribution of income and wealth. In a society that is unequal, and in some respects increasingly unequal, the aspirational element dominates. There is a faster growth in expectations than the possibility of achieving those expectations in material terms. In other words, there is a growing gap. As more and more people come to aspire to emulate 'the life styles of the rich and famous', the sense of frustration in society, even among people who are living in relatively comfortable material circumstances, tends to be compounded.

There has been other adverse social fallout from increasing economic inequality. The tendency for a breakdown in social cohesion causes more and more resources to be put into security. I am not just talking about concerns with violence and terrorism here, but also about the proliferation of 'gated communities' - exclusive housing areas that are patrolled by private security guards, defending the assets of the comfortably well off from those who might eye them enviously.

There is also economic fallout from an unequal society. Phil Raskall pioneered earlier research about whether growing inequality is part of the reason for our persistent balance of payments deficit in Australia. We need more up-to-date research on this. Also on whether growing equality tends to fracture the co-operation that is necessary for high productivity in our workplaces. Willingness to cooperate - whether in sporting teams, households or the work environment - usually depends on the perception of 'fair shares' in the fruits of that cooperation.

Questions about the political fallout of economic inequality are also interesting to explore. The political principle on which our society is organised is explicitly egalitarian - one person one vote, irrespective of gender, race, even of wealth. In the economic sphere, however, the driving principle is one dollar one vote. That is the essential nature of the capitalist market economy. So the capacity to take advantage of economic resources often tends to swamp the formal political egalitarianism. In the extreme the wealthy effectively capture the political institutions through corrupt practices. The donations to the major political parties from property developers are a case in point in Australia, providing a vehicle for those sectional interests to pervert the public policy process.

There has been very interesting research in the USA on how government policies reflect the different preferences of the rich and poor. It has surveyed the preferences of low and middle income groups, to see what type of public policies they would like, and the different preferences of upper income groups. It looks at what governments actually do, revealing that only the preferences of the latter group matter in practice. In other words, though there is a formally egalitarian political process, the outcome is geared towards the interests of a dominant class. This political science research confirms what Marxists have long asserted.

A final, deeply worrying, concern relates to environmental and ecological sustainability. Unless we see ourselves as being all in the same boat, recognising the need for equality of sacrifice, we are unlikely to make the adjustments that are necessary to achieve a more ecologically sustainable society. That is true within nations as well as between nations. In other words, some greater degree of equality is a precondition for the politics of a transformation towards sustainability. Marxists have traditionally emphasised the problems of economic and social sustainability in a class-divided society; now the problem of ecological sustainability looks even more fundamental.

To what extent are the major political parties currently addressing these concerns? The vacuum is all too evident. The Greens, the Progressive Labour Party and the Socialist Alliance continue to emphasise the need to redress economic inequalities. However, the major political parties vying for office in the forthcoming federal election evidently prefer to keep relatively quiet on the topic because of the 'divisive' nature of the issues. But the divisions are there, and the evidence suggests that they may be intensifying.

Frank Stilwell is Professor of Political Economy,University of Sydney