Do Kiwis care about wage inequality?

PHILIP MATTHEWS
Last updated 11:47 26/10/2013
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FUNDING A FAMILY: How much is enough for a living wage>

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Is inequality natural or is it a choice that societies make? The answer depends on which economist you ask.

But that big question gets to the heart of an economic and political argument that is becoming increasingly hard to avoid, both in New Zealand and overseas.

Nobel-prize winning economist Joseph Stiglitz strongly believes that inequality is a choice. He recently made the case in the New York Times. He wrote that while the developing world, especially India and China, was catching up with the West, the poor were being left behind everywhere.

There are plenty of mind numbing statistics. Over 20 years from 1988 to 2008, the incomes of the world's top 1 per cent grew by 60 per cent while the bottom 5 per cent saw no change in their income. Stiglitz got those and other numbers from World Bank economist Branko Milanovic.

There are more. Eight per cent of people worldwide take home 50 per cent of global income. The top 1 per cent takes home 15 per cent.

Income inequality worsened in the United States and the United Kingdom in the late 1970s and early 1980s. It hit New Zealand in the mid-1980s and the gap expanded rapidly over 10 years.

Compare and contrast. A New Zealand household in the top 10 per cent now has nine times the income of a household in the bottom 10 per cent. The top 1 per cent own 16 per cent of New Zealand's wealth while the bottom 50 per cent has just over 5 per cent.

Those and other numbers appear in Inequality: A New Zealand Crisis, edited by journalist Max Rashbrooke.

When Rashbrooke returned from the UK in 2010, he noticed that many were not just materially poor but "excluded", and he wondered why no-one had written about it. His book appeared through Wellington publisher Bridget Williams Books in June and has, like the inequality argument itself, slowly attracted public interest.

Rashbrooke and economist Robert Wade have been interviewed on radio, television and in print, sometimes sceptically.

Official response has been mixed. When Wade, a New Zealander who is professor of political economy at the London School of Economics, appeared on TVNZ's Q + A in July, he was followed by Finance Minister Bill English who was less "pessimistic" than Wade about New Zealand inequality.

English was asked what he made of the coincidence in which the $1.9 million per year the Government had just put towards food in schools matched the annual salary of the chief executive of Mighty River Power.

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"He is getting paid what the market seems to need to pay," English said.

He added that if the chief executive was paid less, and was therefore less likely to be good at his job, electricity prices would go up.

What about the wider point? Yes, New Zealand would be more "cohesive" if so many "did not feel financial pressure", English acknowledged.

In a panel discussion that followed, Council of Trade Unions Secretary Peter Conway took Wade's side. He wanted to see a higher minimum wage, increased top tax rates and more employers signing up to a "living wage".

He said the Government's tax changes had increased the gap between those on $30,000 and those on $100,000 by $135 per week.

But how inspiring do we find these and other statistics? On the same panel, Auckland University political scientist Jennifer Curtin said the inequality debate was just not motivating people. She felt that an entire generation had grown used to post-1985 politics and taken inequality as the norm. They all aspire to that top 1 per cent.

That was three months ago. Max Rashbrooke has been touring New Zealand on and off since.

He counts the crowds. There were 100 people in Nelson, 140 in Palmerston North, 40 in Blenheim.

"Public response has been huge. People are really interested."

He does his half-hour presentation and then opens it up to the audience. Question and answer sessions turn into passionate discussions about the state of the nation.

Beyond the "beltway" assumption that no-one cares, is there a genuine, grassroots appetite for change?

Yes, and there is also data. Rashbrooke cites a Roy Morgan poll from August that found 51 per cent of New Zealanders are troubled by economic issues. The leading economic issue was poverty and the income gap, which was mentioned by 15 per cent, ahead of inflation, the exchange rate, unemployment and the cost of living.

Concern has climbed steadily over 18 months. Only 8 per cent cited poverty and the income gap in January 2012. Back then, the economy in general and unemployment mattered more.

So the argument that inequality matters to New Zealanders is based on more than anecdotes. But is there political will to do anything about it?

"Politics tends to follow public opinion with a bit of a lag," Rashbrooke says.

In July, the Labour Party was still in the dying days of the David Shearer leadership. The inequality issue moved to the centre of the leadership contest between David Cunliffe, Shane Jones and Grant Robertson. Labour has since pledged to raise the minimum wage and adopt a living wage for government employees.

The political Right remains unconvinced. National MP Tau Henare last month said that if Parliament's cleaners wanted to be paid more than $14.10 an hour then they should find another job.

"I don't think that's a valid response," Rashbrooke says.

Henare has apologised but fellow National MP Simon Bridges is still a living wage doubter. He said on Twitter: "I still can't understand why government workers deserve higher wages than others."

Rashbrooke thinks "the market" undervalues our lowest-paid workers. He quotes another intriguing statistic in his book, sourced from the UK's New Economics Foundation.

It estimated that highly-paid investment bankers destroy £7 of wider social, economic and environmental value for every £1 of value they create. But low-paid childcare workers generate between £7 and £9.50 in value for every £1 they are paid.

The argument is that inequality is not just immoral but has a social cost. The greater the income disparity, the more people live apart. There is less trust and less involvement in community activities. Stress and competition increase.

More voices have joined the debate. Mind the Gap, by documentary maker Bryan Bruce, screened on TV3 in August. It described 1980s economic policy as "zombie economics".

At last weekend's TEDx conference in Christchurch, entrepreneur Selwyn Pellett quoted economists Joseph Stiglitz and Gareth Morgan. Pellett saw a solution to inequality in a shift from a speculative economy that invests in property to a tradeable economy that generates well-paid jobs.

Rashbrooke is "cautiously optimistic" that anything meaningful can or will be done about inequality in New Zealand.

"It's not easy to reverse inequality. There are global factors at play. It took 30 years to bed in and social change is pretty slow. But when you look back at history, big changes have been made by governments that were determined. Inequality was worse in the 1920s than now and it changed because people wanted it to change. It can happen under governments of both persuasion."

When he spoke to the Press, Rashbrooke was preparing to chair a debate at Victoria University. A team led by economist Shamubeel Eaqub would argue that inequality was natural and a team led by Social and Cultural Studies professor Sandra Grey would argue the opposite.

It turns out that Eaqub won. In his blog, he explains what he meant.

"Our argument is very simple," he wrote. "Inequality is natural - as in it is in nature. We appealed to biology, evolution and human behaviour."

But it does not mean inequality is fair or equitable.

"In being natural, it requires unnatural interventions to reduce the ugly parts of inequality. But it also makes it very hard to change."

On a Friday morning in July, Jolyon White appeared before the Spreydon/Heathcote Community Board to argue his case. He said that a living wage of $18.40 per hour should be paid to all Christchurch City Council employees and contractors. The board endorsed the idea and sent it on to the council for a feasibility study.

Living wage proposals have also been considered by councils in Auckland, Hamilton and Wellington.

The cliche is that White is an Anglican reverend who does not look like your typical Anglican reverend. He is the social justice enabler in the Canterbury diocese of the Anglican Church.

Five months earlier, his church had joined a living wage movement across New Zealand, arriving at $18.40 as an hourly rate that could support a family of two adults and two children with one adult working fulltime and one part-time.

It helps to personalise the issue.

"Living wage is saying that if someone is working 40 or 50 hours a week trying to raise their kids, then she shouldn't be making a choice between her kids going on a school camp or saving up for a doctor's visit," White says. "On minimum wage, an after hours doctor's visit is a day's wages."

It is hardly a far-Left proposal. In the UK, Conservative London Mayor Boris Johnson has said a living wage is both morally right and good business sense.

It is seen as an investment in staff, leading to increases in productivity. The Warehouse has announced it will introduce a living wage. Staff turnover decreases, reducing costs in the long term.

"It need not be a Left versus Right thing," White says.

But it does suggest a more activist role for the church. The view of White and others is that the church has historically been very good at charity but "things are getting worse and charity is no substitute for justice denied".

Charity is disempowering and demeaning, he says. When the church and other organisations quote poverty statistics, such as the often-cited figure of 270,000 New Zealand children living in poverty, people still hear that "in their charity way of thinking".

You need to go past symptoms and get to causes. But how?

The answer is to persuade people that they are affected. Remember how Cantabrians felt exhausted and overwhelmed after the earthquakes but still found the energy to fight the closure of local schools? They believed a wider community, or city, was affected.

"I wonder if the same thing would happen if we genuinely started to believe that inequality is not just about poverty but affects all of us," White says. "That is the holy grail of the inequality debate."

On one level, there is a simple but effective dollars and sense argument. Rheumatic fever is said to be a disease of poverty. According to the Ministry of Social Development, treating it costs $40m per year.

The cost of keeping one person in prison is $91,000 per year. Given that there are strong links between crime and poverty, reducing inequality would make sense from a financial perspective.

"It's a slow train wreck," White says. "And we don't respond well to slow train wrecks. We respond to the immediate, sudden thing that's in front of us."

But it can seem that the living wage argument has caught the public and political imagination more successfully than inequality. Inequality is a relatively dry concept that needs explaining whereas living wage - like child poverty - is an easily grasped and emotional image. Unlike child poverty, it does imply charity.

It is also a more limited and less threatening subject than inequality.

"It's about trying to give the working poor one extra foot up the ladder. Inequality is about the gap in general. The living wage doesn't address the extremely high salaries."

Is that too hot to handle? White suspects that many still feel uneasy about challenging those who have too much.

A greater social shift may be needed before that is tackled.

"There is a classic phrase in Scriptures," White says.

"Those who gathered much did not have too much and those that gathered little did not have too little.

"We seem to be a society that has no concept of too much and endless tolerance for too little."

- The Press

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