Deloitte Top 200: Is NZ having a Trump moment?

By Tim McCready, James Penn

Issues of social mobility rather than inequality may be to blame for the current rise in anti-establishment politics

As anti-establishment politics continues its seemingly unassailable rise, the concept of 'inequality' is often invoked to explain it.

While there is no doubt inequality has driven many to the polling booths in support of Donald Trump, Brexit, Pauline Hanson and others, arguably what is at stake is more an issue of social mobility.

People will tolerate inequality. Many accept it as a natural by-product of an economy that encourages entrepreneurship and growth. Indeed, Americans have voted in as their president a man who embodies that inequality.

But that tolerance comes with hope; a hope that they, or their children or grandchildren, can reach the upper echelons of the economy if they continue to work hard, make prudent long-term decisions, and have a little bit of luck.

Circuit breaker

Increasingly, Western economies have represented a closed circuit of economic enrichment.

Alan Krueger coined the term 'The Great Gatsby Curve' to describe the way inequality affects social mobility.

As Krueger summarised in a Brookings Institution blog, "greater income inequality in one generation amplifies the consequences of having rich or poor parents for the economic status of the next generation".

Once the working class gets the sense that their prospects of upward mobility are waning, they are willing to turn to a circuit breaker.

The left

For decades, the left have adopted the rhetoric and policy that implies the economy is a 'zero-sum game'.

Specifically, the consistent premise of their arguments has been that something that benefits the rich must automatically, and equally, cost the poor. A gain to one is a loss to another, they argue.

Graphic / NZ Herald
Graphic / NZ Herald

This is simply not the case when it comes to economic growth. But that is beside the point in relation to the present climate. The bigger problem is that such a paradigm becomes easily transported to the flow of people. Priming voters to see the economy as a zero-sum game makes it very easy for the nationalist right to argue that immigration is likewise a zero-sum game. It becomes difficult for the left to then argue that immigration is the one area where a benefit to one (the migrant) is not a cost to the other (the destination economy).

Immigration

Perhaps that is why we are beginning to see some New Zealand's political parties tentatively embracing anti-immigration policy.

The Greens recently released a new, population-based immigration policy, stating they would cap overall net migration at one per cent of the population -- including returning New Zealanders. "We know that immigration is becoming more of a concern for people and in my experience the vast majority of people aren't concerned about immigrants, they're concerned about the impact on house prices, and infrastructure," says James Shaw, Green Party co-leader.

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"Others around the world think as New Zealand First does," said New Zealand First leader Winston Peters this year, at the party's 23rd anniversary. "They were tired of being fobbed off about issues like immigration."

Much has been made of a potential 'Trump moment' occurring in New Zealand in the future. Already, we may be falling into the same trap of the establishment in the US: being paralysed, fascinated even, by the phenomenon; musing over, sometimes analysing with impressive depth, its causes; but in doing so, failing to consider its remedies.

Inequality

But viewing inequality through a predominantly economic lens -- incomes -- fails to account for all the other things that make for an upwardly mobile life.

Anxieties do not only stem from income levels, but from not being able to get your child into a good state school, poor health, intolerance, a lack of social support, or few opportunities to progress.

Income is not everything. Indeed, it is everything aside from income that matters most for social mobility. From upward mobility, higher incomes follow.

Flawed measures

This is partly the reason why existing measures of inequality are flawed.

The Gini coefficient is the most used measure of inequality and looks through the lens of wealth at the income distribution of a nation's residents. The number ranges from zero to one, where zero represents perfect equality -- where everyone has the same income, and one represents perfect inequality. A higher Gini coefficient means greater inequality.

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New Zealand's Gini coefficient of 0.33 ranks New Zealand at 22nd -- below the Netherlands but ahead of Norway.

However, aside from the fact that the measure cannot tell the difference between a society where everyone is equally poor and a society where everyone is richer, but incomes are more unequal, it is also deeply flawed as it fails to reflect the fact that inequality is about far more than simply income.

If the measure cannot reflect differences in health and social support and education outcome and opportunity and job quality, it means that you miss the root malaise that is behind Brexit, and to a certain extent Trump.

Prosperity

The Legatum Institute released its 10th annual global Prosperity Index last month -- a huge study that measures the prosperity of 149 countries based not only on their wealth but also on a series of other factors including education, personal freedoms, how safe people feel and how strong community networks are.

This year, New Zealand topped the world for prosperity, and ranked first in the Index's measure of economic quality, first for social capital, second for business environment, second for governance and third for personal freedom.

Harriet Maltby, head of policy research at the London-based Institute's Prosperity Index team says that it is important to look at all inequalities combined, through one measure (prosperity), otherwise you miss the very reinforcing nature of deprivation.

Graphic / NZ Herald
Graphic / NZ Herald

"The problem is that traditionally, national success and related issues such as poverty and inequality, have been looked at from a purely economic perspective. While we recognise that wealth matters, so too does wellbeing.

"Income measures miss so much about what makes for a good life. That's why the Prosperity Index looks at wealth and wellbeing combined.

"It is opportunity -- real life chances -- that drives prosperity, not money," says Maltby. "This all feeds in ultimately to a country's long-term success, which matters to business."

Maltby, who is visiting New Zealand over January, explains that we need to shift our perceptions of what inequality looks like. "Making people richer in itself is not the answer", she says. "We need a measure like prosperity that can look at wealth alongside all the other things that matter in life, and make policy decisions based on that. The New Zealand Government is already thinking like this, and other countries should do the same."

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"Britain is achieving what it achieves with a significant proportion of its population totally left behind in a whole load of dimensions. Imagine the potential and prospects for a nation if it could use and develop the talents of all?"

Globalisation

While it is useful to analyse the impact of globalisation on America's rust belt, too much time spent examining the causes of those anxieties allows the establishment to feign intellectual interest in the winds of change, while making little or no progress in harnessing them for the good.

At last month's Apec leaders' summit in Lima, the leaders of the Pacific Rim pushed back against the creeping global protectionism, promising to continue to strengthen economic ties.

"If the United States doesn't want to participate in free trade, [president-elect] Trump needs to know that other countries will," said John Key at Apec.

"We hope he is part of the programme.

"But if not, we are going to continue doing things."

Meanwhile, Australian Prime Minister Malcolm Turnbull warned that protectionism is the way to poverty. "We have seen this film before, the world did this in the 1930s after the Great Depression and made it much worse," he said. "It's not only missing out on a positive but risking a very big negative in terms of destabilising the global trading and strategic system."

What is often overlooked is that businesses, particularly those that benefit most from a globalised world, can play an important role in helping to find the solutions, and will benefit from operating in a country that offers up the talents of all its people.

- Washington Post

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