Simon Collins

Simon Collins is the Herald’s social issues reporter.

The equality debate: Inequality in NZ under spotlight

Authors of influential study here to talk on income gap's effects.

Professor Kate Pickett, left, and Professor Richard Wilkinson will be speaking in Auckland.
Professor Kate Pickett, left, and Professor Richard Wilkinson will be speaking in Auckland.

Two British health researchers are gearing up to challenge New Zealanders' unusually high tolerance of what many countries consider a social evil - inequality.

Professors Richard Wilkinson and Kate Pickett, whose book The Spirit Level was subtitled "Why more equal societies almost always do better", will present this year's Sir Douglas Robb Lectures at the University of Auckland from May 19-23.

Economist Tim Hazledine says the book "has made a huge impact on just about every field of social science and policy analysis" since it appeared in 2009.

The European Union and the United States Securities and Exchange Commission are both proposing to make companies disclose the ratios between their chief executives' packages and their median pay rates.

OECD secretary-general Angel Gurria said last week: "Inequality undermines societies and damages economies.

It is not enough to put in place policies that harness growth, we must also ensure that the benefits of growth are shared by everyone."

But in New Zealand, the Labour Party is struggling to get inequality off the ground as an election issue. Professor Hazledine points to a 2006 survey of 32 countries which found New Zealanders were less supportive of redistributing income from the rich to the poor than people in any other nation.

Asked, "Do you think it should or should not be the government's responsibility to reduce income differences between the rich and the poor?" only the barest majority of Kiwis, 50.1 per cent, said yes - behind even Americans (52.2 per cent), and little more than half of the 90 per cent-plus support for redistribution in Portugal, Chile or Slovenia.

"We have to understand why we don't have blood flowing in the streets," Dr Hazledine says.

"I don't think that leads to saying all is well. I think inequality is a problem. But we have to understand why we tolerate it."

There is no doubt that the gap between rich and poor has widened in New Zealand and in most developed countries in the past 30 years, reaching a level that the OECD described last week as "unprecedented in the postwar period".

"The wealthy have overwhelmingly captured the benefits of growth," the OECD says. "In the United States, the richest 1 per cent took 47 per cent of total income growth between 1976 and 2007, compared with 37 per cent in Canada and around 20 per cent in Australia and Britain."

In New Zealand, after-tax inequality widened dramatically in a very short time due to the halving of the top income tax rate in 1986-88 and a surge in unemployment because of other economic reforms. The "90/10" ratio, comparing the after-tax income of someone earning more than 90 per cent of the population to someone earning more than only 10 per cent of people, widened from a multiple of 3.1 in 1988 to 3.9 in 1994, and was virtually unchanged at 4.0 in 2012.

Dr Brian Easton has traced a parallel jump in the share of the top 1 per cent from 6.1 per cent of all income in 1988 to 10.5 per cent in 1994 and a levelling-off since then to 9.2 per cent in 2011. A rough Herald estimate based on his figures suggests that the top 1 per cent here captured about 13.5 per cent of total income growth between 1981 and 2007.

Our 33 per cent top income tax rate is the seventh-lowest in the OECD, well below all richer countries such as Australia (45 per cent) and the US (46.3 per cent).

But our after-tax 90/10 ratio of 4 is smack in the middle of the OECD range, 16th-equal with Poland out of 31 countries. Chile is the most unequal country with a ratio of 8.4, followed by Israel, Turkey and the US (6.1). In contrast, the ratios in the most equal countries are 2.9 (Denmark and Norway) and 2.8 (Iceland).

In The Spirit Level, Wilkinson and Pickett argue that inequality matters because "most of the important health and social problems of the rich world are more common in unequal societies".

In a series of graphs they demonstrated statistical correlations, both for 23 rich countries and for the 50 US states, between income inequality and low life expectancy, trust in other people, women's status, and maths and literacy scores at age 15, and with high infant mortality, obesity, teenage pregnancy, homicide and imprisonment.

Another graph showed that age-standardised death rates were higher in less equal US states than in more equal states at every income level. The advantage of living in a more equal state was widest for those on the lowest incomes, but even those on the highest incomes were marginally more likely to stay alive in the more equal states.

Since writing the book, Wilkinson says he and Pickett have been delving deeper into the psychological effects that could explain how inequality hurts everyone, rich as well as poor.

"Status inequality increases in more unequal societies. What that means is that we all become more worried about the way we are seen and judged," Wilkinson says by phone from Britain.

As an economist, Dr Hazledine says English-speaking developed countries have allowed top executives to pay themselves so much more than average workers that their packages simply can't be justified by productivity differences.

"So it looks like it's just that they are taking the money because they can," he says. "There is a lack of governance at this level that is striking."

He says concern about inequality is "becoming more mainstream". Even an IMF discussion paper pointed last month to "a tentative consensus in the growth literature that inequality can undermine progress in health and education, cause investment-reducing political and economic instability and undercut the social consensus required to adjust in the face of major shocks, and thus that it tends to reduce the pace and durability of growth".

Yet, he says, Wilkinson and Pickett have failed to ask why some countries tolerate greater inequality than others.

"Americans have a higher tolerance, or even liking, for inequality. They see it as an opportunity to get rich. New Zealand is pretty high on that, too," he says.

The Spirit Level's correlations between inequality and social ills have been disputed. Critics argue that they don't hold up if you look at a wider selection of countries and allow for ethnic and cultural differences. They have also found some social problems, such as suicide and divorce, are worse in more equal countries.

In particular, Dr Hazledine has found that there is no correlation at all between inequality and surveys of happiness. He is investigating the forces that have made inequality vary across US states from New York at the high end to Alaska at the most equal.

Sir Douglas Robb Lectures, F&P Appliances Auditorium, Owen Glenn Building, 12 Grafton Rd, Auckland, 7.30pm May 19, 21 and 23. Free entry.

- NZ Herald

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