Paradise for a few

Max Rashbrooke.

A new book charts New Zealand's descent from one of the world's most equal societies to one of the most unequal.

New Zealand has become a richer country in the past 30 years - but unless you are among the richest tenth of the population, you may not have noticed.

Despite severe recessions in the early 1990s and again since 2008, the average real value of goods and services we produced for each New Zealander grew between 1982 and 2011 by about one third (35 per cent).

But almost half of that extra income has been gobbled up by just the richest tenth of households, who almost doubled their average incomes from $56,300 to $100,200 in constant 2010 dollars.

In the same period, average real incomes inched up for the poorest tenth of households by only 13 per cent, from $9700 to $11,000, and for the middle fifth of households by 19 per cent, from $25,900 to $30,800.

"From the mid-1980s to the mid-2000s, the gap between the rich and the rest has widened faster in New Zealand than in any other developed country," writes Wellington journalist Max Rashbrooke in a book to be published next week, Inequality: A New Zealand Crisis.

The book has been partly funded by charitable trusts and the Council of Christian Social Services.

An advisory group led by Professor Jonathan Boston worked with Rashbrooke to pull together chapters by 16 experts and 14 "viewpoints" from ordinary New Zealanders, producing the most comprehensive analysis of our changing social structure in a generation.

"New Zealand's income gaps have now widened to such an extent that they have created something of a crisis - not in the sense of a natural disaster that strikes in an instant, but a gradual shift that builds until it reaches a tipping point," Rashbrooke writes.

It is partly about poverty, as most people in the poorest fifth of the population depend on welfare benefits, which were cut in 1991 and have never been restored in real terms. Children's Commissioner Dr Russell Wills said on TV3's The Vote this week that most of the children he sees as a Hawkes Bay paediatrician are sick because they have parents "whose income is just too low and their outgoings, particularly on the cost of housing, are just too high".

Children admitted to hospital with serious bacterial infections associated with cold, damp and overcrowded houses doubled from 210 for every 100,000 children in 1991 to 445 in 2010.

But Rashbrooke argues that the "crisis" is not just about the poor, but also about how so much of our income has been captured by so few.

"While people have a responsibility to contribute to society, they also have a right to share in the rewards," he writes. "The roadworker, the receptionist and the rigger all contribute to a functioning economy, just as much as the businessman or the board director."

Roadworkers, receptionists and riggers, along with all other employees, saw their share of national income plunge from 54 per cent in 1982 to a low of 41 per cent in 2002, before recovering slightly to 44 per cent last year. Their lost share up to 2002 reflected both reduced employment and weaker bargaining power as unions were decimated by the 1991 Employment Contracts Act.

Conversely, profits on capital (including farms) surged from 38 per cent of national income in 1982 to 48 per cent in 2002, before slipping back to 42 per cent last year.

The workers' share of the cake in New Zealand, after taking out production taxes as well as profits, is still lower than in 28 other OECD countries and higher than only four: Luxembourg, Mexico, Slovakia and Turkey.

There is, of course, a point of view that this doesn't matter. The book quotes the late Margaret Thatcher, who said in 1991: "It is our job to glory in inequality and to see that talents and abilities are given vent and expression for the benefit of us all."

TV3 viewers this week spurned Wills and 63 per cent agreed that "the problem's not poverty, it's parenting".

Rashbrooke acknowledges arguments that allowing people to get rich provides incentives to work harder and smarter, and that pay differentials simply reflect the different contributions that we each make.

But in the end, just like diet or alcohol or work, it's a matter of finding the right balance. As Boston argues, the aim is not "absolute equality"; it's "to settle for a modest movement towards greater equality".

In the long view of history, humanity's progress from the animal law of the jungle to today's global economy has been built on the gradual growth of confidence to invest, first in a single agricultural crop and now in economic and social institutions that will last for generations, knowing that the yield will be shared fairly.

Professor Robert Wade, a distinguished Kiwi expatriate at the London School of Economics who will speak at the book's Auckland launch on July 8, articulates the now widespread view among economists that extreme inequality in the United States early this century led directly to the global financial crisis.

"Above a certain level of inequality, developed economies tend to enter bubble dynamics," he writes in the book.

"After the early 1990s, the surge in income concentration unleashed a flood of global capital as those at the top hunted for ways to store and multiply their wealth. Bank assets [loans] soared, and bubbles erupted in housing, property, business and art; with a repeat after the early 2000s.

"The bursting of the house price bubble in the US, the UK, New Zealand, Iceland and many other Western economies helped to turn an ordinary business cycle downturn around 2007 into the larger financial crash and ensuing slump."

Rashbrooke cites evidence from British health researchers that more equal societies, such as Norway and Japan, also have higher levels of trust and lower rates of infant mortality, school dropouts, drug-taking, teen pregnancy and imprisonment than less equal societies such as the US and New Zealand.

Boston argues that extreme inequality enables the rich to "exercise disproportionate political influence", and that "if disadvantaged citizens are not to be excluded from political life, they must have access to education, healthcare and social assistance".

As Rashbrooke argues, pay differentials are more about power than about any reasonable assessment of contribution, so they can be changed if society chooses to modify the power of the market.

Economist Nigel Haworth makes a case for a "high road" to growth through high skills and high wages; Mike O'Brien of the Child Poverty Action Group argues for restoring welfare benefits to "a level that would allow recipients to participate in society".

In a final chapter, educationalist Linda Tuhiwai Smith points to inequality's "cultural devastation" of our youthful Maori and Pacific people.

"This demographic profile has been described as the demographic dividend," she writes.

"I call it a gift of hospitality, not in the sense of actively extending hospitality but as a gift of themselves.

"They will serve. How well they are prepared to exercise generosity and hospitality is up to what we do now."

* Inequality: A New Zealand Crisis, edited by Max Rashbrooke (Bridget Williams Books $39.99, bwb.co.nz/books/inequality)