We should fear the effects of inequality on our politics and our lifespans, not just our economy and society. Inequality isn’t just destabilising capitalism or denying our people a fair share of wealth – it’s making us sicker and making policy and even Parliaments dysfunctional. I’ve seen it in the UK and you are seeing it in your Senate now. Let me explain.
Income inequality as an economic problem is of course firmly back on the political agenda. When Christine Lagarde, managing director of the International Monetary Fund, identifies the growing gap between rich and poor as a problem then it is clear the terms of the debate have changed.
It seems even the IMF have finally woken up to the fact that large disparities create unstable societies. If the poor and the rich live separate, parallel lives what stake do the poor have in an economic system that keeps them in poverty? One might read this as a recognition that the crunch of peasants’ feet on the aristocrats’ gravel drive is an increasingly likely prospect if the status quo continues. Self-preservation is a powerful motivator for a change of elite minds.
However the IMF have advanced a more cautious, technocratic case – at least initially. They warn that rising and excessive income inequality is a source of economic instability, not because it sows the seeds of revolution but because it undermines the capitalist system. In a series of research papers, IMF staffers have shown that inequality leads to increased borrowing by those whose living standards are not rising. Dicing and slicing these debts through a deregulated financial system, which was supposed to distribute risk more efficiently, simply accelerated the rate of contagion across the globe. When the underlying loans began to fail the whole edifice came crashing down.
So far, so technocratic: if policymakers want a stable global economy in the future they need to focus on the creation of unleveraged effective demand.
But there are two further arguments about inequality that go far beyond the IMF’s prudential arguments about the efficient management of capitalism. These should concern Australians who learn from our experience of rapidly growing inequality in the UK.
First, inequality can corrupt the political process by giving the wealthy undue influence over policymakers.
Rich individuals can, putting it crudely, use their money to determine public policy. Corporations can also afford battalions of lobbyists to maintain the status quo and defeat the manifesto commitments of governments. The phenomenon is obviously most developed in the USA, but can also be seen in the UK.
That the affluent can determine policy is particularly troubling at a time when there is a rampant anti-politics mood in many developed countries. Influence peddling of this kind discredits the political process and is wholly inconsistent with democratic values. Sources of countervailing power (most notably the trade unions) have been diminished over the last thirty years.
Australia seems far from immune: in the last Parliament, the travails of Labor’s emissions trading scheme and minerals rent taxes were a case in point – in this Parliament, the budget priorities of the Liberal Government (particularly its tax cuts) are another. It is not entirely fanciful to say that the populist tendencies emerging in many developed countries are the unforeseen consequence of market fundamentalism. Nevertheless, the challenge is to all political elites, including those of the centre-left. Recognising the need for need for inclusive prosperity and the wider distribution of power is essential for democratic renewal and electoral success.
Second, there is compelling evidence to show that more unequal societies offer more limited life chances for poorer citizens.
Those with lower incomes generally die younger than the rich in all societies and enjoy worse health throughout their lives. In more equal societies, however, the gap in health outcomes and life expectancy is much narrower.
This raises some profound questions about the left’s political goals. It is simply inconsistent with progressive values to allow health inequalities to limit the capabilities of citizens to choose lives that they value. Social democracy’s purpose is to use the power of collective action, whether through the state or civil society organisations, to liberate individuals and widen the range of choices available to them. Acting to reduce inequality – especially the impact of inequality on life chances raises – is central to the meaning of social democracy.
Conservatives on the other hand will question the validity of equality as a goal, arguing that as ever the left is in favour of some grey uniformity or equality of outcome. That is certainly not my view. Some income inequality is necessary to create incentives and reward effort; trade unions have always maintained, for example, that workers should get the rate for the job and that differentials should be felt to be fair. But neither principle endorses the current level of income inequality in either the UK or Australia.
And neither principle excuses the impacts of extreme inequality on the economy, society, public health and democracy itself.