Australia's One Per Cent Rising with a Bullet
By Mike SeccombeFebruary 6, 2012
While inequality is not as stark in Australia, the country's one per cent have as much accumulated wealth as the bottom 50 per cent of the country — and the gap between the haves and have-nots is growing even faster than in the US.
Every year the Yale University Library in America produces a book of the year's best quotes and slogans, and declares one of them the most impactful. The winner last year was a late entrant. It was "We are the 99 Per Cent."
You know where it sprang from, of course: the Occupy Wall Street protests.
The genius of the Occupy movement — some would say the only real genius, given the fractious coalition of people and imprecise list of demands it spawned — was to distill the complex phenomenon of increasing wealth and income disparity down to a slogan, a simple matter of us-versus-them: there was the one per cent, and there was the rest of us.
This was a gross simplification, of course. Why make the cutoff at the 99th percentile, as opposed to the 98th or the 90th? The New York Times columnist and Nobel Prize-winning economist Paul Krugman suggested the slogan actually aimed too low. The biggest beneficiaries of growing economic disparity were members of a much smaller group, the 0.1 per cent. He cited a Congressional Budget Office analysis which showed that between 1979 and 2005, the inflation-adjusted, after-tax income of that tiny cohort in America had shot up 400 per cent, some 20 times as much as the incomes of those in the middle of the distribution range.
And Michael Moore, the documentary maker and critic of capitalist excess, refined it even further, by comparing the numbers assembled by Forbes magazine (Motto: "the capitalist tool"), in its annual Rich List, with data from the Federal Reserve Board on wealth distribution in the wider society. This showed that by 2009, the 400 wealthiest Americans had a greater combined net worth than the bottom 50 per cent of the nation — 150 million people. (Moore's claim, by the way, has been independently fact-checked and deemed true by the nonpartisan Politifact.)
Whether the line of division should have been at one per cent, the .01 per cent, or some other number, though, was not the important thing. The important thing was that Occupy crystallised the real division in society: the economic elite versus the vast majority of the populace. "Unlike the Tea Party," whose resentment was directed down the social scale, noted Krugman, Occupy was "angry at the right people."
Quite suddenly, after the September 17, 2011 occupation of Zuccotti Park, near Wall Street, the American media — even those usually not interested in such things — were full of statistics, slicing and dicing data on economic inequality in all sorts of ways.
Sure, "We are the 99 per cent" may have been a simplistic slogan, but it captured the zeitgeist, as surely as the colourful protests captured headlines.
But its real impact was in generating demand for the product of economists and statisticians toiling away in vast data mills of American and European academe and bureaucracy.
And while the movement has gone into hibernation for the northern winter, its influence lives on. Policy makers heard what Al Gore called "the primal scream of democracy" which Occupy provoked. It helped give the American Democratic Party the courage to begin talking about inequity.
On January 12, 2012 Alan Krueger, the chairman of President Obama's Council of Economic Advisers, gave a major speech in which he laid out the causes and effects of three decades of economic polarization. The United States, he said, had come to a point of "unhealthy division in opportunities" which threatened the country's economic future.
A January 2012 survey by the Pew Research Center in America found the chasm between rich and poor now is very much in the public mind. The survey showed 66 per cent of respondents believed there are "very strong" or "strong" conflicts between the rich and the poor — an increase of 19 percentage points since 2009. Pew chalked the shift up to the Occupy movement.
In his State of the Union address this year, President Barack Obama said that reducing inequality was "the defining issue of our time."
Across the Atlantic, even Britain's conservative Prime Minister, David Cameron, is foreshadowing moves to rein in the salaries of business executives.
But here in Australia, Occupy has not amounted to so much, for various reasons.
For a start, there was no economic crisis to concentrate the popular mind. And for the most part the Australian media did not take the cue to drill down into the statistics. They chose instead to focus on the superficial aspects of the protests by the Occupy crowd, says Richard Ackland, a former host of ABC TV's Media Watch.
Such coverage as there had been, says Ackland, was largely limited to covering the action at the demonstrations, as well as dismissive commentary about those involved, from "the usual tub-thumpers over at News Limited and the radio shock jocks."
But as for substantive pieces on the issues motivating the movement, very little.
"I haven't read anything comprehensive or interesting in Australia. You'd think there would be some sort of analysis, some sort of long-form journalism, that looked at these things [equality issues]. But no."
But there is another factor, too, which might help explain Occupy's lack of traction here: In Australia, we are not tooled up with the same sort of numbers that Occupy used elsewhere to make their point. Where, for example are the statistics comparing the wealth controlled by the one per cent with that of the 99 in this country?
They don't exist.
The most refined recent official analysis, released by the Australian Bureau of Statistics (ABS) in mid-October last year, contained some useful and quite sobering material, comparing household wealth by "quintiles." In layman's terms, this means, the ABS divided the country into fifths, and calculated the amount of wealth controlled by each of those fifths. As of the middle of last year, the ABS found, the top fifth of households held almost 62 per cent of total wealth. The next fifth held another 20 per cent; the third held almost 12 per cent, the fourth, 5.4 per cent, and the bottom fifth held, just 0.9 per cent.
In other words, the top one-fifth of households had substantially more wealth than all the rest put together.
The ABS survey showed all quintiles of Australian households had become wealthier between 2005-06 and 2009-10, but also showed wealth was becoming more concentrated.
The top fifth of households increased their average net worth 15 per cent over those four years, while the bottom fifth of households saw only a 4 per cent rise.
And at the very top, things were booming.
Between 2005-06 and 2009-10, the number of households with a net worth of more than $10 million rose almost 50 per cent, to more than 24,000. And that is after adjusting for inflation.
The data were clear — wealth inequality in Australia is significant, it is rising, and rising quite fast.
But the ABS did not and cannot provide data fine-sliced down to the one per cent level. They say their sample is not large and precise enough to accurately determine what members of the top one per cent are really worth, compared with the rest of us.
You can see what a problem this poses for Australia's Occupy movement: it's a little hollow, railing at the one per cent, when you can't rail with any degree of specificity.
No such problem in America. Academic analysis of official figures from the Federal Reserve Board and Internal Revenue Service found the top one per cent held 34.6 per cent of all wealth. The bottom 90 per cent of the country had just 27 per cent.
Thus the Occupy people and other critics of inequity could quite legitimately claim the one per cent had more wealth than the bottom 90.
If anyone in this country has managed to make a similar comparison, they've kept it very quiet.
Roger Wilkins, principal Research Fellow at the Melbourne Institute of Applied Economic and social Research knew of none. Like the ABS people, he cited limitations to the data samples here. He was able to say with reasonable confidence, however, that the minimum net worth required for entry into the top one per cent is something a little over $5 million, based on data from the institute's Household Income and Labor Dynamics in Australia (HILDA) survey.
But the wealth gap between the top and bottom of the one per cent is huge. Australia's richest person, Gina Rinehart, is at $10.3 billion, according to the most recent "rich list" compiled by Business Review Weekly. That puts her worth at about 2,000 times the "poorest" one-percenter. (More recently, her wealth has reportedly almost doubled, to about $20 billion.)
Ironically it is BRW, Australia's equivalent of "the capitalist tool," which has gone furthest towards providing the kind of numbers the Occupy people have relied on overseas. According to an estimate published in the magazine in November 2011, the top 84,000, or one per cent, of Australian households had an average net wealth of $11.2 million.
Multiplied out, that equates to 15.7 per cent of all household wealth. The bottom 60 per cent of all households have a combined 18.8 per cent.
So, while the top one per cent of Australians does not have anything like the same share of net wealth as its counterpart in America, it is a pretty rich group, according to the best estimates to hand. Instead of holding assets equivalent to the bottom 90 per cent of society, Australia's one-per-centers hold assets equivalent to the bottom 50-odd per cent of the nation.
Accumulated assets — wealth — is the most dramatic way to illustrate economic inequality, which is why the Occupy people seized on it. To illustrate the point: The Bureau of Statistics data show the median Australian household in the top 10 per cent has almost 50 times the net wealth of the median household in the bottom 10, but about nine times the income.
But wealth is a problematic indicator, for various reasons. For a start, it's hard to measure. Particularly at the very top, it fluctuates; a rich person's net worth may change daily with the stock market.
Wealth also concentrates with age, says professor Peter Whiteford, of the Social Policy Research Centre at the University of New South Wales.
"An awful lot of the wealth goes to people over 65 because they've paid off their houses and accumulated superannuation and things like that," says Whiteford. "Having said that, though, if you look at the one per cent, they are both super rich and super wealthy."
Ask yourself, though, if an elderly widow, on the age pension, living in the old family home is "rich." Yet if that house is worth $500,000, she is more than halfway up the wealth distribution scale.
Which brings us to the other way of measuring who's rich — income.
There are much more precise numbers on that, and they also show substantial and increasing inequality.
Across the developed world, and particularly in the English-speaking parts of it, the gap between rich and poor is increasing, and has been for several decades. After a long period of decline, the income share of the top one per cent began to rise again in the 1970s or 80s (it varied slightly by country). In Australia, the income share of the top 1 per cent bottomed out in 1982.
At that time, according to figures provided by Andrew Leigh, a professor of economics at the Australian National University and Labor member of Parliament, the top one per cent earned 4.6 per cent of the nation's income. That share rose to 10.1 per cent by 2006, then declined with the Global Financial Crisis to 8.6 per cent in 2008.
Even so, that represents almost a doubling of their income share. And the rise for the 0.1 per cent of earners was still greater. Between 1982 and 2006 their share of income almost quadrupled, to 3.65 per cent.
The more rarified the income cohort, the greater the increase.
Last September the Australian Council of Superannuation Investors (ACSI) released a study it had done, tracking the pay of chief executive officers in Australia's top 100 companies over a decade to 2010. Over that time, median CEO "fixed pay" shot up 131 per cent, and bonuses went up an even more startling 190 per cent. In 2010, CEOs enjoyed a median increase in their total pay of 8.6 percent, to $4.388 million.
When most Australians think about income, we think of wages. But income for the top one per cent is much more diverse. Analysis of tax data provided to The Global Mail by the left-leaning Australia Institute show the top one per cent of income earners take 38 per cent (or $3.9 billion) of capital gains; 36 per cent (or $7.3 billion) of dividend income; and 39 per cent (or $4.5 billion) of franking credits.
Sure, people at the very top took a hit in the past couple of years from the GFC, but they still are doing fabulously well. As the BRW article noted in 1984, its first year publishing the Rich 200 list, the cutoff for inclusion was $10 million. In 2011, the cutoff was $215 million.
The story of Australia's increasing economic inequality is not, however, just about the one per cent. It is about a growing disparity which goes right down the income scale.
Economist Peter Whiteford points to a number of factors which promoted inequality in household incomes over the past several decades. First was the demographic change of more women joining the workforce. Households with two incomes pulled away from those with one or none, and the effect was magnified by the fact that people tended to partner with those of similar educational and socio-economic background.
"In the recessions of the early '80s and again in the early '90s there was a lot of restructuring. Manufacturing industry declined and there was a big increase in unemployment and long-term joblessness. And in the recoveries there was an increase in the number of two-income families," he says.
"So there was a polarisation, a pulling apart, with more households right at the bottom without any earnings and more households towards the top which had two earners."
And all along, the "fundamental trend" was that wage inequality was rising.
"If you look at it from say the mid '80s to the mid '90s, somebody who was 10 per cent from the top got about 2.3 times as much as somebody who was 10 per cent from the bottom. Nowadays it's about 3.2 times as much.
"It's things like technological change and globalisation and rising returns to education that have driven that," he says.
But the growing disparities were masked and even, for a while, mitigated by the general health of the local economy and by Australia's social welfare system.
"Even though there was this increasing gap in the '80s and early part of the '90s — and this is where we're very different from the United States — something like two-thirds of the difference in what people got from the (jobs) market was offset by the tax and social security system," says Whiteford.
"And during the period from about 2003 up to the GFC [in 2007], we had spectacular growth in household incomes across most of the distribution range. No question it was biggest right at the top, but even the median household would have enjoyed, over four years, something like a 30 per cent increase in incomes. This was in spectacular contrast to the United States [where] the US a median household was probably worse off than they were in the late 1990s."
It surprises a lot of people, he says, to learn that for much of the term of the Howard Government inequality, as measured by market incomes, actually fell, because of a decade of strong economic growth.
"It was all due to the fact that more people in the bottom half of the income distribution range got jobs," says Whiteford.
"But what happened was the tax and welfare systems became less effective at reducing inequality. So disposable income inequality rose even as market income inequality fell."
In other words, social security benefits did not keep up with wage rises, which increased inequality. And tax cuts left the wealthy with more disposable income, which further increased inequality.
Even considering the "gob-smacking incomes" of those at the top of the income distribution, the most salient feature of the inequality picture says Whiteford, is "the difference between those who have jobs and those who don't have jobs."
In December, the Organisation for Economic Co-operation and Development (OECD) released a report, Divided We Stand: Why Inequality Keeps Rising, which looked at growing income inequality across nations.
One consequence of inequality the report stressed was its impact on social mobility — the likelihood of people moving up the social ladder through educational opportunity and simple hard work.
"Intergenerational earnings mobility is low in countries with high inequality such as Italy, the United Kingdom, and the United States, and much higher in the Nordic countries, where income is distributed more evenly," it says.
This vicious cycle, of inequality breeding lower mobility, causing more inequality, "will inevitably impact economic performance as a whole…" the OECD report says.
Inequality also bred social resentment political instability and populist, protectionist and anti-globalisation sentiments.
The report did not point out, but it is nonetheless true, that it has tended to be those countries with higher inequality and lower social mobility, such as the US, UK and southern European countries, that have fared worst in the economic crisis of the past few years.
Alan Krueger dwelt on the subject of economic mobility in his speech, and specifically on intergenerational mobility. In the United States today, he noted, "parental income matters more for children's success … than it does in other economically developed countries."
Think about the import of that for a minute. What it means is that the consequences of inequality can take a long time to be felt. America began its great widening in inequality about 30 years ago. Within 10 years, it began to slide down the world ranking for educational attainment. Between 1995 and 2008, it fell from second to 13th in tertiary graduation rates, according to OECD figures. In 2009, US 15-year-olds ranked 17th, 31st and 23rd in reading, maths and science respectively.
And what does this have to do with Australia?
Well, as Peter Whiteford points out, Australia was about at the OECD average in inequality in 2003, before the inequality gap began to significantly widen.
"Now we've jumped up five or six places. In 2007, at the peak of the boom, the level of inequality in Australia was roughly the same as in the US in 1979, before they had their great widening of inequality.
"So we're 30 years behind them. Whether we'll be in the same situation in 30 years, I wouldn't know."
Economic boom times and increasing inequality, though, tend to go hand in hand. And the predictions are that Australia is poised for the boom to end them all, over coming decades.
Since the turn of the century, when the mining boom began to gather speed (before its real acceleration in about 2005), this has rapidly become a less equal nation. In Australia in 2000, the OECD report showed, those in the top tenth of the income range earned about eight times as much as those in the bottom tenth. By 2008, the ratio was 10 to one.
While this was still way short of the United States, where the ratio in 2008 was 15 to 1, the report showed inequality growing faster here.
Says Andrew Leigh: "Too much inequality cleaves us one from another. When you go to places that have huge inequality, like Mexico, Brazil, the United States, you do get a sense that the society is fundamentally split into the haves and have-nots, and that impacts on the willingness of people to feel they're participating in a national project.
"I'd very much like us in Australia to feel as though everyone in the population is on the same journey towards the same set of shared goals, and I think that is harder to achieve when you have massive gaps between rich and poor."
''We don't yet have American-style levels of inequality, but I think it's important we have a national discussion about income distribution."