BBC Russian

Bob Scott Lecture Series on Inequality, 25 June 2019.

What I want to do this evening is examine egalitarianism. In particular, New Zealand is a less egalitarian society today than it was when I was growing up in the 1950s. Why? How?

The structure of the paper is as follows:

First, I define ‘egalitarian’.

Second, New Zealand was once a more egalitarian society than it is today. It has been overwhelmed by economic, social and technological changes. A crucial outcome is that the class structure has become less fluid and the increasing rigidities have disconnected the powerful from the rest of society.

Third, this disconnection led to Rogernomics which ignored most people and favoured the privileged, shifting the income distribution markedly in favour of those at the top.

I am not going to give a lot of space to policies if you believe that the loss of the more egalitarian society is to be regretted, for two reasons. First, I have not the time and second to make it I would have to cut back the analysis at the core of this paper. Too much policy in New Zealand is based on poor quality analysis; I have been resisting this national defect all my life.

I add that today’s analysis arises out of, and is summarised in, a history of New Zealand from a political economy perspective which I am writing. This large study, Not in Narrow Seas, is to be published by Victoria University Press next year (2020).

The Meaning of ‘Egalitarianism’

How do we define egalitarianism? First, it is important to recognise that it is not the same as equalitarianism, where everybody is exactly equal on all important social dimensions. Certainly they should be equal before the law, while access to certain key services such as education and health should be based on need rather than such things as wealth and social status. But while including this, the notion of egalitarianism is more subtle. Ultimately it is the idea that all humans are equal in fundamental worth and moral status.

A quarter of a century ago, during the trials of Rogernomics, Ruthanasia and Jennicide, the church leaders articulated the following five principles for the running of society:

– to respect human dignity with its rights and responsibilities;

– to live in solidarity with others, aware of our interdependence;

– to seek the common good, that is, the well-being of all;

– to value work and creativity; and

– to give priority to the needs of the poor.

One is reminded of Michael Joseph Savage’s aspiration of ‘applied Christianity’.

An important influence on social justice thinking has been the work of American philosopher John Rawls and his seminal Theory of Justice. Rawls is indebted to the eighteenth-century German philosopher Immanuel Kant, whose categorical imperative was ‘act only according to that maxim whereby you … will that it should become a universal law’, a principle which harkens back to Jesus’s injunction to ‘do unto others as you would have them do unto you’.

Rawls argued that society should be judged by the way it treats the least well-off in society. He concluded this maxim as follows.

Suppose each of us were able to choose whichever society we preferred. The only limitation is that we do not know what our status would be in it; whether we would be rich or poor, white or brown, male or female, intelligent or dull, heterosexual or homosexual, and so on.

In such circumstances we would be unlikely to select a form of society which favoured one set of characteristics over another, since we may well end up as an individual in a society which fails to respect our characteristics. Rather, given this veil of ignorance about our status, we would choose a society which maximised the minimum level of wellbeing, so that if we were unfortunate enough to end up with the least favourable set of characteristics we would do as well as possible.

Rawls’ conclusion is that all members of society have a special obligation to the poor and vulnerable. But it does not follow that we should have exact income equality, even were that a meaningful notion. A Rawlsian would argue that inequality was acceptable providing the poor benefited from it. For instance, a state bureaucracy determined to iron out all inequality would be so expensive to run, and generate so many disincentives against producing, that the poor would have lower wellbeing compared to what they would have in a society with a moderate level of inequality. On a more positive note, the possibility of a degree of inequality may encourage people to take initiatives which generate jobs, opportunities, and commodities for those on a lower standard of living.

My shorter definition, elaborating a notion in a report of the 1972 Royal Commission on Social Security, is an egalitarian society is one in which everyone is able to participate in and belong to the wider society while recognising their individual differences. To give an example: we cannot treat someone with a disability the same as everyone else but they should be able to live comfortably in the wider society. The merit of the definition is that it focuses more on wellbeing, while it is consistent with the church leaders’ and Rawls’ definitions.

The reality of attaining these egalitarian goals is very difficult, but an egalitarian says we should be striving towards it. Have we been doing that? Consider the aspirations which were standard sixty-odd years ago, but no longer drive our social thinking.

The first is attributed to Walter Nash, the first Labour Minister of Finance, who said that ‘the young, the old and the sick should have first call upon the state’ – a very Rawlsian notion.

The Nash aspiration is obviously not true today, give widespread child poverty. Moreover, while we treat the elderly well by international standards we are not facing up to the growing problem of those who require supplementary care for health and disability reasons. As for the sick and invalided, it would take another paper to address the challenges we face there.

The second egalitarian aspiration was articulated by Peter Fraser but it was drafted by his Secretary of Education, Clarence Beeby.

The government’s objective, broadly expressed, is that every person, whatever her or his level of academic ability, whether he or she be rich or poor, whether he or she live in country or town, has a right, as a citizen, to a free education of the kind for which he or she is best fitted and to the fullest extent of her or his power.

While many in the educational system still believe in that objective, it is hard to conclude that the aspiration is being achieved. UNICEF recently reported that New Zealand has one of the most unequal education systems in the world and the gap between the highest and lowest performing students is being made worse by poverty.

Moreover, look at the criticisms from those schools at the top to the Minister of Education’s recent proposals to reduce the inequality of educational opportunity. What strikes one is that their position was not that the minister’s approach was flawed and there was a better way to attain the Fraser-Beeby goals. Rather, the top schools were resisting change which might undermine their privilege.

The third egalitarian aspiration was set out by the 1972 Royal Commission on Social Security but it reflects, and was intended to reflect, the ambition of the welfare state of the First Labour Government. They are writing about the social security system but they must have been well aware of the wider import.

The aims of the system, should be

(i) First, to enable everyone to sustain life and health;

(ii) Second, to ensure, within limitations which may be imposed by physical or other disabilities, that everyone is able to enjoy a standard of living much like that of the rest of the community, and thus is able to feel a sense of participation in and belonging to the community;

(iii) Third, where income maintenance alone is insufficient (for example, for a physically disabled person), to improve by other means, and as far as possible, the quality of life available.

Again this has a very Rawlsian framework. Where it advances the Nash statement is that the Royal Commission was setting up a principle for the minimum standard of living for all New Zealanders.

The first clause of the Royal Commission’s aims – to enable everyone to sustain life and health – is equivalent to setting an absolute poverty level.

The second clause sets a relative minimum standard of living with the notion that all New Zealanders should participate in rising prosperity.

However, the New Zealand government abandoned the second target in 1990 when it cut social security benefits to a level which it may have assumed was sufficient to sustain life and health. At the same time it abandoned the principle of increasing the level with rising prosperity. (The Royal Commission recommended indexing to wages, as we do today for New Zealand Superannuation.)

When the Richardson-Shipley regime set the new rates in 1990, they must have had an absolute poverty level in mind. With one exception, benefit levels have not been increased faster than inflation in the thirty-odd years between 1991 and 2020. They certainly have not moved in line with wages over the period. Even next year the real benefit levels, after the budget increase, will generally be below what they were in 1990 before the cuts.

So the aspirations for an egalitarian society which were once deeply embedded in public policy and our thinking have faded into the background. Why? One sort of answer is that social change has led to a change in the way society thinks about itself.

How Does Social Class Fit In?

One of the ways we used to characterise New Zealand’s more-egalitarian society was to claim that it was ‘classless’. We used to say that Jack was as good as his master, for it was a less hierarchical society.

We should not get too nostalgic about those times. Jack may have been fine, but what about Jill? (Women are different of course, and we were the first country in the world to give them the vote – anyway she was happy looking after her house and family.) What about Haki? (He was happy in the pa and, anyway, we have the best race relations in the world.) It was a bit of a shock when Jill and Haki joined urban working life.

Historian Keith Sinclair said ‘New Zealand is not a classless society. It must be more nearly classless, however, than any other society in the world.’ Well, somewhere in the world there has to be a society at the top of the rankings and it just could have been the one down-under. But Sinclair was not denying there was class in his New Zealand.

The notion of class is treacherous. Forgive me for not giving a detailed analysis, but an important distinction is between social class as an objective phenomenon (whatever the particular definition chosen) and class as a subjective phenomenon for, whatever the objective facts, it is people’s perceptions which determine short-term political behaviour.

Social differences in New Zealand and the resulting distinctions generated a hierarchy. Bob Chapman, professor of political studies at the University of Auckland from 1962 to 1987, and one of our most innovative early social scientists, talked about ‘social gradients’.

Of course, the general public was aware of some sort of hierarchy but they did not think it important in their lives. So whatever the objective reality, the public discourse in the 1950s and 1960s largely avoided discussing class, except along the lines of ‘we are not England; so there’.

The perception of a (subjectively) classless Pakeha New Zealand – that ‘we were all in this together’ – seems to have consolidated from the war experience – especially from the camaraderie that was generated in the armed services – and from the Great Depression which was seen as a leveller. Of course, the demand for social distinction was not entirely abandoned. Nineteenth-century politicians and other dignitaries appear to have been as eager for knighthoods as – er – are their twenty-first-century successors..

But class was changing in the postwar era. Chapman. thought that New Zealand was ‘classless’, but he added numerous caveats. In an extraordinarily perceptive, but little known 1962 paper he wrote: ‘For different economic grades to be transformed into social classes it is necessary that separate patterns of life be elaborated for each class.’ He mentioned holiday houses, travel overseas after marriage (sic), regular dining in restaurants, expense-account living and frequent holidays as signs of differentiation.

To rewrite Chapman’s thesis in the light of the later evidence: in the 1950s there were social differentiations by income and spending, and while they may have been significant in an objective sense – and were vaguely recognised – subjectively New Zealanders generally thought of the country as classless.

Chapman went on to argue that there were processes under way which were driving New Zealand’s ‘equal society’ towards a similar level of inequality and class as in Western Europe. He thought Western Europe was becoming more egalitarian – I am not sure of that. But he thought that New Zealand was converging to its level; he seems to have been broadly correct.

Presciently, two decades before Rogernomics, he wrote, ‘the concentration of control and ownership ….seems likely to persist providing there is a continuous widening and intensification of markets.’ While farm concentration and industrialisation were explicit drivers, his narrative gives weight to the urbanisation which is a consequence of the two. It was a masterly insight but not quite a prediction, for the forces Chapman describes had been well under way when he wrote – indeed he had been tracking them.

With hindsight, there were probably two other major drivers of this change. One was the increasing population which meant that New Zealand was losing the intimacy which gave it a high degree of social cohesion. The increase was not just in numbers. As mentioned earlier, effective public life was kept small by relegating woman to the kitchen and Maori to the pa. As they came out, effective numbers increased. Moreover the concentration of the population in the cities exacerbated the social divisions within them.

Second, and central to Chapman’s explanation of the increasing class divisions, was rising affluence. In the twenty years after the war, real private consumption had risen almost 60 percent a person. But to focus on this volume change alone is misleading. More important is that there were a diversity of new products.

The rise in diversity and choice is one of the most important postwar phenomena. Here we observe it generated opportunities for social distinctions which solidified into class. In some respects class in New Zealand is not based on income, although there is an occupational dimension, but on what was owned and what was consumed or, especially, seen to be consumed, although conspicuous consumption – the flaunting of spending and wealth – did not become de rigueur until the 1990s. Before then, the gap between the haves and the have-nots slowly opened up, noticed but initially neither comprehended nor commented on.

The Political Consequences of Increasing Social Division

There is much which could be said about the social transformation – much of it is in my book – but for tonight’s purposes I want to focus on the political consequences.

Until 1984, New Zealand was governed by the ‘Depression’ generation. They were (almost entirely) men who had grown up during the Great Depression and had fought in the Second World War. While they were now higher in the social hierarchy, they did not forget their origins; my guess is that their social connections were wide except they were more strongly with the older generations. (Muldoon is an exemplar.)

In 1984 a new generation took over. It was born after the Great Depression and had benefited from the welfare state, especially the educational opportunities it offered. However, they were not particularly working class, generally coming from the affluent middle class which Chapman had seen inching away from workers.

However, for the story being told, the origin and class of the leadership would not matter, except – capital letters EXCEPT – that individuals, isolated in their classes, were becoming disconnected from the population as a whole. This included the politicians who led Rogernomics. Additionally, and less surprisingly, it also applied to their advisors.

How do we know? One is struck by how little attention they paid to the people they were hurting. It takes a little space to set out an example.

During the Rogernomic/neoliberal period (from 1985 to 1993) the New Zealand economy broadly stagnated as measured by per capita GDP (output).

When the economy began growing again, it was at about the same rate as the OECD (again) and some 15 per cent below the old growth track – so New Zealand had fallen further behind, despite the Rogernomic promises.

The Rogernomes had given significant income tax cuts to those at the top of the income hierarchy; they were largely paid for by the government expenditure and benefit cuts of the Richardson-Shipley 1990 package – that is, by the poor and by those dependent on government spending – and also by tax increases and user charges on middle incomes.

The income tax cuts to the rich were so substantial that their real incomes increased at much the same rate as they had done in the past, even though the economy was stagnating. They did not experience the 15 percent relative loss. So the rich were hardly aware of it or what was happening to others. They praised the traumatic policy changes as beneficial since – on average – they did not suffer.

But if the economy was stagnating, and their incomes were rising, then the incomes of other people fell. This increase of the rich’s incomes and falls of the rest of New Zealand’s is the source of the sharp increase of household income inequality in the 1980s and 1990s.

To simplify, we report the year in which each household income decile returned to the real income level which it had been in 1984, when the Rogernomes came to power. (There is little earlier data.)

Decile Recovery Date from 1984 base Years

Top After 1988 4

2, 3 and 4 from top After 1996 12

Fifth After 1998 14

Six and Seven After 2001 17

Bottom three After 2004 20

So while, as a result of the income tax cuts, those at the top income level recovered quickly from the initial turmoil – which included the sharemarket crash – the other 90 percent of the population were on lower real household incomes in 1996 than they were in 1984. The bottom 30 percent did not recover their material living standard of the 1980s for twenty years.

This represents a reversal of those Rawlsian aspirations expressed by Walter Nash. The welfare state had aimed to protect the poorer during an economic downturn, with those better off taking a greater share of the burden. Instead, the opposite occurred: those at the top were protected, while those below took a greater share of the burden. Under the Fourth Labour Government it was those on middle incomes who took the disproportionate share; under the Fifth National Government, it was the poorest who were most harshly hit. Under neither regime did those at the top suffer much.

Since those at the top had become isolated from the rest of New Zealand they were insufficiently aware of how others were struggling. That is a class effect.

The Rogernomes were so out of touch that they argued that it was dissension within the Labour caucus ranks which destroyed the Fourth Labour Government. That was true, but the Rogernomes seemed unaware that the dissidents against their policies were those still in touch with the masses and knew they were hurting. It was the hurt masses who voted them out.

The Fourth National Government alienated its political base in a quite different way. It was shrewd enough to cut the incomes of those who would not vote for it anyway; I am not sure how much it thought about the empathy vote – those further up the scale who would show solidarity to the more marginal, as you would expect in an egalitarian community. But, in a neoliberal ideological fit, National turned upon the icon of the middle class, the public health system. Prime Minister Jim Bolger explained the devastating reduction of its vote in 1993 by the alienation arising from the proposed redisorganisation of the health system. He appeared to give little significance to any empathy vote.

A good comparison of the political failure of Rogernomics is with the parallel Labor Government is Australia which survived much longer. Prime Minister Hawke was much more in contact with the Australian people, he kept his ministers in better check, and yet maintained the modernising transformation. The Australian economy put on 20 percent relative to us, growing faster than the OECD.

I add that the governing class getting out of touch with the populace is not unique to New Zealand. The strangest one at the moment is today’s Britain, where we have candidates vying for leadership of the Tory Party, and hence the prime-ministership of Britain, with policies which are not going to work and which, if they are pursued, will damage the vast majority of the people – including their voters.

It is a strange development of democracy that its leadership, for ideological reasons or ambition, can pursue policies which are not in the interests of the public. Eventually they revolt. We saw that in New Zealand with the outcome of the MMP referendum. It seems that the Brexit referendum in Britain was as much a revolt against the government’s austerity policies as impatience with an arrogant internationalism. It may not always be a referendum; the likelihood is that what is going on in Britain will destroy the Tory party for a generation and may do the same to Labour.

How Did the Egalitarian Society Come to an End?

In summary, over fifty years ago Bob Chapman detected an evolving class structure in New Zealand which has led to a deterioration in social cohesion. This meant that the ruling class, increasingly out of touch with New Zealand aspirations, abandoned the principles which underpinned post-war egalitarian New Zealand in favour of principles which served themselves. We no longer say that ‘the young, the old and the sick should have first call upon the state’; instead the slogan is that we may not raise taxes to fund any call upon the state that the young, the old and the sick may make. The rich and their principles are so powerful – another indicator of a strong class structure – that it is difficult to break out of the rules with which they govern, as this Labour-led government is finding.

We can best follow what has happened by observing economic equality. It is not just that it is measurable or that I have been working on the measurement most of my professional life. The public focuses on it.

In particular, there is widespread unease about the degree of income inequality in New Zealand. The main concern has been inequality in the household disposable income adjusted for household composition. There are various minor caveats but it was relatively stable for a quarter of a century.

However, between 1985 and 1993 there was a very substantial increase in that inequality. The dominant reason was the tax cuts under the Fourth Labour Government and the benefit cuts under the Fourth National Government in that period. There is no other factor I have been able to identify which has had such a big impact – and that includes the market liberalisation and globalisation.

Despite the time I have spent developing the data, I do not think that the social concern about income inequality is about the numbers – other than perhaps that they are indicative of the serious problem of poverty among some sections of the population. Rather the concern is because the numbers symbolise the ending of egalitarian New Zealand which people once so greatly valued.

What we have done is change the purpose for which New Zealand is governed, the direction where we are going.

Conclusion

I summarise the paper’s themes.

First, I defined ‘egalitarian’. Ultimately it is the idea that all humans are equal in fundamental worth and moral status.

Second, New Zealand was once a more egalitarian society than it is today. Whatever the nation’s aspirations – I elaborated many – they have been overwhelmed by economic, social and technological changes transmitted through the political syste, only some of which I have had time to detail. A crucial outcome, as Bob Chapman foresaw, is that the class structure has become less fluid and the increasing rigidities have disconnected the powerful from the rest of society.

Third, this disconnection led to a rapid economic policy transformation – we call it Rogernomics or neoliberalism – which ignored most people and favoured the privileged, embedding in a policy framework which has maintained that privilege. I particularly reported how this shifted the income distribution markedly in favour of those at the top. Had I time, I could have identified other relevant changes. Fundamentally, the purposes for which New Zealand has governed has changed.

This analysis may lead you to wonder whether New Zealand could return to the egalitarian society. Let me make just two comments. The first is that any future egalitarianism will be a different kind. I mentioned that it partly worked in the past by ignoring the particularities of women and Maori. Today, New Zealand is even more socially diverse.

The second is that a more egalitarian society almost certainly involves a substantial reduction in income inequality and that requires increases in top income taxes greater than the existing policy framework allows. Recall that a key element in the increase of income inequality was that those at the top were not asked to share the 15 percent cut in real incomes which was the effect of the Rogernomics stagnation. Ergo, some sort of return to egalitarianism would need a new policy framework.

My final thought is this. I’ve known the broad outlines of the story I have told you for more than two decades. Occasionally I get invitations to tell the story – thank you for the opportunity this evening. Many people hear the story favourably but over the decades there has been little thinking about it; about what to do, or how to reverse the anti-egalitarian policy framework that shapes us today. Bob Chapman was on the pessimistic side about our prospects; I join him.