The Inequality Blog

In a debate organised last week by Victoria University students, the motion that ‘inequality is natural’ won out over the opposing view by a margin of 49 to 43.

This might seem like a setback for those who care about inequality. But in fact it wasn’t. The affirmative team, led by Shamubeel Eaqub of the New Zealand Institute for Economic Research, were arguing that inequality is natural – but not necessarily right.

As Eaqub himself put it: “Our argument was very simple. Inequality is natural – as in, it is in nature. We appealed to biology, evolution and human behaviour. But that it does not make it fair or equitable. We have to appeal to our humanity and empathy to deal with negatives of inequality.”

So what the audience were choosing between was in fact two versions of the view that we need to do something about inequality. It would have been fascinating to see what happened if the affirmative team had argued that inequality was natural and we should do nothing about it – but it’s very hard these days to get people to front up and say that kind of thing!

In addition, Eaqub’s team triumphed because inequality in the loosest sense – of ability, of characteristics, of inherited features – is of course a natural part of life. The negative team, led by Victoria University’s Sandra Grey, were arguing about something slightly different: the income inequality that we see in New Zealand, which is of course largely unnatural, the creation of social structures not individual differences of nature. Had the debate been ‘Is income inequality natural?’ there would have been a different outcome.

Either way, the event was a great success. About 150 students attended (many had to leave before the voting took place, sadly); the organisers put on an exhibition about Wellington’s green spaces and their relationship to inequality; and the debate itself was punctuated with music and humour. A triumph all round.

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Ideas of fairness – especially the cherished ‘fair go’ – have long been important in New Zealand culture.

But Anglican Social Justice are running a competition for schools, entitled ‘Is New Zealand fair?’, which challenges some of those ideas.

Drawing on information from Inequality: A New Zealand Crisis, it’s asking students to find new and interesting ways of presenting facts about inequality – that, for instance, the top 1 per cent own three times as many assets as the whole bottom 50 per cent put together. Entrants can do this through music, animation, devising games, or any other means.

Last year, the competition was about substandard housing, and it encouraged students to, for instance, build cardboard houses and look at the difference that insulating even a cardboard house can make.

More information about the competition, which is open to all schools and closes on November 22, is available at www.facebook.com/isnzfair.

Headlines in recent weeks have pointed once again to the tendency for the highest salaries and remuneration to keep increasing faster than those of other employees (see Fairfax news: “Bosses’ pay rises outpace workers'”).

The highest paid government department heads have salary packages of well over $600,000, according to the latest figures from the State Services Commission, which reports on the salaries of several hundred CEOs and senior managers working in government departments and publically funded bodies such as universities, DHBs and local authorities.

A growing number of private sector CEOs have pay packages well in excess of $1 million, and the reported average pay package is around $355,000. According to consultants Strategic Pay, the average public sector CEO earns slightly less than this; meanwhile not-for-profit CEOs earn on average 30 per cent less, although they are still on an average of $224,000.

One argument often advanced to defend these salaries is that, “It’s the market.” Those with great ability are highly valuable, and therefore get paid more. However, according to research by New Zealand academics Professor Glenn Boyle and Dr Helen Roberts, the more likely reasons why salaries in listed companies are so high are:

  1. CEOs are often on the remuneration committees that decide their own salaries. In New Zealand that occurs at about one-third of listed companies.
  2. The link between performance pay and increased shareholder wealth is weak, so the increases are often not for exceptional performance.
  3. “Keeping up with the Joneses” effects. Directors and CEOs see what others are paying and try to match it – regardless of whether this is in the wider interests of the company.
  4. Directors’ fees have also been increasing as rapidly as CEO pay, so they are looking after each other’s interests very well; but what about their employees, customers or wider community?
  5. Nobody tries to stop pay increases. Shareholders have limited power to veto pay increases and mostly don’t exercise it.

In a 2010 presentation on their research, Prof Glenn Boyle and Dr Helen Roberts (Executive Compensation in New Zealand: the Good ,the Bad & the Ugly) depict the way that CEO pay and board chair fees have followed each other upwards, while shareholder returns lag well behind and worker compensation has hardly risen at all.

What Can be Done About it?

The issue is not unique to New Zealand. In the UK, an independent High Pay Commission, in its report ‘Cheques with Balances’ made a number of recommendations that included:

  1. Paying a salary to CEOs rather than the complex and confusing packages that obscure the real level of  remuneration that is received
  2. Requiring fund managers and investors to disclose how they vote on remuneration.
  3. Introducing employee representation on remuneration committees.

It is timely to look at establishing such a commission in this country. The New Zealand Remuneration Authority exists, but only to set the salaries for Members of Parliament and judges and certain other public sector workers. It does not scrutinise private sector pay. In addition, it is required to consider “fairness to the taxpayers or ratepayers who ultimately foot the bill”, but this requirement is not currently interpreted to include trying to avoid increases in income inequality. A dedicated High Pay Commission would provide much greater scrutiny across the board.

Pay gaps within institutions also deserve further attention. A recent British report looks at how a pay ratio – the relationship between top and bottom pay in a particular organisation – can be reported on or controlled. Although there are complications in calculating and applying these ratios, the report concludes that they are a useful way of controlling top-end incomes and linking them to the incomes of other employees within an organisation. So these ratios might help avoid the current situation, where pay rises rapidly at the top but not at the lower end. That’s something worth thinking about.

(Event report by Emily Watson)

One of the most serious issues facing New Zealand is the racial imbalance in our prisons. That was the view of Human FM, a Victoria University club of DJs, musicians and social justice activists raising awareness of issues  such as child poverty and climate change. Indeed the statistics are shocking: Maori make up 15 per cent of our overall population but more than 50 per cent of our prison population.

We decided to host a discussion about the issue, on the evening of Wednesday 25 September at Ramsey House, the university’s Anglican Chaplaincy, featuring five expert speakers, a presentation facilitated by Arts Access Aotearoa / Whakahauhau Katoa o Hanga, and music from Maori Television’s Songs From The Inside. The speakers were Kim Workman from Rethinking Crime and Punishment, Neil Campbell from the Department of Corrections, Susan Blaikie from the Arohata Aid and Rehabilitation Trust, George Kupa from Orongomai Marae Reintegration Services, and Tai Ahu of JustSpeak. The panel was chaired by Julia Whaipooti of Nga Rangahautira, the Maori Law Students Association at Victoria University. The event attracted around 40 students, recent graduates and members of the public.

Maori and prisons

The audience at Ramsey House

The over-representation of Maori in prisons is an issue which concerns all New Zealanders, whether Maori or Pakeha, rich or poor. There are approximately 8,600 New Zealanders in prison at any given time, and these people are first and foremost individuals who were nurtured in our communities and who will eventually be returning there. If we want to make our communities safer, happier and more equal, we need to take notice of this issue and work in a community setting to tackle it. Susan Blaikie spoke about people having a communal identity and only being able to heal in a community context. Neil Campbell explained how the Corrections Department is partnering with community organisations and iwi to affect change, and George Kupa spoke about the need to educate our communities. For example, people may not realise that they are inadvertently staring at former inmates in the streets, and this can be misinterpreted. All these little things need to be taken into account, for together they can make a great difference.

Another major question was that of identity. Over the years, the speakers argued, many Maori have been alienated from their cultural history and way of life, a trend which was particularly evident in the wake of rapid urbanisation of Maori from the 1950s onwards. This resulting marginalisation and disconnection from traditional iwi and hapu has led to the disproportionate representation of Maori in lower socio-economic sectors of society and their higher rates of both victimisation and offending. Unfortunately, this situation has been normalised and criminal behaviour is now often connected with Maori. “What kind of message does this send to Maori youth?” Tai Ahu asked. Maori lose their identity – for example, as a Maori mother and Christian – and internalise the message that they are destined for a life of crime. The prison experience negatively affects a person’s mana and tapu and their very ability to control their own being.

The speakers also pointed out that New Zealand society is more punitive than many other OECD countries. Although our crime rate is falling, we continue to incarcerate more and more people; the length of sentences has increased by 50 per cent in the past ten years. The irony here is that studies show that the longer people are kept in prison, the more likely it is that they will reoffend. In addition to punishing people when they are in jail, we punish offenders once they have been released. It is notoriously difficult for a New Zealander with a criminal conviction to find voluntary work, let alone paid work, and former inmates face barriers to accessing student loans, state houses and insurance schemes. As Kim Workman noted, “Punishment is necessary, but it must be proportionate.”

Rather than continuing down this highly punitive pathway, New Zealanders would do better to take into account the principles of grace, forgiveness and redemption. Susan Blaikie spoke about the power of rehabilitation. Currently, prisoners cannot be rehabilitated until 90 per cent of their sentence has been served, delaying an experience that can be truly transformative. George Kupa talked about the reintegration services offered at the Orongomai Marae, encouraging prisoners to identify their potential and helping them develop skills in areas such as literacy and numeracy. Art classes in prisons can also play a unique role in teaching prisoners that they have talents to develop, allowing them new forms of self-expression and offering them creative alternatives to re-engaging in crime after release. Neil Campbell explained that Corrections now has a specific goal of a 25 per cent reduction in prisoner reoffending by 2017 and a four-phase plan to achieve this target.

This will be an ongoing debate, led by organisations such as Rethinking Crime and Punishment, which advocates prison reform. JustSpeak, its youth branch, is currently working on a report, ‘Beyond Prisons’, making recommendations to government for improving our penal system. One recommendation would be to redirect resources from imprisoning people (which costs about $90,000 a year) to more effective rehabilitation and legal aid services.

More generally, as the Russian novelist Fyodor Dostoevsky famously said, “The degree of civilisation in a society can be judged by entering its prisons.” We must fully grasp the complexity of this issue and work together, with government, community organisations and iwi, to resolve it.

Emily Watson is a Victoria University student in the second-year of her LLB/BA. As well as Human FM, she is involved with Amnesty International and the Red Cross.

Now that the first major leg of the Inequality book tour is done and dusted, I estimate I’ve spoken directly to over 1,000 people, including all the events during the last few months. Much of that has happened outside the main centres, and it’s been good to hear what’s on people’s minds across the country.

What’s striking is the diversity of interest. The questions I’ve fielded have covered deregulation, the need for a body that regulates and examines low pay (to match the Remuneration Authority for high pay), the role of ethnic diversity, tax avoidance, estate duties, the universal basic income and the Living Wage.

Some themes have recurred, however. People are very aware of the role of international finance in increasing inequality: the power of the large financial institutions, the freedom of capital to move around the world, the profits made in lending. People are also very interested in the political consequences of widening income gaps, and whether they will lead to civil unrest.

Audiences have wanted to know whether politicians and the 1 per cent are listening – to which the answer is, yes, there’s been some heartening engagement from both groups, although it’s early days yet in those conversations.

The role of education in inequality has cropped up time and again. It’s a complex issue, but people seem to appreciate the point that while education can be a route out of poverty and thus a powerful anti-inequality force, it can also be – as Linda Smith points out in Inequality: A New Zealand Crisis – an institution that reinforces inequality, if it’s not designed specifically to tackle it. (And the evidence is that our system does not address it as well as it could, as Cathy Wylie sets out in her chapter of the above.)

Finally, people at the talks to date have been very interested in solutions – and in particular, what the more equal countries do to hold income gaps at a lower level. Again, that’s a complex question, involving different values, long-standing agreements around the role of government, business and unions, better investment in skills and training, and more generous support for those at the lower end.

But for the most part, those debates lie in the future. Here in New Zealand, we’re still getting the basic information out there – and the gasps from the audience every time I show our key graph of incomes in the last 30 years, with the top 1 per cent soaring away from the rest, is proof of how shocking those simple figures still are.

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Napier talkHere’s a shot from Thursday night’s talk in Napier – a full house at Beattie and Forbes bookshop. Thanks to James Landon for the picture. James notes that in the crowd “were 3 prospective Regional Councillors, one City Councillor, various Health Professionals, a PWC Partner and the Children’s Commissioner no less”.

I’ve just been going over the results of Roy Morgan’s August opinion poll, and they’re clear: inequality and poverty are the most pressing issues for New Zealanders.

In the poll, 15 per cent say that “Poverty/ The Gap Between Rich & Poor/ Imbalance of Wealth” is the most important issue the country faces – more even than the economy and unemployment (both 13 per cent).

What’s also striking is how that level of concern has risen in a short space of time. It’s gone from three per cent in November 2010 to eight per cent in January 2012, to 15 per cent now.

While the poll figures do fluctuate a little, the upwards trend is clear – and that’s not even factoring in Bryan Bruce’s documentary on inequality, which screened on TV3 in late August and has raised the issue’s profile still further.

After the global financial crisis, it appears that people were concerned with issues immediately to hand: would there be jobs, and a recovery, any time soon? But as the economy has begun to recover, the question of who receives the greatest share of the income thus generated has become more and more salient.

The detailed results are available here: http://www.roymorgan.com/findings/5111-new-zealand-issues-august-2013-201308200005

 

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People listening recently to Morning Report may have heard the World Bank’s chief economist, Kashik Basu, noting that the bank had two new goals that confirm inequality’s position in the mainstream of world thinking.

The first was to reduce the number of people living in extreme poverty; the second, to make sure that countries were promoting “shared prosperity” and that the benefits of economic growth were going not just to the top 10 per cent but also to the lowest 40 per cent of the population.

“There is pretty much a shared view at the top end of the World Bank,” he said, “that it would be utterly foolish just to sit back and say that growth is going to trickle down to the poor. You do need interventions by government.”

In making these statements, the bank has joined a long list of international economic bodies expressing concern about growing income inequality. The head of the IMF, Christine Lagarde, said earlier this year that income had to be “distributed more fairly”. The OECD has issued a series of major reports on inequality, and its secretary-general, Angel Gurria, has said that “ignoring increasing inequality is not an option”.

Other advocates of reducing inequality include Barack Obama and the Pope. Whether any of these individuals or organisations has the will to reduce inequality, or even the right policies, remains open to debate. But this roll call of concerned bodies is clear evidence, if it were needed, that inequality is now central to the political debate.

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Below are two papers from Perce Harpham, an advocate of a Universal Basic Income (UBI).

Inequality: A New Zealand Crisis contains a brief proposal for a UBI along slightly different lines, as set out by Gareth Morgan and Susan Guthrie.

Here, Harpham’s introduction paper brings, in his words, a partial solution to the inequality issue. It offers a means of financing a Universal Basic Income and shows that the tax regime and UBI should be considered together – not separately, as has always been done by various Commissions of Enquiry over the years.

The values chosen for tax rates and UBIs can be varied to give different results for how much one wishes to reduce inequality. The spreadsheet lets people vary these themselves and see what the effect is on individuals of different ages and levels of wealth.

UBI Introduction