Economic disparities are different to other inequalities – such as those of ethnicity and gender – in that relatively few people wish to eliminate them altogether and thus leave everyone with the same level of income and/or wealth. Generally, the argument is that economic disparities are too large and should be reduced, until the only inequalities left are those that can be justified morally (for instance, those resulting from greater hard work or contribution) and are so small that they do not leave anyone in poverty or render society dysfunctional.
Many forces affect the way that income and wealth are distributed, and there is no one ‘right’ way to reduce economic inequalities. However, the potential solutions can be broken down into three broad areas: the basic rules, values and assumptions that lay the groundwork for markets; the operations of markets themselves; and welfare state policies to reduce the disparities markets create.
The overall structure
1. The groundwork
We generally regard income and wealth as being generated through buying and selling: so-called market exchanges between businesses, workers and consumers. But those exchanges are themselves built on a bedrock of philosophies, values and structures that are socially determined. These include people’s beliefs about whether disparities result primarily from social forces or individual’s choices. Also in this category are forces like colonisation, which can deprive an ethnicity of the bases – land, access to capital, and so on – needed to participate in markets. This category includes gender attitudes, which can limit women’s ability to be economically active. A society’s use of technology, including AI, and its exposure to international trade can affect disparities. Governments can also decide to provide certain services, such as health and education, “outside” of markets, as public services delivered free at the point of use.
2. The functioning of markets
Markets operate differently depending on how governments regulate them. Labour laws can tilt the workplace power balance towards workers or employers. If trade unions are encouraged, they can help ensure staff enjoy a larger share of company revenue. Companies with worker representatives on their boards may behave in a more egalitarian manner. Anti-monopoly laws can prevent dominant companies from gaining a disproportionate share of income. Government investments in infrastructure – railways, roads, ultrafast broadband and the like – can help markets function better. In contrast to state redistribution (see below), policies in this area sometimes referred to as predistribution, as they are put in place before income and wealth are handed out in markets.
3. Government redistribution
Redistribution concerns the action governments take to change the allocation of income and wealth after they have been determined in markets. Principally this involves taxes and benefits. The former ensures that those who are better off help fund public services like health and education, and compensate those who have been less fortunate in life. That compensation takes the form of benefits paid to people who are not in paid work for whatever reason. These benefits can include payments like the Accommodation Supplement, which helps reduce housing costs, and state pensions. Such policies help narrow the distribution of income and wealth created by markets.
Potential solutions
There are multiple possible policies to reduce economic disparities; a sample are included below.
1. The groundwork
A greater emphasis on values like care and compassion, and a stronger focus on the social forces that can shape people’s lives; greater independence or tino rangatiratanga for Māori; efforts to reduce gender-based discrimination; removing ‘market’-style elements from public services (making GP visits free, for instance); and ‘decommodification’, where things currently treated like commodities (housing bought for capital gains, for instance) are instead viewed more as basic human entitlements (greater provision of social housing, for instance).
2. The functioning of markets
Higher minimum wages; widespread adoption of the Living Wage; industry-level bargaining (as in many developed countries) and other mechanisms to lift terms and conditions for the poorest workers; stronger union rights; gender pay equity laws; laws requiring companies to elect worker representatives to their boards; encouragement of worker- and consumer-owned cooperatives; encouragement of schemes in which company shares are distributed to employees; and the breakup of monopolies, duopolies and oligopolies in markets such as grocery retailing and electricity generation.
3. Government redistribution
A Kids KiwiSaver scheme to build up the asset base of poorer children; higher income tax rates; bringing all forms of income (including capital gains and inheritances) into the income tax system; alternatively, taxes on wealth (such as net wealth and land taxes); some form of more generous and less means-tested benefit, such as a Guaranteed Minimum Income (GMI) or Universal Basic Income (UBI); and more generous assistance for families with children.
Further details on these ideas can be found in the publications on the Books page.