Solutions

Economic disparities are different to other inequalities – such as those of ethnicity and gender – in that relatively few people wish to eliminate them altogether, which would 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 thus the immense array of disparities between citizens in a society. Accordingly there is no one 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 way markets themselves function; and government’s actions to reduce the disparities markets create.

1. The groundwork

Economic resources – income and wealth – are generated through buying and selling, between businesses, workers and consumers, in what are called market exchanges. But those market exchanges are themselves built on a bedrock of philosophies and values that are socially determined. These include things like a society’s basic orientation towards individualism or community, and the balance it wishes to strike between liberty and equality. 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. Ditto gender attitudes, which can limit women’s ability to be economically active. 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 themselves can be structured in multiple different ways, 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. 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

In contrast to predistribution, 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 have done better contribute to public life and good 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

The solutions needed to reduce economic inequality to an acceptable level are too numerous to list here. But below are some examples.

1. The groundwork

A greater embrace of collective values, and a rejection of the hyper-individualism that has dominated public debate in recent decades; greater tino rangatiratanga, or sovereignty for Māori; efforts to reduce gender-based discrimination; removing ‘market’-style elements of public services (fees for seeing a GP, for instance); ‘decommodification’, where things currently treated like commodities (housing bought for capital gains, for instance) are instead viewed more through a human rights lens (greater provision of social housing, for instance).

2. The functioning of markets

Higher minimum wages; widespread adoption of the Living Wage; Fair Pay Agreements and other mechanisms to lift terms and conditions for the poorest workers; 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; stronger union rights; 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.