STUDENT:David Harvy
ID:4238 1940
Major Essay
1.) How has the level of economic inequality changed in Australia over the
pa...
The shrinking middle class has been a striking feature of economic growth in Australia
during the thirty years from 1981 t...
1
statistics which are noted as being inconsistent. Recent reports (News 2011) on the real
inflation figure of being up to...
Policies of successive governments tended until recently to be averse to the particular
political party’s ideology. The 19...
efficiencies which needed to first favour the corporations that would provide major
ongoing and future employment opportun...
rate by 1.5 per cent for the period of 1982 to 1990 for families with children, renters and
the long-term unemployed. Duri...
Howard Years 2008). The Howard government in fact increased social expenditure in a
number of areas with total taxation ex...
applied Keynesian economics and ran a deficit budget when the inherited budget
surplus was consumed. (Daily Telegraph 2010...
economy. Stimulation spending patterns, targeted and efficient social spending and
increasing equal opportunities for marg...
in dispersion of income has been shrinking since 2000. It is reported that the lowest end
of the income dispersion chain r...
When race is included in the equation the opportunities in accessing the same income
potential as white-Anglo educated mal...
further supports the growing trend of income inequality tempered by the fact that all
segments of society have increased t...
Anzarut, D 1986, Introducing Economics, 2nd
edn, Macmillan, South Melbourne.
Australian Bureau of Statistics 1995, A Provi...
(i)
Freebairn, J 1993, ‘Economic Rationalism?:Economic Policies for the 1990s’, in S King
& P Lloyd (eds), Economic Ration...
Mead R 2011, ‘Health Reform Hasn’t Started’, The Australian, 14 February, p.14.
News, ABC News Radio 2011,1026AM, 16 Febru...
(iii)
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Political Economy Research Paper

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Transcripts - Political Economy Research Paper

  • 1. STUDENT:David Harvy ID:4238 1940 Major Essay 1.) How has the level of economic inequality changed in Australia over the past 30 years? What changes in government policy might explain these changes in inequality? What other factors are important to understanding inequality? DUE DATE: March 2, 2011 (By prior arrangement)
  • 2. The shrinking middle class has been a striking feature of economic growth in Australia during the thirty years from 1981 to 2011. This has exacerbated economic inequality with both the evidence and the reality pointing to the marked increase in accommodation costs. The poorest percentile have suffered from a lack of equal starting opportunities or particularly, the ability to attain the purchase of opportunities (Stokes 2002, p. 5). The rich have extended their wealth accumulation and earnings. The reasons for these trends and how they inter-relate will be examined with the argument that while society generally has benefited from steady economic growth the gap between the ‘haves’ and ‘the have nots’ has discernibly increased. Interestingly, government policies have not necessarily followed party lines in their affect on the ultimate measure of economic inequality, disposable income. Although statistical data will be referred to it will also be argued that this is skewed and an inconclusive measure. Finally, I will look at education, gender and race to further illustrate greater understanding of inequality. There is a wealth of literature on economic inequality which is generally described as a measure of the distribution of Australia’s wealth and earnings amongst society. Changes in the Australian Bureau of Statistics (ABS 2009) methodology has resulted in using the Gini co-efficient as a standard measure which appears to best define movements in economic inequality over the past thirty years. A recent article (Gittins 2011) concurs generally with my findings however it does appear to rely on ABS
  • 3. 1 statistics which are noted as being inconsistent. Recent reports (News 2011) on the real inflation figure of being up to five times higher than the official rate highlights how statistical data does not offer the final answer. As stated by Stillwell and Jordan (2007, p. 21) the evidence suggest that there has been a long-term redistributive trend from labour power to capital during the past twenty five years. This conceivably relates to particular government policies during that period which tended to favour big business, the major employer groups. A good example is the political era of corporatism during the mid to late 1980s notably embraced by the Hawke government. Potential relationships between changes in both economic inequality measures and government policies will be examined in depth later. The Gini co-efficient is a standard economic measure based on the Lorenz curve whereby 0.000 would equate to equal economic distribution and 1.000 would be where one household has all the income (Jordan & Stillwell 2007, p. 5). The data commencing at 0.400 for the financial year 1982 shows a consistent slight increase until 1995 when the co-efficient spiked upward to 0.443 before continuing a more gradual rising trend (Jordan & Stillwell 2007, p. 6). Measures of 0.450 in 2000 (Stokes 2002, p. 3) and 0.468 in 2008 (ABS 2009) buck the rising trend, regressing slightly.
  • 4. Policies of successive governments tended until recently to be averse to the particular political party’s ideology. The 1983 Accord of the Hawke government averted a fall in earnings for those at the bottom percentiles with wage increases linked to productivity. At the same time there was a marked increase for those at the top of the earnings 2 distribution (Gregory & Woodbridge 1993, pp. 226-228). This is the basis for my introductory remark concerning the shrinking middle class. During recent years no one could have escaped knowing of some of the massive rises in property values, pertinently domestic properties. With a strong increasing population trend the demand for housing near jobs has pushed up values significantly. The de-regulation of the financial markets in the mid 1980s (Emy & Hughes 1988, pp. 86-88) provided greater access to the funds required to purchase these properties. Growth in the employment market was mainly in part-time positions and was dominated by women (Stokes 2002, p. 6). The great Australian dream now required increasingly larger deposits and larger mortgage repayments. The effect was to transform the former middle class into the new working poor. By the mid 1980s the social wage had fallen with corporate profits rising by up to 70 per cent, and importantly some award rates dropped (Emy & Hughes 1988, p. 95). The late 1980s and early 1990s highlighted the plight of the middle class with a redistribution to the richer percentiles. The bottom 20 per cent were better supported due to higher social security payments and increased benefits (Freebairn 1993, p. 42). The first term Hawke government made a creditable effort in social reform but appeared to side with business in later terms. This was a time in the political landscape when many reforms needed to be tackled resulting in a transition period of restructuring
  • 5. efficiencies which needed to first favour the corporations that would provide major ongoing and future employment opportunities (Emy & Hughes 1988, p. 466). The 3 economic effect was that disposable income was consumed by expenditure on housing costs into patterns of increased debt levels. The oil shock of 1973 and excessive social reform spending by the Whitlam government was curtailed by the subsequent Fraser government known for its neo-classical pragmatism and ‘razor gang’ cutbacks. The Hawke era did little to change the steadily growing economic inequality. Early gains were off-set by the downward cost-push toward real wages growth and a declining social wage in later years. By contrast the Keating government (1991 to 1995) is hailed for having the right economic agenda to take advantage of the resources boom, “…delivering huge material gains for most families.” (Latham 2010, p. 26). The Gini co-efficient for 1995 would therefore appear to be more connected with the economy growing overall with a disparity of income and wealth gains to the advantage of the richer percentiles. While there is consistent evidence that increasing economic inequality occurred from 1978 through to 1993 studies of income distribution often ignore access to government services. For example it has been cited by Keating (1993, p. 75) that government spending initiatives in health services, employment strategies, child care and training has made a positive effect upon economic inequality. These increases in cash transfers reduced the tax poverty
  • 6. rate by 1.5 per cent for the period of 1982 to 1990 for families with children, renters and the long-term unemployed. During this same period there were small tax cuts for those earning below average weekly earnings (AWE) and larger tax cuts for those earning three times or higher AWE (Harding 1993, p. 234). 4 Following efficiency reforms to the labour market, financial deregulation and the plan to phase out tariff protection (Emy & Hughes 1988, pp. 86-91) the Keating government assisted the ‘battlers’ but the earnings dispersion continued to widen. The Hawke government lowered unemployment by reducing wages and stimulating employment growth (Emy & Hughes 1988, p. 95). Increased spending on social programs with the addition of some further taxation reform by the Keating government off-set the increasing economic inequality for the poorest 40 percentile (Stokes 2002, p. 5). The Gini data for net wealth is the same for 1998 as 1986 (Stokes 2002, p. 4). This tends to suggest that the massive rise in household debt from 1992 (Inside Story 2009) occurred as people needed to borrow more due to increased housing costs, and to maintain and build on their wealth accumulation. The suppression of a general wages push in the 1980s was consolidated by the Workchoices legislation of the Howard government in the 1990s. The Howard Liberal- National coalition (1996 to 2004) practiced neo-classical economics with an accent on national savings and budget surpluses to prepare for the next economic downturn (The
  • 7. Howard Years 2008). The Howard government in fact increased social expenditure in a number of areas with total taxation expenditure peaking at 4.4 per cent of Gross Domestic Product (GDP) in 2001(Tax Expenditures Statement 2004, p. 8). This accounts toward the nominal rise in the Gini index to 0.450 for the year 2000 (Stokes 2002, p. 3). The greater part of the wealth gains for the same time was concentrated in the richest one per cent who increased their share by 12 to 15 per cent. This has been 5 attributed to largely a corresponding decrease at the expense of middle income earners (Stokes 2002, p. 3). The Howard era can be characterised as one where the poorest members of society were paid off, home owners worked more for less and the rich got richer through earning more and spending less (Blacklow 2002, p. 31). However, there is evidence from ABS data that demonstrates a shrinking of the earnings dispersion inequality for the period 2000 to 2005 (Saunders 2005, p. 1). Additionally there is evidence of targeted increases in government spending suggesting the Howard government spent more efficiently (Tax Expenditures Statement 2004, pp. 9-10), if not with a social justice attitude. The Rudd government clearly reflected Keynesian economic theory running the budget into deficit. History suggests the massive stimulus package of 2008 kept Australia out of an international recession. The major boost to pension payments was also a prominent spending initiative under this first term Labor government. The Rudd government simply
  • 8. applied Keynesian economics and ran a deficit budget when the inherited budget surplus was consumed. (Daily Telegraph 2010). Consequently, statistical data demonstrates a shrinking of economic inequality for the 2008 financial year (ABS 2009). The proposed mining resource tax complies with social justice policy to redistribute earnings more fairly. The future economic growth of Australia relies heavily on the resource boom and this has been considered by the current Gillard government. To this end the government plan to return the budget to surplus by the 2013 financial year 6 (Commonwealth Budget 2010-11) recognises that Keynesian economic theory can work effectively to stimulate demand and avert negative economic impacts. It also recognises neo-classical views of the ‘boom to bust’ cyclical nature of a capitalist market system. That is, there is a limit to deficit budgets and as we become more integrated into the international economy we may well need to generate surplus funds to off-set any effects from international economic downturns (Daily Telegraph 2010). It is generally regarded that the standard of living has risen steadily in Australia as it becomes the ‘luckier’ country to many more immigrants (ABS 2009, Daily Telegraph 2010, Davis, 2010, Gittins 2011, Saunders 2005,). Restructuring of industry, the labour market, our ports, the fostering of free trade agreements and a program of tariff reductions were necessary, if not timely, to ensure greater economic efficiency in Australia and hence take advantage of any benefits flowing from the international
  • 9. economy. Stimulation spending patterns, targeted and efficient social spending and increasing equal opportunities for marginalised groups in society have also contributed in reducing economic inequality. This government intervention has not always followed the prevailing ideology of the respective party in power however. Recent Labor governments’ economic management certainly appear to relate to a decreasing trend in economic inequality. The trickle down effect, particularly from the resource sector, may mask the reality of income inequality as society is submersed into a higher standard of living overall. What the data does reveal is a difficulty in accurately assessing ‘comparative’ movements due 7 to changes in criteria for statistical collection (Blacklow 2002, p. 3). For example, the ABS changed the criteria for Income Distribution data in 2004 (ABS 2009). In 1995 the ABS also provisionally amended the counting income units (ABS 1995). As noted by Harding (1993, p. 233) the traditional family income unit is a wide variable as definitions change over time. This leads to at least fifteen possible measurements of income distribution. The Gini co-efficient provides evidence to suggest that economic inequality has been on a downward trend in recent years as previously outlined. The reality is that the costs of housing has risen dramatically. We are saving more through maintaining mortgage repayments and reducing consumer debt. At the same time we are enjoying a higher standard of living (Gittens 2011). According to official ABS data the inequality
  • 10. in dispersion of income has been shrinking since 2000. It is reported that the lowest end of the income dispersion chain recorded the biggest gains (ABS 2009). It is questionable that economic inequality assessed by the Gini indices is altogether a suitable means of explaining changes in equality. A vast gap in income dispersion between the lower and higher percentiles remains a feature in capitalist market systems (Anzarut 1986, p. 45). More importantly it is useful to examine the interrelationship of education, gender and race which can limit opportunities of income potential. Employment growth during the past decade has largely been in part-time jobs and filled mostly by women (Stokes 2002). What this represents is women having to juggle the dual role of performing both unpaid and paid work in order to meet the inordinately 8 larger household and consumer debts (Inside Story 2009). When issues of gender and education are combined this exacerbates equal opportunities in the market. Two reasons are that education subsidies are generally directed to suppliers, not demanders. Secondly, males who dominate the full-time employment sector have a disproportionate influence on education policy (Pincus 1993, p. 270). To be female, performing unpaid work in the home and working in lower status part-time employment is not by any means an equitable situation. Gender remains a significant determinate of economic opportunities despite changing social attitudes and public policies over the past four decades (Jordan & Stillwell 2007, p. 9).
  • 11. When race is included in the equation the opportunities in accessing the same income potential as white-Anglo educated males is severely restricted. In fact access to education as a precursor to gaining access to better paid employment is worsening. A recent report (Edwards 2011) noted that Year 10 attendance rates for indigenous people had fallen in every state except Western Australia for the period 2007 to 2009. This may be related to a notable increase in government expenditure per capita for the private school sector and a decrease in the public sector (Inside Story 2009). Government programs to provide mature age apprenticeships, indigenous employment, increasing skilled migration and specific gender opportunities are commendable to a degree (McMahon 2011). Most of the opportunities are in lower paid employment with little opportunity to increase earnings over time. This suggests that the middle class has 9 changed during the past thirty years by being absorbed into the working class represented by the lower percentile groupings. Recent insight into fully participating in education and the workforce highlights the difficulties facing people of poor health and disability. When sufferers and carers are combined it is notable that this segment of society is mostly female, of a lower education level and at the base roles, commonly new Australians (Mead 2011). This
  • 12. further supports the growing trend of income inequality tempered by the fact that all segments of society have increased their economic prosperity to differing degrees. ABS statistics do provide trend measurements that are undoubtedly useful in assisting to shape policies that seek to redress inequalities on a macro scale. Further investigation into the realities of lifestyle choices need to be examined to determine whether economic inequality is, to a greater or lesser extent, a product of the rise of the welfare state. 10 LIST OF REFERENCES
  • 13. Anzarut, D 1986, Introducing Economics, 2nd edn, Macmillan, South Melbourne. Australian Bureau of Statistics 1995, A Provisional Framework for Household Income, Consumption, Saving and Net Worth, 1995; cat. no. 6549.0, viewed 16 February 2011, <www.abs.gov.au/Ausstats/abs@.nsf/Latestproducts/6549.0Main%20Features11995? opendocument&tabname=Summary&prodno=6549.0&issue=1995&num=&view=>. Australian Bureau of Statistics 2009, Household Income and Income Distribution, Australia, 2007-08; cat.no. 6523.0, viewed 17 February 2011, <www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6523.0Main %20Features99992007-08? opendocument&tabname=Summary&prodno=6523.0&issue=2007-08&num=&view=>. Blacklow, Paul 2002, ‘Expenditure and Income Inequality in Australia 1975-76 to 1998- 99’, University of Tasmania : School of Economics Discussion Paper Series, pp.1-39. Commonwealth Budget 2010-11, viewed 16 February 2011, <www.budget.gov.au/2010-11/index.htm>. Daily Telegraph 2010, ‘Federal Election:Australia Decides’, 16 July 2010, viewed 7 February 2011, <www.daily telegraph.com.au>. Davis, M 2010, ‘Gap widens for mega rich’, Sydney Morning Herald, 8 April, viewed 20 February 2011, <www.smh.com.au/executive-style/luxury/gap-widens-for-mega-rich- 20100407-rsaw.html>. Edwards, V 2011, ‘School attendance for indigenous kids still on the decline’, The Australian, 14 February, p. 3. Emy, HV & Hughes, OE 1988, Australian Politics:Realities in Conflict, Macmillan, South Melbourne.
  • 14. (i) Freebairn, J 1993, ‘Economic Rationalism?:Economic Policies for the 1990s’, in S King & P Lloyd (eds), Economic Rationalism:Dead end or way forward?, Allen & Unwin, St Leonards, pp.42-48. Gittins, R 2011, BusinessDay, The Saturday Age, 19 February, p.10. Gregory RG & Woodbridge GL 1993, ‘Economic Rationalism and the Earnings Dispersion’, in S King & P Lloyd (eds), Economic Rationalism:Dead end or way forward?, Allen & Unwin, St Leonards, pp. 220-231. Harding A 1993, ‘Comments’, in S King & P Lloyd (eds), Economic Rationalism:Dead end or way forward?, Allen & Unwin, St Leonards, pp. 232-235. Inside Story 2009, ‘The Howard Impact’, edited extract in R Tiffen & R Gittins (eds) 2009, How Australia Compares, 2nd edn, Cambridge, North Ryde, viewed 18 February 2011, <www.inside.org.au/the-howard-impact/>. Jordan, K & Stillwell F 2007, 'Economic inequality, insecurity and financial futures', Dialogue, Journal of the Australian Academy of Social Sciences, Vol 26, pp.3-22, viewed 18 February 2011, <www.caepr.anu.edu.au/>. Keating, M 1993, ‘The Influence of Economists’, in S King & P Lloyd (eds), Economic Rationalism:Dead end or way forward?, Allen & Unwin, St Leonards, pp. 57-81. Latham, M 2010, ‘No Exit’, The Monthly, November, Collingwood, pp. 18-27. McMahon, M 2011, ‘Indigenous Employment Plan’, Business Daily, Herald Sun, 11 February, p. 56.
  • 15. Mead R 2011, ‘Health Reform Hasn’t Started’, The Australian, 14 February, p.14. News, ABC News Radio 2011,1026AM, 16 February. Pincus, J 1993, ‘Market Failure and Government Failure’, in S King & P Lloyd (eds), Economic Rationalism:Dead end or way forward?, Allen & Unwin, St Leonards, pp. 261- 276. (ii) Saunders, P 2005, ‘A Headlong Dash into the Chasm of Hyperbole’, Issue Analysis, No.59, The Centre for Independent Studies, St Leonards, pp.1-8, viewed 20 February 2011, <www.cis.org.au/.../issue-analysis/>. Stillwell, F & Jordan, K 2007, Who gets what?:Analysing economic inequality in Australia, Cambridge, North Ryde, viewed 22 February 2011, <www.books.google.com/books>. Stokes, A 2002, ‘Income and Wealth Distribution in Australia’, Australian Catholic University, viewed 2 February 2011, <www.homepages.tig.com.au/>. Tax Expenditures Statement 2004, 21 January 2005, Content ID:950, viewed 22 February 2011, <www.treasury.gov.au>. The Howard Years 2008, transcript, ABC1, Sydney, 17 February, viewed 22 February 2011, <www.abc.net.au/news/howardyears/content/s2421917.htm>.
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