Political Economy Research Paper
Published on: Mar 4, 2016
Transcripts - Political Economy Research Paper
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
DUE DATE: March 2, 2011
(By prior arrangement)
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
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.
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
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
efficiencies which needed to first favour the corporations that would provide major
ongoing and future employment opportunities (Emy & Hughes 1988, p. 466). The
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
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).
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
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
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
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
(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
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
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
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
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
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).
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
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
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
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