Labouring over Inequality

The big issue concerning Labour’s grass roots is a bit of a surprise.


Listener: 17 October, 2013


Keywords: Distributional Economics; Political Economy & History;


The popular party vote that elected David Cunliffe leader of the Labour Party reveals much about what the party grass roots think. They gave a lower significance to identity politics than the upper echelons of the party did. It is not that they care less about the “minorities” but rather that that concern is no longer particular to Labour. The gay marriage bill was passed on a cross-party vote.


Nor was the “spy state” prominent. I thought the left might use this to counter the “nanny state” accusation. But although clumsy government handling of surveillance issues is of great concern to some – who may well be far-seeing – it does not appear to have moved the public yet.


No, the message from the meetings was that the red roots remain concerned with economic issues. I am not referring to promises to accelerate economic growth. An opposition always promises that; in government, the party is grateful to maintain the past growth rate and its promises to attain higher targets are soon forgotten. Remember National’s in 2008 or Labour’s in 1999?


Other issues that concern economists are not uppermost in the public mind, such as the failure of light-handed regulation: the deaths in industrial accidents and earthquakes; price gouging in telecommunications and electricity; lost savings in the financial sector; and wasted investment from badly constructed buildings. The Government is addressing these failure by failure, but it has no comprehensive philosophy; there will be more failures.


Savings remain a problem. If we don’t save, we end up with the country being bought up by foreigners and a high real exchange rate stifling exports, production and jobs. But again it is a bit hard to enthuse the public about such a technical issue.


One might also worry about the quality of life. Today’s most vigorous concerns are the law and order campaign at one end of the political spectrum and the pressures on the natural environment at the other. But there are many in-between – for example, the alcohol limit for drivers. It would be an exceptional politician who could lead the public by advocating improving the quality of society.


What the Labour members emphasised was a concern about economic inequality. This is a bit surprising. Inequality in New Zealand increased sharply a quarter of a century ago. The result has been well known to researchers for two decades, but few took much notice. The degree of inequality has since remained at roughly the same level – in the OECD, we’re 15th out of 34 countries, compared with 10th out of 17 in 1985 – but suddenly it has become a matter for public concern.


Probably the increased interest reflects inequality having recently risen sharply in some countries we follow where there is now a vigorous debate that we colonials imitate. Recall that a (social science) prophet is without honour in his own community. Our conventional wisdom prefers the ephemeral.


Perhaps, too, many people are tired of their low incomes and think that reducing inequality will raise them. But you can’t raise everyone’s. Some of the voters Labour is after may suffer, making a sacrifice in the public good.


The inequality rhetoric places the Government at a disadvantage, because there is no easy response like the one to Labour’s housing package. It could say that this is a “gimme” policy, a bribe to potential voters. But National’s tax cuts have been, too, except it was the rich who benefited.


It is easier to raise concerns about inequality than to propose robust, effective policies. Much of what is put forward reminds us that every complex problem has a policy response that is short, simple, understandable – and doesn’t work.


Today we are paying the price for more than two decades of high inequality. As the Child Poverty Action Group has repeatedly said, too many children have grown up in deprived conditions that will mar their adult lives by low productivity, poor health and additional social costs. The consequential adult delinquency and poor social quality will be with us for a long time.