Debunking the Egalitarian Myth

NZ Herald, 14 May 2020.

An edited extract from Brian Easton’s new book ‘Not in Narrow Seas: The Economic History of Aotearoa New Zealand’.

Once upon a time New Zealand identified itself as egalitarian. New Zealanders liked to talk about their ‘classless society’, to boast that ‘Jack’s as good as his master’, to tell themselves they live in ‘a working man’s democracy’.

Hard questions began to challenge these comfortable national myths. Jack may have been as good as his master, but what about Haki? What about Jill? It was a shock when Haki and Jill started to appear in the urban working life of the Pākehā bloke.

The ultimate defence of the idea that New Zealand was classless was to claim that this was a country of equal opportunity. There are plenty of complacent anecdotes intending to prove it, for  boys from low status families were sometimes successful and the girls could marry well too.

But there was little attention to those who did not succeed, some of whom may have been equally talented. The systematic evidence, such as that collected by UNICEF, suggests that in fact New Zealand has a low ranking among rich countries on educational opportunity.

Perhaps the most charitable interpretation of the myth was that New Zealand as an egalitarian society was an aspiration; it was what New Zealanders wanted their society to be.

 Is it still true?

Inequality was fairly high before the Second World War but fell in the three decades after it. Major factors seem to have been low unemployment and the increasing trend for women to take up paid work. Perhaps the fall coincided with increasing opportunity for those at the bottom.

This trend changes in the 1980s. The fall in inequality of personal market incomes ceased and the shares between deciles stabilised.  Household shares were relatively stable in the early 1980s and after 1992.

However the story of household spending power after tax and benefit changes is very different. The changes between 1988 and 1992 markedly favoured those at the top. The tax and benefit changes markedly favoured those at the top between 1988 and 1992.

Another measure of household inequality is poverty. The data shows that poverty rose in a similar pattern, if a relative poverty line which increases with increases in the general standard of living is used.

However there was some reduction in absolute poverty from the mid-1990s as a consequence of the rising standard of living.

The poverty at the bottom of the household disposable income in the early 1990s fell mainly upon children and their carers. Poverty measurement is a complex exercise, but according to various relative poverty lines, poverty among children doubled between the pre-1990 years and the post-1990 years, following the National Government’s 1990 benefit cuts.

Add in their carers, and most of the increases of those in poverty involved households with children.

In the mid-2010s there was a major public outcry. New Zealand had been facing high child poverty for a quarter of a century – by 2015 children born into poverty in 1990 had become adults, many with their own children also in poverty.

Why did it not show up before then? The short answer is that those who looked were ignored. Governments responded to revelations of poverty by targeting income supplements to the ‘deserving’ poor: that is, broadly speaking, those who were employed.

The first was the National  Government’s Independent Family Tax Credit in 1996. At the time the Labour Opposition were extremely critical. In government, a decade later, Labour chose a similar approach with their Working for Families tax credit.

Some claimed, as though this somehow reduced the size of the problem, that the poor were mostly Māori and Pasifika. In fact, while the proportions of Māori and Pasifika in poverty are higher, on most measures there are more poor Pākehā because they are a larger share of the population.

The sadly limited social science research in this area also reported that those on low incomes had poor health as a result of poor housing and lack of access to good nutrition and medical care. There is plenty of evidence, throughout the world, that health status is related to class.

 There is less evidence about the impact of economic inequality on opportunity, but it matters. Hugh Lauder and David Hughes showed that a child from a working-class background on average had to have a significantly higher IQ in order to get into university.

This was based on 1980s data; did things get harder after 1990? Lower relative social security benefits may have helped to ghettoise the poorest.

Perhaps the most persuasive evidence is from the OECD, based on many studies from many countries. It concludes that inequality inhibits long-run economic growth.

This is largely because poor children do not acquire the skills required by a modern economy, and this drags down their economic performance. The OECD cites one econometric study suggesting that the rise in New Zealand income inequality reduced its economic growth rate.

Why might a young person in poverty not acquire skills? It may be that the poor have a parent or parents less able to bring up children. The problem may not be poverty itself, or it may be that they too were brought up in deprived circumstances, which leads to poor health, poor formal education and poor informal education such as a lack of books and computers in the home or inadequate space to study.

Lack of funding may also prevent the student from participating in out-of-school activities enjoyed by classmates from more affluent backgrounds. Students learn informally from their peers, and this learning enhances their formal education; able poorer children may adopt the ambitions of their peer group.

Many of these processes, especially the last, require the family to have enough for the student to participate and belong to their community. Providing only enough to sustain life and health will mean the young person increasingly falls behind their successful peers.

There are a few studies on intergenerational occupational or income mobility in New Zealand. Not surprisingly, they demonstrate that an adult benefits from a superior family background.

One must be cautious; but undoubtedly family background counts. In the first four decades after the Second World War, New Zealand may have had greater intergenerational mobility than Britain or Germany, but on the whole it seems to be a middling country in this matter.

Most of the data refers to cohorts born well before the dramatic social-welfare reductions in the early 1990s.

On the basis of the international findings we might expect that New Zealand’s ranking on social mobility will deteriorate for those born after 1990.

In short: New Zealand has never been classless, but for some decades after World War Two inequality lessened. The Rogernomics revolution widened inequality, and relative poverty increased.

And that almost certainly meant that “equality of opportunity” also waned.

We are not nearly as egalitarian as we like to think we are.