High cost of income inequality
As public debate on the state of our economy continues as if the global financial crisis never took place, business leaders and conservative academics in the United States are confronting the problem that they believe could destroy the market-oriented democratic system: income inequality. Concerns over income inequality are not new, but have previously focussed on its impact on mental health, social cohesion and wellbeing. Never before have established advocates for neo-liberalism - individuals and institutions largely responsible for its prominence in the West today - expressed a fear that exaggerated income disparity is a threat to both capitalism and democracy.
Late last year, the Harvard Business School released a report that identified the forces that they believe threaten the existence of the capitalist system. The school's famous case-method approach to inquiry was used to bring together the concerns of 46 business leaders across three continents in 2007 and 2008, including David Murray, inaugural chairman of the Australian government Future Fund board of guardians. Although other concerns were raised in the report released last year, such as resource degradation and climate change, Capitalism at Risk: Rethinking the Role of Business found that the greatest threat to capitalism was seen to be income disparity.
The report, co-written by three Harvard Business School professors, maintained that capitalism had been an overwhelmingly positive force, increasing wealth in the majority of countries and lifting millions out of poverty. The report aimed to address the issues that threaten to destroy capitalism, and identified swelling income disparity as the most urgent. It is ironic that those who were the most committed advocates for the neo-liberal reforms that were largely responsible for extreme income disparity now see it as an existential threat to capitalism, the nature of which must be reconsidered for it to survive. But then, what is the point of being at the tip of the iceberg when the iceberg melts? Interestingly, the findings of the Harvard Business School report converges with the recent work of several prominent political scientists also strongly identified with America's conservative right.
Francis Fukuyama is an American academic who rose to international prominence with his influential book published in 1992 entitled The End of History, which proclaimed liberal free-market democracies to be the only universally viable politico-economic system. In January this year, however, in an essay that appeared in the influential journal Foreign Affairs, Fukuyama asserted the lightly regulated global marketplace was undermining the embrace of democracy that he had two decades ago argued would become universal. He noted the growing anxiety caused by a system where benefits disproportionately flow to the upper echelons of society. Fukuyama further noted that many people now admire modern China's authoritarian system, which is seen as an alternative to the liberal democracies. It appears that income inequality has become exacerbated to the point that it threatens not only capitalism, but also democracy.
Of course, recognition of the structural nature of widening income inequality and the impact it may have on individuals and nations is not confined to the United States. The World Economic Forum released a survey entitled Global Risks 2012 that identified severe income disparity as the risk seen as ''the most prevalent'' over the next decade, followed by fiscal imbalances.
The United Nations' Human Development Reports have recently demonstrated the correlation between life expectancy and income equality and the World Values Study suggested persons living in nations with relative income equality are happier. If the accumulated evidence is so great that even neo-cons in the United States are now convinced that there is something dangerously wrong with the direction we are heading, why do progressives in Australia shy from a serious critique of the system that produces income inequality?
In political theory, the Overton Window describes a point where public opinion brings a politically opportune moment to introduce a particular policy. If a policy position lies outside the Overton Window, advocates for the particular policy must first persuade, educate and agitate in order to create a favourable political context. Years of rhetorical concessions to neo-liberalism, an ideological system that entrenches gross income disparity, has resulted in a particularly unfavourable context for progressives to mount an assault on income inequality.
The London riots and the Occupy movement in the United States were early expressions of an anxiety that is not yet obvious in Australia, despite its similarly absolute embrace of neo-liberalism. When the mining boom is over, will we see a local reaction against the divisive nature of rampant income inequality and be swept into a western spring?
That the Labor Government was able to means test the private health insurance rebate - a clear redistributive mechanism towards the more affluent stratum of Australian society - only after considerable political effort illustrates the difficult path that lay ahead. Implementing the key recommendations of the Gonski Review into school funding will be an exercise in political attrition. Interestingly, the Harvard Business School report stated that business leaders understood the link between business, education and taxation, because in a globalised economy, business needs a well-educated workforce to survive. Indeed, one of the conclusions reached was the need to ''mobilise the entire business community, and others, to help support the necessary taxes simply makes sense''.
This is what Bob Hawke may have referred to as ''the consensus approach''. The ALP must work hard to prepare the ground for the structural change necessary to contain and then reverse the growing disparity in income. Income inequality will always exist on some level as a natural result of differing levels of talent and motivation. The current chasm, though, clearly indicates that contribution to the creation of prosperity and other expressions of national progress of the majority are grossly undervalued, whilst the reward for the contributions of a few are greatly exaggerated.
The solution may well lie in addressing what Fukuyama described as the self-reinforcing nature of power in the current democratic system, by asserting the authority of democracy over the economy. When money ceases to be directly proportionate with political influence, policy makers will have greater freedom to address income inequality. The serious work begins of revaluating work and establishing a more equitable taxation system that adequately taxes capital gains and forms of non-earned income will follow.
In the United States, ever growing income disparity as the health of the economy is simultaneously declining has left the Overton Window wide open. It almost appears as though conservative academics and influential elements of the business community appear to be goading its traditional progressive adversaries into urgently finding a viable alternative to the extremes of the unregulated, globalised capitalist system that it helped build. If they don't, the angst generated by soaring income inequality could lead to a haphazard return to protectionism, or even nationalism. This is a scenario that both progressives and neo-liberals should be desperate to avoid.
In Australia, our more positive economic context may mean that progressives need to spend time preparing the country for necessary structural change that addresses the widening gulf in income inequality. Such time would be well spent on a sustained critique of neo-liberalism. If the Left lacks the intellectual vigour or courage to do so, business leaders and intellects on the Right driven by an instinct to protect the capitalist system may very well fill the void.
Andrew Hunter is the deputy chairman of the think tank, Australian Fabians.