EDucate! - Development

There is marked inequality in rich countries, and among them Australia has about the lowest proportion of income going to the poorest fifth of people.

Over the past 10-15 years inequality has been increasing. Various estimates indicate that in Australia and the US the real value of the average wage has been falling for more than a decade. Yet in 1986-7 the wealth of the richest 200 Australians increased by 60%.

According to one estimate the number under the poverty line in Australia increased by 50% between 1973 and 1987. The number under the American poverty line rose from 26.1 million in 1979 to 34.4 million in 1987.

The distribution of capital is even more skewed than wealth. According to Kolb about half of all the income from capital investment goes to a mere 1% of Australians, and 92% goes to 10%. In the US a mere 0.5% of people own almost half of all the capital. They own 500 times as much as the total owned by the poorest 90%. This means that we allow about 3% of people to own most of ‘our’ country's capital and to determine what most of it will be put into producing or developing. It also means that most of the unearned income, the dividends etc. from ‘our’ society's invested capital, is going to about 3% of people (less than 1% in the US).

How Do You Become Wealthy?

Some people become rich by hard work and ability, but not very many. The most common way people become rich is by arranging to have a very rich father; most rich people have inherited their wealth. But if this seems difficult for you to organize now, there is another way.

Would you like to make $40 million in one day? Here's one way. You stage a company raid. You start buying shares in the company in order to take it over. The people who control it, because they hold the biggest number of shares, panic and start buying up shares to make sure you don't get more than they have. You bid against them, buying shares more frantically. Because the demand for shares in the company rises, the price rises. When the right moment arrives, you suddenly sell all the shares you have bought ... at a much higher price than that at which you bought them, and then you cry all the way to the bank about your failed takeover bid.

When Murdoch failed to take over Rank Xerox he made $40 million this way. Mesa Petroleum has never succeeded in a takeover bid, but has made $13,000 million in the process.

Why Are There Poor People?

It is widely assumed that people are poor either because they are lazy or because they don't have the sense to earn or manage money. This is true of some people, but it is not the reason why most poor people are poor.

The main reason why countries have lots of poor people around is because the social rules and structures CREATE poor people. The society takes many ordinary people like you and me and turns them into poor people. There are two main rules and procedures which determine that many people will be poor. When there is not enough work for all, we completely exclude some people from having any work at all to do. Secondly, our society gives miserly pensions to people who cannot earn.

At the other end of the scale there are many rules which enable the rich to become richer. Consider the rules which set high salaries for executives, lawyers and doctors. But the most important rules concern unearned income and tax. The rules governing interest, dividends and rent enable the very few people who own almost all of the capital to receive an unearned income equal to 5-15% (depending on interest rates) of their capital wealth every year, without having to do any work at all (while others have to work to produce the food and clothes etc they use). “But don't the rich pay a lot of tax?” As Professor Russell Matthews has put it, “the main problem... is not getting the rich to pay more tax, but getting them to pay any tax at all.”

But the most important factor constantly generating inequality is simply the way the economy works. In this economy the things developed or produced are basically those that will make most money for the few who own capital. This means there is a powerful tendency for production to focus on supplying what richer people want and for the needs of the poor to be ignored, and for the available productive capacity to be drawn into producing what the few want and can pay for. For example firms eager to maximize profits (which would make the biggest contribution to the GNP) will want to build normal (i.e. expensive) houses; their first choice is never to build cheap but adequate housing for poor people. This economy will therefore tend to provide luxury goods for people with good incomes, and good jobs for those who work in the most profitable sectors, while many are ignored and remain poor. An important factor here is the way productivity constantly improves things as time goes by. As a result unemployment inevitably tends to rise.

The global economy has been in a period of long term crisis since the early 1970s, mainly because of the increasing difficulty of profitably investing all the ever-accumulating capital. Governments and economists are desperate to “get the economy going again” and the only way to do this is to try to increase the opportunities for profitable business activity so that those with capital will invest in more factories and generate more jobs. To this end, governments seek to reduce taxes on business and to remove regulations limiting the freedom of firms to do what is most profitable. Governments then have less to spend on unemployment benefits and assistance to poorer people. Firms can best improve their profits by moving towards ways of producing which are capital-intensive and require less labour. This means that when governments make “getting the economy going and therefore helping firms prosper” their top priority, they actually tend to contribute to the creation of unemployment and poverty. Certainly by helping more firms to set up and increase sales they do tend to create more jobs, but unless economic growth exceeds 4-5% per annum, which it rarely does (increase in productivity increase in population/workers), the net effect is more unemployment and therefore greater inequality and more deprived people. In the 1980s, a 33% rise in business turnover was actually accompanied by a trebling of unemployment!

If on the other hand the top priorities had been to eliminate unemployment and poverty, and to produce the cheap basic things large numbers of poor people need, the state would have been obliged to raise taxes on business to limit and direct business investment opportunities, and make sure capital and other development resources were devoted to other than the most profitable purposes. The contradiction is head on; either the resources go into what is most profitable and will do most to raise the GNP, or they go into what people most need. When the aim is to “get the economy going” and “do what will most increase business turnover” there is a powerful tendency to deprive poorer people of a fair share of the available resources and wealth. Most of these get drawn into the production of things for richer people.

A glance at the historical record should remove any doubts as to whether conventional growth and trickle down strategies are ever likely to eliminate problems such as unemployment and poverty. Despite great increase in the real average income per capita in Australia over the last few decades, there has been virtually no reduction in these problems. Indeed the problems of unemployment and inequality increased alarmingly in the 1980s despite an increase in real national wealth and income which was far greater than would have been sufficient to eliminate these and many other problems. The inequality trend figures above make it clear that great increase in national wealth and income went to the rich few. This could only be avoided by intensive state regulation, intervention and redistribution, but these are directly contrary to the dominant ‘economic rationalist’ ideology.

Is Redistribution the Solution?

Most critics of our economy call for greater redistribution of income. Advocates of a conserver society are in favor of redistribution but they stress that this cannot be the key to solving problems of inequality. This is because the present total (and average per capita) level of income and consumption in Australia are far higher than all the world's people could have, so if we distributed existing incomes to make them more equal, leaving the average more or less as it is, we would still have an unsustainable amount of producing and consuming going on.

The conserver society solution is to drastically reorganize society so that all people can have easy access to the things that make a high quality of life possible, despite very low levels of resource use, goods consumption and dollar incomes. If we can all have access to many local activities, garden plots, community woodlots and workshops, cooperatives, useful work, free goods, part-time jobs, information, barter systems, people, forums and leisure facilities then it will not be very important whether some have more dollar income than others because in relation to the (mostly non-material) things that make life satisfying we will all have adequate and rather equal access.