The fair society and its enemies
By guest author
In New Zealand, a widening gap between the rich and the rest threatens many of the country's greatest strengths, writes Max Rashbrooke, who argues for a new settlement of welfare.
During the last three decades, New Zealand has undergone a startling transformation, from a conservative, largely monocultural society with a heavily protected economy to a modern, vibrant, bicultural country with one of the world's most open economies.
Through this period of great change, New Zealand has – as the country's Sustainable Government Indicators (SGI) testify – maintained many strengths. Our government is unusually transparent, our press for the most part free and fair, our elections relatively free from corruption.
Yet something is not quite right. We remain wedded to low-value primary product exports, our productivity growth since the 1990s has been weak, and we no longer enjoy one of the world's best standards of living, as we did back in the 1960s.
We also have very grave social problems, notably a highly segregated school system, appalling rates of preventable Third World diseases, low-quality housing, and an extraordinarily bad record on child health and abuse.
Much of our difficulty, both economic and social, can be laid at the door of something that accompanied the free-market reforms of the 1980s and 1990s: the world's greatest increase in the gap between the rich and the rest, according to an OECD report on inequality. New Zealand has traditionally been an egalitarian country, but since the 1980s, the incomes of the very richest have more than doubled, while those in the bottom 10 per cent are no richer than they were in 1987.
The average hourly wage, if it had increased in line with productivity since 1990, would now be over $31; in fact it is just $24.43.
Democracy Could be in Danger
This gap between the rich and the rest has many damaging consequences. While we still score well on international education comparisons, we have one of the biggest achievement gaps between top and bottom students, as poor families struggle to give their children a good environment in which to learn. In health, rates of diseases normally associated with Third World countries, such as rheumatic fever, have skyrocketed here (while falling in most countries), in large part because we allow many of the poorest families to live in cold, damp, badly insulated houses.
We also have the developed world's sixth highest rate of imprisonment; high prison populations are a natural consequence of a divided society.
In all these social problems, our ethnic minorities – the indigenous Maori population, and many Pacific Island families – suffer disproportionately, as they bear the brunt of poverty and widening income gaps.
Economically speaking, inequality is a drag on the country in many ways. It concentrates deprivation in particular suburbs, creating communities largely cut off from mainstream economic opportunities.
New Zealand remains a relatively cohesive society, but there are good reasons to fear that will change. Given the evidence that widening income gaps damage trust and social cohesion, New Zealand looks set to become an increasingly dysfunctional country.
So What To Do?
The global financial crisis has prompted renewed interest in income gaps, and growing calls for something to be done to tackle the problems. Like most countries, New Zealand has a range of options when it comes to closing the gaps.
It could follow the OECD's prescription, which revolves around better jobs and more efficient tax systems. That would include greater investment in labour market and retraining programmes (where we have much to learn from Scandinavian systems), and strengthening labour laws so that part time, casualised and informal workers get the same protections as others.
A more radical approach would seek to tackle both our economic underperformance and unequal incomes by reshaping the world of work. Many of the world's most successful economies – including those of Germany and the Scandinavian countries – have systems that give ordinary staff a greater role in running their companies, whether through centralised bargaining, workers' councils or other means of encouraging 'worker voice'. Building on this approach, we could put staff representatives on company boards and, in particular, pay-setting committees.
These mechanisms would not only create greater scrutiny of pay arrangements and lead to a more equal income distribution. They would also boost our economic performance. A large body of international evidence shows that companies that engage staff in this way outperform their rivals.
A New Settlement for Welfare
These two approaches – the OECD idea of investing in workers, and the high engagement philosophy for workplaces – could be complemented by a new settlement for welfare. New Zealand's recent history has been marked by an increasingly punitive approach towards beneficiaries.
A more humane – and ultimately more productive – approach would be to invest in them as well, by increasing benefits to enable them to participate better in society, and by matching that with greater investment in personalised retraining and job placement programmes, in order to tackle the low skills that prevent many from rejoining the workforce.
We are fortunate in New Zealand that we have a strong base for tackling these complex issues. But it will nonetheless take a huge and concerted effort to combat the insidious effects of widening inequality – without sacrificing the real gains that have been made in the last 30 years.
Max Rashbrooke is a journalist and author working in Wellington, New Zealand, where he writes about politics, finance and social issues. This is an abridged version of an article he wrote for SGI News.You can find the full text here.