A new book entitled Inequality: A New Zealand Crisis by Max Rashbrooke was recently launched and it traces New Zealand from being one of the most equal to unequal societies. Since 1982 real GDP has grown by about 35% but about 50% of that extra income has been acquired by the top 10% of income earners – their average incomes increased from $56,300 to $100,200. The lowest 10% of earners saw their incomes grow from $9,700 to $11,000 – see graph – Source Inequality: A New Zealand Crisis. The lost share of the national income with the lower income groups is indicative of economic conditions in the early 1990‘s and the 1991 Employment Contracts Act which acted as a catalyst to the loss of union power. The top 1% earn approximately 18% of New Zealand’s net wealth whilst the bottom 50% earn approximately 5% – see graph below for distribution of income – Source Inequality: A New Zealand Crisis
Rashbrooke does mention a quote of the late Margaret Thatcher in which she said that “It is our job to glory in inequality and to see that talents and abilities are given vent and expression for the benefit of us all.” However in the long run it is how much inequality that we feel is acceptable. According to New Zealander Robert Wade (LSE) inequality in the US caused the GFC and that after a certain level of inequality the economy enters into a bubble phase. As bank balances become greater they take more risks and lend to consumers who realistically cannot afford a mortgage but like to feel that they are catching up with the higher income groups. Ultimately it is about power and you only have to look at the lobby groups in the US to see the influence that they have over policy. In order to have a more equal society there must be a policy of integration and all citizens must have a pathway to follow whether this is access to education, healthcare and social assistance.
Here is a quote from Development Economist – Hernando De Soto from the PBS series ‘Commanding Heights’.
Oliver Twist has come to town, and he’s poor, and he’s got a TV set, and he’s able to see how you live as compared to how he lives, and he’s going to get very angry. So either you show him a capitalist route to do it and integrate him, or he’s going to find another ideology. And the fact that today there is no more Kremlin that is organizing a revolt doesn’t mean that they’re not going to find another capital, because when these things happen, when people are unhappy and rebel against a system, they’ll find another locus of power very, very quickly.