Category Archives: Economics

Occupy Wall Street

It’s Social Mobility, Stupid

‘Inequality’ has become the cause of the moment for progressives. French economist Thomas Piketty’s Capital in the Twenty-First Century, focusing on wealth and income inequality in the US and Europe, spent several weeks at the top of The New York Times non-fiction best-seller list; President Barack Obama proclaimed it “the defining challenge of our time” in late 2013; and Nobel Prize-winning economist Joseph Stiglitz recently did the rounds in Australia warning of the dangers of following the American model.

Economic inequality hasn’t suddenly appeared in the public consciousness as a reason for concern: for all its faults, the Occupy movement and its rhetoric of the 99 versus the 1 per cent seems to have anticipated this trend.

In the current environment, this makes sense. Studies consistently reveal the potential impact of wealth disparity on the global economy and our broader social fabric. The World Economic Forum released its Global Risks 2014 report with a press release titled “Worsening Wealth Gap Seen as Biggest Risk Facing the World in 2014”. Only a month later, an IMF Discussion Note not only found that lower inequality is correlated with faster and more durable growth, but also that redistribution appears to have little negative impact on this growth. These organisations are hardly the stuff of nightmares for those who might consider themselves more economically ‘dry’.

Yet as Oxfam has noted, this does not mean that the solution requires moving towards total equality. Some level of inequality is useful to provide a reward for those with talent, drive, and entrepreneurial spirit, as well as to afford them the space and opportunity for innovation. The problem with the top 1 per cent of Americans controlling 40 per cent of the country’s wealth is not the simple fact of this wealth gap. Equality is hard to achieve and, as history has shown, attempts to do so can result in far worse outcomes. The problem is that such vast levels of inequality are being ‘locked in’ across generations. This means that access to education, jobs, and other opportunities is increasingly becoming dependent on the circumstances of one’s birth.

Of course, this has always been the case. But this effect has traditionally been (at least in theory) the target of attempts to create greater ‘equality of opportunity’. In Australia, both sides of politics claim to support this idea. In an address to the Sydney Institute in June, Treasurer Joe Hockey stated that “in [the government’s] view it is the responsibility of government to provide equality of opportunity with a fair and comprehensive support system for those who are most vulnerable.” He also spoke to those criticising the budget, fairly claiming that “governments have never been able to achieve equality of outcomes”.

These statements, in and of themselves, are not particularly controversial. But by allowing the debate to become framed in terms of “inequality” more broadly, those unhappy with the budget have created an opening for an easily digestible counter-argument that hones in on the difference between equality of opportunity and equality of outcome. Such an argument is misleading, as although some would surely advocate for more equal outcomes, the majority of those concerned are referring to the same equality of opportunity as the Treasurer. The debate lies in what the role of government is in creating this equality and who is better placed to develop and implement policies to achieve this, not in what type of equality we should be aiming for.

The word “inequality”, then, doesn’t quite seem to match the intent of those using it. By relying on a term that can so simply be attached rhetorically to other goals, those hoping to promote wider access to various opportunities are becoming stuck in a language game. Writing in The New York Times, columnist Nicholas Kristof lists five key points in a guide to the equality debate. At number five is the focus on “equality” at the expense of “opportunity” in discussion of the issue. This is absolutely right, but to leave this as the last point only underscores the problem.

When we talk about inequality, we’re really trying to talk about social mobility. Few would argue that we should aim for absolute equality of wealth or income. To broaden support and bring in to the fold those who would generally agree with the need for equal opportunity, a rethink of this language is required. John Oliver has savvily demonstrated the basic generational and demographic consequences of a growing gap. Research from any number of organisations supports the theory.

The wrong goal posts have been set. It’s time to shift the debate to common ground so that the underlying problem of a lack of mobility can be brought into greater focus.