By Stephen Fitzgerald
Having a progressive agenda with greater equality leads to higher economic growth and that higher economic growth then generates more tax revenue and that more tax revenue gives you a source of funding for more progressive reforms that can make a more inclusive society. These advances in our understanding of economics really mean, today, there is no excuse for not having a progressive agenda.
One of the key complaints that one hears in many advanced countries is that the basic prerequisites of a middle-class life are no longer attainable. Very large fractions of the population feel more insecure. If you draw a chart of what’s happened to the average income of the bottom 90 per cent, it’s hardly budged. With a microscope you can see a little bit of an increase. But if you look at the average income of the top 1 per cent, it has soared exponentially.
As an example, in the United States, twenty per cent of male workers don’t have a full-time job (Casualisation of the workforce, in Australia, now exceeds 50%). So, the median income of a full-time worker adjusted for inflation is the same as it was 40 years ago. That gives you a little bit of a picture why there’s a lot of anger in society. The problem is that there are always going to be demagogues, like Trump and Murdoch willing to take advantage, not to solve the problems but, to destroy our politics and gain more for themselves.
There’s an important warning here, that too many other countries are aspiring to be like America. Including many right-wing thinkers and politicians here in Australia. Morrison, Dutton and Abbott to name a few. If you follow Americas policies, you will wind up in the same place. It’s bad policies that lead to bad outcomes.
There is one problem that is difficult, and that is the problem posed by deindustrialisation. Jobs have been destroyed. The ideology was: don’t worry, globalisation, financialisation, advances in technology would not only increase GDP — which it did — but would benefit everybody, which it didn’t, with devastating effect.
It’s an idea called trickle-down economics advocated by corporates and the financial elite. In other words, all the money flows up and some trickles down to the workers. We now know trickle-down economics has not worked. In fact, there was no theory behind trickle-down economics — it was an ideological position. And, the evidence now is overwhelming that an increasing proportion of the growth of our economy has been captured by a very small number and that it makes a few people super rich at the expense of the rest of society. This is part of the drama that we’re going through, which is, increasing inequality.
We now have the resources for a progressive agenda, we have the knowledge of how to create a shared prosperity; we can make a middle-class life attainable for all. What we need to do is look at today’s progressive agenda? It’s obviously a very big topic, but let’s try to highlight a few key points.
We should begin with trying to understand why it is that we have such inequality. Why 3.5 million Australians live on or below the poverty line, why 120,000 Australians live on the street, why we can’t afford to buy a home or can’t afford to pay the rent, why we have less disposable income, why we can’t find a full-time job, why real wages and conditions have stagnated or gone backwards and, there are many forces that have contributed to this.
Markets don’t exist in a vacuum, they must be structured. They’re structured by rules and regulations; by a whole set of legal frameworks from antitrust, to labour law, to tax laws, to expenditure policy and monetary policies. We can think of that whole gamut of a framework as the rules of the economy.
Over the last 40 years, since Reagan and Thatcher, those rules have been rewritten. And they have been rewritten in ways that have actually led to slower economic growth and more inequality, and so what paltry economic growth has occurred, the benefits have all gone to the few at the top. The rich become richer and the poor have become desperately poorer.
Examples are: We have not been enforcing antitrust competition law and so we have centres of market power in industry after industry, and market power means that they can raise the price relative to cost, raising the price is the same as lowering real wages and it’s a major source of inequality in our societies.
We changed labour relations law to make it more difficult for unionisation, to make it more difficult for industry-wide collective bargaining. Corporates have been given the power to dictate our labour laws. And, when you change the laws, if you don’t have any collective voice for workers, obviously workers are not going to do as well. They have not been doing very well. It’s been predictable, and it was predicted, and it’s now happened.
We structure globalisation in ways to weaken further the bargaining power of workers. We opened up our markets to developing countries, we gave better property rights protection for investments in many of these countries through our investment agreements. And so, we put our workers in competition with low-wage workers in these countries and that put downward pressure on our own real wages. The main beneficiaries of globalisation are third world countries and multinationals.
There are a whole set of aspect of our economic framework that illustrate how we have rewritten the laws. For instance, in America, if you borrow to get ahead, borrow for higher education, you can’t discharge that debt, even in bankruptcy. You can buy a yacht and discharge the debt, but not if you’re trying to get ahead. In the case of bankruptcy, the first beneficiary is no longer the worker owed wages but, the financial institution owed interest. The same institutions that drove the 2008 global financial crisis.
The U.S. has restructured its political system to make it more difficult for workers to have a voice, voting is not mandatory and it’s on a weekday. Polling places close at 6 o’clock, so that you can’t go and vote after work. And then there are fewer voting places. As many of you may know, America have a program of mass incarceration of African Americans. They have 5 per cent of the world’s population and 25 per cent of the world’s prisoners; something maybe that Australia would understand about prisons. But these are disproportionately African Americans. And, after they’ve served their time, they are denied the right to vote for the rest of their life.
So, it’s not only the economic rules, but also the political rules, and it’s a vicious circle because if you have working people denied the right to vote, or are media brain washed in one direction or another, you get laws and you have a political system where money matters ahead of the best interest of society like the way that it does in the United States and, you have a vicious cycle. Economic inequality leads to political inequality, leads to more and more economic inequality. So that’s the first thing — rewriting the rules to achieve a fairer society. To do that you need a progressive government.
The second one is opportunity. To give opportunity to so many Australians that don’t have opportunity; about 20 per cent of Australians are growing up in poverty. Growing up in poverty means that they won’t have access to good nutrition, good health, good health care and most importantly, good education. Progressive societies recognise how important it is to have preschool education for everybody and not just those who are wealthy enough to afford it. We know that by the time you’re five years old, life chances have already changed dramatically.
America prides itself of being the land of opportunity, the American dream. And yet, the life prospects of young American are more dependent on the income and the education of their parents than in almost any other advanced country. So, the idea of the American dream is a myth. The lack of access to health care means that throughout their lives, Americans worry about what happens if you get sick. They are the only advanced country that does not recognise access to healthcare as a basic human right. There are politicians in this country pushing for Australia to be just like America.
The December 2017 Tax Bill in a way symbolises everything that’s wrong in American politics. Here in the country, among the advanced countries with the highest level of inequality, pass a tax bill that lowered the taxes on billionaires and corporations, and when it’s fully implemented, will increase the taxes on a majority of the middle class, on a majority of those in the second, third and fourth quintiles. So, it was a tax bill designed to increase inequality. The same thing proposed by the LNP government to reduce company tax by $80 billion. $80 billion not going into internal revenue. $80 billion to be made up for by tax paying Australian workers to further increase inequality.
Meanwhile, while the right-wing Republicans made a claim for fiscal responsibility, the debt that they incurred by this Tax Bill was enormous. In fact, in three weeks, the US deficit to GDP ratio increased from slightly less than 3 per cent to almost 6 per cent. Everybody talks about well, hasn’t Trump brought growth to the United States? If you increase that deficit of that magnitude, you are going to get a sugar high. There’s no doubt about it. What is remarkable is how anaemic that sugar high is, and it won’t last.
Almost everybody now expects a downturn in the latter part of 2019 and beginning of 2020. The reason is, the evidence is — where did all the corporate tax saving money go? It didn’t go to increasing investment, it didn’t trickle down to workers, it went to share buy backs and dividends. It did not have the stimulate effect promised by corporates and cohort government. It did have the effect of making the rich even richer and the poor even poorer. And, this is what Morrison and the LNP want for Australia.
The third thing of the progressive agenda is realising the importance of collective action. We are individuals, it’s important to encourage an individual initiative. But also, we are a collective and many of the most important things that we do, we do together. When you have a natural disaster, who comes to the rescue? It’s the Government. Nobody says — let everybody fend for themselves. And that requires a strong nation. In fact, what we need is to do something about the underlying causes of why we have been afflicted by unprecedented natural disasters that are killing people? The loss of property alone this year in the U.S. from just two hurricanes was about 2 per cent of GDP. And these are enormous numbers. It’s climate change. Absolutely, no doubt about it. It’s climate change. And yet, stymied by right wing government and the corporates they protect, we can’t get the collective action that we need to deal with climate change.
We need public investment. We talk about being an innovation nation. What is the foundation of all the innovation that occurs? It’s basic research. And where does that basic research go on? It’s our universities. Who supports it? It has to be the Government. No private sector is going to support basic research. There’s a whole theory of public goods that explains why that is the case and it is the case. If you’re going to have an innovation economy, you have to have public support for research and technology — basic research. The point we need to make is that we, as a society, need a strong, collective action.
Strong collective action requires resources and that requires taxation. Ask the Finance Minister of Sweden — why is Sweden such a success? And I don’t know if you know, not only does it have a high growth rate, but if you look at any of the metrics in terms of individual well-being, standards of living, they are at the top. And he said — it’s because we have high taxes. Now, you can say — what do you mean high taxes? Aren’t high taxes a bad thing? And the answer was very clearly — as a society, you have to pay for public investments, for research, for education and that costs. And if you don’t make those investments, you won’t grow. Your children won’t have the opportunity to live up to their potential. So, the bottom line of all of this is that taxes are a necessary part of our working together as a society.
One of the things that corporations have excelled in, used their intelligence in, is to avoid paying taxes. Apple, one of the leading technology companies on the planet has used that same ingenuity to avoid paying taxes. And if you follow what happened in Ireland where they were paying something like 0.2 per cent of their revenue in taxes. Google, I think, outdid them, they were smarter. So, Google paid even less tax. So, they take pride, they talk about corporate responsibility, but the first element of corporate responsibility is paying your taxes. There is an international effort to stop this kind of tax evasion and it has to be done at a global level. It’s not just Apple and Google, it’s every large corporation and wealthy individual involved in tax avoidance.
The fourth element is making a middle-class life once again attainable. We can afford it, there have been innovations, we know how to do it better. We know how to provide healthcare to everybody. Australia has shown how you could make higher education available to everybody. Your income contingent loans, that Bruce Chapman played a big role in trying to establish is a model for the whole world. And yet, some right-wing power brokers are trying to attack and undermine that system here in Australia.
The private mortgage system that led to the crisis of 2008 is broken. The government is underwriting the vast majority of all mortgages. The private sector banks say — we can’t take the risk. We can take the fees, yes and we can do that very well. We can write bad mortgages, but we don’t want to take the social responsibility for the loans that we originate. Banks are imagined to be too big to fail so they want the government and tax payers to take the risk and bail them out when they go bad. That’s obviously unacceptable.
We know better risk management procedures, scoring methods; we know how to give good mortgages. We know how to educate our children and prepare them for the future, we know how to invest for retirement, we know how to provide universal health care, we know how to spread wealth through society and we know what to do for society to prosper.
So, in each of these areas; education, work & wages, home, health and retirement, we know how to make a middle-class lifestyle once again accessible. There are ideas called the public option, there are a whole variety of ideas. The point is that we can afford it and, progressive reform is attainable today. We can’t let a conservative government destroy and undermine society in favour of a few at the top and remove our collective potential as a society. These types of right-wing governments represent a real threat to our civilisation and must be rejected.
The basis of the growth of the wealth of nations is two things. One is the advances in science and how we learn about technology. We are so much better off today than we were 250 years ago and what is the reason for that? The first is the advances in science, and the second one is the advances in social organisation. The rule of law and democracy with its systems of checks and balances.
But all this requires systems of truth-telling, of ascertaining, discovering what the truth is, verifying the truth. But, the demagogues, like Orban in Hungary, Trump in the United States and the LNP in Australia, are systematically trying to destroy all of our truth-telling institutions. Like media censorship and undermining the ABC, a judiciary to protect those with the most money, cutting funding to corporate regulators, opposing a federal corruption watchdog, ignoring human rights protection, environmental abuse and weighted education in law and economics to name a few.
The upshot of this is that our economic and social prosperity has been put into jeopardy. We need to be vigilant and we need to battle these demagogues and these right-wing conservative governments to restore some version of sustainable shared prosperity.
Influenced by: Joseph Stiglitz National Press Club Address 14 November 2018 in order to inform public debate.
Professor Stiglitz is the recipient of the 2018 Sydney Peace Prize and Professor at Columbia University.