Inequality inevitable under capitalism - expert

  • 19/01/2015

The founder of the World Economic Forum is urging world leaders to coordinate their actions if they want to confront risks of terrorism and economic volatility.

Two-thousand of the world's financial and political elite, including Prime Minister John Key, are gathering for the event at the Swiss mountain resort of Davos.

The forum coincides with the release of an Oxfam report that found the richest 1 percent of the population will own more than half the world's wealth by next year. The charity is calling for a crackdown on tax avoidance by corporations and wealthy people.

The Archbishop of Canterbury has also voiced his concerns, warning the gap between Britain's rich and poor is growing.

"There remains a significant level of inequality, which is widening, and certainly having moved down to London only two years ago from having lived away from London for 25 years, you feel as though you've moved into a slightly different country."

Inequality researcher Max Rashbrooke says over the last 30 years, policies have been put in place which have seen average workers miss out on the benefits of record economic growth.

"If you think about the book that came out last year that everybody was talking about, Thomas Piketty's Capital in the Twenty-First Century, what that basically showed is that if you look over the last 300 years unfortunately the natural tendency of capitalist economies is that you do end up with a very small number of people owning a vast proportion of all the wealth, just like they did in the Victorian era," he said on Firstline this morning.

"The only reason that the post-World War II period was a bit different was that there were a lot of things that were put in place to try and restrain that – much stronger trade unions, much higher taxes on income. Once you diminish those things or strip them away, you do end up with these greatly increased concentrations of wealth."

One example is the removal of high taxes on large incomes and, especially in New Zealand, the lack of taxes directed at the wealthy, who might not have traditional income streams.

"When you have those very high tax rates on income, it makes it harder for people to accumulate those very large amounts of wealth that are so problematic," says Mr Rashbrooke.

"But there's also the fact we don't have taxes on wealth directly – certainly not in New Zealand. We are a real outlier – we don't tax wealth, we don't tax wealth when we sell it in the form of capital gains, we don't tax inheritance, we don't tax gifts."

Tax isn't the only solution however – Mr Rashbrooke says we need to figure out why income is so unevenly distributed before the tax system gets involved.

"Why haven't salaries increased in line with the economy for a long period? A lot of that is about people's bargaining power.

"There used to be a lot of factors that restrained people's ability to accumulate large amounts of income, which then turns into wealth. Absolutely a strong trade union movement which meant more profits went to workers was part of that.

"Also I think social norms, that it was unacceptable to earn very large amounts of money, those have been eroded a lot in the last 30 years, and that all adds up to a much more unequal system."

Measurements of inequality in New Zealand have shown little change in the past decade, which Mr Rashbrooke puts down to Working for Families and the dent in upper incomes the global financial crisis bought.

But that doesn't mean there's no reason to worry.

"What you shouldn't forget is if you go back to the 1980s, from the mid-'80s to the mid-2000s we had the developed world's biggest increase in income inequality, so that's still a huge change that hasn't been erased by a flatlining in the last 10 years or so," says Mr Rashbrooke.

A report published in December suggested inequality was hurting New Zealand's economic growth, which Finance Minister Bill English rejected.

The Government has rejected calls for a capital gains tax on properties, and in the past two terms has reduced income taxes, the biggest gains going towards those on high incomes.

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source: newshub archive