How much inequality is enough?

I was going to write about ‘social justice’, because it has been cropping up a few times in the last week or so. In fact this essay is about inequality, once again, because I want to deal with one aspect of it before embarking on ‘social justice’. And that aspect is how much inequality can a community accept without much unhappiness. It is well known in the literature that people in general consider their own economic position by comparing it with those whom they encounter constantly (hence ‘keeping up with the Joneses’) rather than with that of, for example, the Queen or Bill Gates. And I’ve been pondering about why that might be so, and why there isn’t for example, a great outcry about how much money some people get for their work (leaving aside vice-chancellors, a group I will return to).

Thirty years ago I visited the home of the National Science Foundation in Washington DC on a fact-finding trip, which taught me a great deal about how parochial we in Australia were in terms of research funding and research policy. I learned from a wise man at NSF about the sheer scale of the USA. They had no national policy, really, in the fields I was interested it. Their attitude was a bit like Mao Zedong’s ‘let a thousand flowers bloom’, though I doubt I mentioned the comparison at the time. He pointed out that if you could provide something cheap that every American wanted you would sell around 300 million of them at a dollar each. Your share was only ten per cent. Bad luck! You only made thirty million dollars. We talked about many other things, like inventories, and cash flow, and the small role, really, of invention, in the final outcome, compared to development and commercialisation.

But it was that issue of scale that stayed in my mind. The world has become more global since then, and world GDP has increased, perhaps five times, since the mid-1980s. Impressed as I was then with the scale of the USA, seen as a society and an economy, today’s global world, in which billions of people have the kind of income that allows discretionary spending of many kinds, provides a much larger canvas. The ten top movies of 2016 earned about US3.5 billion in the USA, while two films Avatar and Titanic, alone have earned about $US 5 billion, about two thirds of that money coming from outside the USA. You have a small piece of a film that does well? You will quickly have a great deal of money. Alec Guinness thought Star Wars, the original one, was an appalling story, though fun to do, and his little share of the proceeds brought him a nice house and kept him in comfort for the rest of his life.

When what you do has global ramifications, and it does well, you will do well, whether you are a consulting geologist, an inventor of interesting defence bits and pieces, or a lawyer with a handle on international trade. I am thinking here of people whom I have known over the years. They all have earned far, far more than I have, and I don’t begrudge them their prosperity. Even an aspiring second-level tennis player like Nick Kyrgios can count his winnings in millions (about twelve of them now, I would think). Golfers, and other sportspeople can earn huge amounts of money.

OK, that’s point one. Point two is that if you have a lot of money, and you manage it well, it will grow and grow. After a while, you simply stop spending it on more clothes, boats, cars, houses and the like, though some try. You have become wealthy, really wealthy, or ‘seriously rich’. While I accept that there are some who got that way through inside knowledge or criminal activity, there will be much larger numbers who have become wealthy through skill, effort and persistence. Once you are wealthy it may take you and your family a hundred years to get rid of the money (‘clogs to clogs in three generations’). My extended family all came from poor backgrounds. They moved from blue-collar into white-collar jobs, and into the professions. They were all provident, and as they have died their estate have passed to their children, who are almost all more comfortably off than their grandparents. None of us is rich. None of us won Lotto. We are good examples of the Australian middle class.

Point three is the extent to which the community accepts rapid elevations of wealth, and then the persistence of it. My own sense of it is that no one much cares. They would all like more, or at least, there are moment when they would all like more. That it is somehow wrong that Nick Kyrgios has so much does not, I think, worry them. That the younger Packer and the younger Murdochs all have squillions — well, life’s like that, isn’t it. To those who think great wealth is ‘obscene’ while there are poor people, all I can say is that it has always been like that. And then I would follow it up with, ‘how much inequality will you accept?’ And then ‘why that much?’ — always assuming that the conversation got any further. I would point out that all the indices show that world poverty is declining quite steadily, and that more and more countries are moving out of the ‘undeveloped’ into the ‘developing category’, while some of those in the latter group are becoming wealthy like us. Even India has a middle class of 70 million or so, and the Chinese middle class is of the same size. The lower bounds make these middle classes poorer than ours, but the numbers and the upper bounds are growing quickly.

I don’t have an answer, and I’m not sure inequality offers us a question that is worth answering. About how much people should be paid who work in organisations that are funded mostly from the public purse, however, I do have views, and my central one is that the salary paid to the CEO must bear some arguable relationship to the salaries paid to others in that organisation, and not at all because people in other organisations are getting more, or that ‘if you pay people peanuts you get monkeys’. In the higher education world, currently under a little scrutiny, I opted, when I was asked by the Chancellor how much I should be paid, for a salary double that of a professor (in those days they were all paid the same). That seemed right to me, and I raised my eyebrows at colleagues elsewhere, whose packages were approaching a million. I do not think that heads of Commonwealth departments should be paid more than the PM, nor that those running Commonwealth agencies should be paid annual salaries in the millions. But no one has sought my advice on this matter.

As I have argued in earlier essays, I do not think that fussing over ‘inequality’ gets us anywhere, unless we are talking about inequalities in access to publicly provided health, or justice, or education. And with respect to health and education, if you want to spend your money on a quicker operation or a ‘better’ school I find it hard to see why you shouldn’t be able to do so. We are not short of doctors or schools save in the remote areas. Yes, people with lots of money have access to governments that the rest of us don’t have. So does the ACTU. So does the AMA. That’s the way it is. Large clusters of money and influence are always interesting to governments. All the remedies are I have heard for dealing with the imagined evil effects of money and power push us further in the direction of more powerful government. I am unpersuaded that is at the way to go.

In a compassionate society there ought to be a floor for those faced with catastrophe of some kind. We have such floors. I’m not opposed in principle to lowering them, but I want to see the best case, with all the costs, not just the benefits.

Oh, and how much inequality will you accept as enough? And how would you go about producing a world in which you achieved your goal?