You can’t move from rags to riches when there’s a yawning gap between rich and poor.
Much of the post-Budget debate has been focused on whether John Key and Bill English’s prescription for the country’s finances will increase or decrease the gap between rich and poor.
Despite assuring us that he cares about inequality, Mr English reckons the gap will stay about the same. But many – including the Green Party – disagree, arguing that the combination of a GST increase that hits low-income families proportionately hardest and a tax cut that delivers the most benefit to those on high incomes will certainly widen the income chasm.
It’s also important because there’s very strong evidence to suggest that the bigger the gap between rich and poor, the worse off we are in all income brackets. The starkest example of this is life expectancy: even someone in the highest income bracket in a country with a high degree of inequality can expect to die earlier than their counterpart in a more equal society.
Clearly, growing inequality is something we should all be concerned about.
However, an alternative take on issues of inequality has emerged, explored by Colin James in the Dominion Post. This view argues that having a big gap between rich and poor doesn’t matter per se, as long as people (or their children) have the opportunity to bridge that gap and move up the social and economic ladder.
This is a common refrain, most famously encapsulated overseas in ‘the American dream’ – the idea that US citizens of every rank can achieve a better, richer, and happier life.
There is no doubt that social mobility is vitally important. If people can’t overcome adverse circumstances, our most vulnerable citizens are condemned to a bleak existence with no hope of a better future for themselves and their families.
But we must not ignore the growing gap between rich and poor in the belief that social mobility will make up for it – quite the opposite.
The evidence shows that having a bigger gap between rich and poor actually reduces social mobility.
This was the conclusion of an OECD report in February, and last year economists from Harvard and the Australian National University concluded that “moving from rags to riches is harder in more unequal countries”.
In their groundbreaking book on inequality The Spirit Level, British researchers Wilkinson and Pickett devote a whole chapter to showing the different ways that entrenched inequality reduces social mobility.
And studies comparing the US to more egalitarian European and Scandinavian countries have found conclusively that the US has both the highest level of inequality and the lowest level of social mobility of all the countries studied.
Sadly, it seems ‘the American dream’ no longer has any basis in reality.
Everyone loves a good rags to riches story: John Key, the state-house kid turned millionaire and now Prime Minister; Paula Bennett, one-time DPB mum, now welfare-reforming Social Development Minister. Even my own journey to Parliament has elements of this popular narrative: I was a solo mum on the DPB before I took advantage of open access to university and started my law degree.
But it’s important to look at the conditions which enabled these high-profile examples of social mobility. John, Paula and I have all benefitted from the world-class social safety net that New Zealand has, or at least, used to have.
John and Paula, whose own social mobility was enabled by sound state housing and welfare provisions, are busy kicking out the ladder behind them: slashing the budget for state housing, cracking down on beneficiaries, shifting the tax burden onto low-income New Zealanders, and generally making it harder for others to emulate their success.
Is this the kind of social mobility we really want? The kind that says I’ll take what I can get, thanks, and too bad for everyone else?
There is another version of social mobility, which is about making sure that everyone has access to the basics, and giving everyone a fair go.
The same OECD research which found social mobility was lower in countries with a big gap between rich and poor also found that progressive tax and benefit policies aimed at providing income support and access to education for disadvantaged families can promote greater social mobility.
It is precisely by moving to close the gap between rich and poor that we can move towards the egalitarian ideal we New Zealanders prize.
As you know, we have released an eight-point plan to combat growing inequality in New Zealand entitled ‘Mind the Gap’. Implementing the solutions it proposes would go a long way towards both closing the growing gap between rich and poor, and enabling greater, fairer social mobility in the process.