SPEECH - McKell Institute Address - Inclusive Growth

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THE HON TANYA PLIBERSEK MP

DEPUTY LEADER OF THE OPPOSITION

SHADOW MINISTER FOR FOREIGN AFFAIRS AND INTERNATIONAL DEVELOPMENT

SPEECH

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MCKELL INSTITUTE ADDRESS – INCLUSIVE GROWTH

UNIVERSITY OF TECHNOLOGY SYDNEY

5 NOVEMBER, 2014

 

When William McKell started as a student at Bourke Street Public School in the late 1890’s, the school was about a decade old - part of the relatively new public school system here in New South Wales.

This revolutionary investment in public education allowed a young child, the son of a butcher, to embark upon a journey that would see him become first a boiler maker and trade unionist, then state member for Redfern, NSW Premier, and finally Governor-General.

His story is part of Labor’s great tradition of the pursuit of opportunity and egalitarianism.

Like many of you, I was at Sydney Town Hall this morning to celebrate that great Labor tradition as we farewelled our dearly loved comrade, Gough Whitlam.

Tony Whitlam told us that his father chose the music today – indeed, he joked his father would have liked to speak today, but the rules of the game prevent that.

Gough chose the great socialist hymn, Jerusalem and Paul Kelly’s Australian classic From Little Things Big Things Grow, about the Wave Hill walk off: two songs that remind us that our struggle is long, but that our dreams for a better, fairer society can be realised.

As Gough said in 1972 Labor has a mission to “liberate the talents and uplift the horizons of the Australian people”.

It is a task that is never complete, and a duty that will not abide idleness.

For Gough the pursuit of equality was “not an attempt to accomplish everything overnight, but to move steadily towards our social goals, ensuring that the areas of greatest human need have the first claim on the community’s resources”.

He was both pragmatic and idealistic: campaigning for roads and sewers for the young families in new suburbs of Western Sydney - at the same time championing the University that would educate its people.

He knew that idealism was not enough on its own – that it had to be partnered with the power to make change. (Only the impotent are pure, he told us.)

And he knew that power shouldn’t be wasted: the status quo is not good enough. We should aim higher as a nation.

This is what Labor believes in – a strong economy and a fair society, change which benefits us all; improvements today which are an investment in our future.

As a teenager amongst my favourite books were the dystopian / utopian novels often prompted by social and economic turmoil like the Great War and the great depression.

I particularly liked Herland, by Charlotte Perkins Gilman. It described a peaceful society, every element practical and beautiful, with teaching considered the highest calling. It was a civilisation of women only, with no war, no want, and no violence.

These utopian novels, rising out of the struggle and idealism of the great socialist movements of the nineteenth century may seem quaint today, and there’s plenty of people who are quick to accuse us of being the authors of utopian fiction ourselves.

But it turns out the idealists were right all along.

The Case for Inclusive Growth

And it turns out that the new expression of this vision for a more equal and more just society, “inclusive growth” is able to unite some pretty diverse people.

Who would have thought, for example, that the International Monetary Fund, the OECD and the International Labor Organisation would be on a unity ticket with the Governor of the Bank of England and Lady Rothschild? Warren Buffet, Bill Gates and the Pope? Economists and civil society? It seems agreement is breaking out everywhere that inequality is bad for us all.

Beyond the moral imperative, the argument goes, we can’t afford to waste the talents of our people; we don’t want the political, financial and social instability that comes from division; the crime, violence and poverty; and, what’s more, the numbers tell the story: more equal societies have stronger and longer growth.

The IMF is not generally thought of as a hot bed of progressive idealism, but it recently looked at 173 countries over 50 years and concluded that inequality is a drag on growth. IMF Managing Director Christine Lagarde has said 'put simply, a severely skewed income distribution harms the pace and sustainability of growth over the longer term”.

Not only does reduced inequality support stronger and longer periods of economic growth, the research finds against the old chestnut that redistribution is bad for growth.

Even stranger, is the activism of a group of institutional investors, asset managers, corporations, sovereign wealth funds and financial institutions calling themselves the Inclusive Capitalism Initiative. ICI was established in 2011 to seek “practical ways to renew capitalism to make it an engine of economic opportunity and shared prosperity”.

When Mark Carney, Governor of Bank of England, addressed an ICI meeting chaired by Lady Rothschild in May this year, he said “few would disagree that a society that provides opportunity to all of its citizens is more likely to thrive than one which favours an elite”.

He said that equality of opportunity has fallen, social mobility has declined and that this has undercut a sense of fairness; a basic social contract is breaking down. He laments the loss of a “sense of society”. IMF director Christine Lagarde explained at that same meeting why the IMF has taken an interest in inequality: “Our mandate is financial stability. Anything that is likely to rock the boat financially and macroeconomically is within our mandate”.

Like the IMF and ICI, the World Bank is not a radical organisation. It too argues that a “rapid pace of growth is unquestionably necessary for substantial poverty reduction, but for this growth to be sustainable in the long run, it should be broad-based across sectors, and inclusive of a large part of a country's labour force.” The World Bank also says systematic inequality of opportunity is “toxic” to growth.

We even have pretty convincing data about how much growing inequality slows growth.

In a report jointly submitted by the OECD, International Labour Organisation and World Bank Group to the G20 Employment Minister's meeting, they put a solid number on the link between inequality and slower growth, using the Gini co-efficient, the most commonly used measure of income inequality. A 5 point gap in the Gini co-efficient is the equivalent to a one percent difference in GDP per capita growth.

This argument for inclusive growth has struck a chord, with two rock star economists becoming household names arguing the case.

Nobel Prize winner Joseph Stiglitz observes that “We can no longer talk about rising inequality and sluggish economic recovery as separate phenomena… they are in fact intertwined - inequality stifles, restrains and holds back our growth”.

He demonstrates how top-heavy income distribution lessens aggregate demand – the rich tend to spend a smaller fraction of their income than the poor – and he shows how this slows economic growth.

But Stiglitz concludes that perhaps the worst dimension of inequality is inequality of opportunity, where large numbers of individuals are not able to live up to their potential. As well as undermining social cohesion, the waste of talent prevents those same people from contributing to our collective good through productive work.

French economist Thomas Picketty has published a 700 page book which has become an unlikely best-seller. He argues that internationally we are heading back to levels of inequality not seen since the 'Gilded Age' of the late 19th century - and that we should do something about it.

There is something about this particular work, at this particular time, which has struck a chord around the world.

As Brad DeLong, Professor of Economics at Berkeley put it: “society today is largely failing…its majority, in that for all of our cheap electronic toys, life is no easier than it was a generation ago.”

In The Spirit Level: Why More Equal Societies Almost Always Do Better Richard Wilkinson and Kate Pickett also look at the impact of inequality on society - the erosion of trust, increased anxiety and illness. They examine eleven different health and social issues, like  drug abuse, education, imprisonment, obesity, social mobility and community life, violence, teen pregnancy, and child well-being and show that (predictably) all the outcomes are worse in more unequal countries.

What’s significant, though, is the outcomes aren’t just worse for the poorest people in those countries, they’re worse for the average person, and even for the rich.

The effects of a more divided society are economically and socially pernicious, and unfortunately they’re getting worse not better.

Piketty, like Stiglitz, points to extensive evidence of growing inequality since the 1970s with high incomes earners taking an unprecedented share of global income.

Recent work by Oxfam shows that half of the world’s wealth is now owned by just one percent of the population.

The bottom half of the world’s population – about three and a half billion people - owns the same as the richest 85 individuals in the world.

Seven out of ten people live in countries where economic inequality has increased in the last 30 years.

And as Picketty points out, without determined intervention, these gaps will continue to grow.

My colleague Andrew Leigh has looked at Australian figures, and found since the mid 1970s real earnings for the top tenth cent have risen by 59 percent while for the bottom tenth they have risen by just 15 per cent.

Today the three richest Australians have more wealth than the million poorest.

The Gini co-efficient – that most common measure of income inequality – has been getting worse overall for decades in Australia, with a notable improvement during the Rudd/Gillard years – thank you world’s best Treasurer Wayne Swan.

I won’t run through all the evidence and arguments tonight, but I’ll share with you the words of my favourite Pope: Francis I. He has said: “Some people continue to defend trickle down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion … has never been confirmed by the facts, and expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacrilized workings of the prevailing economic system”.

I think it’s fair to say that it’s now pretty widely accepted that poverty and inequality are a drag on growth and leech away economic as well as human potential: that there is an economic as well as a moral case for tackling inequality.

So how are we doing in Australia?

My dear friend Tom Uren was a Prisoner of War on the Thai-Burma railway. He has spoken many times of the survival rate of Australian POWs compared with the POWs of other nations.

Australians survived those harsh times better, he says, because under the leadership of men like Weary Dunlop, the strong looked after the weak, the prisoners shared what little food and medicine there was, with priority to those who needed it most.

Conservatives like to claim for themselves the pride of Australia’s war service, and the cloak of mateship, but what mateship really means is the strong looking after the weak; it means offering a helping hand when you can and accepting one when you need to; it’s solidarity.

But in the same way they are prepared to ignore the evidence on climate change, the same conservatives are determined to ignore the growing body of evidence that inequality is bad for us all.

In fact, when the Abbott Government took over the presidency of the G20, they deliberately removed the word “inclusive” from the growth target in the G20 outcomes.  They want growth, they have signaled, but not inclusive growth.

And it’s not just on the international stage that the Government has turned its back on inclusive growth: domestically everything this government does undermines equality and promotes division.

Joseph Stiglitz was bemused and alarmed on his most recent visit to Australia to see us deregulating university education and increasing health costs, and arguing for more market fundamentalism. He urged Australia to reject a prescription which has led to faster growth in inequality in the US.

Australia’s economic fundamentals are strong by international standards. We came through the Global Financial Crisis better than just about any advanced economy.

When Labor came to office there were 16 countries that could claim three AAA credit ratings with a stable outlook, and Australia wasn’t one of them.  When we left office we were one of only eight countries in the world with a AAA credit rating with a stable outlook from all three major credit ratings agencies.  Something the Liberals never achieved.

  • We started the GFC with an unemployment rate similar to the United States. The US rate peaked at 10 per cent in 2009. Australia’s rate peaked at 5.9 per cent.  In fact, unemployment is higher now, after the global crisis, and is now, under the Liberals, at the highest level in more than a decade.

We saw the creation of almost a million jobs during Labor’s time in office, compared with about 31 million jobs lost around the world.

Labor’s budgets shaped our nation.

The Abbott Government’s most recent budget is a clear illustration of the difference between Labor and the conservatives in this country.

You only need to hear Joe Hockey’s rhetoric about “lifters and leaners” and the “end of the age of entitlement” to understand the thinking behind the cuts to health, education, pensions, science, the ABC and so on.

Mr Hockey is following the discredited austerity-budgeting approach which has seen growth slow internationally to “mediocre” – a state that Christine Lagarde fears is a new normal.

We know the Liberals budget-crisis rhetoric is false because they doubled have the deficit since coming to office, and are determined to pursue untargeted, unproductive spending like:

  • a $20 billion Paid Parental Leave scheme, that pays the biggest benefit to those with the highest income;  and
  • an $8.8 billion injection to the Reserve Bank – a fiddle designed to blow out the deficit in the short term and pay dividends to improve the bottom line in subsequent years (a fiddle that’s just paid $1.2 billion).

We also know that the budget emergency is false because the Government has been prepared to forgo billions of dollars from charging big polluters for the rubbish they put into the atmosphere, and instead will give $2.5 billion of tax payers’ hard-earned to big polluters with no guarantee of an overall fall in carbon emissions;

If it was a real budget emergency, the government would have kept a minerals resource rent tax, wouldn’t have reversed Labor’s measures to prevent multinational companies shifting their profits offshore, and our sensible moves to reduce high income earners claiming tax breaks on very high superannuation balances.

Of course, money invested in keeping Australians working during the GFC has to be repaid, and the budget brought back to surplus as our economy returns to normal.

But the government is using the excuse of this false budget emergency to cut social investment, and they are doing it for ideological reasons.

They see health, education, science and innovation, disability support, pensions and other supports only in terms of cost. They miss the benefits of these long term investments.

The Abbott Government’s Budget savings fall disproportionately on Australia’s poorest and will contribute to increased inequality.  For example, an unemployed 26 year old earning about $13,000 is around $7000 a year worse off, while someone earning $250,000 is just $1500 worse off. A family with 2 kids will be about $6,000 a year worse off.

Instead of seeing social investment as a cost, the government should pursue well designed programs that increase workforce participation and productivity. I’m pleased my colleague Jenny Macklin, is leading a national conversation about such measures now.

Our whole history as a party has seen us working to design and implement the clever investments that unlock the potential of our people:

From Medibank and more accessible university education in the Whitlam years, to universal access to pre-school, Gonski school education funding reforms and the National Disability Insurance Scheme more recently.

Our great social reforms have also been great economic reforms:

Increased workforce participation for women, for example, gives women individual freedom and autonomy, but it’s also good for the nation.

If Australian women had as much access to paid work as women in Canada – implying an extra 6 per cent of women in the workforce — Australia’s GDP would be about $25 billion higher.

Our Gonski school education funding reform is about making sure every Australian child in every Australian school has a great education.

Kids were getting left behind. While Australia was doing well overall in international surveys of educational attainment, the gap between students from wealthy and poorer backgrounds was one of the worst in the world. So we decided to reform school funding to give the greatest support to those with the greatest need. To give them, as Gough would have said, “first claim on the community’s resources”.

As well as the individual benefit that a great education brings to each child, we benefit as a nation.

The Business Council of Australia estimates that an increase of about 55 days in the average level of schooling of the workforce would result in a 1.1 per cent increase in GDP by 2040 or about $16 billion in today’s dollars.

The same principle is also true of the National Disability Insurance Scheme.  Disabled Australians made a compelling case that they deserve the same right to participate in society and the economy as any Australian, but as well as this incontrovertible rights-based argument, done right the NDIS will lead to greater workforce participation: an economic good too.

And, of course, a progressive taxation system that reduces the burden on those who spend most of their income on day to day living, and taxes instead those who can afford to pay is a vital part of the picture.

Just as conservatives focus on economy at the expense of society, progressives can’t afford to focus on social investment without thinking about national prosperity.

To prepare for the future we need to focus on both fairness and growth and understand their indivisibility.

Jobs – the key to inclusive growth

The best way to achieve inclusive growth is for Australians who can, to be working, and to have decent pay and conditions.

We can’t afford the sort of jobs growth they’ve had in US where there is a growing number of low-wage jobs supplemented with food stamps.  17 per cent of households that rely on food stamps are now headed by a person in full time work and President Obama still can’t get Congress to increase the $7.25 minimum wage.

We need to see strong jobs growth and a workforce capable of doing the jobs of the future.

Our challenge is to create meaningful work in the face of technological change (“tech disruption”) globalization, and shifting demographics.

We can’t predict exactly what these changes will be, or where the jobs of the future are coming from.

But we can prepare for them.

Ken Henry has recently written persuasively about what he calls the responsibility of public policy in the nurturing of national endowments that support human capability, like education, health, infrastructure, innovation and strong public and private institutions.

It is investment in the capability of our people and the strength of our institutions that will ready Australia for the jobs and economic opportunities and challenges of the future.

That’s what will make us competitive internationally.

Australia in the World

Just as inequality is bad for us domestically, more equal growth is good for us internationally.

We want other nations to do well.

We want their people to prosper.

It’s a foundational principle of the Labor Party, captured by Chifley’s ‘light on the hill’ – that we should bring “better standards of living, greater happiness to the mass of the people … not only here but anywhere we may give a helping hand”.

We want other nations to do well because we don’t want anyone to live with poverty and insecurity anywhere, but we should also acknowledge that most often their success is our success. The stunning growth of countries like Japan, Korea and China has underpinned our prosperity, especially through the Australian mining boom.

Economic growth has enabled hundreds of millions of people to escape poverty.

China, for example, is estimated to have lifted 500 million of its own citizens out of poverty.

But again, the type of growth matters.

China has aggressively lifted minimum wages and is looking to an increase in domestic demand to underpin a larger share of its future growth. Growing wealth has increased the expectations of China’s citizens for a stronger safety net, better education and a cleaner environment.

The quality of growth is increasingly important to Chinese citizens and their government.

And it hasn’t been growth alone which has done the job of lifting millions out of poverty across the developing world.

For more than a decade, the Millennium Development Goals, targets agreed on by world leaders in 2000, have, mostly successfully, worked to reduce the amount of extreme poverty worldwide.

In his 2008 address to the UN General Assembly, the philanthropist Bill Gates called the eight goals "the best idea for focusing the world on fighting global poverty that I have ever seen."

As a result, the proportion of people living on less than $1.25 per day has reduced dramatically – with 600 million fewer people living in extreme poverty.

The likelihood of a child dying before the age of five has been nearly cut in half, which means about 17,000 children’s lives saved every day.

The rate of maternal mortality dropped by 45 per cent.

Antiretroviral therapy for HIV-infected people has saved 6.6 million lives; TB treatments - 22 million and 3.3 million deaths from malaria have been avoided with simple measures like insecticide treated bed nets.

Just as “trickle down economics” has been debunked in developed economies, the notion that unbridled capitalism is all it takes to lift nations out of poverty doesn’t bear too much scrutiny.

Growth is good, but the way countries grow matters too.

Joe Hockey has used Australia’s Presidency of the G20 to pursue the goal of lifting global growth by an additional 2 per cent by 2018 – or a staggering $2 trillion US dollars over the next five years.

Unfortunately Australia is not arguing about the characteristics of this growth, but merely, simplistically, for a number.

Director of Equity Economics Amanda Robbins argues that real leadership at the G20 would also involve Australia seeking to build on the 2 per cent growth target by including a measure of inclusive growth.

She suggests that one option would be to commit to a target, in each G20 country, of lifting the incomes of the poorest 20 per cent by at least 2 per cent above trend in real terms by 2018 – It’s a simple, measurable, achievable and proportionate target. It also reflects the language of past G20 summits, before the ideologues got in the way.

Conclusion

It is the impulse of Labor people to fight for fairness. It’s in our guts.

What we saw today, as our tribe gathered, was a celebration of a great man: a pragmatist, not afraid of fighting for and wielding power; an idealist, determined to use that power to “uplift the horizons of the Australian people”.

And we saw a celebration of the fight for fairness.

We’ve learnt that our impulses may be idealistic, even utopian, but they deliver the goods when it comes to stronger economic growth too.

We now see that our best interests and our better angels align.

 

ENDS 


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