A guide to inclusive prosperity

Editor's Notes

• #2: The Chifley Research Centre – the Labor Party’s think tank – has established something called an Inclusive Prosperity Commission to look into why Australia’s economy is getting more unequal and to work out what we can do about it. The Commission brings together policy experts, politicians, businesspeople, academics, union leaders and others to try to get to the bottom of the problem of rising inequality and work out a way ahead. The work is supported by a number of trade unions, ALP branches, progressive businesses and donations from individuals. The co-chairs, Michael Cooney (Chifley’s Executive Director) and Wayne Swan MP (formerly Deputy Prime Minister of Australia) have put together this presentation as a guide to the economics – and the politics – of inequality.
• #3: Inequality in Australia is at a 75 year high. It’s becoming urgent that we get something done about this. The more we understand what’s going on in the economy, the more we can work together to fix some of the problems we see now – and to avoid the mistakes made in many countries like ours overseas, especially in the United States. What we do to stem the growing tide of inequality is the central economic and political challenge of our age.   This presentation is designed to look more closely at the problem and start talking about the solutions.
• #4: Graph 1 - Economic Growth - In our period in office the Australian economy grew by 15% (Real GDP Growth (2007 – 2015), Source: OECD) We can start with optimism, because Australia still has a strong economy, and because we know that progressive policies of good Labor governments are good for the economy. Australia steered its way through the Global Financial Crisis and the Great Recession that followed emerging in the best shape of just about any developed economy.    We came through by choice, not by chance – and we were opposed every step of the way by then opposition leader Malcolm Turnbull. In our period in office the Australian economy grew by 15%, a specular result and when we left office unemployment had a five in front of it. If the Liberal and National parties had their way Australia would have experienced a recession with a massive increase in unemployment. It’s no wonder Australian unemployment is higher today in a global recovery than it was back then in a global recession.
• #5: Graph 2 – Living Standards - Australia is still one of the few advanced countries with a high average annual income - Higher living standards = A stronger economy  (SOURCE: Gallup Poll (2013) Median Household income expressed in Purchasing Power Parity terms.  http://www.gallup.com/poll/166211/worldwide-median-household-income-000.aspx)  When Labor was in government, Australia created over a million new jobs and for the first time achieved a AAA credit rating from all three major agencies.  We also deliberately spread the benefits to middle Australia.  Here you can see that we have maintained an average income for the bottom 90 percent which is among the highest in the world.  There’s nowhere else in the world where you’d prefer to be as a working-class or middle-class person.  
• #6: Graph 3 – Income Growth for the Bottom 90% - Australians, through the wage system has done better than many other developed economies. Here the gains of growth have been more fairly shared and growth has been stronger as a result (Bottom 90 percent average annual income growth rate in select advanced economies by decade, Source: Facundo Alvaredo and others, "The World Top Incomes Database,” at http://topincomes.g-mond.parisschoolofeconomics.eu) (Note: Lighter shading indicates that significantly less than a full decade of data is available. Due to sporadic data availability, appropriate decades range from 9–11 years, and endpoints of decades may differ by 1–2 years.)   That’s a long term achievement, over decades. This graph shows how Australians, through the wage system, has done better than many other developed economies. Here the gains of growth have been more fairly shared and growth has been stronger as a result. Few other places in the world are getting this right.   The legislative attack on the Fairwork Act combined with the attempt to smash our trade unions through the royal commission is all about delivering a declining share of national income to workers. All around the world where the voices of trade unions have been weakened their share of national income has fallen.
• #7: Graph 4 – Income Inequality - Today in Australia the gap between the richest 1% and the rest is less than half that of the United States (Income share of the top 1% (1921 – 2010), Source: World Wealth and Income Database)   Over the past thirty years Australia has become the economic envy of the developed world. We did that our way and without adopting the American approach of trickle-down economics that just rewards a small number of people at the top. This graph shows that income concentration going to the top 1% in Australia and the United States were roughly equal after the Second World War, while today in Australia the gap between the richest 1% and the rest is less than half that of the United States. So while yes, there has been an increasing concentration of wealth at the top, Australia’s income growth among low and middle income earners has still been consistently strong, unlike the rest of the world and in particular the United States.
• #8: Graph 5 – Median Income Growth - Median incomes in Australia rose by over 50% between 1995 and 2012; in the United States (over the same period) there was no growth in median incomes (Median Income Growth (1995 – 2012), Source: OECD)   As you can see from this graph middle income households in Australia are more than 50% better off than they were in 1995. The amazing comparison is there has been almost no middle-class income growth at all in the United States over the same period.
• #9: Graph 6 – The Minimum Wage - Australia maintains one of the highest minimum wages anywhere in the world - Higher minimum wages = Better living standards (Net minimum wages (US dollars per hour after taxes, at purchasing power parity), Source: OECD (2105), Focus on minimum wages after the Crisis. Making them pay) America’s middle class has been squeezed and their working poor have been locked out altogether. No wonder they have such a fragile economy, messy politics and an angry society in many ways. It’s amazing how many conservative voices want us to cut our minimum wage. Australia is one of the strongest developed economies and – as you can see from this graph – we have probably the world’s highest minimum wages. This is no coincidence. Good minimum wages strengthen the economy.
• #10: Graph 7 – Trade Unions & Inequality - Union membership in the United States has been smashed and is closely correlated to the massive increase in income share going to the top 10 percent (Unions’ Decline and the Rise of the Top 10 Percent’s Share of Income, Source Economic Policy Institutehttp://www.epi.org/publication/unions-decline-and-the-rise-of-the-top-10-percents-share-of-income/) Strong wages are vital to maintaining equality. And strong unions are vital to strong wages. This graph shows how in the US, the decline of trade unions has been closely matched by rising inequality. The legislative attack in Australia on the Fairwork Act combined with the attempt to smash our trade unions through the royal commission is all about delivering a declining share of national income to workers. All around the world where the voices of trade unions have been weakened their share of national income has fallen. We can’t let that happen here.  
• #11: Graph 8 – Income Inequality Our middle class has a greater share of national wealth. Australia has not yet gone down the American Path. (Comparison of wealth share of the middle class, Source: Chifley Research Centre)   The bottom line? We should be very proud of the fact that middle income households have a far greater share of our national wealth than many other developed countries. Here you can see that we are far less squeezed than the middle in the United States. We have not yet gone down the American road of a hollowed out middle class and an army of working poor, as the slide demonstrates. But our success goes back further than this; no country in the developed in the world has done a better job over the past 100 years of matching strong economic growth and income growth with social equity than Australia. The public policy building blocks which have underpinned this growth with fairness are primarily the legislative work and achievement of the labour movement and past Labor governments.
• #12: The building blocks of inclusive prosperity are the things middle Australia needs the economy to deliver. Labor’s progressive economic policies are well designed to do this. A fair industrial framework based on a decent minimum wage (consistently one of the highest in the world), universal health and education, prudent fiscal and monetary policy based on a targeted progressive tax and transfer system; a world leading superannuation framework that has strengthened the pension system and financial sector; and a series of reforms aimed at increasing competitiveness; the key building blocks of the Australian social contract.  
• #13: Graph 9 – Australia is now above international average on the inequality ladder. (Gini coefficient comparison, source: Chifley Research Centre) So Australia is doing alright, but only alright, and we’re under a lot of pressures that will make is worse. This graph shows where Australia sits – we’re now in the top half of the unequal nations – worse than Canada and Germany for instance. And our fair economic policies are under assault from the Abbott-Turnbull governments and the vested interests that run them. Our country has endured a disruptive attempt by the Conservatives to impose European style austerity accompanied by the damaging rhetoric of a budget and economic emergency. The consequence has been two and a half years of weaker growth and a failure to invest in the drivers of future growth; in particular infrastructure and education.  
• #14: Graph 10 – Wealth Inequality The middle 60% of households now hold just 38% of all wealth Australian wealth distribution (Source: Inequality in Australia, pg 32, www.acoss.org.au/wp-content/uploads/2015/06/Inequality_in_Australia_FINAL.pdf)   Here you can see that while middle 60% of households do hold just 38% of all wealth - but most of that is in the upper-middle group – a fifth of Australians own virtually nothing at all – and the Conservatives want to shrink this share further.   The past two years of Conservative government have been about worsening inequality through trickle-down economic policies including an all-out attack on the social and industrial safety net and the very notion of progressive taxation. Their proposal for a 15% GST, a lower minimum wage and the abolition of penalty rates, the dismantling of Medicare, $100,000 university degrees are just a few examples of the Conservatives attempts to take us down the American road.  
• #15: Graph 11 – Wages & Productivity - We’re more productive at work but not getting the rewards The Decoupling of Wages and Productivity (Source: https://mattcowgill.wordpress.com/2013/03/05/labours-shrinking-share) Sharing productivity growth fairly is what underpins a strong economy. When labour market institutions work properly, working people are rewarded for their productivity, as they more or less were from the time of the Accord until the time of Workchoices.   In recent times the ongoing campaign from the Liberals and their allies in the business community with falling union density has caused this link to be weakened. This graph shows how wages haven’t kept pace with the output from working people.   That’s bad for incomes in the short term and in the long term; it removes incentive for productivity growth and weakens the economy as a whole, hurting job creation    Once these propositions are fairly and squarely on the table and understood it becomes much easier to argue that government has a central role to play in promoting inclusive workplaces, where unions are a critical and positive part of the wealth creation story.
• #16: Graph 12 – Inclusive Prosperity - Inclusive prosperity acknowledges that nothing is more important to the success of industrial democracy than sustained increases in wages and living standards for working families. How inclusive prosperity works (Source: Chifley Research Centre)   Inclusive prosperity acknowledges that nothing is more important to the success of industrial democracy than sustained increases in wages and living standards for working families.   This is now a recognised economic fact. The International Monetary Fund, once the vanguard of trickledown economics, has itself concluded that when the benefits of growth are concentrated, overall growth is weaker – repudiating 30 years of economic orthodoxy Here, we’re illustrating the point that when growth is more fairly shared, overall growth is stronger – in essence if working people have less to spend there will be less growth and economic growth will be slower.   This repudiates the very essence of the Abbott-Turnbull government’s trickledown economic agenda; that if you give more money to the wealthy everyone will be better off.
• #17: There’s a lot a Federal Government can do to make our economy grow more strongly and more fairly if it chooses. These are some of the policies announced by Bill Shorten and the Labor Party over the past two years to address the problem.
• #18: Reality check: all this needs a well organised political fight not just an economic plan. Sections of the business community have abandoned their responsibility to the economy as a whole. Some will only ever support reforms in their own short term economic self-interest and never support long term reforms in the national interest, particularly if it involves short term economic sacrifice.   This is seen in their failure to speak out against rampant multinational tax evasion by some of our most respected companies while at the same time cheerleading for an inequality enhancing GST. Australia is currently witnessing the biggest attack on public revenue since the bottom of the harbour scheme of the 1970s and the business community is silent.   And while a surprising group of conservative voices has endorsed Labor’s plans on negative gearing and capital gains, including Jeff Kennett of all people, the silence of the major business groups is deafening. The Liberal Party under Abbott and Turnbull is just a piper playing their tune.    We need an understanding the economic drivers of inequality good ideas to reverse inequality – and we need a clear understanding of who benefits from inequality and a political case to win the debate against them.  
• #19:  We have a proud history of achievement for working people. We share a noble passion. We have a vision for a fair Australia where through universal access to good health and education the son of a construction worker can become an engineer; the daughter of a shop assistant can become a lawyer; the son of a farm worker can become an accountant, and the daughter of a male psychiatric nurse can become Prime Minister.   This is the fair inclusive Australia we in the labour movement fight for. In the streets, on social media, in conversation at the pub, in the tea room at work, in talking to our neighbours over the fence, our work for inclusive prosperity has never been more important. We have an argument and a movement. We have to make sure these two things combine. We have to make the economic case that less inequality plus good wages and working conditions for middle and low income earners will help economic growth. We know what the policies are that make the economy fair – the key is to confidently argue that those same policies also make the economy strong. This has been designed to help you make that argument. That’s why inclusive prosperity must be at the heart of our agenda.  
• #20: You can help by sharing information, donating to Chifley – and learning more. Further resources:   Federal Labor’s Think Tank Launches Inclusive Prosperity Commission http://www.chifley.org.au/federal-labors-think-tank-launches-inclusive-prosperity-commission/   6 reasons ‘inclusive prosperity’ is conclusively awesome https://www.laborherald.com.au/economy/inclusive-prosperity/   Wayne Swan's focus on wages https://www.thesaturdaypaper.com.au/news/politics/2015/06/06/wayne-swans-focus-wages/14335128001970   Inclusive Prosperity: Australia’s record and the road ahead http://www.chifley.org.au/inclusive-prosperity-australias-record-and-the-road-ahead/   Center for American Progress: Report of the Commission on Inclusive Prosperity https://cdn.americanprogress.org/wp-content/uploads/2015/01/IPC-PDF-full.pdf Bill Shorten MP – Speech to Australian council of social services conference http://billshorten.com.au/speech-to-the-acoss-annual-conference