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November 2003 | |
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Interview: Union for the Dispossessed Unions: Joel's Law National Focus: Spring Carnival Bad Boss: Fina and Fiends Industrial: The Price of War Economics: Who's Got What History: Containing Discontent Review: An Honourable Wally Poetry: The Colours of Discontent
The Soapbox Sport Politics Postcard
Governing the Corporates
 Veterans' Compo
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Economics Who's Got What
********* A 'Wizard of Id' cartoon shows the King (of Id) being asked by journalists 'what are you doing about the gap between the rich and the poor?' 'I'm encouraging the poor to close the gap', he replies. 'How can they do that?' the journalist asks. 'Find out how the rich got rich' says the King. The Business Review Weekly (BRW) publishes annual information on the nation's most wealthy people. It enables us to see 'who's got what?' among the wealthy elite in Australia. This is of interest to labour movement activists and political economists as well as to these who are (or aspire to be) wealthy themselves. Capitalism is an economic system based the use of economic power to distribute the wealth that is generated by the workers' productive activity. Political economists typically explore the processes in impersonal terms through study of the relative shares of wages and profits in the national income, and the personal distribution of different forms of wealth such as shareholdings or real estate.
It is quite easy to obtain data on the overall distribution of income, based on annual taxation returns and on questions asked of all Australian households in each census. However, reasonably reliable wealth data is more elusive. Whereas income is a flow (over time) wealth is a stock (at a point of time); and data on these stocks are much harder to obtain. Because there is no general wealth tax in Australia, information on wealth is not generated as a by-product of the taxation system, as is the case with income tax and incomes. The first - and still the only - official survey of the distribution of wealth by an Australian government was undertaken in 1915. Since then successive governments have shied away from conducting any similarly systematic survey. The 'left' faction within the ALP has periodically proposed doing so, but Labor in government has never 'bitten the bullet'. And successive Coalition governments, not surprisingly, have not sought to draw attention to this or any other aspect of the economic inequalities to which their policies contribute. For a detailed empirical examination of the changing patterns of wealth over the last decade there remains no alternative to the annual BRW 'rich list' which shows the wealth of the richest 200 people and families in Australia. This is a tiny elite, comprising only about 0.001% of the population. But a study of its character and changing composition provides a useful insight into contemporary socio-economic trends. Entry to 'the Rich List' The first question to probe is how much wealth it takes to get listed in the BRW 'top 200'? To just 'scrape into' the annual BRW list in 1993 needed $30 million, but by 2003 this had escalated to $94 million. It took wealth of $60 million to be in the top 100 in 1993, but $215 million by 2003. To get in the top 10 required $500 million in 1993, but $1000 million by 2003. So, in round terms there was a threefold increase in the wealth needed to get into both the top 200 and 100 over the decade and a doubling of wealth necessary to get into the top 10. To put these changes in perspective, it is necessary to take account of inflation. The Consumer Price Index (CPI) rose by 29 percent over the period 1993-2003. That would have meant that the $30 million needed to get onto the 'rich list' in 1993 would have risen to about $40 by 2003 just to keep pace with inflation. In fact the entry qualification rose to $94 million. So we may infer that about a sixth ($10 million) of the $64 million increase in wealth needed to get onto the 'rich list' involved the effect of inflation: the other five sixths ($54 million) represented real increases in spending capacity of the wealthy. The Total Wealth of the Wealthy So how much do these wealthy people own? The BRW data shows that the wealth of the top ten wealth-holders increased from $12.5 billion to $23.7 billion over the decade. The wealth of the richest one hundred and of the richest two hundred increased proportionately rather more. Some $75 billion is now held by the wealthiest 200 Australians. These are prodigious volumes of wealth by any standards. It should be emphasized that the BRW figures on total wealth allow for 'comings and goings' among the personnel. In other words, they relate to the wealth of whoever is in the top 10, 100 or 200 at any one time. But particular individuals have played a persistent role, skewing the distribution sharply at the top. The most obvious example is Kerry Packer, whose estimated wealth grew from $3000 million in 1993 to $5900 million in 2002, dipping a little to $5500 million in 2003. Industrialist Richard Pratt, number two on the list, had a sevenfold increase in his wealth from $550 million in 1993, surging to $3800 million by 2003. The Concentration of Wealth Is there growing concentration of wealth among the wealthy? Looking at the overall figures it appears that both the shares of the top ten and the top 50 among the top 100 asset-holders declined in the decade. These patterns provide some contrast to the preceding decade when both the shares of the top ten and the top 50 among the top 100 asset-holders had risen, increasing the concentration of wealth among the super-rich. In the 1983-1993 period Kerry Packer's estimated wealth had grown from $100 million to $3000 million while the Murdoch family's wealth had grown from $250 million to a massive $4500 million. The subsequent de-listing of Murdoch (as the result of his change of nationality) alone is a significant reason for the modest decline in the asset concentration ratios over the past decade. Sources of Wealth From a political economy perspective it is important to probe the sources from which the major concentrations of wealth in Australia derive. The individual commentaries in the annual BRW listings are valuable in this respect. As a quick indication of the changing patterns, it is pertinent to look at the sources of the wealth of the top ten super-rich for the first and last years in the period 1993-2003. Property featured four times on the 1993 list as a source of the fortunes of the top ten wealth-holders. In 2003, rather interestingly, manufacturing features three times as a source of wealth and property only twice. The services sector is relatively more visible (if not always most profitable) in that later year too. Media /investment continue to be the principal source of wealth accumulation for the richest Australian, Kerry Packer. It is difficult to know what to make of these patterns. In aggregate terms manufacturing has not been a major growth sector in the Australian economy over the last decade, while property development/ investments has been a buoyant sector of capital accumulation, yet these general trends are not evidently manifest in the personnel listed at the apex of BRW's 'rich list'. Generalizations are problematic in this regard, since finding niche areas within manufacturing industries - as in other sectors of primary and service industries - can evidently be a basis for the acquisition of enormous wealth. And, looking at the top 200 overall, property stands out as the most important single source of wealth: 48 'property barons' have a combined wealth of $16.7 billion, well ahead of service and manufacturing industries as sources of wealth. It is also worth considering the significance of inherited wealth. BRW tends to project the notion that individuals can achieve wealth from a poor background. However, the data itself does not sit comfortably with this popular notion of 'self-made' millionaires. The 2003 BRW states that 'those who started with inheritance hold only 30% of the total Rich 200 wealth'. But those right at the top have derived a disproportionately larger part of their wealth through kinship networks and inheritance. For instance, 6 out of the 10 wealthiest people in 2003 attained a substantial basis for their affluence through inheritance: the comparable figure in 1993 had been rather lower at 4 out of 10. Also notable is the incidence of wealthy people from migrant - mainly European - backgrounds. 4 out of the 10 richest Australians in 1993 were migrants, and 5 out of the 10 in 2003. However, being a migrant is not synonymous with having a poor background: inheritance and family connections evidently apply equally strongly among the migrants as among the Australian born. 'Young' and Rich In 2003 the BRW published an additional list of the wealthiest Australians aged under 40. It enables us to see 'who's who?' among the up-and-coming, and to see how their sources of the wealth differ from the wealth-holders on the main list. Sixty two persons are listed, with an average age of 35, an average wealth of $48 million and a total wealth of $2.5 billion. To get on the list requires at least $10 million. The wealthiest person, John Ilhan, founder of the mobile-phone retailer Crazy John's, has an estimated $200 million. Thirteen others also get over the 2003 level of $94 million to qualify for membership of the 'big league' rich 200 regardless of age. There are some interesting features of these relatively young wealth-holders. For example, there are proportionately more women than on the main rich list: 23% compared with only 7% among the all-age wealthy people. The educational levels of the 'young and rich' are not strikingly different overall from a much broader stratum of Australian society, although there is a significant cluster among the highly qualified. Eighty nine percent finished high school; 8% have technical college qualifications; and 32% a bachelors degree of whom just over half also have a postgraduate qualification. Some were educational stars: two, Gordon Fell and Mark Chiba, were Rhodes scholars. On the other hand, 19% of the 'young and rich' who had attempted higher education dropped out of their courses. What about the industries in which they have made their fortunes? Retail business ventures clearly come out on top, accounting for just over a quarter of those on the list. Technology accounts for 20%, services 15%, entertainment 11% and sport 9%. Finance and property at only 5% is less well represented than on the main rich list. Entertainment has been the route to riches for the richest woman (Nicole Kidman at $123 million) and sport for the youngest person to make the list (Lleyton Hewitt at $22 million). The Quality of the Data The reliability of the BRW data is uncertain, bearing in mind the difficulty of extracting and aggregating information on different types of wealth, ranging from land and property to cars, yachts, antique furniture and art works, bank deposits and shareholdings. The propensity of the rich to conceal wealth in family trusts and diverse company transactions is well known, although having a contrary relationship with their propensity to flaunt it in 'conspicuous consumption'. What gives some degree of confidence in the data is that there is no obvious reason why the extent of overstatement or understatement should vary dramatically from year to year. So there is no cause to expect systematic bias in the analysis of changes over time in the degree of wealth concentration. Certainly, one may reasonably presume that the twenty years of experience BRW has had in researching this issue, since the first 'rich list' was published in 1983, has produced cumulative expertise. Moreover, it seems that the rich people being studied are typically cooperative with the BRW investigators. This may indicate a weaker tendency to seek to conceal wealth than is the case for income. Because there are no general wealth taxes there is less need to have regard to the taxation consequences of having one's wealth publicized. A marked increase in wealth can arise from increases in the values of existing assets as well as income substantially in excess of expenditure. So having it publicly known doesn't necessarily attract the interest of the Taxation Office. The Broader Picture of Inequality It must be emphasized that the BRW data is not a measure of the distribution of wealth throughout the society. It tells us only about one end of the distribution. Looking a little further afield, one study, by Merrill Lynch and Cap Gemini Ernst and Young (reported in the Australian Financial Review 13.6.2003, p 5) notes that a rising property market and the relatively stronger local stock market had increased the number of millionaires in Australia by 5000 over the last year. 105, 000 people were estimated to have wealth of over A$1.51 million (equivalent to US $1 million), up by 5% over the previous year. Those on the BRW rich list comprised only the top 2% of this broader group of wealthy Australians. More general estimates of the whole distribution have been attempted, the latest showing that the top 10% of the population has 45% of the total wealth and that the top half has 93 percent of the total household wealth. This study, conducted by the National Centre for Social and Economic Modeling (NATSEM) in Canberra, reveals that there is a relatively high diffusion of superannuation and home equity as the major types of asset ownership across the Australian population. However, shares ownership is much more concentrated, with a staggering 86% being held by the wealthiest 10 percent of families. The same top 10 per cent of the population owns highly concentrated proportions of rental properties, cash deposits and business assets - 62%, 60% and 50% respectively. Meanwhile, income inequality in Australian society is increasing. There is abundant statistical evidence of a growing gap during the last decade between the top and the middle of the distribution, as well as between the top and bottom ten per cent of households. This polarisation has important implications for the incidence of poverty, to the extent that this is measured relative to the general prevailing standard of living. If the 'poverty line' is set at half the average family income, for example, about 13% (or one in eight Australians) can be regarded as living in poverty in the year 2000. Looked at in these terms, wealth and poverty are two sides of the same coin. Do these inequalities of income and wealth matter? There are predictably divergent views about the pros and cons of economic inequality. Issues of personal incentive, social justice and cohesion intermingle in such debates. One can hardly expect a clear resolution. But the prodigious growth of wealth, including business CEOs commonly getting annual salaries over $2 million, understandably creates resentment among workers striving to meet their mortgage payments and household expenditure commitments. This is not a recipe for social cohesion.. It is also important to ask if the accumulation and concentrated ownership of wealth leads to a happier or unhappier society. A lot of evidence is now emerging to indicate the latter. According to a range of social surveys, it seems that the citizens of societies in which economic inequality is greatest generally report lower levels of personal satisfaction. This has led social scientists, internationally and in Australia, to conclude that the accumulation of wealth accompanied by increased inequality is likely to have no net social benefit. Indeed, it tends to have negative effects on the overall wellbeing of society. There are various policy instruments that could be used in the attempt to produce more equitable outcomes, if there were the political will to implement them. An annual wealth tax, higher capital gains tax, and inheritance taxes are among the possibilities. A more broadly based land tax could be a particularly potent means of creaming off the prodigious wealth captured by land owners as a result of land price inflation in the major cities. Of course, any such measures go against the interest of the principal wealth-holders who could be expected to defend their economically privileged position. Economic assets are a lever which can be used for political purposes. In this context, the BRW data on wealth-holding can be regarded as indicative of class power. The associated politics is the politics of class struggle. Conclusion Analysis of the BRW data on the wealthiest Australians provides insights into an important aspect of Australian political economy. The data has limitations as a measure of socio-economic inequality and as a means of understanding processes of wealth accumulation. However, it does reveal the prodigious wealth concentrated in the hands of key individuals and families. Analysis of the 1993-2003 data shows that the volume of wealth held by this elite is continuing to increase in both absolute and relative terms. There never was a golden age of Australian egalitarianism, but the dominant tendency is now towards a yet more blatantly unequal society. This poses a major challenge to those who would wish to reverse that trend. Note: a fuller version of this article, including more statistical data on the trends in the distribution of wealth will appear in the December issue of the Journal of Australian Political Economy, along with articles on other current political economic topics (This journal is available for $6 from JAPE, Box 76, Wentworth Building, University of Sydney, NSW 2006) Frank Stilwell is Professor of Political Economy at the University of Sydney
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