Interview: True Matilda
Politics: State of Play
Industrial: Capital Dilemmas
Unions: Rhodes Scholars
National Focus: Rennovating the Lodge
International: People Power
Economics: A Bit Rich
History: Mine Shafts
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Poetry: Anger In The Bush(es)
Review: The Battle Of Algiers
Culture: The Word On The Street
The Locker Room
Sprung: Howard Liberal with Truth
Health Warning for Bank Robbers
Offensive Toilets Threaten Pupils
Telstra Dials Workplace Acquiescence
Privatisation Debate Energised
Co-operating At All Costs
All Good Except You
Labor Council of NSW
A Bit Rich
By Frank Stilwell
- Professor of Political Economy, University of Sydney
Imagine watching a march-past of the whole Australian population. It lasts a hundred minutes. The people file past your vantage point in order of their wealth, starting with the poorest and ending with the richest. Each household is represented by one individual whose height is proportional to the total wealth of that household in the year 2002 - one centimeter for every thousand dollars.
For the first four minutes there is absolutely nothing to be seen. The people marching past are, in effect, burrowing under the ground. These are the four percent of Australian households whose debts are bigger than their assets. They have 'negative net wealth'.
Then some tiny figures start to appear. But after ten minutes they are only four centimeters high. As the parade continues the average height slowly and steadily increases. However, at the thirty minute mark the marchers' height is still only just over eighty centimeters tall, which is less than three feet. It is starting to look like an endless parade of dwarfs.
At the fifty minute mark, exactly half way through the parade, the height of the marchers has risen to nearly 2.2 metres. These households represent middle Australia. Typically, their home is the bulk of their wealth, although some also have rental 'investment' properties, some are 'mum and dad' shareholders and nearly all have wealth tied up in superannuation funds.
At the seventy minute mark the marchers are over 4.2 metres tall. The contrast with the height of those earlier in the parade is becoming quite dramatic now.
During the last twenty minutes of the parade really huge people come into view. At the ninety minute mark the average height is nearly 9.4 metres. With each minute the average height rises by more than the total increase in height that had occurred in the whole of the first half of the parade. Then in the last minute veritable giants appear, all over a hundred metres high.
Right at the end come the people on the BRW 'rich 200' list. Any onlooker who blinks might miss seeing them because they comprise only the last sixth of a second in the parade. The shortest of this elite group is nine hundred and thirty metres tall, five times taller than the loftiest skyscraper buildings in Australian CBDs. The people in the very last sixtieth of a second average thirteen thousand metres, most of their bodies hidden from view among clouds. Bringing up the rear is the tallest individual, Kerry Packer: at nearly sixty thousand metres, puncturing the stratosphere.
This is a dramatic way of describing the overall distribution of wealth. It is based on information from a survey of the assets and liabilities of Australian households, analysed in a report by the Reserve Bank of Australia released in April 2004. It gives a broad picture that sets the BRW 'rich 200' in perspective. It also raises many questions. What determines the extent of wealth inequality? What determines the location of any individual or household in the broader distribution? How has the extent of wealth inequality been changing over time? And does it matter? Is this wealth inequality a good thing, economically and socially, or a source of discord, undermining social cohesion? Is it fundamentally at odds with the Australian ethos of a 'fair go'?
Analysing the Rich List
We can probe these questions by looking at the BRW 'rich 200' data over the last decade in more detail. Of course, trying to infer something about society as a whole from information on approximately 0.001% of the population is a tall order. But the amount of wealth necessary to get on the list, and the means by which the successful people get there, are barometers of wider social trends and attitudes in a society geared to the pursuit of material economic success.
Certainly the wealthy have become much wealthier. To get on to the BRW 'rich 200' list in 1993 required a mere $30 million: by 2003 this had risen to $94 million. Even allowing for inflation, this represents a substantial hike in the price of the entry ticket to the rich list.
The total asset value of the wealthiest 200 has also trebled over the same period. In 1993 the top 200 had a total wealth of $28 billion: by 2003 this amount had risen to nearly $75 billion.
The concentration of assets among the super-rich themselves has also increased over time. When the BRW list was introduced in 1983 the share of the top ten asset-holders in the wealth of the top one hundred was 25%. In other words, the wealthiest ten people had a quarter of the total wealth of the top hundred. The corresponding figure rose sharply to 52% in the early 1990's, following a process of spectacular wealth concentration in the 1980's. Since then it has slipped back somewhat, remaining in the 39-41% range for each year in the period 1997-2003.
It is also interesting to probe how the sources of concentrated wealth have changed over the last decade. Back in 1993 property featured four times as a principal source of the fortunes of the top ten wealth-holders. In 2003 manufacturing featured three times as a source of wealth while property featured only twice. The services sector is relatively more visible (if not always most profitable) in that later year too. Media, retail industry and the development of shopping centers also feature increasingly prominently among the wealth sources of the top ten.
There are some puzzles in these patterns. Manufacturing in general has not been a major growth sector in the Australian economy over the last decade, while property development/investments have been buoyant sectors of capital accumulation, yet these general trends are not evidently manifest in the personnel listed at the apex of BRW's 'rich 200'. Finding niche areas within manufacturing industries - and in other sectors of primary and service industries - can evidently be a basis for the acquisition of enormous wealth. But, looking at the top 200 overall, property stands out as the most important single source of wealth. 48 'property barons' had a combined wealth of $16.7 billion last year, well ahead of services and manufacturing industries as sources of wealth.
It is also worth noting the significance of inherited wealth. According to last year's BRW 'rich 200', 'those who started with inheritance hold only 30% of the total Rich 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 was 4 out of 10. As in other aspects of life, this illustrates the importance of 'choosing your parents wisely'.
What underpins these trends?
Broadly speaking, two forces have shaped the concentration of wealth in Australian society. One is asset price inflation. The decade of the 90's in particular was remarkably buoyant for share prices. The growth in real estate values, only recently coming to a temporary halt at the end of a prolonged and dramatic property price boom, has widened the gulf between existing land and property owners and those aspiring to join this group. Inflation in housing values has broadened wealth-ownership, although home-owners can only 'cash in' their extra wealth if they are willing to move to localities with lower real estate values. So their increase in wealth is largely unrealisable. Meanwhile the dominant effect of asset price inflation is to intensify the advantaged position of those holding the greatest initial wealth.
The other driving force has been growing disparities in the distribution of incomes. Whereas wealth is a stock, income is a flow. Increased disparities in income flows can be reliably expected to increase disparities in wealth stocks over time. That is clearly what has happened in practice. The recent Reserve Bank analysis shows that very wealthy people are more likely to be holding their wealth in income-generating forms, such as shares and investment property. Not surprisingly, the phenomenal surge in payments to CEOs of large companies in recent years has also flowed through into corresponding accumulations of wealth. The average executive remuneration level is now 74 times average weekly earnings, up from 22 times average weekly earnings a decade ago.
Do these growing disparities matter?
Some would say that as long as the poor are not getting poorer it is a good thing that the rich are getting a lot richer. But if our well-being is assessed in relative terms, a growing gulf between rich and poor intensifies the latter's feelings of relative deprivation. So social cohesion can be threatened.
The big question is whether there is a trade-off between equity and efficiency. If a more equitable society were necessarily a poorer society that would undermine its general appeal. In fact, the international evidence on this issue is quite inconclusive. More equitable societies like the Scandinavian nations are not notably less economically prosperous than more inegalitarian ones. And within individual nations, efficiency has only a weak connection with reward. Those highest levels of CEO remuneration have little direct correlation with objective indicators of company performance, according to recent academic research.
The concentration of wealth may also be justified on the grounds that it provides the basis for a 'trickle-down' effect. On this reasoning, society as a whole benefits from the presence of very wealthy people because of the employment they create, the economic stimulation resulting from their consumer spending and tax contributions they make to government revenues. But there is a difference between an argument for accumulation of capital in general and for the concentration of the wealth in a few hands. The positive employment effects, consumption effects and tax revenue effects are not contingent on wealth concentration and may even be impaired by it. In other words, a broader spread of wealth could be quite compatible with equally strong 'trickle-down' effects.
Economically, the key issue is the relationship between material rewards and economic contributions. If the markedly uneven distribution of wealth were the product of productivity differentials one might reasonably see it as the logical outcome of a capitalist market system in which people derive rewards according to their economic contributions. This sort of 'incentivation' argument has often been used to justify increased inequalities of income and wealth. As political economist J. K. Galbraith has noted, it is an argument for economic inequality that rests on an odd behavioral assumption - that the rich will work harder if their incomes are increased but the poor will work harder if theirs are reduced!
Even accepting the general rationale of economic incentives though, one has to wonder just how much inequality is necessary - would a ratio of, say, 3:1 or even 10:1 between high and low incomes be sufficient? There are always going to be some rich people and some poor people but there are major variations between nations in the extent of that inequality. Australia is moving from its middling position on the international league table towards a less egalitarian position.
Therein lie some significant dangers, because the perception of unwarranted inequalities can generate adverse economic outcomes. Among any group of people, cooperative and productive relationships depend on the expectation of reasonably 'fair shares' in the distribution of the fruits of cooperation. That is true for households, sporting organisations, businesses and whole nations. It is not just the facts of inequality that matter, but also the perceptions of whether the inequalities are justifiable in terms of differential effort or merit. That is why the way in which wealth data is presented and analysed is so important.
To emphasise this last point, it is pertinent to recall that before BRW started publishing its annual rich list the task had largely been undertaken - more sporadically and unevenly - by the publications of the political left. The former Communist Party of Australia, for example, ran a series of 'portraits of the ruling class' in its newspaper Tribune during the 1970's. These were subsequently compiled into a booklet entitled Who's Running Australia, the introduction to which said 'The people in this pamphlet are a fair example of the class which owns and controls this country. They have their fingers in every pie - in mining and manufacturing, in finance, property and transport. They are, to use an unfashionable word, the bourgeoisie'. Pen portraits of Kerry Packer, Vincent Fairfax, Reg Ansett, Peter Abeles, Lang Hancock, Rod Carnegie, the Baillieus and other major property owners and 'captains of industry' followed. Readers were invited to see the pamphlet as a contribution to the overthrow of the system represented by 'these well fed faces'. It is somewhat ironic that BRW continues as the bearer of this tradition in a rather different political context.
The Challenge of Wealth
The modern social, economic and political challenge is how to reconcile the individual pursuit of wealth with broader social goals. Neoliberal politics have emphasised the former, as successive governments have pursued policies of privatisation and deregulation, expanding the role of markets throughout the society in order to create more options for private wealth-creation. Federal ALP leader Mark Latham now seems to be offering a political variation that emphasises personal economic and social mobility - increasing equality of opportunity but without necessarily reining in inequality of outcome. Meanwhile, growing numbers of people are 'downshifting' - in effect, opting out of the relentless process of competition for wealth accumulation. Research undertaken by Clive Hamilton at the Australia Institute indicates that more than a fifth of the working population has made this sort of choice.
As a society we seem to be at a crossroads in terms of attitudes to wealth. Most people would wish to be wealthier, even if the possibility of getting on to the BRW 'rich 200' list remains beyond their wildest dreams. Yet the evidence compiled by Clive Hamilton and other contemporary social scientists indicates no reliable connection between income and happiness. So the picture of the 'top people' presented here by the BRW may give us occasion to reflect on the big question we all face - 'what sort of economy and society do we want to live in?' A society in which wealth is relentlessly sought and celebrated? A society in which material wealth is more evenly redistributed? Or a society which starts to question wealth as the primary indicator of personal success?
Wealth in Australia: looking back to 1915
The first and only official survey of the wealth of all Australian households was conducted in 1915. This was the Commonwealth government's wartime census, taking stock of the nation's population and its assets. The results still make interesting reading, giving an indication of how society has changed.
16% of persons resident in Australia in 1915 had no wealth or negative net wealth. A further 42% had personal wealth of less than _100. 32% had wealth between _100 and _1000. These three groups together comprised about ninety percent of the population. The other ten percent had over _1,000 per head. Of these, over half had between _1000 and _2500. At the top end of a very bottom-heavy distribution, 466 individuals, comprising 0.02% of the population, declared personal wealth of over _100,000.
By current standards these all sound like paltry sums, but one has to take into account the inflation that has occurred in the intervening decades. Changes in the consumer price index and the conversion of _ sterling to $ means that the average household wealth of _558 in 1915 is the equivalent of about $35 thousand dollars today. That is less than 10% of the $404,300 average household wealth in 2002, as estimated by the Reserve Bank. By international standards Australia in 1915 was a relatively wealthy nation although poor by modern standards.
The elite of Australian society had major social and political influence in 1915, but its wealth in purely economic terms was relatively modest. The wealth of the 466 wealthiest people in 1915 was equivalent in value to $5,612 million in 1999. In that latter year the 500 wealthiest people had total assets amounting to $57,090 million. So, in terms of broad aggregates, the wealth of the elite had multiplied about tenfold over the century. Even more startling is the observation that Australia's richest person today is wealthier than all 466 richest people combined in 1915, even allowing for the general inflation occurring in the interim.
Overall, the 'wealth' story of Australia over the last century is one of prodigious growth but not more equitable distribution.
This article first appeared in Business Review Weekly. The Rich200 issue 20 May 2004
Republished with permission
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