Income equality is a matter of fairness

Opinion by Professor Janna Thompson

US President Barack Obama said that income inequality is one of the most serious problems of our time.

Former Treasurer Wayne Swan claimed that the rise of the wealthy threatens Australia's tradition of a 'fair go'.

Since the 1980s the trend in Australia is to greater inequality. According to 2011-2012 figures the wealthiest 20 per cent of households have a net worth 68 times greater than the least wealthy 20 per cent. However, average incomes for Australians have risen in the last 20 years, even for the bottom 10 per cent of the population.

So why should we care about growing wealth inequality? Thomas Piketty in his influential book, Capital in the Twenty-First Century, thinks that inequality matters. [American legal scholar] Cass Sunstein (Age 15/5/14) is sceptical.

One obvious reason for caring about inequality is that wealth buys political influence. Swan was particularly critical of the way in which extremely wealthy people like Gina Rinehart and Clive Palmer banded together to defeat the Labor government's resources tax. More recently, the advent of the Palmer United Party shows that those with a lot of money have a great advantage in political contests.

Inequality also matters if it undermines equality of opportunity. The rich can give their children opportunities that less wealthy parents cannot afford. In 2009, the OECD reported that the link between family background of students and educational achievement is higher in Australia than in comparable countries.

Sunstein points out that inequality is not by itself the cause of these problems. Tighter regulation of campaign donations would help to prevent a translation of money into political power. More money spent on education, particularly on state schools, would ensure that opportunities for the less wealthy are more equal. His view is that we should concentrate on these reforms and not get obsessive about wealth inequality.

One problem with his prescription is that the wealthy are likely to resist reforms that threaten their interest – as Swan had reason to fear. But is Sunstein right to suppose that there is nothing wrong with wealth inequality as such? 

Some of those who participated in the Occupy movements were spurred by the conviction that the greed of the very wealthy is breaking the 'social contract' that holds together people in a society. Behind this conviction is a vision of society as a system of co-operation between equal citizens based on the moral understanding that everyone should get their fair share.

A fair share need not be an equal share. Incentives are necessary in a competitive society. And most people agree that special talents, education and hard work deserve a reward. But it is hard to believe that Australian CEOs who take home 70 times the average salary deserve so much more than ordinary Australian workers – especially when their decisions are not always good for the economy or the country. 

The wealthy expect the government to protect their interests. They depend on taxpayers to fund infrastructure and on an educational system that produces skilled workers. They depend on the co-operation of others. So it is reasonable for those who contribute to demand a fair share for themselves and their families. The idea of a social contract is not obsolete. 

Equality is, for Australians, a heritage value. Australians overwhelmingly agree that the right to a 'fair go' is at the top of their list of what Australia should stand for. The concept of Australia as an egalitarian society has become increasingly mythical. But myths that reflect values have power and those who are concerned about what binds us together as members of a nation need to take them into account.

First published in The Age on 15 May 2014.

Professor Janna Thompson is a Professorial Fellow in Philosophy at La Trobe University.

Image credit: Lending Memo