Lisa Owen interviews Kate Pickett and Richard Wilkinson

The Nation on TV3, 9.30am Saturdays and 10am Sundays.

Lisa Owen: Good morning to you both. If I can start with you first Professor Wilkinson, why are more equal societies happier and healthier and generally better off? Why?

Richard Wilkinson: Well the data we have looked at for rich developed countries shows that that’s intuition that I think many people have had for centuries; that inequality is divisive and socially corrosive, that that is fundamentally true. We find again and again that the more inequality in a society the more community life collapses, the less social cohesion, the less people trust each other, the more violence, the worse health, the more teenage births. All sorts of things seem to go wrong as inequality increases. And it’s a quite extraordinary pattern with the countries like the United States, the most unequal at one end, and the Scandinavian countries and Japan at the other doing much better on all those kinds of things.

But how can you create a golden rule basically that applies to a whole bunch of nations that have different histories, different technologies, different cultures?

Wilkinson: Well that’s the remarkable thing. This is not simply our work. This work has been going on for the last 35 years; hundreds of people have contributed to the research on this subject. And you find even the provinces of China with bigger income differences have less good health. Our analysis is a fairly small group of rich countries but there are others that look at hundreds of countries and find this same pattern. Inequality is a very fundamental aspect of human relations.

And in saying that Professor Pickett, isn’t some inequality good? Doesn’t that encourage people to strive, do better, get ahead?

Kate Pickett: I think that’s a very popular myth. What the data shows is that the levels of inequality that we have in many of our societies today do not encourage innovation. One good measure of creativity and innovation in different countries is the number of patents that are granted per capita, that’s higher in more equal societies than in more unequal ones. And really what we see with greater inequality is a waste of human talent, human potential if you will. Kids do less well in school, social mobility is lower, more children drop out of school. So you are wasting a lot of the potential talent in a society.

So how do we as a country, New Zealand, where do we sit on the spectrum? If since the 70s the gap has globally been pulling further apart, where do we sit?

Pickett: You sit very much like the UK and the USA at the top of the inequality spectrum. We all had huge rises in inequality, really through the 1980s, yours up to about the year 2000. So you are now among the most unequal of the rich developed countries, along with the UK, USA, Singapore, Portugal.

I think one of the interesting things here is that it’s not just about raising the lot of the poor is it, it’s about closing that gap. And isn’t the controversy around that this perception that you have to hammer the rich in order to do that?

Wilkinson: Well it is really the take-off of top incomes that have made so many countries more unequal over the last generation. And the really big rises in inequality took place from the 1980s. Since then New Zealand has only had very marginal ups and downs. And that’s why people argue whether the overall trend has been up or down. But the really big changes that have made your society a more anti-social society came between 1980 and the mid 1990s or 2000. That’s done the damage and the problem is not what’s been happening since but the failure to reduce the inequality that increased so much earlier.

But on the other side of the coin that has supposedly freed up capital, created jobs and other opportunities, is that not the case?

Wilkinson: Well there are lots of reports now. People have done many studies looking at connections between equality and economic growth. And it was controversial for some time but now people like Christine Lagarde, the director of the International Monetary Fund, and reports from the International Monetary Fund, people like Paul Krugman Nobel Prize winning economist and Joe Stiglitz, another Nobel Prize-winning economist; they’re all saying that greater inequality is bad for growth. It leads to more ups and downs, more booms and slumps.

But your critics would say these theories are anti-rich, anti-inspiration and that idea of bringing people closer together, I am talking about your critics, bringing people closer together looks a little like communism?

Pickett: I don’t think it looks like communism was ever practiced actually. It might be closer to how it was theorised in the past. We don’t have any societies that have been more equal that those we have today in, for instance, the Scandinavian countries. So nobody knows what would happen to a society if everybody were perfectly equal. But certainly the data tell us that we can be a lot more equal and everybody gains; the economy gains, we all gain in terms of health and wellbeing. So it’s a win-win situation.

So part of this is moving some of the wealth or redistributing it as well as closing the gaps, so you believe in perhaps taxing the wealthy at higher levels as part of the solution? I just want to use an example from our Prime Minister who says that 12% of the households here pay 76% of net tax and he poses quite an interesting question, if that 12% isn’t paying enough what should they be paying? What’s the answer to that?

Wilkinson: Well taxes used to be progressive, the rich used to pay a higher proportion of their income. But because top tax rates were lowered they now pay a lower proportion of their income than much poorer people. And that has –

So here, that’s a perfect example of us here, we pay about 33 cents in the dollar now, in the 70s it was around 66 cents in the dollar. So what should we be paying or where should that level be set?

Wilkinson: The problem of the rich paying such a high proportion of the overall tax bill is because their incomes have taken off in such an extraordinary way. And the vast majority of the benefits of economic growth have gone to the rich over the last few decades and so of course they are paying more of the tax burden.

But do we require them to pay even more, as you have said tax rates have dropped –

Pickett: Probably. Probably we do. It’s hard to know what the exact rate should be. The problem with governments putting up top tax rates on their own is that the rich have always been able to find very good ways to avoid paying tax -

They’re mobile, they move their assets -

Pickett: And so perhaps more important than national tax rates are international agreements dealing with tax havens and tax avoidance. But we’re also very keen to talk about ways to reduce income differences before tax.

Wilkinson: Yes that’s crucial.

So how do you do that?

Pickett: By increasing all forms of economic democracy. It’s due to a lack of democracy in the workplace that top incomes and bonuses have been allowed to run away so far from the rest of us.

Wilkinson: Yes so we think that there should be employee representatives on company boards, which about half the members of European Community have legislation insisting on employee representatives on company boards. In Germany if a company has about more than 2000 employees half the representatives on the remuneration committee have to be employee representatives.

Do you think we should legislate those things or do we leave it to people’s conscience?

Wilkinson: Yes I think that the runaway incomes at the top, the bonus culture, is a sign of the lack of any democratic constraint on top incomes and you have to build it in with legislation to democratise our big companies. Multi-nationals run rings around national governments, one government after another tries to lower top tax rates and corporation tax to attract companies/

So in practical terms what would that legislation look like here in New Zealand? Would you say that the top earning person in the company can not earn any more that what, 8 times, 10 times?

Wilkinson: No, legislate to give employees more say in these issues. There have to be employee representatives on company boards.

Pickett: Rather than say setting a maximum income or a maximum ratio between top and bottom, you can have legislation that requires companies to publish that ratio. That in itself provides a bit of a nudge. But if you increase employee representation on remuneration committees, things will get more sensible. I mean if I asked you who your boss is here at TV3, how much do you think they earn and how many more times your salary should they earn? You might vote them, I don’t know if you’re being generous, double or three times if you think they bring experience and expertise that you don’t. You probably wouldn’t say they should be paid thirty times what you’re paid or three hundred times as we see in some parts of the financial sector.

Wilkinson: In the hundred biggest British companies for instance the average ratio between the top paid CEO and the bottom paid in the same company is three hundred to one. And that has expanded from -

Average here is about twenty two –

Wilkinson: That’s much better but in the 1970s it was smaller still. The real widening of these differentials has taken place in the last few decades.

You’ll be aware obviously it’s election year here and at the moment there is the promise that there could be tax cuts around the corner and some of them are aimed at lower levels of income. Is a move like that going to make us a more equal society? Tax breaks?

Pickett: Possibly if the tax breaks are truly progressive. And governments need taxes to be able to put in place the welfare, benefits, services that they want to provide. I know you have got a continuing debate on problems of child poverty so clearly investment in early childhood should be a priority for any government coming in.

Richard Wilkinson: And another thing that’s made an enormous difference is higher minimum wages. In Britain and a number of other countries there’s a large movement to get public services and private companies as much as possible to pay the living wage, substantially above the minimum wage. The things like that can be done at the bottom as well as what we have been talking about at the top.

Professor Pickett I’m wondering if this is such a serious issue why is there not sort of blood on the streets and revolution over it? Do we care enough to change it?

Pickett: We can’t care unless we know. And what social surveys show in the UK and the US and indeed in New Zealand is that people are very unaware of the actual levels of inequality in society. They don’t really know about top pay. They don’t really know about bottom pay. They don’t know what the gap is. In country after country the vast majority of the public would like inequality to be lower. They underestimate its level but they would prefer it to be lower. So having a national debate, having a conversation, doing some education, that’s the first step in getting people to think about how they would like their society to change.

Ends

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