It is surely no accident that both Garth George and Tim Hazledine have, in the last week or two, highlighted growing inequality as a prime cause for current concern.  I find that many of those I talk to share that view.

It was, however, salutary to read Martin Robinson’s argument last week that growing inequality should be, if not actually celebrated, at least endorsed and justified.  What was remarkable, though, was the paucity of the arguments he advanced to support his position.

It was noteworthy that he did not deny that the gap between rich and poor had widened substantially; nor did he contradict the OECD’s recently published finding that inequality had grown faster here than in most other countries.  And he did not explain why todays’s more unequal society is an improvement on the New Zealand which, at the same time as once enjoying one of the highest living standards in the world, was also one of the world’s most egalitarian societies.

He seemed unconcerned by the increasingly strong evidence - stressed by the OECD - that widening inequality is the hallmark of societies and economies that are functioning poorly; indeed, he seemed completely unaware of the excellent research produced by the authors of The Spirit Level showing that countries where inequality is most marked  - like the US and Britain - are also those which face the most intractable social and economic problems.

He took refuge instead in attacking positions that no one actually holds.  To deplore widening inequality is not the same thing as insisting that everyone should be paid the same, nor does it mean rewarding the idle and feckless at the expense of those who work hard. 

His main argument was that paying the All Blacks top salaries has made them the world-beating team they are.   But All Black excellence depends on many factors, most of which have little to do with salaries; they were world leaders long before they turned professional and even today are often paid less than they would be if they went overseas.  And, sadly, however much our business leaders are paid more than the rest of us, our economic performance stills fall a long way short of All Black standards.

Whole societies are, in any case, much more complex undertakings than a sports team, however eminent.   The ground on which Martin Robinson really seeks to stand has nothing to do with rugby.   Rather, it is the belief that if the market sanctions very large salaries, then those payments must be justified, since the market cannot be wrong.

It is precisely of course this touching faith in the infallibility of the market that produced our present difficulties.  It was the unregulated market that brought about the global financial crisis, that continues to pay huge bonuses to failed bankers, and that exposed thousands of investors to the loss of their savings through the failure of finance companies.

It is only very recently that the view that challenging the market is somehow immoral has gained credence.  Even Adam Smith took an explicitly contrary view.  What extreme free-market ideologues do not seem to grasp is that the unregulated market can become an instrument of oppression, since it is so easily manipulated by those who wield dominant power in the market-place.  And if the market cannot be challenged, then there is nothing to prevent that dominance from being repeatedly exploited to extend that advantage, to the disadvantage of everyone else.

All too often, the market’s apparent recognition of merit simply reflects the dominant position of those who walk away with the spoils.  The best-paid people set each other’s salaries; and they are adept at ensuring that, while the global economy demands that working people’s wages are driven down to third-world levels, it requires that top people are paid the huge salaries that are now the norm in the international market-place.

No one begrudges appropriate rewards for those whose efforts add to the general welfare.  But many big earners do not create new wealth; they merely manipulate existing assets.  Bankers, property speculators and even (dare one say?) foreign exchange dealers cream their fortunes off the top of assets that others have created, thereby siphoning off wealth for themselves that might otherwise have been more fairly distributed.

Growing inequality of course means that the wealthy lead quite separate lives, buying themselves out of life as the rest of us live it.  We gain little from them and they know even less of us.  While few now give credence to the “trickle-down” theory, the flipside of the market as moral arbiter - invariably rewarding the deserving  - is the belief that the poor have no one to blame but themselves.  Those who manipulate the market to their own advantage enjoy not only material rewards but a sense of moral superiority as well.

What the apologists for inequality do not grasp is that we are all, including the wealthy, made worse off, not only because we live in a more divided and less cohesive society, but also because – by diverting so much national wealth into so few pockets - we thereby undervalue and make poor use of the productive potential of the rest of us, so that we produce less as a country than we should.

Bryan Gould

7 January 2012

This article was published in the NZ Herald on 12 January.