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Inequality – two excellent pieces

Written By: - Date published: 8:55 am, December 14th, 2014 - 65 comments
Categories: capitalism, class war, economy, poverty - Tags: , , , ,

Inequality has been very much in the news following the release of the OECD report. Friday saw the publication of two really excellent pieces that between them provide a comprehensive overview. Here’s Gordon Campbell on Scoop:

Gordon Campbell on income inequality…

…Yet on Wednesday, there was Finance Minister Bill English trying to tell RNZ that the OECD was (a) wrong (b) using old data and (c) somehow anti-growth and in any case (d) New Zealand allegedly already had a strongly re-distributive tax system, and the only way forward was to trust that National’s current economic policies would (somehow) eventually lift everyone’s boat, despite clear evidence in the OECD report to the contrary. According to English, it wasn’t that his current economic settings were making a bad situation (i.e. bad for society and bad for economic growth) even worse, but that we just needed to keep the faith and press ever onwards. It has, after all, only been 30 years since Roger Douglas first told us that free market economics would soon deliver unto us, a miracle.

On every one of those points above, English was demonstrably wrong. (Old data ? Given the OECD’s conservative estimate of a five year time lag in its ability to measure the feedback loop between economic policies and inequality outcomes, 2005 was actually the latest measurable period.) Rob Salmond has also once again, destroyed English’s repeated erroneous claims about who pays how much tax. And given that the wealthy got the biggest rewards from the 2010 tax cuts package, the income inequality/growth relationship will have only got worse since 2010. Not to mention that if 2005 really was such old news, why was English himself harking back to the early 1990s for proof that his policies would work? One thing was very clear: in a world where trickle down economics now has few people still worshipping in its pews, the Man From Dipton can still be counted as a true believer.

As For John Key …. who needs Cameron Slater, when you’ve got the mainstream media to recycle Beehive spin?…

That’s just the start – head on over to Scoop for much more. The second piece to read is Max Rashbrooke in The Guardian:

How New Zealand’s rich-poor divide killed its egalitarian paradise

…many New Zealanders, might have got a shock this week when the OECD published a landmark report, showing that economies the world over are being hamstrung by growing inequality – and that New Zealand was the worst affected. A stark rich-poor divide, the OECD argued, had taken over a third off the country’s economic growth rate in the last 20 years. But how could this be?

The simple answer is that in the two decades from 1985 onwards, New Zealand had the biggest increase in income gaps of any developed country. Incomes for the richest Kiwis doubled, while those of the poorest stagnated. Middle income earners didn’t do too well, either.

Because New Zealand had previously been so egalitarian, that world-beating increase still wasn’t enough to rocket the country right to the top of the inequality league table, but it is now doing just as badly on some measures as Britain. In both countries, the top fifth get about 40% of after-tax income; the bottom fifth get just 8%. New Zealand is now just as divided as the country that many of its citizens’ ancestors left in order to find a more equal society.

How has this happened? … Embracing reforms known elsewhere as Thatchernomics and Reaganomics with unprecedented enthusiasm, New Zealand halved its top tax rate, cut benefits by up to a quarter of their value, and dramatically reduced the bargaining power – and therefore the share of national income – of ordinary workers. …

Once again, go read the full piece in The Guardian.

Both articles make for depressing reading. But the only good we can take from these past mistakes is to learn from them.

65 comments on “Inequality – two excellent pieces ”

  1. Peter 1

    Do we know what % of GST is paid by the various income groups? eg How much GST is paid by those earning, say, $40000 pa and those earning $100,000

    • Paul 1.1

      Obviously a poorer family would pay a much larger % of their income.

      • Peter 1.1.1

        I understand the regressive impact of GST, but what about the actual total amounts for each income bracket? I ask this question because the Right will always claim that the lower income brackets pay little tax because of rebates from Family Support etc against their PAYE.

        Treasury expect about $30 billion of PAYE and about $18 billion of GST http://www.treasury.govt.nz/budget/2014/taxpayers/02.htm#_gst

        What I would like to know is what is the estimated contribution to GST from each income group. e.g. Do those earning $40000 or less pay 80% of GST or 1% of the $18 billion expected.

        • Paul

          Sounds like you are hunting for false data to suggest the rich pay too much tax.

          • Peter

            No I am trying to find out if the poor pay more than Bill English suggests.

            • Naturesong

              But you’ve lost the argument already. It’s a trick question.

              “Do the poor pay less tax that the rich”. or rather,
              “Do the poor pay their way in society” is the question being asked.

              As long as people are not paid for the actual value of their labour and skill the answer will always be yes, they pay less tax.

              • Peter

                ……. but I doubt that is the case with GST. My suspicion is that most of the $18 billion GST is paid by the many not the few.

        • RedLogix

          Yes the right always runs these dishonest arguments about how the portion of the total tax take varies across income groups. They amount to nothing more than a silly distraction from the fact that if you have more money, even with a perfectly flat tax rate you pay more tax.

          • Manuka AOR

            In light of that, consider where the money goes when either poorer or wealthier people find they have slightly more money at their disposal.

            The poorer person or family, if they have something over after paying rent, utilities and food, puts it straight back into their local community. They call their local plumber or other tradie to do needed repairs, their local mechanic for the car, they get tools and appliances from a local store, money for a school (or seniors) day out, they visit their local doc, dentist or vet.

            When the wealthiest people land an extra bit of cash, that money does not automatically go back into their community. They may lock it up in shares, or buy another property to rent out for profit. They may buy a trip overseas, or imported luxury goods. While they are on their overseas tour or business trip, how much GST are they paying then? The poorest pay GST 100% of the time. Even beggars on the street, and the homeless – Every dollar purchase they make has GST taken out. The wealthy only pay GST while they are in NZ.

            • RedLogix

              It’s well-known that giving money to ordinary people is always the best and quickest way to stimulate a tired economy. Whether the mechanism is via tax rebates, re-distributive benefits or plain cash grants is pretty irrelevant – but it does cast light upon a critical issue.

              Capitalists and ordinary people have a quite different view of money. Capitalists see money as an abstract tool that can be created or destroyed at will, but because working people actually work for their money – they tend to see it as something real.

              And because of this they are innately suspicious of anyone actually giving them money. Or are very susceptible to the kind of ‘funny money’ smear that Muldoon ran so successfully.

              • Manuka AOR

                Kevin Rudd tried that when he became (Labor) PM in Aus a few years ago. He gave $2,000 cash grants to just about everyone… except the most poor, the most desperate. Those who were on benefits received nothing. For some of those, $2,000 would have been life changing. Instead they had to hold onto their hungry kids and watch while many of those who did receive it joked online about what they would do with it – there were a lot of cruises and overseas trips. And scorn.. for the more wealthy, it was nothing to them and they resented the money going to the many. (And KRudd never could understand why he was so intensely hated by so many, across the board.)

                • RedLogix

                  Yes that’s a great illustration of the kinds of irrational, emotional problems that surround the whole question of what is money.

                  Yet you can see that if he had given it to those on benefits – Rudd would’ve been attacked for giving away money to those who contribute nothing and are already ‘parasites’ on the public purse.

                  He couldn’t win.

                  Incidentally this is also another good example of how a UBI could be very helpful. By normalising a universal income it would be extremely easy to stimulate the economy by increasing it – without running into all this nuttiness.

                  • Manuka AOR

                    “By normalising a universal income it would be extremely easy to stimulate the economy by increasing it – without running into all this nuttiness.”

                    Yes. Exactly right.

        • DH

          “What I would like to know is what is the estimated contribution to GST from each income group.”

          Peter. Treasury calculated how much extra people would pay in GST when GST went from 12.5 to 15%. You can use those figures to work out how much each income band pays in GST.

          Link here for that, the maths is pretty easy just multiply by six the extra 2.5% they’re quoting to get the full GST amount per person. You can then work out percentages to bring into later years.


          Some samples, I worked these out in 2011 I think so latest stats will differ but ratios will still be similar;

          10,000 – 20,000,… 704,000 people… $1,234 million tax paid… $1,111 million GST paid
          30,000 – 40,000,… 341,000 people… $1,756 million tax paid… $1,213 million GST paid
          70,000 – 80,000,… 138,000 people… $2,138 million tax paid… $900 million GST paid
          150,000+ …………… 75,000 people… $5,590 million tax paid… $1598 million GST paid

          Those earning less than $65k pay around 50% of the GST. It is a very different graph to income tax, which is probaby why Bill English plays deaf & dumb over it.

  2. RedLogix 2

    Looks like an interesting resource here:

    And this unusual paper got fair bit of attention about a month back. The original reference is here and it’s worth skimming through, even for the non-mathematically inclined.

    Collapses of even advanced civilizations have occurred many times in the past five thousand years, and they were frequently followed by centuries of population and cultural decline and economic regression. Although many different causes have been offered to explain individual collapses, it is still necessary to develop a more general explanation. In this paper we attempt to build a simple mathematical model to explore the essential dynamics of interaction between population and natural resources. It allows for the two features that seem to appear across societies that have collapsed: the stretching of resources due to strain placed on the ecological carrying capacity, and the division of society into Elites (rich) and Commoners (poor).

    In other words, starting from a remarkably simple model, the authors achieve some very interesting outcomes. In a nutshell this paper demonstrates a mathematical model which supports DtB’s frequent assertion that “we cannot afford the rich”.

    • aerobubble 2.1

      When cowardice meets greed. The wealthist fear being poor too much that they are too cowardly to change. What was trickle down but wealth telling itself the poor are on their own, the rich dont need them. This ignores the fact that we all create our economy. The rich have always needed the poor more, the very term requires it, the poor however are much better getting by, have no opportunity to buy their way out of trouble.

  3. The mathematical model generalises across different types of societies but it isolates a generalisation which is that if the surplus is appropriated by the elite (ruling class etc) to the exclusion of a fund sufficient to reproduce those who produce the surplus, and to reproduce the natural resources that are used in its production, then society collapses.

    In its capitalist form, modern society is approaching this collapse. There is no mystery about it. Too much wealth accumulated in the hands of nonproducers, and to little going to reproduce the producers and sustain nature’s bounty.

    This was already evident in the 19th century to people like Marx and in the 20th century one wing of capitalism advocated Keynesian solutions, of the state taxing profits to boost wages to create demand that then had to be supplied.

    This is the limit to distributional reforms within the frame work of capitalism, because it assumes that increased demand is necessarily matched by increased production. The fallacy here is that this (Say’s law) only works if those private owners of capital invest it in production. But they won’t do this unless they can make a profit from it.

    This shifts the argument away from redistribution solutions to stimulate capitalist production, to the question of ownership of capital. How to take the decision about investing in production out of the hands of the capital owner?

    Taxing (especially speculative) wealth is a problem because those with wealth have the power to avoid or evade taxation. Taxing everybody else by creating state debt to pay incentives to producers also doesnt work as the money is hoarded or speculated while taxes and charges imposes on producers rise worsening income inequality.

    Nationalising production is more effective because the majority of producers can have a say in what is produced for what needs without considerations of profit.

    But that assumes that the productive majority can command state power. Modern Marxists have debated this and concluded that private owners have the wealth and power to buy control of the state to take back state owned assets as private property. Instead of being part of social reproduction, these assets become starved of investment unless monopoly profits are made.

    There is really no way of solving the inherent growth of inequality under capitalist society, and the inevitable destruction of nature, without the productive majority taking power and socialising the wealth of the non-productive minority.

    The only question is how to do it?

    • RedLogix 3.1

      While that all makes excellent sense dave, the response from the right is point to capitalism’s remarkable record in producing economic growth and the elimination of base poverty. In the absence of any other proven model it’s unreasonable to ignore this success.

      Of course we also understand that unconstrained growth is the definition of a cancer. Exactly as unconstrained capitalism has resulted in a very sick world. Yet a functioning human body is always growing and replacing itself but is a balancing act between what is necessary for health and that which results in death.

      With that in mind I reject the idea that we can or should dismantle capitalism altogether. However it does leave open some useful questions. How to regulate it? How to know what the healthy regulatory setpoints are? And is the form of capitalism we currently have amenable to regulation, or is it fundamentally unstable?

      If we can answer some of these questions, then achieving the long desired stable and sustainable synergy between socialism and capitalism seems possible.

      • Olwyn 3.1.1

        How to regulate it? How to know what the healthy regulatory setpoints are? And is the form of capitalism we currently have amenable to regulation, or is it fundamentally unstable?

        I think that one big mistake in NZ has been the failure to lock in a basic standard of living as a human right. It is very hard to determine just where the marker for this would now lie, since new technology gets built into a way of life and rapidly becomes a need. However, even trying to establish such a thing may help to lever the public good back into consideration.

        The neo-liberal project involved a small, seemingly reasonable step with large unreasonable consequences. The justification for the small step went, the public good is contingent on making a profit, so profit must be privileged. The large consequence was that corporate profit then replaced the public good as the standard to meet. What we need now is a step in the other direction, and the entrenchment, or at least the serious acknowledgement, of substantive human rights (to secure housing, to earning a living, etc.) might be a good place to start.

        • RedLogix

          The justification for the small step went, the public good is contingent on making a profit, so profit must be privileged. The large consequence was that corporate profit then replaced the public good as the standard to meet.

          That’s a nice expression of the argument Olwyn. And with the privilege of profit also came the power of money to distort of democratic accountability and permanently entrench that privilege. We’ve become locked into that state and unable to make the step back in the other direction.

          Right now I feel like we’re holding onto a collection of ideas that are all part of the solution – but I’m struggling to see how to put them together coherently.

          Now I’m towing my car
          there’s a hole in the roof
          my possessions are causing me suspicion but there’s no proof
          in the paper today
          tales of war and of waste
          but you turn right over to the T.V. page

          Don’t Dream – it’s Over.

          • Olwyn

            Thanks RedLogix: I think we will have to find a solution or the need will be forced upon us, one way or another. So much can go wrong for everyone in a divided society with a hollowed out real economy – the reckless, hare-brained saviour, the puppet leader from central casting who comes to think he/she’s the real thing and acts accordingly, large natural disasters without the resources or skills for recovery, etc, etc, etc.

        • Manuka AOR

          @Olwyn: “the serious acknowledgement, of substantive human rights (to secure housing, to earning a living, etc.) might be a good place to start.”

          Absolutely. Basic housing in some form, that is warm and dry, – an end to homelessness! With power supply for the essentials. Food – A nation that supplies primary produce to the world, cannot adequately feed its own citizens, its own children? Access to basic health and dental care. Work and training available, a basic living wage, and additional support for the most vulnerable (NOT forcing single mothers out to work a short time after their baby is born! Or the mentally ill onto the streets!)

          We must end homelessness in NZ! Soon!

          • Olwyn

            Yes. So long as the bar is set at an achievable level, you would get the beginnings of a standard to be met in policy making, and a measure, though not the only measure, for distinguishing between good and bad investment.

      • dave brown 3.1.2

        Red the question is how do you take control of capitalism while the capitalists are still in control? Capitalism no longer serves to benefit the masses through growth because it is accumulating wealth rather than investing it in production.
        The costs of growth are now so negative as to cause civilisation and climate collapse.

        I went through some of the usual answers put up to shift control from capital to labour; tax them, nationalise their property, etc Olwyn adds another, entrench a decent living standard. And so on. But all of this assumes that those with the power and wealth will be amenable to change that reduces this power and wealth.

        There are two ways that capitalists will concede power. The first is when it directly serves the interests of capital. The 1st Labour Govt was only able to create a welfare state for workers because the domestic manufacturers operated at low efficiency and there was a demand for labour. So full employment was the hallmark of 1st LP social policy only because it returned a profit to protected manufacturers. Labour reversed that in 1984 when the bosses said sorry we are leaving unless you deregulate. Capital flight was the power they had over us then.

        Today the power of capital is even more entrenched. We are grasping at crumbs.
        The OECD paper on inequality reduces to taxing inefficient capital to make it more efficient by raising education to increase productivity. It is opposed to direct transfers that don’t translate into increased labour productivity.

        But who decides how that increased labour productivity is shared?
        During the days of the 4th Labour Govt and the 90s Nats the CTU bargained away most of labour’s share in increased productivity leaving us with falling real wages, job loss, rising costs, falling benefits etc. Even under the Clark government, organised labour had to trade off closed plants and real wage stagnation for jobs.

        The balance of power between employers and employees is now being further shifted away from workers. This NACT regime will either ignore the OECD report or say they are doing it anyway – targeting low educational achievement and incentivising work to raise productivity.

        So the first option of power sharing with capital only works when its in capital’s interests, and these are antithetical to ours. You want to know how to come back from that position of subordination to capital? That takes us to the second option to make capital concede power. We have to realise that capital is nothing but the expropriation of labour value, and that if labour is to survive it has to take control over the value it produces. We can do it in stages, and it will certainly take time, but its best to have a clear idea of what is needed and how to get there, and the sooner the better.

        • RedLogix

          power sharing with capital only works when its in capital’s interests, and these are antithetical to ours

          And therein lies the core of the discussion.

          Imagine for instance a world (albeit through vividly pink lenses) in which there were minimal taxes, but instead the wealthy as a matter of normal civilised behaviour exerted themselves to spend their surplus as energetically and effectively as possible to directly improve the communities they were a part of. At that point the antiethical interests would largely dissolve.

          Of course everyone is entitled to scoff at such naivety. But at the same time everyone instinctively realises this is not an impossibility either. This I think speaks what we believe drives human nature. Are we irremediably acquisitive and greedy? Do we always need to hoard nuts like squirrels?

          A while back our resident intellectual Puddleglum wrote (of all places in his well read article Boaster Roasters) about the idea of two fundamental modes of human behaviour; agonic and hedonic. It’s a powerful idea first expressed by ethnologist Michael Chance, that humans compete either through coercion and violence, or by cooperation and pleasure. Clearly in the economic and political domain our present society is deeply locked into the agonic mode.

          Yet our suppressed potential for the hedonic mode keeps seeping through into our consciousness. Life is just plain more fun in the hedonic mode – and we know it. Probably humans are so very successful in a biological sense because we can access both modes and thereby adapt our behaviour to different contexts and threats.

          Or to put this another way – imagine you were suddenly one of the uber-wealthy 0.1%. Personally my imagination runs riot at imagining all the myriad ways I could use that wealth to try and leave the world a better place. In one sense this could be written off as a shocking conceit, but in world where the accepted goal of life was to be of service to others maybe it would not be such a remarkable thing. Maybe if instead we stopped trying to control everything about our lives and those around us – this would be possible.

          I realise this is not the kind of answer you will find satisfying right now. But it’s about the best I can manage for the moment.

          • Draco T Bastard

            Or to put this another way – imagine you were suddenly one of the uber-wealthy 0.1%. Personally my imagination runs riot at imagining all the myriad ways I could use that wealth to try and leave the world a better place.

            Been there, done that. Then I asked myself what would happen if everyone had access to those sorts of resources. Then I realised the physical impossibility of it. So I thought about it a bit more.

            What if, instead of giving all our wealth to a few people we made it available to general or specific areas that society wanted people to work in. People could then decide which area and group that they wanted to work in.

            Thing is, when I say wealth I’m not talking about money here but our actual physical resources. The products of such a system would be shared equally. Under this there’d be no poverty, no unemployment and there’d be a massive drive for more and better automation. We’d also all be able to see where our precious resources are being used up wastefully, ie, going to the bloody supermarket.

            • RedLogix

              Then I asked myself what would happen if everyone had access to those sorts of resources.

              But that does rather ignore the fact that people are not all the same. We have innately different abilities, interests and drives that means there will always be a difference between access and outcome.

              Besides – a re-balancing towards the hedonic mode implies an obligation on everyone, regardless of access to resource, to cooperate and be of service to others. Not just the rich.

              It’s very hard to visualise because for 10,000 years we have been dominated by the agonic, hierarchical, violent and wasteful mindset. In that mode only relatively few people have the power to make the important decisions, and because they cannot be all-knowing, all-informed – they naturally tend to make rather inefficient choices.

              The idea of the market is a very seductive solution to that problem. The idea that markets can solve all problems as an aggregation of the choices of many rational self-interested producers and buyers. Yet as Steven Keen has pointed out, while superficially attractive, the idea fails at it’s core because the notion of aggregation working like that is completely wrong.

              Nor is it realistic to suggest humans will ever adopt a totally selfless ethic, acting as a hive-mind with no thought for personal identity or needs. That is an intellectual dead-end as well.

              The model we are looking for will depend on our healthy individual differences and interests – to drive towards a common good. This is not strange idea at all. Look at any successful sports team, or business, or any worthwhile collective human endeavour – it is a balance of personal and collective interests, indeed a merging of them, which is evident in their ethos and actions.

              Going back to the paper I referenced above. In it the rich are modelled as a prey species on the commoners. I’m arguing that there will always be human differences that mean some people will have better access to wealth – but this is not the problem. The root of the problem is stopping the rich from predating on the poor. Change that factor and a way forward appears.

              • Draco T Bastard

                But that does rather ignore the fact that people are not all the same. We have innately different abilities, interests and drives that means there will always be a difference between access and outcome.

                Did you read past the first bit to the bit where I said: People could then decide which area and group that they wanted to work in. Which would cater to people having different innate abilities and interests.

                The idea of the market is a very seductive solution to that problem.

                I’m not interested in the market. As you point out, it simply doesn’t work. I’m more of the idea that people should have access to the information about what resources are available, then choose what they actually want from those resources and then choose how they will work to get desires met:

                Democratic Social Economy Part 1

                Social Democratic Economy: Part 2

                Nor is it realistic to suggest humans will every adopt a totally selfless ethic, acting with no thought for personal identity or needs.

                Don’t need them to but we do need to change the system from one which rewards selfishness alone to one that will reward working for the common good and minimises rewards to selfishness.

                • RedLogix

                  I participate in these discussions because it the extremes of wealth and poverty that I believe are the problem. I’m not of a mind to suggest that all differences can, or even should be eliminated. Nor are you I would think.

                  But I guess part of what animates this discussion is that whereas I suspect you are looking for a root and branch re-write of our current systems – I’m looking for a line of reasoning which can be used to evolve what we presently have. For that reason I tend to look for small interventions that have potentially large results.

                  People could then decide which area and group that they wanted to work in. Which would cater to people having different innate abilities and interests.

                  At that point I went a bit fuzzy. It seems to me that unless people participate in those discussions in good faith and an honest ethic – we are not likely to be much further ahead are we?

                  There is a great deal we agree on. If I don’t specifically respond to a point it’s usually because I can see the sense of it.

                  • Draco T Bastard

                    It seems to me that unless people participate in those discussions in good faith and an honest ethic – we are not likely to be much further ahead are we?

                    I feel that you can’t effectively lie in a group where everyone participates in the decision making process. If you do, you’ll just get kicked out of the group. This would result in you having less but still not dropping into poverty.

                    In fact I tend to think that the rise of individualism goes hand in glove with the rise of corruption that we’ve been seeing.

              • Murray Rawshark

                If the elite aren’t predating on the workers, we don’t have capitalism any more. You seem to be operating on a premise that we can keep capitalism but just be nice to each other. I don’t think that’s possible.

      • Draco T Bastard 3.1.3

        While that all makes excellent sense dave, the response from the right is point to capitalism’s remarkable record in producing economic growth and the elimination of base poverty.

        Except that poverty has always increased under capitalism. We see that even over the last thirty years in NZ. It was only socialism that managed to force capitalism to lower poverty but it was still capitalism with it’s need for infinite growth.

        However it does leave open some useful questions.

        Actually, the main question is: How much of the economy should be left to capitalism? IMO, it should be no more than 20 to 30 percent and have nothing to do with major investment or the distribution of essentials such as food.

        How to know what the healthy regulatory setpoints are?

        Science and research. Find out what resources we have at a sustainable level of use and then work the economy to fit within those levels.

        And is the form of capitalism we currently have amenable to regulation, or is it fundamentally unstable?

        The present form of capitalism is totally destructive. A lot of that destruction is caused by our politicians trying to force too much of the economy into capitalist modes that it is unsuitable for such as selling power generation and charter schools.

        • RedLogix

          Except that poverty has always increased under capitalism.

          But that is not true on a global scope. Otherwise I agree.

          • Draco T Bastard

            Yes it is and throughout history. We only see poverty when a few people start to claim ownership of the commons.

            • RedLogix

              Fair enough – nice answer.

              Yet in the context of 7 billion people I’m not 100% sure that the commons would survive much. Your response will be that 7b people is past the carrying capacity of the planet – and this is certainly true at a pre-industrial, pre-agricultural level of technology.

              Yet here we are – and I think we either try and make an argument to deal constructively with what is real in the world now, or we argue for the morally disastrous notion of mass die-off.

              • Draco T Bastard

                Administration of the commons was, IMO, what led to some claiming ownership. Modern technology can allow that administration back out to the many and thus eliminates the power of the few.

                • Macro

                  Blame it on John Locke’s “Second treatise on Government” 1690. It’s the founding statement and justification of the right to private property and the protection of that property by public law and force. Capitalism could only take hold after the deliberations of Locke concerning the commons and has presupposed his position as canonical. It was theft, pure and simple, and Locke’s original argument is fundamentally flawed*. Capitalism is based upon a philosophy that is, unethical and which has in been shown to be logically inconsistent. But there you go – economist the world over are not known for their grip of reality or ethics or much else for that matter.

                  * the analysis is long and involved – I started on it – but really it would take too long here

      • On a global level poverty, including what I think you mean by ‘base poverty’, remains massive. And when capitalism is dynamic in one part of the globe – say, parts of Asia – it stagnates elsewhere (e.g. Latin America, Africa).

        In India, there has been substantial growth if you measure it by GDP. But hundreds and hundreds of millions of rural dwellers have been completely left behind; a chunk of the dual population are probably worse off now than before the ‘Indian Tiger’.

        It seems that capitalism both develops and under-develops the world simultaneously: https://rdln.wordpress.com/2013/11/01/how-capitalism-under-develops-the-world-2/

        In terms of regulating capitalism, this isn’t really on the agenda beyond some protections for capital. There’s no mass radical movement demanding it and if a mass radical working class movement did emerge why limit it to trying to make capitalism nicer?

        Here’s a few interesting pieces on capitalism and regulation:
        The state and the crisis – capitalism can’t be regulated: http://rdln.wordpress.com/2013/12/31/the-state-and-the-crisis-capitalism-cant-be-regulated/
        A great video on crisis theory & the world economy: https://rdln.wordpress.com/2014/08/18/marxism-2014-michael-roberts-on-world-economy-plus-discussion-session/
        And a great short video on world poverty: https://rdln.wordpress.com/2013/11/14/global-wealth-inequality/
        Latest global wealth stats: https://rdln.wordpress.com/2014/10/16/latest-global-wealth-statistics/

        And a review of Arundhati Roy’s Capitalism: a ghost story: https://rdln.wordpress.com/2014/10/27/capitalism-a-ghost-story-by-arundhati-roy/


        • RedLogix

          A great set of links. Yes I realise that the effects of capitalism probably should not be summarised in one sentence – but I still think it is fair to say that it has been for better or worse, the catalyst behind a massive total increase in human welfare over the past 400 years or so. At least in a materialistic sense.

          I don’t think that’s a controversial or problematic statement.

          • Draco T Bastard

            I think it is. A reading of The Entrepreneurial State shows that the massive innovation that came out of the US after WWII was state backed. The capitalists came in afterwards and took the credit and the profits. Even the US Republicans, despite their rhetoric, have failed to cut that government spending in R&D.

            And what about the innovation from the Middle Ages? Was that capitalist or state?

            I think that people would be innovative even without capitalism because people are always looking to do things a better way. The capitalists take advantage of this by claiming ownership through the power of administration but without having to do the innovation or the work themselves.

            • RedLogix

              The capitalists came in afterwards and took the credit and the profits.

              This is perhaps a good example of the synergy between a healthy state and private sector.

              Nor has anyone claimed that capitalism is the sole source of innovation. That is definitely not what I am thinking of. On the other hand it does appear remarkably good at turning innovation into desired products and services on a mass-scale. Something no other model seems to have been at all good at.

              I deliberately used the word catalyst above. A catalyst is something which accelerates an existing process, but is not essential. Capitalism exploits and amplifies the profit motive by allowing money to become the proxy for ownership. Humans have always sought profit in their transactions, however primitive. For instance a sea-captain would look to sail various goods from place to place, with an eye to making a gain on each leg of the journey. But that one captain was constrained by the time and opportunity afforded by that one ship he could command.

              Capitalism simply harnessed that motive by leveraging the power of money for one person to own multiple ships relatively easily. In earlier ages only the politically powerful or aristocracy could afford to do this by the virtue of their rank alone to enforce their will. The advent of banking changed all this. Potentially anyone with sufficient credit could enforce their ownership rights by rule of law. This convergence enabled an explosion of ownership and opportunities to exploit innovation commercially.

              I do not think it reasonable to argue for the extinction of the profit motive. While it is not a sufficient condition (people are also motivated by other considerations) – it is usually a necessary one. No person or nation can afford in the long run to continue doing something which degrades or diminishes their capacity. Eventually you reach personal, social or environmental bankruptcy. It’s just a question of timing.

              Capitalism is a relatively recent human innovation. It’s early phases have concentrated mostly on personal profit maximisation at the complete expense of social and environmental costs. We are starting to realise that this is a very narrow and ultimately dumb idea.

              Capitalism itself has evolved through numerous forms already, and has proven pretty adaptable. It’s not unreasonable to think it cannot be evolved once more to maximise a much wider range of profit considerations – considerations which properly take into account fundamental human dignity and the sustainability of all life on this planet.

          • Draco T Bastard

            This link was posted by some one else but it has this rather informative paragraph in it:

            When the Nazis took power in 1933, they quickly turned public banks and other state enterprises into private enterprises no longer owned or operated by state officials. Their actions aimed to solidify support among major German capitalists. Nazis called this “reprivatization” to reinforce the idea (factually incorrect) that state enterprises had always originally been private. Actually, governments were crucially involved in the births of many enterprises in all capitalist countries.

            • KJT

              “When ACT(Labour) took power in 1984 they quickly turned………………”.

              “Actually, governments were crucially involved in the births of ALL enterprises in ALL countries.”

              Unless you think any business can survive without a functioning State, the rule of law, and supporting infrastructure.

              Even, Somali pirates, an ultimate example of unbridled capitalism, depend on the products/wealth of more effective States.

        • Philip Ferguson

          Oops, that should have been *rural* not dual!!!


  4. This is what National stands for:
    “Incomes for the richest Kiwis doubled, ”

    Collateral damage, to be swept under the rug:
    “while those of the poorest stagnated”

  5. idbkiwi 5

    I’m not sure I understand; the OECD stats show NZ’s inequality index falling steadily from 2000 till the present, under both Labour and National. This would suggest reasonable stewardship under both governments.

    Shouldn’t they both be getting credit?


    • Draco T Bastard 5.1

      They both get credit for running a highly unequal society that benefits only the rich.

    • Clearly you don’t understand. Gini figures from your link:

      1985 . . . 0.271 (act/douglas) lange warned us that we would suffer.
      1990 . . . 0.318 (act/douglas) rogernomics in progress
      1995 . . . 0.335 (national/richardson) ruthanasia
      2000 . . . 0.339 (more national)
      2003 . . . 0.335 (labour/cullen)
      2008 . . . 0.330 (labour/cullen) clearly they didn’t do enough …
      2009 . . . 0.324 (national/english)
      2011 . . . 0.323 (national/english)

      Why it is impossible to get rid of neoliberal wankers trickling their economic lies on us?

      • RedLogix 5.2.1

        Thanks – I looked at the same reference myself and couldn’t work out idbkiwi was smoking.

      • idbkiwi 5.2.2

        Crikey, that’s not very nice, but thank you for replying to the post and checking the link.

        My post says: “OECD stats show NZ’s inequality index falling steadily from 2000 till the present, under both Labour and National”

        Your stats show exactly the same:

        “2000 . . . 0.339 (more national)
        2003 . . . 0.335 (labour/cullen)
        2008 . . . 0.330 (labour/cullen) clearly they didn’t do enough …
        2009 . . . 0.324 (national/english)
        2011 . . . 0.323 (national/english)”

        As you can see from your own figures the Gini co-efficient is steadily falling (providing you can read).

        In what way does that liken me to “neoliberal wankers trickling their economic lies”?

        • RedLogix

          Well because it’s scarcely a ‘steady fall’ in that time. GINI is a fairly noisy parameter which if you look at say the wiki entry for it has graphs bouncing around all over the place. The tiny changes you are looking at are scarcely of significance.


          What might be a better question is, how come after nearly 15 years of awareness of this issue – no govt has been willing to do anything meaningful about it?

        • idbkiwi, I wasn’t referring to you as such, but a succession of finance ministers who have allowed inequality to become entrenched. Here’s an old article from the Listener which explores the problem in depth — more than this blog post does.

  6. Draco T Bastard 6

    But the only good we can take from these past mistakes is to learn from them.

    That’s what we’re supposed to do. Unfortunately, neither of our two main political parties seem willing to learn and our third main political party seems set to go down the same path.

  7. barry 7

    In 1984 NZ elected a Labour-Act coalition that started on the neoliberal track. In 1987 Australia re-elected a Labor party that firmly rejected NZ’s economic strategy. At the time NZ economic commentators thought that this would somehow be good for NZ as Australia would go downhill compared to us. I am not sure why 🙂

    At the time, my take was it was a chance to see which strategy was best. It seems that the experiment has a result. in 1984 NZ and Oz had approximately the same GDP per capita. Now (after 30 years of divergence) there is a huge difference, and not the way the Rogernomes would have predicted. Since 1984 Australia GDP has tracked along at about the same as the OECD average, while NZ’s has continued to drop relative to OECD.

    Why were we the only ones in step? Why was it turning out so badly if we were doing it right? How can English still believe?

    Australia has thrown out the goverenment that handled the GFC best out of all countries and replaced them with one that is worse than our National government. I expect over time that we will slowly catch up as they use our failed strategy.

  8. GST (like other ‘indirect’ tax) plays a particularly pernicious role because it is a tax on workers’ after-tax pay – i.e. on the money equivalent of the value of their labour-power. Why capitalists often prefer this to direct tax (PAYE), see:


  9. Good pieces by Gordon C and Max R.

    Max is doing a lot of good work, but I do find it odd that, here in the 21st century, he is hesitant to use the ‘c’ word – i.e. capitalism.

    See: http://rdln.wordpress.com/2014/12/11/inequality-in-new-zealand-report-on-a-meeting/

    We need to name the problem. And the problem is not just this or that set of policies which could be replaced by some other set. Capitalism can’t be egalitarian; structurally, it’s simply impossible.


  10. Michael 11

    I note the dramatic increase in inequality in the final years of the fourth Labour government, together with a very gentle decrease in the middle years of the fifth, accompanied by increases in both its early and final years. Labour’s principal achievement in those terms of office was more or less permanent political alienation of its historic base. The question for it now is whether it continues to disregard that base, or treat it with contempt, or whether it genuinely tries to regain its trust and support by developing policies that are in the interests of the 90 percenters, instead of the ten percenters it favoured after 1984.

  11. SHG 12

    If you actually read the OECD report, which no-one does, you see that among its conclusions are things like:

    Spending on education has no effect on economic growth

    Investment has no effect on economic growth

    Inequality between the average income and super-high incomes has no effect on economic growth; growth is most influenced by the difference between slightly-below-average incomes and average incomes.

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