Inequality, action and the changing role of government

Interesting if somewhat depressing piece by Greg Jericho on the ABC’s The Drum: Our long-term unemployment headache. In essence, the proportion of the Australian unemployed who have been out of work for more than twelve months has risen quite significantly. Further, those falling into this category who do get work are more likely to get insecure jobs.

The current response to this problem centres on three sets of actions: apply training to increase skills; free up the labour market to increase jobs; and apply coercion to try to force people into work. All three do have a place, although one might argue about the direction and weighting of their application in practice. However, of itself the combination does not appear to properly address the problem.

By its very nature, structural change involves immediate pain in the expectation of longer term gain. But what happens if that gain is not realised? What happens if the gain is localised in human and geographic terms? What happens if, as appears to be the case at present, the political and policy settings do not allow redistribution of the gains so that all benefit?

Recent data for Sydney, I did not record the link at the time, suggested that the new jobs created in recent years fell overwhelmingly in the inner city area. Few jobs were created in those areas where the majority of the people live. Further, the jobs that were created required very specific abilities and skill sets not possessed by the longer term unemployed nor, indeed, by the majority of the employed. 

I have been wondering about the best responses to this problem in a world where the role of Government is defined simply as reduction, getting out of the way.

As an related aside, interesting piece on the ABC by Peter Lewis and Jackie Woods from Essential Research on the way that polling is distorted by perceptions that then feed into policy and further perceptions. It seems that a majority believe that Australia is comparatively overtaxed by global standards, that Government is big by global standards, even when that is not the case.

I don’t have a clear answer as to what we do if we take Government out of the equation in addressing problems such as the apparent increase in long term structural unemployment or, indeed, the growth in islands of poverty. However, a starting point is to try to define the nature of the problem itself.

A recent Australian Reserve Bank research paper by Amy Beech, Rosetta Dollman, Richard Finlay and Gianni La Cava, The Distribution of Household Spending in Australia, concluded in part that measured by expenditure as compared to income, there had been little growth in inequality in Australia. This lead to some commentary attacking the idea that inequality in Australia had grown. This may well be true when measured by expenditure because of the present importance of transfer payments, but it remains true that inequality has grown, especially when one drops below the statistical averages.

That growing inequality is geographically based, concentrated in particular areas such as parts of Western Sydney or the Mid North Coast of NSW. It is also family based, with the emergence of intergenerational poverty that carries down generations in a way that this country has not seen before. It is also group based, with concentrations in particular ethnicities such as Australia’s Aboriginal peoples or certain more recent migrant groups.

Looking at the historical record, several things stand out.

The first is the decline in importance of locally based and controlled economic activity. In 1950, every newspaper or radio station in Northern New South Wales was locally or regionally controlled. TV too was initially locally owned. By 2000, local or even regional ownership had largely vanished. In 1950, all the main retail outlets in Northern NSW were locally or regionally owned. By 2000, they were all externally controlled. With these shifts in control went the managerial positions and the supporting infrastructure that had supported the businesses.

In 1950, Government services were locally delivered. They had to be. By 2000, local delivery had been replaced by centralised delivery in both public and private sectors. With that centralisation went jobs and decision making to the metros and, to a lesser degree, the bigger country centres.

I have often written about the economic and social effects of these changes. Here I want to focus on one thing, the second major thing that stands out from the historical record, the collapse of the middle class.

At a macro level, the rise of income inequality and the decline of the middle class has been of concern to (among others) the US Federal Reserve. My focus is more local and parochial. As the middle class jobs vanished from specific localities, so did the people who had contributed to local community activities. The editors, journalists, bank managers, store owners and managers, the doctors, the pharmacists, the technicians and the public officials who used to provide the community skills and grunt have vanished or at least  diminished.  

This links to a another social trend, a broader decline in volunteerism and community activism. Those still involved are older; as they age, the organisations that they once supported have diminished. 

Staying with the historical record, I spend a fair bit of time looking at local and regional histories. Here one thing that stands out is the importance of local dynamism in getting things done, in attracting local people and funds, in gaining Government support, in created developments that provide a base for future developments. With economic and social change, this has become harder and harder as local resources and power diminish, as the often state imposed barriers to action become greater. The activists have been emasculated.

This brings me to my first point, we can no longer afford universal standards, we can no longer afford a standards creep that makes action impossible. As I have commented before, as Government reduces its role, it increases its intervention in those areas that it can still control. It’s true. You can’t develop a block of land in a small country centre because state imposed rules make it impossibly expensive. What’s the point of consumer protection, or indeed trades standards, when its effect is to make it impossible to easily change a tap or, for that matter, get any medical help at all? 

We have to lower, to get rid of, our standards. What is better, having someone live in a shack or be homeless? What is better, to have a house repair that is inadequate or no repair at all?

My second point is that we have to get rid of our idea that we must prioritise on greatest need when the effect is to make a system unsustainable. Take social housing as an example. This was originally envisaged as a way of helping lower income earners into housing, of giving them a path into home ownership, of building social mobility.

As expenditure constraints kicked in, as the gap between need and demand increased, we focused on greatest need, on those with multiple complex needs. Social housing moved from a social tool to part of the welfare system. Rents went down, costs went up, and the social housing system moved into permanent deficit. That would be fine if the money was there to pay, but it wasn’t. Just shifting management to community housing because of the tax breaks in that sector doesn’t help a great deal; we just shift the problem.

Now we face some hard choices. Logically, we have to make the system sustainable, to allow it to achieve its longer term objectives. However that is hard, for it may mean leaving a really needy and deserving applicant homeless. Yet we really have no choice, for without change the existing system will crash in the absence of new Government funding. And it appears that we can’t afford that.

My last point is that since we can no longer rely on Government and its political games. we need to find a way to rebuild community activism as a substitute for Government action. In doing so, we have to redefine the role of Government. I will return to this in another post.