Monday, March 31, 2014

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.   


Winton Bates said...

You seem to be saying that the basic safety net problem has become too hard for governments to cope with.

I find that hard to accept - despite the fact that I am in favour of smaller government.

It must be a matter of priorities. Government spending is still rising as a percentage of GDP.

Jim Belshaw said...

Winton, I don't think that its true that Government spending is "still rising" as a percentage of GDP. Further, that also implies that current levels are at a historical high. I don't think that's true.

I tried to quickly find some stats, but didn't have time, so I am open to correction.

So far as the current safety net is concerned with its complexities and inequities, it has (to my mind) become to hard for Government to cope with. For example, both the social welfare lobby and big business accept that the dole had become just too low. However, to fix that involves considerable expense. It won't happen.

I am happy to debate priorities, but we are talking about cuts, not priorities. Priorities are really a second order issue. The critical question is what is easiest to cut to allow, for example, Mr Abbott's paid parental leave.

In this post, I am trying to cause a shift in thinking. If we accept a lower role for Government, if Government has no money, then it follows that Government has only a limited role. If Government doesn't have a role, then what are our options in addressing the type of structural issues that I am talking about?

Anonymous said...

Jim, I remember when you expressed surprise that an hourly rate of approx. $15 was 'middle class' in the US.

The top 10 employers in the US are:

1. Walmart
2. Yumi - (KFC, Taco Bell etc.)
3. McDonalds
4. IBM - hooray!
5. UPS - i.e. the post office
6. Target - our "tarjhay" if you wish
7. Kroger - another grocery chain
8. Home Depot
9. Hewlett-Packard
10. General Electric

Now, what does that say about our likely future?

Note to readers: if you supply the lawnmower, I will keep the grounds neat and tidy for you, for $15 an hour, and also pretend we have solved our employment 'issues'.


Jim Belshaw said...

Oh dear, kvd, and just when I wanted to come out of the water!

Winton Bates said...

My main point is that something must be wrong with priorities if "cuts" mean "leaving a really needy and deserving applicant homeless".

I will support you if you want to argue for lower priority for parental support and NDIS, and more stringent means tests on aged pensions in order to provide more shelter for the homeless.

Evan said...

Did somebody say, "Raise taxes"?

Perhaps on extremely wealthy companies?

I think the cause of the problem was Howard using the proceeds of the boom to buy re-election.

There are problems with prioritising the most needy and not bothering about the middle - or at least the way this is done (so you end up with ghettoes of incredibly need instead of people being dispersed in areas where they may be able to access some support).

Housing: the market is the problem. (The market being defined by legislation like negative gearing.) The only viable solution I can see is those dying childless leaving their home to a trust that rents the stock long-term for the cost of maintenance plus a margin to buy more stock. This establishes housing 'outside the market'. This proposal is far from perfect; but it is the only viable solution I know of.

Jim Belshaw said...

Winton, according to the Productivity Commission the NDIS offers net economic benefits. That makes me reluctant to cut that without evidence as to the effects of any cuts. I would argue for lower parental support and, maybe, for more stringent means testing on pensions. However, you wont make longer term housing for the homeless stick without other changes. The life expectancy for any Government program now is very short. There is little point in adding to housing stocks if you cant then afford the current operating subsidies.

Anonymous said...

Hi Jim

Community activism is very much alive and well in my neck of the woods. My valley has a population of about 700, and supports (quite enthusiastically) over 30 community groups. I make no comment upon their effectiveness, or even need - but I believe their enthusiasm is to be commended.

So it must be a "city thing" this cynicism; this lack of community participation? I certainly don't see it round me. Mind you, I do keep myself to myself very much - for fear of having to pick up wombat poop every second Tuesday, or some such.

Evan, this use of other peoples' money to resolve social problems. That seems a constant theme in your comments. Do you honestly believe that is fair? Bless that I have little!


Jim Belshaw said...

On your second para, I agree, Evan. I have problems with you last para, however.

At one level it's a question of priorities in combination with the acceptable level of Government spend. At a second level, its a matter of hard choices.

If you took some of the costs out of building new homes, that would help. My problem with the abolition of negative gearing is that it would damage the fairly fragile rental market. You could grow the stock of social housing if you relaxed some of the controls, allowed providers to admit higher income tenanst, charge higher to market rents in some cases, technically this happens now, and then use the greater revenue streams to cross-subsidise.

Jim Belshaw said...

before I comment, kvd. What's the demographic composition of the Kangaroo valley group?

Anonymous said...

Jim, that is a very fair question - which I cannot accurately answer. But I did take the trouble to ring a lass who used to work for me who is heavily involved in valley affairs.

She tells me the preschool has a floating attendance of about 20, and the primary school has almost 100 students. Don't know what you can extrapolate from that, but it at least puts the lie to my erstwhile view of the valley as a repository of discontented activists looking for a small enough puddle :)


Anonymous said...

To be completely clear, when I say 30 groups, I am only talking about those groups who hold regular meetings, and pass resolutions, and lobby council and whatnot.

This does not include for instance the group of about 10 retirees who regularly mow the verge beside 2 km of concrete footpath (which itself was half community funded, and all laid down by voluntary labour) or the other group who wander up and down the byways of the valley, picking up roadside litter.

They are the invisible ones who just get it done - without meetings and resolutions, and Presidents and the like.


Jim Belshaw said...

Hi kvd. If I'm right in my perspective of the Valley, it has a number of younger new settlers. They often form the core of new activist groups in areas such as education.

Is not always the young. My impression is that Bellingen's reputation as a cultural centre has attracted retirees who have then melded with locals to fight for services and to support the activities that attracted them in the first place.

The places that are in greatest trouble are smaller centres with declining populations where the load is carried by a diminishing number of people.

In bigger centres such as Tamworth or Dubbo, the proportion of activists has declined as it has in the metros, but there are enough to push things forward.

Within the broad pattern of a decline in volunteering, there are great differences between centres. These different cultures and the way they affect community and development activity provide insights into what might be done to encourage economic and community development.