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Book review by Adam J. Ring
What is the role of wealth in New Zealand society?
A recent contribution to this urgent and wide-reaching dialogue has come in the form of writer and researcher Max Rashbrooke’s newest book, Wealth and New Zealand.
Released by Bridget Williams Books as part of the ‘short books on big subjects’ BWB Texts series, it continues along the same line as Rashbrooke’s previous works on inequality, though with a drastically different focus – that of wealth.
That a book on this topic hasn’t been done like this before in New Zealand, partly reflects a lack of easily available data, as well as a deficit of understanding regards ways to interpret this data in a meaningful way.
Using data sourced from a variety of surveys, including the 2004 round of the Survey of Family, Income and Employment, known as SoFIE, the 2001 Household Savings Survey, and the National Business Review’s annual Rich List survey, Rashbrooke uses the recent insights and statistical predictions on wealth inequality, from writers such as Thomas Pikkety, to draw a picture of what wealth is, how it effects our society and what part it plays in inequality.
Wealth and New Zealand has a simple and urgent message, that “we can only really understand poverty by understanding affluence”. As he points out, the distinction between wealth and income is not currently well understood or sufficiently analysed. To highlight best what he is mapping and making sense of, let us make use of an analogy from the introduction to the book.
“Imagine a river that, running faster or slower as the season dictates, flows into and fills up a reservoir. While the river is a metaphor of income – a flow that changes from week to week and year to year – the reservoir is wealth: the stock, the store, the accumulation of all those years of flowing water”. It’s a powerful image and one which vividly illustrates what Rashbrooke is trying to illuminate and amplify.
While poverty has largely been the focus when discussing and investigating inequality, as Rashbrooke points out, poverty is only one side of the coin. Very much its equivalent is the flipside – the largely untapped issue of ‘wealth accumulation’. Who has it, where it comes from and how it effects our society are important factors in the overall inequality debate.
In the last few years there have been a handful of arresting and socially redefining books on inequality, wealth and the surrounding issues. The Spirit Level by social epidemiologists Richard Wilkinson and Kate Pickett, used a range of data to show how destructive inequality is to the whole society that contains it, not just those most directly affected. Using a variety of wide-ranging and decade-spanning evidence and data, they definitively and logically showed the destructive and socially differentiating effects that inequality has upon public health and wellbeing.
And as mentioned, and heavily utilised, by Rashbrooke in Wealth and New Zealand, Thomas Piketty’s comprehensive book from 2014, Capital in the Twenty-First Century has furthered the dialogue around inequality perhaps more than any other book in the last 30 years.
While Rashbrooke’s book certainly owes a fair amount to Piketty’s, more importantly, Wealth and New Zealand helps to translate the core ideas of Piketty’s findings on wealth into a New Zealand context.
Defining what wealth is – what it looks like when viewed through the relevant data – is not without some difficulties of definition. As an initial benchmark guide, Rashbrooke navigates this by using the easily understood concept of ‘net wealth’. If someone owns a house worth $500,000 and a mortgage of $300,000 – with no other assets or debts – then they have a ‘net wealth’ of $200,000. Seen through this definition, wealth starts to make more sense on a practical and measurable level.
As Piketty’s research showed, private wealth – as opposed to public wealth (government assets) – makes up most of the wealth everywhere. This is an important distinction for it helps us put into proportion what we talk about when we say ‘wealth’ and, subsequently, ‘inequality’.
One of the most important factors at play, and of special interest to those providing care and support to the vulnerable, is how the act of owning wealth greatly affects the wellbeing and social mobility of the individuals who have it. Rashbrooke draws from recent studies that show how owning even modest wealth has ‘a range of positive welfare outcomes’ not achieved by those without wealth. While the idea that owning wealth not only creates more income but increases an individual’s participation in the wider community is perhaps not a new thought for those on the front lines, it is, all the same, an important observation.
There will no doubt be some – especially among community help and support agencies – who already know of the degree to which owned wealth – and inherited wealth – can effect an individual’s opportunities. Up till this point, the public dialogue around inequality has largely centred on the direct effects of poverty, low income and financial hardship. What Rashbrooke so well illustrates, with legitimate data, is how much excess wealth accumulation entrenches and increases inequality, thus perpetuating poverty for those at the bottom of the equation.
That we still fail to see how holistically and symbiotically connected we all are is perhaps the biggest problem of all. In order for the few of our society to have so much, the majority must have less. It is the logical realisation. In essence, this is the problem we now must face and deal with head on if we are to make meaningful advances in our communities.
In his book, Rashbrooke ties in a variety of important issues and gives them meaningful context. That those with more wealth will generally live in the same areas, and send their children to the same schools, is one of the surface symptoms of how wealth entrenches inequality. Opportunities are magnified or minimized accordingly, with an obvious advantage to those who have been raised among affluence.
More widely covered previously is how tax rates, and their legal avoidance, are disproportionately weighted in the favour of those with not only higher incomes but more accumulated wealth. There is a parallel too with the growing gap between the income of those at the top and bottom. Factors like how the eroding and deregulation of the labour market helped to lower wages but increase stockholder profits, have greatly contributed to deepening the entrenchment of opportunity or its opposite lack.
Rashbrooke also covers some of the shortcuts and tax loopholes enjoyed by those with wealth and the means to access the services of proportionally expensive accountants and lawyers. The use of family trusts are a common form of tax avoidance, something which Rashbrooke and Piketty suggest should be revisited and adjusted.
An idea that can’t be overstated, and is well covered by Rashbrokke is that ‘inequality is not the problem of the poor’ but the problem for all of us. One of the most common arguments in defense of excessive wealth accumulation is an idea that is at the very heart of our capitalist economies – that those with vast wealth deserve to be wealthy, because they have used innovation or hard work to attain it.
As a continuation on the pioneering work from previous studies (like ‘Capital’ and ‘Spirit Level’), Rashbrooke shows that the data just doesn’t support this idea. Where we need to get to as a society in order to defeat or minimize inequality, is towards a more holistic and collective idea of what wealth is and how it should be distributed. Rashbrooke, taking Piketty’s lead, has given some logical and simple suggestions that could indeed reverse the current trend of inequality – that is, if we, as a country and a community, choose to listen.
It is well documented that in New Zealand we have a much deregulated economic environment. Wealth tax in the form of inheritance tax, gift tax and capital gains tax were abolished years ago and beginning with the Rogernomics policies of the ‘80’s, tariffs and taxes have been decreased to low or non-existent levels to help attract buyers for our national imports.
Using the core ideas of Piketty’s economic predictions – of a return to Victorian era inequality – Rashbrooke carefully points out that indeed, New Zealand is heading this way along with the rest of the Western world – a statement which has earned him both praise and outrage.
The choices around inequality that we as a society have in front of us, can be boiled down to a simple idea. That the collective reservoir of wealth is not only finite but intimately connected, from top to bottom. As Rashbrooke has so well said, “Wealth is always created in some sort of partnership between the individual and society,”
In other words, we are in this together and can no longer turn a blind eye to the problem. To use the old saying to maximum effect, “Nobody wins unless everybody wins”. Truly.
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