Traditional growth strategies are often mischaracterized as economic development. Identifying binding constraints—those factors, circumstances, or characteristics that, when removed, will likely have the highest positive impact on economic growth—neglects the potential discrepancy between growth and genuine economic development. In developing societies, the impact of the early stages of economic growth on quality of life indicators, life expectancy, and measures of wellbeing are profound. The somewhat crude ‘rising-tide lifts all boats’ theory of economic progress is more or less accurate in the developing world. However, as economies mature, there are diminishing returns. In rich, developed market economies, like Australia’s, there is an end to what raising material standards can do. Within the Australian context, removing binding constraints won’t as a rule yield the kinds of positive externalities that are associated with corresponding activities in developing societies. Accordingly, I'm interested in the constraints that, when removed, will yield the greatest positive impact on social wellbeing? There is mounting evidence suggesting that the ‘binding constraint’, as it were, or underlying factor that impacts and can explain almost every social problem common in developed societies (from reduced life expectancy, drugs, crime, to homicide rates and obesity, etc.) is inequality.
Australia is one of the most unequal societies in the world, trailing only Singapore, the United States, Portugal and the United Kingdom (R. Wilkinson & Pickett, 2009). Inequality is a multidimensional construct that encompasses power, prestige, education, as well as income. I will limit the discussion here to income inequality, which can be seen as a proxy for access to health services, housing, education, transportation, child and elderly care and a variety social amenities. Income inequality is easy to measure and most developed countries, including Australia, gather large amounts of data on income. Over 8 million Australians (roughly 42 percent of the population) have an equivalized disposable income of less than $21,000 per annum. Of these, over half are in households with a total income of less than $400 per week. Australian Bureau of Statistics (ABS) data shows that the ratio of top incomes to low incomes has consistently worsened over the last three decades (Australian Bureau of Statistics, 2010). Between 1995 and 2008, for example, the wealthiest 20 percent increased their share of total income from 37.8 percent to 39.4 percent. At the same time, the bottom 20 percent decreased their share from 7.9 percent to 7.6 percent (Mooney, 2010). In a 2008 study comparing Gini indices across sixteen rich countries, Australia was one of the most unequal (0.48), on par with the United States and Germany, and worse than Finland, Sweden, the Czech Republic, Canada, Taiwan and Romania (Brandolini and Smeeding, 2009).
In The Spirit Level. Why More Equal Societies Almost Always Do Better (2009), Richard Wilkinson and Kate Pickett lend a public health approach to their analysis of the “cost of inequality” in developed countries. Epidemiologists by training, Wilkinson and Pickett draw from a rich literature and wide-ranging sources to argue that inequality reduces the wellbeing of all members of a society. The authors take 23 of the richest countries and then examine the correlation between each country’s level of inequality and nine social problems: (1) community life and social relations; (2) mental health and drug use; (3) physical health and life expectancy; (4) obesity; (5) educational performance; (6) teenage pregnancies; (7) violence; (8) crime and punishment; (9) and unequal opportunities for intergenerational social mobility. The correlation is striking. Countries with lower income inequality show a low level of each of the problems and countries with greater income inequality have higher levels of mental illness, less trust, greater rates of violence and crime, higher incarceration rates, consume more drugs, have higher rates of obesity and lower educational performance, more teenage pregnancies, and children from disadvantaged backgrounds have poorer career prospects (R. Wilkinson & Pickett, 2009). Wilkinson and Pickett argue that the social problems observed can be attributed to increased status competition and social anxiety among members of society. Furthermore, a host of psychosocial risk factors, like low social status, weak social affiliations and stress in early life (pre- and post-natal), are exacerbated by increased inequality(Talk - Richard Wilkinson & Kate Pickett - Why Greater Equality Makes Societies Stronger, 2010). The solution the researchers propose is a more egalitarian distribution of income. A more egalitarian society, they argue, will not only help those that are most marginalized, but will also increase the wellbeing of all citizens by decreasing general competition and anxiety felt by all.
Scandinavia and Japan are doing very well, while the United States, the UK and Australia are doing the worst in terms of income equality. Increases in income inequality in these latter three western countries in particular are the result of deliberate policy, “as governments have sought to shift income from wages to profits, from low and middle-income earners to those on high incomes and to squeeze consumption in order to increase the rewards available for investment” (Griffiths, 2011, p.4). Since the 1970s, Australia has seen a significant rise in income inequality and along with it a decline in the wages share of total factor income. Since 1974 when wages share reached its peak, it has gone in a general downward direction. For the first five years of the Fraser government it declined before briefly rising as a result of an economic boom from 1979-81. The greatest decline in wages share occurred between 1983-91 under the Hawke government. At the same time there has been an increase in the profits share from 17 percent of GDP in 1973 to 28 percent in 2008. Following a similar trend of other western nations and without getting into the details of each administration, it is evident that increasing economic inequality has been the de facto policy of the Australian government for nearly forty years (Griffiths, 2011).
Inequality is a binding constraint on social wellbeing, health and life expectancy in Australia, as in other parts of the developed world, and should be taken very seriously. The implications for policy and changes in structure bear directly on my IPSP project. As an intern at the Centre for Primary Health Care and Equity at the University of New South Wales in Sydney Australia I will be participating in the evaluation of the impact and effectiveness of Equity Focused Health Impact Assessment (EFHIA). More about HIA and inequality in my next post...
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