The Trump lesson – the link between stagnating incomes and populism – November 2016

Filed under: Politics, Australian Politics, Foreign Affairs,

Since the Trump landslide almost every politician and commentator in Australia – as elsewhere – has sought to extract from the US result the appropriate and most salient local lessons.

Many have been self-serving, particularly on the part of the politicians, with Labor’s Bill Shorten rebranding the anti-457 working visa campaign which the ALP took to the last election as his “Australians First” employment policy, while Prime Minister Malcolm Turnbull has used the outcome to ramp-up his languishing campaign for corporate tax cuts as vital to avoid Australia being left behind in the race for global “tax competitiveness”.

One Nation’s Pauline Hanson – understandably and not unreasonably – stood outside Parliament House for the cameras and toasted the Trump victory with champagne: “Why I’m celebrating is that I can see that people ... around the world are saying, ‘We’ve had enough of the establishment,’” she said. “Give people the power back to have their own democracy. I think Donald Trump will bring that to America and I can see in Donald Trump a lot of me and what I stand for in Australia. I think it’s great.”

On Facebook she said, “I’m so happy about it because this is putting out a clear message to everyone around the world that the people power is now happening,” she said.

“We’ve had Brexit, and that’s happened, and now America — good on you guys. You got it right. I’m so happy that Donald Trump is there.”

Whoever is right, and Hanson may not be too wide of the mark, it is worth reflecting seriously on the Trump victory – and perhaps on Brexit – for its implications for Australian politics, society and economy.

For this writer’s money, one of the most interesting analyses of the Trump phenomena was provided by US historian William Chafe, Professor of History at Duke University in North Carolina and former president of the Organisation of American Historians.

In a discussion on the implications of the Trump success on ABC Radio National’s Late Night Live on Monday night he argued that one of the most important things about the rise of Trump “is the way we have let ourselves ignore the way in which we have become one of the most profoundly unequal societies in the world. From WW11 through until the 1970s we had a conflation of income, we had a growing middle class. In 1979 the top 1 per cent of income earners in America earned 9 per cent of the total income. The top 1 per cent now makes 35 per cent. The change that has happened and who has been left out – the ones who have been left out are those people who once had decent skilled jobs and now those jobs have gone overseas.”

He argued “Democrats totally misread the way their base had deserted them. I think the reason they misread it is that they had never really come to grips with the way their base had left them. There were very few people in the Democrats except for Bernie Sanders and Elizabeth Warren who were speaking to that base and aware of its discontent. We have been in a situation of self-satisfied politicians who have simply been getting re-elected year after year and not paying attention to the profound divisions in our society. We have become more aware of them because of Black Lives Matter and because of the number of blacks being killed by police and others - and we are now in a position where we have a greater degree of social division in our country than I think we have had in 100 years.”

Chafe’s thesis is that the US has only been as divided as it currently is in the Civil War and in 1968. “That’s what’s been happening in this election.”

Even if Chafe’s analysis is correct for the US it doesn’t necessarily apply to Australia. Australia’s compulsory voting is likely to mean income inequality is reflected differently in voters’ responses.

But it is hard to ignore the literature of growing income inequality in Australia and not draw some link to the growth in support for minor parties, especially Pauline Hanson’s One Nation and the Nick Xenophon Team, with their strong respective strands of xenophobia and protectionism.

While income inequality in Australia is not as dramatic as in the US it is nonetheless significant and growing.

Before entering parliament in 2010 Labor’s shadow treasurer and shadow minister for competition and productivity Andrew Leigh was professor of economics at the Australian National University, highly regarded for his work on income inequality.

In an article in The Monthly in June 2014 he wrote that “since the late 1700s, the level of inequality in Australia has risen, fallen and risen again.

‘Since the mid-1970s, real earnings for the top tenth have risen by 59%, while for the bottom tenth they have risen by just 15%. Today, the three richest Australians have more wealth than the million poorest.”

He argued that in English-speaking nations – Australia, Britain, Canada, New Zealand and the US – inequality fell in the decades after World War Two, and has risen sharply since the 1980s. By contrast, continental European nations saw a dramatic fall in inequality during the early 20th century, but a more modest rise over recent decades.

He wrote that his explanation of growing inequality in Australia focuses “on earnings. While tax rates affect workers and rentiers alike, the importance of superstar labour markets, unionisation and education implies that the chief drivers of inequality are labour earnings rather than capital accumulation.”

Redistribution using a wealth tax (suggested by the main subject of his article, economist-superstar Thomas Piketty) is politically out of reach, he argued, “But tax is not the only way of redressing inequality, particularly if you believe that the rise in Australian inequality was at least partly driven by changes in the labour market. Boosting teacher quality in disadvantaged schools would pay a double dividend: increasing productivity and reducing earnings gaps. Better evaluation of social policies – through randomised trials, for example – would help make programs more effective. Recognising the egalitarian role of unions might act as a check against attempts to curb the role of collective bargaining. Growing inequality makes it harder to reduce the gender pay gap, and tougher to close the gap between indigenous and non-indigenous Australians.

“When I speak with audiences about inequality, I sense that Australian values like egalitarianism, mateship and the fair go are still strongly held.

“If Australia continues to become more unequal – as Piketty’s capital theory suggests it might – then it will become increasingly difficult to hang on to these values. A veneer of fairness might persist, but a shallow equality of manners would be a poor substitute for the deeper egalitarianism that has traditionally characterised our nation. How much should we let inequality grow? There is no right answer to this question, but we should not shrink from asking it.”

Secretary of the Prime Minister’s department and another highly regarded analyst and policy thinker Martin Parkinson had another take on the Australian implications of Trump in a reported speech this week, acknowledging the attraction of populism in the US, Europe and even Australia but warning, “Why, when we in Australia have experienced a long period after World War II where we try to protect ourselves from the rest of the world, we missed out on big growth in trade, we saw our living standards decline in relative terms, we experienced multiple recessions, we find ourselves being referred to by Lee Kuan Yew as the poor white trash of Asia, we saw ourselves being described by Paul Keating saying unless we get our act together we are going to be the Banana Republic”

Dr Parkinson said, “Why is it today that the policies that got us in that situation are somehow going to deliver us better outcomes today? It is the fact people are willing to heed that sort of nonsense and they think they will get away with it, I think it is damaging for our society.”

Dr Parkinson may well be correct in arguing that a retreat into protectionism offers no solution for those seeking an alternative to stagnating incomes. But as Professor Chafe argued for the US, the attraction of Trump and populism is not necessarily rational; rather it gives expression to anger of those who have been left behind in economic change.

The challenge for mainstream Australian political parties is to adequately address that anger by reducing inequality and income stagnation, or risk the rise of populist alternatives.

Further Reading