Polarising Prosperity

The London Business School Review out this month includes an article on increasing Income Inequality. It concludes, emphatically, that we should be concerned.

The figures are staggering. In the USA the bottom 50% of households average income in 1980 was $16,000. By 2014, adjusted for inflation, this had risen [marginally] to $16,200. For the top 1% the comparable figures are $428,000 and $1,300,000. And mobility between generations is actually less where income inequality is greatest, in the USA and UK.

This has many knock on effects, such as on health. “An American male in the bottom one percent of the income distribution is likely to die before his 73rd birthday, whereas a man in the top one percent can expect to live to 87”.

LBS is a global citadel of uber-capitalist and uber-free-market thought. So for the LBS review to include such an article is encouraging. Income inequality in New Zealand is not [yet] comparable to the USA and the UK. They lead the world in this regard. However, under the National Party, New Zealand showed all the signs of heading in that direction. In the UK the Labour party, under Tony Blair, only made the situation worse. Can this New Zealand Labour Party led government find a different course? Jacinda Ardern worked in Tony Blair’s policy unit, so she is well placed to know what not to do.

New Zealand Coalition Policies

The 2017 General election in New Zealand was on 23rd September; and the final result, including all “special” votes was announced on 7th October. The parties involved announced the coalition / cooperation agreements to form a Labour-led government on 19th October, with the Labour / New Zealand First and Labour / Green agreements being signed and released on 24th October. That is eighteen (18) days from the final result being known to the formation of a new government. This is in stark [and favourable] contrast to Germany where elections were held on 25th September and agreement on the next coalition government is not expected before Christmas. I assume that is Christmas 2017, though Belgium managed to take 541 days to form a government in 2010/11.

However, it is not clear what policies have been agreed. The agreement documents between and labour and NZ First, and Labour and Greens, specify those policies of NZ First and Greens that will be pursued by the new government in addition to Labour’s policies. There is only one Labour policy that has been dropped, water charges for farmers, as specified in the agreement with NZ First. This cannot be true!

There are significant spending commitments in these agreements. For instance; the agreement with NZ First includes a NZ$1BN pa regional development fund, and a NZ$20 per hour minimum wage (which the government will be paying many of its employees directly and contractors indirectly). The Green agreement has expensive commitments on housing and mental health. The money cannot be there for the entire Labour program (less the revenue that would have come from the water charges for farmers) and the additional policies from NZ First and Greens.

There is, of course, the wrinkle that we do not actually know what the Labour policies are. They never issued a manifesto, in common with the other parties. We are supposed to make what we can of; their website, the alternative budget they issued during the campaign, and various speeches, post, tweets and interviews. Remembering that they made significant changes even after advanced voting had begun, most notably by withdrawing a policy to implement the outcome of a review on capital gains tax before the next general election.

Does this matter? Maybe not, as there will have to be a budget in due course. However, The Labour, NZ First and Greens have raised expectations in a way that cannot be met. Even more so than is normal in the democratic process. Electorates around the world are becoming much more demanding, in a way that the established liberal elites are not handling well. Maybe that process just accelerated in New Zealand.



In New Zealand, as in the UK, we have a problem with houses being too expensive. Which is to say that we have too few of them. Increasingly children are living with their parents into middle age. People in their twenties are poorer than their parents and houses are much more expensive relative to earnings.

You would have thought that 35 years of property owning democracy since Thatcher sold off council houses in the UK; plus the evidence for the rest of the world, including New Zealand, would have convinced everyone that the free market is not the only club in the bag to solve this problem. I realise that Conservative thinkers believe the problem is that we have not actually tried a free market in housing. However, I sat on the local plan committee in Tendring District Council. There is plenty of land available for building, either with planning permission already or land designated for development.

The free market has failed lower income families and the poor. Private developers are simply not interested in supplying this sector of the housing market. They don’t make enough money. There are much richer pickings elsewhere. This ends in the disgrace of an “affordable” house in Auckland costing NZ$650k.

During the recent general election in New Zealand all parties committed the government to build much more social and affordable housing in the next three years than had been done in the last three years. The mystery is why there has been no comparable development in the UK. I am a fan of Ben Chu in The Guardian. However, even he could only bring himself to suggest these three “essential” remedies;

“First, taxation reform to curb the incentive to view housing as a financial asset, something that has put considerable upward pressure on prices in recent decades. Second, greater rights and security for renters under the law. Third, planning liberalisation to facilitate a greater supply of private homes and bigger government grants for the construction of many more social ones.”

If even The Guardian cannot see the need for governments to build houses, there is no hope in the UK. Or maybe Jeremy Corbyn’s time really has come!