Talk to Salvation Army Moral and Social Issues Council National Conference, Melbourne, July 2, 2016
I spent the first 25 years of my life imbibing the Christian beliefs and social values of Salvationists, and the rest of my life learning - and later critiquing - the principles of conventional, “neo-classical” economics, particularly as it is practiced in the Australian political debate. So I see my role this morning as acting as a sort of interpreter standing between Salvationists and economists, but also business people and politicians who are so heavily influenced by the “the economist’s way of thinking”. I’m certainly not here to try to convert you to the economic religion. I want to help you understand where they’re coming from and why they take the attitudes they do. In the little time available I want to make six points.
First, it’s appropriate to focus on “equality” in the case of social justice - the idea that everyone should be treated equally - but in the case of economic justice I think it’s more appropriate to use the less-precise concept of “equity” - fairness. Economics invariably ends up being about money or, to be more precise, income (how much we have to live on) and wealth (the value of what we own - home and investments, less our debts). And the trouble with income and wealth is that how much we each have can be measured and compared reasonable easily and precisely. We may believe that people should be treated equally regardless of their race, but few of us believe that everyone’s income or wealth should be identical. Rather, we believe the gap between the richest and poorest shouldn’t be too wide; that too big a gap isn’t “fair”; that more should be done to improve equality of opportunity. Everyone gets a decent education, then we see what use they make of it.
Second, mainstream economics isn’t about “economic justice”. Most economists don’t have much professional interest in economic justice and don’t see much place for it in their discipline. Conventional economics is the study of how we use markets to aid the production and consumption of goods and services and, in particular, how we can make our markets work more efficiently in producing the goods and services we most want and thereby increase the combined “utility” - satisfaction - we derive from that consumption. Economics, therefore, focuses almost exclusively on the material aspect of our lives, largely ignoring the other dimensions: the social aspect, the relational aspect, the cultural aspect, the spiritual aspect. I believe the much greater influence economists have come to enjoy over the past 30 years is both an effect and a cause of the community’s greater materialism in that time.
Christians - and certainly not those as practical as Salvationists are - don’t for a moment deny the importance of the material aspect of our lives. This, after all, explains their concern about economic justice; it explains much of the Army’s social work. But the Christian’s witness to the world must always be that there’s more to life than the material: that social aspects matter, the treatment of the poor matters, the spiritual matters.
Third, since economists specialise in promoting productivity and “efficiency” - efficiency in the allocation of material resources such as land, labour and capital - they tend to ignore and undervalue what you call economic justice and they call “equity”. They advocate “reforms” they believe would maximise the community’s overall satisfaction of mainly material wants but, for the most part, they have little interest in how the fruits of the economic growth they seek are distributed - shared - between individuals and families within the community. Is the increase shared reasonably fairly between the bottom, the middle and the top, or has a disproportionate share gone to the top, thus widening the gap between the bottom and the top? This is a question that’s rarely at the top of their minds. Many economists believe efficiency is an objective, scientific issue, whereas equity - fairness - is quite a subjective matter - one where opinions differ - which they leave to others, such as politicians.
Fourth, even so, some economists do specialise in measuring how income and wealth are distributed between rich and poor, and studying how and why that distribution changes over time. They are familiar with the institutions or instruments of economic justice that the community uses to re-distribute income from the richer to the poorer. The main instruments in Australia are the progressive income-tax scale and means-tested access to social welfare benefits.
Fifth, the conventional wisdom among economists is that the objectives of efficiency and equity are in conflict. That the things governments do to increase equity reduce efficiency and the things they do to increase efficiency reduce equity. For instance, the high tax rates at the top of the income-tax scale discourage people from working, saving and investing. But if they’re cut, the well-off will work harder and earn more and the gap between them and the less well-off will widen. A part of this is their belief that the bigger government is - the more it raises in taxes and redistributes to the less well-off - the more it reduces incentives to work and save, and so the less efficient the economy is.
My last point is the good news: very recent years have seen an increasing volume of empirical research - much of it produced by such prestigious authorities as the International Monetary Fund and the OECD - casting doubt on this conventional wisdom that equity and efficiency are always in conflict. It looks across the countries of the world and finds little correlation between how fast they grow and the size of their government. It finds evidence that the growing inequality in many developed countries over the past 30 or 40 years partly explains their slower economic growth. Best of all, the research points to various cases where particular policy measures can increase fairness and productivity and growth at the same time. Two obvious examples in the Australian context are the Gonski school reforms and the national disability insurance scheme. For instance, doing more to improve the education of disadvantaged students is not only fairer and better for them, it also increases the value of their labour and their rate of participation in the workforce, to the benefit of the rest of us.