Tuesday, 2 February 2021
It is often said that in tough times the strong get stronger and the weak get crushed. We've seen it time and time again. Big money can afford to ride out crises while small investors lose everything. Big money buy up stock in the gloom and sell it in a time of boom. Hedge funds short-sell and make huge profits at a time of economic decline. Companies take bets against the market, confident that they are too big to fail and will receive support from the government when times go bad—support which saves CEOs but not workers. The entrenched nature of the disparity suggests that inequality is not just a current problem but one that threatens to get worse with this crisis and crises in the future.
I remember in the 1960s, during the celebrated Gore Vidal and William F Buckley debates, Gore Vidal outraged us with the revelation that, in the US, the top five per cent of Americans owned 25 per cent of the resources and the bottom 25 per cent owned just five per cent. This sounded scandalous at the time. Of course, today those figures seem delightfully quaint. In the US now the top one per cent own 38 per cent of the stock market, the top 10 per cent own 81 per cent and the bottom 80 per cent own just eight per cent. Those figures are staggering. Wealth is no longer common in the United States.
When we have income inequality we breed social unrest. As people are denied a fair opportunity their anger finally results in violence. They protest and they riot. They attack financial markets. They elect populous autocrats. This syndrome is repeated through history, and we will not be immune.
There is a definition of corruption that suggest that a country's level of corruption can be directly linked to the amount of money raised based on government decisions. Countries like the US, with a large number of entrepreneurs who have raised money through their innovations, are less corrupt than those countries where money raised comes directly from government, through direct distribution of money, jobs or legislative decisions that benefit an individual's assets.
Since the time of John Macarthur and the early days of the colony, wealth in Australia has largely come through government decisions around land. In the early days of New South Wales it was land grants. Chunks of land were unilaterally given to colonists or were a means of buying favours. It was blatantly unfair, even before looking at the legality of handing out freshly discovered land.
Today, mercifully, there is less corruption in the decisions made but, undoubtedly, there are still huge amounts of money to be made off the decisions of government through the rise in land prices. We've seen it in the north-west of Sydney as the metro line went through the suburbs. Along the train line in Castle Hill house prices went up not by a third or a half; prices went up five, 10 or 20 times. People with fibro houses and small blocks were walking away with millions of dollars in their pockets. Smart groups of residents started pooling their houses together to sell on to developers. One such group pooled their houses and sold on for $360 million. But this is small change compared to Badgerys Creek. The millions that have been made by property speculators in the area around the airport and the new train line have been well reported. Hundreds of millions in profits have been made all by the stroke of a pen in a faraway department, accompanied by taxpayer funded infrastructure.
Now the government is proposing to invest billions of dollars in infrastructure to build our way out of the economic doldrums caused by the coronavirus. But, until we put in place a value-capture mechanism to ensure that the taxpayer gets fairly reimbursed, we will just be funding the millionaire landowners and speculators into billionaire status. If we continue to ignore these lessons, the Commonwealth of Australia will be a misnomer—wealth will no longer be common. We will once again have allowed a crisis and allowed the rich to get richer while impoverishing future generations of taxpayers.