THE room was already full at Trades Hall in Carlton on a cold Wednesday night in July, but the floors creaked with people still walking in. “I’m not Thomas Piketty,” said Mike Berry, emeritus professor at RMIT, with a wry smile. “I understand some of you were expecting him.”

Piketty, the French economist and author of the best-selling tome, ‘Capital in the Twenty-First Century’, is in great demand – and short supply.

Translated from French this year, his 685-page book sold out all over the English-speaking world. It is already the all-time best selling book for its publisher, Harvard University Press, which ran 24-hour shifts at its warehouse to keep up with orders.

In Melbourne, the independent bookstore chain Readings ordered just ten copies at first; since then, they’ve been selling it hand over fist, re-ordering a hundred at a time. For several weeks, incoming shipments sold out well before they arrived.

So, at the Trades Hall meeting to discuss the book – notwithstanding the absence of the author himself – the audience was particularly attentive. “Every so often a book just catches interest,” said Berry, a professor of public policy. “It’s broken out of the scrum, partly by sheer weight of evidence.

“Piketty shows that capitalism inevitably and remorselessly leads to increasing inequality. In short, unless we do something about it, we’re headed back to the 18^th century world of haves and have-nots.”

For his efforts, Piketty has joined the exclusive, counter-intuitive class known as “rockstar economists”. In May the ‘New Yorker’ described the backstage clamour of Nobel Laureates eager to meet him before a public lecture.

But more importantly, inequality is now a global, mainstream concern. Earlier this year, the World Economic Forum – a coterie of large corporations – listed income inequality as chief among 31 risks “threatening social and political stability as well as economic development” in the next decade.

In Australia, too, as debate continues over budget cuts to welfare, health and education, commentators across the political spectrum are warning that our society has become dangerously unfair.

The top decile income share in Anglo-Saxon countries, 1910–2010. http://piketty.pse.ens.fr/en/capital21c2

‘Capital’ is based on fifteen years of Piketty’s research, in collaboration with scholars around the world. He has collected and analysed wealth and income data as far back as he can find it. In France and Britain the records stretch beyond two centuries.

Unusually, he spends little effort analysing the bottom end of the scale, and instead, takes aims at the dynamics of the top. Since the global financial crisis, it has been this research that has turned the world’s glare upon “the 1 per cent”.

This is what his data shows: over the long term, the wealth tied up in capital – assets such as property and finance – accumulates more rapidly than economies grow. In broad terms, that means inheritance trumps merit, and wealth concentrates.

“The past tends to devour the future: wealth originating in the past automatically grows more rapidly… than wealth stemming from work,” Piketty writes.

His research upends an article of faith of neoclassical economics: that inequality will decrease as nations’ incomes continue to rise.

That theory was developed in the mid-20^th century, at time when the gap in wealth and incomes had narrowed considerably. Piketty argues this period was an aberration, caused by the century’s great shocks – two world wars and the Great Depression – together with the resulting government policies: tight regulation of financial markets and steeply progressive taxes.

In recent decades those policies have been unwound and economic growth has slowed. Inequality has risen again. We are witnessing “the emergence of a new patrimonial capitalism”, he writes.

Piketty’s data debunks any notion of trickle-down economics. Really, we live in a suck-it-up system : the wealthiest swill the surplus, and leave the poor to take whatever they can get.

On this matter, the Parisian academic is not a lone voice.

Nobel laureate and former chief economist of the World Bank, Professor Joseph Stiglitz recently visited Australia on speaking tour. The ‘Capital’ phenomenon, he says, is no surprise to him. In 2012, Stiglitz’s own book on the subject, ‘The Price of Inequality’, hit the bestseller lists in the United States.

“Inequality has risen to the top of the concerns facing America and most other countries – not that we’ve actually been able to introduce policies that deal with it, so far,” he says.

This April, Stiglitz told a US Senate committee that the American dream was “a myth”. For the last 25 years, median wages have stagnated and lowest wages have fallen, in real terms. Since the global financial crisis, nearly all the gains of the “so-called recovery” have accrued to the top 1 per cent, he said.

His message that day in Washington was scarcely contested by conservatives, he says.

“The International Monetary Fund has now stressed the role of inequality. The IMF is not a radical organisation, so nobody should think of this anymore as a left-wing agenda. You almost have to be radical not to take it onboard.

“Inequality used to be a question about how we were treating the most disadvantaged in our society. Now we’re debating how our whole society is functioning.”

Among the ill effects of inequality, Stiglitz argues, is “worse economic performance, no matter how you measure it”, whether by GDP or more holistic benchmarks of wellbeing and sustainability. In the US, the vast numbers of citizens with diminished incomes and poorer levels of health and education constitute a waste of the country’s “most valuable resource”.

It also feeds a further vicious cycle: a failing political system, which represents the affluent at the expense of the rest. “We have a democracy where most of the citizens think the system is corrupt,” Stiglitz says. “Not corrupt in the sense of stuffed paper envelopes, but in the sense that money has found legal ways influencing the process to get what it wants.”

Yet he is not without hope. Neither he, nor Piketty, accept that rising inequality must be so. It’s a product of public policy – the combined outcome of our schools, healthcare, financial systems, tax laws and corporate regulations.

In ‘Capital’, Piketty advocates for highly progressive income tax (with a top marginal rate set at more than 80 per cent) to prevent accumulation of wealth through soaring salaries, and a progressive global wealth tax, to prevent its further concentration.

“Inequality is not a fact of nature,” Stiglitz says. “It’s a consequence of the policies we put in place.”

*

In Australia, inequality is not so vast as in the United States, or Europe at the turn of the 20^th century. But it is rising.

A new report from The Australia Institute, drawing on ABS data, reveals that the top fifth of households earn five times the income of the bottom fifth, but they hold 71 times the wealth.

It says the richest 7 individuals in Australia – including Gina Rinehart, Frank Lowy and James Packer – hold more wealth than the bottom 1.73 million households.

Meanwhile, the dole continues to fall well below the poverty line. The Australian Council of Social Services estimates that one child in six is living in poverty. Over 100,000 households – the bottom 1 per cent – are living in the red, with negative net wealth.

Yet, like the US and other immigrant societies, Australia has not been shaped by inherited wealth as much as Europe. Inequality has risen significantly since the 1980s, but for other reasons. In his book, ‘Battlers and Billionaires’, ANU economics professor turned federal Labor MP Andrew Leigh attributes the rise in inequality to three forces, in equal measure: higher earnings at the very top, inflated by technology and globalisation; the decline of unions; and less progressive taxation.

Leigh believes that Piketty’s theory is more relevant for our future than our past. Given high savings among the wealthy and a slower growing economy, inequality will worsen, he says.

So what is to be done?

Last year, Richard Denniss, director of The Australia Institute, took part in a televised debate, coordinated by the St James Ethics Centre, on the question: “Should the wealthy pay more tax?”

Income tax cuts introduced since 2006, by both the Howard and Rudd governments, have overwhelmingly favoured high earners, he says. The Institute estimates those cuts have cost the government about $170 billion, of which the top ten percent of earners have received significantly more than the bottom 80 per cent combined.

It hasn’t always been this way. At its peak between 1942-44, the top marginal tax rate in Australia was 93 per cent. Throughout the Menzies prime ministership, the top rate was never lower than 67 per cent. Now, even with the government’s proposed deficit levy, it will temporarily rise to just 49 per cent.

Likewise, tax breaks on capital gains and superannuation overwhelmingly advantage the wealthy.

Super concessions amount to $35 billion in forgone government revenue, Denniss says, most of which goes to the top five percent and none to the bottom fifth. And because women tend to work fewer hours and years in the formal economy, and are under-represented at the upper end of earnings, the super tax breaks also systemically favour men.

“You could only say that increased inequality has been the objective of subsequent governments in Australia, because everything they’ve done has exacerbated it,” Denniss says.

Alongside him in the St James Ethics Centre debate, also for the affirmative – surprisingly – was Geoffrey Cousins: former advisor to Prime Minister John Howard, current member of the Telstra board, and latterly, a high-profile campaigner against the James Price Point gas hub in the Kimberley.

Cousins sits on Telstra’s remuneration committee. In the 2012-13 financial year, the company had eight senior executives whose pay packages topped $1.5 million per year.

Yet, for the audience, Cousins joked that he wanted to wear a t-shirt saying: “I’m rich, tax me”. Afterwards, Denniss had one printed and sent to him, and Cousins swears he wears it – even outside the house. (“I wore it kayaking on Sydney Harbour,” he says.)

He has received a mixed response from well-heeled acquaintances, but if anything, his position has firmed. “I did a lot of research. The information was completely compelling regarding growing inequality around the world, and the fact that wealthy people generally pay a much lower percentage of their income in tax, one way or another,” he says. “It’s not just me: all sorts of wealthy people have said it’s a ridiculous situation.”

He believes the Abbott government’s budget has sharpened the debate in Australia. “There’s a great lack of fairness in what the government is doing and I think most people believe that.”

At the Ethics Centre debate, but on the negative side, was economist and former Liberal Party leader John Hewson. He argued the proposition was too simplistic; comprehensive tax reform is necessary.

But Hewson, too, is deeply concerned about inequality. Last month, he launched a report entitled ‘Advance Australia Fair? What to do about growing inequality in Australia’, which documented the deliberations of a conference held at Parliament House in January.

The participants included a range of civil leaders and academics, from economists to epidemiologists, invited by the non-profit group Australia21. Their report argues the case that more equal societies do better, with higher rates of social cohesion, mental and physical health, and even economic productivity.

Among its many policy recommendations were lifting pensions and benefits to the poverty line, directing more school funding and early childhood education to disadvantaged kids, and implementing significant tax reforms – such as ending tax breaks for superannuation, capital gains and negative gearing.

To the report’s suggestions, Hewson added one of his own: all major policy proposals should be subject to an “inequality impact statement”.

“Our land of ‘the fair go’ is disappearing,” he said.

“There is an urgent need for a mature community debate about how inequality is impacting on our lives, our culture, our economy and our society.”

For now, it seems Australians want to be more egalitarian, even though we may be unaware just how unequal we are. The Australia Institute’s recent survey showed that no matter what people earn, they tend to assume their incomes are about average.

Similarly, research conducted for the Australian Council of Trade Unions in 2011 found that most people vastly underestimate the real level of wealth inequality in society. When asked to describe their ideal distribution, they chose a division of wealth even more egalitarian again, regardless of their own position in the hierarchy.

But arrayed against these preferences, Denniss says, is the force of the business lobby, which describes welfare cuts as fiscal consolidation and derides new taxes as class warfare. So long as unemployment remains low, it’s easy for politicians to ignore entrenched poverty.

“I think inequality is an idea whose time has come,” Denniss says. “But what hasn’t arrived yet is a political party that will do something about it.”

*

At Trades Hall, the audience was comprised mainly of baby boomers. During the questions, one man stood and commented that Piketty’s book could benefit the rich, if rising inequality is understood as inevitable. “How can we make it help us?” he asked.

“Firstly, you’ve got to read it,” Professor Berry replied (understandably; it is a hefty volume). “And secondly: politics matters.”

To stimulate change, the buzz about ‘Capital’ would have to go beyond the media, he said, and suggested that people could form discussion groups to debate its themes.

Berry is author of ‘The Affluent Society Revisited’, which re-examines the work of economist John Kenneth Galbraith in the context of the global financial crisis.

‘Capital’ is the perfect book for the swirling discontent since the crisis, he says. Then, we found out that financial markets don’t function according to the textbooks. But so far, our approach to governing them hasn’t changed.

“There’s a sense of crisis in popular ideology about what the hell is happening out there in the real economy.

“But the critical thing is that although Piketty identifies remorseless tendencies towards inequality in free-market, freebooting capitalism, they are not laws. There are ways of countering them through political means.

“Policy is not dead, it’s just sleeping.”

 

Read an edited version of this article at The Age online

A national institution, Medicare turns 40 this year. But are budgetary changes such as the doctor co-payment the beginning of the end for universal healthcare?

MEDICARE was always a shit-fight. It became law in the most extraordinary circumstances: one of a handful of bills passed during the only joint sitting of federal parliament in the nation’s history, after the double dissolution election in 1974.

As the Whitlam government prepared to introduce the system – then known as Medibank – its opponents rallied.

The Australian Medical Association marshalled a million-dollar “Freedom Fund”, donated by members. Determined to stop bureaucrats interfering with patients, it hired a former Miss Australia to front its publicity campaign. The General Practitioners’ Society of Australia circulated a poster depicting social security minister Bill Hayden dressed in Nazi uniform.

And that’s just the opposition from outside. Dr Anne-marie Boxall, co-author of Making Medicare, says Whitlam had little support, even from within the Labor Party. The party platform advocated a fully nationalised model, along the lines of the British National Health System (even though it may have required a referendum).

By contrast, Whitlam’s plan was for a public insurance scheme. Health services would be delivered by a mix of public and private providers, but paid for by taxpayers and guaranteed for everyone.

“The crucial members of his caucus didn’t agree with him, but he was adamant,” Boxall says. “He’d done a lot of thinking about it. So he waged the war of public opinion and he won.

“It’s an amazing political story.”

Medibank began full operation on October 1, 1975, just six weeks before the dismissal of the Whitlam government. The Fraser government tinkered with the system several times before abolishing it – only for it to be revived by the Hawke government in 1984 in almost exactly the same form.

Thirty years later, Medicare enjoys overwhelming public support. Politicians will swear to defend its honour, no matter their stripes or the system’s shortcomings.

And yet, in the wake of the federal budget, many people believe Medicare is under threat. The target of most ire is the proposed copayment for doctor’s visits, under which even the poorest will have to pay for up to ten appointments each year.

But are these changes the beginning of the end of universal coverage, or another nail in its coffin? Or are they in fact a distraction from the deeper afflictions at the heart of Australia’s health care system?

Health minister Peter Dutton describes the Coalition as “the greatest friend Medicare ever had”, echoing a line Tony Abbott employed during his days as health minister.

The coalition has demonstrated its amity with a host of surprise announcements, including the copayment, which also affects diagnostic tests, such as x-rays, blood tests and prescription drugs. (These charges will be capped for children, low-income earners and the chronically ill.)

More people will pay the Medicare levy surcharge, and fewer will qualify for the private health insurance rebate. Billions of dollars have been cut from public hospitals, and the preventative health agency and other health promotion programs have been shut down. The savings will be directed to a $20 medical research fund.

Dutton says that without these reforms, spiralling costs will jeopardise Medicare’s viability. “The government is very keen to keep Medicare and strengthen it. To keep it universal, we have to make sure it’s affordable. In my view Medicare is only sustainable if those people who have a capacity to pay contribute to the system.

Professor John Deeble, now 82, was one of the original scheme’s architects. He says that although costs have been rising, they’re manageable. Health spending by our governments is low compared with other wealthy countries.

“This is not really about the sustainability of Medicare or anything like it,” he says. “They just want to spend the money on something else, simple as that.”

The Medicare levy – currently 1.5 per cent of taxable income – was established as a premium for public health cover. If the nation’s health costs rise, the government can raise the levy, Deeble says. In that way, people’s contributions are determined by their capacity to pay – their income – not by how often they need treatment.

By introducing copayments instead, the government is embracing something fundamentally different: a ‘user-pays’ notion of fairness in health funding.

In Medicare’s first incarnation, when social security minister Bill Hayden introduced the bill to parliament, he declared that the new health system’s three motivating principles were “social equity, universal coverage and cost efficiency”.

Although the full details of the Coalition’s reforms haven’t been released, public health experts have been unanimous in their critique: as a package, it’s simply bad policy.

“We’ve actually tried all these solutions before, which is why we know they don’t work,” says Boxall, who is the director of the Deeble Institute for Health Policy Research.

“We need to step back and look at the structural problems with our health system.”

Among these are two key vulnerabilities, unforeseen at the time of Medicare’s design: the rise of private health care, and the growing burden of chronic illnesses.

“What we like about Medicare are the principles it was founded on,” Boxall says. “Things have changed. So what are we doing to improve universality, equity and efficiency?

*

For most of the 20^th century, Australia had a two-tier medical system : a very basic insurance system for the working class and a fee-paying model for those who could afford it.

“Doctors offered quite different services, and in many cases different waiting rooms for each group,” says Associate Professor James Gillespie, from University of Sydney’s school of public health, and co-author of Making Medicare.

The World Health Organisation says “universal coverage” means “all people have access to services and do not suffer financial hardship paying for them”.

But under Medicare, we’re already failing the test on equity. More than one-in-six Australians say they don’t see a doctor or fill prescriptions because of the cost, according to an international study published last year by the journal Health Affairs. Other research has shown that people who live in poorer neighbourhoods are much more likely to delay medical care than those in the wealthiest suburbs.

Even without the new copayments, Australian patients fork out a lot for treatment from their own pockets, compared with other developed countries.

The two-tier system has re-emerged. One reason, says Gillespie, is that “both sides of politics have refused to think seriously about the role of the private system”. Major reviews commissioned by both the Howard and Rudd governments specifically excluded an examination of its role.

When Medicare began, private hospitals were a small industry, run by churches and charities. But in the last two decades, they’ve become big business, where doctors earn much more for their work.

Until the 1990s, private health insurance was in terminal decline. But spurred on by the Howard government’s incentives – the Medicare levy surcharge and lifetime cover discount – just under half the population now has private cover.

“We’ve ended up with a private system that shifts services away from the public and creates more privileged ways of doing things,” Gillespie says.

He says private funding can contribute to universal care, so long as core services are delivered the same way to everyone. Canada has a similar system to ours, but private insurance isn’t allowed to cover the services offered by its public system.

“If there’s a different system for those who can afford better, you end up with a residual service, which gets squeezed and becomes second best,” Gillespie says.

*

The coalition argues the copayment is a “price signal” to alert people to the real cost of treatment. But there’s something unusual about healthcare – even economists say so. In simple terms: you can judge how you’ll feel if you forgo buying a hamburger, but not if you forgo visiting the doctor.

“In the case of healthcare, part of the product itself is giving you that information,” explains Professor Jeff Richardson, from Monash University’s centre for health economics. “You’re not in a position to judge what life would be like with and without it.” All of which means that promoting efficiency is more complex than imposing a price signal.

Likewise, the relationship between health expenditure and outcomes is not straightforward. The nation’s health costs have been rising, but compared with other OECD countries, our total health spending – both private and public – is just below average. It’s half that of the United States, as a percentage of GDP.

“When the government says Medicare is unsustainable, it’s lying,” Richardson says. “The Australian government could spend much more on health if it wished. It’s simply a political and social judgement that it doesn’t want to.”

Curiously, despite Minister Dutton’s warnings about unsustainable health spending, his reforms – which aim to push more people into the private system – will end up costing more overall.

When the government acts as our single-insurer under Medicare, it has the power and incentive to bargain hard: as a result of bulk billing, GPs incomes are low by international standards. But with many different payers – like in the US system – it’s easier to for private insurers increase fees than control costs.

And for now, GPs and pharmaceuticals are the most cost-effective parts of the health system. Increasing their price will push more patients into hospitals, which are much more costly.

The measures are not a question of efficiency, Richardson says, but rather, an ideological choice that health is an individual responsibility, not a shared one, like defence or policing.

“If we swing over to the private sector and push it back on individuals, the health of poorer people will suffer and overall costs will almost certainly rise,” he says.

Dutton, however, maintains the measures aren’t about ideology, citing the Hawke government’s plans to introduce a $2.50 copayment for GP visits in 1991. (Paul Keating scrapped the idea when he took over as prime minister.) “I strongly believe that the changes we’ve put forward will improve access and the standard of care provided by GPs,” he says.

But the biggest challenge to the standard of care now comes from an entirely different source, one his reforms do nothing to address.

In Australia, the greatest healthcare inefficiency is found in a disconnect between the system – the fragmented network of hospitals, specialists and GPs, and their mishmash of state, federal and private funding – and the kinds of illnesses we have.

Where once we suffered acute ailments, we now need ongoing support with chronic conditions, says Dr Steve Hambleton, the outgoing president of the Australian Medical Association.

This change is partly a measure of success. The number of deaths from heart attacks, for example, peaked in the 1970s. But living with heart disease requires continual treatment and adjustment, especially as you develop other conditions. “The system doesn’t treat those people all that well,” Hambleton says.

Patients with chronic diseases need to see a broad range of health professionals and have frequent tests – but they are often seeing them in a piecemeal way with little continuity or communication between experts. Many of these, such as physiotherapists, psychologists or dieticians, are excluded or receive only limited funding under Medicare.

Both parties have attempted limited reforms to address the rise of chronic illnesses and the needs of our aging population. The Coalition brought in chronic disease management plans, which extend benefits to other kinds of treatment, beyond doctors. Labor’s super clinics and Medicare Locals aimed to bring together and coordinate different health services for patients. But the changes have been piecemeal.

“We need a proactive, long-term approach to care, supporting primary healthcare to keep patients out of hospitals, and make sure people don’t fall through the cracks when they move between community and hospital care,” Hambleton says.

*

THE wide, bright, hallway of the Victorian Aboriginal Health Service in Fitzroy is humming: people young and old are waiting and chatting; some are on the go, others hovering around a wood heater.

Today, a specialist is visiting today to conduct an ear, nose and throat clinic.

Jason King, the centre’s CEO, says they offer an holistic service. There are GPs, dentists, allied health professionals, visiting specialists, social workers and financial counsellors, all supported by Aboriginal health workers from within the community. “It’s not pumping them out every ten minutes. It’s ‘How’s mum and dad going? How’s uncle going who lives with you?’

“We’re the central hub, this is where people come and see family,” he says.

Last year, the health service celebrated its 40^th anniversary, a history that has coincided with that of Medicare. Each year, about a third of the state’s Aboriginal population pass through its doors.

The centre’s model of integrated care, embedded in the values of its community, is exactly what doctors and experts have ordered – along with the World Health Organisation, the OECD and several Australian inquires going back decades.

But King says the co-payment and cuts to preventative health will either cost the centre patients or take a chunk out of its budget. Either way, that means fewer services.

There are 28 Aboriginal community-controlled health centres around the state. Jill Gallagher, CEO of their peak body, says Aboriginal health remains worse than the rest of the nation, and Victoria is no different.

“The life expectancy in Fitzroy is the same as the life expectancy in Fitzroy Crossing,” she says. “For every dollar spent on Medicare for a non-Aboriginal person, about 60 cents is spent on Aboriginal people. Access to primary healthcare is still not equitable, in spite of the fact there’s four times the burden of illness in the Aboriginal community.”

Dr Mary Belfrage, the Fitzroy service’s medical director, says any barriers to accessing health care cause people show up later, with advanced conditions, which are more expensive to treat. “It all translates to worse health outcomes, but it’s also inefficient,” she says.

“This isn’t about party politics or a particular budget. It’s about the principle of equity and how it impacts on health.”

Read this article at The Age online