The Majority Finds its Voice

In June this year, Britons reacted to the porous EU immigration system and voted to leave. Soon after, Australians voted to not give absolute power to one major Federal party. By November, US citizens chose a new President with a billionaire lifestyle and tenuous relationship with the truth, hoping he’d overthrow his establishment roots and restore their social equality. Is there a deep unrest at play here?

In his international best-seller, French economist Professor Thomas Piketty found rising concentration of wealth and income inequality worldwide, focusing minds on social justice. Decades of research by his mentor and British economist, Sir Anthony Atkinson confirmed this in a succinct analysis, titled ‘Inequality’. Though they offer different solutions, both suggest global taxes on wealth to reduce inequality and avoid most wealth being controlled by a few. Sir Anthony’s solutions are more aggressively directed at the ultra-wealthy.

Sir Anthony proposes balancing the minimum wage with a maximum.  This may strike a chord with ANZ shareholders as they reflect on the bank’s recently departed chief executive. He was paid $88 million over the last 8 years, despite delivering the worst performance of the major banks during his leadership, which was largely focused on a tilt to Asia – a failed strategy that the ANZ is now modifying.

Australian company law was amended in 2011 to trigger a re-election process of Board members if 25% or more votes opposed executive remuneration proposals. Those affected by that management remuneration cannot vote in the re-election process. Executive pay is influenced by company size, complexity, profitability, risk, ownership concentration and governance quality.  Since the mid 1980s, executive salaries have grown much faster than average wages as we adopted US remuneration practices. But US firms are many times larger than ours.

Warren Buffett says the “celebrity” status of CEOs may boost their pay, even though shareholder returns typically decline, once that “celebrity” status is reached.  But what causes overpaying? Executives of larger companies have advantages of position, being close to large revenue flows with more opportunities for “value skimming”. Also Board members who set executive pay come from the same social sphere with broadly similar interests to their executives, making arms-length bargaining unlikely. While something can be done to constrain executive pay, it only seems to happen for a while… until the fuss dies down.

A strong contributor to social and economic inequity is how the uber-rich can influence government policy that protects their wealth. Globalisation and technical change are other long term trends that cause more concentration of wealth. However, governments can influence these outcomes to find a socially digestible path for more equitable outcomes – let’s call it capitalism with a social conscience. Unfortunately, recent voter behaviour suggests governments have not achieved this – see discussion of the ‘Gini coefficient’ below.

The Gini coefficient (Gc) measures inequality (for example, in income). A Gc of zero would be perfect equality (e.g. everyone has the same income). A Gc of 1 or 100% is maximum inequality (e.g. one person has all the income/consumption and everyone else has none).  Worldwide, income inequality has steadily increased since 1820, peaking in 2002 and reversing with rapid economic growth in emerging economies with large populations.


Despite its communist control, China is one of the more inequitable countries in the world. African, central American countries and Russia are the least equitable. While Europe, Canada and India are more equitable. Australia is moderately equitable but the US less so. So the silent majority have had their say in support of Trump (well, half of them anyway).  It remains to be seen whether their faith will prove justified.

He promises to make America great again with more defence and infrastructure spending and lower taxes to invigorate the private sector.  These policies favour big business and enterprise owners – but will they solve the ever increasing inequality that installed him?  Is his anti-immigration stance actually good for the average American?

If politicians listen to voter behaviour around the world, fairer policy treatment should occur to correct inequities in the years ahead. Failure to address this would result in growing social unrest. Such restoration toward equity needn’t extinguish individual choice and endeavour – just put conscionable upper bounds upon it. Whatever else, robotics and automation will exacerbate the whole process, so over time we will probably see growth in jobs that encourage social harmony.

Disclaimer: All information in this article is intended to be general in nature for discussion purposes only. So you should not rely on it and seek personalised professional advice before making any decision.