The Poverty Debate

There is increased concern about poverty in Australia and debate about solutions.  Some of the themes which have emerged in that debate are outlined in an Attachment.

General conclusions which emerge from this are that:

• relative poverty is a significant and self-perpetuating problem facing many individuals and families, though few in Australia suffer absolute poverty;
• there is no clear agreement about the magnitude of the problem or what sorts of solutions are appropriate - and quite radically different alternatives are being put forward;
• there are complex dynamics related to poverty that make it unlikely that any solution will be easily found, or uni-dimensional; eg
  • characteristics of those suffering poverty - joblessness; welfare dependency; attitudes; dysfunctional families; skills in managing household finances;
  • social, economic and governance environment - availability of jobs; tax and regulatory regimes; availability and cost of health, education and child care services; quality of education;   availability of information; housing costs; public programs;
  • consequences of growing income inequality - perpetuation of the problem through the effect on children; regional concentrations of poverty; increased crime; consequent health / education disadvantages;
• the quality of relevant statistics is not good.

Evaluating the Debate

Other issues need to be considered in relation to this debate.

• the complexity of the issues makes analysis difficult - because any specialist will tend to consider only a limited number of factors and find conclusions and a 'solution' amongst those factors - even though other quite different factors may be as, or more, significant. For this reason a process which enables cross disciplinary issues to be identified and harmonized appears vital to developing practical solutions;
• there are significant issues which do not appear to have been publicly recognized in this debate. In particular:
  • Australia's economy must become increasingly sophisticated (eg knowledge based) and if many young people come from homes where the resources and attitudes do not favour a high level of educational success, then they will be ill-equipped to participate in sophisticated economy a factor which must have serious implications for an aging population [evidence]
  • market liberalization, which reduced obstacles to necessary economic change, has been accompanied by growing inequality - as much job creation has been of poor quality with low incomes.  Reasonable equity has been maintained so far by increases in welfare payments (which erode the benefits of higher productivity and translate into increasing dependency);
  • economic strategy must be a critical dimension in minimizing poverty because:
    • the tax base needs to be strong enough to support public welfare programs in the face of (a) globalized economy where international competition forces down achievable tax rates and (b) competition from countries (especially those in East Asia) where there tends to be little 'socialized' welfare system - as families are traditionally expected to cope. There seems to be a real possibility of a public financing squeeze (once the asset boom ends);
    • high quality job opportunities are vital to eliminate the problem of the working poor and these are only going to be available in an economic regime which is capable of generating them. Such opportunities have not been available for many people because creating a competitive environment (which allows economic adjustment) does not ensure the capabilities required for individuals or enterprises to be successfully competitive. Reasons for this (and the need for an effective economic system to provide support) are suggested in Defects in Economic Tactics, Strategy and Outcomes. The problem facing those with limited access to opportunities seems little different to the problem which arose in the 1990s in marginal (rural, metropolitan and coastal) regions which gave rise to the One Nation phenomenon. There were many opportunities available - but many people in those regions lacked the information and support required to access them - because no arrangements were made to ensure that they were supported by an effective economic system;
    • pressures now seem to be emerging which will require Australia to substantially strengthen its economy, or go backwards. This includes: losing past competitive advantages of ongoing devaluation; the need for future growth to be increasingly driven by exports in a very difficult trading environment; the competitive challenge from Asia in medium technology sectors; and the potential for global economic instability.
  • a breakdown in the ethical basis of interpersonal relationships seems to be a significant factor in poverty (eg noting that 50% of low income families involve sole parents).  However the author's inquiries to an organization seeking to play a 'clearing-house' role in relation to social policy suggested that no work had been done on this issue;
  • there is a global problem of inequality / absolute poverty in addition to that in Australia. This problem has been slow to be resolved and probably contributed to (a) ineffectual global institutions and (b) the potential for conflict. It is likely (see Competing Civilizations) that:
    • current 'good' business practices and economic wisdom can contribute to this by adversely affecting the quality of local economic leadership; and
    • cultural dimensions are important in perpetuating disadvantage (an issue which students of the humanities have preferred to avoid in order to assume that all cultural assumptions are equally valid rather than to evaluate their practical consequences);
  • the latter problems also appear to contribute to indigenous disadvantage in Australia (see The Challenge of Aboriginal Advancement);
  • example of community based programs to address disadvantage are (a) school chaplaincy - which seems to be gaining widespread community support (b) marriage enrichment [?ref] (c) Brotherhood of St Laurence's pre-employment programs for long term unemployed [1] (d) school breakfast programs .... etc
  • resolving the the problem of homelessness and housing stress is complicated because of:
    • the global economic implications of low interest rates which increased home prices;
    • an apparent emerging dependence of economic demand / growth, job creation, governments' tax base and social equity on high asset values;
    • the difficulty in improving affordability through changes to the tax regime;
  • given problems in housing affordability the affluent are increasingly aiding their children's move into the housing market - which could in future perpetuate a social divide based on home ownership.
• those dealing with 'social policy' issues tend to have little knowledge about wealth creation
• populism has increasingly become a feature of policy debates in Australia (ie the development of policy option on the basis of opinions and manipulation of community understanding rather than on the basis of facts and analysis). This follows from (a) the general lack of independent institutions able to formulate competent policy options (b) pressure on universities to undertake more 'commercially' oriented research (c) the dominance of 'post-modern' assumptions in university humanities faculties which view all claims to understanding as merely reflecting the assumptions of elites for their political advantage and (d) elimination of the support to governments which used to be provided by politically independent Public Services. 
• there has also been debate about the nature of the welfare state, in parallel with debates about poverty. For example:
  • welfare state needs to be flexible to cope with (a) aging population - by cutting benefits and increasing taxes (b) effect of tax increases on economic growth [1]
  • the development of a poverty index in Ireland has made more effective action to reduce poverty possible [1];
  • charities seek not only to provide help but also to question the causes of poverty - but are discouraged from doing so (eg in Australia their tax status as charities could be lost) [1, 2];
  • a rights based, service delivery approach to social policy has been criticized by some aboriginal leaders. This world view (involving symbolic reconciliation, obligation-free welfare, skepticism over families, harm minimization, supply-side service strategies) is seen as threat to community-based renewal projects and a continuation of the destruction of aboriginal society [1];
  • people may not be able to depend on welfare without being demeaned and humiliated [1];
  • the welfare state was shifted from its original emphasis on getting people back to the workforce - by churchmen who had lost their congregations and by those stressing equality of outcomes not of opportunity [1];
  • the nature of welfare could be completely changed by mutual obligation emphasis in McClure report. There are no longer intellectuals who argue for social action and against coercion of individuals [1];
  • middle / upper class welfare payments result in significantly higher tax rates than should be necessary and wasteful administration costs [1]
• neither the Federal Government nor the Opposition are likely to favour the 'social action' solution proposed by Senate Committee (and others). Government will tend to favour individual responsibility, while ALP (under Latham) will tend to favour 'communitarian' solution (ie involving support within community itself rather than from government, with government involvement mainly in facilitating such community solutions). The latter 'Middle way' favours government assisting community to cope - which suffers from the fact that the quality of leadership and support which governments may be able to be provide may not be adequate (eg be oriented more to 'appearances' to gain votes rather than to effectiveness). This issues is illustrated further in discussion of limitations in the arrangement in Queensland for Public Service Champions for Aboriginal Communities?

A Proposal

The establishment of a 'Virtual' Roundtable is proposed involving those concerned with practical solutions to poverty. Its function would be to:

• assemble information about the poverty debate;
• promote synthesis of, and communication about, the conclusions emerging from the various different disciplinary and cultural viewpoints from which the problem is approached;
• identify practical options for community or government which are proving effective in various ways in reducing poverty, and make this information widely available;
• enable those concerned with solutions to poverty to collaboratively develop indicative plans for community initiative or public policy.

July 2004

Attachment: Some Themes in the Public Poverty Debate

• a strong economy is not sufficient to ensure against poverty. Problems can arise from deficiencies in: skills / education; resilience; life skills; relational networks; and access to basic social / physical infrastructure. There is a need for prevention / early intervention  [1]
• social problems have resulted from capture of university Arts faculties by counter-cultural radical Left. Potential leaders have been indoctrinated against values of Australia's civilization; education systems promote social change, but leave children functionally illiterate. Problems of the poor should not just be addressed by socialist Left who continue to  ask for money to be thrown at them [1]

• the belief that there is an underclass is mostly wrong and obscures practical ways of helping the disadvantaged [1]

• those suggesting that inequality is increasing in Australia tend to adopt a Marxian style of analysis, and will find their work subject to a more rigorous analysis in future than they have been accustomed to [1];

• a new social contract is needed to reduce inequality [1]

• the welfare state is experiencing problems because churchmen became involved and saw virtue in welfare rather than in work, while the new Left sought equality of outcomes rather than of opportunities [1];

• Australia is seen to have become addicted to welfare - and this harms both welfare recipients and broader community. The welfare lobby has resisted reform because it seems more welfare spending as sign of civilized, rather than failing, society. [1]

• reformers should aim to improve people's lives by getting them off welfare [1];

• 100,000 people are homeless, while many others suffer housing stress. A large public housing program is needed as well as removal of tax arrangements which have encouraged housing price explosion (ie tax deductibility of losses and concessional capital gains tax rates) which has created a social divide in Australia [1]
• Australia is said to face a huge problem of poverty - but investigating the claim is discouraged. 4m are said to suffer hardship (an unsupported figure). Radical political solutions are seen to be needed. Case is based on discredited Senate inquiry - which was dominated by Opposition senators and received submissions mainly from groups favouring radical social change. Report claims that prosperity has been captured by few at expense of many - and low income families are seen as left behind (though their income rose 8% between 1994 and 2000). Poverty is said to lead to long term financial hardship - but 60% of those under poverty line in 2001 had moved above it by 2002. Report suggests 1m households are in poverty - and working poor are said to be increasing. But even using discredited Henderson poverty line this claim fails. Federal minimum award wage is above poverty line. Thus poverty affects those with no full time jobs. The claim that 4m are in poverty comes from Senate inquiry which used unreliable data. Department of Family and Community Services found 3% suffer real hardship - often due to the way money is spent not lack of money. Solution is helping families cope with their money and cajoling  jobless back into workforce. Welfare activists want higher welfare benefits, higher taxes and more regulation - which would give them powerful place in government [1]
• an underclass has to struggle to escape deprivation. A second generation of welfare recipients has now hit flexible job market. 1/5 of families with children are jobless. Half jobless families involved sole parents. Some argued that culture of dependency needs to be broken - by requiring those on welfare to look for work, reducing regulations and changing tax system encourage work. Tax credits are also suggested for those moving from welfare to work. But little is paid for unskilled work, and employment is casual. Though unemployment is down officially, people are counted as employed if they do 1 hour's work. In 2001, 60% of poorest 10% improved their position but only 20% entered wealthier part of population. Bottom 10% includes people disguising their incomes. Tough welfare rules force people to look for work - but are recycled between welfare and part-time work. [1]
• an underclass has become concentrated in particular regions because of high housing costs - in some of which they have few job opportunities  [1];
• Centrelink transitional arrangements make it hard for poor to find work [1];
• tax breaks for the wealthy (eg negative gearing of property) are at the expense of the poor [1]
  • [Comment: with a different tax regime, rents would be likely to be much higher or a large public housing program would have to be developed];
• a Senate Committee on poverty (which reported in early 2004):
  • found 3.5m live in poverty, and that 20% of households have less than $400pw. Rising economic indicators have been accompanied by: inequality; poverty; homelessness; housing stress; long term unemployment; child abuse and suicide. Blame is placed on: labour market deregulation, long term unemployment and inadequate welfare programs. It proposed a Commission to develop a national poverty strategy. A minority view supported: participation, self-reliance and mutual responsibility - as well as assisting those facing hardship [1];
  • found that millions more will sink into poverty unless issue is taken seriously. 5m households live on < $400 pw - including some with jobs. Flaws in Job Network and inadequate welfare were blamed. The combined effect of tax and welfare systems provide strong disincentive to return to work. But while poverty is becoming more entrenched and intractable, Commonwealth is abrogating responsibility. Committee suggested: removing poverty traps; control on high-interest money lenders; and more public housing; means-tested job-seeker allowance; higher minimum wages; paid work-experience. [1]
  • suggested a crackdown on the credit industry; a national taskforce to combat poverty; funding schools to provide breakfasts to disadvantaged children; easier access to Youth Allowance; rent assistance to university students; overhaul of youth welfare system. Increased casual work is seen as responsible for new generation of working poor. The true extent of unemployment is hidden by ignoring those forced into part time work [1].
  • was seen as dominated by ALP which wants to establish poverty programs, while government believes that poor have become richer, even though inequality increased [1];
  • was seen as politically biased, and recommending heavy government spending. Its facts are wrong (eg concluding that 3.5m are poor using discredited Henderson Poverty Line measure and data on living standards of poorest which ABS says is unreliable because of under reporting of income) and using facts selectively. It says that increased income has been captured by few at expense of many, while income of all groups increased. Poverty was said to be associated with low pay - a view Smith Family data disproved [1]
• homelessness is a significant problem [1]
• strong economic growth has been associated with increased inequality of income and even greater inequality of wealth [1];
• a 'toxic' environment for children (related to family breakdown, rampant individualism and inequality) has been seen to contribute to: youth suicides; ADHD; risk taking; depression; autism; cerebral palsy; crime; insecure neighbourhoods; and drug-taking Moreover: this is associated with poor quality of child care - partly due to lack of support for working mothers, and the ending of public maternal and child welfare initiatives. A large blow-out in welfare costs is expected because many young people from dysfunctional families will depend on welfare, and perpetuate their problems with their own children [1]
• income of top 5% of income earners has grown 5 times faster than average incomes [1];
• lower and middle income earners suffered a decline in real incomes [1] ;
  • [Comment: there appeared to be poor methodology in part of this analysis]
• wealth is increasingly concentrated. 5% of households have 60% of wealth. 3m people live in poverty. 22% of families with children have no breadwinner. Many find it impossible to get a job. The social security system has a stigmatizing and negative effect [1];
• an entrenched underclass of young families that have missed out on jobs is developing [1];
• More casual jobs and limited bargaining power of low skill workers have created a new working poor [1]
• the only solution to homelessness, according to state Premiers, is more federal spending on public housing [1];
• government might save money by housing homeless or placing social workers in schools to deal with homelessness given the cost of support services and lost future earnings [1];
• there is little interest in poverty, inequality or unemployment. The poor no longer get a hand-up, and the unemployed are seen as dole-bludgers. Inequality and welfare dependency have increased. The poor see themselves as living on the edge and ignored. Poverty drives people to despair, sickness, disease, drugs, disaster, death.  Centrelink is hostile to welfare recipients. Poverty degrades people generally. Though bottom 20% are better off health, education and other services are now scarcer and more expensive [1].
• 21% of households earn less than $400pw and many are desperate. But Australians do not believe in poverty. The nature of poverty has changed due to collapse in full time jobs. This is hard to communicate to public. Education and trades used to provide social mobility. But now the ladder up has disappeared. The poor are blocked from a one generation progress into middle class. Country children can't now get good enough marks to get into university - because of poor schools. Information is important currency, but poor can't do a Google search. Public education is now seen as second best. Government spending on education has fallen, and is low on child care (the front end of education, health, crime prevention and better parenting). In 1990s unemployment has declined and welfare increased - as jobs growth has been mainly part time. If all had full-time jobs, poverty would be minimized. There are jobs - but not where the people who need them are. The Jobs Network has had to be bailed out, and unemployed blamed for failing to find work. [1]  
• welfare dependence has grown over the past two decades - with 1/3 of working age now on some benefits. 1/4 received welfare in 1982. This is now about 35%. Welfare reliance is becoming deeper in groups already reliant on welfare [1]
• joblessness is main cause of poverty - so moving from welfare to work is the solution. But for 40 years the opposite has been done. Adults whose main income is welfare increased from 3% in 1960s to 14%. Single parent benefits (which 6% of women rely on) are a major factor. Most countries do not allow single parents to remain on welfare long term. The longer they rely on welfare the worse the outcomes for themselves and their children. Long periods on welfare increase risk of long term poverty. They erode skills and self-confidence [1]
• politics is to blame for homelessness problem. The federal government spends $21bn annually on housing - but just increases individual wealth rather than to solve affordability crisis. There is not enough low cost housing. Thousands face homelessness - and once homeless it is impossible to prepare for work, study or sometimes even to live. Governments need to spend money on easing homelessness [1]
• despite strong economic performance, unemployment remains high and jobless households have increased which adversely affects children [1];
• Australia is not a classless society - according to a new report on the chances of people from lower socio-economic backgrounds going to university. The attitudes of students (and some other barriers) are keeping them out [1]
• it should not be assumed that poverty is widespread and getting worse, and that the best solution is to increase taxes and redistribute income. Poverty estimates (a) are based on bad data (b) do not consider how people's incomes vary throughout life. Also income redistribution is counter-productive. After 40 years welfare dependency has escalated, and poverty has remained. If continued welfare dependency and the disincentives of high taxation would remain. A sell-help strategy based on work (a) solves problem of poor without confiscating other's income and (b) promotes independence [1];
• more schools' investment is needed to reverse growing gap between rich and poor. The widening gap was exacerbated by unequal access to education. Students whose parents can afford private schools do better (probably because of more supportive home environment and better teaching facilities [1]
  • Comment:  the debate about how values may affect school performance also needs to be recognized in this regard.
• suggestions that university fees have reduced university attendance are wrong. Low income people are now twice as likely to attend as in 1980 (given more university places, a lack of jobs for teenagers and more professional jobs). Poor year 12 results are the main obstacle to university study [1]
• Wealth inequality is increasing and rivals that in the US / UK. Galbraith's Affluent Society argued that capitalism's emphasis on production required shaping values to favour consumption. Up to 25% of people have now shifted their world views away from materialism (which had bred dissatisfaction). [1]
• Middle income earners have slid back in relative income over the past decade - and professional middle classes can no longer afford to live in the better suburbs they used to aspire to [1]
• changes to tax transfer system are more effective than wage rises in aiding low-income families. Restraining wage rises it would help reduce unemployment, and increase the incentive to move from welfare to work. Half low-wage workers gain the skills that lead to higher paying jobs. The industrial relations commission needs to endorse this. Unemployment is linked to low self-esteem / social problems. About 1/6 of children now live in jobless households. Australia should look at new international practices (eg tax credits to boost take-home pay while restraining wage costs). [1] 
• all agree that inequality is increasing. However there are adverse side effects (eg increased crime; educational achievement - where private schools dominate in good results; health inequality). However the main problem is disappearance of middle class [1];
• measure of poverty used by Smith Family implies rising poverty (even though all incomes are rising). Getting jobs into households is key to reducing poverty - so tax / welfare disincentives to work are part of problem [1];
• the way in which Smith Family define poverty means that income increases by higher earners imply increased poverty - even though income of poorest is increasing [1];
• living standards of many fell though economy grew 40% in 1990s. 1 in 8 lack enough for basic needs. Past emphasis on getting economy right has stressed cutting costs, and reduced emphasis in other areas. A report identified problems of wealth inequality; of overwork and under-work; reducing indigenous life expectancy. Recommendations related to tax avoidance; increasing welfare; giving priority to environmental problems - to avoid higher costs later; educational; a world competition and consumer commission to counterbalance the WTO [1]
• the numbers where experience sustained poverty in Australia is much smaller that the numbers who experience this in any given year - ie for most this condition is transient [1]